Category: "Investing in China"
Alibaba.com gives UK route to China
March 24th, 2008For years, the glut of cheap imports flowing from the huge manufacturing zones of southern China on to shop shelves across the world has resembled an irreversible tide.
The result? An escalating trade deficit which has come to underline China's role as the West's factory floor.
Now, the largest internet company in China is attempting to help swing the pendulum back in the other direction.
Alibaba.com, the e-commerce firm headed by Jack Ma, the man dubbed China's "internet godfather", is to launch an online platform which will encourage the owners of British small and medium-sized enterprises (SMEs) to export their products to the world's most populous country.
Called Export to China, Export to the World, the new service, which will be launched in the second half of this year, will target the 268,000 Britons who are already members of Alibaba.com.
The website is currently recruiting new members in this country at a rate of 2,000 every week.
David Wei, chief executive of Alibaba.com and a former executive at B&Q in China, said that the new platform would appeal to British SMEs operating in industries in which Britain retained a prominent international role.
"In high-technology engineering products, where the UK is still very competitive, and in areas such as patents and intellectual property, there is a major opportunity for UK SMEs to export to China," said Wei.
Alibaba.com is the Hong Kong-listed unit of Alibaba Group, which also includes one of China's biggest consumer websites and a substantial online auction business.
Wei said the company continued to keep an open mind about stock market listings for other divisions of the group.
"We are keeping all options on the table," said Wei.
Last week, Alibaba.com reported its maiden results as a public company, unveiling a 200 per cent rise in operating profit to RMB804m.
The Chinese company may play a significant role in the ongoing takeover battle between Microsoft and Yahoo!, which owns a 39 per cent stake in Alibaba Group.
Ma is understood to have appointed Deutsche Bank to advise him on the situation and is in talks with potential investors who may be interested in co-funding a buyout of the Yahoo! stake.
On Friday, Ma was one of a number of senior Chinese businessmen who attended a discussion in London with government ministers about the future of the internet.
Common staffing mistakes in China, and how to avoid them
March 18th, 2008It’s a slow news day - besides that whole one-year-to-go thing - and while we were tempted to run with this story from the Shanghai Daily, the better angels of our nature prevailed and instead, we decided to republish an excerpt from our popular “Common mistakes and misperceptions when investing in China - and how to avoid them” China Briefing issue from July of last year.
Common mistakes when using Chinese staff to set up or run your company
Putting them in control of everything
Yes, it may be very useful to have that ever-so-nice-and-efficient local Chinese person help you with all aspects of setting up your China operations, including all business licenses, offices, bank accounts, handling all documentation and so on. The language and bureaucracy are almost unintelligible and you’re a busy corporate executive. But wait; is it normal business practice anywhere to have one person in control of all aspects of your country operations? No, it isn’t, and with very good reason.
Their abilities may not stretch as far as international competencies
Although they may in fact be honest and helpful, the way in which foreign companies have to be administered in China, and the reporting structures they have to go through, are very different from those that Chinese companies have to adhere too. In reality, foreign businesses in China face far more scrutiny than Chinese companies do. If your employee, good as they are, is not familiar with the regulatory aspects concerning operating and maintaining an international office or business in China, chances are there will be issues your company will immediately be out of compliance with. That can and does get expensive. Additionally, there are circumstances where the employee may deliberately keep the company out of compliance – to obtain benefits or other leeway later if any argument arises against their favor later on.
Having one person in control of all your corporate documents and/or banking
Very common. The risks are obvious. You can lose all your abilities to operate the company overnight if he/she decides to walk out of the door. Plus all your money.
Insertion of family and friends into your supply chain
This is very common. You need to audit your purchasing and sales departments regularly to ensure employees are not placing orders with companies owned by friends or relatives that are then charging your business at rates well over the market odds.
Setting up of parallel businesses
In one particularly nasty case we were called in to investigate, two Canadian-Chinese were hired, having worked for the parent company overseas for several years, to establish a China manufacturing entity. This they did, however the China business never was able to attain anywhere like the projected sales, and had to be continuously funded from the parent to tide it over. A variety of “market conditions,” “competitor pricing” and so on were given as excuses. When, just before a new US$1 million investment was to be injected into the China entity, the parent decided just have a quick look-see internal audit – things started to become clear. The two trusted employees had established a mirror company, with similar sounding Chinese name to the international brand, and had been diverting all orders to that business instead. “Local competitive pricing” indeed. From a business the staff themselves had established to compete with their employers.
Common mistakes when hiring expatriate employees to set up and run your China entity
There are problems with expatriate staff as well. Especially, (and unfortunately) often with personnel in professional services.
Hiring lawyers with no China experience
Expensive, and not really much point, especially if their Chinese language capabilities are minimal. However, many look good, and although their firms may have a China presence, what about their individual presence in China? International lawyers are great at international work – cross border structuring and so on – but far too many of them profess expertise in areas of China practice they are neither qualified or experienced to be dealing with. Are you looking for a salesman selling his firm, or proper advice? Really, if you need to hire a lawyer with China experience – go to a firm that has the real thing. That’s what they are there for, and China has had private lawyers now for 15 years - Google their names to see how well known they are.
Hiring personnel On their language skills alone
Well, everyone has to start somewhere. But a new kid just out of language school is still a new kid out of language school, and will have no experience dealing with the “China issues.” Don’t expect miracles. And two years in China does not an expert make. Young graduates do have skills of course, but don’t weigh them down too much with managerial responsibilities before they have had time to adjust them to a commercial business environment and have found their feet around your business. A management development program designed to maximize on their language skills yet introduce them to your business will reap greater rewards both for you and for them if you treat them with continuing educational attention.
The China guys
Expats of note are those who really know their way around, and can steer you away from all the problems. They will have a good grasp of the language, and may well have settled down with family here. You cannot survive in China without knowing how to get on, and this is a matter of experience as well as possessing inherent patience, tenacity and people and communications skills. They are available – interestingly at this time, many of the established multinationals are localizing and expatriate engineering and other talent is perhaps more available in China than ever before.
For more on the common mistakes and misperceptions when investing in China, check out the 2006 July/August issue of China Briefing.
Foreign investments, hot money come to China
March 18th, 2008Foreign investments and international hedge funds, some of which are speculative hot money, are now elbowing into the China market. They're lured by the Chinese people's emerging consumption power, and expectations of the Chinese yuan appreciating higher.
The Ministry of Commerce said on Wednesday that China drew $18.13 billion in overseas investments in January and February, shooting 75.2 percent year-on-year.
Chinese Commerce Minister Chen Deming, who was promoted to the post late last year, said at a news conference in Beijing that the reason for the big increase of overseas capital in the first two months was due to the big increase in large-scale investing projects and a stronger yuan.
Chen's ministry, which oversees foreign trade and domestic consumption, said that during the first two months, investments from the European Union countries rose a whopping 109 percent, while investments from the United States increased 44 percent.
Wild expectations abroad that the yuan will continue to rise in value against major world currencies has led to money coming to China.
"When you bring US dollars to invest in China, you need to change it into the yuan. Naturally you would like your funds to enter China at an earlier date. Because, if you are late, the same amount of dollars will turn out to be less yuan bills," Chen told reporters.
China's foreign exchange administration, under the auspices of the People's Bank of China, the central bank, said in its latest report that the country's total foreign exchange reserve has reached nearly $1.59 trillion by the end of January, the world's largest.
China's currency, also called the renminbi, has been constantly rising in value. The People's Bank of China, set the medium parity trading price at 7.0970 against one US dollar on Thursday, a new record high. The yuan has gained 3 percent against the dollar in value since the beginning of 2008.
The sharp increase in the stock of hard currencies has triggered another round of concern on speculative hot money flowing into China, posing potential risks to China's financial system stability.
Wu Xiaoling, deputy head of the National People's Congress's Finance Committee, who was a former central banker, said that the American subprime crisis and the rising trend of the yuan's value will make world speculative funds come to the China market to seek profits.
When asked by reporters whether the hot money has arrived in the name of foreign direct investments, Minister Chen Deming said: "I can hardly tell their entering channels, and their volume. It belongs to the management of the foreign exchange administration."
Economist Suggests Quick Appreciation
Liang Hong, economist at the Goldman Sachs, argued in a written article published by a major Chinese financial newspaper on Thursday that Chinese monetary authorities should consider quickening the appreciation pace of the yuan, to fight domestic inflation, which approached to 8.7 percent in February.
Others have suggested another "one-off" big rise of the value of the yuan, possibly 5 percent against the greenback by the central bank, to block more hot money from flooding in.
Liang said in her article that "allowing a marked rise in the yuan value is the most opportune policy instrument to curb inflation, as well as rectify the foreign trade imbalance".
She also argued for immediate interest rate hikes to thwart inflation, otherwise the Chinese economy faces an increasing risk of a hard-landing.
Microsoft Unveils Windows Embedded R&D Center in China
March 6th, 2008Microsoft Corp has launched its first Windows Embedded regional development center in Asia. This new facility, the Microsoft Embedded Systems Development Center (MESDC), will support global product development and drive smart, connected, service-oriented device development.
Located within the Microsoft Advanced Technology Center (ATC), part of the Microsoft China Research & Development Group (CRD) in Beijing, China, the MESDC is a significant part of the US$75 million global investment in R&D that the Windows Embedded business is making this fiscal year.
The MESDC will support global product R&D, drive development of innovative features of Microsoft's embedded operating systems, and accelerate collaboration between the US-based Microsoft product groups and their counterparts in the ATC. In addition, the MESDC will support the needs of the active windows embedded partner ecosystem in China by engaging with OEMs in embedded systems to showcase high visibility embedded systems projects that accelerate the development of connected consumer devices.
Microsoft has started recruiting embedded systems engineers for the MESDC. By the end of 2008, the MESDC will have up to 15 engineers working closely with the Windows Embedded product development team in Redmond, Washington.
Largest Russian bank opens first China branch in Shanghai
February 27th, 2008SHANGHAI, Feb. 26 (Xinhua) -- Venshtorgbank, Russia's biggest bank, opened its first Chinese branch in Shanghai on Tuesday, marking the start of a new era in Sino-Russian finance.
"China's banking service industry is the fastest-growing and most promising in the world economy. I believe the Shanghai branch will grow as energetically as China's economy," said Andrei Kostin, Venshtorgbank Group (VTB) chairman and president.
VTB has entered into credit granting agreements with a number of Chinese banks and the China Export and Credit Insurance Corporation to provide Russian importers with long-term financing and insurance services when purchasing Chinese goods and services.
Clients can receive up to 1.3 billion U.S. dollars in financing from Chinese banks.
According to Kostin, the Shanghai branch will cooperate with China UnionPay system to provide banking card services to both domestic and Russian clients. It also plans to apply for offering RMB services within three years, and will broaden the business scope of the branch for a larger operating scale "very soon".
VTB even plans to issue its own union cards in China.
The lender is the largest international banking group in Russia. It has branches and financial firms in 17 countries, with assets of 80 billion U.S. dollars.
While it established a Beijing office 20 years ago, VTB is a latecomer to China's lucrative banking sector, now crowded with more than 300 foreign banks.
Robert Walters opens headhunting in China
February 26th, 2008Robert Walters, the recruitment specialist, is buying its first business in China, a headhunter that provides a range of jobs in the commercial sector.
