Archive for ‘China alert’

20/01/2019

China’s slowdown and what it means for the UK

Shanghai at nightImage copyrightGETTY IMAGES
Image captionExporters and investors will be looking at China’s GDP figures closely

Monday sees the release of China’s GDP figures, and they’ll be even more closely watched than usual.

Apple’s CEO, Tim Cook, blamed cautious Chinese consumers in part for his company’s failure to sell as many iPhones as he hoped, sending share prices down around the globe.

Car sales in the country, meanwhile, have dropped for the first time in two decades.

On the back of such evidence, investors and policymakers are becoming increasingly jittery about the state of such a crucial engine of world growth.

How concerned should they be?

Measuring an economy’s output is never easy but China’s data comes with a bigger health warning than most.

Rather than 6.5%, independent economists say the GDP figure may actually be closer to 5% – or even lower.

Xiang Songzuo, a finance professor and former chief economist of China Agriculture Bank, has claimed that 2018 growth may have been as low as 1.7%.

His online video has since been censored by authorities.

The unreliability of the official figures is one reason why other indicators such as Apple’s sales have the power to send shockwaves around global stock markets.

It may be hard to confirm the scale of the slowdown in China but it’s clear that growth has shifted down a gear.

It’s recently been revealed that activity in factories and workshops stalled for the first time in two years in November.

The month after, exports dropped 4.4% compared to a year previously. Chinese households are clearly feeling the squeeze: retail sales are growing their slowest rate in 15 years.

Is the slowdown intentional?

In part, possibly. After establishing itself as the world’s workshop over the last forty years, China’s found itself losing its competitive edge to the likes of the Philippines and Vietnam, where labour is even cheaper.

The government decided to switch focus away from exports to growing domestic demand.

However, concerns then arose about the size of China’s debt pile – and the risk of bad loans.

Between them, the country’s households, government and corporations have debts totalling almost three times the size of GDP.

A tightening of credit appears to have weighed on spending and investment. And then there’s the trade war with the US.

While there was an initial flurry of orders brought forward to evade tariffs, those latest export figures suggest those measures are now hurting Chinese producers.

While the government has introduced measures to support the economy, most economists expect China’s growth to slow further.

How much does this matter to the UK?

In terms of our exports, China’s is the UK’s 6th largest trading partner. We sold them over £22bn worth of our goods in 2017 – with cars, medicines and oil-based products forming the major part.

Politicians’ have pinned their hopes on a closer trading relationship with China in the post-Brexit era.

But demand might not be quite as strong as they’re anticipating .

Then there’s the billions of pounds Chinese companies and entrepreneurs invest in the UK every year – £20bn in 2017 alone.

Thames Water, Pizza Express and West Bromwich Albion FC are among the many which enjoy Chinese backing. That kind of investment is notoriously volatile.

A West Bromwich Albion Football Club playerImage copyrightGETTY IMAGES
Image captionWest Bromwich Albion FC is one of many British organisations which has Chinese backers

And let’s not forget the concerns about bad loans. There’s a good reason why the Bank of England’s Governor Mark Carney cites China as one of the biggest risks to global financial stability.

Several large banks, not least HSBC and Standard Chartered have significant exposure to that market.

What of China’s longer-term prospects?

Since 1980, growth (if the official figures are to be believed) has averaged over 10% per year, meaning the size of the economy has surged 42-fold over that time.

China’s time in the sun, its superhuman growth spurt, may be over.

By 2030, economists say growth will have settled down to about a third of its current figure.

But even that would be enough to ensure it overtakes the US to take pole position as the world’s largest economy.

Source: The BBC

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20/01/2019

China set to report slowest economic growth for 28 years

  • Figures to be released on Monday could show 2018 GDP growth slowed to 6.6 per cent
  • Beijing’s promise of more support only likely to be enough to stop slide getting worse, analysts say
PUBLISHED : Sunday, 20 January, 2019, 5:15pm
UPDATED : Sunday, 20 January, 2019, 5:52pm

China is expected to report on Monday that economic growth cooled to its slowest in 28 years in 2018 amid weakening domestic demand and bruising US tariffs, adding pressure on Beijing to roll out more support measures.

Growing signs of weakness in China, which has generated nearly a third of global growth in the past decade, are stoking worries about risks to the world economy and are weighing on profits for firms ranging from Apple to big carmakers.

Policymakers in Beijing have pledged more support for the economy this year to reduce the risk of massive job losses, but have ruled out a “flood” of stimuli like that unleashed in the past, which boosted growth rates but left a mountain of debt.

Analysts polled by Reuters expect the world’s second-largest economy to have grown 6.4 per cent year on year in the final quarter of 2018, slowing from 6.5 per cent in the previous three months and matching levels last seen in early 2009 during the global financial crisis.

