Friday, September 21, 2007

China could be top wind market in three years: Vestas

China could become the world's top wind power market in three to five years but will grow faster if it reforms its subsidy system, executives of major wind turbine maker Vestas said on Friday.

Chief Executive Ditlev Engel, in China to open the second and third in a series of seven plants due to come on line by the first quarter of 2008, said he was convinced Vestas could compete with cheaper local rivals on quality.

But the company, the world's biggest wind turbine manufacturer, made its $80 million investment with an eye on both Chinese and export markets. Turbines not sold in China could be integrated into Vestas' global supply chain, he added.

"China will keep growing now, as a very important part of the wind power business, not just on the sales side but also on the sourcing," Engel said in a group interview.

Asked when Beijing would become the top market, he said: "Within three to five years, we estimate."

He declined to estimate the speed of demand growth, but pointed out that China, with its 1.3 billion population, had less installed wind power than Denmark, with fewer than 6 million people.

But Engel also stressed that the European Union's push to get 20 percent of its energy from renewable sources by 2020, and growing support in the United States for greener power, meant China was not guaranteed the top place.

PRICING HURDLES

Currently the world's number two consumer of oil and top producer of coal, Beijing is keen to boost the amount of energy it gets from renewable sources to clean its skies and improve energy security.

But it has chosen to subsidize wind power through a bidding system that analysts and industry figures say pushes prices too low to fuel the rapid development China could enjoy.

The current system asks firms to submit bids stating how much they would charge for wind power from potential sites. Instead many would like to see a feed-in tariff system, which guarantees wind farms a fixed premium above regular prices.

"It is an issue we are also pushing whenever we have the chance of discussing it with authorities," Vestas' China Managing Director Lars Andersen said.

"We think one way to create a very sustainable industry is to have a feed-in tariff system," he said, adding that some provinces were already looking at changing the system.

A lack of roads and aging or inadequate grid networks also hamper development in some areas with good wind power potential.

But the industry is still booming. Most analysts think Beijing's target of 30 gigawatts (GW) of installed capacity by 2020 is too modest, as China is already nearing its 2010 goal.

Chinese firms have been piling into the sector, with around 30 companies risking a glut of turbines and the potential for price wars before an expected consolidation.

But Vestas says experience gives it a competitive edge.

"The most important issue for our clients over a 20-year period, which is the lifetime of the turbine, is reliability," Engel said.

"There are many firms in China trying to get involved in the business but our experience from around the world is that it is not as easy as it looks," he added.

The Jutland based firm has plants around the world, including in Germany, India, Spain, Australia and China, and 99.9 percent of its revenue originates outside Denmark, Engel said.

It is aiming for full-year sales of about 4.5 billion euros ($6.35 billion), and an operating margin of 7 to 9 percent.

Mattel Apologizes to China Over Recalls

Mattel Apologizes to China Over Worldwide Recalls of Chinese-Made Toys

BEIJING (AP) -- U.S.-based toy giant Mattel Inc. issued an extraordinary apology to China on Friday over the recall of Chinese-made toys, taking the blame for design flaws and saying it had recalled more lead-tainted toys than justified.

The gesture by Thomas A. Debrowski, Mattel's executive vice president for worldwide operations, came in a meeting with Chinese product safety chief Li Changjiang, at which Li upbraided the company for maintaining weak safety controls.

"Our reputation has been damaged lately by these recalls," Debrowski told Li in a meeting at Li's office at which reporters were allowed to be present.

"And Mattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people, and all of our customers who received the toys," Debrowski said.

The carefully worded apology, delivered with company lawyers present, underscores China's central role in Mattel's business. The world's largest toy maker has been in China for 25 years and about 65 percent of its products are made in China.

The fence-mending call came ahead of an expected visit to China by Mattel's chairman and chief executive, Robert A. Eckert. Following the massive recall, Eckert told U.S. lawmakers he wanted to see Mattel's mainland inspections first hand.

Mattel ordered three high-profile recalls this summer involving more than 21 million Chinese-made toys, including Barbie doll accessories and toy cars because of concerns about lead paint and tiny magnets that could be swallowed.

The recalls have prompted complaints from China that manufacturers were being blamed for design faults introduced by Mattel.

On Friday, Debrowski acknowledged that "vast majority of those products that were recalled were the result of a design flaw in Mattel's design, not through a manufacturing flaw in China's manufacturers."

Lead-tainted toys accounted for only a small percentage of all toys recalled, he said, adding that: "We understand and appreciate deeply the issues that this has caused for the reputation of Chinese manufacturers."

