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News from China
Carmakers counting cost of China slowdown
30th July 2015

 General Motors Co’s US$5 billion initiative to create cars for China and other emerging markets comes just as carmakers face a collapse in the booming Chinese demand they were counting on to power their growth.

June sales in the world’s biggest car market by vehicles sold fell 3.4 percent from a year earlier as an economic slowdown deepened and smog-choked cities tried to curb growth in car ownership. Sales growth has cooled from 2009’s explosive peak of 45 percent, but the latest figures surprised analysts, who were forecasting a healthy 7-8 percent for this year.

Volkswagen AG yesterday said its second-quarter profit fell 16 percent due partly to weakness in China, where first-half sales dropped 0.5 percent.

Those still buying cars are benefiting: GM and VW, China’s top-selling brands, have cut prices by up to 53,900 yuan (US$8,700). Analysts said dealers are struggling financially and carmakers might have to share more profit with them.

“The days when you could sell whatever car you made are not there anymore,” said Lin Huaibin of IHS Automotive.

The shift is significant because of China’s role in the global ambitions of United States, European and Asian carmakers. Despite the slowdown, they are pushing ahead with multibillion-dollar plans to expand production and create models to suit Chinese tastes, adding to competition in a crowded market.

On Tuesday, GM said it will work with Chinese partner Shanghai Automotive Industries Corp to develop vehicles to be sold in China, Brazil, India and Mexico. GM said it aims for annual sales of 2 million vehicles beginning in 2019.

In April, Ford Motor Co and a local partner said they would spend US$1.1 billion on a factory in China’s northeast. Ford said it would add 200,000 vehicles to its annual China production capacity.

China overtook the US in 2009 as the biggest market by number of vehicles sold as incomes rose and Beijing promoted the industry as an engine of economic development.

Double-digit Chinese sales growth helped to buoy global carmakers after the 2008 financial crisis crushed demand everywhere else.

Carmakers added bigger backseats and other features for Chinese buyers, changing the look and feel of cars sold worldwide. Nissan Motor Co made China a pillar of its global turnaround strategy.

Companies were preparing for slower growth, but the squeeze hit faster than many expected.

“The impact to earnings in 2015 could be substantial,” said Bernstein Research in a report.

“We still expect China to sell a lot more cars in future years, but returns in the market may never be the same again.”

First-half sales rose 4.8 percent, down from 11.2 percent in the same period of 2014, according to the China Association of Automobile Manufacturers.

Even that might overstate demand. Analysts said carmakers have shifted to reporting shipments to dealers instead of retail sales, possibly to obscure how few cars are being purchased.

Last week, South Korea’s Hyundai Motor Co said China sales fell 14 percent from a year earlier in the three months ending in June.

As early as March, BMW AG warned the China outlook was darkening. Europe’s biggest luxury carmaker said its Rolls Royce unit had sold only 14 cars to Chinese buyers in February.

The downturn is so severe that Barclays slashed its forecast for this year’s sales growth to just 1.7 percent from 8.5 percent. Next year’s forecast was cut to 5.2 percent from 8.5 percent.

Chinese sales still are huge. GM said a record 1.7 million GM-brand vehicles were sold in the first half of the year, but growth was just 4.4 percent — less than half the 10.7 percent rise for the first half of last year.

Source: Shanghai Daily, July 30, 2015
Steady rise in SOEs profitability in H1
29th July 2015

 CENTRALLY administered state-owned enterprises performed well in the first half of this year, with better performance expected in the second half, regulators said yesterday.

These SOEs have seen a steady rise of profitability, especially in the second quarter of the year, the State-owned Assets Supervision and Administration Commission of the State Council said.

In the first six months, they garnered an operating revenue of 11 trillion yuan (US$1.8 trillion) and reaped 643 billion yuan of profits.

There are around 110 SOEs under the administration of SASAC, which include such giants as China National Petroleum Corp, Sinopec Group and China Mobile.

Around 91 percent of these SOEs were profitable in the first half of 2015, SASAC said, citing lower cost and better operations. It said the SOEs were optimistic about the second half.

Source: Shanghai Daily, July 29, 2015
Electricity consumption forecast to grow
28th July 2015

 CHINA’S National Energy Administration said power use would rise 3 percent to 5.7 trillion kilowatt-hours in 2015.

“Judging from the economic indicators for the second quarter, the effect of growth-stabilizing policies has gradually emerged, and energy demand will pick up in the latter half of the year,” NEA deputy head Liu Qi said.

In the first half, China’s power use rose only 1.3 percent. Liu said that as China’s growth stepped into the “new normal” period, energy consumption will also shift down gears. He predicted energy consumption to grow 3 percent annually for the 2016-2020 period.

Source: Shanghai Daily, July 28. 2015
China's industrial profits down 0.3% in June
27th July 2015

 Profits of major Chinese industrial firms dropped 0.3 percent year on year in June, down from 0.6 percent growth posted in May, the National Bureau of Statistics (NBS) said on Monday.

Profits at industrial companies with annual revenues of more than 20 million yuan (US$3.27 million) totaled 588.6 billion yuan in June.

Industrial profits of these firms reached 2.84 trillion yuan in the first half of the year, down 0.7 percent year on year, the NBS said. The decline narrowed 0.1 percentage points from the rate seen in the January-May period.

Source: Shanghai Daily, July 27, 2015

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