Category: China

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With a Rail Merger, China Is Forging an Industrial Giant Second Only to GE

By Clement Tan

June 8 (Bloomberg) — China is forging the country’s answer to General Electric, combining two state-owned railroad equipment makers to create the world’s second-largest industrial company. And the giant isn’t planning to stay at home.

The merger of CSR Corp. and China CNR Corp. is now complete, producing a nearly $130-billion behemoth called CRRC Corp. with economies of scale that will allow China to compete even more aggressively for overseas rail deals. Shares of CRRC began trading Monday under CSR’s old tickers, gaining 4.5 percent to HK$15.68 in Hong Kong and rising by the daily limit of 10 percent to 32.40 yuan in Shanghai.

China is using its state-owned rail firms not just to win lucrative contracts but to project political influence abroad. CRRC will dwarf competitors like Germany’s Siemens AG and France’s Alstom SA as it targets emerging markets in Africa, Latin America and Southeast Asia — often with sales pitches from Premier Li Keqiang — while bidding for high-profile contracts in the developed world.

“It used to be that CSR and CNR were competing against Bombardier and Alstom; now it has become China versus everybody else,” said Alexious Lee, head of industrials research for CLSA Ltd. in Hong Kong. “China’s products may not boast high-end specifications, but they provide value for money.”

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Made in Chindia: Two Paths Toward Industrialization

By Clement Tan and Siddharth Philip

June 1 (Bloomberg) — It may sound like another example of rivalry between the world’s most populous nations.

The Communist Party recently announced a Made in China program aimed at transforming its manufacturing sector, months after Prime Minister Narendra Modi unveiled his Make in India plan, also targeted at manufacturing. Look closer though and the signs point to a broad shift that could draw the two Asian giants closer economically in the years ahead.

Made in China 2025 is a 10-year campaign to push the country beyond labor-intensive work into more sophisticated sectors, from robotics to aerospace. Modi’s goal is to bring basic manufacturing to an economy that needs more decent-paying jobs. In short, China has set its sights on rivaling Germany or Japan, while India will happily settle for where China is now.

“Whatever industries China will be shedding over the years, India can capture,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. “The advanced guys will find that they finally have to compete head to head with China and I think it’s going to be a big, big headache for these industrialized countries.”

Besides sheer scale, China is years, if not decades ahead of its neighbor. According to International Monetary Fund and World Bank data, China’s gross domestic product per capita is almost five times that of India at $7,600 and its manufacturing sector is 10 times bigger at about $3 trillion. Still, China is losing workers by the millions, similar to what Japan experienced in the late 1990s.

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How to Become an Airline Millionaire, Chinese Style

By Clement Tan and Jill Mao

May 26 (Bloomberg) — Two decades ago, the Wang brothers sold flavored milk and yogurt to children in China. Last week, they sold shares in their airline in an IPO to become millionaires.

Their journey from a poor fishing village to the largest shareholders of budget carrier Juneyao Airlines Co., which begins trading in Shanghai this week, is a success story that mirrors China’s growth. The company is benefiting from a government plan to encourage entrepreneurship in an air-travel market that’s set to become the world’s largest over the next two decades and is currently dominated by state-owned airlines.

At its offer price, Juneyao Air will be valued at 6.35 billion yuan ($1 billion). That’s about a tenth of the market value of Spring Airlines Co., whose stock has surged over 600 percent since a January listing. Every one of the 147 mainland initial public offerings that began trading over the past year has jumped the maximum 44 percent on its first day of trading.

“Certainly, Spring Air’s crazy surge, which outperformed even the broader bull market, would be on the minds of many people,” said Zhang Qi, a Shanghai-based analyst with Haitong Securities Co. “With oil prices at low levels, airlines that are more efficiently run would make an attractive investment proposition.”

Juneyao Air, whose Chinese name means lucky, is selling 68 million shares at 11.18 yuan apiece, raising 760 million yuan from the offering. The stock begins trading May 27.

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Asia’s Richest Man Starts 2015 With $45 Billion in Deals

By Clement Tan

Jan. 23 (Bloomberg) — For Li Ka-shing, Asia’s richest man, 2015 is turning out to be a busy year.

