This Week in China: Exchange Rates, Morgan Stanley, Luxury Goods, Windpower & Ferragamo

China’s Central Bank announced recently in a statement posted on its website that “it is desirable to proceed further with reform of the RMB exchange rate regime and to increase the RMB exchange rate flexibility.” It added that “continued emphasis would be placed on reflecting market supply and demand with reference to a basket of currencies”. The statement also suggested that there is no basis for “large-scale appreciation.” The renminbi’s 0.5 percent daily trading band will remain unaltered.

The announcement, timed just before President Hu Jintao’s trip to the G-20 summit in Toronto, Canada, follows warnings from Beijing earlier last week against making its currency policies a main focus of the meeting. “China has to offer something ahead of the G-20,” Ben Simpfendorfer, chief China economist at Royal Bank of Scotland Group Plc, in Hong Kang said, “Greater flexibility allows them the option to appreciate against the dollar, perhaps during periods of dollar weakness.”

The announcement signals an end to the currency’s 23-month-old peg to the dollar and suggests managing the currency more with reference to a basket as the economy recovers strongly and inflationary pressure continues to build.

This is a very positive development in terms of financial and economic reform in China, and a vote of confidence in the Chinese economy. And indeed, this is a vote of confidence in the global economic recovery.

The move will also serve to assuage some of the protectionist sentiment that had been rising in recent weeks, including the threat of tariffs by prominent members of the US congress.

Chinese authorities have prevented the currency from strengthening since July 2008 to help exporters cope with sliding demand triggered by the global financial crisis. The currency appreciated 21 percent in the three years after a peg to the dollar was scrapped in July 2005. Central bank dollar buying has left the nation with $2.4 trillion in currency reserves, the world’s largest holding.

Major domestic China focused companies, including Beijing-based com-puter maker Lenovo Group Ltd. and Shanghai-based China Eastern Airlines Corp., said that appreciation of the renminbi would enable them to gain from lower import costs and an increase in consumer purchasing power.

Contemporaneous with the exchange rate announcement, the Nat-ional Bureau of Statistics announced that China’s retail sales in May rose 18.7% year on year to RMB 1.25 trillion ($183 billion).

Although some observers may point out that any appreciation in the Chinese exchange rate is likely to be very modest and might not be enough to appease critics of China’s policy in the US Congress who are pushing for more aggressive appreciation, it is a constructive step that can help increase China’s domestic con-sumption and contribute to a more balanced global economic recovery.

Adam Roseman,
Founder & CEO
ARC China

Per Morgan Stanley, China’s Housing Market Isn’t Overheating

The property boom in China isn’t a bubble because it’s supported by “solid” demand for residential housing, according to Stephen Roach, Chairman of Morgan Stanley Asia Ltd.

While portions of the real-estate market such as high-end apartments are overheating, demand for residential homes will remain robust as rural Chinese migrate to bigger cities, Roach said in a radio interview from Hong Kong with Tom Keene on Bloomberg Surveillance.

“This is just a sliver of the property boom,” Roach said, citing that each year since 2000, between 15 and 20 million people migrated to Beijing, Shanghai, and second- and third-tier cities in mainland China. That’s two and a half New York cities created annually, he said. “This underpins a huge demand for residential property. This property has not overheated and the demand for this property is very, very solid.”

The nation’s property prices rose 12.4 percent in May from a year earlier, the second-fastest pace on record. China’s banking regulator said it sees growing credit risks in the nation’s real-estate industry and warned of increasing pressure from non-performing loans.

China’s lawmakers have raised down payment requirements and mort-gage rates and restricted loans for multiple-home buyers as they seek to dampen record property price gains. The govern-ment’s “decisive” actions in April are working to cool the sections of the housing market that were overheating, according to Roach.

“By all accounts, it looks like the measures are working for now,” he said.

China, the world’s fastest-growing major economy, expanded 11.9 percent in the first quarter from a year earlier. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, has dropped 22 percent this year.