That could pull gross domestic product growth to 6.6 per cent for the year, its lowest since 1990 and down from a revised 6.8 per cent in 2017.

With stimulus measures expected to take some time to kick in, most analysts believe conditions in China are likely to get worse before they get better, and see a further slowdown to 6.3 per cent this year. Some have said real growth levels are already much weaker than official data suggest.

Even if Beijing and Washington agree on a trade deal, which is a tall order, analysts said it would be no panacea for China’s sputtering economy unless Beijing can galvanise weak investment and consumer demand.

Chen Xingdong, chief China economist at BNP Paribas, said investors should not expect the latest round of stimulus to produce similar results as during the 2008-09 global crisis, when Beijing’s massive spending quickly boosted growth.

“What China can really do this year is to prevent deflation, prevent a recession and a hard landing in the economy,” he said.

On a quarterly basis, growth likely eased to 1.5 per cent in the final three months of 2018, from 1.6 per cent in the previous period.

China will release its fourth-quarter and full-year figures on Monday, along with December factory output, retail sales and fixed-asset investment.

Since China’s quarterly GDP readings tend to be unusually steady, most investors prefer to focus on recent trends.

Surprising contractions in December trade data and factory activity gauges in recent weeks have suggested the economy cooled more quickly than expected at the end of 2018, leaving it on shakier footing at the start of the new year.

Sources have told Reuters that Beijing was planning to lower its growth target to 6-6.5 per cent this year from about 6.5 per cent in 2018.

Tepid expansion in industrial output and weaker consumer spending is squeezing companies’ profit margins, discouraging fresh investment and raising the risk of higher job losses.

Some factories in Guangdong province – China’s export hub – have shut earlier than usual ahead of the long Lunar New Year holiday as the tariff war with the United States curtails orders. Others are suspending production lines and cutting back on workers’ hours.

If the trade war drags on, some migrant workers may not have jobs to return to.

Trade negotiators are facing an early March deadline and Washington has threatened to sharply hike tariffs if there are no substantial signs of progress.

So far, Chinese policymakers have fast-tracked construction projects and cut taxes and some import duties to spur demand.

To free up more funds for lending, particularly to more vulnerable smaller firms, the central bank has cut the amount of reserves that banks need to set aside five times over the past year, and guided borrowing costs lower.

Further reserve ratio reductions are expected in the coming quarters, but most analysts do not see a cut in benchmark interest rates just yet, as policymakers wait to see if earlier steps begin to stabilise conditions. More forceful easing could pressure the yuan and aggravate high debt levels, with money going into less efficient or speculative investments.

The government may unveil more fiscal stimulus measures during the annual parliament meeting in March, including bigger tax cuts and more spending on infrastructure projects, analysts said.

Some China watchers believe the government could deliver 2 trillion yuan (US$293.9 billion) worth of cuts in taxes and fees this year, and allow local governments to issue another 2 trillion yuan in special bonds largely used to fund key projects.

Still, some analysts do not expect the economy to bottom out convincingly until summer.

Source: SCMP
20/01/2019

China’s tech hub Shenzhen misses growth target but leapfrogs Hong Kong into Asia’s top 5, mayor says

  • Gross domestic product up 7.5 per cent in 2018 to US$350 billion, mayor Chen Rugui says
  • But claim city’s economy now among Asia’s biggest may be premature as Hong Kong has yet to show its hand
PUBLISHED : Sunday, 20 January, 2019, 6:04pm
UPDATED : Sunday, 20 January, 2019, 6:04pm

Shenzhen failed to meet its economic growth target last year due to worse than expected results in key technology sectors but its mayor remains confident it did enough to overtake Hong Kong and join the ranks of the five biggest city economies in Asia for the first time in its history.

The south China boom town has been steadily making ground on Hong Kong in recent years, but its nominal gross domestic product in 2017 fell about US$3.4 billion short of a place among the giants of Tokyo, Seoul, Shanghai, Beijing and Hong Kong.

In 2018, Shenzhen’s GDP increased by 7.5 per cent to about 2.4 trillion yuan (US$352.71 billion), mayor Chen Rugui said at the opening of the annual municipal people’s congress on Friday. Its growth target was 8 per cent.

“The economic size [of Shenzhen] is among Asia’s top five cities,” he said.

Despite Chen’s confidence, Hong Kong’s 2018 figures, which will not be released until next month, are expected to show GDP growth of about 3.2 per cent to HK$2.86 trillion (US$364.6 billion), which would see it edging out its mainland neighbour once again.

The gap between the two cities’ economies is now so small that fluctuations in exchange rates and methods of calculation can sway the result, although both have sought to play down the rivalry.

Early last year, Shenzhen’s statistics agency even issued a clarification of the city’s nominal GDP figure for 2017, confirming it was still smaller than Hong Kong’s.

