Russo Joins Panel Discussion at 4th China Economic Forum in Dalian

Dalian, China, May 26-27, 2012


The 4th Dalian China Economic Forum was held at the Dalian Hilton Hotel from May 26 to May 27, 2012. This was the first time that the forum was held for two days. Roughly 80 important figures in the economic circle and over 500 entrepreneurs participated in this event. With the main theme: "Reform and Opening-up: Driving Force of Economic Development", the enterprise development will be discussed during 8 themed interactive forums.


Click here to view the conference announcement
News on the panel discussion

Bracing for the euro fallout

The South China Morning Post, June 17, 2012


As Greeks vote today in elections that may trigger the country's exit from the euro zone, Chinese industries are preparing for worse to come from the debt crisis




"Should I stay or should I go" could be Greece's new national anthem, amid rising fears over its ability to stay in the euro zone. It's possible exit is turning up the heat on Chinese industries and government officials as they brace for economic fallout that could dwarf that of the 2008 global financial crisis.

Today's poll in Greece could produce a left-wing government determined to stay in the euro zone but set on rejecting key conditions imposed as part of a European Union and International Monetary Fund bailout.

The make-up of the new government is likely to be a key focus at this week's Group of 20 summit in Mexico, when President Hu Jintao is expected to unveil China's proposals for rescuing the debt-laden euro zone.

Despite reassurances from European Union officials that the single currency will remain intact, political leaders have failed to agree on their own financial and fiscal responsibilities.

Fears of a so-called "Grexit" have surged in recent days, prompting a rise in bank withdrawals and capital flight and even hoarding of food in Greece.

Zhang Xiaoqiang, a vice-chairman of the National Development and Reform Commission - China's state planning agency - said Greece would stay put. But he said that solving the euro zone's problems was "a huge challenge" and the sovereign debt crisis had rippled across the world, exacerbating a slowdown in China's economic growth.

"The Greek election is a relatively small turning point," Zhang said. "Even if it withdraws from the trade bloc, the euro zone won't collapse. The biggest worry is the health of Spain's banking sector, which is bigger than that of Greece and is in trouble."

That problem was meant to be solved by a €100 billion (HK$980 billion) bank bailout package announced on June 9 - details will be settled after an audit of Spain's banks - but failed to soothe market nerves. On Thursday, yields on 10-year Spanish government bonds hit a euro-era record of 7 per cent - the level that triggered bailouts for Ireland, Portugal and Greece. The yield on Spain's benchmark 10-year bond stood at 6.874 per cent on Friday.

If a Greek euro exit had just half the impact on global growth that was seen after the 2008 global financial crisis, China's growth this year could fall to as low as 6.4 per cent, which would be the worst in 12 years.

Beijing is aiming for 7.5 per cent growth this year, while the World Bank is expecting 8.2 per cent. For the euro zone, HSBC economists expect it to contract 0.6 per cent this year.

Financial regulators on high alert

Hong Kong's financial regulators are already battening down the hatches.

Hong Kong Monetary Authority chief executive Norman Chan Tak-lam said contingency measures were in place if the euro-zone crisis continued to deteriorate.

He has warned the Exchange Fund's investment returns would be hit hard in the second quarter, largely because of global market volatility caused by the crisis.

"We are closely monitoring the sovereign debt crisis, and will adjust our currency and investment portfolio when needed," Chan said.

The investment income of the Exchange Fund, which is mandated to support the stability of the Hong Kong dollar, rose 76.6 per cent to HK$43.8 billion in the first quarter, powered by surging markets in Hong Kong and overseas.

The HKMA strengthens banks' reserve, capital and liquidity management and conducts stress tests on banks even though they do not hold any Greece sovereign bonds.

Hong Kong Exchanges and Clearing (SEHK: 0388, announcements, news) has raised margin requirements for Hang Seng Index futures.

The Securities and Futures Commission will soon require reporting of statutory short positions while carving out a regulatory framework for the over-the-counter derivatives market.

A government spokesman said chief executive-elect Leung Chun-ying would in August review the city's economic prospects against the backdrop of the euro-zone crisis.

Anthony Wu Ting-yuk, the chairman of policy think tank Bauhinia Foundation, said the biggest worry was that trade financing could dry up because Europe's banks needed to shore up their balance sheets and meet higher capital requirements at home.

He was also worried that European banks with substantial holdings in Greek bonds would be forced to write down their investments if Greece quits the euro zone and devalued its currency, prompting them to pull back from lending and trade financing, especially to companies in Hong Kong.

Weakened China trade and retailing

Some retailers and exporters, whose livelihood is closely tied to consumer demand and tourism in Europe, face a bleak future.

