Recently, Tokyo reported Japan’s economy to be valued at $1.28 trillion in the second quarter. Japan’s economy grew only 0.4%- substantially less than expected. China’s economy, on the other hand is reported to be worth $1.33 trillion, replacing Japan as the second largest economy in the world. Although China was forecasted to be an economic superpower in the near future, Monday’s figures are the proverbial “proof in the pudding”. Japan has been regarded by the World Bank as the second biggest economy for more than thirty years. Based on Japan’s economic growth in the 1980’s, many economists predicted that Japan would surpass the United States and become the largest economy in the world. But, based on the last decade of rather stagnant economic growth, Japan has assumed the role of third largest economy in the world this quarter.

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After receiving approval from the China Securities Regulatory Commission (CSRC), the Agricultural Bank of China (ABC) launched its Initial Public Offering (IPO), making it the last of China’s “big four” state-owned commercial banks to go public. Having been advised by leading firms like Deheng and King & Wood, ABC, with more retail customers than the population of America, appears poised to achieve the title of the world’s biggest initial public offering, having already raised $19.2 billion through its listing.

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Hong Kong is presently the world’s largest IPO center. However, latest reports from Ernst & Young and PricewaterhouseCoopers (PwC) predict that China is well on its way towards leading the IPO market.

From 2000 to June 2010, companies in China’s mainland raised $188 billion in 495 deals on the leading bourses such as New York Stock Exchange (NYSE), Nasdaq Stock Market, London Stock Exchange and Hong Kong Stock Exchange. Overall, there were 1,114 global deals raising $366 billion in the same period. Hong Kong Stock Exchange was ranked first with 409 deals raising $171.2 billion.

In the near future, PricewaterhouseCoopers (PwC) predicts that domestic PRC companies are expected to raise US$55.7 billion on the Shanghai Stock Exchange this year, while in Hong Kong the figure is expected to be US$47.7 billion.

It can be deduced that the Chinese companies are recovering from the worldwide economic slump and have not been adversely affected by the Europe debt crisis. In terms of fund raising, more Chinese companies choose domestic capital markets as they have become increasingly attractive compared with foreign markets. Domestic companies have raised RMB213bn from 176 IPOs in the first half of the year, more than the RMB187bn raised in the whole of 2009. And according to PwC’s predictions, the total number of new listings on the country’s two bourses in Shanghai and Shenzhen may reach 300 in 2010, compared to 99 last year. Unlike other countries, China has high investor confidence due to increasing listing value and the strict regulations of the China Securities Regulatory Commission (CSRC).

Companies in the BRIC (Brazil, Russia, India and China) countries constituted nearly 68 percent of the total funds raised in the past decade. London stock exchange, NYSE and NASDAQ were ranked second, third and fourth respectively in the report.

Recently, the Chinese Business Lawyers Association (“CBLA”) created the CBLA Mentorship Program. The Mentorship Program is designed to bring together individuals from diverse backgrounds in groups of six to ten with a group leader to discuss strategies and methods for professional success. The CBLA, a New York-based non-profit organization, is dedicated to providing individuals interested in law and business in the United States and China a unique form of professional and social exchanges without regard to geographic location, ethnicity and language. The Mentorship Program is only available to CBLA members and friends. To join the CBLA, please visit http://www.cblalaw.org/enrollment for further information.

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On April 30, 2009, China’s State Administration of Taxation announced that, retroactively effective to January 1, 2008, seventy percent of a venture capital enterprise’s total investment can be counted as a deduction from its taxable income. The applicable investments are limited to equity investments in private small- and medium-sized high-tech and new technology projects by venture capital enterprises once the two-year equity holding is reached. The deduction can also be carried over to the following year if the amount exceeds the tax bill in the current year.

However, this new preferential tax measure, which undoubtedly benefits venture capital investors, is subject to specific provisions. For example, the investing enterprise’s business scope must comply with the Interim Measures for the Administration of Venture Capital Investment Enterprises. Also, the venture capital enterprise must be registered as a professional corporate entity engaging in venture capital investment. Finally, although the measure stipulates the required conditions and procedures for completing a filing, the
Ministry of Finance, and the tax authorities, may impose further conditions.

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Trade analysts by and large have concluded that the European debt crisis would not have a significant impact in Asia. Refer to an earlier blog entry available at http://asialegalblog.com/?p=2562. This entry highlights some other legitimate concerns raised by experts and attempts to blend different views in order to ascertain the risk exposure that Asia faces.

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In the past six months, PRC firms have hired a significant number of partners from international firms to strengthen their international business practice and broaden their capabilities in advising cross-border transactions.

Former DLA antitrust lawyer Liu Cheng has joined King & Wood as counsel for its international trade group. Cheng has previously worked at BASF China, where he was responsible for trade, investment, antitrust and commercial matters. Before BASF, Cheng practiced at King & Spalding’s Washington office and at Beijing T&D Associates as consultant and associate respectively. Cheng adds to King & Wood’s growing reputation for its international trade and antitrust practice.

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According to the United Nations Conference on Trade and Development (UNCTAD), global foreign investment dropped 39% to around $1 trillion in 2009, against a high of $1.97 trillion in 2007.  During this time, China had foreign exchange reserves amounting to $2.4 trillion, accounting for 30.7 percent of the world total.  Amidst this backdrop, Chinese companies increased their overseas direct investments (ODI’s) and many of these investments were backed by the Chinese Government.

A particularly prominent ODI was Aluminum Corporation of China’s (Chinalco) acquistion of 12% of Rio Tinto in February 2008.  This purchase was featured in international headlines but its termination in 2009 inspired China to consider a broad overhaul of its rules governing how Chinese companies invest abroad.

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China’s inflation accelerated in May to the quickest pace in 19 months, highlighting overheating risks in the fastest-growing major economy, and adding to pressure on Beijing to step up efforts to check the pace of growth. The data recently released by the National Bureau of Statistics, combined with surging exports and near-record property price gains, underscore U.S. arguments for a more flexible yuan ahead of a Group of 20 nations meeting in Toronto in two weeks.

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On July 6 & 8, 2010, the Asset Management in China seminar will be held in London and New York. Hosted by the law firm Allen & Overy LLP, the program is designed to focus on the recent developments for investment funds in, and relating to, China. As China’s asset management market presents immense opportunities for fund sponsors, asset managers and institutional investors, recent regulatory changes has created extraordinary prospects for capital raising, investments and asset management relating to China. The July 6 event will take place in Allen & Overy’s London office, starting at 5:30 p.m. and followed by a reception. The July 8 event will be held in Allen & Overy’s New York office. To RSVP or for further information, please contact matthew.rush@allenovery.com or visit http://www.allenovery.com/AOWEB/NewsMedia/Event.aspx?contentTypeID=3&content SubTypeID=1&itemID=56535&prefLangID=410 for the London event, and http://www.allenovery.com/AOWEB/NewsMedia/Event.aspx?contentTypeID=3&content SubTypeID=1&itemID=56523&prefLangID=410 for the New York seminar.