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1 Editor’s Note 2 Talking Point 6 The Week in 60 Seconds 7 China and the World Week in China 8 Property 9 China Consumer 10 Banking and Finance 11 Economy 12 Agriculture 13 January 2012 13 Environment 14 Society and Culture Issue 134 17 And Finally www.weekinchina.com 18 The Back Page Investors find the glass half empty m o c . n i e t s p e a t i n e b . w w w y b g u in Why Chonging Brewery’s failed vaccine sparked a market sell-off – and what o k y n o a t B s it says about the shortcomings in China’s fund managment industry t l t h a e g b k u o r o l a r G M B C d B n S a H Week in China Editor’s Note 13 January 2012 The year that was WiC’s 2011 predictions: how did we do? n our 88th issue – published in December 2010 – we looked back at eight of the Ibig themes that we’d tracked since the inaugural issue of Week in China. That was the easy part. We also took a stab at that oh-so-dangerous of arts: prediction. We listed ‘8 Things to Watch in 2011’. In the interests of accountability, how did we do? Our first and last predictions were the most accurate. Our opener: we forecast “Why 2011 could be the year property prices finally fall”. This turned out to be true. And our last ‘thing to watch’ was also prescient: “China mulls options for North Korea after Kim Jong-il”. The Dear Leader died just before Christmas, reawakening the debate about how Beijing deals with its unpredictable neighbour. We also honed in on the importance of the Chinese market to multinationals, talking about how a rising number of firms will make more money in China than in their home markets. Yum Brands (owner of KFC and Pizza Hut) re- mains the poster-child for this theme. It stepped up its China presence later in the year with its acquisition of local hotpot chain Little Sheep (take a look at our December Focus Issue on the Magnificent Seven to see some of the other international firms cashing in on the China market). Another of our predictions didn’t take tremendous foresight, we have to admit. We forecast increased volumes of offshore yuan bonds (issued in Hong Kong and known as dim sums). A total of Rmb189 billion ($30 billion) was raised in 2011, versus Rmb42 billion in 2010. (For more coverage of the Rise of the Renminbi, see the Focus issue section of our website.) We were also correct that high-speed trains were an area to watch – but not quite for the reasons we envisaged. We foresaw controversy as China sought to sell trains and track abroad, as foreign manufacturers launched patent in- fringement suits. Not so: but China’s bullet trains became one of the year’s biggest talking points after the tragic Wenzhou crash in July. Likewise we also warned of potential trade conflict between the US and China. While there was plenty of noise on this front – particularly from sec- tions of the US Senate – saner heads prevailed in 2011. Even so, President Obama’s exclusion of China from the Trans-Pacific Partnership in November points to es- calating annoyance in Washington at Chinese trade policies. The two areas that we identified that were less topical in 2011 than thought? Lit- tle of note happened in China’s electric car industry (as a result of which self-pro- claimed industry leader BYD saw its stock price get smashed). And likewise our guess on the pending reform of the urban household regis- tration system – something which disadvantages migrant workers in big cities such as Beijing and Shanghai. Reform is still pending as we write... Photo Source: Shutterstock Source: Photo As to this year? At this stage we’ll stick to saying it will be harder to predict than 2011. But we’ll be writing plenty of stories over the next few weeks that point to the bigger themes ahead. Issue 88 can be downloaded from www.weekinchina.com, in case you are inter- ested in reading more. n 1 Week in China Talking Point 13 January 2012 Drowning their sorrows Debacle over Chongqing Brewery’s failed vaccine rattles fund managers No longer under wraps: investors took fright when brewery revealed vaccine shock “ hat calls for a Carlsberg” is a differ. One fund – Dacheng Fund saw the brewer’s share price more Tmarketing tagline currently Management – says it will push for than double. The stock then went doing the rounds at the Danish the dismissal of the Chongqing into overdrive after June 2005, brewing giant. brewer’s chairman Huang Minggui at when approvals were received But news from one of Carlsberg’s a shareholder meeting on February 7. from the State Food and Drug Ad- major investments in Chongqing “Chongqing Brewery did a bad