Yeung Chi-kong, executive vice-president of the Toys Manufacturers' Association of Hong Kong, said the Greek crisis had highlighted the urgent need for about 2,000 Hong Kong toymakers on the mainland to reinvest in innovation, technology and design.

Export orders had so far dropped 25 per cent from last year's combined sales of HK$150 billion for China, including Hong Kong, Yeung said.

"We are very passive because a Greek withdrawal from the bloc will depress the euro's value and consumer demand, and hence our export orders," he said. "This is a critical time for reinvestment in the future, or [the toymakers] risk being pushed out of the market."

Original equipment manufacturers, which make toys for brands they do not own, were most vulnerable to the consolidation, he said.

Yeung said European consumption would remain lacklustre for the next two years.

Torsten Stocker, a Hong Kong-based partner at management consulting firm Monitor Group, said: "The retail sector in China has undoubtedly been affected by the domestic slowdown and some of that can be linked to the crisis in Europe."

China's economy is slowing, with growth declining for the past five quarters. Following the same trend, retail sales growth slowed last month to 13.8 per cent - the weakest in 12 months - from 16.5 per cent in May last year.

Firms in acquisition mode

Some sectors stand to gain from the crisis, including the automotive and oil and petrochemicals industries, as they focus on merger and acquisition opportunities.

Liu Zhen, a special assistant to the president of Great Wall Motor - the first Chinese carmaker to open a production plant in the EU this year - said the crisis made Chinese brands more competitive.

"The crisis makes consumers more cautious about buying cars. They are turning from spending more for better quality to less for good quality," Liu said. "In terms of exploring the EU market with good products at lower prices, Chinese carmakers have more to gain than to lose."

However, given the crisis and a yuan-euro exchange rate at a new high, Europe is obviously not the priority destination for those looking to overseas markets. Bill Russo, a car industry consultant based in Shanghai, said China would rather focus on tapping high-growth markets such as Russia, the Middle East and Southeast Asia.

"The economic stress may provide some chances for Chinese carmakers to enter [the European market] in the entry-level, lower-price segments, but I think it's still in a very early stage," said Russo, a senior adviser at Booz & Co and president of Synergistics.

John Zeng, an analyst with LMC Automotive, said the debt crisis might actually help European carmakers lift market share in China.

"European carmakers now rely on the Chinese market more than ever. The weakening euro actually helps boost their competitiveness in China against their Japanese rivals," Zeng said.

However, neither Zeng nor Russo said the strong yuan and crisis would provide Chinese carmakers with bargains such as Geely's buyout of Swedish carmaker Volvo in 2010.

"The German government, for example, is very protective of its industry. It's not easy for a foreign investor to acquire crucial technology from a European carmaker even if they are under financial stress," Zeng said.

As the debt crisis hit Spain, Portugal and Italy, which have partially state-owned oil firms with substantial oil and gas assets, Chinese oil firms might be presented with opportunities to buy some of their assets, CLSA's head of regional oil and gas research Simon Powell said.

China Petrochemical Corp, the parent firm of the nation's largest oil refiner and petrochemicals producer, Sinopec (SEHK: 0386), agreed in November last year to buy a 30 per cent stake in the Brazilian unit of Portugal's largest energy firm, Galp Energia, for US$4.8 billion.

Property market to slump

Property analysts have also warned that a Greek exit from the euro zone would snuff out a nascent recovery in the Chinese property market.

"It will hit property market sentiment," said Eva Lee, the head of Hong Kong and mainland property research at UBS.

Centaline's chief executive for northern and southwest China, Dickson Wong Hung, said property sales and prices fell sharply in the 2008 global crisis. "When the economy's worsening, who wants to buy flats?" he said.

Unlike elsewhere, China's property market is largely led by government policies, rather than the market. Lee said the central government would loosen its tight controls to counter the impact of global turmoil.

"The crisis will hit Hong Kong directly, but the impact on mainland China will be cushioned," she said.

However, Alan Chiang Sheung-lai, the head of residential property at DTZ in mainland China, said he believed Beijing would be more cautious about relaxing austerity measures imposed to cool the property sector.

"Banks will tighten lending further because no one knows what will happen after Greek exits the euro zone," Chiang said. "Most people looking to buy a home will take a wait-and-see attitude."

Even if Beijing relaxes its measures, Wong said it would have a limited impact. "The financial crisis will hit the mainland economy. Even if the government relaxes its measures on the property market, it would only have a limited impact. It can't escape from the crisis," he said.