Walters, which also today announced operating profits up by a third to £26.1 million, is paying RMB 20 million (£1.4 million) for a 70 per cent stake in Talent Spotter, a consultancy with 49 staff and a head office in Shanghai and another in Suzhou, a city with a population of ten million, 75 miles inland from Shanghai.
Robert Walters, the chief executive, said that 62 per cent of fee income was generated outside the UK last year.
The company has a growing presence in the Far East and an office in Hong Kong. Alan Bannatyne, the finance director, told Times Online that the Chinese market was especially lucrative, paying fees representing 25 per cent of annual salary. "Shanghai is a very strong and growing market."
Talent Spotter typically provides a variety of commercial jobs such as sales and marketing and human resources, with a small involvement in accountancy.
During 2007 Walters opened offices in Madrid and Osaka, and an office in Kowloon was opened this year.
The trading statement for 2007 said that activity levels remained strong, with a healthy balance between permanent and contract recruitment.
A final dividend of 3.35p makes a total raised from 4p to 4.7p.
Recruiter Robert Walters goes shopping in China
February 24th, 2008Robert Walters, the recruitment consultants, will tomorrow announce an expansion into mainland China through an acquisition designed to increase its exposure to one of the world's fastest-growing job markets.
The company, which already has operations in Hong Kong, Malaysia, Singapore and Japan, has bought Talent Spotter, a specialist recruitment business headquartered in Shanghai, for around £1.4m.
Although the deal is relatively small - Talent Spotter has 49 staff and one other office in the prosperous nearby city of Suzhou - it reflects the growing importance that professional services companies are placing on China.
Despite the country's rapid economic growth over the past few decades, the recruitment sector is still in relative infancy. Nevertheless, the demand for such services is expected to rise as the country becomes more integrated into the global economy and Chinese businesses and organisations face calls for increasing professionalism.
Several recruitment companies have set up offices in China or established joint ventures, but Robert Walters' move is believed to be the first foreign takeover of a domestic firm and is the first it has made in more than 10 years.
The acquisition is expected to be a platform for growing the business throughout the country. The acquisition comes as Robert Walters' full-year results are expected to show a 17 per cent increase in net fee income to around £127m and a 30 per cent increase in pre-tax profits to £24.5m, despite the economic turmoil.
Asia holds Yahoo's secret weapon
February 18th, 2008Yahoo! Inc's secret weapon in its effort to squeeze a higher offer out of Microsoft Corp resides in Asia's surging Internet market.
Yahoo has investments worth US$13.8 billion in Alibaba.com Corp, parent of China's largest online trading site, and Yahoo Japan Corp. That accounts for almost one-third of the US$31 a share Microsoft is offering, Bloomberg News reported.
In one year, the value of those stakes may balloon 15 percent to US$15.9 billion, according to analyst estimates.
Unlike the United States search market, where Microsoft and Yahoo have been beaten down by Google Inc in text advertisements, Asia is geared more toward graphical banner ads where Google has less of a presence.
In China, the world's second-largest Web market, online trading between companies may almost quadruple to the equivalent of US$1.05 trillion by 2010.
Yahoo investors may benefit as Microsoft pays more to gain access to this growth.
"Alibaba is a good franchise in the fastest-growing Internet market," said Kevin Landis at Firsthand Capital Management in California.
"Stubbornly, these Yahoo shares didn't respond to that.
''I think if you gave it time, they would."
In rejecting Microsoft last week, Yahoo Chief Executive Officer Jerry Yang cited investments in Alibaba and Yahoo Japan as reasons the offer "substantially undervalues" Yahoo.
No competing bid has yet emerged.
Yahoo is in talks to combine Internet operations with those of Rupert Murdoch's News Corp, sources said.
However, Yahoo spokeswoman Tracy Schmaler and News Corp spokeswoman Julie Henderson declined to comment.
Alibaba stake
Yahoo in 2005 swapped US$1 billion and its China units for 39 percent of privately held Alibaba.com Corp in Hangzhou.
The initial public offering last year of its Alibaba.com Ltd unit raised HK$13.1 billion (US$1.68 billion), the biggest IPO for an Internet company since Google in 2004.
Alibaba.com Corp also owns Web-auction site Taobao and online payment unit Alipay.
Sales from Taobao's site more than doubled last year as rising incomes in China lifted the number of Internet users by 53 percent.
The amount of goods and services traded on the Web by Chinese companies may increase to 7.54 trillion yuan (US$1.05 trillion) in 2010, from 2.1 trillion yuan last year, according to Ping An Securities Co.
Stifel Nicolaus analyst George Askew in Baltimore valued Yahoo's holdings in Alibaba.com Corp at US$4.93 billion as of a week ago.
With 33 percent control of Yahoo Japan and a 10-percent stake in South Korea's GMarket Inc, Yahoo's Asian investments equals US$13.6 billion, or US$9.74 a share, Askew said.
"Yahoo's stronger position in Asia is one of the rationales for Microsoft's takeover bid," said Ivan Li, an analyst at Kim Eng Securities (HK) Ltd in Hong Kong.
Microsoft is pursuing Yahoo to bolster competition with Google in an online ad market that may double to US$80 billion by 2011.
Yahoo Japan, the country's most popular Website, attracted 88 percent of local users in December, compared with 56 percent for Google.
It also offers access to a mobile-phone market where more than half of subscribers surf the Web.
China key
The Asian properties would be a boon for Microsoft, whose Internet business there lags behind competitors, said Claus Mortensen, a Hong Kong-based analyst.
Microsoft handled 1.2 percent of search queries in Asia in December, compared with Google's 38.2 percent and 24.9 percent for Yahoo.
Display ads are 52 percent of the online market in Asia, compared with 20 percent for search.
In the US, search accounts for 40 percent, versus 31 percent for display and video.
Almost all of Google's US$16.6 billion in sales last year came from search.
Microsoft faces challenges retaining Alibaba and Yahoo Japan clients wary of the world's biggest software maker, said JupiterResearch analyst Neil Strother.
"On paper it gives Microsoft a bit of a leg up," Strother said.
"Can they hold onto customers or do the customers decide that Yahoo Japan or Alibaba have just become the same as Microsoft?"
GM Buying Out Employees To Hire Cheaper Workers in China
February 17th, 2008General Motors Corporation has announced that they will be offering buyouts and early retirements to all of their 74,000 hourly workers in the United States who are members of the United Auto Workers union. Is this a good idea, or a very bad one? While it will increase profit for a great American auto manufacturer, it also leaves us wondering if: more of the jobs will be sent overseas; working for GM will no longer be an enviable position; the Union will die off.
The deal does reportedly come with more favorable terms than the 2006 offer that General Motors extended to service and parts workers in 2006. More terms of the buyout are here. We have to ask GM employees to respond here, because we're clueless on this one. When we posted this article asking the FedEx to support unions, many FedEx workers weighed in that it was possibly not such a good idea (though others said direly needed).
GM hasn't had the best history with union workers recently, though, and in September 2007 the UAW famously went on strike for the first time in 37 years. It's also pretty hard to comprehend that they cannot afford to pay our American workers, but they can invest millions in a research center in Shanghai, China.
Detroit's Big 3 Pin Their Hopes On Chinese and Asian Market Auto Sales
February 12th, 2008With U.S. auto sales forecast to hit a 10-year low in 2008, Detroit's Big Three carmakers are aiming to rev up sales in emerging markets.
Developing nations will account for more than 75% of the auto industry's unit sales growth over the next decade, says market research firm CSM Worldwide. Most will come from the BRIC countries: Brazil, Russia, India and China.
General Motors GM, Ford F and, to a lesser extent, Chrysler hope to grab a big slice. But they're in for a battle with other global giants as well as local firms like India's Tata Motors TTM, which is close to buying Ford's Jaguar and Land Rover brands.
Competition is fiercest in developing countries with their own local producers, says Maryann Keller, head of a Greenwich Conn.-based auto consultancy. China and India are examples.
But emerging markets without local automakers -- Brazil, Thailand and Poland -- also make attractive targets for global giants and newcomers.
"It isn't going to be just the Japanese, Americans and Europeans competing for (developing world) sales, it's going to be Korean, Chinese and Indian carmakers as well," Keller said. "The automotive world is opening up to greater competition from new emerging companies we've never heard of. And there's no reason to assume foreign companies are going to dominate in Russia, China or India."
GM has a top-three market share position in China, Russia and Brazil. In 2007, GM's sales increased 74% in India, 18% in China, 19% in Latin America and the Middle East, and 9% in Europe.
Toyota and GM were neck-and-neck in 2007 global sales. Toyota has been gaining ground in China. Toyota also opened a factory in St. Petersburg, Russia, late last year. The plant will produce 50,000 cars a year, Toyota says.
"The debate going forward is whether GM's lead over Toyota in BRIC countries is sustainable," said Lehman Bros. analyst Brian Johnson.
Toyota TM has forecast combined sales of 900,000 vehicles in China and Russia for 2008, a jump of almost 40% from last year.
In BRIC countries, Ford only ranks among the top three foreign companies in Russia.
GM and Ford are well-positioned for global growth, says Michael Robinet, CSM's VP of global vehicle forecasts.
"GM is doing well in the BRIC countries. It's focusing more assets on Russia and India," he said. "Ford is getting stronger in China and it's well-established in Brazil."
Chrysler has yet to make a dent in emerging markets. But it's announced a goal to double overseas sales over the next four years.
"Chrysler is trying to catch up," said Bruce Belzowski, auto analyst at the University of Michigan's Transportation Research Institute.
He points out that Chrysler largely lost its global reach when parent Daimler sold more than 80% of its stake in Chrysler to private equity firm Cerberus Capital Management.
"Daimler is gone now," Belzowski said. "Chrysler is trying to build a B-size (subcompact) car with Chery (Automobile) for China's market."
It's a large and growing market. CSM estimates China's auto sales will grow 60% to 10.9 million by 2013, up from 6.8 million last year.
Among foreign suppliers in China, Volkswagen leads with 18% market share, followed by GM at 10%.
Toyota overtook Korea's Hyundai for third in 2007, says Tim Dunne, analyst at J.D. Power & Associates.
Japanese automakers have gained share in China, Dunne says, while European firms have held steady. The combined share of U.S. automakers slipped in 2007, he says.
Chinese firms such as Chery had almost 30% of the market last year, with Japanese companies at 28%.
Chasing The Nano
CSM forecasts India's auto market will more than double from current levels to 4.16 million cars by 2013.
Korea's Hyundai leads foreign automakers with about 14% market share in India. GM and Ford trail with 4% and 3%, respectively.
Ford on Jan. 8 said it would spend $500 million to set up a small car factory in southern India. Overall, it's investing $875 million in the country.
GM is spending $350 million to set up its second factory in India.
Both GM and Ford face an uphill battle vs. India's Tata, which holds 23% of the market. Tata rolled out the world's cheapest car -- the $2,500 Nano -- in early January. The Nano is said to get 50 miles per gallon but lacks power steering and power brakes.
Tata expects to sell 250,000 Nanos a year in its home market. Within three years, Tata plans to export its low-cost, no-frills car to other developing countries.
