Business news shorts

Rio Tinto Dumped Chinalco Deal

On June 5, the world’s third largest mining firm, Rio Tinto, scrapped a $19.5 billion deal with Aluminum Corp. of China (Chinalco). Instead, it decided to raise $21 billion capital from a share sale and set up an iron ore joint venture with Australian mining giant BHP Billiton. This move not only made Rio Tinto shy away from considerable repercussions from shareholders and politicians, but also saved Australian Prime Minister Kevin Rudd from a political storm. It also frustrated China’s overseas investors who intended to ensure raw material supplies to boost the economy.

According to Rio Tinto’s fund-raising plan, theU.K. investors will be offered 21 new shares for every 40 existing shares at a price of 1,400 pence each, which is 49 percent below June 4’s close rate. Additionally, BHP offered Rio Tinto $5.8 billion to launch an Australian iron ore joint venture. The capital Rio Tinto raised from the share sale and joint venture setup will help slash the company’s $38.9 billion debt without selling the stock rights of its biggest mining field to Chinalco.

Chinese Premier Wen Jiabao (C) inspects Rio Tinto's HIsmelt plant facilities at Kwinana on April 2, 2006 in Perth, Australia. (Photo by Getty image)
China May Buy IMF Bonds
Beijing News—China is considering buying up to $50 billion in IMF bonds, said the State Foreign Exchange Administration of China.
According to Finance Times, John Lipsky, IMF’s first deputy managing director, confirmed the Chinese proposal after Russia proposed to buy $10 billion in IMF bonds. The pledges by Russia and China seem to have some political motivations. They both desire to have a greater say in how the IMF commits its money.
China's Commerce Ministry Not Optimistic About Foreign Trade for the Second Half of 2009
Foreign trade for the second half of this year is not optimistic, said Zhong Shan, Vice Minister of China’s Commerce Ministry, at a national meeting of export credit insurance. He urged authorities to improve the export credit insurance coverage mechanism.
He remarked, “China's foreign trade sector now faces unprecedented difficulties and is set to decline in the first half of the year. It's increasingly difficult to make a quick turnaround and the situation will remain gloomy in the second half of the year.”
China Admits Employment Situation is Dire
China said the country’s employment situation was still severe and economic recovery was still not well grounded. According to the BBC, on June 3, after a regular meeting chaired by Chinese Premier Wen Jiabao, China’s State Council stated “there are still many uncertain and unstable factors in China’s economic development; and the economic recovery still does not have a solid foundation.”
The statement said that these problems are inextricably linked to the available labor force far exceeding the number of available jobs and the prominent structural contradiction. Employment situation is still dire. New jobs are still down from the same period last year, and the registered unemployment rate still keeps rising. College graduates and rural work forces are still facing more employment difficulties.
China Eastern Airline Confirms Shanghai Airline Merger
A rumor that circulated for months was finally confirmed when the merger of China’s Eastern Airlines and Shanghai Airlines was announced in early June.  The two companies will begin restructuring procedures.
“We received approval from the government on June 6 about the consolidation,” Feng Xin, Vice President of Shanghai Airlines said on June 8. Shanghai Airlines said that the merger would relieve competition pressure in the Shanghai market.
Eastern Airlines said on June 9 that both companies are planning to significantly restructure and further reduce liability rates. Since the prospects for Chinese tourism remain gloomy, both Shanghai and Eastern Airlines are running at a loss and have received bail-out money from the government.
Xie Guozhong: China’s Stock Market is Back to Bubble
“China’s stock market went back to a bubble period again, so it is unrealistic for investors to bet on China to rescue the global economic decline”, said Andy Xie, former chief Asian economist at Morgan Stanley. Aberdeen Asset Management said that investors should be careful in the Hong Kong stock market, since earnings prospects couldn't justify a three-month rally in Hong Kong stocks. Xie told Liberty Times, “Everybody thinks China is Kung Fu Panda and China can rescue the world, but this expectation is not realistic.”
India: Chinese Power Equipment Low Energy Efficient
Higher heat rate and low power generation efficiency are among some of the problems occurring in Indian power plants using Chinese equipments. A team formed by Indian authorities was sent to China to investigate recently, and they found that the heat rate of Chinese equipment was higher than specified norms, so that more energy was consumed to produce electricity. Therefore, it was confirmed that energy generation in China didn’t comply with the latest norms.
This spelled good news for Bharat Power, India’s largest power equipment manufacturer and a fierce competitor of Chinese power equipment manufacturers.
As many as 19 Indian plants were equipped with Chinese equipment. Some of them often reported oil gun failures, high oil consumption, ceramic bonds and coal pipes failures and erosion. Indian authorities have already required Chinese manufacturers to comply with the latest norms to improve the higher heat rate problem.
Concerns over another China Export Tax Refund Boost
China Ministry of Finance and State Administration for Taxation announced that as of June 1, 2009 China raised the export tax rebates by as much as 17 per cent. U.S. trade experts said that this move contradicted China’s promise in G20 Summit and would spark protectionism among trade partner countries.
According to Voice of America (VOA), it was the seventh rise of export tax rebates in China since last August; this time for more than 2,600 items. Currently China's comprehensive export tax rebates increased to 13.5 per cent. Claude Barfield, trade scholar with American Enterprise Institute, said that this was a trade distortion and an implicit subsidy.