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News from China
Stocks flat after depreciation of yuan
12th August 2015

 HANGHAI shares ended flat yesterday after the central bank allowed the yuan to depreciate to its lowest level against the US dollar for almost three years.

The Shanghai Composite Index closed down 0.01 percent at 3,927.91 points.

Earlier in the day, the People’s Bank of China set the midpoint for the currency at 6.2298 yuan to the dollar, a rise of 1.9 percent from 6.1162 on Monday.

The central bank’s move came hot on the heels of the release of weak economic data, which included a sharp fall in exports and producer prices dropping to their lowest level for almost six years.

While the weaker yuan should benefit China’s exports, it will also result in capital outflows from the stock market and hit asset valuations, with the financial and property sectors likely to suffer most, UBS Securities said in a note.

Wang Yang, a researcher with Guotai Junan Futures, said it will not be long before the central bank cuts interest rates again to offset the pressure of the capital outflows.

Stock performance diverged on the news. Companies in the aviation sector, which tend to hold large amounts of debt denominated in US dollars, suffered the most, with the shares of China Eastern Airlines and China Southern Airlines both falling by over 7 percent.

In contrast, industries that rely heavily on exports were among the biggest winners, with the textile manufacturing sector rising 4.5 percent.

The banking sector was also weak yesterday. China Merchants Bank lost 2.3 percent to 18.20 yuan (US$2.88), the Bank of Beijing fell 2 percent to 9.08 yuan, and the Industrial Bank dropped 2 percent to 15.96 yuan.

The flat overall performance brought to an end two days of gains led by speculation about government reforms of state-owned enterprises.

Source: Shanghai Daily, August 12, 2015
Nokia looks to brand licensing for handset return
11th August 2015


 NOKIA is hiring software experts, testing new products and seeking sales partners as it plots its return to the mobile phone and consumer tech arena it abandoned with the sale of its handset business.
Once the world’s biggest maker of mobile phones, the Finnish firm was wrong-footed by the rise of smartphones and eclipsed by Apple and Samsung. It sold its handset business to Microsoft in late 2013 and has since focused on making equipment for telecoms networks.
Now Nokia boss Rajeev Suri is planning a comeback. He must wait until late next year before he can consider re-entering the handset business — after a non-compete deal with Microsoft expires — but preparations are under way.
The company has already dipped its toe in the consumer market, with its Android tablet, the N1, which went on sale in January in China, and days ago unveiled a “virtual-reality camera” — heralding it as the “rebirth of Nokia.”
It has also launched an Android app called Z Launcher, which organizes content on smartphones.
Meanwhile, its technologies division has advertised dozens of jobs in California, many in product development, including Android engineers specializing in the operating software Nokia mobile devices will use.
The company had planned to lay off about 70 people at the division, according to a May announcement, but a company source said the figure has since been halved.
Nokia itself is not giving much away about its preparations, beyond saying that some staff at the 600-strong technologies division are working on designs for new products, including phones, and in digital video and health.

