TODAY'S BRIEFS News Update - 3 July, 2008

China introduces 'hot money' controls
Foreign exchange revenues generated by Chinese exporters are to come under closer scrutiny as part of efforts to control the amount of speculative "hot money" entering the country, the Financial Times reported. According to new regulations published on Wednesday by the State Administration of Foreign Exchange (SAFE), revenues must be deposited in special accounts while it is established whether the funds are the result of genuine trade. In order to back up their invoices, exporters will have to provide documentary evidence of relevant transactions. If the authorities are satisfied the foreign currency can then be converted into renminbi. A new computer system for checking invoices will be introduced on August 4, following a trial period that begins on July 14. Officials suspect some companies exaggerate export revenues in order to convert more US dollars into renminbi and take advantage of higher interest rates in China than in the US, as well as an appreciating currency.
For more on China's hot money challenges, see this report from our June issue.

Huawei shortlists bidders for its mobile devices unit
Five private equity firms have been shortlisted as possible buyers of Huawei Technologies' mobile devices division, the Wall Street Journal reported, citing people familiar with the matter. The bidders are said to include Bain Capital, Silver Lake, Kohlberg Kravis Roberts and Goldman Sachs's private equity arm. The Journal's sources added that Blackstone Group, TPG and Carlyle Group were among the bidders that failed to make the shortlist. Huawei's mobile devices division - which is responsible for products including mobile phones and wireless data cards for laptops - is valued at more than US$4 billion. The prospective investors have offered to purchase around 50% of the division. Any deal is likely to rank as the largest or second-largest private-equity investment in mainland China.

Foreigners may face tighter Chinese patent laws
Foreign companies that make discoveries in China would have to file for a patent in China before anywhere else or risk losing protection of their intellectual property, according to proposed changes to the country's patent law. Another proposal calls for the introduction of an "absolute novelty" standard, which would make it more difficult to obtain a patent in China for inventions already in use overseas. Experts said the changes, which could come into effect this year, would make it easier to challenge rogue Chinese patents, the Financial Times reported. However, the experts also warned that conditions are likely to become more challenging for foreign firms conducting research in China. At present, most of these firms choose to file for patent protection in their home countries, where patent legislation is more mature and robust than in China.

Rising competition sees GM's sales growth slow
General Motors (GM) said its sales growth in China slowed in the first half of the year due to rising competition from Toyota and Volkswagen, Bloomberg reported. GM sold 590,000 vehicles in the country over the first six months of 2008, up 14% from a year earlier, according to Joseph Liu, the company's vice president for China. In 2007, sales growth was 19%. GM has yet to release any new models in China so far this year, while Toyota has launched the Yaris and Volkswagen has introduced the Lavida. Both vehicles are compact models. China is GM's second-most profitable market worldwide, generating net profits of US$826 million in the first quarter, compared with a US$812 million loss in North America. GM plans to invest as much as US$5 billion in China over five years through 2012. It plans to launch a new Buick sedan in the first quarter of 2009 to compete with Toyota's Camry and Volkswagen's Magotan.

Kazakh miner commits to steelmaking JV
International Mineral Resources (IMR), a Kazakh mining company, will pay over US$1.52 billion to set up a steel-making joint venture in China, the South China Morning Post reported. The Kazakh firm's partner is Gansu-based Jiuquan Iron & Steel Group. The Chinese company, which is the country's 16th largest steelmaker by output, will contribute US$1.58 billion in assets to the joint venture and take a 51% stake. These assets include a 61.9% stake in its Shanghai-listed unit, Gansu Jiu Steel Group Hongxing Iron & Steel. IMR - part of Kazakh conglomerate Eurasian Industrial Association - is keen to match the likes of ArcelorMittal by getting a stake in the world's largest steel market. For the Chinese company, the joint venture represents an opportunity to secure iron ore from abroad.

Report: China IPO funds set to halve in 2008
Weak market conditions are likely to see total funds raised through initial public offerings in mainland China and Hong Kong fall by about half this year, the South China Morning Post reported. PricewaterhouseCooopers (PwC) estimates that around US$36.5 billion will be raised from 112 offerings on mainland bourses. This compares to US$67.2 billion from 125 offerings in 2007, PwC said. Shanghai is expected to account for 12 of the new listings in 2008 and around US$29.2 billion of the total capital raised. The number of listings in Hong Kong is set to fall to 55 from 86 last year, with total funds raised dropping to US$16.7 billion from US$38 billion in 2007. In the first half of 2008, the amount raised through offerings in Shanghai and Shenzhen was down 41% year-on-year at US$13.1 billion. Hong Kong saw a 51% decline to US$6.5 billion.

Dalai Lama faces criticism as Tibet talks continue
The Communist Party chief of Tibet on Wednesday repeated Chinese government claims that the Dalai Lama and his supporters orchestrated riots in March with "the evil intention of turning the incident into a bloodbath," Reuters reported. The remarks made by Zhang Qingli came as talks between Chinese officials and envoys of the Dalai Lama entered their second and final day. Zhang also blamed "hostile Western forces" for supporting the unrest, describing the incident as an effort to disrupt the Olympics and undermine Tibet's stability and political harmony. Thubten Samphel, secretary of the Tibetan government in exile's Department of Information, said the unrest was prompted by Beijing implementing the wrong polices in Tibet. Chinese state media were largely silent on the talks, while Samphel only said that negotiations would likely continue until the evening.