Shenzhen is known as China’s hi-tech hub and is home to many of the country’s biggest technology names, including Huawei and Tencent.

While its strategic emerging industries – which includes such fields as information technology, biotechnology and new materials – contributed 37 per cent of the 2018 GDP figure, the ratio was down from about 40 per cent in each of the previous two years. The result was also disappointing in terms of Shenzhen’s broader goals, having set itself a target to grow the sector to 42 per cent of GDP by the end of its current five-year plan period in 2020.

The combined GDP growth among strategic emerging industries slowed to 8.5 per cent in 2018, from 13.6 per cent the year before, although the city still managed to attract 3,000 new hi-tech firms, taking the total to about 14,000.

Shenzhen spent about 100 billion yuan, or 4.16 per cent of its GDP, on research and development last year – a slight increase from 4.13 per cent in 2017 – and this is targeted to rise to 4.25 per cent in 2020.

Its foreign trade in 2018 grew by 7 per cent year on year to about 3 trillion yuan – as output from firms with annual revenue of at least 20 million yuan gained 8.8 per cent – while retail sales increased by 2.5 per cent to 616.3 billion yuan.

As China continues to fight a trade war with the United States, Shenzhen, like most other cities and provinces in the world’s most populous nation, has cut its economic growth target for 2019, to 7 per cent. It has also lowered it new jobs target for the year to 80,000, from nearly 109,000 in 2018.

Chen said that the economic downturn had put a huge strain on the city’s growth prospects, while a lack of available talent in the field of research and development was stifling innovation and doing nothing to ease its over-reliance on imports for many core components and equipment.

He said the city remained committed to supporting the development of the Greater Bay Area by speeding up the Qianhai-Shenzhen-Hong Kong cooperation zone – part of the Guangdong free-trade zone – and the Lau Ma Chau Loop – a new innovation and technology park. It would also support the expansion of the Qianhai Cooperation Zone, he said, but did not elaborate.

Wang Hailong, a deputy to the Shenzhen People’s Congress and boss of a local telecommunication equipment company, said he was not surprised by the slower growth in emerging sectors.

“It’s essential to invest in innovation through research if Shenzhen wants to maintain its remarkable expansion,” he said. “But in the current climate, it’s not easy to attract top global talent.”

Guo Wanda, vice-president of the Shenzhen-based think tank China Development Institute, warned of a possible “hollowing out” of the local economy if the city government failed to support hi-tech companies during this difficult period as they may be lured away.

Source: SCMP

20/01/2019

China-U.S. relations contribute to world peace, prosperity

SAN FRANCISCO, Jan. 18 (Xinhua) — China-U.S. relations have achieved remarkable development over the past 40 years, delivering huge benefits to the two peoples and making significant contributions to world peace and prosperity, a senior Chinese diplomat said here Friday.

Addressing an event marking the 40th anniversary of the establishment of diplomatic relations between China and the United States, Chinese Consul General Wang Donghua said the older generation of Chinese and U.S. leaders broke the ice of isolation between the two countries “with extraordinary strategic vision and political wisdom” to establish bilateral diplomatic ties.

“The establishment of China-U.S. diplomatic relations has had a huge and profound impact on the development of our bilateral relations and the maintenance of world peace,” Wang said.

San Francisco Mayor London Breed said at the event that the 40 years of China-U.S. relations have been “a time of growing exchanges and understanding.”

“We have realized the great possibilities of cooperation between our two nations, and this anniversary is a chance to remember that we have an enormous stake in each other’s success,” she said.

“In an interconnected world, countries would be more prosperous when we work together as one,” said Breed.

Heidi Kuhn, founder and CEO of Roots of Peace, a California-based humanitarian NGO dedicated to the removal of landmines and rebuilding of war-torn regions, said her family has maintained very close relations with China and the Chinese people for 150 years.

“I look forward to the next 150 years ahead. I’m so proud of the formal diplomatic relations between the United States and China,” Kuhn said.

Johannes Hoech, a San Francisco-based businessman who travels to China two to three times a year, said he has very close relations with China and made many Chinese friends.

“The prospect for the two countries is very positive. There’s a lot of mutual interest. There is a lot of curiosity about each other’s cultures and each other’s backgrounds,” he said.

“Since both countries’ interests are much larger than their differences, I am sure they will find a way to work out a solution to those disputes,” Hoech said.

Source: Xinhua

20/01/2019

Spotlight: Two-year mark of global community towards a shared future

BEIJING, Jan. 19 (Xinhua) — Two years ago, Chinese President Xi Jinping delivered a speech at the United Nations (UN) Office at Geneva, calling for joint efforts to build a community with a shared future for mankind.

Two years on, the appeal, which represents a vision of common development and progress, has gained wide support and helped form synergy among the international community in pursuing a better shared future.