Analysts say Ford is aiming to produce a car for India's market with a $7,500 sticker price. GM is said to be working on a sub-$5,000 car intended for emerging markets.
What About Profits?
Ultracheap cars might win Detroit's Big Three market share, but their profitability is questionable, Keller says. "The growth is in small vehicles, but nobody is going to make money on these (ultracheap) cars."
Meanwhile, Chinese consumers are already trading up. The average car in China costs about $15,000 vs. $27,000 in the U.S., Dunne says.
Aside from BRIC countries, other fast-growing auto markets include Thailand, Indonesia, Mexico, Poland and Ukraine. Sales also are rising fast in Africa and the Mideast.
While overseas markets beckon, GM and Ford will stay under attack in the U.S.
"Every carmaker still wants to come into the U.S.," Keller said. "Why? Because we buy big expensive cars."
China: Still at the 'top of the head'
February 12th, 2008by Steven Halpern
Filed under: International markets, China, Newsletters, Stocks to Buy
"Is China's rip-roaring bull market over?" asks Larry Edelson. The editor of Real Wealth says, "No. No. And no!" Here, he looks at two favorite funds for investors seeking exposure to China.
"China's economy continues to fire on all eight cylinders. The country's fourth-quarter 2007 gross domestic product rose an amazingly robust 11.2%. That's down a tad from third-quarter growth of 11.5%, but who's kidding who? China is still at the top of the heap as the fastest-growing major economy on the planet!
"Meanwhile, Beijing's fiscal revenues are soaring. According to the National Statistics Bureau, the government's fiscal revenue hit $691 billion (almost $2 billion per day) last year, up from $261 billion in 2002.
"And don't forget, that's just tax revenues. China's mountain of foreign reserves has climbed to an astounding $1.53 trillion - and is growing at a rate of more than $1 billion per day.
"Add it all up, and China has almost $2.3 trillion stashed in the bank. Plus more than $3 billion a day of positive cash flow. In contrast, the U.S. has negative cash flow of more than $2.7 billion per day.
"I find it incredible that just a few years ago almost every analyst I talked to told me China's banking system was going to implode. Now , China's banking system is now one of the strongest in the world, with 15% of their deposits held as reserves at the People's Bank of China, the country's central bank.
"Contrast that with U.S. banks, which hold on average about 8% of their capital, including stock and earnings, as reserve capital to meet so-called Tier 1 requirements for bank safety. That's less than half of what China's banks hold.
"My suggestion: Buy the heck out of China's stock market. The pullback you've seen there is nothing more than a sharp technically-based sell-off. Here are investments you can use:
1. iShares FTSE/Xinhua China 25 Index (ASE: FXI). One of the most liquid ETFs that tracks China's top 25 companies, the FXI is a great way to play China. The ETF is down more than 32% from its highs and is now bouncing off of long-term chart support. I consider it a great buy!
2. U.S. Global Investors China Regional Opportunity Fund (USCOX). This mutual fund invests at least 80% of its money in the China region, from Mainland China to Hong Kong, Taiwan and more. Manager Frank Holmes' worldview and analyses are similar to mine. The fund is now trading at just $11, back to 2003 levels. Another great buy, in my opinion."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
Boyden Global Executive Search Explodes Myths of Business and Management Recruitment in China
February 9th, 2008* Mainland executives lead the talent contest
* Talent wars tougher than Europe
* Multinationals only compete long-term by sharing know-how
* Chinese companies going global need leadership due diligence
SHANGHAI, China--(BUSINESS WIRE)--A growing pool of extremely talented Mainland Chinese executives are gaining internationally competitive compensation as the best in class among all nationalities, according to The Boyden Report – Exploding the Myths in China released today by Boyden Global Executive Search. The report is based on interviews with senior executives of Chinese and multinational subsidiary organisations.
“Mainland companies are beginning to pursue international ambitions and attracting Chinese executives back from Western companies, where global exposure has been gained in a local context,” says Charles Bien, Managing Director of Boyden China. “The combination of a Chinese culture, internationally competitive remuneration and the chance to learn best practices is very powerful.”
The report explores eight commonly held myths about business in China including:
The Chinese Economy as a Threat
China vs. India: Zero Sum Game?
One China, One Market
Human Resources Best Practices
Chinese Returnees
“War for Talent”
One Country, Two Systems
Proprietary Technology
Following are highlights of the report:
Learn How to Ride the Tiger
The opening myth of report examines the fear among Western Companies that the rapid development of the Chinese economy is a competitive threat. Respondents explain how this prevents multinationals benefiting from the significant advantages China has to offer. “The Chinese have an expression: ‘learn how to ride on the tiger’s back,’” says Mr. Francis Yuen, President of Trane Asia in the report. “Western companies need to realise that you should never try to fight the tiger—learn to leverage the tiger.”
HR: Organisational Landscape and Competitive Advantage
Interviews with Mainland and multinational executives found that China’s Organisational Landscape is far more heterogeneous than many Westerners appreciate. Most respondents agree that Chinese companies tend to lag behind multinationals in making human resources part of their strategic planning. Businesses that do focus on HR strategy gain a notable competitive advantage.
“We adopted many HR policies from the legacy of China business across our international operation including the legacy of the IBM PC division,” says Reid Walker, Lenovo’s Vice President of Global Communications. “Our new performance management system is based upon many of the ‘pay for performance’ practices of our original China operation. These practices helped Lenovo grow from a small start-up to a leading global multinational.”
Local Market Knowledge is King
The general consensus is that it is a mistake to focus on returnees for international perspective in China operations. Senior executives interviewed believe returnee managers are helpful in the short-term and for transitional periods, but they have often adopted a Western perspective that doesn’t always fully embrace or comprehend the Chinese perspective. Companies in China need managers with local market knowledge, including an ability to communicate well with key officials and understand regional business practices.
“Just as it is very difficult for companies to expand or market nationally in China, it is hard to move executives from one province to another,” explains Brian Renwick, Managing Director of Boyden China. “The logistics of moving people can be as challenging as the logistics of moving goods.”
Talent Wars Worse Than in Europe
Senior executives interviewed for the report concurred that there is as big of a war for talent in China as in other markets, and perhaps even more so in China. Opportunities and salaries are rising fast in China and labor costs are going up. Competition for managers changes in relation to the competitiveness of the sector or industry.
“The war for talent is very fierce in China,” said Bengt Hamsten, Former CEO of MAN Truck & Bus China; Professor, Mechanical Engineering, Chongqing University. “If anything, the talent wars are worse than in Europe.”
Change programs tend to include a comparison of the company’s values with an individual’s perception and preferences. Companies should view the recruitment of a key executive as a microcosm of change. The rapid pace of development in China means that companies need to hire with a view of how a role will evolve in the near future.
The Boyden View for Multinationals in China and Mainland Companies
For multinationals in China, the overriding challenge to overcome is fear of sharing their know-how and intellectual property with their subsidiaries. If they fail to do this, Chinese competitors will soon outperform multinational subsidiaries, and the advantages of having operations in China will be lost. Boyden’s Brian Renwick explains, “The potential shift in manufacturing jobs is having greater global benefits in quality of life and access to goods. Mature economies have a rare chance to transform themselves through the opportunities offered by China.”
The challenge for mainland Chinese companies with global ambitions means focusing on executive talent during the due diligence phase of an acquisition.
“For Chinese companies wanting to expand overseas, understanding the management culture and the executives they are buying is as important as financial due diligence,” says Boyden’s Charles Bien. “Assessing the senior executives in an acquisition target enables Chinese companies to gain a greater understanding of the real value of the deal.”
About Boyden World Corporation
Boyden is a global leader in the executive search industry with more than 70 offices in 40 countries. Founded in 1946, Boyden specialises in high level executive search, Interim Management and Human Capital consulting across a broad spectrum of industries. For further information, visit the firm’s website at www.boyden.com.
About The Boyden Report
Other reports in The Boyden Report series include The Boyden Report: India – the Sun Rises on the Indian Executive (3Q 2007) and upcoming The Boyden Report: South America (1Q 2008).
Asian workers demand more
February 5th, 2008Dissatisfied staff, increasing job mobility, rising wage demands – no, it's not Europe or the U.S. but Asia, where the booming economies of the region are fuelling an increasingly fierce war for talent.
Asian workers are becoming happier to dump their old employers and chase the best jobs and money, in the process creating a talent and retention crisis for both local and Western employers in the region.
A study by recruitment firm StepStone has found companies looking to tap into Asia's rapidly expanding economies are reporting growing difficulties when it comes to recruiting and retaining skilled employees.
What's more, the wage bill – once one of the biggest attractions for Western companies moving operations to the region – has been rising sharply.
The company's Talent Report 2008 has concluded that the notion as a "low-cost utopia with an abundance of labour" is now long gone.
Senior managers in Asia reported facing four major recruitment and retention obstacles.
These were: rising wage and pay demands among potential candidates, a lack of suitable candidates and skills, a perceived lack of career opportunities among workers and employee increasingly believing they could snap up better pay and benefits elsewhere.
The expectations of workers in the region were also rising, with workers no longer prepared to settle for second best and feeling they deserved more than they were getting.
Employees were now much more likely to jump ship if a better offer came along.
Job hopping was set to become one of the biggest talent headaches for organisations over the next three years, StepStone predicted.
Despite these difficulties, more than four out of 10 business leaders surveyed globally believed the Asia-Pacific region offered their business the best opportunities for revenue growth over the next three years.
The region has been much less affected than Europe or the U.S. by the sub-prime led credit crunch and in areas such as financial services is looking particularly strong at the moment.
Nearly nine out of 10 global business leaders expected either slight or significant improvement in their company's growth prospects over the next three years, with fewer than three out of 10 saying the rising cost of credit had caused them to be less optimistic.
"While recent surveys and financial analyst predictions indicate a drop in business confidence in the next year, it's clear that most business executives are still bullish on Asia as the growth machine in the longer term," said StepStone chief executive Colin Tenwick.
"While the credit crunch might be dismissed in boardrooms as a short-term speed bump, it would be folly for Western businesses rushing to invest in high-growth Asian economies such as China and India to ignore the clear signs of longer-term talent shortages in Asia," he added.
"This research shows that many companies will have to prepare themselves for a huge battle for talent, one that is even tougher than in Europe and North America," he continued.
"Asia is seen as the engine for growth but without the right people, businesses will see their engine splutter and may not get out of first gear. Without a clear, formal talent management strategy in place, companies will find it difficult to get – and more importantly, keep – the people they need and may struggle to realise the growth they are promising their shareholders," added Tenwick.
Globally, too, business leaders were unanimous in agreeing that recruiting and retaining talented employees was getting tougher.
Nearly half felt it was becoming slightly more difficult and four out of 10 believed it was becoming significantly more difficult.
Yet, despite this, only a quarter of organisations surveyed had a formal, company-wide talent management strategy in place and 16 per cent did not have a talent management strategy at all.
"To compete for the best people it is clear from this report that many organisations need to address how they are going to manage their talent in a far more structured way or they place their ability to grow under serious threat," said Tenwick.
"Given the low number of businesses with a formal talent management strategy in place, it' s unsurprising that a third of respondents said their organisation was poor at forecasting talent requirements and retaining talent in the organisation," he added.
While it was in Asia where recruitment and retention difficulties were most acute, business leaders in Western Europe and North America also agreed that employee career switching would be a major issue in fuelling talent shortages there.
