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China Roundup: Alibaba’s Soccer and Telecom Forays; and Metal Financing Crackdowns

by Major Tian

June 6, 2014

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The week that was: Alibaba’s soccer team stake and telecom plans; China wakes up to the risks in metal financing; China’s investments in food and agriculture businesses rise and KKR invests in Cofco’s meat production business.

Metal Financing: the New ‘Shadow Banking’?

While Beijing keeps a close eye on China’s shadow banking system, a new form of potentially shaky financing has surfaced. According to Reuters, banks and global trading houses are rushing to Qingdao, a port city in eastern China, to check if the stock of metals that they have on paper are actually in the warehouses.

Mining companies usually use metals they store in ports’ tariff-free zones as collaterals to get bank loans. But authorities are investigating on claims that some of the batches are used simultaneously to get money from different banks, according to various media accounts. Western banks such as Standard Chartered and Citibank are reportedly reviewing their metal financing operations in China. The situation also concerns some domestic banks, which have sent investigators to Qingdao to figure out the matter, Reuters said.

Credit Suisse’s Andrew Shaw told Bloomberg that the probe is possibly part of a larger movement to clear out fraudulent practices in the economy.

Alibaba Plays Ball, Also Enters Telecom

The e-commerce giant in China is trying to capture consumers through a much broader spectrum. Not long ago it marched into filmmaking and television; this week, Alibaba spent about $193 million on a 50% stake of China’s leading soccer team Gunagdong Hengda (or Evergrande in English). The team, previously owned solely by real estate mongul Xu Jiayin, made history by winning the Asian Champions League last year—the first time that a Chinese club received the title.

But Jack Ma, Chairman of Alibaba group, said that he’s not a soccer fan. And he reportedly promised Hengda supporters that he, as an outsider, will not influence how the team is run. Observers are still figuring out the business case for the purchase—some suggest that it means to get consumer recognition; others argue that the group is beefing up its ‘entertainment’ portfolio.

Alibaba is also launching in another brand new sector: telecommunications. According to TechInAsia, the group will roll out mobile services in the coming weeks and subscribers will have one more choice other than China Mobile and China Unicom, the two dominant players in the field. Several other tech companies have also received licenses to carry out virtual mobile services (which means that these companies only rent physical networks), including Tencent and JD.com.

China Might Cap Fossil Fuel Emissions

For the first time, China might apply a limit for carbon emissions in the world’s second-largest economy, Businessweek reported.

Xie Zhenhua, China’s lead envoy to the United Nations, said earlier this week that China is evaluating possibilities to peak its greenhouse gas emissions “as early as possible” and “find a balanced equilibrium between environmental protection and economic development”. This remark, according to Businessweek, is the first response China has made to US President Barack Obama’s recent decision to restrict emissions from existing power plants.

But getting China and other major developing countries on board is not easy. According to The Wall Street Journal, some industry experts argue that the US’s effort to cut global greenhouse gas emissions will not work if countries like China and India opt out. Some hope that after Uncle Sam’s gesture, China will be more aggressive in tackling the issue of global warming.

China has previously shown great reluctance to consider absolute cuts on carbon emissions. Instead, Beijing has been touting the idea of lowering emissions per unit of GDP. The goal is to reduce that number by 40% to 45% by 2020 (over 2005 levels).

Let Them Eat Pork

Of course, Chinese companies are still buying into oilfields, mines and real estate overseas, but food is becoming a rising star on the horizon.

Last year, according to South China Morning Post, mainland Chinese and Hong-Kong-listed firms spent a total of $12.3 billion of investments in food, drink or agricultural businesses abroad, the most in at least a decade. Those included Shuanghui’s $7 billion buyout of Smithfield Foods, the largest Chinese takeover of a US company so far. The state-owned company Cofco (China National Cereals, Oils and Foodstuffs Corporation) recently bought into Dutch grain trader Nidera and Hong Kong-headquartered Noble Group, dishing out more than $2 billion.

This trend is in line with China’s effort to enhance its food security, which not only includes the quality of food at home, but also the country’s ability to feed its people—the world’s largest population—in a sustainable way. According to SCMP, China has only 9% of the world’s arable land to support roughly one-fifth of the earth’s population.

Foreign capitals is also eyeing China’s food industry. According to the Financial Times, American private equity firm KKR has just invested about $150 million in Cofco’s meat production business—together with another three investors, the consortium will pick up a 70% stake of Cofco Meat.

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