Starbucks to source coffee from China

Starbucks has set up a joint venture with a Chinese company to buy and process coffee beans in Yunnan province, Chinese state media reported. Starbucks and Ai Ni Group will purchase and export coffee to help supply Starbuck stores around the world, the official Xinhua news agency said, citing Starbucks China President Wang Jinlong. Financial details of the venture were not mentioned in the report.

Starbucks entered the mainland Chinese market when it opened its first retail outlet in Beijing in 1999. Starbucks has plans to increase its number of stores in China from more than 800 today to 1,500 by 2015.

Starbucks is making the right move by developing this joint venture as the Chinese government is encouraging more agricultural development in China. – David Nealis

China To Launch Government Bond Futures Trading Simulation

David Nealis at The China Financial Futures Exchange

This Dow Jones article is another great example of how the Chinese financial system is maturing. If your firm is looking for growth opportunities then this is one of the markets you need to be entering. – David Nealis

China To Launch Government Bond Futures Trading Simulation

SHANGHAI (Dow Jones)--China is on track to reintroduce government bond futures, a major financial derivatives instrument banned 17 years ago after a trading scandal, a person familiar with the matter told Dow Jones Newswires.

The China Financial Futures Exchange has recently issued a notice asking select firms to begin technical preparations and training for the pilot program, the person said. Yong An Futures Co., a Hangzhou-based brokerage, is one of the firms receiving the notice, the person said, without providing further details. A spokesman at China Financial Futures Exchange declined to comment.

Allowing government bond futures to be resurrected since being banned in 1995 would expand the scope and depth of China's already huge fixed income market, where liquidity is abundant but pricing remains less efficient due to the shortage of effective hedging tools.

The Chinese spent US$ 7.2 Billion while ringing in the year of the Dragon during overseas trips.

The Chinese spent US$ 7.2 Billion while ringing in the year of the Dragon during overseas trips. 

According to the Chinese Zodiac this is the Year of the Black Water Dragon, but it might as well be called the Year of the Bling Bling Dragon. Chinese luxury consumers spent about US$ 7.2 billion while on holiday trips outside  of China during the seven-day Spring Festival also known as Chinese New Year. The amount spent was much higher than the estimated US$ 5.7 billion and it is a 28.6% jump year on year. 

Europe remained the top destination for luxury shopping during the holiday with a 46% market share. Chinese tourists accounted for 62% of Europe’s luxury sales, a year on year rise, according to a World Luxury Association survey. 

Hong Kong, Macau and Taiwan occupied a 35% market share with Chinese mainlanders contributing to 69% of their sales; North America took the remaining 19% share with Chinese travelers contributing one-third of its sales.

So what is your company doing to capture some of this market share?

New QFII Tax Rules Set To Be Published

David Nealis at the Shanghai Stock Exchange

New QFII Tax Rules Set To Be Published

New rules covering capital gains taxes on foreign qualified institutional investors (QFIIs) are ready to be published in China. It looks as if the new rules are going to be put in place to limit capital outflows from China.

In the typical Chinese style of regulation, government regulators are soliciting opinions on the new rules from QFII members, custodian banks, and large brokerage firms.

The report released to the public by the Chinese government last week did not provide any in-depth details or methods of calculation for the new taxes.

China's foreign-exchange reserves declined to $3.18 trillion at the end of last year from $3.20 trillion at the end of September, registering the first quarterly drop in more than a decade, according to data from the People's Bank of China.

In addition, the central bank's Yuan positions for foreign-exchange purchases declined by $15.8 billion in the last month of 2011 compared with a drop of $3.17 billion in October, indicating that the capital outflows were accelerating.

As of Jan 20, 117 foreign institutional investors with combined quotas of $22.24 billion were allowed to invest in the world's second-largest economy, according to the Chinese State Administration of Foreign Exchange.

Clearly China has the sovereign right to limit capital flows, but if the taxes they impose on foreign investors are too high they will scare off those investors who will then actively seek new markets for their investments.