However, business leaders in the U.S. and Europe were in general more concerned at the effects of an ageing population and lack of education and development opportunities.
"The difficulty in finding talent coupled with an ageing workforce presents a serious challenge particularly to businesses in developed economies in Western Europe and North America," Tenwick pointed out.
"With almost half of executives in those regions viewing an increased use of older workers in a positive light, it appears likely that we will see more older workers returning to the workforce or perhaps postponing retirement to fill skills gaps," he added.
Migrants are China's 'factories without smoke'
February 5th, 2008By Alexandra Harney
For CNN
Editor's note: Alexandra Harney is a Hong Kong-based writer and the author of the forthcoming book "The China Price: The True Cost of Chinese Competitive Advantage" (Penguin Press, 2008).
HONG KONG, China (CNN) -- In the crowds still stranded by snow at train stations around China stand some of the country's most valuable economic assets: migrant workers.
A migrant worker, right, joins a queue waiting to board trains this past week in Shanghai, China.
more photos » This group of 150 million to 200 million farmers -- more than the population of the United Kingdom, France and Australia combined -- account for the majority of employees in China's world-beating manufacturing sector, the bulk of its coal miners and most of its construction workers.
During the past two decades, according to a conservative estimate from UNESCO and the Chinese Academy of Social Sciences, migrants have contributed 16 percent of gross domestic product growth.
Living for years at a time in coastal cities, China's migrant workers have built the country's skyscrapers and assembled its exports, sending tens of billions of dollars in earnings home to their families in poor inland provinces. For the workers known as "factories without smoke," the Chinese New Year holiday is often their only annual vacation.
The forces that brought these smokeless factories to the cities took shape in the early 1980s, when Beijing, as part of an easing of central controls on the economy, loosened internal mobility regulations. Farmers have been pouring out of the countryside ever since, in what is believed to be the world's largest internal migration.
They leave for mostly economic reasons: wages in the cities are higher than what workers could earn at home. And life there, many find, is more exciting than back on the farm.
Today, migrants dominate the Chinese labor force in dirty and dangerous trades: 70 percent of construction workers, 68 percent of manufacturing employees, and 80 percent of coal miners are migrant workers. But not all are on their hands and knees. More than 60 percent of staff in the service trade, according to state media, are migrants as well.
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On average, migrants tend to be among the best educated people in their villages. Still, many have little more than a junior high school diploma. Many migrate as teenagers, often with friends or neighbors, leaving behind their family in the countryside. More than half are men, but the toy and shoe factories of southern China prefer women -- they are easier to control, managers say, and their fingers more nimble.
Wages vary by city and company, but many migrants in export factories in the south take home about Rmb1,000 a month ($139) -- or even more. They sleep 12 to a room in bunkbed dormitories furnished by their employers, working six and sometimes seven days a week for months at a time. Wages are not always paid on time, occasionally not at all. Watch more about migrant workers' living conditions in dormitories »
Victims of occupational disease, lacking of insurance
As little as a fifth of migrant workers in southern China's Guangdong province, according to one Hong Kong non-governmental organization, have medical insurance. China's household registration or hukou system links social benefits to the place where one is registered, and most migrants are still registered in their rural hometowns, hundreds of miles away from where they work. About 90 percent of the victims of occupational disease in China are migrants.
These migrants' schedules are dictated by the fluctuations of demand from their foreign customers: winter is peak season for lawn furniture factories, for example. But most of the factories in southern China are busiest in summer, as they fill orders for the Christmas season.
Many of these plants close for the first months of the year and take the Chinese New Year holiday off, triggering an exodus of migrants as those who can afford the train and bus tickets travel home to see their families. Watch a migrant worker's 1,000-mile journey home »
Much has changed since Chinese farmers began arriving in the cities two decades ago. Some of today's migrant workers are "second generation" -- the sons and daughters of the first generation of migrant workers. Most were born after China introduced a family planning policy in 1979, so they come from smaller families. Second generation migrants tend to be more demanding employees: they are pickier about where they work, preferring factories with better facilities and wages.
Their preferences, along with a rapid growth in factories in the Yangtze River Delta around Shanghai and a rise in rural incomes, have contributed to labor shortages in Guangdong province in the last several years. In response, the government is raising the minimum wage and strengthening labor laws. Forced to compete for workers for the first time in more than a decade, factory managers are building basketball courts and libraries, installing air conditioners and improving their cafeteria menus.
Beijing, too, is realizing the importance of migrant workers as a political constituency. The state-controlled labor union, the All-China Federation of Trade Unions, is targeting migrants in a recruitment drive. The government is expanding insurance coverage for migrant workers.
State media cover their hardships regularly. "Migrant Workers: We Need Them Just Like They Need Us," read one headline in the China Daily last March. As the recent appearance of premier Wen Jiabao at the packed Guangzhou train station illustrated, migrants are crucial to keeping China's economic development on track.
Nation top draw for FDI in 2007
February 5th, 2008China received $74.7 billion in foreign direct investment in non-financial sectors last year, ahead of all developing countries for the 15th successive year.
The figure reflects a year-on-year increase of 13.59 percent, the Ministry of Commerce said yesterday.
Total foreign direct investment, including capital flows to the financial sector, hit $82.7 billion in 2007, up 13.8 percent from a year earlier.
"The growth is higher than my expectation," said Wang Zhile, director of the Multinational Enterprise Research Center affiliated to the Ministry of Commerce. "It shows China's role as a crucial link for multinationals' global manufacturing, purchases and research."
There could be some adverse influences on foreign investment in China this year.
Income tax rates for domestic and foreign companies have been unified at 25 percent from the beginning of 2008. Before this, domestic companies paid a 33 percent income tax while foreign companies, which benefited from tax waivers and incentives, would pay an average of 15 percent.
But foreign enterprises registered before the date of implementation will benefit from the favorable tax rates for another five years.
Foreign investors also have to pay more for labor and material costs, such as oil, plastics and steel, as well as face tighter policies on polluting and resource-intensive industries.
But experts believe China will continue to be a magnet for FDI as Beijing's policies on foreign investment and opening up will not falter.
FDI in non-financial sectors is expected to increase four to six percent year-on-year in 2008 to hit $69 to $72 billion, according to a report released by the center of forecasting science under the Chinese Academy of Sciences.
The report said FDI in the service sectors, including banking, insurance and retail, is expected to accelerate this year as China opens up these sectors to foreign investors further.
The ministry last year approved 37,888 foreign-invested enterprises in China, including in financial sectors, down 8.69 percent from a year ago.
Although the ministry did not give a breakdown of the countries from where the FDI originated, FDI from both the US and the 15 original members of the EU dropped in the first 11 months of last year.
Multinationals in China face sharp rise in salary demands
February 1st, 2008SHANGHAI -- Multinationals in China face more serious challenges than anywhere else in Asia, paying more to attract talent but facing the region's worst turnover levels, a survey said Thursday.
Across all sectors of China's roaring economy, 32 percent of employers said job seekers expect salary increases of at least 20 percent over their previous position, a report by human resources firm Hudson said.
Yet despite higher salaries, Chinese employers have a harder time than anyone else in Asia holding onto people, with 13 percent of firms reporting turnover rates of more than 20 percent of staffing levels.
"Employers are having to give both the highest salary increases and the largest bonuses in the markets surveyed in Asia," said Angie Eagan, general manager for Hudson.
Hudson surveyed the expectations of 737 executives in China for the first quarter of the year.
In regards to higher pay it concluded: "This strategy does not seem to be working, as they are also facing the highest staff turnover rates."
Media, public relations and advertising were especially vulnerable to losing employees, with 56 percent reporting a turnover rate of more than 10 percent, and 27 percent of companies averaging a turnover rate of more than 20 percent.
Limited career progression was also a major issue, mentioned by 22 percent of respondents, also more than any other market in Asia, Hudson said.
"With the current buoyant market, employees who feel that they are not progressing in their career fast enough know that they can obtain other job offers fairly easily," the report said.
Employers also expect to pay much higher year-end bonuses this year. Across all industries 66 percent of respondents say they plan to pay bonuses of more than 10 percent, the highest figure for any market surveyed in Asia.
Moreover, nearly 24 percent propose paying bonuses of over 20 percent.
Adding to the bottom lines were strong expectations for expanded staff.
Beijing 'recruiting households' for Olympics
February 1st, 2008The city of Beijing is 'recruiting' households to provide rooms for visitors for the 2008 Olympic Games in China, reports claim.
Local tourism authorities are looking for about 1,000 welcoming homes that can boost the level of accommodation available for the event, which is expected to bring a massive influx of visitors into the Asian country.
More than 500,000 overseas visitors are expected during the Games, with the largest daily inflow expected to be around the 300,000 mark, the Xinhua news agency reports.
Beijing currently has just over 800 star-ranked hotels offering 220,000 beds, while other accommodation providers have some 640,000 beds, but Xiong Yumei of the Beijing Tourist Bureau said that this may not be enough.
'The guest room supply may still fall short of demand, especially for hotels close to the sports venues,' she said.
The homestay concept, which is popular in many western countries, is relatively new to China and its use indicates the anticipated level of interest in this year's Olympic Games.
German businesses upbeat in China despite barriers
January 31st, 2008The German business community is optimistic about operations in China, despite the obstacles, according to a recent survey.
The survey was conducted by German Industry and Commerce (GIC) China and Euro Asia Consulting Part, which focuses on China and other Asian growth markets.
It questioned 273 businesses, including wholly owned German companies, Sino-German joint ventures and German firms with representative offices in China.
Topics included the characteristics of German operations, investment motives, operational models, market potential and barriers.
About 200 new German-backed operations are set up in China every year. The survey found most German companies are optimistic about the Chinese economy.
The vast majority, or 80 percent, of respondents said they had achieved or exceeded targets. Production, trade and service firms tend to break even within an average of four years, according to the survey.
There's few complaints about sales momentum in China, with 86 percent of the German companies surveyed saying they were satisfied or very satisfied with sales. Many said their businesses were focused locally rather than export-oriented.
Low operating costs and sourcing are still favorable to foreign-backed firms, according to the survey, despite price rises in some areas.
The manufacturing industry still dominates German operations based in China, but trade and service are developing very quickly.
German small- and medium-sized enterprises (SMEs) are increasingly seeing China as a good option, the survey said.
Of the German operations with more than 10 years of market presence in China, 12 percent are backed by SME parent companies. But 57 percent of German firms in China for four years or less are backed by SMEs. Most German SMEs follow their key customers to China, the survey said.
The expansion of the tertiary industry and the boom of SMEs is expected to add diversity and vitality to the market.
German firms prefer to set up wholly owned operations in China rather than joint ventures because of their strategic advantages - such as direct control over Chinese subsidiaries, the survey said.
Of the wholly owned German companies in the survey, 86 percent said they wouldn't change their approach to the Chinese market. But only 24 percent of the joint ventures said they would repeat their business strategy, while 44 percent would maybe choose a joint venture again.
Representative offices are no longer as useful to German firms operating in China, with only 27 percent of respondents wanting to open them, due to their limited functions. In 2002, that figure was 50 percent.
