Sanofi logo at the company’s headquarters during the annual results news conference in Paris, France, February 4, 2022. REUTERS/Benoit Tessier/File Photo
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Aug 5 (Reuters) – Innovent Biologics Inc (1801.HK) said on Friday Paris-based Sanofi SA (SASY.PA) would invest HK$2.42 billion ($307.88 million) in the biopharmaceutical group to jointly develop two cancer drugs in China.
The all-cash investment by Sanofi unit Sanofi Foreign Participations B.V. will be at a price of HK$42.42 per Innovent share, representing a premium of about 29% to the stock’s last close.
Innovent said it had also entered into a licence agreement with Sanofi Foreign Participations for the commercialisation of the two oncology medicines.
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The Jiangsu, China-based company said SAR408701, or tusamitamab ravtansine, would be used to treat lung, gastric and other cancers, while SAR444245, or non-alpha IL-2, was under phase-2 studies for skin cancer, head and neck tumours, among others.
Sanofi will receive up to 140 million euros ($143.44 million) in milestone payments and royalties on net sales of the two drugs in China upon new drug application approvals, Innovent said.
($1 = 7.8496 Hong Kong dollars)
($1 = 0.9760 euros)
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Reporting by Upasana Singh in Bengaluru; Editing by Subhranshu Sahu
Our Standards: The Thomson Reuters Trust Principles.
Chinese and U.S. flags flutter outside a company building in Shanghai, China April 14, 2021. REUTERS/Aly Song
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WASHINGTON, Aug 2 (Reuters) – Chinese investors roughly doubled the number of applications they made last year seeking U.S. regulatory clearance for proposed stakes in American companies, according to a new Treasury Department report released on Tuesday.
The annual report for the Committee on Foreign Investment in the United States (CFIUS), first reported by Reuters, shows that Chinese investors filed 44 so-called “covered notices” seeking green lights for their deals in U.S. President Joe Biden’s first year in office compared with 17 such filings in 2020.
The 2021 figures for China included filings from Hong Kong-based investors, while the 2020 numbers place Hong Kong’s three such filings into a separate category, due to a shift in U.S. policy.
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Most foreigners seeking to take even non-controlling stakes in U.S. companies must seek approval from CFIUS, a powerful Treasury-led committee that reviews transactions for national security concerns and has the power to block them.
CFIUS in 2021 reviewed a record 272 “covered notices” for transaction approvals, up sharply from 187 in 2020 and 236 in 2019, the report showed, with the greatest concentration in finance, information and services and manufacturing.
CFIUS opened 130 investigations, compared with 88 last year. The report said that 72 transaction notices were withdrawn, with 63 refiled with changes aimed at mitigating any concerns. Treasury does not discuss specific deals or investigations.
The increase in filings largely mirrored an increased market appetite for deals as the pandemic eased last year, said Nicholas Klein, a lawyer at DLA Piper who works on CFIUS cases.
“The big surprise is Chinese investors’ willingness to test the waters with CFIUS with over twice as many filings in 2021 compared to 2020,” Klein said.
China also made up the largest share of “covered notices” among all countries, accounting for 16.5% of the total, followed by Canada and Japan at 10.3% and 9.6%, respectively.
The committee, whose powers were dramatically expanded under a 2018 law, was used by former President Donald Trump to upend many Chinese investments in the United States.
“The willingness to negotiate robust mitigation is an indication of the Biden administration’s more nuanced approach to the balance between addressing national security risks and allowing foreign investment, including from China,” Klein added.
But Chinese investors only sought 10 investments in critical sectors including technology, infrastructure and data businesses in 2021, behind Britain, Japan, South Korea, the Cayman Islands and Israel.
Treasury Assistant Secretary for Investment Security Paul Rosen said in a statement that the department was taking “important and necessary measures to safeguard national security while also quickly clearing benign investments.”
He said CFIUS also is proactively identifying more non-notified transactions, including complex deals involving data.
Before the 2018 law known as FIRRMA required filings and reviews for more types of transactions, including minority stake purchases by foreigners, China accounted for most investments in American critical technology in the 2016-2017 period, accounting for more than a fifth of the total.
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Editing by Sam Holmes and Marguerita Choy
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Formula One F1 – Hungarian Grand Prix – Hungaroring, Budapest, Hungary – July 30, 2022 Williams’ Nicholas Latifi in action leaves a trail of spray due to rain during practice REUTERS/Bernadett Szabo
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LONDON/HONG KONG, Aug 2 (Reuters) – Hong Kong-based billionaire Calvin Lo is considering putting more money into Formula One following his connection with F1 team Williams, Lo told Reuters in an interview, adding other Asian investors were also interested in investing in the sport.