In a statement issued by the company, Mattel said its lead-related recalls were "overly inclusive, including toys that may not have had lead in paint in excess of the U.S. standards.

"The follow-up inspections also confirmed that part of the recalled toys complied with the U.S. standards," the statement said, without giving specific figures.

The co-owner of the company that supplied the lead-tainted toys to Mattel, Lee Der Industrial Co. Ltd., committed suicide in August shortly after the recall was announced.

Li reminded Debrowski that "a large part of your annual profit ... comes from your factories in China.

"This shows that our cooperation is in the interests of Mattel, and both parties should value our cooperation. I really hope that Mattel can learn lessons and gain experience from these incidents," Li said, adding that Mattel should "improve their control measures."

Li, the head of China's General Administration of Quality Supervision, Inspection and Quarantine, also expressed his appreciation for Debrowski's "objective and responsible attitude toward the recent toy recall."

Chinese food, drugs and other products ranging from toothpaste to seafood are under intense scrutiny because they have been found to contain potentially deadly substances.

But China has bristled at what it claims is a campaign to discredit its reputation as an exporter. It accuses foreign media and others of playing up its product safety issues as a form of protectionism.

Beijing insists that the vast majority of its exports are safe but has stepped up inspections of food, drugs and other products in response to the concerns.

Li told reporters after meeting with Debrowski that the government had taken swift action against Lee Der, shutting down its operations and revoking its business license. Four people from the company also face criminal charges, he said, without giving details.

Since this summer's recalls Mattel has announced plans to upgrade its safety system by certifying suppliers and increasing the frequency of random, unannounced inspections. It has fired several manufacturers.

Tests had found that lead levels in paint in recalled toys were as high as 110,000 parts per million, or nearly 200 times higher than the accepted safety ceiling of 600 parts per million.

Mattel's shares fell from the mid-$23 level following the first recall in early August, reaching as low as $20.97 on Sept. 10. They have since rebounded, and rose 63 cents to 2.7 percent to $24.19 in early trading Friday.

China has become a center for the world's toy-making industry, exporting $7.5 billion worth of toys last year.

Tuesday, September 11, 2007

China bans lead paint on US toy exports

China signed an agreement Tuesday to prohibit the use of lead paint on toys exported to the United States.

Unveiled at the second joint U.S-China summit on consumer product safety, the pact was negotiated in the wake of the recalls of millions of playthings decorated with paint containing the toxic metal.

China has faced stiff pressure this year after an array of its exports, including toys, pet food ingredients, fish and jewelry, have been recalled over health and safety concerns.

In the pact, Beijing also pledged to step up inspections of its exports and take other steps to ensure that those products meet U.S. standards, said Nancy Nord, acting head of the U.S. Consumer Product Safety Commission. That will include joint efforts by the two countries to increase understanding of those standards among manufacturers and exporters.

The absence of such an understanding allowed paint suppliers to provide lead paint to companies making toys sold by Mattel Inc. and other companies, said Chuanzhong Wei, vice minister of China's General Administration of Quality Supervision, Inspection and Quarantine. Lead paint has been banned on toys made in the U.S. since 1978.

"That's why we decided we should intensify the exchanges between importers and exporters in the field of standards," Wei said, speaking through a translator.

U.S. and Chinese regulators also agreed to hold regular product safety talks, including monthly discussions of recall activity and trends, Nord said. China also will help the CPSC trace products to their source when problems do arise.

The United States and China also agreed to cooperate on improving the overall safety of the latter country's toy exports, as well as fireworks, cigarette lighters and electrical products.

"This is an important signal from the Chinese government that it is serious about working with CPSC to keep dangerous products out of American homes," Nord said.

But Wei stressed that most Chinese exports are safe, echoing a line that Beijing repeatedly has used in defending the quality of its products. While acknowledging more could be done, Wei said that 100 percent safety was impossible and warned against overemphasizing what he characterized as limited problems.

"We should not over-propagandize the problem," Wei said.

China had "unique role" in Darfur peace bid: envoy

China's Darfur envoy said on Tuesday Beijing had played a "unique role" in efforts to bring peace to the Sudanese region and defended its policy of economic ties with Sudan without political strings.

Although China has been criticized for watering down U.N. resolutions on Darfur, Liu Guijin said it backed the world body's approach that will culminate in the dispatch of a "hybrid" 26,000-strong U.N.-African Union peacekeeping force.

"The Chinese side has made a huge effort," Liu told a news conference. "Particularly on the hybrid peacekeeping operation the Chinese side has utilized all kinds of channels and talked to the Sudanese government and persuaded them as an equal partner to accept the ... plan."

