Buying Spree

Chinese firms are revving up their dealmaking machines in the hunt for overseas energy resources.

In the latest move, Sinopec, the country's top oil refiner, in November agreed to pay $3.54 billion for a 30-percent stake in the Brazilian unit of the Portuguese oil company Galp Energia SA. The deal comes after its earlier purchase of a 40-percent interest in the Brazilian unit of the Spanish oil company Repsol YPF SA for $7.1 billion.

Meanwhile, the China National Offshore Oil Corp. has recently completed acquisition of Opti Canada, a Calgary-based oil sands producer, for $2.1 billion.

In the third quarter of 2011, Chinese energy firms were responsible for nine cases of overseas mergers and acquisitions (M&As). The involved capital amounted to $2.668 billion, accounting for 48.3 percent of the value of total outbound M&As, according to data from the Beijing-based Zero2IPO Research Center.

China has continued to gain strong influence in the global mining sector against a background of increasing activity in the acquisition of overseas resources," said Jeremy South, global mining leader at Deloitte Touche Tohmatsu Ltd., in a recent report.

He added that now is a good time for M&A activity because of a slight rebound in the price of resources after huge declines in recent months.

"However, Chinese companies need to find the right partners because the mining industry is a highly risky business and most Chinese companies lack experience of overseas business management," he said.

Non-manufacturing Gloom

China's non-manufacturing industries, those largely in the service sector, are reeling from a prolonged slowdown, indicating downside risks for the broader economy.

The purchasing managers index for the service sector fell sharply to 49.7 percent in November from 57.7 percent in October, said the China Federation of Logistics and Purchasing (CFLP). This was the second lowest reading this year, only slightly higher than the 44.1 percent registered in February.

The index provides a snapshot of the business climate in the sector and other nonmanufacturing businesses. A reading above 50 percent indicates expansion.

"Tepid consumptions in the off-season and sluggish demand in the construction sector combined to weigh down the index," said Cai Jin, Vice President of the CFLP.

"Overall, the latest reading results from the government's tightening policies to curb inflation, and the country should make greater efforts to keep the economy on a steady and sound track," said Cai.

But the CFLP expected the service sector to gradually pick up steam as the upcoming New Year and traditional Spring Festival will help revive domestic demand.

Lackluster IPOs

China's initial public offerings (IPOs) continued to taper off in November because of stock market weakness and more stringent regulatory rules.

Chinese enterprises were responsible for 25 IPOs in global stock markets in November, nose-diving 47.9 percent from a year ago, according to a recent report by the China Venture, a Beijing-based investment consulting firm. The IPOs raised 16.76 billion yuan ($2.65 billion), down 72.7 percent year on year.

The largest IPO in November was made by Phoenix New Media Ltd., which debuted on the Shanghai Stock Exchange on November 30, raising 4.48 billion yuan ($707.58 million).

Of the 25 listed Chinese companies, 20 debuted on the domestic A-share markets, raising 16.3 billion yuan ($2.58 billion), down from 21.23 billion yuan ($3.35 billion) in October. "The regulators are lifting requirements for IPOs in an attempt to improve the quality of the market," said the report.

The China Securities Regulatory Commission has recently required companies seeking IPOs to distribute more cash dividends to shareholders in an effort to protect investors' interests.

There were only five overseas IPOs in November, representing a month-on-month decrease of 20 percent. "The window of U.S. stock markets has been closed to Chinese companies for three months," said the report. "The group-buying website Lashou.com and the B2C clothing marketplace Vancl.com, for example, have suspended IPOs in the United States."

Alibaba Let Down

Alibaba, China's largest e-commerce company, disappoints with lackluster profits due to a weak trade outlook stemming from debt woes in Europe and the United States.

The Hangzhou-based company reported 409.7 million yuan ($64.72 million) in net profits for the third quarter of 2011, growing 11.9 percent from the previous year, the slowest in nearly two years. Its revenues totaled 1.6 billion yuan ($252.76 million), up 11 percent year on year.

Alibaba operates an e-commerce website that links Chinese businesses to overseas buyers. Its exposure to international markets makes it vulnerable to fragile economies in the West. The overseas markets contributed 950 million yuan ($150.1 million) to the third quarter's revenues, accounting for 65 percent of total.

By the end of September, Alibaba had 787,653 paying members, down 3.4 percent from three months ago. The firm said the slowing pace of customer additions was expected because of a recent hike in membership fees.

"The third quarter presented a picture filled with challenges arising from the weaknesses in the U.S. economy and the debt troubles in the euro zone, which have threatened to spin out of control," said the company. "We are more cautious about the global economic outlook and believe that it may have a prolonged impact on China's export sector."

"Despite the stress posed by the external environment, we will stay focused on upgrading our business model and building quality, trustworthy e-commerce platforms," said Jonathan Lu, the company's CEO.

Riding the Wind

By developing wind power, China aims to wean its reliance on fossil fuels and accelerate economic rebalancing.

By the end of August, there had been 486 wind power stations in operation across the country, with installed capacities totaling 39.24 million kilowatts, according to data from the State Electricity Regulatory Commission (SERC). Wind power generation stood at 49.4 billion kilowatt hours (kwh) in 2010, accounting for 1.17 percent of the country's total.

Policymakers have handed out generous incentives to spur environmentally friendly wind power, such as cash subsidies to wind turbine manufacturers. The goal is to increase the wind electricity generation to 190 billion kwh by 2015, making up at least 3 percent of the total, said Shi Yubo, Vice Chairman of the SERC.

But the blossoming sector is not without concerns, said Li Ling, a senior analyst with China Venture. "A series of safety accidents and the overcapacity problem have increased the urgency to consolidate the highly fragmented industry and foster stronger and reliable wind farms."

"The government is also supposed to strengthen supervision over the fast-growing sector to ensure absolute safety," she added.