China has kept the renminbi linked to the dollar as a crisis-fighting policy, swelling its Treasury holdings and fueling complaints from U.S. lawmakers that it has an unfair advantage in global commerce. Amer-ican lawmakers said they’ll go ahead with legislation targeting the renminbi as U.S. and Chinese leaders prepare to meet at a Group of 20 summit this month in Canada.

Floating the renminbi won’t rebalance the trade deficit, Roach said.

“It’s just bad economics to pretend we can fix the lives of middle class American workers by getting the Chinese to revalue its currency vis-a-vis the dollar — it’s a horrible misconception,” Roach said. “If we don’t boost our national savings rate, with trillion dollar deficits as far as the eye can see, the Chinese piece of our multilateral trade deficit just goes somewhere else. It goes to a higher-cost producer and that taxes the American people.”

Treasury Secretary Timothy F. Geithner said that a more flexible renminbi would allow China to pursue “a more effective, independent monetary policy, which is particularly important now, with China’s economy facing a risk of inflation in goods and in asset prices.”

China shouldn’t cave to the pressure and should revalue the renminbi when its financial system is more developed, Roach said.

“They’ve still got a long way to go in opening up their capital account, opening up their financial system and making certain their financial institutions can be reasonably well protected from the ups and downs of financial markets and currency gyrations,” he said. “It’s a process. Over the next 10 years, you will see China take enormous steps toward making their currency fully convertible but it will take that long or possibly even longer to do that.”

Private Equity Key Fuel For Business

Chinese economists and officials praised the bright prospects for financing and investment through private equity funds in Tianjin.

PE investment can help fuel enterprises’ growth, said Cheng Siwei, former vice-chairman of the Standing Committee of the National People’s Congress, at the 4th China International Private Equity Forum (CIPEF).

He said that financial innovation is a priority for the country’s economic activities. Although there are problems with investment banks, they are still irreplaceable market forces to aid running enterprises.

Dai Xianglong, chairman of the National Council for Social Security Fund, shared similar views as Cheng, emphasizing that PE funds are facing golden opportunities in China, and can help enterprises grow.

China holds huge foreign reserves and can do more to invest abroad, and further diversify its financial investment portfolio, Dai said.

China has to accelerate the renminbi’s pace of internationalization, and switch the economic growth pattern from good-oriented export into capital-oriented export and investment, and further enhance the quality of export products and services, Dai said.

The ex-governor of China’s central bank commented that during the post-financial crisis era, China became the preferential choice for foreign direct investors.

“China’s foreign direct investment (FDI) dropped from $1.9 trillion to $1.2 trillion after the financial crisis broken out, but it has been recovering slowly. We have already seen signs of revival,” Dai said.

As the global economy shows signs of gradual recovery, financing act-ivities by enterprises are picking up, which offer new opportunities for private equity funds, said Huang Xingguo, mayor of Tianjin Municipality, the host of CIPEF.

Luxury Goods Prove Growth Industry

The consumer price index in China for general goods is picking up slightly as its luxury counterpart roars ahead, mainly due to the surge in upmarket property costs.

The luxury CPI grew 11.3 percent in the year ending June 1, compared with a growth of 4.6 percent last year amid the fallout from the global financial crisis.

The figure was more than 8 percentage points higher than the general CPI, which rose 3.1 year on year in May, according to the Hurun Luxury Living Index Report for 2010.

The Hurun Luxury Living Index tracks retail price changes of a basket of 58 luxury products and services including edu-cation, liquor, jewelry, cars, and high-end homes.

Hoogewerf singled out rising property prices as a vital factor and cited the cost of a luxury property in Shanghai, which has almost tripled in the past four years.

Luxury property prices rocketed 45.1 percent year on year in June, much higher than any other category.

The climb followed a fall of 1.8 percent last year and rises of 29.8 percent and 13.9 percent from 2008 and 2007, the report said.

The annual spending threshold for the rich rose to RMB 106 million ($15.51 million) this year, up 22 percent from a year earlier.