"As China has eliminated market entry barriers and upgraded its economic structure, the German business community has become an integrated and indispensable part of the Chinese economy," said Richard Hausmann, chairman of the German Chamber of Commerce in China.
He said GIC applauds efforts to liberalize legal restrictions to allow foreign companies more freedom to choose the most suitable operating model.
Recruiting and retaining qualified employees is also a difficulty for German firms in China, with 27 percent of respondents saying it was a major obstacle and 47 percent considering it a problem.
Non-tariff trade barriers have improved, the survey said. But 41 percent of respondents said they still have problems in this area, especially in terms of time and capital needed for licenses in China.
"German operations in general are cautiously optimistic for all areas of existing barriers to doing business in China," said Hausmann.
Most survey respondents are positive about market potential in China, and nearly all plan to expand business activities here.
The survey also acknowledged the contribution of German companies to China's economic and technological progress since the late 1970s.
The report urged policymakers to improve the investment environment, reform the legal system and strengthen IPR protection. It also called for better education and vocational training.
Employers in China face worst staffing turnover level
January 25th, 2008China's employers have dual problems on the hiring front as they face the biggest salary increases in Asia needed to attract talent and the region's highest turnover, according to a survey.
The findings appeared in the Friday edition of the China Youth Daily.
Nearly one-third, or 32 percent, of the employers surveyed planned to raise salaries by at least 20 percent to attract badly-need talent, said the survey by human resources company Hudson.
The survey covered employers' first-quarter plans and expectations.
Year-end bonuses are expected to rise significantly, with 66 percent of the respondents planning to increase year-end bonuses at least 10 percent and almost one-fourth planning raises of more than 20 percent.
But despite significant increases in compensation, staffing turnover has been heavy.
Across all industries, 47 percent of companies surveyed had turnover rates of more than 10 percent in the past 12 months, and 13 percent said that the rate was more than 20 percent.
China's staff turnover rate was highest in Asia, more than twice that of Japan, the Youth Daily report said. Unsatisfactory compensation and limited career progression were blamed for China's high turnover level.
Among respondents, 22 percent agreed that limited career progression was a major cause of high turnover, while 18 percent believed it resulted from dissatisfaction over money.
The report predicted a persistent increase in salary levels in China because of limited talent resources.
IBM on a hiring spree in India, China
January 17th, 2008Washington: International Business Machines Corp is increasing its employee count, with most of the growth coming in India and China, as well as other emerging markets, The Wall Street Journal reported Monday.
The IBM has been hiring steadily in emerging markets, and its total work force in the BRIC countries - Brazil, Russia, India and China - will approach 100,000 people by the end of the year, up from about 85,000 at the end of 2006, the report quoted a source familiar with its hiring as saying.
At the end of 2006, IBM employed 355,000 people around the world. A forecast of the worldwide employment total for the end of 2007 wasn't available.
This year, the IBM's employment in India is likely to reach 73,000 people, up from 52,000 last year. Employment in China will top 13,000, up about 30 per cent from 10,000 last year, the source said.
IBM spokesman Edward Barbini confirmed the accuracy of the numbers. He said some of the emerging markets' employment reflects outsourcing of services, software development and manufacturing work that used to be done in Europe and the US, according to the report.
Headhunter sets sights on growth
December 2nd, 2007SHANGHAI: Randstad Group, a human resource solution provider based in the Netherlands, is seeking to expand its foothold in China through its new headhunting channel.
The company, which acquired a controlling stake in Shanghai Talent Co last May, also has a Beijing office with more than 20 consultants tackling the North China market.
"We are seriously considering opening an office in Hong Kong and expanding into second-tier cities in the foreseeable future," Randstad's Managing Director Paul van de Kerkhof said.
Unlike conventional recruitment companies and headhunters, which usually find candidates through job fairs or telephone interviews on a random basis, Randstad offers a sector-based recruiting mechanism to meet clients' specific needs. The company assigns two of its consultants to form a unit focusing on a specific market segment - engineering, automotive, finance, sales and marketing - and to work for clients with vacancies in these sectors. Each unit would manage an active database for both clients and candidates.
"When a client comes to us with a vacancy, we can screen in our databases to find out whether there are such candidates matching their requirements," van de Kerkhof said. "Such upfront databases and working units will greatly shorten the time cycle of recruiting, which usually costs three to four weeks."
Van de Kerkhof, an HR specialist with more than 20 years' experience, explained that jobseekers in China often consider higher pay their first priority, and some ignore factors such as career development and employer competency.
To address this dilemma, Randstad uses its own unique criteria, namely "5C" - CV, character, company click, competence and career plan - in selecting potential candidates from its database.
Randstad holds that soft skills, such as character and competencies, are as important as hard skills. "We often explain to our clients that they should be open to candidates with different backgrounds. If the criteria are only based on hard skills, the potential development will be limited," van de Kerkhof said.
Headquartered in the Netherlands, the Randstad Group entered the Chinese market three years ago, becoming the only foreign recruitment firm to hold both staffing and recruitment licenses in Shanghai.
Upon buying into Shanghai Talent Co last May, the company obtained Shanghai Temporary Staffing Services, which focuses on HR outsourcing and payroll systems within and outside of Shanghai.
Van de Kerkhof agreed that working with local companies is of vital importance for foreign HR firms in China.
"Teaming up with Shanghai Talent first of all provided us with a broad knowledge of the local market," he added.
Source:China Daily
Kaplan Establishes Financial Training Center In Chengdu
November 30th, 2007As part of an agreement with Southwest University of Finance and Economics, Kaplan, Inc., together with its affiliate Kaplan ACE, will establish a financial training center that will provide internationally-recognized financial qualifications and on-the-job training to students in western China.
Kaplan is one of the world's leading providers of financial services education, with centers in the U.K., U.S., Australia, Hong Kong, and Singapore. Located on the campus of Southwest University of Finance and Economics, the new center will offer training programs for qualifications such as the Association of Chartered Certified Accountants, Chartered Financial Analyst, Certified Financial Planner, and Financial Risk Manager. It will also host forums that will cover current economic trends.
Professor Xiao Ma, vice principal of SWUFE said, "In order to achieve steady and rapid economic development, it is critical that China's accounting and financial professionals meet international standards. This training center will help ensure that China's most talented accounting and financial professionals are qualified in the global marketplace; it will also promote financial development in western China."
In 2006, Kaplan provided approximately 600,000 licensing and continuing education courses to corporate clients and professionals around the world. Mark Coggins, president of Kaplan Asia Pacific, said, "We're excited to be a part of Chengdu's emergence as an important financial center in western China."
Kaplan is a leading provider of educational services to individuals, schools and businesses, serving over one million students annually with operations in more than 30 countries around the world. Its international programs include higher education, test preparation, language instruction and professional training.
Foreign food firms keen to bite into huge market
November 15th, 2007FOREIGN food companies are making a beeline to China hoping to tap the huge potential in the imported food industry as they cash in on people's rising disposable income and easing of import tariffs.
A record 800 companies from 35 countries and regions yesterday promoted their food specialities and beverages at FHC China 2007 in Shanghai for the first time.
One of the largest international food, wine and hospitality equipment and supply exhibitions, it opened yesterday and will end tomorrow at Shanghai New International Expo Center in Pudong New Area.
A wide variety of imported products will be displayed, from fresh and preserved foods, beverages, wine and spirits, bakery ingredients to confectionery, suggesting foreign companies are really eager to tap the emerging market.
Seven Austrian companies are showcasing food specialities like Julius Meinl Coffee, Darbo jams and Pfaffl wines at their pavilions.
"China's entry to the World Trade Organization has lowered tariffs and brought economic liberalization that yielded gains for US food exports," said Wayne Batwin, an official from the Agricultural Trade Office at the US Consulate Shanghai.
"Continued economic growth boosted the demand for high-quality foods and improvements in retail, distribution and transport system also increased competitiveness of imported food and beverages in the local market," Batwin added.
Metro Cash & Carry China is one foreign food and beverage company which is benefiting from Chinese people's interest in imported food.
Revenue of imported food now makes up 10 percent of Metro China's total food sales and the retailer plans to set up an imported food area in all its 34 stores nationwide to meet consumers' demand, Philippe Bacac, general manager of Metro Cash & Carry China East China Business unit, said.
Besides wine, snack foods such as ice creams and frozen foods are also becoming popular.
"The competition in the snack foods sector is quite demanding amid people's growing disposable income and willingness to try new things," said Zhong Wei, marketing manager of Gourmedis (China) Shanghai Office. He also added that sales were also boosted as consumers trusted imported food meets international safety standard.
Gourmedis, which added Alberto Pizza, Cellini Coffee and Maina cakes into its existing 1,000 items under 15 brands this year, has generated a revenue of 30 million yuan (US$4.1 million) since late last year.
"We are confident we will double our turnover next year," Zhong said.
Investing In China: Setting Up A Representative Office
October 20th, 2007Foreign investment in China started with a trickle in the early 1980s and has increased to the extent that China is now siphoning off a significant percentage of the world’s available foreign investment funding. With China’s accession to the WTO and the continuing vitality of its economy, this trend seems likely to continue for the foreseeable future.
Nevertheless, China remains an unfamiliar and challenging place to do business for many small and medium sized enterprises (SMEs). A popular way for an SME to get its feet wet in the China market without risking a lot of capital is through the establishment of a Representative Office (RO). The author touched on this topic briefly in the article “Investing in China: Establishing a Business Presence”. This article aims to delve into this topic in more detail.
Before going into the “how” of establishing an RO in China, perhaps it would be best to ask “why?”. Most companies that establish ROs in China do so because they are much easier to establish than direct investment vehicles such as joint ventures and wholly foreign owned enterprises, and generally require only about a tenth of the capital outlay. ROs are also permitted to operate in the shrinking list of industry sectors that are forbidden to direct investment vehicles.
The downside is that there are some very limiting restrictions on the type of activities that an RO may engage in. For example, an RO may not:
1. Conduct direct business activities: An RO’s activities must be confined to product promotion, market research, liaison, and the like, and it may neither charge fees for its services nor engage in profitable activities such as direct sales or manufacturing (although they are subject to taxation under certain circumstances).
2. Directly invoice clients or sign contracts: These activities must be handled by the parent company.
3. Directly hire employees: It must utilize an authorized human resources agency that will refer suitable candidates to the RO in exchange for a certain percentage of employee salaries. Some ROs make an end run around this system by directly recruiting and negotiating with employment candidates and sending their names to the authorized human resources agency so that it can then ‘refer’ these candidates back to the RO. While this practice doesn’t seem to have caused many problems with the Chinese authorities so far, the formalities of referral and salary deduction must be complied with.
In light of these restrictions, why bother establishing an RO at all?
1. A company might want to conduct market research in order to decide whether or not to make a future investment in China.
2. A company might wish to establish an RO in a business sector in which foreign investment is currently forbidden in anticipation of future liberalization of Chinese foreign investment law in line with its WTO commitments. In the meantime it can establish a presence, make local connections, and learn about the market.
3. A company might already be doing a modest amount of business with China from its home country but lack the market penetration or resources to justify a direct investment. Once the company attains greater market share it can always upgrade to a joint venture or wholly foreign owned enterprise.
4. Sectors of certain industries such as insurance and finance require foreign investors to operate an RO for at least two years before making a direct investment.
