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Made-in-China Drones Beam Hong Kong Protests to Beijing & Beyond

By Brian Bremner and Clement Tan

Oct. 1 (Bloomberg) — Hong Kong’s street protests, pepper spray and tear gas have mesmerized TV and Internet audiences worldwide. Beaming them are drones with a “Made in China” tag.

The Apple Daily newspaper captured the breadth of pro-democracy demonstrations in Hong Kong using a pair of Phantom 2 drones, made by DJI Innovations, a company based in the Chinese technology hub of Shenzhen, an hour’s train ride from the former British colony. The drones can capture footage no cameraman can get on the ground, giving the world a panoramic view of the protests.

The aerial cinematography has elicited social media commentary critical of China’s efforts to have candidates for Hong Kong chief executive vetted by a committee that protesters contend answers to Chinese leadership. Praised under different circumstances earlier by people including Sequoia Capital Chairman Michael Moritz as a sign of China’s growing prowess in technology, the drones are a symbol of modern media coverage as much as a consternation for those who want to control the media.

“With these drones we now have a bird’s eye view that photographers cannot reach or produce,” said Leo Cheng, Apple Daily’s photography director.

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China Military Trump Vacationers as Drills Ground Flights

By Clement Tan and Jing Jin

Aug. 8 (Bloomberg) — Shen Zhihong arrived at Shanghai’s Pudong International Airport looking forward to a vacation at the beach only to find his flight delayed indefinitely and his holiday plans at the mercy of the People’s Liberation Army.

The 64-year-old retired professor was among thousands to have their travel obstructed last week when more than 900 flights at Shanghai’s two airports were canceled as the Chinese military staged exercises in the East China Sea. That was the most of any city in the world and more than those of the New York and Chicago metropolitan areas combined, according to Flightstats, a website that compiles airline data.

“We understand and support the needs of national defense,” Shen said as he waited to fly to the port city of Dalian with a group of former colleagues from Fudan University, where he used to teach. “But we hope there will be less and less impact on civilian flights.”

Delays at Chinese airports, ranked the world’s worst, highlight the tensions in a nation home to a swelling middle class and a ruling party with a 65-year monopoly on power that’s intent on strengthening its military. At stake is the growth of a commercial aviation market that trails only the U.S. in size and needs the PLA to cede airspace to China Southern Airlines Co. (1055) and other carriers to increase routes.

“The Western world’s been following a different model where civilians take priority,”said Geoffrey Cheng, head of transportation research at BOCOM International. “The aviation market has been developing in China at the discretion of the military releasing airspace.”

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Chinese Plant in Fatal Blast Described as Dusty Deathtrap

By Clement Tan and Alexandra Ho

Aug. 6 (Bloomberg) — The metal dust produced from polishing wheels at Kunshan Zhongrong Metal Products Co.’s factory was so intense it seeped through Lu Qingmei’s face mask and coated her nose and mouth. After two days, she quit.

“When you go onto the production floor, you’re covered in gray dust in less than half a day,” the 25-year-old said of her stint in February at the Chinese factory, which finishes rims that end up in vehicles made by General Motors Co. (GM) and other carmakers. “It was dirty and tiring to work there.”

The decision to quit may have saved her life. Last week, a fireball ripped through the workshop, killing at least 75 workers and injuring 185 in China’s deadliest industrial disaster in more than a year. Not everyone’s been identified, including Lu’s sister-in-law.

The blast — state media said it was triggered by tiny aluminum and magnesium flakes that caught fire — has prompted China to announce a nationwide overhaul of safety practices, and reignited concern about occupational hazards in the world’s second-largest economy. Combustible dust, which has long bedeviled factories worldwide, was cited in at least four previous explosions that killed 26 people at Chinese industrial sites since 2009.

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China Scuttling P3 Pact Seen to Prolong Shipping Slump

By Clement Tan

June 20 (Bloomberg) — China rejected a global shipping alliance to protect companies navigating a choppy market. The decision will probably hurt cargo firms’ earnings, including its own.

The Commerce Ministry’s June 17 announcement spiking a deal between the world’s top three container carriers — known as the P3 and led by Copenhagen-based A.P. Moeller-Maersk A/S (MAERSKB) — may undermine recovery in an industry still reeling from the 2008 financial crisis. Overcapacity and low charter rates are likely to stay, jeopardizing earnings, including at China Cosco Holdings Co. (1919) and China Shipping Container Lines Co. (2866), the country’s two biggest.

China’s move “is a hollow victory for Asian liners,” said Paul Dewberry, an analyst at Bank of America Corp.’s Merrill Lynch, in a June 17 note. “This commoditized, fragmented and loss-making industry is in need of P3-type development to force consolidation. The resulting abandonment of P3 by its members will ultimately only prolong the current industry slump.”

Maersk, Mediterranean Shipping Co. and CMA CGM SA agreed last June to establish an operational pact with the aim of reducing costs on Asia-Europe, trans-Atlantic and trans-Pacific routes. Container lines have been battling industry overcapacity after a boom in ship orders collided with the global financial crisis, triggering the worst slump in prices for the carriage of cargo since containerization became global in the 1970s.
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Tiananmen Vigil Draws Hong Kong Crowds 25 Years After Crackdown

By Clement Tan and Natasha Khan

June 4 (Bloomberg) — A candlelight vigil in Hong Kong to mark the 25th anniversary of the 1989 Tiananmen Square crackdown drew at least 100,000 people last night to honor the memories of the student-led pro-democracy protesters.