Taking a Shanghai family as an example, this includes a RMB 29.8 million villa, a downtown apartment in Shanghai as well as a holiday house in southern Hainan Pro-vince’s Sanya. An average of four cars, five watches and artwork are included.

Bids Likely For Offshore Wind Power Projects

China will invite public bidding for more offshore wind power projects in the next five years to reach an installed offshore wind-power capacity of 5 GW by 2015, senior officials said.

China’s offshore wind-power capacity may reach 5 GW in 2015 and 30 GW by 2020, Wang Minhao, vice-president of the Hydropower Planning Research Institute, said at an industry conference in Shanghai, citing local governments’ preliminary development plans.

The institute, affiliated to the Ministry of Water Resources, is responsible for the planning and design of China’s hydropower and wind power projects.

“Although such a target is yet to be officially approved by the central government, the nation will definitely invite public bidding for more offshore wind power projects in the next five years, following the first batch of four such huge projects established in eastern part of Jiangsu province,” said Li Junfeng, deputy director-general of the Energy Research Institute affiliated to the National Development and Reform Commission.

He said that more projects would soon be rolled out in Jiangsu, Shandong, Zhejiang and Fujian provinces, and Shanghai municipality.

Public bidding for these projects started on May 18 and is expected to finish in September.

China has also finished construction of a pilot offshore wind power project at East China Sea Bridge near Shanghai, with an installed capacity of 100mW. Investment in the project is 2.5 times that of an on-land project with the same capacity.

Wind power is considered one of the most economically viable renewable energies to help China realize its target of getting 15 percent of its energy mix from non-fossil energies by 2020.

PE Firms Eye Rich Harvest In Agricultural Logistics

Speculators aren’t alone in pocketing fat profits from China’s agricultural sector.

Foreign private-equity investors have sniffed out lucrative business oppor-tunities in the country’s agricultural logistics industry, a largely underdeveloped and inefficient sector that has contributed to the recent sharp fluctuations in agricultural commodity prices.

Shouguang, a city in Shandong province known as China’s “home of vegetables”, produces 8 billion kilograms of vegetables annually, with one-third of the vegetables consumed in Beijing and Shanghai coming from there. Now the city aims to build one of the country’s largest wholesale centers for agricultural products.

This move by foreign PE investors not only reflects China’s booming agricultural logistics in-dustry but also reveals that the sector is now in dire need of capital to build better infrastructure and more sophisticated logistics networks in order to reduce current high transportation costs.

Industry experts estimate that logistics costs account for about 17 percent of China’s gross domestic product, which is nearly double that in developed economies.

The capital market will be the ultimate resource pool for China’s agricultural logistics industry. Although Shenzhen Agri-cultural Product Co Ltd is currently the only agricultural logistics com-pany listed on the domestic A-share market, analysts expect more companies will seek to tap the capital market in the future as the industry develops. The growing trend has already attracted the attention of foreign PE funds, and domestic investors are expected to join the gold-digging effort soon as well.

China’s Tobacco Industry Wields Huge Power

China has the world’s largest population, so it easily lends itself to superlatives. Even so, its 350 million smokers and the sheer scale of its tobacco industry over-shadow others. “The China C.D.C. likes to point out that the Chinese tobacco industry is bigger than the next seven countries combined, or maybe six,” said Susan Lawrence, head of China programs at the Campaign for Tobacco-Free Kids, in Washington. “It’s massive.”

The other striking thing is that it is wholly state-owned, delivering enor-mous profit to the government.

The figures are overwhelming. China manufactures 2.3 trillion cigarettes per year, inhaling most of them itself. About 57 percent of men smoke, though just 3 percent to 4 percent of women.

Six out of 10 doctors and professors smoke — at work, too, according to Li Xinhua, a tobacco control official at the Ministry of Health. The World Health Organization estimates that tobacco kills a million Chinese yearly and that the figure will double by 2020. Lung cancer is up 465 percent since 1980 and accounts for nearly a quarter of cancer deaths. Smoking is on the rise, as elsewhere in the develop-ing world.

