Hong Kong’s stock exchange is making a slow but steady push to become a listing venue for global mining companies, even though it is a sector with a rich seam of broken dreams. In the past, mining companies — especially those in the development stage — were restricted to specialist listing venues such as Toronto or Perth, where the exchanges themselves had sophisticated means of assessing the value of the projects being listed.

But as the commodity boom rumbles inexorably on and miners became majors, they have shifted to larger, global exchanges such as London. The recently announced merger between Glencore and Xstrata is the latest move in the maturation of a sector that was once considered extremely high risk.

HKEx is acutely aware of these trends, but its ambitions to become a global venue for mining stocks are clear. It also realises that these stocks can be extremely volatile — and with the Hong Kong government sensitive to retail investors losing money, it has taken a cautious approach to allowing such companies to list.

One such example was IRC, which was spun out of UK-listed but Russian-focused mining company Petropavlosk in September 2010. The stock is up some 40% so far this year, although it is still some 20% off its IPO price.

“The HKEx is extremely good in how it looks after retail investors,” said Peter Hambro, chairman of Petropavlosk, speaking on the sidelines of the Troika Dialog Russia Forum in Moscow last week. “When it took on the listing of mining companies it took a long time.”

Petropavlosk still owns 65.5% of IRC, which is run by Hambro’s son, Jay. Mining companies may be unfamiliar in Asia, but such governance structures are not.

The current trend in listing venues is that they should reflect not only where companies can get the highest valuation, but also where their customers are. Also speaking at the Forum was Ivan Glasenberg, the CEO of Glencore, on the day that the merger with Xstrata was announced. He said that it made sense for the company to have a secondary listing in Hong Kong as China was consuming 50% of the world’s commodities. But on a per capita basis, the Chinese only consume 16% of the world average when it comes to aluminium and 25% of the average consumption of oil. China is already the biggest player in the global commodities market — and it is getting bigger.

Being close to customers clearly makes sense from an operational point of view, but increasingly companies are looking for both customers and shareholders to be close.

“Most of the companies listed in Toronto are operating in that timezone,” said Hambro. “But as we are seeing the Chinese population becoming more financially educated, that means demand for this type of investment [mining stocks] will grow.”

Other global miners such as Vale from Brazil, Kazakhmys from Kazakhstan and South Gobi Resources from Mongolia, have already joined Glencore in taking a secondary listing on HKEx. They join Chinese miners such as Zijin Mining, Zhaojin Mining and Yanzhou Coal, which have primary Hong Kong listings.

Such listings give mining companies the acquisition currency for deals up and down the supply chain. And if Asian investors will buy this stock, the mining companies are only too willing to sell it. “All commodity traders — if they want to buy assets — need to list in order to get permanent capital,” said Glasenberg. “Otherwise they run out of cash when their partners leave. Being public gives you a lot of flexibility and firepower, and I like it.”

Speaking about Petropavlosk’s gold mine in the Amur region of the Russian Far East, on the border with China, Hambro said: “We are financing the mine from China and we are building it with Chinese labour. We have a symbiotic relationship with China.”

It remains to be seen if Chinese investors are willing to have a similarly symbiotic relationship with the miners.

China’s securities regulator is planning to expand the RMB qualified foreign institutional investor (RQFII) programme to accelerate the opening up of domestic capital markets to overseas investors, its vice-chairman Yao Gang told the Asian Financial Forum yesterday.

The RQFII scheme was introduced last month to permit Hong Kong subsidiaries of Chinese fund companies and securities firms to raise renminbi offshore and invest back into the onshore securities market.

An initial quota of Rmb20 billion ($3.1 billion) was announced to be shared among firms approved for a licence, and already this sum has been allocated in full to 21 companies.

And at the forum Yao Gang affirmed that the China Securities Regulatory Commission (CSRC) is intent on expanding the programme.

Ben Zhang, joint managing director of Hai Tong International Asset Management, predicted the CSRC would unveil a second batch of RQFII quotas within six to nine months, with an amount exceeding the previous Rmb20 billion.

Having launched an offshore RMB fixed income fund only yesterday, Doris Lian, CEO of Da Cheng International AM, points out that expansion of the RQFII scheme will stimulate further growth in offshore RMB deposits, generating a need for more RQFII investment products.

CSRC’s efforts to push forward the RQFII programme are in line with Beijing’s drive to increase overseas investment this year and improve the structure of the domestic capital markets, including greater participation from institutional investors.

