In the news: China's "two-speed" economy and antitrust enforcement under the lens, Wanda agrees to buy Legendary
January 05, 2016 | BY
Katherine JoThis week markets reacted to China's economic track and outlook, PRC competition regulators imposed the highest amount of fines in 2015 and Dalian Wanda reportedly agreed to acquire a major U.S. movie studio
The first economic reports of 2016 signaled China's manufacturing weakened for a fifth straight month, the longest streak since 2009, while a number of services sectors rose to the highest level in more than a year. The Caixin China Manufacturing PMI index released on Monday showed a slight drop to 48.2 from the previous month's 48.6, whereas the official non-manufacturing PMI rose to a 16-month high of 54.4. These readings still signal a “two-speed” economy dragged down by excess heavy manufacturing capacity especially in steel and shipbuilding. Markets reacted badly on their opening day, but investors should be reminded that China is shifting the economy away from manufacturing and investment to consumption and services, and decreasing figures in the former is part of that transition. It is up to the policy makers to drive this change, by identifying the areas that aren't showing signs of picking up and supporting the ones that are. A Caixin services PMI figure released on Jan 6 morning apparently fell to a 17-month low, disrupting the markets once more, but this index focuses on smaller firms. Official data will provide investors with a bigger picture on how all the different sectors are contributing to growth (or not). Numbers may weaken in the short term, but in the long run, the reforms – if implemented effectively – should lead to a steadier and leaner economy.
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China imposed the highest monetary penalties in 2015 since the PRC Anti-monopoly Law came into effect in 2008. It handed out $1.1 billion dollars, the most in Asia (next came Korea and Taiwan, at $403 million and $17 million, respectively), according to a December competition law update by Norton Rose Fulbright. Regulators wrapped up the year with a series of decisions and fines – the Chongqing AIC fined local drugmaker Qingyang Yaoye $67,000 for refusing to supply an active ingredient and the NDRC fined 8 foreign shipping companies engaged in a cartel a total of $62 million. 12 insurance companies in Hubei and 7 concrete producers in Hunan were also fined by the local AICs for cartel behavior. This is hitting companies hard as enforcement grows fiercer. The NDRC broke new ground in its shipping decision in particular by encouraging companies to establish internal compliance systems – a move more often seen in Western jurisdictions. This is a positive signal that China's regulators may actually be willing to take compliance efforts into account in future charges and penalties, highlighting the importance of corporate compliance in the country more than ever.
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Chinese property and investment firm Dalian Wanda Group has reportedly agreed to buy a majority stake in U.S. movie studio company Legendary Entertainment, producer of hits such as 'The Dark Knight,' 'Jurassic World' and 'Man of Steel,' for up to $4 billion. The move will make Wanda a major player in the U.S. entertainment industry following its acquisition of AMC, the second-largest movie theatre chain in North America, for $2.6 billion in 2012. Other Legendary investors including Japan's SoftBank and investment firm Waddell & Reed have agreed to sell their shares. The deal is not yet public, and none of the companies responded to requests for comment. CEO Wang Jianlin of Wanda, one of China's largest conglomerates, has said he wants to make the business “a brand like Walmart or IBM or Google, a brand known by everyone in the world.” Many other private Chinese companies like Alibaba, Tencent and Fosun are also expanding and diversifying at an extremely fast pace to achieve similar goals – they are the drivers for China's modern industries. As for the country's traditional sectors, increasing productivity and efficiency depends largely on the SOE reform.
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