Last year, China National Tobacco, the state-owned tobacco company, generated $76 billion in taxes and profit, a year-on-year rise of $8.2 billion, according to a spokesman, Zhang Xiulian. Of that, $61 billion was taxes. The profit figure — $14.3 billion — far outstrips even Philip Morris International, the world’s largest trans-national tobacco com-pany, which posted net earnings of $6.3 billion last year.

Of course, all govern-ments tax tobacco. What makes China different is that tobacco and government are “one and the same,” Ms. Lawrence said. The state tobacco company is part of the State Tobacco Monopoly Administration, in turn part of the Ministry of Industry and Information Tech-nology.

Tobacco extends deep into other parts of the economy. It sponsors schools in poor areas and has large investments in real estate, cars, hotels and securities. In January, the monopoly announced it had set up Zhongwei Real Estate, with registered capital of $440 million, the state-run Global Times newspaper reported. Chinese aca-demics and market analysts warn that the scope for corruption is enormous and that state-owned capital is at risk from such setups. Tobacco is “probably the best-paid industry in China,” Ms. Lawrence said, and employees even in small towns often lead lavish lifestyles.

So powerful is the lobby that when the deputy head of the monopoly, Zhang Baozhen, warned that banning smoking would affect public stability, his comments were, appar-ently, taken seriously by a worried government that spends nearly as much on domestic security as on national defense — $76 billion and $78 billion budgeted for this year, respectively.

China To Take Lead In Utilizing Green Technology

China has taken a leading role in utilizing many green technologies and is expected to be a major market for carbon capture and storage technologies, said industry leaders.

Both research institutes and companies have shown great enthusiasm for the technology, but commercialization will take time due to high costs and safety issues, said analysts.

“Carbon capture and storage is a tough issue but there’s an opportunity. If it can make sense in any place, China can take the leadership,” said Christoph Frei, secretary-general of World Energy Council.

China has outperformed in many aspects of renewable energies and pulled down the price of new energy, particularly in the solar energy sector, Frei said.

The cost of CCS would decline “very quickly” if all countries invested, said Joubert. The French power generation equip-ment company plans to provide CCS solutions commercially in 2015.

All three major CCS technologies, post-com-bustion capture, oxy-firing and pre-combustion, plus some more advanced technologies, are in their experimental stages at Tsinghua.

The demonstration projects mainly use domestically developed technologies. In a future joint demonstration project with the European Union, some technology transfers may be involved, industry analysts said.

China may levy a carbon tax during the 12th Five-Year Plan (2011-15), which may encourage coal-fired power plants to adopt new technologies such as CCS to mitigate carbon emissions, anal-ysts said.

The tax would be as high as several dollars per ton, but it costs at least $30 per ton to capture carbon dioxide based on current technologies, without calculating transportation and storage costs.

Cipla Seeks Partner In Pharma

Cipla Ltd, the Indian drugmaker that built a $1 billion business making generic HIV treatments, aims to sell copies of Roche Holding AG’s and Amgen Inc’s best-selling biotechnology medicines with a partner in China.

Cipla Chairman Yusuf Hamied plans to invest in companies in India and Hong Kong that make so-called monoclonal anti-bodies. The technology will enable Mumbai-based Cipla to gain access to products modeled on Roche’s Avastin and Herceptin cancer drugs and Amgen’s rheumatoid arthritis treatment Enbrel, Hamied said.

The three medications generated $19 billion in sales last year. Cipla, India’s third-largest drug-maker by revenue, intends to sell its versions cheaper, making them more affordable. The same strategy of copying medicines developed by others helped the 75-year-old company become one of the largest suppliers of AIDS pills for developing nations.

“Avastin, Enbrel, Hercept-in – these are all being marketed today, but the prices are very high,” said Hamied, whose father founded the company in 1935. “We will have biosimilars for them.”

Biotechnology drugs are made from proteins synthesized in living cells such as yeast and hamster ovaries. They are more complex, difficult to make and pricier than traditional pharmaceuti-cals, which consist of comparatively simple chemical compounds. Other Indian companies are expanding into this area.

