Business Daily Tuesday, October 18 2016 9
Greater China In Brief Luring talent
“We believe we may keep a certain level of about 900-1,000 tonnes of annual consumption (in 2017)” Roland Wang, managing director for China at the World Gold Council
World Gold Council
Mainland gold demand to stay firm Strong investment demand has countered a drop in jewellery purchases Manolo Serapio Jr
Demand for gold from top consumer China will remain strong at around 900-1,000 tonnes next year, near 2015 levels, although a weaker appetite for jewellery and slowing economy could curb purchases, an official of the World Gold Council said. Continued firm demand from China should help underpin global benchmark gold prices that have come off two-year highs as expectations of a U.S. interest rate hike by year-end strengthened the dollar. But the precious metal remains up 18 per cent for 2016, following a three-year decline. “We believe we may keep a certain level of about 900-1,000 tonnes of annual consumption (in 2017), but it may face some challenges especially on the jewellery side and also it depends on the price and China’s own economic situation,” Roland Wang,
intensified competition in their core business of hedging risk. An estimated 80 per cent of brokers’ asset management business focused on leveraged structured products, people working in the sector said. Now, brokers like Huatai Futures, which manages more than RMB10 billion (US$1.5 billion) in assets, and Hicend Futures, are finding only tepid interest from investors in products that comply with the new rules. “Since banks can’t be guaranteed high returns, most of them have lost interest, while a few are only willing to work with big asset management firms,” Hicend’s Ni added. Kang Lan, a senior asset manager at Huatai in the southern province of Guangzhou, said her firm has only managed to launch one fund under the new rules. In the month before the change, the firm had set up as many as 10.
Early stumble
Of China’s 150 futures brokers, more than 100, including the nation’s top names Founder CIFCO Futures, Guosen Futures and Hongyuan Futures, have asset management units, AMAC says. Their assets under management more than doubled to RMB227.3 billion (US$34 billion) in the first six months of 2016 from the end of 2015. “With strengthening supervision from regulators, (brokers’ asset management) business will definitely slow down,” Liang Lijin, a finance lawyer with Hiways Law Firm in Shanghai said. “They will launch new products based on the new rules, but they will be slow and business will not grow.” Reuters
managing director for China at the World Gold Council, told Reuters on the fringes of an industry conference in Singapore. He also expects demand in 2016 to be at around 900-1,000 tonnes. China’s gold demand reached 984.5 tonnes in 2015. This year, strong investment demand has countered a drop in jewellery purchases, particularly among leading consumers China and India, taking global gold demand to the second highest on record in the first half, at 2,335 tonnes.
Wang said jewellery traders were seeing “more demand for gold bars since late September” with investors seeking alternate investment options amid China’s housing market curbs. China is restricting home purchases to temper surging prices. A wave of restrictions imposed on housing markets in major cities has unnerved some buyers and developers, cutting the area of new homes sold in places such as Beijing and Shenzhen by more than half during the week-long National Day holiday in early October. A weaker yuan is also pushing investors to gold, Wang said. But some jewellery manufacturers are looking at producing more innovative and “more colourful” products in a bid to draw in younger buyers and boost sales, said Wang. “That’s becoming a new trend in the market,” he added. Reuters
Diversification
Aluminium makers to target auto, aerospace China’s giant aluminium makers are pushing into the global automotive and aerospace markets, with industry sources expecting their presence to heat up competition and possibly spark a buying spree for Western metals companies. China’s top aluminium companies are venturing into the more lucrative parts of the global value chain, on course to seize market share from the likes of Alcoa and Constellium, as they look to buy into foreign firms to boost their technical know-how and expand their reach. The chief executive of Novelis Inc, the world’s largest maker of rolled aluminium products, said last week he expected competition with Chinese producers to be “very fierce” over the next five to 10 years in the highvalue-added sectors of aerospace and engineering - which so far have been dominated by European and U.S. manufacturers. Zhongwang USA LLC, backed by Chinese aluminium magnate Liu Zhongtian, said in late August it would buy high precision aluminium product maker Aleris Corp in a deal worth US$2.3 billion, marking the biggest entry by a Chinese company into the U.S. aluminium industry. The deal for Aleris, a supplier to the U.S. defence industry, has yet to be
approved by U.S. regulators. Alcoa is spinning out its precision manufacturing business into a company to be named Arconic, which industry sources said could be another potential target. Arconic expects to grow its automotive sheet revenue around six fold, to US$1.3 billion in 2018 from US$229 million in 2013. It has already signed US$10 billion with customers including Boeing and Airbus. An Alcoa spokesperson declined to comment. “Zhongwang have been openly pursuing a downstream focus for years, but they aren’t the only ones with capital, a healthy balance sheet and an appetite to expand downstream,” said Paul Adkins, managing director of Beijing-based consultancy AZ China. Adkins pointed to China’s Hongqaio Group and Shandong Nanshan Aluminium as potential bidders. H o n g q ai o G r o u p d ec l i n e d t o comment. Nanshan’s board secretary said the company hasn’t received any information about possible mergers from the board. Shandong Nanshan said in July it aims to tap growth in new energy vehicles to become a top automotive and a major aerospace materials supplier as it strives to meet international certification standards. Reuters
Wanda to unveil production subsidy Dalian Wanda Group plans to announce a 40 per cent production subsidy to attract Hollywood filmmakers to its new multibillion-dollar studio in the eastern Chinese city of Qingdao, a person with direct knowledge of Wanda’s involvement said. The production rebate will be jointly funded by Wanda and the local Qingdao government, said the person, who asked not to be identified. The subsidy will apply to feature films and TV shows. Costs eligible for the rebate include stage and equipment rentals, set construction and local accommodations. Markets
Vanguard cuts ETF fees in Hong Kong Vanguard, the world’s second-biggest asset manager, cut the total expense ratio on all its Hong Kong-listed exchange traded funds, effective yesterday, as competition heats up in the passive asset management space. The move follows similar steps taken by companies such as Charles Schwab Corp and Blackrock in the United States that have cut fees recently ahead of a new Labour Department rule governing retirement products. While the cuts on Vanguard’s stable of exchange-traded funds offered in the Hong Kong market is a sliver of the overall market, the move points to an increasing focus on costs by asset management companies. M&A
AVIC, CITIC, others inject to fund Supercell purchase Tencent Holdings Ltd said a consortium formed to buy game developer Supercell has raised US$850 million by selling new shares to investors including Chinese stateowned investment firms AVIC Capital and CITIC Capital. Tencent, China’s biggest gaming group agreed in June to buy the ‘Clash of the Clans’ mobile game maker from Japan’s Softbank Group Corp for about US$8.6 billion but had flagged it would form a consortium with co-investors. After the share sale, co-investors, which also include China CITIC Bank Corp and bad debt manager China Cinda Asset Management, will own 50 per cent of the consortium. Investment
Envision joins investors in German battery firm A German battery maker which allows people to store and pool electricity said it has secured 76 million euros (US$85 million) from venture capital investors, including Chinese wind turbine and energy management group Envision, to develop its systems. Start-up sonnen, formerly Sonnenbatterie, said in a statement on Sunday it plans to use the money to expand in Italy, Australia, the United States and Britain. Its technology allows renewable power to be stored and then used when weather conditions prevent sufficient generation. Such storage is moving into a price range which makes it more affordable for German householders.