Visitors to the event at Victoria Park were greeted with loudspeakers broadcasting slogans and banners demanding an end to the rule of the Chinese Communist Party. A human-sized Goddess of Democracy statue stood in the park, where many sat. As night fell, hundreds lit candles and observed a moment of silence at 8:38 p.m. after organizers placed wreaths to commemorate those who lost their lives.

The anniversary has struck a chord with many in Hong Kong amid a city-wide debate about implementing universal suffrage to elect its leader by 2017. A record 180,000 people attended the vigil, Lee Cheuk-yan, chairman of organizer Hong Kong Alliance in Support of Patriotic Democratic Movements of China, told the crowd. Police estimated turnout at 99,500 people.

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Wide gap for China mainland, offshore stocks may be hard to bridge

By Clement Tan

HONG KONG, Nov 28 (Reuters) – Investors looking to exploit the widest gap in three years between the performance of mainland and offshore Chinese stocks could well get their fingers burnt.

H-shares, or Chinese stocks listed in Hong Kong, are trading at their biggest premium to mainland-listed A-shares since October 2010, as offshore investors cheer Beijing’s bold economic reform plan unveiled this month.

The H-share benchmark index surged 7 percent last week alone, its biggest weekly gain in nearly two years, outperforming a 2 percent rise for the CSI300 index of leading A-share listings during the same period.

Qualified foreign investors may see the gap as an opportunity to switch into the A-shares of dual-listed Chinese companies whose H-shares have outperformed. This strategy could backfire, however, as the contrasting liquidity situations in the two markets suggest the gulf could remain for some time.

“Theoretically, you could go long A-shares and short the H-share market, but I wouldn’t be in any hurry to do that now,” said Hong Hao, chief equities strategist at Bank of Communications International.

“With liquidity so tight in the mainland and improving in Hong Kong as global funds start to allocate more money to offshore equities, you are going to end up getting squeezed on both sides,” Hong said.

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Bubble trouble brewing for shiny China penny stocks

By Clement Tan

HONG KONG, Oct 9 (Reuters) – When it comes to mainland Chinese stocks this year, small is hot.

Up nearly 80 percent in 2013, Shenzhen-listed penny stocks have outperformed a moribund broader market in a big way. But fears are growing that the market is looking ripe for a correction.

Retail investors chasing outsized returns have aggressively pushed small-cap stocks higher, which is much harder to do on large-cap stocks. There are signs that institutional investors are also in the game, prodding penny stocks to record highs.

However, concerns are growing that stock valuations have gone too far ahead of earnings. Investors would also be disappointed if their high expectations of major economic reforms are not met when the ruling Communist Party holds its key policy meeting in November.

The Nasdaq-styled ChiNext Composite Index of mainly high growth, high tech counters listed in Shenzhen and only came into being in 2010, is now trading at 55 times its price-to-earnings (PE) ratio.

This is almost four times the 14.8 times PE ratio that the CSI300 of the biggest Shanghai and Shenzhen A-share listings, which is down about 3 percent on the year. Mid-cap counters have also similarly outperformed.

“It’s definitely a bubble for some of these small-caps, but not true for all of them,” Heather Hsu, CLSA-Fortune Securities A-share strategist, told an investment conference in Hong Kong late last month.

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Flash rally for China shares crashes; trading fluke blamed

By Clement Tan and Lu Jianxin

HONG KONG/SHANGHAI, Aug 16 (Reuters) – A mysterious surge in Chinese stock markets that lifted major indexes sharply early on Friday evaporated in the afternoon – and it appears likely the entire rally stemmed from a trading mistake.

The Shanghai Composite Index and the CSI300 Index started the day lower and then inexplicably began roaring up in the mid-morning, pulling Hong Kong shares up with them.

At the peak, the Shanghai benchmark was up 5.6 percent and the CSI300 was 4.4 percent ahead. But afternoon tumbles left them down 0.6 percent and 0.8 percent, respectively, for the day.

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Earnings disappointment may stall chase for outperforming China stocks

By Clement Tan

HONG KONG, Aug 7 (Reuters) – Chinese companies still able to report healthy profits could see their shares trim sharp gains if earnings disappoint, narrowing a yawning gap with firms struggling to cope with Beijing’s drive to consolidate industries plagued by overcapacity.

The signs are starker in onshore markets where sectors such as technology and pharmaceuticals, which are still generating healthy profits, have significantly outperformed the lumbering industrials and materials firms plagued by inefficiency.

Slowing growth in China is now a top concern for global investors, who have steadily cut exposure to emerging markets and braced for the risk of a possible hard landing in the world’s second-largest economy.

A sub-index of information technology components on the CSI300 index of the leading A-share listings has surged almost 40 percent on the year, while sub-indexes for energy and materials have each plunged nearly 30 percent.

The large divergence raises the risk that investors are paying too high a premium in chasing earnings growth.

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China plays the long game in latest investment quota expansion

By Clement Tan

HONG KONG, July 17 (Reuters) – China’s surprise move to expand the size and reach of investment quotas represents the boldest reform yet this year in allowing foreign investors more access to its financial markets.

The measures unveiled by the top securities regulator on Friday are the latest in a series of steps Beijing has taken in recent months to fire up flagging investor interest, allowing foreign firms to move funds more freely into China and expanding another pilot programme to London, Singapore and elsewhere.

The China Securities Regulatory Commission (CSRC) almost doubled the quota of the Qualified Foreign Institutional Investor (QFII) scheme to $150 billion. The plan, introduced in 2002, allows investors to bring foreign currency into China to buy domestic stocks, bonds and money market instruments. Continue reading “China plays the long game in latest investment quota expansion”