Cipla will invest $65 million over three years buying 40 percent of a company based in the West Indian city of Goa and a 25 percent stake in a Hong Kong-based biotechnology company, Cipla said in a statement.

China’s May Retail Sales Up 18.7 Pct

China’s retail sales, the main gauge of consumer spending in the world’s fastest-growing economy, rose 18.7 percent year on year to RMB 1.25 trillion ($183 billion) in May, the National Bureau of Statistics (NBS) announced.

The growth rate was 3.5 percentage points higher than the same period last year and 0.2 percentage points higher than April’s, said NBS spokesman Sheng Laiyun.

Urban consumption hit RMB 1.08 trillion in May, up 19.1 percent year on year, while rural residents spent RMB 163.7 billion, up 15.8 percent.

In the first five months, total retail sales climbed 18.2 percent to RMB 6.03 trillion. The growth rate was 3.2 percentage points higher than the same period last year.

The government rolled out a series of incentives to bolster consumption to counter the fallout from the global economic downturn, including subsidies for home appliances in rural areas and tax breaks for auto purchases, in early 2009, among others.

China’s auto sales in May rose 28.35 percent from a year earlier to 1.44 million units, bringing combined sales in the first five months to 7.6 million units, up 53.25 percent from a year earlier.

Monthly sales of home appliances in China’s countryside surged 220 percent year on year in May to RMB 12.6 billion. The figure for January-May period was RMB 54.35 billion, up 400 percent from year on year.

JPMorgan Forms China IPO Joint Venture

JPMorgan Chase unveiled a Chinese securities joint venture in the latest move by a global investment bank to tap the mainland’s lucrative capital markets.

The venture will be allowed to underwrite initial public offerings on the mainland bourses of Shanghai and Shenzhen, but not to trade stocks in China’s booming second-ary market.

Arranging IPOs in China can be lucrative. Last year mainland bourses raised $31bn in stock market listings, more than in any other country.

JPMorgan signed an agreement with First Capital Securities, a small state-owned mainland broker, at a ceremony attended by Jamie Dimon, chief executive.

The US bank is seeking to own 33 percent of the newly created company, the maximum foreign investment permitted, with the remainder to be held by First Capital. Each partner is expected to contribute staff and tens of millions of dollars in capital to the venture.

Foreign banks are banned from operating their own securities units. Beijing is taking a gradualist approach to the opening of financial services.

New foreign-backed sec-urities ventures will need to wait about five years before applying for a license to trade stocks.

Goldman Sachs and UBS were the only global investment banks to secure minority positions in mainland ventures with full-service securities platforms before a moratorium on fresh foreign investment in the sector was imposed.

European banks including Deutsche Bank and Credit Suisse have been granted approval to launch mainland securities joint ventures in the past two years, but these have been restricted to IPO underwriting.

US banks have failed to make inroads in China because Beijing has used market access as a bargaining chip in its relationship with Washington.

JPMorgan spent four years searching for a partner and was in talks with Liaoning Securities and then Bohai Securities.

The joint venture is subject to regulatory approval, which analysts say could take several months. If successful, the move could accelerate plans by other US banks to launch similar ventures.

CONSUMER / RETAIL

Ferragamo CEO Says China Sales Going ‘Extremely Well’

Salvatore Ferragamo SpA, an Italian shoemaker that has supplied footwear to Marilyn Monroe and Jennifer Lopez, said second-quarter sales in China are going “extremely well” after the company opened new stores.

Revenue in the three months to June is rising faster than the 20 percent increase in the first quarter, helped by the Shanghai Expo, Chief Executive Officer Michele Norsa said.

Ferragamo may open as many as eight new stores next year in China, where the economy, the world’s third-biggest, expanded by almost 11.9 percent in the first quarter. The number of Chinese worth at least RMB 10 million ($1.5 million) rose 6.1 percent this year to 875,000, according to a Hurun Wealth Report.