Ace in the pack
It will not be easy, however, for Nokia to claw its way back to relevance in the fast-changing, competitive mobile business where Apple has been scooping up nearly 90 percent of industry profits, nor for it to carve out a place in electronics.
One ace Nokia that holds is ownership of one of the mobile industry’s biggest troves of intellectual property, including patents it retained after selling its handset business. It does not want to waste such resources, built up with tens of billions of euros of investment over the past two decades.
It will also get an injection of talent when it completes the 15.6-billion-euro (US$17.1 billion) acquisition of Alcatel-Lucent, announced in April, in the form of Bell Labs — a United States-based research center whose scientists have won eight Nobel prizes.
It said it won’t repeat the mistakes of the past of missing tech trends, being saddled with high costs, and reacting too slowly to changing consumer tastes.
To blunt such risks, it is seeking partners for “brand-licensing” deals whereby Nokia will design new phones, bearing its brand, but — in exchange for royalties — will then allow other firms to mass-manufacture, market and sell them.
This is in stark contrast to its previous handset business, which in its heyday manufactured more phones than any other company in the world and employed tens of thousands of people.
Suri said last month that Nokia aims to re-enter the mobile phone business, but only through such licensing agreements. It will not fall back on the “traditional” methods, said the CEO, who took the helm in May last year and has turned it into a slimmed down, more profitable company. He sold off its mapping business a week ago.
Such brand-licensing deals — as Nokia has struck for the N1 tablet — are less profitable than manufacturing and selling its own products, but also less risky. They can add a tidy sum of revenue for little investment for the company, which generates the bulk of income from selling telecoms network equipment to operators like Vodafone and T-Mobile.
“They want to be innovative and seen as a company with long-term vision in the (tech) industry and having a foot in devices plays into this impression, even if it’s not bringing massive revenue,” said Gartner analyst Sylvain Fabre.
Brand-licensing models are not new. European companies like Philips and Alcatel have made money by licensing out their brand after capitulating to Asian competitors, but given the crop of newcomers like China’s Xiaomi and India’s Micromax, it might not be possible for Nokia to reproduce even those minor successes.
With advances in contract manufacturing and standardization of software, components and features, it is also easier than ever for companies to outsource everything to produce lookalike phones.
“We only see this competitive pressure intensifying in coming years,” said CCS Insight mobile analyst Ben Wood.
“Barriers to entry in the handset market are lower than ever,” he said.
The strength of the Nokia brand — crucial to the success of such licensing deals — is also open to debate.
The company says its brand is recognized by 4 billion people. However, after being consistently ranked as one of the world’s top-five brands in the decade up to 2009 according to market researcher Interbrand, it has since nosedived and now looks set to disappear from top 100 lists.
Source: Shanghai Daily, August 11, 2015
Border city selected as ruble-yuan pilot zone
10th August 2015

 SUIFENHE in northeast China’s Heilongjiang Province has been selected as a pilot zone in which both the Russian ruble and Chinese yuan will be legal tender.

Jin Mei, deputy secretary-general of the monetary policy committee of the People’s Bank of China made the announcement at the opening ceremony of a trade exposition in the city on Saturday.
The circulation of the ruble in the border city is a result of the “benign development” in settling bilateral trade with yuan and ruble instead of the US dollar, Jin said.
Suifenhe is a major hub for Heilongjiang’s trade with Russia. Last year, it accounted for 80 percent of the province’s exports to Russia and reported foreign trade of US$7.6 billion.
The ruble is already widely used in Suifenhe. City officials said legalizing its use will promote bilateral economic cooperation and boost tourism.
China and Russia signed a currency swap agreement last year as a foundation for financial cooperation. Cross-border yuan-denominated trade between the two countries in the January-June period rose 112 percent year on year to 8.2 billion yuan (US$1.3 billion), Jin said.
Source: Shanghai Daily, August 10, 2015
Brokerages temporarily suspend short selling
6th August 2015

 FIVE Chinese brokerages yesterday suspended their short selling services, a day after the securities regulator announced tighter rules on such trades in the latest bid to shore up the stock market.

The country’s top-three brokerages: CITIC Securities, Guosen Securities and Huatai Securities all said they would halt their services temporarily. Smaller peers Great Wall Securities and Qilu Securities soon followed suit.
“We’re temporarily halting short selling from today in order to comply with urgent changes in exchange rules and control business risks,” CITIC said in a statement to its clients.
The Shanghai and Shenzhen exchanges said in separate statements on Monday night that new rules, effective immediately, banned traders from borrowing and repaying stocks on the same day.
In short selling, investors borrow shares from brokerages and then sells them, betting that the price drops so they can be bought back at a lower price.
However, under the new rules, short sellers will be unable to complete trades on the same day, which makes the proposition more risky.
The rule change was designed to “prevent some investors from using same-day short selling to amplify abnormal fluctuations in stock prices and affect market stability,” the Shenzhen Stock Exchange said in a statement on its website.
The move is the latest by the government to bolster the stock market, after the key Shanghai Composite Index fell 30 percent from its mid-June peak.
The China Securities Regulatory Commission said earlier that it was looking for evidence of “malicious short selling” and had suspended 34 stock accounts for suspected trading irregularities.

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