IN HARMONY WITH ALL

“China has been a strong pillar of multilateralism,” said UN Secretary-General Antonio Guterres, highlighting that the aim of multilateralism is to build a community with a shared future for mankind.

Over the past two years, the appeal by the Chinese leader has been incorporated into various documents, including UN Security Council resolutions, UN Human Rights Council resolutions, the Qingdao Declaration of the Council of Heads of Member States of the Shanghai Cooperation Organization, Forum on China-Africa Cooperation Beijing Action Plan (2019-2021).

The Chinese proposal, with its foresight and wisdom, has witnessed tremendous changes across the globe and resonated with people’s longing for peace and development.

As China hosted a number of significant diplomatic events at home and Chinese leaders paid visits to other countries, the idea of building a community with a shared future has been increasingly accepted worldwide.

“It is a common ideal for mankind to build a world without conflicts, one with equal development opportunities and every people in it blessed with happiness,” said Yasuo Fukuda, former Japanese prime minister.

ACTIONS

In 2018, China launched the China International Import Expo in Shanghai which attracted over 3,600 companies from around the world and more than 400,000 Chinese and foreign buyers. Deals for intended one-year purchases of goods and services worth a total of 57.83 billion U.S. dollars were reached at the six-day event.

The China-initiated Asian Infrastructure Investment Bank (AIIB) celebrated its third anniversary in December. Over the past three years, the investment bank has approved financing worth 7 billion U.S. dollars for development projects in Asia and Africa, with the aim to promote sustainable economic development through investment in infrastructure.

In July 2018, the China-Maldives Friendship Bridge, the first ever cross-sea bridge in Maldives, was completed. The bridge is deemed one of the landmark projects of the China-proposed Belt and Road Initiative (BRI).

In fact, nearly 170 countries and international organizations have signed BRI-related cooperation documents with China.

The BRI is a manifestation of China’s vision of a community with a shared future for mankind, said John W. Allen, former vice chairman of the UN Business Council.

FUTURE OF HOPE

China’s General Administration of Customs said recently the country’s foreign trade rose 9.7 percent year on year to a record high of 30.51 trillion yuan (about 4.5 trillion U.S. dollars) in 2018.

Official data also show China’s FDI hit a record 885.61 billion yuan (134.97 billion dollars) last year.

The numbers have demonstrated China’s resilience after 40 years of reform and opening up, even at a time when unilateralism and protectionism are on the rise.

In April 2018, Xi announced a series of new measures for expanding China’s reform and opening up, demonstrating China’s willingness to work with the outside world.

The new initiatives include easing foreign shareholding restrictions in the industries of automobile, ship and aircraft, and implementing the management system based on pre-establishment national treatment and negative list.

Over the past two years, China has been promoting innovation and improving inclusive development amid external uncertainties. On such issues as the Korean Peninsula situation, the Syrian crisis and UN peacekeeping operations, China is committed to safeguarding peace and stability.

According to Gai Lin, secretary-general of the EU-China Friendship Group of the European Parliament, the future of mankind will surely involve bringing together nations for a world of cooperation. Building a community with a shared future is undoubtedly the best option for safeguarding world peace and promoting development.

Source: Xinhua

20/01/2019

Bullet trains maintained in China’s Guiyang to ensure safety for Spring Festival travel rush

CHINA-GUIYANG-SPRING FESTIVAL-TRAVEL (CN)

Mechanics check a bullet train at a maintenance station to ensure safety for the upcoming Spring Festival travel rush in Guiyang, capital of southwest China’s Guizhou Province, Jan. 19, 2019. (Xinhua/Ou Dongqu)

Source: Xinhua

19/01/2019

China offers to ramp up U.S. imports – Bloomberg

(Reuters) – China has offered to go on a six-year buying spree to ramp up imports from the United States in order to reconfigure the relation between the two countries, Bloomberg reported on Friday, citing people familiar with the matter.

By raising annual goods imports from the United States by a combined value of more than $1 trillion (£776 billion), China would seek to reduce its trade surplus, which last year stood at $323 billion, to zero by 2024, one of the people told Bloomberg. bloom.bg/2RBsiEL

It was unclear how the offer differed from what China pledged when U.S. President Donald Trump and Chinese President Xi Jinping met in Buones Aires in December. At that meeting, China offered more than $1.2 trillion in additional commitments on trade, Treasury Secretary Steve Mnuchin said.

Reuters reported on Jan. 9 that U.S. officials used three days of trade talks with Chinese counterparts in Beijing to demand more details on China’s pledge to make big purchases of American goods. China offered similar commitments, albeit on a smaller scale, during talks in Washington last May.

The Bloomberg report on Friday helped drive a rally on Wall Street where main stock indexes were on track for their fourth week of gains, in part on hopes the United States and China would strike a deal to end a trade war between the world’s two biggest economies. The two sides have imposed tit-for-tat tariffs that have disrupted hundreds of billions of dollars of commerce.