Sino-Forest Fails to Resolve Fraud Allegations

Sino-Forest Fails to Resolve Fraud Allegations

David Nealis in Shandong China

 It seems others may have gotten lost in the Sino-Forest

 On Jan. 23 the OSC, Canada's main securities regulator, extended the suspension of Sino-Forest shares to at least April 16, citing a lack of disclosure by the company. After an eight-month investigation into the value of its timber holdings Sino-Forest Corp. failed to reach a conclusion as it fends off fraud allegations.

A committee of independent directors was unable to come to “definitive conclusions” on various issues the company is facing about suppliers, the total amount of assets the company has, or some of its mysterious intermediaries. They went on to say that Sino-Forest may not be able to disprove some allegations because the information may not exist or be retrievable, in a report on the company's website.

Allegations of fraud wiped off 74 percent of the company's stock value, costing investors including Paulson & Co. C$3.3 billion (US$3.3 billion). Sino- Forest, which is suspended from trading in Canada, is being investigated by the Ontario Securities Commission and Royal Canadian Mounted Police.

On Nov. 15 the committee, which was assisted by PricewaterhouseCoopers LLP, also found company records were missing. It reported difficulties in obtaining data, a lack of cooperation from some Sino-Forest executives, and the absence of an internal audit function. Sino-Forest said the committee confirmed the company's cash balance and verified purchase contracts for 77 percent of reported timber assets.

Sino-Forest's largest shareholder is Singapore based billionaire Richard Chandler; he bought shares in the company following the Muddy Waters report alleging fraud while other investors sold off their stock. One of the only ways for investors to recoup their investments might be to bring Sino-Forest private and rebuild its reputation or they might have to start liquidating assets to pay back stake holders.

This is an excellent example of the importance for investors to have a foot print in the Greater China Market if they are going to be active investors here. Muddy Waters the Hong Kong based firm that first made the fraud allegations against Sino-Forest is proof of these benefits. I am always amazed by the answer when I meet with US firms and I ask them why aren’t they in Hong Kong or someplace in China, they often cite cost reasons for not having a Greater China Market office but I feel how could they not afford to be here.

PetroChina acquires Shell assets in Canada

PetroChina keeps the deals flowing with another acquisition

PetroChina has stated that they have signed a deal to buy 20 percent of a shale gas project in Canada from Royal Dutch Shell. The deal is one of many in a long list of overseas acquisitions by the Chinese energy firm as China tries to secure energy sources to keep fueling their dynamic economy.

The deal is to purchase 20% of Shell’s Groundbirch assets in Canada, PetroChina declined to make public the value of the deal but industry analysts estimate the value of the deal to be over US$1 billion.

Australian infrastructure boom due to China and India

David Nealis in booming Shanghai China

Australia is set for an US$115 billion infrastructure boom as the nation adds ports and railways to feed China and India's appetite for coal and iron ore.

The largest exporter of the key steelmaking materials will build enough railroads to stretch from Washington DC to Los Angeles over the next decade, as well as a new port on the Great Barrier Reef coast that will dwarf the world's biggest bulk harbor. The projects will near-double global coal trade and add 57% to the market for seaborne iron ore.

If you are a Bull on the Australian Market then you better hope China and India keep up their rapid growth.

South Korea and Japan plan the purchase of RMB assets

South Korea and Japan plan the purchase of RMB assets

South Korea said that it intends to invest part of its $300 billion in foreign-exchange reserves in Yuan denominated assets.

David Nealis in Bank of Korea vault

Choo Heung-sik, director-general of the Bank of Korea's reserve management group, was quoted by Bloomberg News as saying that the investment was part of South Korea's plan to diversify its foreign reserves, he went on to say the investment would be made gradually and with a long-term perspective. He added that the initial investment wouldn't be "big" and might start with Chinese government bonds.

South Korea thus becomes the second developed economy, after Japan, with plans to buy Yuan denominated assets with its foreign-exchange reserves and add the Chinese currency to its reserves.

Last month, Japanese Prime Minister Yoshihiko Noda announced plans during his visit to China to buy Chinese government bonds, some analyst believe that the investment might be worth about $10 billion.