Construction of the 200,000-ton-a year alloy plant in Harbin, Heilongjiang province, began on Tuesday and it is due for completion in 2011, Beijing-based Chinalco said in a statement on its website.

The plant will produce aluminum plates and strips widely used in the defense, petrochemicals, transport and machinery industry.

Chinalco Northeast expects annual profit of 400 million yuan and sales of 7 billion yuan once the plant is operational, the statement said.

Song Huaibin, an analyst at Guoyuan Securities, said the new plant is part of the nation’s push to change its aluminum product structure and export more high value-added aluminum products.

The nation’s aluminum supply has exceeded demand this year, Song said.

Total domestic output of electrolytic aluminum in 2008 is expected to increase 15.4 percent to 14.5 million tons, which would exceed the projected demand of 14 million tons by a small margin, according to statistics.

The nation exported 621,001 tons of unforged aluminum from January to August, up by 68.3 percent on a yearly basis, according to Customs figures.

However, the country currently imports some high-end aluminum products, and that might have been a key factor in the decision to build the new plant, Song said.

Xiao Yaqing, general manager of Aluminum Corp of China, or Chinalco, said the company supplies 80 percent of the aluminum alloys used in aircraft, atomic reactors, nuclear weapons, satellites and missiles for the defense industry.

State-owned Chinalco, the parent of the Hong Kong-listed Chalco, is China’s biggest producer of aluminum. It acquired 75 percent of Harbin-based Northeast for 1.2 billion yuan last September.

The new plant is expected to boost production and create jobs in the region, Song said. (Yu Tianyu, China Daily)

Investment inflow reached $67.73 billion from January to August, China’s Ministry of Commerce said on Wednesday.

Zhang Hanya, a researcher with the National Development and Reform Commission, said the impressive growth indicated investors’ confidence in China’s sustained and rapid economic growth.

“With a large population of 1.3 billion, China is a huge market for investors even if the economic expansion slows a little,” Zhang said.

The mainland approved the establishment of 18,797 enterprises funded with outside investment in the first eight months, down 24.35 percent from the same period last year.

The figures reflected the endeavor to increase the quality of investments from the outside, said Zhang.(Xinhua)

Funding to SMEs will be increased significantly to help them cope with the tightened credit situation and falling global demands, the ministry said Thursday.

The ministry will earmark 3.51 billion yuan ($512 million) worth of special funds to help the growth of SMEs, which will enjoy preferential tax policies, too. It, however, did not say when exactly the new government procurement rules would be announced.

Analysts said the new rules would change the prevailing situation in which governments shun SMEs to buy goods from big companies.

The country has about 40 million SMEs, including those run by individuals. They have become the national economy’s most dynamic factor, accounting for about three-fourths of the urban labor force.

But because of last year’s tightening monetary policy, aimed to rein in the runaway economy, it has become difficult for vulnerable SMEs to get bank loans.

Moreover, the demand for their products have fallen, thanks to the slowing of economic growth from 11.9 percent last year to 10.1 percent in the second half of this year.

And the drop in exports of their products, as a result of this year’s gloomy global economy, has made things even worse.

The central treasury, too, has given financial help to enterprises facing multiple problems.

Of the 3.51-billion-yuan support package, 500 million yuan will go into making SMEs acquire state-of-the-art technologies. This year’s amount is 25 percent more than last year’s.

A total of 200 million yuan of the technology development fund will be used to subsidize institutions that guarantee the SMEs would get bank loans, the ministry said.

The SMEs’ technological innovation fund will get 1.4 billion yuan, up 27.3 percent than last year.

The ministry will use 1.2 billion yuan, up 20 percent, to help the SMEs tap the international market by providing them information and helping them go through the often complicated global certification process.

The ministry imposes a 20 percent tax on SMEs with low profit levels, and has cut the tax rate for high-tech SMEs to 15 percent, according to the newly promulgated corporate tax law.

The government passed a unified corporate tax law for domestic and overseas companies in March, imposing a flat tax rate of 25 percent on them. Before that, domestic enterprises had to pay a 33 percent tax.

The law stipulates that high-tech firms and small enterprises with marginal profits will enjoy preferential tax rates.

(Xin Zhiming, China Daily)

“AWO’s modern high-specification rigs and cutting-edge technology for offshore drilling is a good strategic fit for COSL pursuant to its globalization and growth strategies,” said the company statement.

The combination of COSL and AWO would create the world’s eighth largest rig fleet, consisting of 34 operated rigs (including rigs under construction) with operation and growth opportunities in most major international markets.