Li’s Hutchison Whampoa Ltd. said today it’s in exclusive talks to buy U.K. wireless carrier O2 for as much as 10.25 billion pounds ($15 billion), three days after Li-controlled units agreed to purchase a British rail business for more than 1 billion pounds. Two weeks ago, the octogenarian announced his biggest deal yet: the $20 billion-plus merger of Cheung Kong Holdings Ltd. and Hutchison Whampoa, his two main companies.

Li, 86, isn’t done. One of his companies is among bidders for Fortum Oyj’s Swedish electricity grid, a sale people familiar with the matter have estimated could fetch more than $5 billion, and more deals may be on their way. The flurry of activity comes as the tycoon, so revered by Hong Kong’s media they call him “Superman,” reorganizes his business empire before handing over the reins to his eldest son, Victor Li.

“The profile of the company is slowly changing to becoming one where the regulated utility type of cash flow is becoming more significant,” said Kalai Pillay, head of Asia-Pacific Industrials research at Fitch Ratings in Singapore. “They will be looking at things that are more long term cash.”

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Graveyard for Jets Coming in China’s Icy City as Orders Boom

By Clement Tan

Dec. 18 (Bloomberg) — China, poised to become the world’s biggest buyer of new planes, also wants to build a graveyard for old aircraft.

China Aircraft Leasing Group Holdings Ltd. is investing $2 billion to build the country’s largest plane disassembly plant in Harbin — known as China’s “Ice City” — some 750 miles northeast of Beijing. The facility starts operation in 2017 and aims to tear apart 50 jets annually after five years, Chief Executive Officer Mike Poon said at a press conference in Hong Kong today.

“The headlines for aircraft in Asia are about new deliveries, but there will be significant retirement of old aircraft,” said Will Horton, a Hong Kong-based analyst at the CAPA Centre for Aviation. “You need a robust system to catalog the parts to sell them in foreign markets.”

China’s foray into the field comes as Boeing Co., the world’s largest plane maker, also is exploring ways to wring money from the end of a jetliner’s life. With the value of parts potentially outweighing an old jet’s resale price, the $3.2 billion a year market for used aircraft parts is growing as companies discard planes well before the end of their 30-year life cycles.

The scrap-aircraft industry is concentrated mainly in the U.S., a mix of closely held operators such as Aircraft Demolition LLC — which works out of Arizona’s Pinal Airpark, known for its open-air storage — and publicly traded companies like AAR Corp.

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China to Debut Fighter Jet as U.S. Brass Attends Airshow

By Clement Tan

Nov. 11 (Bloomberg) — China’s Air Force’s newest fighter jet made its debut at an air show attended by senior U.S. officers in an effort to showcase its rising military clout.

The J-31 stealth fighter gave a public demonstration of its capabilities at the Zhuhai Air Show that started today in Guangdong province, according to state broadcaster CCTV and the official Xinhua News Agency. The airshow coincides with a meeting in Beijing of leaders of the Asia-Pacific Economic Cooperation forum, including U.S. President Barack Obama.

Manufactured by the Shenyang subsidiary of Aviation Industry Corp of China, also known as AVIC, the J-31 is a test of the country’s ability to deliver cutting-edge defense technology. Still largely-shrouded in secrecy, the production of the fighter could add heft to China’s sea and air expansion in the region and its push-back against decades of U.S. economic and military dominance.

“It appears to be a fifth-generation fighter and so far of course only the United States has been able to produce those,” said Richard Bitzinger, a senior fellow at the S. Rajaratnam School of International Studies in Singapore. “So in a sense, it’s kind of impressive on a superficial level.”

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China Merging Trainmakers Adds to Pressure on Siemens

By Alex Webb and Clement Tan

Oct. 29 (Bloomberg) — China’s plan to merge its two biggest trainmakers may allow the country to win more overseas orders with improved and cheaper offerings, increasing pressure on rivals including Siemens AG, Alstom SA and Bombardier Inc.