Lo, chief executive of insurance broker RE Lee International, confirmed he has “some sort of exposure” to Williams, following the U.S.-based private investment firm Dorilton Capital’s purchase of the team in 2020. He declined to give more detail, citing non-disclosure agreements.
Dorilton Capital makes investments for Lo, according to media reports.
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“A lot of people, me included, are still looking to other teams, other opportunities, because…there are consistently good teams but they are not able to come up with the right car,” Lo said.
“In Asia right now, there is a lot of liquidity sitting around, it’s mind-blowing. I wouldn’t be surprised if the next news you hear…is maybe some consortium in Asia investing into some other teams.”
Lo did not name the teams attracting investor interest.
Formula One currently has 10 teams, with any new entrant that is accepted having to pay a $200 million fee to be divided among the existing teams.
Existing teams include Ferrari-powered Haas, whose title sponsor was Belarus-born chemicals billionaire Dmitry Mazepin until he was sanctioned by the European Union in March, following Russia’s invasion of Ukraine. Haas declined to comment on investment discussions.
Williams has suffered financially as a Formula One car constructor, because unlike manufacturer-owned rivals, there is no road car business behind it, Lo said.
Williams posted a loss in 2019, the last year before its sale.
PANDEMIC INSURANCE BOOST
RE Lee operates in Hong Kong and internationally, arranging life insurance polices for ultra-high net worth individuals through major insurers such as Prudential (PRU.L) and Manulife (MFC.TO).
The broking firm has already arranged policies with premiums totalling $1.2 billion in the first half, equivalent to its business for the whole of 2021, which was itself a record year, Lo said.
COVID-19 has increased demand for life insurance for the super-rich, as they become more aware of their mortality.
“Whenever there’s some sort of pandemic disaster, life insurance generally does all right” Lo said. “Demand for our services is huge.”
The previous loose monetary environment has left the super-wealthy with ample cash to deploy, and life insurance helps to ease the tax burden from the old to new generation, he said.
Pay-outs on the policies give rich families access to ready cash which can be used to pay inheritance tax bills. The policies can cost hundreds of millions of dollars.
Lo is looking to set up an office in London this year to service the 8-9% of his clients who have a UK presence.
Lo also runs a wealth management business and is looking into buying commercial property in London, though he said it was not without risk.
“Property prices in the UK are expensive, some would argue severely overvalued,” he said, adding that “it’s almost hard to value it, every property is so old”.
Lo bought the five-star Mandarin Oriental Taipei for $1.2 billion in 2018 and is considering similar investments in London.
“If you have liquidity…it’s maybe something to look at.”
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Additional reporting by Alan Baldwin in London; Editing by Emelia Sithole-Matarise
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HONG KONG, July 29 (Reuters) – China Evergrande Group (3333.HK) will offer asset packages that may include shares in its two overseas-listed businesses as a sweetener for restructuring offshore debt, the developer said, as a stifling liquidity crisis in the property sector continues.
Evergrande’s restructuring proposal came on Friday as China’s property sector, a key pillar for the economy, lurches from one crisis to another. The sector has seen a string of debt defaults by cash-squeezed developers. read more
Here is a timeline of events of how Evergrande’s debt crisis unfolded:
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August 2020
Regulators meet with Evergrande and other developers to introduce caps for three debt ratios in a policy dubbed the “three red lines”.
Evergrande asks the Guangdong provincial government to approve a Shenzhen backdoor listing of most of the property assets of flagship unit Hengda Real Estate Group, saying it could otherwise face a cash crunch.
November 2020
Evergrande terminates the Shenzhen backdoor listing plan.
Evergrande Property Services Group (6666.HK) Hong Kong IPO raises $1.8 billion.
January 2021
China Evergrande New Energy Vehicle Group Ltd (0708.HK), Evergrande’s electric vehicle unit, raises $3.4 billion by bringing in six new investors.
March 2021
Evergrande sells a $2.1 billion stake in online real estate and automobile marketplace Fangchebao in a pre-IPO deal.
June 2021
Evergrande says it will sell a $386 million stake in peer China Calxon Group Co Ltd (000918.SZ).
It meets one criterion of the ‘three red lines’, cutting interest-bearing debt to around 570 billion yuan from 716.5 billion yuan six months earlier.
Some commercial paper holders say they have not received payments from Evergrande.
July 2021
A court orders freezing a 132 million yuan bank deposit of Evergrande at the request of China Guangfa Bank Co Ltd over a loan extended to the developer.
Some banks in Hong Kong decline to extend new loans to buyers of two of Evergrande’s uncompleted residential projects.
August 2021
Evergrande agrees to sell stakes in internet unit HengTen Networks Group Ltd (0136.HK) worth HK$3.25 billion.
The Guangzhou Intermediate People’s Court centralises lawsuits against Evergrande nationwide, sources say.