Denise Tsang, Enoch Yiu, Eric Ng, Anita Lam, Yvonne Liu, Celine Sun

Click here to read the article at scmp.com

China biomass tycoon leads deal to buy Saab

The Associated Press, June 14, 2012

BY ELAINE KURTENBACH

LAST UPDATED: JUNE 14TH, 2012 02:42 AM (PDT)

The Asian consortium planning to rescue Swedish automaker Saab Automobile from insolvency is led by a mainland Chinese alternative energy tycoon whose company has close ties with China's State Grid electricity utility.

Being linked to the acquisition of Saab's car making assets could help bring the huge, state-owned utility a step closer toward its long-sought goal of breaking into the electric vehicle market.

"It's logical if they want to move into that market," said Yale Zhang, managing director of the independent consultancy AutoForesight in Shanghai.

State Grid is the main driver behind installing the charging stations and other infrastructure required to support electric vehicles. It has experimented with electric buses but lacks automotive technology.

With a brand name, "If they want to build a higher-end EV, it would be easier to penetrate the European, American, even the Chinese market," said Zhang.

Kai Johan Jiang, the alternative energy tycoon, was born in rural eastern China, went to school in Sweden and once worked for Volvo Trucks, according to his company's website.

Most of his career has been in the energy sector. His company, National Bio-Energy Group, specializes in building and running power plants fueled by farm waste, such as straw and corn stalks. It has partnered in research on biomass energy with State Grid, whose logo is front-and-center on the Bio-Energy Group website.

National Bio-Energy Group also has cooperated with Sweden in biomass research.

Another of Jiang's companies, National Modern Energy Holdings, holds a 51 percent stake in National Electric Vehicle Sweden AB, the company set up to buy Saab's main assets. Sun Investment LLC, said to be a Japanese company, holds the remaining 49 percent.

Saab's buyers say they plan to meld Swedish car design and manufacturing know-how with Japanese electric vehicle technology to promote premium electric vehicles in China - a goal that has so far proven elusive.

Jiang and others did not disclose the price tag in announcing their purchase Wednesday of the Saab assets, which include the main parts of its auto manufacturing division.

"Chinese customers demand a premium electric vehicle, which we will be able to offer by acquiring Saab," Jiang told reporters at a news conference at Saab's manufacturing plant in Trollhattan, Sweden.

Perhaps, analysts say.

But buying a car factory will not guarantee success in actually making and selling premium electric vehicles, whether in China or elsewhere.

China's economic planners have made development of electric vehicles a top economic priority, driven both by the need to reduce smog and also to curb soaring dependence on imported crude oil.

But so far the market has failed to take off. Providing subsidies at the local level has only helped boost electric vehicle development in a couple of cities where local car manufacturers have relatively strong EV production, says Zhang.

Jiang and his partners have tapped a former executive of Volvo Trucks, Karl-Erling Trogen, to head their consortium, which says it is already hiring staff to begin product development.

Saab, which has more than 3,000 workers, filed for bankruptcy in December last year after its previous owner, the Dutch luxury car group Spyker - later named Swedish Automobile - failed to get sufficient backing for the brand.

Helping perhaps to minimize friction over intellectual property concerns, the carmaker's Saab Parts unit was not included in the agreement. IP rights for the Saab 9-5 car model, owned by the brand's former owner General Motors Corp., were also excluded.

Though Saab is not especially known for its prowess in electric vehicles, it will likely provide a platform for a prototype that State Grid could use to gain better cooperation with mainstream auto manufacturers, said Bill Russo, president of the consultancy Synergistics Ltd. Such companies have not been willing to take State Grid's lead in pushing ahead with new products.

"You wouldn't buy Saab for its EVs. It's about the ability of a power systems company to commercialize EV technology," Russo said.

"Will this lead to a high volume car business? Definitely not anytime soon," he said.

Read more here: http://www.thenewstribune.com/2012/06/14/v-printerfriendly/2180474/china-biomass-tycoon-leads-deal.html#storylink=cpy

China’s Dash for Growth Slowed by Costs, Capacity Issues

Ward's Auto, November 2011


Former Chrysler China executive Bill Russo says the domestic auto makers’ biggest challenge by 2015 will be overcapacity. “Lower utilization at local marques will drive their manufacturing costs upwards.”

SHANGHAI – After experiencing rapid development in the past decade, China’s auto industry now faces tough challenges: overcapacity, rising material costs and slumping sales.

That’s the consensus among experts attending the ninth annual automotive industry forum held here by the China Europe International Business School.

Annual production and sales growth in China likely will drop 5%-10% this year and next, with some estimates as low as 5%, from previous highs of 25%, says Dong Yang, vice president- China Association of Automobile Manufacturers.

