Yuan on the Rise; Bad Debt Worries

Mayank Mehta, Chandrasekhar Atreya and Sanjay Barot
25 Jun, 2010
New York City

Stocks in Shanghai and Hong Kong traded lower. Local government debt and rising bad debts at state controlled companies may affect profits at Chinese banks. Aluminum Corp. of China sells short term loan. SAIC is planning to raise $1.5 billion.

[R]5:00 PM Hong Kong, China – Stocks in Shanghai and Hong Kong traded lower. Local government debt and rising bad debts at state controlled companies may affect profits at Chinese banks. Aluminum Corp. of China sells short term loan. SAIC is planning to raise $1.5 billion.[/R]

Stocks in China traded lower for the third day on the worries related to global economic growth and early stimulus withdrawal in Europe. G-20 leaders are gathering in Canada to discuss the health of the global economy.

The CSI 300 Index fell 0.77% or 21.21 to close at 2,736.29. However, for the week the Shanghai index increased 1.6%.

Stocks in Hong Kong fell paring yesterday’s gain and the index’s longest winning streak in more than a year. Hang Seng Index lost 0.21% or 42.70 to close at 20,690.79 with Neo-China Land Group (Holdings) Ltd falling a record 43% in today’s trading.

China’s local government debt may bring down the banking industry profitability by 7.9% between now and 2012, the China Daily reported, citing a report from the Chinese Academy of Social Sciences.

Banks may have to keep 283.1 billion yuan as provision for bad loans over the next two years, as doubtful debts rise, according to the agencies Blue Book for China Finance.

The People’s Bank of China fixed the reference rate for yuan at 6.7896 per dollar today. The yuan is allowed to trade in a tight band with a range of 0.5% to the daily reference rate. The currency traded at 6.795 per dollar in Shanghai, the largest weekly gain since December 2008.

The U.S. trade deficit with China reached $71 billion for the first four months of the year, 5.8% increase from the same period a year earlier, according to U.S. government data.

However, full appreciation of yuan will not solve the economic woes of the U.S., nor will it bring balanced trade, Qin Gang, Chinese Foreign Ministry spokesman told reporters in Beijing on June 24.

SAIC Motor Corp, China’s largest carmaker, is planning to raise as much as 10 billion yuan in a private share placement for its expansion to develop own models.

The company will sell 900 million yuan-dominated A shares, with its parent company, Shanghai Automotive Industry Corp agreeing to buy at least 10% of the shares, the automaker said in a statement to the Shanghai Stock Exchange yesterday.

Toyota Motor Corp, the world’s largest carmaker, is planning to restart production at its plant in Guangzhou early next week after employees agreed to return to work at Denso Corp after a strike this week, said Liu Peng, a spokesman for the automaker in Beijing.

Sadayoshi Yokohama, a spokesman for Aichi, Japan-based Denso, said the workers have returned to work even as talks are continuing over the wages dispute. The factory resumed normal operations this afternoon, he said.

Shanghai Movers

China Construction Bank Corporation fell 0.2% to 4.92 yuan after the bank said Aluminum Corp. of China the Chinese aluminum maker, announced the issuance of the second tranche of the 5 billion yuan or $733.13 million short-term loan under the framework it engineered with China Construction Bank Corporation and China Everbright Bank Corporation Limited as underwriters.

Hangzhou Silan Microelectronics Co., Ltd rose 2.5% to 17.29 yuan after the company said first-half net income will rise to more than 90 million yuan.

Henan Hengxing Science & Technology Co., Ltd dropped 1.7% to 10.88 yuan after the company said it will raise 253 million yuan in a private sale of 25.3 million shares at 10 yuan each, according to a Bloomberg report.

SAIC Motor Corporation Limited rose 1.7% to 12.26 yuan after the domestic automaker said on Thursday it will raise up to 10 billion yuan or $1.5 billion through a share placement largely to shore up its own-brand cars and commercial vehicles.

Zijin Mining Group Co., Ltd, the gold producer, rose 0.1% to 6.84 yuan.

[HK Movers

Alibaba.com Limited rose 1.1% to HK$16.48 after the Chinese e-commerce company entered into an agreement to acquire Vendio Services, Inc.

L’Occitane International SA dropped 2.8% to HK$0.50.

Simsen International Corporation Limited rose 1.7% to HK$0.29.