Many Evergrande projects across the country halt construction due to overdue payments.
Hui Ka Yan steps down as chairman of flagship unit Hengda Real Estate.
China’s central bank and banking watchdog summon senior executives and issue a rare warning that Evergrande must reduce its debt risk and prioritise stability.
Evergrande warns of liquidity and default risks if it fails to resume construction, dispose of assets and renew loans.
September 2021
Evergrande says online speculation about bankruptcy and restructuring is “totally untrue” but acknowledges “unprecedented difficulties”.
It misses two offshore bond coupon payments totalling $131 million. The payments have a grace period of 30 days.
Evergrande engages financial advisers to examine options, warning of cross-default risks amid plunging property sales.
Evergrande says it will raise 9.99 billion yuan selling Shengjing Bank Co Ltd (2066.HK) shares.
October 2021
Advisers of some Evergrande dollar bondholders say they want more information and transparency. read more
Hong Kong’s audit regulator says it is investigating Evergrande’s 2020 accounts and audit by PwC.
China’s vice premier, central bank and banking and securities watchdogs seek to reassure markets that spillover effects on the banking system and real estate sector from Evergrande’s debt problems are controllable.
Evergrande abandons plans to sell a $2.6 billion stake in Evergrande Property Services to rival Hopson Development Holdings Ltd (0754.HK).
November 2021
Evergrande once again averts a destabilising default with a last-minute bond payment.
Evergrande sells entire stake in HengTen at steep discount for $273.5 million.
A government body takes over Evergrande’s soccer stadium with a view to selling it, Reuters reports.
Chairman Hui sells 1.2 billion shares worth a total of HK$2.68 billion, lowering his stake in Evergrande to 67.9% from 77%.
December 2021
China’s Guangdong province summons Chairman Hui after the developer said there was “no guarantee” it would have enough funds to meet debt repayments, while regulators sought to reassure markets.
Evergrande sets up a risk management committee.
Evergrande does not pay a coupon worth $82.5 million by the end of the grace period, triggering cross-default of its $19 billion offshore bonds.
January 2022
Southern city of Danzhou in Hainan province orders 39 buildings of Evergrande at a resort development be demolished.
Retail investors in Evergrande’s wealth management products hold protests at its offices around the country, demanding repayment of their overdue investments.
Hengda Real Estate seeks onshore bondholders’ approval to extend bond payment deadline for the first time. They reach agreement to delay payments for a 4.5 billion yuan bond for six months.
A key group of Evergrande’s international creditors threatens to take action if Evergrande shows no urgency to resolve the default.
Evergrande begins talks with offshore creditors, adding it will issue a preliminary restructuring plan within six months.
Oaktree Capital Management appoints receivers for a plot of Evergrande’s rural land in Hong Kong.
February, 2022
Evergrande sells stakes in four unfinished projects to state-owned companies, recovering around 1.95 billion yuan of capital and settling around 7 billion yuan of liabilities in the projects.
March, 2022
Evergrande suspends trading in its shares, citing inability to publish audited results before March 31 and an investigation of the property management arm in which 13.4 billion yuan of deposits were seized by banks.
Evergrande says to publish restructuring plan by the end of July.
June, 2022
An investor in Fangchebao files a winding-up petition against Evergrande for its failure to honour a share repurchase agreement.
July, 2022
Onshore bondholders, for the first time, reject Evergrande’s proposal to postpone repayment of a bond, worth 4.5 billion yuan.
Evergrande CEO and CFO step down as an internal investigation finds 13.4 billion yuan deposits in the property management unit were used as collateral for pledge guarantees to facilitate financing by the group.
Evergrande is selling its Hong Kong headquarters via a tender.
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Reporting by Clare Jim and Xie Yu; Editing by Muralikumar Anantharaman and Elaine Hardcastle
Our Standards: The Thomson Reuters Trust Principles.
A general view of residential properties at the Balqis Residence on Palm Jumeirah in Dubai, United Arab Emirates, March 25, 2022. Picture taken March 25, 2022. REUTERS/Christopher Pike
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DUBAI, July 28 (Reuters) – Dubai’s red-hot property market surged in the first half of the year as investors piled in, while Russians were among the top five buyers as the emirate benefits from an influx of wealth in the wake of Western sanctions.
The first half saw residential real estate transaction volumes up 60% with an 85% rise in the value of property sold, property consultancy Betterhomes said in a report.
The top buyers were from India, the United Kingdom, Italy, Russia and France, in that order, followed by Canada, the United Arab Emirates, Pakistan and Egypt tied in eighth place, Lebanon and China.
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Demand was boosted by geopolitical instability in Europe and mortgage buyers looking to get in ahead of well-telegraphed interest rate hikes as central banks tackle inflation, Betterhomes said.