"On the resolution of the Darfur issue, we have played a very constructive and even unique role," he said, speaking through an interpreter.

"We say that ... if you only utilize the exertion of pressure, sanctions, and even military power, that is not conducive to the settlement of the issue."

China is to send more than 300 engineering troops to Darfur next month to help prepare for the peacekeeping force.

China, however, has been seen as the main opponent on the U.N. Security Council of the argument by Western countries that sanctions should be held in the background to force Khartoum to comply with peace moves.

Liu was speaking after U.N. Secretary-General Ban Ki-moon announced in Khartoum last week that Sudan's government and rebel groups from Darfur would start peace talks on October 27.

International experts estimate some 200,000 have died and over 2 million have been driven from their homes during 4-1/2 years of fighting in Darfur. Sudan puts the death toll from the conflict at just 9,000.

In New York, the Chinese envoy has met top U.N. political and peacekeeping officials. Last week he met U.S. lawmakers and pressure groups in Washington over threats that China's Sudan policy could affect next year's Beijing Olympic Games.

Asked about Beijing's provision of assistance without political conditions, Liu said this was its standard policy towards what it considers fellow developing nations.

Energy-hungry China is a major investor in Sudan's oil industry at a time when Western majors are holding back because of Darfur, but Liu described oil ties between the two countries as "transparent, mutually beneficial and non-exclusive."

To say that China's oil exploration in Sudan was tantamount "to supporting the Sudanese government to kill people in Darfur is not justified," he said.

China fund to invest abroad

China Southern Fund Management will this month become the first Chinese fund house to invest its clients' money in overseas stocks, as the liberalisation of China's domestic funds continues.

The company, one of the three biggest fund managers in China by assets, is the first to take advantage of a June decision by Chinese regulators to expand the scope of the Qualified Domestic Institutional Investor (QDII) scheme, which allows capital outflows through banks, brokerages and fund houses.

Fund managers with QDII quotas were previously only allowed to invest in bonds and fixed-income products, which made it difficult to generate high returns given China's policy of steadily appreciating the yuan. Some commercial banks were earlier given QDII quotas that allow them to launch products that invest up to 50 per cent of proceeds into stocks.

This expansion of the QDII scheme will encourage a further $10bn-$15bn outflow of capital in its initial stages, said Citi Investment Research China strategist Xue Lan. Four other fund firms, including JPMorgan's China asset management venture, are setting up similar funds.

China Southern Management's fund will invest in 10 overseas equity markets, including the US, Japan, India and Hong Kong. "By investing in 10 countries we can spread risk and reduce losses related to the appreciation of the Rmb," said chief executive Gao Liangyu.

"The government has given us complete freedom when it comes to the size of this fund, as they want as much money to leave the country as possible," he added. "The level of interest will decide how big this fund is." The fund will be launched on September 12 and subscription closes on September 28.

Beijing has been stepping up measures to encourage greater outflows and give more investment alternatives for domestic investors as liquidity continued to pour into the Shanghai stock market. It last month announced a pilot scheme giving retail investors direct access to Hong Kong's stock market, which has been inaccessible because of China's currency controls.

Ms Xue said domestic investors would likely use QDII stock funds like China Southern's to diversify their investments. "One doesn't always invest just for returns. This fund offers different angles and exposure to investors," she said.

Sunday, September 9, 2007

Gas Deals Signal Shifts for China

BEIJING -- China's decision to sign two deals to import natural gas from Australia signals its willingness to pay more for cleaner energy and deepens economic ties with Australia as China shifts away from the Middle East for natural-gas supplies.

Last week, China's biggest oil-and-gas company, PetroChina Co., signed deals to import natural gas from Australian company Woodside Energy Ltd., which owns nearly half the Browse natural-gas field, and from Royal Dutch Shell PLC, owner of a stake in Australia's giant Gorgon gas field, which is half-owned by Chevron Corp.

Valued at about $37 billion over 15 to 20 years, PetroChina's deal with Woodside Energy to import liquefied natural gas, or LNG -- gas that is supercooled for transport on ships -- was hailed in banner headlines in Australia as the country's biggest single export ever. Woodside Energy is a unit of Woodside Petroleum Ltd.

"It's an affirmation for demand for cleaner fuels and a confirmation that Chinese companies believe that providing these fuels can be a profitable business in China," said George Gilboy, chief representative for Woodside in China and one of the negotiators of the deal.

Underscoring the importance of the agreement for the two nations, the deals were signed on the sidelines of the gathering in Sydney of 21 leaders from the Pacific rim for the Asia-Pacific Economic Cooperation summit, including Australian Prime Minister John Howard and Chinese Premier Hu Jintao.