During a securities and futures regulatory meeting on January 9, CSRC chairman Guo Shuqing indicated plans to quicken the approvals process for qualified foreign institutional investor (QFII) licences and increase investment quotas, and at the same time enlarge the RQFII scheme.

And last weekend Dai Xianglong, chairman of the National Council for Social Security Fund (NCSSF), urged incremental expansion of QFII investment quotas and the eventual removal of quota restrictions.

He suggested that China learn from the experiences of other countries such as India in terms of opening up their domestic stock market to foreign investors and gradually increasing QFII investment quotas until the restrictions are finally abolished.

Close regulatory restrictions on foreign institutional capital could be replaced by the establishment of caps on each institutional investor’s holding of individual stocks, and that could be executed automatically in the trading process, Dai notes.

According to CSRC’s latest disclosure on December 13 last year, a total of 121 foreign institutions have obtained QFII licences. Korea’s National Pension System is among the latest batch to receive a licence

The biggest threat to China’s economy in 2012 is a lack of timely and thorough reform of the financial market and political system, Chinese government officials and business leaders concluded at the Asia Financial Forum in Hong Kong yesterday. This year is likely to be challenging for the world’s fastest-growing economy. As uncertainties in global markets and weakening demand from Europe and the US erode exports, so China needs dynamic systems to ensure its resilience during the economic downturn. However, the government tends to respond to crises with short-term stimulus policies rather than “deep reform”, the panellists agreed, arguing that more fundamental changes are needed. There is no shortage of theories about what may cause China’s economy to suffer a hard landing. Foreign observers typically identify risks such as rising property prices, stubborn inflation and weakening exports, but China’s elite seemingly have very different concerns. Tu Guangshao “China needs deeper reform in its financial sector,” Tu Guangshao, vice-mayor of Shanghai, said at the panel. “It should reduce government interference in the financial market and liberalise the renminbi interest rate and exchange rate market.” Tu, who is the former vice-chairman of the China Securities Regulatory Commission, said the lack of reform is the biggest obstacle in Shanghai’s development as an international financial centre, however, he is confident that the city will achieve that goal in 2020. John Zhao, senior vice-president of Lenovo Holdings, also argued that a lack of financial reform has stood in the way of many opportunities, and complained that China had failed to mobilise its capital reserves. “China is changing its role from the world’s factory to the world’s market,” he said. “We often see cash-loaded Chinese corporate and individual buyers shopping around the globe, but there are not enough investment channels at home.” Zhao said that China has many very promising private businesses that could provide good investment opportunities, but in times of difficulty, government policies always favour state-owned companies ahead of private businesses that could probably use the financial aid more efficiently. An underdeveloped financial market at home and restrictions on investing overseas, along with a negative interest rate and volatile stock market, have left Chinese people with few investment options besides the property market — but housing prices have been falling for several months and will fall a further 15% to 20% in big cities this year, according to Deutsche Bank forecasts. Tomson Li, chairman and CEO of TCL Corporation, who also took part in the panel, agreed that China should encourage investment in the private business sector. He also said that China still enjoys much advantage as the world’s factory because it has the best infrastructure in any emerging market. The head of China’s giant home-appliance exporter said the country’s export growth will slow down in 2012, but will still stand above 10% as made-in-China goods are still competitive. He estimates last year’s export growth was around 13%. The panel agreed that rising social tensions are also a threat to the economy, but it doesn’t appear to be an imminent one.

There is no better vantage point for understanding Chinese leadership politics than to analyze the nine individuals who make up the Politburo Standing Committee (PSC). Despite the highly diverse and divergent assessments of elite politics which populate the overseas China-watching communities, the last decade has witnessed a surprisingly strong consensus emerge on the pivotal importance of the PSC. The top Chinese leader, General Secretary of the Party and President Hu Jintao, is now understood to be no more than the “first among equals” in this supreme decisionmaking body. Within the People’s Republic of China (PRC), a new Chinese term, jiuchangwei, was recently created to refer exclusively to these nine political heavyweights. In line with this development, the Chinese authorities have placed increasing emphasis on “collective leadership,” which the 2007 Party Congress Communiqué defines as “a system with division of responsibilities among individual leaders in an effort to prevent arbitrary decision-making by a single top leader.”