While increased purchases of U.S. goods have been part of the talks, American negotiators have also focused on issues that would require structural change in China. Those include finding ways to end the misappropriation of intellectual property from U.S. companies and halting industrial subsidies.

Halfway through a 90-day truce in the U.S.-China trade war agreed to on Dec. 1 when Trump and Xi met during the G20 summit in Argentina, there have been few details provided of any progress made. On Tuesday, a Republican senator said U.S. Trade Representative Robert Lighthizer had told him he had seen no progress on structural issues.

Data on Monday showed China’s exports unexpectedly fell the most in two years in December and imports also contracted, pointing to further weakness in the world’s second-largest economy in 2019 and deteriorating global demand.

The Wall Street Journal reported on Thursday that U.S. Treasury Secretary Steven Mnuchin discussed lifting some or all tariffs imposed on Chinese imports and suggested offering a tariff rollback during trade discussions scheduled for Jan. 30.

Lighthizer has resisted the idea, and the proposal had not yet been introduced to Trump, according to the Journal.

Chinese Vice Premier Liu He will visit the United States on Jan. 30 and 31 for the latest round of trade talks aimed at resolving the bitter trade dispute. The Trump administration is scheduled to increase tariffs on $200 billion worth of Chinese goods to 25 percent on March 2 from 10 percent.

The Trump administration has urged China to take steps to protect U.S. intellectual property, end policies that force American companies to turn over technology to a Chinese partner, allow more market access for U.S. businesses and reduce other non-tariff barriers to American products.

China has repeatedly played down complaints about intellectual property abuses, and has rejected accusations that foreign companies face forced technology transfers.

Reporting by Rishika Chatterjee in Bengaluru; Writing by Nick Zieminski in New York; Editing by Chizu Nomiyama and Jonathan Oatis

Source: Reuters

19/01/2019

Meng Hongwei: Wife of ex-Interpol chief seeks France asylum

The wife of Meng Hongwei, the Interpol president held in China since September, has sought asylum in France for herself and her twin children.

Grace Meng and the seven-year-olds live in Lyon, the international police agency’s headquarters. Meng Hongwei disappeared during a visit to China.

In October the Chinese authorities said Mr Meng was being investigated over suspected bribe-taking.

His wife and children are under police protection, having received threats.

Quoted by France Inter radio on Friday, she said, “I fear they will kidnap me.”

“I’ve received strange phone calls. Even my car was damaged. Two Chinese – a man and woman – followed me to the hotel,” she said.

In media interviews she has refused to show her face, fearing for her safety.

On the day her husband went missing, she said he had sent her a social media message telling her to “wait for my call”, before sending a knife emoji, signifying danger.

Grace Meng with journalists, 7 Oct 18Image copyrightAFP
Image captionGrace Meng does not reveal her face on camera

What is known about Meng Hongwei?

Since his disappearance on 25 September no details have emerged about his prison conditions or the charges against him.

The 65-year-old’s job as Interpol president was largely ceremonial and did not require him to return to China often.

He was also one of six powerful vice-ministers in China’s public security ministry and had 40 years of experience in China’s criminal justice system. He previously worked under security czar Zhou Yongkang, one of the most powerful figures to be taken down in President Xi’s anti-corruption campaign that has targeted more than a million officials.

Meng Hongwei was elected Interpol president in November 2016, the first Chinese person to take up the post, and was scheduled to serve until 2020.

China’s new National Supervision Commission – an anti-corruption agency – said Mr Meng was being investigated for “violation of laws”.

But unlike in other high-profile detentions, it did not mention a charge of “violating party rules”.

China has not presented any evidence to justify the allegation against Mr Meng.

How did Interpol react?

China said Mr Meng had written a resignation letter and Interpol Secretary-General Jürgen Stock acknowledged that he had received it on 7 October. “There was no reason for me to (suspect) that anything was forced or wrong,” he said.

Quoted by the Associated Press news agency, Mr Stock said Interpol’s rules did not allow him to investigate Mr Meng’s disappearance. Interpol accepted the resignation letter without further comment.

In November Interpol elected South Korean Kim Jong-yang as its new president, rejecting a Russian candidate who had been tipped to succeed Mr Meng.

What is Interpol?

The International Criminal Police Organisation was founded in 1923 in Vienna, and its original members included Germany, France and China.

The UK and US did not join until later.

In 1956, it became officially known as Interpol and has since grown into a network of 194 member countries.

Its primary aim is to promote co-operation and share intelligence between police forces.

The general secretariat oversees its day-to-day work. It focuses on crimes such as terrorism, drug-trafficking, people-smuggling, child pornography and money-laundering.

