China trip to pave the way for new deals

Prime Minister Stefan Löfven is to begin a three-day trip to China next week, including a meeting with Chinese Prime Minister Li Keqiang, accompanied by Enterprise Minister Mikael Damberg, Trade Minister Ann Linde and Environment Minister Karolina Skog, along with a business delegation that includes Ericsson, ABB, Astra Zeneca, Scania and Volvo Cars and Volvo Group.

Sweden’s exports to China amounted to SKr 46 billion in 2016. During the first quarter this year exports grew by 33%, compared to the same period last year.

Mikael Damberg says that China’s efforts to move forward on the global political arena in terms of trade and climate makes it easier to find a shared agenda.

Analysts believe in a bid

According to the Italian newspaper Il Sole 24 Ore, a Chinese company has made an offer for the bus division of AB Volvo. Advisors and banks are said to be evaluating a range of alternatives, including a listing.

One month ago, reports circulated in the media of Chinese interest in Volvo’s electric and hybrid buses, and one name being mentioned at the time was that of Zhengzhou Yutong Bus, China’s biggest bus maker.

AB Volvo has declined to comment the rumours. “When we have something to say, we will talk about it”.

Volvo’s bus division is a small part of the group, but is well integrated, which would speak against divestment. “I don’t believe Volvo’s intention is to sell the entire bus business, since a big part of Volvo’s strategy has been to build economies of scale in terms of engines, transmissions and chassis,” says Handelsbanken analyst Hampas Engellau.

John Hernander, portfolio manager at Nordea, and Engellau both believe a bid could be made for a part of Volvo Buses, for example its bus body business.

There has even been speculation recently that Volvo intends to sell its Construction Equipment division, and Engellau does not rule out that possibility either, saying “usually, there is never smoke without a fire”.

“These things take time”

On Thursday the Chinese stock market plunged dramatically resulting in trade being suspended early again. Fears about the situation in China spread to Stockholm where a number of large companies have a considerable portion of their sales in China, including Hexagon, Autoliv and Assa Abloy.

Assa Abloy, which has just over 9 percent of its turnover in China, has noticed weaker demand. CEO Johan Molin notes a decline of 7 percent so far this year. He now believes a long period of growth is being corrected. He estimates that China will remain weak for the next year as “these things take time”.

Fresh blow to embattled steel industry

Europe’s steel industry has accused China of dumping products on the market and has called on Brussels to deploy EU trade policy instruments to counter unfair competition. The call has come as the European Commission prepares to announce that it may grant China market economy status as of December 2016. If Brussels does decide to recognise China as a market economy, the EU will be robbed of some of its powers to impose such measures.

In an analysis presented last week, Handelsbanken Capital Markets claimed that China could not be accused of dumping products on export markets since the price of export steel is higher than that of steel sold in China. Mathias Ternell, director of international affairs at the Swedish Steel Producers’ Association, says Handelsbanken’s claim is irrelevant since China is not a market economy; therefore the price of steel on its domestic market has not been set according to market principles.

Sweden’s banking system in focus

Thirty years ago Shenzen was a sleepy fishing village just north of Hong Kong, today it is a city of 15 million and home to a number of the biggest companies in the world, including telecoms giant Huawei. However, Shenzen, along with other cities in China, must make the shift to high technology and creative industries, as businesses move abroad in search of cheap labour.

As part of the process, China is sending a delegation to Sweden that will include representatives from the Shenzen Stock Exchange and the China Development Institute. The delegation, which will arrive in Stockholm on Saturday, will meet Nasdaq OMX, Handelsbanken and Sweden-China Trade Council representatives to find out more about Sweden’s financial system.

“Sweden’s banking system is internationally lauded. China is currently trying to reform and internationalise its banking system, and we have much to learn, particularly in risk management and supervision,” Guo Wanda, deputy head of CDI, has said.