The composition of the new PSC—especially the generational attributes and individual idiosyncratic characteristics, group dynamics, and the factional balance of power on the committee—will have profound implications for China’s economic priorities, social stability, political trajectory, and foreign relations. Who are the leading candidates? Through what process will they be chosen? How do their political and professional backgrounds resemble or differ from each other? Into which factional alliances or political coalitions are they divided? What political strategies might they adopt to secure one of the nine spots on the PSC in the months leading up to the 18th Party Congress? What economic agenda, sociopolitical initiatives, and foreign policies will each member of this powerful group be likely to promote? Thoughtfully addressing these questions is essential for the United States and other countries, particularly at a time when China has more influence on the world economy and regional security than perhaps ever before.

Business confidence fell in the fourth quarter, the second consecutive drop, amid growing concern over a slowdown in the world’s second-largest economy.

The business confidence index was down 6 percentage points more than the third quarter to 41.7 per cent, the People’s Bank of China, the central bank, said in a statement on Thursday.

A reading above 50 expresses optimism; anything beneath that figure indicates pessimism.

Of 5,000 companies surveyed, 24.8 per cent believe that the economy’s temperature is “relatively cool”, while a decreasing number believe that things are still going well. The amount holding the latter viewpoint has dropped from 74.3 per cent in the first quarter to 67.1 per cent now, according to the central bank.

Fang Qi, general manager of Ningbo Shentong Electrical Co Ltd, said the company’s profit margin will probably drop by more than 10 per cent this year due to falling sales, rising labor costs and dollar depreciation.

“We are now developing new products to attract customers in emerging markets as demand from Europe and the US continues to fall,” Fang said. “But the rising cost of labor and raw materials remains a big challenge for us next year.”

As a medium-sized vacuum cleaner manufacturer, Shentong’s labor costs have risen nearly 20 per cent this year, Fang said.

Her woes are shared by Zhang Beilei, the owner of Wenzhou Gaotian Shoe Co Ltd.

“We’re not very positive about the current shoe industry. It has been shrinking a lot due to lower demand from abroad and higher costs at home,” Zhang said.

Zhang said that slimmer profit margins for small and medium firms will definitely worsen and more companies and factories will be forced to shut down in the coming year.

Wang Haifeng, director of the International Cooperation Center affiliated with the National Development and Reform Commission, said the global economic slowdown, China’s reluctance to launch a large stimulus plan and a falling property market are major reasons for declining business confidence.

A number of manufacturers in Zhejiang, Fujian and Jiangsu provinces also have property investments and feel the market correction, Wang said.

“Their manufacturing business, in fact, is basically fine. But they need money to save their investments in the property sector,” Wang said.

Hou Yunchun, deputy director of the Development Research Center of the State Council, said that the property market will pose the biggest challenge for China’s economy in the coming years.

The property bubble should be deflated slowly and not pricked, Hou said.

China’s economic growth slowed to 9.1 per cent in the third quarter from 9.7 per cent in the first and 9.5 per cent in the second.

Most economists estimated China’s economy will grow at a range between 8.2 per cent and 8.6 per cent in 2012.

But investment bank Nomura International (Hong Kong) Ltd said the growth is likely to slip to 7.9 per cent next year. The last time that China’s economic growth was below 8 per cent was in 1998 when the financial crisis hit Asia.

The China Index Academy, a real estate consultancy institute, said in a recent report that property prices in the major cities would fall 20 per cent next year because the policy restriction on the number of homes a family can purchase will continue.

The price drop in smaller cities, according to the report, will be close to 15 per cent. And the fall in even smaller cities will be around 3 per cent to 5 per cent.

Meanwhile, property was replaced by funds and wealth management products as primary investment choices for residents, according to the central bank survey.

Only 13.9 per cent of residents plan to purchase a home in the coming three months, down 0.3 percentage point from the third quarter, the survey showed. The proportion is close to a record low of 13.2 per cent in the third quarter of 2008.

Expectations for inflation in China were lower for the first quarter of 2012 versus the fourth quarter of this year, according to the central bank’s survey of 20,000 households.

Among households surveyed, 36.8 per cent of respondents expected consumer prices to climb in the coming quarter, sharply lower than 49.6 per cent a quarter ago.

After a slew of tightening measures by the government this year, including six hikes in the bank reserve requirement ratio and three interest rate rises, the consumer price index, the main gauge of inflation, eased to 4.2 per cent in November from the three-year high of 6.5 per cent in July.

The central bank reiterated that it will continue to implement a prudent monetary policy in 2012 while making it more “targeted, flexible and foresighted” to support stable and healthy economic growth.