AWO is an international offshore drilling contractor owning and operating five jack-up drilling rigs and two accommodation units. Another three jack-up drilling rigs and three semi-submersible drilling rigs are under construction. AWO also has the option of constructing two semi-submersible drilling rigs.

COSL operates 15 drilling rigs, including 11 jack-ups and three semi-submersibles while operating one leased jack-up rig. In addition, COSL owns and operates the largest and most diverse offshore fleet in China, including 75 support vessels and four oil tankers, five chemical tankers, eight seismic vessels and four geotech survey vessels.

It also has a vast array of modern facilities and equipment for logging, drilling fluids, directional drilling, cementing, well completion and well work-over services.

The company is seeking assets in Southeast Asia, the Middle East, Africa, North America and Russia, Chief Financial Officer Zhong Hua said in June.

China, the world’s second largest energy user, has stepped up its search for oil and gas at home and abroad to sustain its fast growth. CNOOC Ltd, COSL’s largest customer, plans to increase capital spending by 44 percent this year to $5.2 billion to expand production.

COSL said first-quarter profit this year was 891.35 million yuan ($129.82 million), up 35.5 percent year-on-year, because of strong orders and cost cutting.

The company’s profits were up 98 percent to 2.24 billion yuan in 2007 on rising business revenue, which rose 42 percent to 9.24 billion yuan last year. Revenue hit record high in four of its main businesses, including drilling, marine and transportation, oilfield technology and geophysical survey.(Wan Zhihong, China Daily)

The inflows have been so massive as to raise alarms over the country’s financial security.

According to the State Administration of Foreign Exchange (SAFE), as of the end of May, forex reserves stood at $1.797 trillion.

During the first five months of 2008, forex reserves increased by 18.7 percent year-on-year, or $268.7 billion, SAFE figures showed.

Where is all that money coming from, and where is it going?

How much is “hot money”?

What caught the attention of analysts was that forex reserves jumped at the same time as the current-account surplus and foreign direct investment (FDI) into the fixed-asset field declined year-on-year.

Set against the increased forex reserves in the first five months of this year, there was the $78.02 billion represented by the trade surplus, which was down 8.6 percent year-on-year.

Another $42.78 billion was connected with FDI in the first five months, which soared nearly 55 percent year-on-year. But FDI going into fixed assets (longer-term investment), actually fell 3.5 percent in the same period.

Jiang Zheng, a macro-economist at a Beijing-based securities firm, has closely tracked these figures and analyzed the data.

Deducting the trade surplus and the FDI, there was an unexplained $147.9 billion in the forex reserve increase figure, which Jiang and numerous other analysts consider to be “hot money”, which is usually defined as short-term global speculative funds moving among financial markets in search of the highest short-term return.

The government doesn’t release official figures on this category of funds; in fact, it doesn’t even use the term “hot money”. So analysts can only make estimates.

Jiang said the “hot money” figures deduced by analysts might even be underestimates. “There is a tricky decline among the FDI figures, i.e. the drop of fixed-asset investment,” he explained.

“Foreign direct investment in the first five months soared about 55 percent. But strangely, fixed-asset FDI in the first five months fell 3.5 percent from last year’s figure,” Jiang said.

Jiang said it appeared that some speculative money had managed to move into China in the guise of FDI.

But there are many other channels for “hot money” to flow into China. These include falsified international trade with over-invoiced exports and underground private banks, according to Jiang.

Jiang and other analysts maintained that as much as $600 billion in “hot money” had surged into the country, most of it after 2005.

Jiang said he was somewhat surprised at the scale of “hot money” inflows in the first five months of this year. The monthly inflow of “hot money” from January-May was estimated at 35 billion U.S. dollars, more than double the $15 billion figure for the same period last year, Jiang said.

In April alone, deduction showed that a record $50.2 billion of “hot money” poured into China, he said.

Why China and where do they invest?

Many will ask why such huge sums of “hot money” have been continuing to flood into China and where it is going.

Li Yang, head of the Financial Research Institution at the Chinese Academy of Social Sciences, said the disparity between Chinese and US interest rates, the appreciation of the Chinese currency (the yuan) since 2005 and the profits from the Chinese capital and real estate markets were the main causes of the unstoppable “hot money” inflows.

Since the start of the global financial crisis, which surfaced last summer with problems in the U.S. subprime mortgage market, the U.S. Federal Reserve has since September cut interest rates seven times to stimulate economic growth. The Fed funds target rate has fallen from 5.25 percent to the current 2 percent.