5. A company might want to use an RO to hire local employees to help them find Chinese suppliers.
6. A company might establish an RO with the aim of exceeding its legal restrictions, and thereby establish the functional equivalent of a joint venture or wholly foreign owned enterprise while avoiding much of the expense and inconvenience. This approach is not recommended, since it is likely to lead to trouble with the authorities.
By: David Carnes
China to invest forex across global markets
October 17th, 2007CHINA Investment Corp Ltd, the state investment company set up to gain better returns on China's huge foreign exchange reserves, will invest in all markets worldwide except those that make settlement in the yuan, Chairman Lou Jiwei said yesterday.
Lou, a delegate to the ongoing 17th National Congress of the Communist Party of China in Beijing, said the company will operate in "a completely commercial way."
"Some media reports have said China has political considerations behind the company, but I think that is an unnecessary worry," he said.
The company, inaugurated late last month, has a board of directors and a supervisory committee that ensures its commercial operation, Lou said.
It is now working on corporate regulations and building its team.
The company will communicate with international financial institutions, multinational organizations and supervisory institutions in foreign countries, he said.
The company's US$200 billion in registered capital comes from China's foreign-exchange reserves. It is being assembled through the issuance of 1.55 trillion yuan (US$206 billion) in special treasury bonds by the Ministry of Finance.
China's foreign exchange reserves reached US$1.43 trillion at the end of last month, up 45.1 percent from the same period last year, according to the People's Bank of China.
In May, the new company, still in its preparation phase, made its first investment in US$3 million worth of nonvoting shares in Blackstone Group, a private equity firm based in the United States.
Also yesterday, Minister of Finance Xie Xuren said China will continue its "prudent" fiscal policy for the foreseeable future and keep the size of deficits and treasury bonds at "sound" levels.
Xie, who is also a delegate to the Party Congress, said the government will coordinate fiscal and monetary policies in a drive to strengthen and improve macroeconomic management.
Using a "scientific outlook on development," Xie said the Ministry of Finance will implement policy incentives to encourage innovative companies and increase state investment in research and development in key national labs.
The financial and taxation branches of the government must build institutions that support a resources-efficient and environmentally friendly economy, Xie said.
ING eyes tieup with China Post
October 8th, 2007ING Group eyes to work with China Post and is also seeking more merger and acquisition opportunities in China, its Asia Pacific head said over the weekend.
Hans van der Noordaa, chairman of ING's insurance & investment management Asia/Pacific, said on Saturday in Shanghai, that he has a "dream" to team up with China Post to leverage the postal body's vast distribution network in China.
Senior officials from China Post have already visited ING's headquarters in Amsterdam, Noordaa said, adding that it is still too early to talk of a possible future alliance. But he has a big ambition for the tieup to boost the world's 13th biggest financial player's growth in the fastest growing major economy.
He played down challenges that some of China Post's clients can't afford ING's products and said simple and low-price products can be developed instead. He also said that ING has expertise in tying up with a postal agency as it has already done so with the postal body in Japan.
The second biggest life insurer in Asia Pacific is also open to more M&A activities in China's assets management sector, Noordaa said.
"We have a big appetite to do more in China," Noordaa emphasized.
ING now has two insurance joint ventures in China - ING Capital Life and ING Pacific Life. ING holds 50 percent each in the two joint ventures and is ranked the No. 8 foreign insurer in China's insurance market among overseas players.
Noordaa said ING has no plan to merge its two existing insurer joint ventures.
The Dutch financial player also owns 16.1 percent of Bank of Beijing.
Methane JVs lure foreigners
September 28th, 2007CHINA has issued new rules to allow more companies to cooperate with foreign partners to explore for methane trapped in coal seams to boost energy output.
Companies designated by the State Council, China's Cabinet, will be allowed to set up the ventures with foreign businesses, according to a revised regulation posted on the Chinese government's Website yesterday. China United Coalbed Methane Corp used to be the only company allowed to enter such ventures based on a 2001 regulation.
The central government aims to boost the share of its energy produced from natural gas to 5.3 percent by 2010 from about three percent now to cut pollution and reduce reliance on coal and oil, Bloomberg News reported. China has 10 trillion cubic meters of extractable coal-bed methane reserves, according to the National Development and Reform Commission, the nation's top economic planner.
Asia American Gas Inc and China United Coalbed Methane won government approval to produce 500 million cubic meters of the fuel annually in northern China's Shanxi Province.
Microsoft's China boss quits to head NBA in China
September 19th, 2007BEIJING (Reuters) - The chief executive of Microsoft Corp's Greater China business, Chen Yongzheng, has resigned, the world's largest software maker said on Wednesday.
In a statement on its China Web site, Microsoft said its global vice president, Zhang Yaqin, would take over as acting Greater China chief while it sought a permanent replacement.
The New York Times reported on its Web site that the National Basketball Association (NBA) had hired Chen to head a Chinese subsidiary that it is setting up, a move highlighting the growing importance of China to the sport and to the NBA.
Intel Begins Work on $2.5 Billion Chip Plant in China
September 10th, 2007Sept. 8 (Bloomberg) -- Intel Corp., the world's largest semiconductor maker, began building its first computer-chip manufacturing plant in China, a $2.5 billion investment.
Intel Chairman Craig Barrett is hosting a ceremony today in Dalian, in northeastern China, on the site of what will become the company's first chip factory in Asia. Intel already has plants for testing and assembling products in other parts of China, the world's biggest market for chips.
Intel, which announced the project in March, aims to begin production at the plant by 2010. The factory will bring the Santa Clara, California-based company's total investment in China to almost $4 billion, Barrett said. The plant will give Intel better access to computer factories in China, as the company seeks to regain sales lost to Advanced Micro Devices Inc.
Intel plans to employ 1,200 people at the Dalian plant in China, its first factory in a new location in 15 years. It will begin hiring this year, with most of the recruitment taking place in the second half of 2008 through China's universities, said Vice President Kirby Jefferson, who heads the plant that is also known as Fab 68.
The plant will ``be an integral part of our global manufacturing network, while bringing us closer to our customers and partners in China,'' Barrett said.
The Dalian plant will make chipsets, the supporting semiconductors that link Intel's main product, microprocessors, to the rest of the computer.
Intel also plans to donate 8-inch chip-manufacturing equipment to the Dalian municipal government and the Dalian University of Technology to help establish a 348 million yuan ($46 million) semiconductor technology institute, Barrett said.
It joins STMicroelectronics NV, Taiwan Semiconductor Manufacturing Co. and South Korea's Hynix Semiconductor Inc. in building factories in China.
Investing China: Risks, opportunities, incentives
August 31st, 2007What are the risks attached to investing from abroad into China? What are the best ways to minimise these risks?
Risks are high in doing business in China because anything can happen, including political revolution, financial crisis, labour uproar, etc. However, the general return is high too - China is one of the fastest-growing markets with an annual growth rate approaching 10% in the past 10 consecutive quarters.
The key to success in China is to fully realise the risks and have a flexible action plan to minimise them. The following are, in my opinion, the most critical risks that may have a direct impact on foreign investment in China.
Undeveloped credit infrastructure
A common complaint of foreign companies doing business in China, or with Chinese companies, is about the difficulty of collecting full payment on time. China does not have a credit infrastructure that provides systematic and reliable resources to the credit history of companies and individuals.
Foreign companies should do good due diligence to minimise exposure to the risk of default on payment. It is worth investing time and money on extensive research and retaining a reliable third-party expert to find reputable partners and confirm the creditworthiness of partners or primary customers.
In addition, companies should pay close attention to the terms of payments and performance standards in contracts and verify the authority of Chinese people involved in negotiating and concluding these contracts. Make sure that contracts do not include provisions that violate Chinese law, even though the Chinese parties may promise not to enforce laws or regulations, and do not accept provisions that are beyond your control, such as visas for visits to your company in Europe or the US.
Poor legal environment
The existing Chinese legal system does not provide adequate and effective protection. The application of laws is inconsistent in different provinces and cities, and court verdicts are difficult to enforce. Cost of litigation is high, and penalties are low. Contracts are not fully respected and difficult to enforce. Bear in mind that the conclusion of a contract is just the beginning of real negotiation.
Verify the authority of the people you negotiate with and the ownership, permits, permissions, license and qualifications they claim that they have through independent sources. Find your own legal counsel and draft contracts in clear terms.
Do not rely on oral promises of business partners and government officials on local subsidies, incentives or special considerations that are not based on solid legal ground. Even if you have them in writing, you should treat these incentives as ways to augment profit (instead of counting on them to create profit) because they may be taken away at any time.
Lack of electric power supply
In recent years, more than two-thirds of China's provinces and municipalities have experienced chronic power shortages, with the most serious in the high-density industrial areas along the east coast.
In response, the Chinese government has approved several dozen new power plant projects, which are expected to add fresh capacity of about 35 million kilowatts, to come online in 2006 and 2007. However, there are concerns about the viability and sufficiency of such projects, because most of the approved new facilities are located in central China and it is in doubt whether the poor regional grid infrastructure can adequately transfer the added power to high-demand areas long the east coast.
Furthermore, it is expected that China's energy sector will have to be reformed from a controlled to a market pricing system, which calls for price deregulation. This means that prices of electric power may eventually be adjusted to meet the market demand.
Many foreign companies have started to shift manufacturing investment to smaller cities in central and west China, where power capacity for industrial use is more stable and adequate, and labour and land cost are lower than in large cities along the east coast. In addition, many companies have purchased diesel generators as a back-up to maintain production during peak power times.
As a result, foreign companies may want to include the expense of diesel generators as a fixed cost of investing in China and raise their estimate of costs to account for power supply uncertainties in east and south China.
Diverse and rapidly changing market
China is a very diverse market. With 1.3 billion in population, the consumer culture, cuisine and local languages are dramatically different in provinces from north to south and from east to west. The overall market has been growing rapidly but regional economy has developed at very different paces.
In addition, China has a long history of strong regional protectionism where provincial and municipal governments impose barriers to the inward trade of goods and services from other regions to protect local businesses and tax revenue. It is challenging for foreign companies to penetrate regional markets because products that are well received in one city are not necessarily welcome in other areas in China.
Foreign companies need to be very sensitive to, and make marketing strategies taking into consideration, the regional differences and barriers. It is a mistake to assume that products popular in large cities or the east coast region will eventually find their ways into second-tier cities and the mid-west region.
Before jumping into these markets or launching a new product, it is critical that foreign companies do substantial and in-depth market research and keep close track of regional developments.
Difference in culture and management styles
The cultural differences between China and the West are striking. For example, in China telling a guest that he or she has gained weight recently is a compliment, and the honoured guests at a dinner party can expect to be given the head and tail of the fish to eat. To share and ask about personal matters is an expression by management of caring and respect for employees in Chinese companies, where the same questions may be seen as an invasion of privacy in the West.
Foreign companies doing business in China need to become familiar with basic Chinese culture and critical differences in business etiquette. Hiring managers who grew up in China and were trained overseas may help to smooth the potential conflicts in cultural and management styles.
What particular guidance can be given to smaller-sized to mid-market businesses looking to invest in China?