Reuters reported earlier this year that Russians were pouring money into Dubai real estate as they seek a financial haven in the wake of Western sanctions on Moscow over its invasion of Ukraine. read more
“The market has faced growing headwinds in the form of rising interest rates and a strengthening dollar, but has so far proven to be robust with little sign of slowing,” Betterhomes said.
In the first half of the year, a record 37,762 units were sold, it said, citing Dubai Land Department data. Total transactions in the residential property market amounted to nearly 89 billion dirhams ($24.23 billion), it added.
Dubai’s property market began recovering from 2020’s severe downturn early last year with buyers snapping up luxury units as the emirate eased pandemic restrictions faster than most cities around the world.
However, S&P Global Ratings said in October that Dubai’s real estate recovery was fragile and uneven, and an oversupply of residential properties would pressure prices in the long run.
Luxury property transactions were up 87% versus the first half of last year, while apartments made up 62% of all transactions, Betterhomes said.
Investors dominated sales, making up 68% of all buyers, up 10% compared with a year earlier.
($1 = 3.6729 UAE dirham)
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Reporting by Yousef Saba; Editing by Kirsten Donovan
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A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an electronic board displaying various countries’ stock indexes including Russian Trading System (RTS) Index which is empty, outside a brokerage in Tokyo, Japan, March 10, 2022. REUTERS/Kim Kyung-Hoon
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HONG KONG, July 26 (Reuters) – Asian shares pared losses on Tuesday as investor sentiment improved on China’s reported plans to tackle a debt crisis in real estate development.
MSCI’s broadest gauge of Asia stocks outside Japan (.MIAPJ0000PUS) bounced back to a gain of 0.36% in afternoon sessions. Chinese stocks jumped after reports the country would set up a fund of up to $44 billion to help property developers. read more
Hong Kong’s Hang Seng Index (.HSI) was 1.48% higher and China’s benchmark CSI300 Index (.CSI300) also widened gains to a rise of 0.91% at the morning close. Japan’s Nikkei (.N225) fell 0.08%, erasing some morning losses.
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FTSE futures edged up 0.15%. U.S. markets are likely to open lower, with E-mini futures for the S&P 500 index down 0.32%.
U.S. retailer Walmart Inc (WMT.N) cut its profit forecast on Monday and said customers were paring back discretionary purchases as inflation bit into household budgets. Shares fell 10% after hours. read more
Investors are also awaiting a likely 75 basis point Federal Reserve interest rate increase later this week – with markets pricing about a 10% risk of a larger hike, as well as waiting to see whether economic warning signs prompt a shift in rhetoric.
“We are leaning to the view that 75 bps is most likely but won’t be the end unless they see some demand destruction and some tempering of inflation,” said John Milroy, an investment adviser at Ord Minnett.
“We are fearful they have to materially slow the U.S. economy further.”
Big technology companies such as Apple (AAPL.O), Microsoft (MSFT.O) and Amazon.com are due to report earnings this week.
“The market has stabilized” from rate hike expectations, said Redmond Wong, Greater China market strategist at Saxo Markets in Hong Kong. “The focus is now on earnings.”
In China, “maintaining stability is the key theme,” said Wong on likely outcomes from politburo meetings expected to begin this week.
In currencies, the dollar was marginally softer but not drifting too far below recent milestone highs as uncertainty continued to swirl around the interest rate and economic outlook.
The euro rose 0.21% to $1.0240 but was hemmed in by uncertainty over Europe’s energy security, which is not helped by a looming cut in the westbound flow of Russian gas. read more
The yen steadied at 136.54 per dollar. The U.S. dollar index , which touched a 20-year high this month, was down slightly at 106.380.
Oil prices rose further on expectations Russia’s reduction in natural gas supply to Europe could encourage a switch to crude, with Brent futures last up 1.27% at $106.45 a barrel and U.S. crude up 1.26% at $97.92 a barrel. read more
Benchmark 10-year Treasury yields fell to 2.875% as growth worries gave support to bonds.
Gold hovered at $1,721.8 an ounce and bitcoin nursed overnight losses at $21,111.31.
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Reporting by Kane Wu in Hong Kong; Editing by Sam Holmes
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HONG KONG/BEIJING, July 15 (Reuters) – Chinese regulators’ assurances of help in delivering property projects on time failed to convince some homebuyers threatening to stop mortgage payments and investors continued to sell shares in embattled developers on Friday.
A growing nationwide homebuyers’ boycott has rekindled investor concerns about the China’s slumping property sector, which accounts for a quarter of the economy, and raised fears banks could face hefty writedowns. read more
Up to 1.5 trillion yuan ($220 billion) of mortgage loans are linked to unfinished Chinese residential projects, ANZ estimated in a report.