In contrast, the People’s Bank of China (PBOC, the central bank), hiked interest rates six times between March and December 2007 to cool economic growth, with the one-year deposit rate rising from 2.52 percent to the 4.14 percent.

These opposing actions created a disparity that helped to lure global speculative money to into China at an accelerated pace this year.

Another major lure for “hot money” was the continuously appreciating yuan.

In July 2005, China abandoned a decade-old peg to the US dollar and allowed its currency to appreciate by 2.1 percent. Since then, the yuan has strengthened further, mostly slowly, and risen nearly 17 percent against the US dollar.

The appreciation of the yuan, coupled with the simultaneous depreciation of the U.S. dollar, has also prompted “hot money” to bet on the yuan’s further appreciation.

“The combination of the interest rate disparity and the yuan’s appreciation will ensure a profit rate in excess of 10 percent for ‘hot money’,” Li Yang said.

The other major incentive for “hot money” was the chance to profit from China’s markets, mostly stock and real estate.

Many economists and analysts like Jiang said that the booming Chinese stock market between 2006 and late 2007 and soaring housing prices since late 2005 were, in part, created by global speculative money.

Stock and property returns have been poor lately: share prices have plunged since peaking late last year and the real estate market has faced uncertainties since China began to impose tight macro-economic controls.

So speculative money has sought greener pastures, with some simply being deposited into banks.

Jiang said household and business deposits had grown fast in the first five months.

According to the PBOC, as of the end of May, the balance of deposits in reminbi accounts in domestic financial institutions reached 43.11 trillion yuan, up nearly 20 percent over last year’s figure.

“The consumer price index has risen more than 8 percent every month on average this year, higher than the interest rate, but deposits are soaring. It is very probable that ‘hot money’ is flowing into banks,” Jiang said.

His judgement was echoed by investors.

Wang Chenyang, who manages a $12billion hedge fund from Wall Street, told Xinhua that the best investment choice at present was to convert money from the US dollar to the renminbi and deposit it into banks in the Chinese mainland.

Wang said his Chinese friends who work in New York had made such investments with help from their relatives in China.

Similar scenarios took place in Hong Kong, where residents traveled to neighboring Guangdong Province and converted money from the Hong Kong dollar, which has also been depreciating, into the yuan, depositing the proceeds into Chinese mainland banks.

Too hot to handle?

As many in China believe that “hot money”, as a major factor in capital flight, was largely responsible for the financial crises in Southeast Asia in 1997 and one that began in Vietnam this year, continued speculative capital inflows had raised strong concern in China.

Mei Xinyu, an economist at the Ministry of Commerce, warned that “hot money” inflows would create problems and put pressure on China’s monetary policy.

“Moreover, capital flight will disrupt the normal operation of the country’s financial system and have an immense impact on China’s financial order,” he added.

Zhang Ming, an economist at the Chinese Academy of Social Sciences, echoed Mei’s views, saying: “If there was capital flight, it would cause a significant impact on the international payments for China and would probably result in deficits in both the current and capital accounts.

“We should pull out all the stops to contain further inflows of ‘hot money’, and make full preparations for possible capital flight,” Zhang warned.

In addition, analysts said the inflows of speculative money were partly to blame for creating excess liquidity and stoking inflationary pressure in the Chinese economy.

In the first five months of 2008, the CPI, the main gauge of inflation, rose 8.1 percent year-on-year. The CPI for February hit a 12-year high of 8.7 percent.

Amid these concerns, China is taking no chances. Various departments, particularly the PBOC, have stepped up efforts to ward off the risks of “hot money”.

The central bank has since last year frequently employed two tools to curb excess liquidity — raising commercial banks’ reserve-requirement ratios (RRR) or issuing bills.

In particular, the central bank has hiked the RRR at an unprecedented frequency.

In 2007, the PBOC raised the ratio 10 times, which lifted it from 9.0 percent last January to 14.5 percent as of December. The central bank had raised the RRR only five times over six years since 2000.

This year, the central bank continued to employ this tool. The latest move was on June 9, when it raised the RRR by 0.5 percentage point (to take effect on June 15) and another 0.5 percentage points (effective on June 25).

The rise on June 25 was the sixth this year, and it brought the ratio to a record 17.5 percent. With it, the central bank said it had received 1.23 trillion yuan in required reserves from the commercial banks so far this year.

Jiang said the amount of the required reserves, along with bill issues, enabled the central bank to successfully ward off the risks created by the excess liquidity owing to “hot money” inflows.

The unprecedented measures taken by the central bank, however, created a dilemma for the Chinese economy: the PBOC was flush with liquidity while commercial banks, equities and the property market faced tight conditions, according to Jiang.