Australia and China have been stepping up economic cooperation, especially in resources. Australia has agreed to supply uranium to China and already sells iron ore, nickel and other ingredients for steel essential for China's rapid urbanization and racing economic growth.

The China deals also help secure the future of two of Australia's biggest natural-gas projects. Development and environmental concerns had dogged the Gorgon project, in which Royal Dutch Shell and Exxon Mobil Corp. each own 25% stakes.

In part, the Woodside and Shell deals reflect a shift in China's domestic energy market. Though natural gas typically competes with coal to supply power plants, China's relatively low, state-set electricity rates and low prices of cheap -- but dirty -- domestic coal have made gas-fired power plants uneconomical. As a result, China's coal-fired power plants pollute the country's skies and make China the world's second-biggest producer of greenhouse gases after the U.S.

However, a major market for natural gas has emerged among China's growing urban middle class. Cities have switched to newly built natural-gas networks as a cleaner alternative to cheaper fuel such as coal-derived gas for cooking and heating. In an unregulated market, consumers in China's richest areas such as Shanghai or Shenzhen are willing to pay more for a cleaner fuel as incomes and aspirations rise.

China is also looking to import more pipeline gas from its neighbors, including Russia, and is trying to develop domestic fields. But until now, LNG had stalled because China was unwilling to pay more after international prices rose.

Because of that, analysts have expected China would turn to the Middle East, especially Iran, which has some of the world's biggest fossil-fuel reserves. But talks on a multibillion-dollar deal have dragged on for years. It is also unclear if Iran, which is under U.S. sanctions for allegedly sponsoring terror, could develop the fields.

China sees Australia as a safer option. "Security of supply is paramount," said John Harris, a Beijing-based LNG analyst at energy consultancy Cambridge Energy Research Associates.

Meanwhile, Woodside, in getting China to sign up at an early stage of the field's development, is helping protect its investment. "What's innovative for Woodside is to secure a foundation customer at an early stage, so Woodside and its partners can push forward development as quickly as possible," Woodside's Mr. Gilboy said.

Nonetheless, the deals with PetroChina, the Hong Kong-listed arm of China's state-owned China National Petroleum Corp., aren't final, and it will be years before any gas is delivered. PetroChina's American depositary receipts are traded on the New York Stock Exchange.

Monday, September 3, 2007

More Mideast-China investment 'hampered by culture'

Greater investment between the Middle East and China is being hampered by a lack of understanding between the two cultures, a conference in the United Arab Emirates heard on Monday.

The warning came despite trade between the two doubling since the year 2000 and projections of massive investment by some Middle Eastern states in Asia over the next five years -- with most of that money going to China.

"There is a cultural gap that acts as a barrier" to trade, the chairman of the Dubai-based Gulf Research Centre told delegates at the China-Middle East Investment Forum in Dubai.

Abdulaziz Sager said he feared the lack of a common language as well as a limited knowledge of business culture between both regions could prevent economic ties from developing further.

His concerns were echoed by China's Huang Xiaoxiang, the vice governor of China's Sichuan province, who called for greater interaction.

Huang told delegates that China had to do more to tap liquidity in the Middle East, particularly in the wealthy Gulf Cooperation Council states.

The GCC groups Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

"There is a lack of effective communication between both sides. We need to tighten understanding of cultural backgrounds and deepen our research on Middle East investment funds," Huang said.

Sager said the oil-rich GCC members in particular will have to increase their cultural understanding of China as the energy- and commodity-hungry colossus looks set to continue its phenomenal annual double-digit growth.

Annual trade between the Middle East and China has doubled to 240 billion dollars since 2000, the Dubai International Financial Centre (DIFC) said in a statement.

It added that banks were predicting that GCC states would invest as much as 250 billion dollars in Asia over the next five years, mainly in China.

In March, Saudi Arabia's state-owned oil firm Aramco announced it was undertaking two joint ventures in China worth about five billion dollars, alongside fellow oil giants Exxon Mobil and Sinopec.

And in April two Chinese companies signed a framework agreement to build two aluminium processing plants and related facilities worth nearly five billion dollars in Saudi Arabia.

Nasser Saidi, chief economist at the DIFC, said that he also believes that more needs to be done to bridge the cultural gap between the Middle East and China.

"These are very early days and there is a discovery process on both sides," Saidi told delegates. He urged governments to sponsor more cultural exchanges and encourage business figures to attend more joint trade fairs and conferences.

Sager said the Middle East should rely less on the West in economic and cultural terms and look more to China, which is home to millions of Muslims and has no recent history of interference in the region's political affairs.