CAAM says industry sales reached RMB4.35 trillion ($684.4 billion) in 2010. But 2011 is proving to be difficult, with rising inflation and an appreciating yuan.

This is particularly the case for FAW Group, the third-largest auto maker in China, which has just revealed a third-quarter loss of RMB49 million ($7.7 million). FAW says its business was seriously affected by “tight monetary policy, inflation and the end of the government’s (vehicle-replacement) incentives program.”

Financing remains tight as Chinese banks are reluctant to lend, given the central bank has raised the 1-year deposit rate and lending rate by 25 points to 3.5% and 6.6%, respectively.

China’s consumer price index, which has been running high this year, rose 6.1% year-on-year in September. The Chinese government predicted the CPI would climb 5.5% this year from 2010.

What short-term succour exists for the Chinese auto makers comes with a green tinge: Local governments in six major cities – Changchun, Beijing, Shanghai, Hangzhou, Hefei and Shenzhen – now are offering subsidies up to RMB60,000 ($9,440) for consumers buying electric vehicles, sending a clear message that clean-energy cars should be the industry’s next big thing.

First in line, Shenzhen-based BYD launched China’s first all-electric passenger car, the e6 in October. The car is priced at RMB369,800 ($58,179) before local subsidies.

Foreign auto makers stress at the conference here plans to push into China’s EV market.Nissan Chief Operating Officer Toshiyuki Shiga notes his company’s electric Leaf, which is priced at about RMB208,356 ($32,780) in the U.S., recently received sales approval from the Chinese government.

EVs will not be the only alternative-propulsion vehicles in China in the next decade, says Zhang Jinhua, vice secretary general of the Society of Automotive of Engineers of China. Others, including hydrogen fuel-cell cars and hybrid vehicles, will generate significant sales by 2020.

“While electric cars are zero emission, hybrid cars are less-demanding on the infrastructure, and fuel-cell (vehicles) can be used for a long-distance drive,” he says. “They all have their own advantages.”

General Motors with joint-venture partner SAIC recently introduced a Buick LaCrosse with eAssist, which the auto maker says could lower average fuel consumption 20%.

Priced at RMB265,000 ($41,692), it also is the first model targeting the Chinese middle class that sells for less than RMB300,000 ($47,198). GM-SAIC plans to add capacity to build 410,000 vehicles a year in order to produce 1.9 million units annually by 2015.

FAW is adding capacity to produce 960,000 units annually by 2015, while Volvo-owner Geely plans to add capacity to manufacture 1 million vehicles, in order to reach 1.68 million units annually by 2015. Great Wall and Chang’an will add 1.3 million and 900,000 units of capacity, respectively, in the same timeframe.

The risk here of course, especially given falling demand and rising material costs, is overcapacity, especially for those auto makers that fail to improve marketing and research-and- development skills.

These are the key challenges facing Chinese auto makers in the coming years, says Bill Russo, Senior Advisor with the Booz & Company global-strategy firm’s automotive practice in Beijing.

Russo, a former Chrysler China executive, tells WardsAuto the market’s future will be decided by which auto makers get sales-and-service networks in place in the emerging second-tier cities.

This is where the bulk of new sales are expected to emerge as Beijing, Shanghai and Guangzhou restrict car sales to cut down on traffic congestion.

Russo predicts annual sales will hit 20 million vehicles by 2015, but he sees international brands’ local joint ventures retaining their dominance. The domestics’ biggest challenge will be overcapacity, he says. “Lower utilization at local marques will drive their manufacturing costs upwards.”

Exports offer one way out for brands saddled with excess capacity, and certain OEMs, such as Great Wall, have been aggressively expanding overseas sales. But there are issues to overcome. Marketing abilities remain a particular challenge for local brands both in export and domestic sales. Developing reliable parts and service networks are other weaknesses.

These issues partly could be addressed by foreign acquisitions, experts here say. Hangzhou-based Geely, for example, plans to sell 200,000 Volvos in China by 2015. And Tangshan-based Pang Da Automobile Trading and Jinhua-based auto maker Youngman are jointly paying €100 million ($138 million) to buy Sweden’s Saab. The deal is waiting for regulatory approval.

But Dong, of CAAM, warns going abroad is risky and requires a lot of research and negotiations. “You have to show the foreign government what kind of benefits you are going to bring them and comply with local regulations,” he says.

Auto makers in China believe increasing competitiveness will see profitability squeezed further, compelling them to expand their portfolios while also refreshing existing models.