Find the right partner and make investments step by step
Small firms usually need a local Chinese business partner to make sales, deliver products and develop local markets. Companies may start by working with potential partners on low-cost products or under the consignment manufacturing arrangement to test their quality, capacity, efficiency and reliability before making substantial investment on forming joint ventures with a local partner or investing in factories and other capital expenditures.
Another approach is to set up liaison offices and hire a few Chinese employees to obtain first-hand market information and build customer relationships. Alternatively, foreign companies may form joint ventures with Chinese partners with small amounts of investment and gradually increase the investment and eventually buy out these Chinese partners after they obtain a more solid market foothold.
Hire good local managers and advisors
Smaller firms tend to be cost sensitive. However, firms that are willing to pay for the best managers and advisors usually get significant return in the long run.
Advisors who have substantial experience in advising foreign companies doing business in China and in-depth familiarity with Western management and business models may help foreign companies identify the most cost-efficient market entry strategy and sustainable operating model for their Chinese investment. Smaller firms should invest in hiring and training the best local managers, instead of sending expatriates to work in China. Usually, periodic overseas training opportunities are very attractive to offer and an effective way of retaining and rewarding the best Chinese employees.
Be realistic and patient
Do not rely on the promises of subsidies and incentives of local government officials and partners to project your profitability. Use independent sources to verify your partners' claims of ownership, permits, permissions, licenses, and professional qualifications. Do a thorough risk analysis and have solutions for the worst situations in every phase of developments. Do not compromise on risk assessment standards just because the trend is to go to China. Be patient in waiting for acceptable terms and return on investment.
In which business sectors are there the most/least risks, and why? In which sectors are the Chinese most /least receptive to investment?
It is difficult to a draw a general line between the highest and lowest risk industries in China because foreign investments are prohibited or restricted in some industries.
The State Council issued the Guidelines for Industries with Foreign Investment as a primary basis for foreign companies to find out whether foreign investment in a particular industry is encouraged, permitted, restricted or prohibited. The next step is to check the local government's industry policy in a particular province or city where you plan to make the investment.
In general, consumer and consumption-related companies benefit the most from China's 1.3 billion population and fast growth. We have seen companies that reported double or triple digit growth in annual revenue in their operations that manufacture and sell furniture, construction and interior decoration materials, cleaning and sanitising products, and auto parts in China.
What incentives are offered?
China offers tremendous incentives. The basic tax incentive is the so-called 'five-year tax holiday', including a two-year income tax exemption followed by a three-year 50% income tax rate reduction starting from the first profit-making year to manufacturing-oriented foreign investment enterprises with a minimum 10-year business operation.
In addition, the regular corporate income tax rate is reduced from 33% to 24%, 15% or even 10% in various economic, technology or special development zones. There are incentives offered based on industries and transactions, incentives on business tax, value added tax, customs duty and other transactions tax. Local governments usually offer fiscal subsidies and tax refunds. The key is to identify what is on the table and verify incentives with independent advisors.
Emerson hot on Nanjing
August 28th, 2007US-BASED Emerson Process Management Co Ltd plans to invest US$30 million to build a production facility in Nanjing.
The Asia Flow Technologies Center will be the company's sole production base in Asia and the fourth of its kind worldwide. The others are in the United States, Canada and Mexico.
China has become Emerson's second-largest market after the US, and building a plant here is part of the company's strategy to capitalize on the growing market in the Asia-Pacific region, said Mike Train, president of Emerson Process Management Asia-Pacific.
The facility, to be located in the Nanjing Jiangning Science Park, will cover about 12,500 square meters. It is expected to be completed in 2008.
The plant will produce process control equipment, including flow meters, density meters and ultrasonic devices, officials said.
Emerson first licensed technology to China in 1979 and opened its first factory in the country in 1992.
China: Big Pharma's new New Jersey
August 17th, 2007The big drugmakers are pouring money into the People's Republic, but product recalls cast a shadow.
NEW YORK (CNNMoney.com) -- U.S. drugmakers are investing heavily in China, but experts say the People's Republic needs to cast off its image as a maker of toxic recalls before it can rival New Jersey - home of half of the world's top 10 pharmaceutical companies - as a big hub for Big Pharma.
China's strong domestic market for pharmaceuticals has fueled interest from Western investors, who find the allure of cheap labor irresistible. The Chinese drug market is red hot, with sales jumping 12.3 percent in 2006 to $13.4 billion, according to IMS Health. Sales are projected to more than double by 2010.
Western drugmakers and biotechs - Merck (Charts, Fortune 500), Wyeth (Charts, Fortune 500), Eli Lilly & Co., (Charts, Fortune 500) Schering-Plough (Charts, Fortune 500), Novartis (Charts), Sanofi-Aventis, Biomed and Genentech, to name a few - are ramping up investments in China, as well as in India and Singapore, according to a report from PricewaterhouseCoopers analyst Dan Bartholomew.
In addition, China, India and Singapore have their own home-grown industries, while South Korea, Thailand and the Philippines are rapidly increasing healthcare spending.
"The tide towards production in pan-Asia is something that's not going to stop," said Bartholomew. "It's just a question of the measures that are put in place to do it the right way."
Mattel recalls over 9M toys
But all is not well in the People's Republic. In recent months, "Made in China" has become synonymous with faulty products, including counterfeit toothpaste containing dangerous levels of a chemical found in antifreeze, car tires with a tendency to disintegrate, and toys coated with dangerous lead paint.
U.S. companies have announced the recall of millions of Chinese-made toys, the most recent being Tuesday's announcement of more than 9 million Mattel Inc. (Charts, Fortune 500) toys.
Also this summer, the "Made in China" stamp has been marred by two high-profile deaths: the suicide of Zhang Shuhong of Hong Kong, contract manufacturer for Mattel, and the execution of Zheng Xiaoyu, former chief of China's State Food and Drug Administration, for accepting bribes to approve drugs.
China's State Food and Drug Administration has vowed to invest more than $1 billion through 2010 to strengthen its food and drug safety program. But there's a question concerning whether this is enough.
"The Chinese FDA just doesn't have the infrastructure," said Les Funtleyder, drug analyst for Miller Tabak. "They don't have the hundreds of inspectors who go out [to check factories.] They don't have the training. Until they bring things up to speed, I'm not sure the [U.S.] FDA is going to just accept drugs made in China."
That hasn't stopped Pfizer, Baxter, Bayer and Roche from investing in Chinese manufacturing. Big Pharma is lured by a strong local market and the possibility of cheap manufacturing for eventual export.
FDA accuses Pfizer of false advertising
Dan Bartholomew of PricewaterhouseCoopers added that much of the recent outside interest in China, such as $100 million investments from Novartis and AstraZeneca, is for research and development because clinical trials are comparatively cheap to run in Asia.
This is despite the region's laissez-faire attitude to patents and intellectual property. Even in China, where "IP" (as the Americans call it) has long been considered a foreign concept, strides have been made to protect the patent-holders.
In 2006, a Beijing court ruled in favor of Pfizer in a patent dispute over Viagra, and this sent a strong positive message to U.S. drugmakers, said Bartholomew. The analyst claimed that R&D investments from Novartis, AstraZeneca and other Western drugmakers are a "huge statement" that their property will be protected.
The investments could be stepping stones to manufacturing, said Bartholomew, who projects that Chinese factories could be making drugs for the U.S. market within five years.
But analysts said this would only happen if aggressive measures are taken - by outside investors - to ensure sound product quality, and also to cut down on counterfeiting. Otherwise, legitimate manufacturers could have their brand-names misappropriated for use on dangerous and illegal copies, as occurred in the recent abuse of the Colgate brand by toothpaste counterfeiters.
But China-U.S.business relations can be notoriously complex, and quality control to meet the standards of U.S. regulators could take a bite out of the benefits of cheap labor.
"The bureaucracy in China is going to be less flexible and more serpentine [than U.S. regulators] and will take longer to get change and cooperation for change to really occur," said Robert Toomey, drug analyst for E.K. Riley Investments. "I think it comes down to economics. Is the need for cheaper labor offset by the need for more oversight of the process?"
The specter of a Vioxx-style recall hangs heavily over the prospect of Chinese-made exports to the U.S., analysts said, and it could spell big trouble for the industry.
"All it will take is one contaminated batch of drugs from China and your pharma company will have really big problems," said Funtleyder of Miller Tabak. "Given the skepticism around China, I'm not sure that a production facility in the continent to ship back here is worth doing."
All Eyes Are On Outsourcing Providers In China
August 16th, 2007Francisco Partners' investment in DarwinSuzsoft and Sierra Atlantic's acquisition of ArrAy highlight increasing focus on Chinese outsourcing capabilities.
Mark Botticelli has learned valuable lessons about China. For one, employees expect cash bonuses before important holidays, like the Chinese New Year. And horizontal organizations don't work.
"Hierarchy is important," says Botticelli, VP of engineering in the mobile solutions division at Trimble, which makes software for devices used by delivery people and other mobile workers. "The project manager needs to go home and tell his wife he has 14 people working for him."
Trimble eased its way through these cultural challenges three years ago by hiring Chinese outsourcer Suzsoft to provide engineering services. This is a path more U.S. companies are likely to follow, making companies like Suzsoft--now DarwinSuzsoft since being acquired by Darwin Partners last year--increasingly popular.
As a measure of that popularity, private equity firm Francisco Partners last week said it would invest $48 million and take a majority stake in DarwinSuzsoft. The investment will be used for acquisitions and organic growth of the U.S. company, which employees 800 Chinese engineers. Also last week, Sierra Atlantic, a U.S. IT services firm with 1,100 developers in Hyderabad, India, said it's acquiring ArrAy, a U.S. company with 200 engineers in Guangzhou and Shanghai.
It's not just the small services providers gearing up: IBM, Tata Consultancy Services, and others have plans to hire thousands more engineers in China. Oracle late last month set up a second Chinese development center to support software partners and integrators, and introduced a computer science program for vocational schools in a deal with the Chinese government.
Companies doing offshore development in China say they're paying salaries that are 25% to 40% lower than what they'd pay in India, without the high staff turnover rates in that country. Chet Gapinski,VP of engineering at Crossbeam Systems, a maker of security systems, steered his company to China last year after facing some of those problems in India. Crossbeam hired ArrAy for a "hybrid" approach that keeps project managers in the United States and engineers in China, with both sides making regular visits to the other country.
Crossbeam initially had difficulty getting U.S. visitors' visas for Chinese engineers, a problem ArrAy smoothed over, Gapinski says. It also found that Chinese engineers can't work on some security technologies deemed sensitive by the U.S. government. In China, experienced service providers also can prevent problems dealing with government, which is closely involved in business.
Trimble, which employs 30 of DarwinSuzsoft's Chinese engineers, has expanded its relationship beyond developing custom apps for a Hong Kong customer to include maintenance for U.S. and Chinese customers and development work on Trimble products.
Botticelli initially was concerned about lax intellectual property protection in China but found Suzsoft's security measures more than adequate. English skills aren't nearly as good as in India, so Trimble requires its Chinese engineers to attend weekly English classes. One sign of success in China: Trimble plans to ramp up its team there to handle new products coming out next year.
Global tech players must rethink China strategy
August 16th, 2007Many multinational hi-tech firms in China are facing stagnation or even declining market share as Chinese competitors secure the emerging mid-range market for hi-tech goods.
