In the news: Vanke and Baidu pair up, Sinopec and FTSI form a JV and the PBOC cuts reserve requirements for small banks

China Vanke partners with Baidu

The country's biggest developer by sales revenue has announced a strategic partnership agreement with Baidu, in order to use the internet to expand its services and speed up its entry into the mainland industrial property sector. Vanke, one of the first property operators to utilise the internet to analyse their clients' activities, will use location-based service technology in its projects. CEO Yu Liang has visited other leading domestic internet firms including Alibaba, Tencent and Xiaomi to learn how to embrace the internet in the traditional property business. Vanke also aims to break into the commercial property business in which it has lagged behind rivals such as China Resources Land and Longfor Properties.

Source:
South China Morning Post

The move was a step towards Vanke's ambition to become a service provider for city development, and the company also intends to invest in industrial properties. It plans to open about 20 new projects in major cities over the next three years and aims to jump up the ranks in the modern logistics space after this renewed strategic focus. To bolster this expansion, Vanke also formed strategic alliances with more than 40 retail brand operators this week, including China Resources Group and CJ Corp. With decreasing liquidity and increasing pressure on prices, companies are more reluctant to invest – especially in the real estate sector – but opportunities still present themselves in various ways. Perhaps innovation does remain key, and it will be interesting to see whether Vanke succeeds and then assess what Baidu can really offer its partners.

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Sinopec and FTSI form JV

Sinopec has entered into a 15-year joint venture agreement with FTS International to tap into China's unconventional resources. The new venture is to be called SinoFTS Petroleum Services and will be based in Beijing. It is the first oil field services collaboration of its kind between a non-Chinese well completion company and a Chinese national oil company. FTSI will provide Sinopec with its expertise in hydraulic fracturing and new equipment manufactured in the US and adapted for the Chinese environment. Sinopec will own 55% and FTSI will hold 45%.

Source:
Oil & Gas Journal

The JV plans to focus initially on the Sichuan basin, where operations for the initial pressure pumping fleet will begin in 2015. Plans for further deployments in basins throughout China will also be made. China's appetite for outbound M&A especially in natural resources has been changing the global landscape. Sinopec formed a JV with Weatherford International last year to expand its upstream shale gas business and previously signed an agreement with ConocoPhillips for joint research on shale gas exploration, development and production in Sichuan. The Sichuan basin has an estimated 145 trillion m3 of recoverable shale gas resources, and it appears Chinese companies need Western technology to make use of it.

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China cuts reserve requirements for regional banks

The PBOC has announced on June 9 a 0.5% cut in reserve ratio requirements for city commercial banks and small rural lenders. Specifically, this includes two thirds of city commercial banks, 80% of non-county level rural commercial banks and 90% of non-county level rural cooperative banks. This policy move is aimed at supporting smaller businesses and agriculture and follows various liquidity injections such as the April 25 cut to reserve ratios for rural banks.

Source:
Bloomberg

This move may not be enough – more forceful monetary policy relaxation is needed. Imports fell in May, highlighting the weakness in domestic demand that is making the economy more reliant on exports. Broader measures are needed to support growth; efforts have included tax breaks and speeding up government spending as the slowdown in real estate limits the nation's expansion. Analysts have estimated a reserve ratio requirement cut for all banks could unlock about Rmb500 billion (US$80 billion) of financing – such a universal cut would convince the market that liquidity will be stable in the long run. If stable growth still can't be attained, more pressure from the State Council on the PBOC is expected.

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