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Shares in Chinese property developers extended losses, even after the banking watchdog vowed to strengthen coordination with other regulators to “guarantee the delivery of homes” and at least 10 banks said mortgages related to risky projects are relatively small, and risks are controllable. read more
The regulatory assurances came as homebuyers’ threats to withhold payments for stalled property projects have proliferated in official and social media in recent weeks, in a rare show of public discontent.
The Hang Seng Mainland Properties Index (.HSMPI) tumbled 5% on Friday, dragging the Hong Kong benchmark index (.HSI) down 2.2%.
Among those hardest hit, shares in Shanghai-based CIFI Holdings (0884.HK) plunged 14.3%, while top developer Country Garden Holdings Co Ltd (2007.HK) fell 8.6%.
Developers’ bonds also took a heavy hit.
A 2026 dollar bond of Yuzhou Properties traded at 6.354 cents on the dollar on Friday afternoon, down from 6.861 a day ago, while a 2024 bond of Xinyuan Real Estate dropped to 11.125 from 12.425.
Onshore, a yuan bond of Powerlong Real Estate (1238.HK) and Sino-Ocean Group < 3377.HK> slid 20% and 16%, respectively.
Government assurances were not enough to convince at least some homebuyers threatening to stop mortgage payments.
One homebuyer in the east-central Chinese city of Zhengzhou said on Friday that while local authorities assured buyers that the developers would resume construction soon, there hadn’t seen any action on the ground.
“We don’t have any other way to voice at the moment and we’re still in a desperate situation,” said the person, who declined to be identified due to sensitivity of the matter.
In a letter issued to the Xinyuan homebuyers in Yingyang, Zhengzhou, on Friday and seen by Reuters, the housing regulator said it along with other government departments had reached an agreement with the developer and the contractor that some funds would be paid to resume construction.
Another homebuyer in the northern-central city of Nanchang told Reuters that after regulatory assurances late on Thursday some people in his city had drafted an open letter to report developers’ “misdeeds”.
Earlier on Thursday, local regulators in Xi’an, a city in west China, said they would tighten oversight of escrow accounts and make sure money put down by home owners isn’t transferred illegally by property developers.
The widening mortgage boycott has added to worries about a prolonged slump in China’s property market and the risk of possible social unrest. Date on Friday showed property investment, home sales and new construction starts continued to slump. read more
“Things will get worse before they get better,” said Xiaoxi Zhang, China finance analyst of Chinese research group Gavekal Dragonomics.
“China has been determined to curb the leverage (taken on) by property developers and the government will still try to refrain from providing liquidity to them in a big scale. It will take time for some more targeted measures to be issued,” she said.
As property firms stocks weakened, a selloff in banking shares also gathered steam amid investor concerns that the mortgage revolt may snowball.
An industry gauge (.HSMBI) tracking mainland banks closed down 1.6%.
Tommy Xie, head of Greater China research of OCBC Bank, said the mortgage repayment suspension is turning from a “liquidity crisis (for) property developers to a financial crisis”, and has made it urgent for the central government to step in.
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Reporting by Xie Yu and Liangping Gao; Additional reporting by Winnie Zhou; Writing by Clare Jim; Editing by Sumeet Chatterjee, Kenneth Maxwell and Kim Coghill
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A worker loads copper cathodes into a warehouse near Yangshan Deep Water Port, south of Shanghai March 23, 2012. REUTERS/Carlos Barria
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HONG KONG, July 15 (Reuters Breakingviews) – China’s export manufacturing machine is more important than ever with domestic output growing just 0.4% year-on-year in the second quarter. Given weak consumption and cooling global demand, it makes sense for the country’s producers of everything from cargo ships to lava lamps to try to seize overseas market share from neighbours. It will sting if they do.
It is hard to believe that an economy under roving lockdowns during the three months ending in June really outperformed the same period in 2021, when life was normal. Property, an industry that drives up to a third of activity, is approaching a state of near-collapse; angry home buyers are defaulting on mortgages en masse read more . Officials also have to worry about a looming unemployment crisis. They have opened the credit taps and front-loaded infrastructure spending, but falling returns on investment means that stores up trouble for later read more . Thus the central bank has remained conservative on interest rates.
Fortunately there’s the export sector. China managed to boost its share of world exports by two percentage points during the pandemic to control a whopping 15% share in March. However, growth rates have been cooling as Western economies flirt with recession. If this long-standing pillar of performance starts wobbling, it would offset recoveries in other segments.
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In June, China’s trade surplus touched a record $98 billion. That’s discouraging for foreign companies that had hoped to sell to the country’s vast consumer class. It also reflects how China has kept the key parts of its supply chain for itself. Despite chatter about outsourcing some manufacturing to ASEAN countries, that region’s monthly trade deficit with China has risen to $17 billion. Japan and South Korea are watching their surpluses slowly evaporate as Chinese firms challenge their champions in sectors like shipping, robotics and automobiles.
