Author: Thomas Clouse






Bank of China: Foreign investors cashing in stakes


China will offer tax cuts and subsidies to spur its steel and automotive industries, the country’s State Council announced on January 14. The government will limit expansion of steel-making capacity and cut taxes on sales of vehicles with small engines while encouraging consolidation across both industries. Farmers will also receive subsidies to upgrade farm vehicles and purchase small-engine automobiles, according to the statement. China’s automobile sales grew by 6.7% in 2008, marking the first single-digit growth rate for the industry in at least five years, and China’s overall manufacturing output fell for the third straight month according to the Purchase Manager Index (PMI), published jointly by the China Federation of Logistics and Purchasing and the National Bureau of Statistics.

China recorded a 0.4% average year-on-year decline in real estate prices in December, the first fall in average prices since the government began publishing the monthly report in 2005. The survey tracked prices in 70 medium-size and large cities. The price drop was especially severe in the southeastern cities of Guangzhou and Shenzhen. The government has lowered taxes, interest rates and down-payment requirements to stimulate the real estate market and is considering opening real estate investment trusts (REITs) to increase financing options for developers. The government is also likely to invest in lower- and middle-income housing developments as part of its 4 trillion yuan ($585 billion) stimulus plan.

Chinese leaders have updated their development plan for China’s manufacturing and export-oriented southeastern province of Guangdong. The updated plan aims to transform the area’s economic growth driver from low-cost manufacturing to high-tech development and heavy industry. For decades, Guangdong province has provided the world with low-cost manufactured products. Many of the companies making these produces have closed or relocated in the past year as rising labor costs, the appreciating Chinese yuan and cooling export markets have hit profits.

Several foreign strategic investors have trimmed down their ownership stakes in China’s biggest banks in recent weeks, with Bank of China (BOC) feeling the strongest effects. The Royal Bank of Scotland, Bank of America and UBS all sold BOC shares in January. Among its domestic competitors, Bank of China was most heavily hit by US mortgage lending losses, and the bank’s Hong Kong stock price dropped more than 40% in 2008. BOC is not alone, however, with Bank of America selling $2.8 billion in shares in China Construction Bank (CCB).

Thomas Clouse