Financial security a priority

While China moved to cope with hundreds of billions of US dollars of speculative money that had already poured into the country, it was taking much stricter measures to monitor the capital flows and prevent more “hot money” from flooding in.

In mid-April, the State Council, China’s Cabinet, called a special meeting to discuss the seemingly unstoppable capital inflows.

The meeting was also attended by all concerned central government departments, such as the Finance Ministry, the central bank, the China Banking Regulatory Commission and SAFE.

According to the Shanghai-based China Business News, ahead of the meeting, several central governmental departments had received a special report, more than 200 pages long, about the “hot money” inflows.

On May 9, Vice Premier Wang Qishan, who was in charge of financial affairs, sounded wary when he stressed the importance of the country’s financial security in the face of the speculative flood.

“Financial security deals directly with overall national economic and social stability and the fundamental interests of the people. Therefore, safeguarding financial security is the top priority among all financial affairs,” Wang told an economic forum in the financial hub of Shanghai.

Wang said the government would take more measures to improve management of forex reserves, strengthen supervision of trans-border capital flows and crack down on financial crimes.

Days after Wang’s remarks, on May 21, SAFE issued a notice ordering all banks in the mainland to file reports on all renminbi accounts opened by non-resident individuals and non-resident institutions.

SAFE said the measure was meant to “improve statistics on international payments”.

According to SAFE, a new system that enables real-time monitoring of the flow of foreign exchange is in the pipeline. The system is mainly an Internet-based data exchange mechanism among SAFE, banks, enterprises and accounting firms.

SAFE also said it was actively seeking to strengthen administration of foreign exchange receipts and trade settlements.

Hu Xiaolian, SAFE administrator, said recently that it was necessary to check the authenticity of foreign investments and trading activities. By doing so, SAFE aimed to prevent inflows of “hot money” in the guise of FDI or trade.

China faced with a bigger challenge of guarding against the impact of short-term global speculative funds, Hu added, alluding to “hot money”.(Xinhua)

Mobile 2.0

Mobile 2.0 Europe

aka-aki (from Germany) focuses on Proximity Networking, as in mobile social networking with Bluetooth-sensing capabilities which are pretty interesting. For instance, it will build a network of encounters with other Aka-Aki members even before you sign up, populating your network automatically. We’ve written a lot about them here.

Dial2Do (from Ireland) lets you do common tasks by calling a number and speaking. You can send email or SMS and post to Twitter for instance. It asks you two or three questions like “Do what?”, “To who?”. You say what you want, it recognizes what you said and completes the task. That would probably make it pretty handy for those tasks you’d like to do while driving but now can’t due to the increasing number of laws which band people from talking on the phone while driving.

Shout’Em (from Croatia) is a “roll your own” hosted mobile social network which has an Android client already. The video looks slick at least, but it will be interesting to hear more about them at the conference.

youlynx (from Spain) is a social media network, not unlike a mobile YouTube, but you can send pictures as well. It would be good to see if they have any plans to extend this idea as currently its a fairly simple video sharing site for mobile content.

Zipipop (from Finland) is a start-up that is developing Zipiko, a mobile service for sorting your social life on the go, as in, broadcast where you’ll be at a certain time in the day. Think Dopplr, but on a much more granular level perhaps.

Rummble (from UK) is a location based discovery tool and social search platform we wrote about here and here. Rummble’s idea is that location will soon be a “given” (via FireEagle, Google or GPS) on the mobile, as will social networking, so the value lies in filtering all this data to make it relevant in the mobile experience.

ViaMobility (from France) is a mobile widgets and applications startup with a Mobile Widget Player. France seems to have a penchant for mobile widgets as another startups called Goojet launched there recently.

And if you’re free in the evening, come over to the TechCrunch / Mobile 2.0 Europe Party at Shoko Club near the beach with speakers, organizers, startups. Check out details for the party and the sponsors after the jump.(Mike Butcher, Techcrunch)

Flush with dollars from a huge trade surplus, the Chinese sovereign wealth fund is beginning to test the waters in New York real estate, said Scott Latham, executive vice-president of capital markets group for real estate services company Cushman & Wakefield.

“They are coming. We’ve seen them in the bidding process over the past four months on a number of assets we’ve handled,” Latham said at the Reuters Global Real Estate Summit in New York.

They were recently among the throng of bidders for three of seven former Equity Office properties marketed after Harry Macklowe defaulted on loans he used to buy them last year, he said.