In a world where absolute demand is falling, salespeople fight harder over remaining customers. As Chinese companies try to enlarge their share of a shrinking pie, they will launch brutal price wars, which Beijing could support with cheap credit and policy preferences. In April the central government rolled out fresh export tax rebates.
Victory might sour quickly. Putting rival exporters out of business could drive nearby economies into recession, which would in turn deduct from demand for Chinese goods and services. That will rebalance trade, but at that point neighbours are unlikely to appreciate it.
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CONTEXT NEWS
China’s gross domestic product grew 0.4% year-on-year in the quarter to the end of June and 2.5% in the first half of the year, the National Bureau of Statistics reported on July 15. Economists polled by Reuters had expected 1.0%. Compared to the prior quarter, output contracted 2.6%.
The property sector, which drives between a quarter and a third of GDP, showed signs of continued stress. New home prices fell 0.5% in June from the prior year. Property sales by floor area contracted 22.2% in the first six months of 2022, new construction starts fell 34.4% and investment is down 5.4%.
Factors supporting growth include infrastructure investment, which grew 7.1% in the first half, recovering credit growth and robust exports. China’s trade surplus hit a record high of $98 billion in June. Retail sales posted a surprise 3.1% rise in June.
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
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Editing by Antony Currie and Pranav Kiran
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
A poster with a logo of Foxconn is seen at the IEEE Global Communications Conference in Taipei. Taiwan, December 9, 2020. REUTERS/Ann Wang
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TAIPEI, July 15 (Reuters) – Taiwan’s government is considering fining tech giant Foxconn up to T$25 million ($835,600) over its investment in a Chinese chip conglomerate without first getting regulatory approval, two sources briefed on the matter said on Friday.
Foxconn, the world’s largest contract electronics maker, said this week it has become a shareholder in embattled Chinese chip conglomerate Tsinghua Unigroup via a 5.38 billion yuan ($797 million) investment by a subsidiary. read more
The investment comes as Taiwan turns a wary eye on China’s ambition to boost its semiconductor industry and has proposed new laws to prevent what it says is China stealing its chip technology.
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Foxconn did not seek prior approval from the Taiwan government before the investment was made and authorities believe it has violated a law governing the island’s relations with China, a person familiar with the matter told Reuters.
Regulators are weighing whether to hand Foxconn the “maximum” fine possible, which is $T25 million, due to the large size of the Chinese investment, the person added,
Foxconn referred Reuters to an earlier filing on the stock exchange, saying it will deliver the documents to the Economy Ministry’s Investment Commission in the near future.
A second source said Foxconn could be given a fine of between T$50,000 and T$20 million for investing without approval, adding that regulators will scrutinise the investment and deliver a decision after they receive the company’s application.
“There’s a chance that an approval will be given. If not, Hon Hai will have to withdraw the investment,” the person said, referring to Foxconn’s formal name, Hon Hai Precision Industry Co Ltd.
Taiwanese law states the government can prohibit investment in China “based on the consideration of national security and industry development.” Those violating the law could be fined repeatedly until corrections are made.
Foxconn, best known for assembling Apple Inc’s (AAPL.O) iPhone, is keen to make auto chips in particular as it expands into the electric vehicle market. The company has been seeking to acquire chip plants globally as a worldwide chip shortage rattles producers of goods from cars to electronics.
Taipei prohibits companies from building their most advanced foundries in China to ensure they do not offshore their best technology.
Originating as a branch of China’s prestigious Tsinghua University, Tsinghua Unigroup emerged in the previous decade as a would-be domestic champion for China’s laggard chip industry.
But the company fell into debt under former chairman Zhao Weiguo, prompting it to default on a number of bond payments in late 2020 end eventually face bankruptcy. read more
The conglomerate has yet to produce any global leaders in the semiconductor sector.
($1 = 29.9180 Taiwan dollars)
($1 = 6.7506 Chinese yuan renminbi)
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Reporting By Jeanny Kao; Additional reporting by Yimou Lee; Editing by Michael Perry and Lincoln Feast.
Our Standards: The Thomson Reuters Trust Principles.
July 15 (Reuters) – China’s economy contracted sharply in the second quarter while annual growth also slowed significantly, highlighting the colossal toll on activity from widespread COVID lockdowns, which jolted industrial production and consumer spending.
Gross domestic product fell 2.6% in the second quarter from the previous quarter, official data showed on Friday, compared with expectations for a 1.5% decline and a revised 1.4% gain in the previous quarter.
