Bank loans drive China output to record

China’s manufacturing sector rose May to the highest level in more than two years following a surge in bank lending, China Economy reported. The purchasing managers’ index climbed to 54.1 from 53.3 in April, a Hong Kong-based surveyor said. The central bank has raised interest rates twice this year and ordered banks to increase reserves five times to cool lending and investment. It is also concerned about inflows of international hot money, which have helped pushed forex reserves to a record US$1.2 trillion. “Accelerated tightening monetary measures should be expected over the next six months as China fights to regain control of its overheating economy,” said Jim Walker, chief economist at CLSA Asia-Pacific Markets. “China’s commercial banks continue to ignore pleas to restrain lending just as its local governments ignore pleas to restrain spending.”

Japanese carrier to tie up with Shanghai Airlines

All Nippon Airways  – Japan’s second largest carrier – said it may add Shanghai Airlines to its partnership with South Korea’s Asiana Airlines to expand its network, the Shanghai Business Journal reported. “We are thinking about an alliance between China, South Korea and Japan,” said the president of the Japanese carrier. The cooperation with Shanghai Airlines would start with code shares, and an equity tie-up was not planned, he said. All Nippon and Asiana, South Korea’s second largest carrier, have agreed to buy stakes in each other to strengthen their ties. Adding a Chinese carrier to the partnership would allow the two airlines to boost their routes in China – now the world’s second largest aviation market. Shanghai Airlines is likely to join the Star Alliance this year, joining All Nippon and Asiana as members of the world’s largest airline group.

Offshore investment quotas under-used

China’s banks have used only 6% of their quotas for overseas investment, the China Times reported, citing an official with the banking regulator. The China Banking Regulatory Commission (CBRC) has approved 22 banks as qualified domestic institutional investors with a total quota of US$14.8 billion. “The banks have regrettably only invested US$800–900 million,” Ying Rong, deputy director general of the CBRC, told a forum held by the French bank Societe Generale.

French uranium company seeks China JV

French uranium group Areva has signed a joint venture deal with Chinese power equipment maker Guangdong Macro to make power transmission equipment in southern China, China Business reported. The US$262 million (RMB2 billion)  joint venture, to be half owned by each side, needs approval from Macro’s shareholders, Areva’s board members and the Chinese government. Macro’s shares climbed by the daily 10% cap rate to RMB13.31 on June 1. China’s power transmission market accounts for almost a quarter of the world’s total and it is growing at a blistering pace. Earlier this year, Areva won a US$5 billion deal from China to build two nuclear reactors in southern Guangdong province.

China, Egypt reach oil drill deal

Chinese and Egyptian officials have agreed to initiate a joint venture project to make oil drills, Economic Daily reported. It will be the first land oil rig plant in the Middle East. Wu Sike, the Chinese ambassador to Egypt, said a memorandum of understanding was signed last October, a contract was signed last December and the venture could start to produce drills in another six months. The Chinese party to the joint venture is Sichuan Honghua Petroleum Equipment while the Egyptian side comprises three parties including an oil processing firm, an oil consultation company and a petroleum company. According to the contract, the two sides will invest US$15 million each and the joint venture will manufacture three oil drills in three years.

KFC set to extend along Shanghai metro

KFC has signed an agreement with Shanghai’s metro operator to open more stores along the city’s 11 metro lines over the next five years, the Xinmin Wanbao reported. Shanghai Shentong Metro Assets Management Co will operate 11 metro lines by 2010, involving over 280 stations handling 3.5 million people every day. KFC will use the deal to carry on its rapid expansion despite the hard time facing fast-food retailers in maturing urban markets. “We are planning to double the number of stores along the metro stations during the five-year contract, and we will get discounted rental and priority over our competitors,” said Lu Jiulong, chairman of Shanghai KFC. The company started opening stores in metro stations in 2003, and had 12 stores along the existing five lines by 2006. It currently has 1,800 stores in China, almost twice as many as McDonalds, and is opening 300 new ones every year. McDonalds has focused on opening drive-thru stores in China.

Hutchison may lift Shenzhen JV stake

Hutchison Port Holdings – the world’s largest container operator – is considering raising its stake in a joint venture in Shenzhen because of China’s rising demand for sea cargo, the 21st Century Business Herald reported. Shenzhen Yantian Port Holdings may sell 23% of its 58% stake in the joint venture to Hutchison Port, which will increase the latter’s stake to 65%. Shenzhen – the world’s fourth largest container port in 2006 – is growing more quickly than its more expensive neighbor Hong Kong. Shenzhen boosted its container volume by 14% in 2006 vis-à-vis Hong Kong’s 4%. The venture, which was set up in 2004, reported a profit of US$860,000 (RMB6.6 million ) in 2006.

Guangzhou Honda reaches 50,000 sales

Honda Motors announced that sales of Jazz compacts from its Chinese joint venture, which makes vehicles exclusively for export, have reached 50,000 since its founding in 2005, the Yangcheng Wanbao reported. Guangzhou-based Honda Automobile (China) Co Ltd – a joint venture between Guangzhou Automotive Industry Co and Japanese Honda – is currently China’s only joint venture making vehicles only for the overseas market. The joint venture automaker, which has a registered capital of US$82 million, made 24,600 Jazz compacts last year. Its daily production capacity is 200 units, and it plans to improve this by 70% to make 42,000 units this year to export to 10 overseas markets, including Germany and Britain. Honda has two other joint ventures in China making vehicles for the domestic market.