Source: The BBC

19/01/2019

China pharma must swallow that jagged little pill called R&D as government slashes profit margins of generic drugs

  • New policy environment demanding cheaper drugs adds pressure to innovate
  • China’s hospital drugs market was US$118 billion last year
PUBLISHED : Saturday, 19 January, 2019, 12:33pm
UPDATED : Saturday, 19 January, 2019, 12:40pm

China’s pharmaceutical industry – shaken by drastic price cuts from Beijing’s recent pilot roll-out of state hospital bulk purchase open bidding – will need to go through painful restructuring and raise big sums to fund innovation, according to executives.

As Beijing’s pilot reform spreads nationwide to cut prices of drugs and improve their efficacy and safety, companies are under mounting pressure to invest in innovative drugs development and reduce reliance on low profit products that are the same copies of original drugs.

That is because the reform means generic drugs manufacturing – the cornerstone of the industry – has become much more competitive.

“The industry and investors need to get used to the new environment in China, where generic drugs are a tool for lowering medical costs,” China Pharmaceutical Innovation and Research Development Association executive president Song Ruilin said in an interview at the sidelines of the JP Morgan Healthcare conference – the world’s largest – in San Francisco last week.

“To survive this, companies need to innovate,” he said.

Early last month, the first round of price bidding in 11 cities saw prices slashed by 62 per cent on average, according to Guoyuan Securities, raising concerns about the industry’s profitability. Two drugs saw prices fall by over 95 per cent.

This sent Hong Kong-listed mainland pharmaceutical firms’ share price down sharply, extending a sector-wide correction that saw the Hang Seng Mainland Healthcare Index nearly halved in seven months from an all-time high in late May.

The stakes are high. The nation’s hospital drugs market is estimated to be worth 800 billion yuan (US$118 billion) last year and is forecast to exceed 1.2 trillion yuan in 2021, according to a Credit Suisse research report.

The winners will be given up to 70 per cent of the local hospital system’s procurement volume. That will only increase as the drugs become more affordable.

Most, except those in the extreme price cut cases, are expected to come out better off as volume gains and unit cost savings are expected to more than offset lower prices.

Direct, centralised procurement will also cut out layers of hefty drugs marketing and distribution costs, bringing additional savings.

Losers will not only be subject to price caps set by the winning bids, they will also have to contend with the need to fight among themselves for the remaining 30 per cent of market that requires significant marketing and distribution costs to serve.

The entire industry will see lower profit margins than the over 30 per centprior to pricing reform, Everbright Securities analyst Lin Xiaowei noted in a report.

“Many generic drug makers will be wiped out in the process if they can’t pass bioequivalence [efficacy and safety] tests, or be selected as winners in the bulk procurement tenders,” said cancer drugs developer Innovent Biologics co-founder and chairman Michael Yu Dechao. “The clean-up will leave more room for innovation.”

To thrive in the environment, drug makers will have to focus on a smaller number of generic products where they have a clear cost advantage, while investing to develop new innovative drugs that will enjoy patent protection from competition.

Although some of the price reductions appear excessive, Song believes regulators will fine-tune their policies, as overly low prices raise the risk of compromises on drug quality.

“Reform needs to be done step by step. Now we have had a start, and the sky has not fallen. It only created a scare,” he said. “I believe the authorities are also reflecting on the results … price reduction is not its only objective.”

For generic products where some Chinese companies have attained western or Japanese standards while others have not, Song suggested that regulators give a 10 to 15 per cent price increment above the winning bids to the winners with international standards, so as to encourage industry quality improvement.

As the pricing reform spreads nationwide, the better resourced companies will be driven to spend billions of yuan each year in attempts to be the first to come up with a new compound that act on a new biological target to treat a disease. They will be rewarded by multi-year legal protection against competition.

Others that failed to do so will try to find an alternative compound – so-called “me-too drugs” – to act on the same target, and sell at a lower price to grab market share.

Many will place bets on their drug candidates, which if successfully developed ahead of rivals, will become blockbuster products and multi-year cash cows thanks to a burgeoning middle class that can afford better and costlier medicine.

China’s drug makers still have a long way to go to become a truly innovative industry.

Song pointed out that even among the most advanced pharmaceutical companies in the nation, some 80 per cent of their enterprise value has been derived from generic products and the rest from new drugs development.

This proportion is reversed among the big drug firms in the US, the world’s largest and most innovative pharmaceutical market, he added.

This, together with demographic and economic trends, mean tremendous room for growth and investment.

“China has entered prime time for health care industry development, especially biotechnology, thanks to the gradual maturing of the nation’s 300 million-strong middle class as health care consumers, especially those born in the 1950s and 1960s who are wealthy and soon entering old age,” said Houston Huang Guobin, JP Morgan Chase & Co’s head of global investment banking for China.