Hua Ming, who runs a Volkswagen dealership in Beijing’s business district, has seen a 20% drop in sales so far this year, which he blames on the city’s new limits on car ownership. To compensate, he has opened a dealership in Shijiazhuang, the capital of neighbouring Hebei province.

Hua says Chinese auto makers have a chance to capture market share if they’re faster in expanding sales-and-service operations to lower-tier cities, where average per-capita income stands at half the Beijing urban average of RMB120,768 ($19,000).

“But all brands have to understand rural preferences for more durability and less fancy electronics and features,” he says.

– with Mark Godfrey in Beijing

Click here to read the original article at Wards Auto

China car sales buck slowdown trend

The Financial Times, June 11, 2012

By Patti Waldmeir in Shanghai

Markets worldwide have been shaken recently by unexpected signs of slowdown in the Chinese economy. But one sector seems to be bucking the trend – and without much in the way of government stimulus.

Car sales in China rose 22.6 per cent year on year in May, according to figures released by the China Association of Automobile Manufacturers. Association officials said they expected the market to strengthen further in coming months.


General Motors’ total vehicle sales rose 21 per cent year on year in May; Nissan gained 20 per cent; and German carmakers BMWand Audi were up 31 per cent and 44 per cent respectively.


The figures represent a recovery from the industry’s slow growth in the first quarter, with passenger car sales – excluding small commercial vehicles – for the first five months growing 5.5 per cent on the same period a year earlier.


Those are hardly the kind of figures to give global stock markets the jitters, especially when compared with figures from India, where car sales rose only 2.8 per cent year on year in May. The Chinese sales figures came before last week’s interest rate and petrol price cuts, and were achieved with little in the way of government stimulus.


Bill Russo, head of Synergistics auto consultancy in Beijing and a former head of Chrysler in China, says: “The May results are a reflection of the fundamentally strong growth drivers that exist in China – mainly continued urbanisation and growth of the middle-class population, recovery from last year’s supply chain disruptions, and pent-up premium car demand.”


Some analysts are predicting that growth will strengthen further because of lower interest rates and petrol prices, which were not reflected in the May figures. Jeff Chung, of Daiwa Capital Markets, says: “We also expect China’s latest interest rate cut to help stimulate auto sales in the second half of the year.”


However, Klaus Paur, auto analyst at Ipsos in Shanghai, does not expect a “significant direct impact” on car sales from either lower interest rates or fuel price cuts.


Mike Dunne, of Dunne and Co, an Asia-based auto consultancy, says: “What to watch is how much these measures help strengthen consumer sentiment, which has been cautious. Is the government signalling that it’s now safe to go back into the water?”


Analysts are divided on whether the government will step in with further stimulus measures targeted at the auto sector.


“I think China is not able to issue further stimulus policies this year,” says Rao Da, secretary-general of the China Passenger Car Association. Measures announced recently by central and local governments – such as Chongqing’s Rmb3,000 ($475) car purchasing subsidy – have so far had little impact, analysts say.


News last month that Beijing would spend Rmb6bn to support alternative fuel vehicles has had little impact. “This is a very small share of the overall market today,” says Mr Russo.


The Chongqing stimulus is designed primarily to help the local carmaker, Chang’An. “Other substantial markets with local production such as Beijing, Shanghai and Guangzhou are very unlikely to follow such a measure,” says Mr Paur, noting that those cities are imposing tough measures to restrict new car registrations.


But the picture is not all rosy in the China car industry: “Carmakers appear to be disproportionately optimistic while inventories at dealerships are growing,” says Mr Paur, noting that this “could put pressure on car prices and profitability”.


China car sales buck slowdown trend - FT.com
http://www.ft.com/intl/cms/s/0/da68155a-b3ac-11e1-8b03-00144feabdc0.html#axzz1xYPCBVCr

China Autos In The United States? Even 2020 Is Just A Maybe

China Law Blog, June 5, 2012

By Dan Harris


Just read a great article on China’s auto industry, entitled, “Chinese OEMs and the U.S. Market – Fact vs. Fiction.“  The article is by Bill Peng, John Jullens, and Bill Russo. Grossly summarized, the article throws cold water on the idea that Chinese car manufacturers will be ready to invade the United States auto market by 2020.  


Click here to read the full commentary at www.chinalawblog.com

Great Wall Motor Aims to Triple Exports

Bloomberg TV, June 7, 2012

Bloomberg's Stephen Engle reports from Beijing on Great Wall Motor Co.'s business outlook and plans for international expansion. The China automaker aims to triple its exports by 2015 and enter the U.S. market within 3-5 years. (Source: Bloomberg)

Bill Russo comments can be seen at 0:21 and 1:42 of the video