China Market Watch: Baidu Tech Fund, Electric Cars, Airports

By Dezan Shira and Associates

Dec. 8, 2016
Young Asian businessman standing at his workstation in a tech start-up office
(Photo credit): Gettyimages.com/JaCZhou 2015

Rundown of the latest business and industry news from China

Baidu announces RMB 20 billion investment fund for tech projects

Internet search engine, Baidu Inc., has announced that it will invest RMB 20 billion in internet technology projects. The fund will be mostly aimed at mid and late stage technology deals, with contributions made by insurance funds, securities companies and government-backed investment institutions. Baidu has been making efforts to diversify its services and revenue sources recently, having just formed an RMB 1.3 billion venture capital unit. However, former efforts have not proven so successful, such as ventures into third-party payments and online shopping. Furthermore, Baidu’s income has been in decline since it received a government reprimand after allowing gambling advertisements on its search engine platform, causing its biggest drop in quarterly earnings since its listing on the Nasdaq Stock Market in 2005.

Electric car development road map to be unveiled

China will issue its "first new energy vehicle industry development" roadmap in December in an effort to make provisions for future development of the world’s largest electric car market. The drafting of the roadmap was conducted by China’s Society of Automotive Engineers, and is currently undergoing government review and adjustments. New energy vehicle research and development will feature high on the development plan, with mild hybrid technologies proposed as a means to cut fuel consumption and emissions. If mild hybrid cars are listed along with energy saving vehicles, buyers will enjoy substantial purchase tax cuts. In addition, the Ministry of Industry and Information Technology is about to implement a dual-credit scheme for mandatory new energy vehicle production.

China to remove price control over salt market

China’s top economic planner has announced that price controls on the salt market will be removed. Private investors will now be allowed to enter the market by joining with existing salt companies. The state has had a monopoly on the commodity for over 2,000 years, and removing it will encourage competition and increase product quality. China has seen an oversupply of salt in the last few years, with over 300 registered producers and 4,000 distributors. Local governments and companies are preparing for the policy’s implementation. Emergency measures will be taken to maintain market stability by preparing for the event of a salt shortage and rising prices, especially in remote and poorer areas.

China to fully open elderly care market to private investment

China has announced plans to ease restrictions in the elderly care market in order to channel more private capital into the sector. Market access thresholds will be lowered, and state-run elderly care institutions will be reformed as part of the measures. Improving and developing the elderly care sector has been identified as a pressing topic by the state, as China’s elderly population has already surpassed the international standard of defining an aging population, which is held at 10 percent of the population over the age of 60. At the end of 2015, China had 222 million citizens over the age of 60, over 16 percent of the population. This percentage had already passed the 10 percent threshold in 1999. It is estimated that total spending on the elderly care will reach RMB 5 trillion by 2050.

First three quarters see steel exports rise by 2.4 percent, coal and steel capacity reduction targets met

China’s steel exports stood at 85 million metric tons in the first nine months of 2016, up 2.4 percent from the same period last year. This increase has been accredited to Asian countries whose construction demand is high, and will continue to rise due to belt and road projects, with property, transport, environmental management and irrigation infrastructure generating the most demand. For the last quarter of 2016, real estate, construction and machinery manufacture will consume the most steel. The increase in anti-dumping tariffs and other trade frictions has made many steel-producing companies focus on direct sales overseas, cutting out trade companies in order to understand firsthand the requirements of buyers.

Meanwhile, domestically, China is expected to hit its annual steel output target by the end of this month, following efforts to reduce capacity of heavy commodities. Similar targets for coal are expected to be met by the end of November, according to the National Development and Reform Commission. Over 80 percent of the targeted reductions were met by the steel and coal sectors by the end of this September, with some larger state-owned enterprises already hitting the annual targets, due to strengthened supervision and inspection.

China fully opens civilian airport market to private capital

The Civil Aviation Administration of China (CAAC) has opened up the country’s civilian airport market to private investment. A guideline granting access allows private investment into all airport projects in the outline for airport development or special regional and industrial planning. Investment and public private partnerships have been encouraged in an effort to improve service quality and efficiency, and no longer require agency approval to fund terminals, logistical facilities and warehousing, ground services, etc. Boeing has estimated that in 20 years, China’s aviation market will become the world’s first to exceed a value of USD 1 trillion, requiring over 6,800 new aircrafts to fulfill demand. Currently, numbers of domestic airports are insufficient for the increasing volume of passengers. Opening the market to foreign investment is hoped to alleviate financial pressure in the country’s efforts to accelerate construction projects.

China set to meet annual railway investment target

China is set to hit its annual railway investment target, with its fixed-asset investment in the sector reaching RMB 542.3 billion in the first three quarters of 2016, up 10.3 percent from the previous year. This figure was boosted by an increase in state investment, which rose by 12 percent to RMB 517 billion. Railway construction has seen growth since the beginning of the year and is sure to exceed the fixed asset investment target of RMB 800 billion. There are 45 railway projects set for 2016, adding a further 3,200 kilometers of rail, 1,300 of which will be for high speed railways. China has an extensive and efficient rail system but has recently looked to its underdeveloped western regions, which are behind in construction terms; two further railway projects with a total investment of RMB 79.47 billion have been approved. Plans to spend RMB 3.5 trillion have been drafted to lay over 30,000 kilometers of track in central and western regions within the next five years.

This article first appeared on China Briefing. Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates.

Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN.

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