The world’s most populous nation offers the “best opportunities” compared with Europe and the U.S., Norsa said. He maintained an annual revenue target of “double-digit” growth for China, higher than a forecast of a “single-digit” increase in worldwide sales he made in January.

The company will have 44 stores in China by the end of this year, up from nine in 2008, he said. Among its openings this year was one in Shanghai, its biggest in Asia outside Japan, and outlets in Suzhou, Hangzhou and Guangzhou.

American Eagle To Open Stores In Hong Kong, Shanghai

American Eagle Outfitters Inc, the teen retailer with more than 1,000 stores in North America, will open stores in China starting next year through a franchise agreement.

The first three of a “series” of stores will open in early 2011 in Hong Kong, Beijing and Shanghai, in partnership with Dickson Concepts (International) Ltd, Pittsburgh-based American Eagle said.

American Eagle Chief Executive Officer Jim O’ Donnell is focusing on international expansion to fuel growth. American Eagle started its first stores outside North America in March in Dubai and Kuwait City, also through a franchise.

American Eagle rose 14 cents, or 1.2 percent, to $12.21 in New York Stock Exchange composite trading. The shares have lost 28 percent this year.

Dickson Concepts operates over 400 retail stores throughout Asia, including Harvey Nichols.

Disney Opens One-stop Shopping Community In Guangzhou

China’s first one-stop Disney consumer goods specialty zone has been opened at China Plaza, Guangzhou.

With a total area of 1,000 square meters, the one-stop themed shopping area’s design is based on many well-known Disney characters. It provides over 5,000 fashion products, covering apparel, accessories, leather, bags, home supplies, and toys. In addition, the specialty zone integrates Disney’s rich entertainment re-sources, allowing con-sumers to take photos with various Disney cartoon characters.

So far, Disney has opened over 5,000 retail stores and counters in department stores and supermarkets in China, reaching consumers in 25 Chinese cities. Since 2009, Disney has been expanding new sales channels and models to meet consumers in different regional markets. The company has opened an e-commerce platform and has cooperated with the Chinese Internet shopping website Taobao.com for the sales of over 5,000 kinds of licensed Disney products.

Disney also announced plans to launch a new retail model, Toonsland Kids Store, to expand the third-tier cities in China, aiming to double the number of its retail sites in the second- and third-tier Chinese cities.

ALTERNATIVE ENERGY

China Guodian Plans Hydropower, Coal Plants In Myanmar

China Guodian Corp. has signed an initial agreement to build hydro and coal-fired power plants in Myanmar, the company said in a statement.

This agreement marks an important step in China Guodian’s overseas expansion strategy, the company said.

China Guodian is engaged in development, invest-ment, construction, oper-ation and management of power plants and power generation for electricity supply. The company is one of the largest power producers in China.

Energy Usage Set To Tighten To Curb Excess

Authorities will restrict energy supply in areas with excessive increases in energy usage and high energy-consuming indust-ries, said a high-ranking official with the National Development and Reform Commission (NDRC), the country’s top economic planning body.

The practice of uncapped energy supply and the uncontrolled use of energy will change with the new moves, Xie Zhenhua, deputy minister of the NDRC said.

Starting from June 1, the NDRC has ordered enterprises using high levels of energy to be excluded from enjoying discounted electricity rates.

The central economic planner will also launch nationwide inspections to enforce the new moves.

Such enterprises will also be required to limit or stop production, it said.

The country’s goal of curtailing its energy usage and cutting carbon emissions has met with difficulties as a pickup in the demand for energy-guzzling products pushed up the need for power.

Preliminary estimates showed that the energy use for every unit of gross domestic product, a measurement of China’s energy consumption, rose in the first quarter by 3.2 percent from a year earlier, Xie said.

The NDRC will also tighten its supervision of energy-saving practices in a number of key areas to meet the goal, Xie said. These key areas include large energy-consuming provinces such as Guangdong, Jiangsu and Shandong. In other provinces like Sichuan and Shanxi, energy consump-tion has grown so swiftly in the first five months of this year that supervision will also be boosted, he said.

