In the news: IPOs resume, rural banks get reserve ratio cuts, China Resources head dismissed and GM ramps up in China

CSRC unveils list of 28 IPOs

Shanghai signalled that it was ready to reopen the gates to new share offerings after a two-month halt. A long waiting list of eager issuers put pressure on regulators to resume IPOs despite a weak stock market and slowing economy. Following the end of the 14-month freeze in January, loopholes, poor market conditions and shareholder behaviour prompted another halt, with authorities refusing to grant approvals and issuing new and stricter Measures. The CSRC's list of the 28 companies that have disclosed IPO plans includes 16 larger IPOs headed for the Shanghai Stock Exchange and 12 aiming for the smaller tech-based Shenzhen exchange. The most notable candidate is Shanghai Film, which plans to raise Rmb969 million (US$155 million) through a share sale ahead of its Shanghai listing.

Sources:
The Wall Street Journal
Reuters

Analysts expect the CSRC's move to bring on new listings by next month at the latest. After authorities ended the 14-month IPO freeze, 43 companies were listed in January, and five in February. But 606 companies remain on the waiting list after the process was halted in March due to continued price fixing and cash outs. While the new Measures increase supervision of the pricing and roadshow processes of issuers and underwriters leading up to the offering (through random inspections and public reporting requirements), is the market really ready for the resumption of IPOs? Apparently dozens of companies have abandoned plans to list in the mainland due to the opacity of regulations. The intention is clear, to move the economy forward and further out into the global arena, but we shall see what the market makes of its third chance.

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PBOC cuts reserve ratio for rural banks

The People's Bank of China has announced that it will lower the reserve requirement ratio at county-level rural banks by 200 basis points (2 percentage points). As Chinese leaders try to shift away from investment as an economic growth driver, they prompted this move to fuel rural development in the midst of a slowing economy. Analysts, however, have expressed concern over a potential rise in financial risks due to hasty liquidity. The PBOC has stated the move was to guide investors “to increase agriculture-related investment and further improve the capacity and level of rural financial services”. China last adjusted reserve requirements in 2012, cutting them to 20% for large financial institutions and 16.5% for smaller ones, while rural lenders have even lower requirements.

Sources:
South China Morning Post
The Wall Street Journal

While some predict further easing to be around the corner, others believe the requirement reductions reduce the chance for nationwide banks to receive a broader reserve ratio cut anytime soon. Although a broader cut would affect urban areas, the cut on rural banks would not have such a huge impact on the overall economy. Though around Rmb80-90 billion (US$12.9-14.5 billion) would be freed up for lending, the sum is relatively insignificant given the size of the nation's entire economy. Regardless, it signals the government is concerned about slowing growth. Growth has dipped from 7.7% in the fourth quarter of last year to 7.4% in the first quarter this year, and some predict the growth target of 7.5% may not even be attainable this year. The government needs to find sustainable growth sources, and quick.

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China Resources chairman dismissed for corruption

The chairman of state-owned China Resources Holdings, Song Lin, has been stripped of his position as the firm's Communist Party chief as part of a corruption investigation. The company has announced it was cooperating with the investigation and appointed Fu Yuning as chairman to replace Song. The investigation had been prompted by allegations last year that the company had overpaid for coal-mining assets in Shanxi province in 2010 where an internal audit had discovered inflated valuations.

Sources:
The Wall Street Journal
Bloomberg

The probe shows the government's intensifying campaign to crack down on the corruption that President Xi claims threatens the party's 60-year hold on China's leadership. The recent investigation into CNPC chairman Zhou Yongkang and his entire family's holdings is connected, though the New York Times states it may have been due to Zhou being a direct threat to Xi's power. Regardless of what the true motives behind the anti-corruption drives are, it appears that China is getting serious after all…

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GM makes US$12 billion investment

General Motors plans to invest US$12 billion (Rmb74.9 billion) in China from 2014 to 2017 and build more plants next year. It expects its China sales to expand 8-10%, in parallel with the overall growth of the Chinese auto market, which is the largest in the world. GM will be battling against aggressive foreign rivals like Volkswagen and domestic players SAIC for market share. The company plans to build five more plants in China next year as part of its efforts to ramp up manufacturing capacity in the country by 65% by 2020. Meanwhile, Volkswagen sees the eastern provinces secured and is pushing into the west. Its luxury flagship Audi will target smaller megacities in central and western provinces to raise the number of dealerships by about half to 500 in the next three years.

Source:
Reuters

The western and central areas of China are where new business is emerging – and not just for automakers. Low vehicle density in the smaller cities offers extremely promising growth opportunities. Volkswagen overtook GM last year as the top-selling foreign brand in China and aims to secure the lead with aggressive spending and expansion. GM has announced to move full speed to keep up and continues to count on China as a key market for sales growth. But what other options do businesses have if they don't want to miss out on growing with the world's largest consumer market?

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