ministration to begin the second over the last month might have job disclosing information and it stages of research. It kept on ris- Copenhagen-based bosses calling did nothing to cope with the (share ing: last year alone it was up al- for something a little stronger. price) crisis, which has severely most 50% to peak a little above This follows days of catastrophic harmed our investors’ interests,” a Rmb83 (a stellar return in a lack- trading in the stock of Chongqing Dacheng spokesperson insisted. lustre year for Chinese markets). Brewery, with the company’s share In fact, optimism for the vac- price crashing by more than two- What’s the background to the cine remained pretty much unbri- thirds. share price collapse? dled until the very last moment. Carlsberg has since assured in- Back in October 1998, Chongqing Financial magazine Capital Week vestors that it has “full confidence” Brewery spent Rmb14.4 million on points out that the stock was up in the brewery management in a 52% stake in Jiachen Bio-Engi- more than 18% in the final two Chongqing, where it has been the neering, also from the Chongqing days before trading was sus- Photo Source: Reuters Source: Photo largest investor since upping its municipality. Jiachen then began pended, in preparation for a stake by $379 million in June 2010. clinical research on a hepatitis B much-anticipated statement on But a group of very annoyed insti- vaccine, and enthusiastic news the clinical trials in December. tutional investors in China begs to flow on the prospects for the drug What then followed was a huge 2 Week in China Talking Point 13 January 2012 shock for investors. On December and reports too that the China Se- identified 20 of the largest funds 7, the Shanghai-listed company re- curities Regulatory Commission holding Chongqing Brewery’s shares. vealed that, after more than 12 (CSRC) has said it will “consider in- In fact, there are media reports years of work to produce the vac- vestigating” the case. that the brewery’s slide has trig- cine, the clinical trials had not been Soon afterwards, one of the gered fund redemptions of at a success. Chongqing Brewery’s brewer’s directors admitted to sell- least Rmb14 billion ($2.2 billion) share price plunged by the 10% ing company stock shortly before so far, with the collapsing price daily limit for nine subsequent the release of the trial results. But creating a scramble among port- trading days, descending to according to eastmoney.com, he folio managers to sell other stocks Rmb28.45 by December 22. also insisted that this was only to to meet redemption calls from jit- Further trading was then sus- rectify earlier share purchases tery clients. pended until Tuesday this week. But made erroneously by his wife. Dacheng was again at forefront, the hiatus was to little avail: the according to 21CN, with companies stock was again withdrawn within a The wider impact? including Laibao Hi-Tech, Aisino couple of hours, after triggering the It wasn’t just Dacheng who was hit, and Kangmei Pharmaceutical all 10% decline rule. says 21CN Business Herald, which has suffering weighty declines from And now the recriminations? Larger institutional investors have been making the most noise, espe- cially Dacheng, which owned Chongqing Brewery stock for nine of its fund products. Of course, a drug vaccine project sounds like an unlikely investment for a brewery to make, although Enid Tsui, writing on the FT Alphav- ille blog, points out that the vac- cines are yeast-based, so at least offer a little common ground. Similarly, Hepatitis B is a major problem in China. Various studies suggest that a tenth of the popula- tion is infected – so if a vaccine could be developed, it would have tremendous commercial potential. (Foreign Exchange) (Financing) (Trade) Any hope of that looks like being dashed in Chongqing, as the brewery’s research programme will “al- Renminbi spoken here most certainly end in failure,” We help clients trade RMB globally, ﬁnd competitive and diversiﬁed funding sources and manage currency risk. reports the Global Times. For more information, visit www.hsbcnet.com/rmb Unsurprisingly, this is going down badly with owners of the stock, who feel that they have been blindsided by management, with no indication that the trial’s process was so close to collapse. Worse, there are suspicions that a few insiders may have got wind of the bad news in advance. Caixin Renminbi (RMB) is currently not freely convertible and conversion of RMB through banks in Hong Kong is subject to certain restrictions.

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