China’s State Council has ordered the merger of China Northern Locomotive & Rolling Stock Industry Group Corp. and southern counterpart CSR Group into one company, government officials involved in the transaction said yesterday. The pair are already the world’s No. 1 and No. 2 in rail equipment, each getting more than 90 percent of their sales from China.

“This would create a very strong global competitor,” said Ingo-Martin Schachel, a Frankfurt-based Commerzbank AG analyst who rates Siemens shares hold. “It would heighten the need for consolidation among the western manufacturers.”

The increased competition from China comes at a time when manufacturers such as Germany’s Siemens and France’s Alstom are facing constrained public spending in their home markets. China is competing aggressively for overseas rail projects, targeting emerging markets such as Africa, Eastern Europe, Latin America and Southeast Asia. Premier Li Keqiang has touted the country’s rail equipment, engineering and construction companies during overseas trips, signing several deals along the way.

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Movie Stars Swap Limos for Subway in Hong Kong Protest

By Shai Oster and Clement Tan

Oct. 13 (Bloomberg) — Hong Kong’s commuters are sharing crowded subway cars with some rarefied company these days: movie stars.

As pro-democracy protests enter their third week, blocking key roads and leaving swathes of the financial center mired in gridlock, action stars, Canto-pop singers and teen heartthrobs are ditching their Lamborghinis and chauffeur-driven Rolls Royces for mass transit.

Soon after students seized the streets Sept. 26 in a campaign for freer elections, Hong Kong’s cell phone-snappers began capturing some of this entertainment capital’s most famous faces among the huddled masses on the Mass Transit Railway, or MTR, the city’s subway.

There — in goatee, baggy sweatpants and low-slung baseball cap — is “Crouching Tiger, Hidden Dragon” star Chow Yun Fat. There’s television star Jessica Hsuan stepping out of the small screen and through the subway doors. Here’s matinee idol Aaron Kwok — he sings! he dances! his hair! — posting a selfie to commemorate his first subway ride in a decade.

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Pockets of Hong Kong Protesters May Defy Student Leaders

By Clement Tan, Cathy Chan and Jonathan Browning

Oct. 7 (Bloomberg) — With Hong Kong’s student-led protests dwindling and rally leaders in talks to end their 12-day campaign, a small number of demonstrators are threatening to ignore any call to abandon their posts.

Pro-democracy protesters still on the streets of central Hong Kong increasingly don’t answer to the leaders from various student groups. As people drift back to school and jobs, those who remain pose a challenge to police under pressure to remove blockades and open roadways.

“These people come on their own, they make their own mind up, they don’t respond to anyone’s appeals,” said Joseph Cheng, a political science professor at City University of Hong Kong and democracy advocate. “The police understand this very well,” he said, and know the protesters are “unpredictable.”

The resolve of some remaining demonstrators may complicate efforts to bring the standoff to a peaceful end. Any attempt to remove them by force risks backfiring, as police saw when the use of tear gas on Sept. 28 brought thousands more onto the streets. When gangs attacked demonstrators at the Mong Kok and Causeway Bay sites on Oct. 3, the protests swelled anew.

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Made-in-China Drones Beam Hong Kong Protests to Beijing & Beyond

By Brian Bremner and Clement Tan

Oct. 1 (Bloomberg) — Hong Kong’s street protests, pepper spray and tear gas have mesmerized TV and Internet audiences worldwide. Beaming them are drones with a “Made in China” tag.

The Apple Daily newspaper captured the breadth of pro-democracy demonstrations in Hong Kong using a pair of Phantom 2 drones, made by DJI Innovations, a company based in the Chinese technology hub of Shenzhen, an hour’s train ride from the former British colony. The drones can capture footage no cameraman can get on the ground, giving the world a panoramic view of the protests.

The aerial cinematography has elicited social media commentary critical of China’s efforts to have candidates for Hong Kong chief executive vetted by a committee that protesters contend answers to Chinese leadership. Praised under different circumstances earlier by people including Sequoia Capital Chairman Michael Moritz as a sign of China’s growing prowess in technology, the drones are a symbol of modern media coverage as much as a consternation for those who want to control the media.

“With these drones we now have a bird’s eye view that photographers cannot reach or produce,” said Leo Cheng, Apple Daily’s photography director.

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