On a year-on-year basis, GDP in the April-June quarter grew a tepid 0.4%, missing forecast of a 1.0% gain, according to a Reuters poll of analysts, a sharp slowdown from 4.8% in the first quarter. read more
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^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
KEY POINTS
* Q2 GDP +0.4% y/y (f’cast +1%, Q1 +4.8%, H1 +2.5%)
* Q2 GDP -2.6% q/q s/adj (f’cast -1.5%, revised Q1 +1.4%)
* June industrial output +3.9% y/y (f’cast +4.1%, May +0.7%%)
* June retail sales +3.1% y/y (f’cast 0.0%, May -6.7%)
* Jan-June fixed asset investment +6.1% y/y (f’cast +6.0%, Jan-May +6.2%)
* Jan-June property investment -5.4% y/y (Jan-May -4.0%)
MARKET REACTION:
The CSI300 index (.CSI300) rose 0.4% to 4,340.53 by 0221 GMT, while the Shanghai Composite Index (.SSEC) gained 0.2% to 3,286.61.
COMMENTARY:
MARCO SUN, CHIEF FINANCIAL MARKET ANALYST, MUFG BANK, SHANGHAI
“The disruption from COVID-19 on domestic economic activities was more pronounced this year. So, the quarter-on-quarter contraction in Q2 was well expected. Now that the pandemic is largely under control, economic activities are expected to gradually return to normal.”
“With domestic infrastructure investments starting to support the economy … I think the economy will have a soft landing this year.
LI WEI, SENIOR CHINA ECONOMIST, STANDARD CHARTERED, SHANGHAI
“Looking ahead, we expect China’s economy to pick up speed in the run up to the 20th Party Congress, on increased stimulus measures and easing COVID-19 control policies.”
“Friday’s Q2 GDP growth is very much in line with our forecast of 0.3% y/y. As a result, we maintain our GDP growth forecasts unchanged at 5.3% y/y for Q3, 5.9% y/y for Q4, and an average of 4.1% for the full-year 2022.”
“We keep our call of no more changes to the MLF (medium-term lending facility) rate or the RRR (reserve requirement ratio) until end-2023. The window for further policy rate cuts has likely closed due to the increasingly hawkish stance of major central banks, an uptrend in China’s CPI (consumer price index), and the likely economic recovery in H2. The authorities have limited room to continue to use the RRR as a regular liquidity injection tool.”
“In the absence of policy rate cuts, the PBOC (People’s Bank of China) is likely to increase the use of re-lending facilities and deposit rate reforms to influence future credit growth and corporate borrowing costs.”
“We expect the government to fully implement or even overshoot this year’s budget in order to maintain support for the economy amid continued impacts of COVID-19 containment measures and a slowing global economy.”
KEN CHEUNG, CHIEF ASIAN FX STRATEGIST, MIZUHO BANK, HONG KONG
“The downside pressure on the broad economy is huge. It is challenging to reach this year’s growth target. The authorities are likely to focus on target easing measures in the second half of this year. Given the ample liquidity in the banking system, chances for comprehensive easing are rather low.”
“Another big issue is the property sector, which may need more stimulus measures. We’ve seen reports about the unfinished housing projects, which have affected normal people’s daily lives.”
PEIQIAN LIU, CHINA ECONOMIST, NATWEST MARKETS, SINGAPORE
“The COVID-19 lockdown had quite a significant hit to China’s Q2 GDP growth, but then if you look at high-frequency June data, it’s suggesting that recovery is gaining some momentum, especially on the consumption side.”
“I still forecast annual growth at 4.1%, I don’t think Friday’s print is strong enough to change any of those forecasts.”
“The PBOC, in my view, is playing a coordinating and supporting role to fiscal easing, so there is still room for easing both in terms of liquidity injection and rate cuts but it’s likely to be moderate.”
WOEI CHEN HO, ECONOMIST, UOB, SINGAPORE
“The underlying June numbers show a fairly good recovery. The retail recovery is fast, compared with early part of 2020, when they took more than six months to go back to an expansion rate.”
“But, in terms of the second half, initially we were quite positive, but it seems they have more issues that are emerging. They continue to face challenges of COVID-19 resurgence. The property market offers greater pessimism and potential for crisis if they don’t manage it properly.”
“I don’t think in terms of monetary policy they can do a lot in terms of cutting interest rates … I think they will have to do more from the fiscal side, which is also proving to be a bit difficult because of a widening fiscal gap.”
RAY ATTRILL, CHIEF CURRENCY STRATEGIST, NATIONAL AUSTRALIA BANK, SYDNEY
“Obviously, GDP was a fair bit weaker than expected, and does nothing to suggest that the 5.5% whole-year growth target is remotely achievable.”
“From a market point of view, Q2 is already old hat. So, in terms of momentum, you’ve got retail sales picking up more sharply than people were anticipating as a result of various COVID-19 restrictions being lifted, and that’s probably the encouraging aspect of the numbers, and why it has been mildly supportive of the Aussie.”