This is especially the case for expensive therapies for cancer patients, whose number in China is projected by Frost and Sullivan to rise to 5.8 million in 2030 from 4.3 million last year.

The market for PD-1 and PD-L1 antibodies alone – a class of cutting-edge novel immuno-oncology therapies that stimulate the body’s immune system to kill cancer cells and cost half a million yuan per year – is forecast by the business consultancy to jump to 56 billion yuan in 2023 from nothing last year.

Three of the five companies so far listed in Hong Kong under revamped listing rules have completed clinical trials on their PD-1 antibodies, and submitted the results to regulators for commercialisation approval.

Hong Kong, a new overseas fund-raising conduit for Chinese companies to fund costly drugs discovery and development, stands to benefit from the industry transition, but not without its own growing pains.

Hong Kong Exchanges and Clearing, which last April revised listing rules to allow biotechnology firms that have yet to generate any profit or even revenue to list, has been busy marketing the new listing regime.

Its senior executives – led by chief executive Charles Li Xiaojia – this month embarked on a North America roadshow to meet listing hopefuls and investors covering Vancouver, San Francisco, New York and Boston, HKEX senior vice-president Issuer Services Michael Chan told the South China Morning Post by teleconference on Wednesday from New York.

A year ago, it only did marketing in San Francisco ahead of the regime’s launch late April.

“This time around we are getting more interest from US-based listed companies looking at the Hong Kong listing option to complement their China or Asia strategy … it is not just China-based US-listed firms considering coming back for a dual listing or business spin-off,” he said.

His comment came barely two weeks after Stealth BioTherapeutics, a US-based and Hong Kong investor-backed biotech firm, filed to list on Nasdaq and let its Hong Kong listing application filed six months earlier lapse.

Chan said he believes that is an individual case which by no means suggests that Hong Kong has fallen out of favour as a biotech listing venue, adding he has not received many enquiries about that case during his roadshow.

Stephen Peepels, head of US Securities Asia-Pacific, Hong Kong at international law firm Hogan Lovells, agreed.

“As the first couple of companies that took advantage of the new rules [in Hong Kong]didn’t quite perform as well as hoped, it might have prompted some companies to reconsider their choice of IPO venue,” he said. “It would be pre-mature at this time to look at individual examples and start concluding that everybody is going to change their mind and focus on Nasdaq again. It may just take longer to see a lot of deals than many people have expected.”

So far, five companies have listed in Hong Kong under the new rules, while five more have applied but yet to sell shares and list.

The first one, hepatitis drugs developer Ascletis Pharma, which listed early August, saw its share price halved just over two weeks after market debut, triggering criticism of overly aggressive pricing.

“It is an issue of supply and demand, but it also reflects a degree of immaturity on the investment banking and stock analysis sides which allowed this kind of pricing to happen,” said Samantha Du, chief executive of Shanghai-based drugs developer Zai Lab.

“In the US, where there are 2,000 biotech listed firms and stock prices are driven by companies’ performance, very rarely do you see that kind of volatility,” added the former venture capitalist who sits on a panel that assists the Hong Kong stock exchange in its review of biotech listing applications under the new rules.

“Everything needs to start from somewhere, it is hard to have it perfect right at the beginning … it is a process of trial and error … overall there are more positives than negatives,” she said.

JP Morgan’s Huang said it will take time to build up the “ecosystem” as Hong Kong lacks bankers, lawyers, auditors and investors experienced in biotech firms.

To capture the growth opportunities and to augment its market share in China where it is less prominent as a leading investment bank as in its home market the US in the health care sector, he said the bank plans to “increase significantly” its bankers headcount in the broad “health care services and technology” category in China.

While noting Shanghai’s plan to introduce a new science and technology innovation board this year, which may allow international investors to participate and feature a more market-oriented and less cumbersome listing vetting process, he said Hong Kong’s advantages as an open international market will stay and its role will not be taken away in the foreseeable future.

Shanghai-based PegBio, a drug developer for metabolic syndrome conditions such as diabetes, nonalcoholic fatty liver disease (NAFLD) and obesity that is seeking to go public within this year, is hedging its bets and will consider all three options – Hong Kong, Nasdaq and the proposed Shanghai board, said chief executive Michael Xu Min.

Having raised around US$60 million private capital since inception a decade ago, it aims to develop and commercialise three to five products within five years.

Some 10.9 per cent of China’s adult population was estimated to be diabetic in 2013 while 35.7 per cent was pre-diabetic – with high blood sugar and likely to become diabetic, according to a Peking University and Chinese Center for Disease Control and Prevention study with over 170,000 participants published in 2017.

Around half of patients suffering from nonalcoholic steatohepatitis (NASH) – a type of NAFLD – are also diabetic, Xu said.

PegBio aims to complete a phase two type 2 diabetes drug clinical trial involving 450 patients in China and the US by the end of this year, and commercialise it by 2022.