China Harnesses Mountain Wind Power

At an altitude of 3,000 metres (9,800 feet), Dali Zhemoshan is the highest wind farm in China, where renewable energy has become a priority for a government keen to reduce its carbon emissions and which has taken full advantage of the global trade in carbon credits.

“Wind resources in Yunnan province are not the best in the country,” says Zhai Cheng, a project manager at the farm for the Chinese group Sinohydro.

“But at altitude, it becomes more interesting,” he adds, gesturing at the line of 48 metre-high turbines.

China, which relies on coal for more than 70 percent of its energy, is the world’s largest emitter of the greenhouse gases blamed for global warming.

But it has set a target of generating 15 percent of its energy from renewable sources – mainly wind and water – by 2020.

In Yunnan, the wind turbines – which operate at full tilt between October and April – are there to boost the region’s enormous hydroelectric power resources when productivity falls during the winter months.

The rapid boom in wind farming in China – where installed capacity doubled in 2008 for the fourth year running to sit at 12.2 gigawatts – places it behind only the United States, Germany and Spain.

RECENT TRANSACTIONS

Posco Acquires Chinese Rare Earth Firm

South Korean steelmaker Posco, together with Korea Resources Corp, acquired a controlling stake in a Chinese rare earth mining company.

Analysts say this might be a strategy to bypass China’s restriction on rare earth exports, National Business Daily reported.

Posco and Korea Resources bought 60 percent of Yongxin Rare Earth Metal Co, a company in Inner Mongolia autonomous region, for RMB 59.76 million ($8.8 million). The purchase was made by Posco-China, Posca’s investment arm in China.

The deal enables Posco to buy rare earth export quotas from other companies and export rare earth back to South Korea, said Geng Nuo, an analyst with Great Wall Securities. Only about one-fifth of rare earth mining companies in China have export quotas.

Recently China has tightened controls on the rare earth industry. Feeling the pressure of decreased supplies, many foreign companies came up with contrivances to get around export restrictions. Besides buying quotas, some companies set up processing plants in China, on which export restrictions are com-paratively looser, and export processed rare earth products from them,.

China’s Fosun Acquires 7.1% of Club Med

Fosun, China’s largest non-government controlled group, has acquired 7.1 percent of holiday resort operator Club Med, the first time a quoted Chinese group has taken a direct holding in a listed French company.

Club Med hopes to make China the No. 2 market in the next five years while Fosun is keen to invest in Club Med, whose all-in one, integrated resorts appeal to well-heeled Chinese.

Fosun’s board is chaired by the tycoon Guo Guangchang, one of China’s richest men. Fosun’s Club Med stake is worth €23.38 million ($28.14 million).

The Chinese tourism market is estimated to have grown by about 10 percent a year and Club Med is hoping to attract 200,000 Chinese cust-omers by 2015.

Club Med said it aimed to open five villages in China by then and would inaugurate its first village this winter in Yabuli, the largest ski resort in North-east China.

As part of the deal, Fosun pledged not to lift its stake beyond 10 percent if it reached that level, at least during the following 24 months, subject to no other shareholder having or wishing to acquire more than 10 percent.

Chinese Navigation Co. AutoNavi Files For $100 Million IPO

AutoNavi Holdings Ltd., a venture-backed provider of maps and navigation services in China, filed to raise up to $100 million through an initial public offering of American depositary shares.

The Beijing-based com-pany said it has created a digital-map database that covers 2.8 million kilometers of roadway in China. It provides map data for automotive navigation, public sector and enterprise applica-tions, and wireless and Internet location-based businesses.

AutoNavi said it plans to use proceeds of the offering to expand its data processing facilities and build a research and development center. Proceeds will also fund the capital expenditure for its aerial photogrammetry business and support potential acquisitions.

The company earned profit of $10.8 million last year on $57.2 million in revenue, and $1.2 million in profit in the first quarter of 2010 on $16.6 million in revenue.