“A toleration or encouragement of a weaker yuan is still something we expect in the second half of the year. Part of the reason is that China is losing competitiveness because of the weakness we’re seeing in the Korean won and the Japanese yen, for example.”
“China will not be happy to see this loss of competitiveness sustained, and so if — as we expect — the dollar is going to remain strong, then we think dollar-yuan is going to be headed up to between 6.75 and 7 in the second half of the year, and there’s nothing in Friday’s numbers that would dissuade us from that view.”
ZHANG ZHIWEI, CHIEF ECONOMIST, PINPOINT ASSET MANAGEMENT, SHENZHEN
“The economy likely bottomed in Q2. It is on track for a slow recovery. The rebound of retail sales is encouraging, and the strong credit growth indicates growth in Q3 will likely continue to recover. Nonetheless, economic growth is still much lower than its potential, as the fear of COVID-19 outbreaks continues to hurt consumer and corporate sentiment.”
“The slowdown in the property sector continues. This is worrying as the stress could spread to the financial sector and households if not managed properly and quickly. I expect the government will take action in Q3 to prevent the risk to spread.”
XING ZHAOPENG, SENIOR CHINA STRATEGIST, ANZ, SHANGHAI
“China will face huge pressure to reach this year’s growth target of around 5.5%, as President Xi Jinping has mentioned during his trip in Wuhan that China would rather endure some temporary impact on economic development than let the virus hurt people’s safety and health.”
“The authorities might have already rolled out all the supportive measures, (and) additional policy stimulus might be very limited.”
“Due to the low base effect, data from the next two quarters are likely to show signs of improvement. And I expect that the two-year average GDP in H2 could be around 5.5%.”
TORU NISHIHAMA, CHIEF ECONOMIST, DAI-ICHI LIFE RESEARCH INSTITUTE, TOKYO
“Infrastructure spending has led the growth and it will be a main driver of the Chinese economy ahead. There may be a talk of pent-up demand but you cannot count on private consumption to recover strongly given that household savings remain high.”
“China’s economy has stood on the edge of falling into stagflation, although the worst is over as of the May-June period. You can rule out the possibility of a recession, or two straight quarters of contraction.”
“Given the tame growth, China’s government is likely to deploy economic stimulus measures from now on to rev up its flagging growth, but hurdles are high for PBOC to cut interest rates further as it would fan inflation which has been kept relatively low at present.”
NATHAN CHOW, ECONOMIST, DBS, HONG KONG
“It was lower than expected, but a bit closer to our estimate of 0.9%. The retail sales jump is quite a surprise… I’m not sure if the strong rebound can last too long, given the fact that the job market is quite weak right now, especially youth unemployment.”
“Falling housing prices is another concern, especially to China because Chinese households hold a lot of real estate in their balance sheets — its a negative wealth effect. In the second half of the year, consumption may be stabilising but it’s not going to have a V-shaped rebound.”
“The bottom line is we’re still looking at fixed asset investment and infrastructure investment as the growth engine.”
SEAN CALLOW, SENIOR CURRENCY STRATEGIST, WESTPAC, SYDNEY
“There was limited FX reaction to the China data as there was something for everyone. The currently dominant bears will focus on the clear downside surprise on Q2 GDP, while optimists can note the clear recovery in June retail sales and industrial production.”
“The bears seem likely to remain in control, given the leap of faith needed to extrapolate from the June data. Offshore investors living with Omicron will remain sceptical that it is now clear sailing for China’s economy. We see scope for AUD/USD to slip to $0.6670 multi-day.”
BACKGROUND:
* China’s economy has started a tepid recovery from the supply shocks caused by wide lockdowns, although headwinds to growth persist, including from a still subdued property market, soft consumption and fear of any recurring waves of infections.
* Full or partial lockdowns were imposed in major Chinese cities from March through May, including the financial and commerce hub of Shanghai, jolting supply chains and economic activity.
* China has been ramping up policy support for the economy, although analysts say the official growth target of around 5.5% for this year will be hard to achieve without doing away with its strict zero-COVID strategy. read more
* Friday’s GDP data and June activity indicators come at a time of rapidly rising global interest rates to tackle surging inflation, stoking fears of a recession. The Ukraine war, which has fired up prices of a range of commodities, has renewed pressure on world supply chains in a blow to consumption.
* Against this backdrop, China’s key property market remains shaky and soft consumer spending at home mean its traditional engines of growth also remain underpowered. A renewed push on infrastructure spending will take time to get into gear.
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Reporting by Asian bureaus; Compiled & edited by Uttaresh.V
Our Standards: The Thomson Reuters Trust Principles.