Latham is one of the most powerful commercial real estate brokers in Manhattan, the largest US commercial real estate market. He has shepherded deals such as the $1.72 billon sale of the MetLife Building, the $1.8 billion sale of 666 Fifth Avenue and the $675 million sale of The Plaza Hotel.

“I think that unlike Middle Eastern sovereign wealth funds, they have not yet figured out an efficient way to get the money out of their country,” he said.

Back in the depths of the real estate depression in the early 1990s, private individuals from Hong Kong were big players in New York real estate. A group headed by Henry Cheng, for example, was able to buy a distressed loan and control of the property from Donald Trump for less than $100 million along the West Side and make a killing when it recently sold it for $1.8 billion.

“Almost every one of those investments was an absolute home run,” Latham said.

(China Daily)

The bank aims to attract one to two foreign lenders as strategic investors to get more capital and improve its equity structure, it said. Sources from the bank said it is in talks with several foreign banking groups.

Hankou Bank plans to achieve a stock listing within the next three to five years, sources told China Daily, without elaborating.

The erstwhile Wuhan Commercial Bank, which had 88 branches in this capital city of Hubei province, had total assets of almost 37 billion yuan ($5.38 billion) and a registered capital of 568.4 million yuan by the end of last year. Its capital adequacy ratio stood at 12.17 percent at that time.

Hankou Bank said it will expand its businesses into other regions in a drive to become a national lender.

The bank has obtained the go-ahead from the China Banking Regulatory Commission to open a branch in Ezhou, a smaller city in Hubei, in the second half of this year. It also aims to set up outlets in other provinces next year.

Many other city commercial banks, such as those in Beijing, Nanjing, Ningbo, Tianjin, Dalian, Chengdu and Chongqing, have been renamed and are expanding their businesses into other regions as part of China’s banking reforms. Three lenders in Beijing, Nanjing and Ningbo have gone public.

The launch of Hankou Bank is also part of efforts of Wuhan, the biggest city in Central China, to become a regional financial center.

According to a plan unveiled by the Wuhan government in March, assets of rural credit cooperatives in Wuhan and eight other cities in Hubei will be integrated to form a new bank, named Wuhan Rural Commercial Bank.

Local authorities will also encourage private investors to run small and medium-sized shareholding banks.

There are five foreign banking groups and 19 domestic lenders with branches in Wuhan.

(Gong Zhengzheng China Daily)

The delegation, headed by Lord Mayor David Lewis, will visit Beijing, Shanghai, Hongkong, Tianjin, Xiamen and Changsha between June 24 and July 8.

In a challenging time when Southwest China’s Sichuan Province was devested by earthquake and areas in southern China are affected by flood, Lewis said he hoped that the city would like to help China either in the infrastructure reconstruction or insurance industry which he said has proven once again to be of great importance to a safer society.

Though Shanghai might in due course be built into a global financial center, the Lord Mayor said, the City of London, which is experiencing financial turmoil along with the United States, China and the rest of the world, still has a lot to share with Chinese cities vying to play their parts in China’s financial development.

The city chief said he would try to lobby the Chinese government to end its restrictions on Chinese companies to list and invest overseas, adding that without access to overseas listings and equity finance, Chinese companies might find it difficult to expand internationally or acquire overseas companies through mergers and acquisitions.

The delegation will witness the official opening of the city’s offices in Beijing and Shanghai and carry on its “going global” seminars in China to attract more companies to list in London where the listing cost is almost half of that in New York, Lewis said.

(Xinhua)

The new plant will produce 20 million sq m of plasterboard annually, in a start-up which represents Lafarge’s commitment to local manufacturing in its two Sichuan business divisions: cement and gypsum.

“We made our way to southwest China in 2001 to establish our operation in Chongqing We feel duty-bound to do our bit in post-disaster reconstruction, and we are convinced that the big environment of Sichuan’s economy will quickly recover after the natural disaster,” said Christian Devillers from Lafarge Gypsum talking about the timings of the Chengdu plant completions announcement.

The French company said the plasterboard based construction presents strong resistance against earthquakes, as it can reduce the overall weight of buildings and minimize the impact of the quake.

Until now plasterboards have been widely used in major cities like Chengdu but not in second-tier cities like those that have been hit by the May 12 earthquake, said Devillers.

This investment will increase Lafarge Gypsum China’s capacity from current levels of approximately 50 million to more than 70 million sq m. It also enables Lafarge Gypsum China to expand its leading position in western China where it first began local manufacturing from Chongqing in 2001.

As early as in 2002, Lafarge established a plant in Dujiangyan to expand its cement business.

(Wan Zhihong, China Daily)