“Rising living standards and changing eating habits have resulted in major increases in incidences of metabolic diseases,” he said. “So far, there is no cure and drugs can only help control the symptoms and slow down their development.

“We aim to develop drugs that are better than current ones on efficacy, safety, ease of use and affordability.”

Source: SCMP

19/01/2019

Xinhua Headlines: Xi urges new, greater progress in Beijing-Tianjin-Hebei coordinated development

CHINA-BEIJING-TIANJIN-HEBEI REGION-XI JINPING-INSPECTION (CN)

Chinese President Xi Jinping, also general secretary of the Communist Party of China Central Committee and chairman of the Central Military Commission, presides over a symposium on the coordinated development of the Beijing-Tianjin-Hebei region and makes an important speech on it. Xi made an inspection tour in the Beijing-Tianjin-Hebei region from Jan. 16 to Jan. 18. (Xinhua/Ju Peng)

BEIJING, Jan. 18 (Xinhua) — Chinese President Xi Jinping has urged more efforts to achieve new, greater progress in the coordinated development of the Beijing-Tianjin-Hebei region.

Xi, also general secretary of the Communist Party of China (CPC) Central Committee and chairman of the Central Military Commission, made the remarks during an inspection tour of the region from Wednesday to Friday.

During the tour, Xi chaired a symposium on the region’s coordinated development and made an important speech.

Vice Premier Han Zheng, also a member of the Standing Committee of the Political Bureau of the CPC Central Committee, accompanied Xi on the tour of the Xiongan New Area in Hebei Province and Beijing and attended the symposium.

THREE-DAY TOUR

On Wednesday morning, Xi visited the exhibition center for the planning of the Xiongan New Area and stressed that the creation of Xiongan is “a strategy that will have lasting importance for the millennium to come.”

China should remain committed to the new development concept and stick to the high-quality growth when building the new area, Xi said.

While visiting a government service center, Xi stressed that development of the Xiongan New Area requires concerted efforts from a large number of enterprises.

“We welcome all companies, whether they are state-owned enterprises or private companies, local firms or companies from Beijing, Chinese enterprises or overseas-funded companies, as long as they conform to the industrial development plan of the new area,” he said.

A good ecological environment represents the important value of the Xiongan New Area, he said while visiting a forestry zone in the region Wednesday afternoon.

Visiting the campus of Nankai University in Tianjin Thursday morning, Xi said it is a priority to nurture patriotism among students for them to become a new generation of capable young people well-prepared to join the socialist cause.

In a square on campus, enthusiastic students welcomed Xi, shouting greetings such as “Welcome, General Secretary” and singing a patriotic song. Xi shook hands with students and waved to others in the crowd.

At a community in Heping District in Tianjin, Xi pointed out that community work should be people-centered with an accurate grasp of people’s needs and provide targeted and elaborate services for the residents in a timely manner.

He then visited a service and administration station for veterans in the community and stressed that setting up institutions for veteran affairs is to enhance the management of veterans and better protect their welfare in order to make military service a publicly respected occupation.

Talking about the large number of unique buildings and streets of historical and cultural significance in Tianjin, Xi asked for more care for the historical and cultural heritage in cities and better coordination of development and protection.

During his visit to the Tianjin port Thursday afternoon, Xi called for efforts to develop it into a world-class smart and green port, which can better serve the coordinated development of Beijing, Tianjin and Hebei as well as joint development of the Belt and Road Initiative.

Xi then visited the Binhai-Zhongguancun Science and Technology Park, where he highlighted the pressing task to rely on self-dependent innovation for advancing high-quality development and replacing old growth drivers with new ones.

On Friday morning, while visiting the sub-center of Beijing, Xi stressed that planning should take precedence over the construction of the sub-center while quality should be the top priority.

He said the sub-center should be made another “shining name card” of Beijing.

SIX DEMANDS

Xi made six demands to promote the coordinated development of the Beijing-Tianjin-Hebei region.

Efforts should be made to relocate the non-capital functions of Beijing in an active, proper and orderly manner, he said.

He stressed high-quality and high-standard planning and development of the Xiongan New Area and called for building a number of major infrastructure projects in transportation, water conservancy and public services in the new area.

The relocation of Beijing’s municipal organs should be taken as an opportunity to pursue high-quality planning and construction of the sub-center, Xi said, adding that the spatial layout and economic structure of Beijing should be optimized.

He stressed the need to take reform and innovation as impetus to inspire high-quality development and establish independent innovation bases.

Joint efforts must be made in the improvement and protection of ecology and environment, while more clean energy should be supplied, Xi said.

He called for a people-centered approach and joint work in developing the basic public services with shared benefits, adding that all poverty-stricken counties in the region should be lifted out of poverty by 2020.

Source: Xinhua

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