McKinsey research shows that 30 to 75 percent of future growth in the global hi-tech industry will be in this mid-range segment, defined as products priced between 30 percent and 50 percent less than their premium counterparts.
Chinese hi-tech firms are quickly edging out global firms in capturing the emerging mid-range market. By defining innovation differently and looking for value throughout the business system, Chinese firms get more out of every R&D dollar spent, allowing them to launch goods cheaper and quicker than their global competitors.
Worryingly for global firms, enormous inefficiencies in their own R&D processes mean Chinese companies have a huge scope for productivity, cost and innovation gains. Many multinationals are aggressively hiring Chinese R&D managers and collaborating with global technical service partners to implement streamlined R&D processes.
Even more worryingly, as soon as Chinese manufacturers secure the global market for mid-range goods, they will gain the cost and scale advantages needed to move up the value chain into premium products. From there, it''''s just a matter of time before they capture high-end share from foreign firms in China and, eventually, in more developed markets.
For global manufacturers, achieving competitiveness in the mid-range segment will not be easy. Years of cumulative R&D experience have been directed at hi-tech innovation and superior quality, and as a result, products are often over-engineered for Chinese customers.
One European supplier of industrial components, for example, rigorously tests its highly engineered products to ensure a 5- to 10-year lifespan, but sells to Chinese manufacturers whose products only last three years.
Global tech players need to completely rethink their R&D approach and rediscover the lost art of low-cost R&D. They must ask what kind of products customers are demanding, and then redesign their R&D processes to meet these lower specifications and cost points.
Perhaps the only truly effective way they can do this is to bring their R&D capabilities to China, much as they have already done with manufacturing.
In doing so, global companies need to avoid the temptation to bring in too many expatriate engineers who implement traditional R&D processes that are unsuitable in China.
Chinese engineers already have the required technical know-how, so firms only need to bring in a few foreign experts to hone specific skills, such as the ability to translate consumer needs into technical specifications, instilling standardized R&D processes, maintaining end-to-end oversight, and designing a local production solution that best balances cost, quality and stability.
Rather than building their own localized R&D teams from scratch, firms could also acquire a local competitor and take over the company''s R&D operations and processes. Its products could then be subsumed under the global brand, or retained as a sub-brand to avoid diluting the premium brand''s image.
Some companies have already succeeded at localizing R&D to tap into the low-cost approaches of its Chinese counterparts. One global medical equipment maker, for instance, increased its market share from 18 to 45 percent by localizing its R&D processes to better meet the needs - and budgets - of potential customers in China.
Motorola and Nokia quickly identified what Chinese consumers wanted and could afford, and now develop mobile phones that span the entire price range. Together, they now capture over 50 percent of all mobile phone sales in China.
Other global manufacturers hoping to follow in their footsteps must go under a major mindset shift to make the necessary transition from "Made in China" to "Designed in China, for China".
Those companies who do not quickly take steps to produce the mid-range products currently in demand will be left behind in the world''s most important emerging market. From there, it will be much harder to defend global market share against the rising tide of Chinese hi-tech goods.
Ingo Beyer von Morgenstern is a Shanghai-based director at McKinsey & Company. Paul Gao is a partner at McKinsey''s Shanghai office
Source:China Daily
51job, Inc: Marketing Expenses and High Taxation Dent EPS Estimates
August 16th, 2007Ashish R. Thadhani (Gilford Securities) recently sent a note to clients on Chinese human resource recruitment company 51job, Inc. (JOBS). Excerpts follow:
• Investment Conclusion. Based on stepped-up S&M spending and the expiration of key tax benefits – tempered by print advertising and training/outsourcing revenue -- we are reducing our estimates: 2007 GAAP EPADS to $0.50 on net revenue of $103 million (23% YoY growth) from $0.60 on net revenue of $100 million; and 2008 GAAP EPADS to $0.68 on net revenue of $125 million (22% YoY growth) from $0.80 on net revenue of $121 million. We are introducing a 2009 GAAP EPADS estimate of $0.90 on net revenue of $152 million (21% YoY growth). We are also lowering our target from $28 to $21.50. In 12-months, this would correspond to a $465 million enterprise value and 25-30x forward GAAP EPADS – in line with 26% compound EPS growth in 2006-09E and a discount to the current valuation (32x). We are disheartened by the aggressive emphasis on marketing initiatives at the expense of long overdue margin/EPS discipline. This represents the third investor setback in as many years, undermines claims of market domination and also raises questions about management alignment (see April 2006 agreement on page 2). Still, we believe that 25% upside potential justifies a Buy.
• 2Q07 Results. GAAP EPADS of $0.14 vs. $0.12 a year ago on net revenue of $26.2 million (28% YoY growth) fell short of our $0.16 estimate on net revenue of $25.1 million. EPADS was held back by $0.02 due to a high tax-rate. 51job posted a positive variance in revenue ($1.1 million primarily in print advertising and training/outsourcing) – offset by operating costs ($0.6 million), forex ($0.2 million) and taxes ($0.7 million). Revenue from online recruitment services advanced 36% YoY to 34% of the total. Operating income rose 54% YoY to $5.7 million (21.6% margin) and surpassed our $5.2 million estimate (20.8% margin). Results benefited from a longer post- Chinese New Year peak recruiting period in 2Q07 vs. a year ago. Metrics showed improving growth in print advertising page-count (+37% YoY) but lower average revenue per page (-15% YoY in dollar terms attributed to city-mix); and normal growth in the number of employers using online services (+32% YoY) with steady revenue per employer (+3% YoY). Net cash climbed to $126.0 million (or $4.45 per ADS) from $119.0 million on March 31.
• Investment Thesis. 51job is enviably placed to capitalize on the rapidly evolving market for HR services in China – by applying a proven business model across its vast labor force (5x U.S.). Compared with traditional job search channels such as referrals and fairs, pioneers like 51job offer significant reach and speed advantages. Favorable demographic drivers include GDP growth (~10% in recent years), Internet usage (ranked #2 behind the U.S.), an aging workforce and increasing private, urban and service sector employment. iResearch forecasts that the total recruitment market in China will increase from $568 million to $1.33 billion in 2005-10, implying 19% compound annual growth. During this period, the online recruitment segment is expected to advance from $99 million (17% of the total) to $604 million (45%), or 44% compound annual growth. Superior positioning includes: premium brand/pricing; a comprehensive online/offline offering; wide geographic presence (25 cities); large direct sales force (over 1,500 representatives); and unmatched job seeker database (access to more than 12 million resumes for professional, clerical, industrial and hourly jobs). EPS visibility stands to benefit from top-line and profitability drivers. Specifically, ramp-up of online subscriptions (from single-digit penetration of client budgets at present) and a scalable model offering 30%-plus operating margin (excluding share-based compensation).
• JOBS is suitable for aggressive investors. In our opinion, principal risks include the following:
- Deterioration of economic conditions in China, slowing of hiring activity or a “hard landing” scenario.
- Competition from ChinaHR.com and Internet portals could pressure future profitability by way of lower pricing and/or higher marketing expenses.
- Rapid online migration could result in cannibalization of offline revenue.
- 51job has an inconsistent execution record.
- Uncertainties in the PRC regulatory and legal system, particularly laws governing foreign ownership and licensing/operation of HR and Internet business entities. Note that 51job is incorporated as a holding company in the Cayman Islands.
- Disruptions such as spread of the H5N1 virus or a recurrence of SARS, political unrest, breakdown in relationship with a major publishing/distribution contractor, etc.
- Influence of Recruit Co. and current management over all matters requiring a shareholder vote.
- Correction in the U.S. markets.
Investors cut risk, bet on booming global
August 14th, 2007SHANGHAI: Wall Street bank JPMorgan said on Monday that it had won final approval to set up a wholly owned unit in China to strengthen its wholesale banking business in the world’s fastest growing major economy.
This move will make JPMorgan the second US bank to incorporate in China, after Citigroup did so early this year, while more than a dozen foreign banks queue to secure regulatory approval for their China-incorporated units.
Most foreign banks choose to incorporate in China because they want to tap the country’s retail banking sector through fast branch expansion across the country. Local incorporation makes it much easier for foreign banks to apply, to open new branches and offer a full range of local currency-denominated retail banking services to Chinese customers.
However, JPMorgan said it would still focus on its wholesale banking business — such as trade finance, cash management and financial derivatives — but may tap the retail market when it finds the right opportunity.
“We do see that China’s consumer banking and card markets have great potential for growth and we are very optimistic on the future growth of the market,” Charles Li, JPMorgan China chairman, said. “We would like to consider exploring the opportunities if we could find the right approach.”
Besides expanding the wholesale banking business in China, JPMorgan is making efforts to win underwriting deals for Chinese companies’ overseas listings. Currently, JPMorgan does not have any retail business outside the United States. China fully opened its banking markets to overseas lenders late last year, as part of Beijing’s commitment to the World Trade Organisation, which it joined in 2001.
Foreign banks not incorporated domestically are not allowed to issue bank cards independently and are required to impose a minimum deposit of 1 million yuan ($1,32,200) on retail customers. “The local incorporation won’t immediately accelerate the pace of growth and lead to aggressive recruiting of branch expansion,” said Mr Li.
“However, there is no doubt that the incorporation will form a strong foundation for progressive and long-term expansion.” JPMorgan will locate the headquarters of its China-incorporated subsidiary in Beijing, making it the first foreign bank to incorporate in China’s capital instead of Shanghai, the country’s financial hub.
JPMorgan currently operates three branches in first-tier Chinese cities including Beijing, Tianjin and Shanghai. “After local incorporation, all the three branches will be fully licensed for local and foreign currencies and products, and all branches will have a derivatives licence,” Carl Walter, JPMorgan China’s chief operating officer said.
51job and Japan's Recruit to form coupon advertising company in China
August 14th, 2007BEIJING (XFN-ASIA) - China's 51job Inc, a Nasdaq-listed provider of human resource services, and Recruit Co Ltd, an information services company in Japan, said in a joint statement that they have signed an agreement to establish a new company to provide coupon advertising services in China.
The company will be independently incorporated and is expected to have a total capitalization of up to 82 mln yuan provided over several years.
Recruit is expected to provide 60 pct of the funding in cash, up to 49.2 mln yuan, and the remaining 40 pct will be financed through convertible bonds of up to 32.8 mln yuan to 51job (nasdaq: JOBS - news - people ).
The zero coupon convertible bonds will include conversion rights for 40 pct of the share capital of the new company.
In April 2006, 51job and Recruit entered into a business alliance to form a corporate planning group to assess opportunities in the human resources industry and other new businesses in China.
51job operates 23 editions of 51job Weekly and distributes several mln copies each week throughout China.
Recruit, a printer and distributor of free coupon magazines, publishes Hot Pepper, which was launched in 2001 and has expanded to 49 area-specific editions in Japan.
(1 usd = 7.56 yuan)
S&P raises outlook on China to positive from stable
July 29th, 2007Moody's lifts China's ratings a notch, citing strong external-payments position
By Polya Lesova, MarketWatch
Last Update: 11:35 AM ET Jul 26, 2007
NEW YORK (MarketWatch) -- Standard & Poor's raised its outlook on China to positive from stable, citing the country's reforms in bankruptcy, property, and labor laws this year.
"These reforms should underpin a high-single-digit trend rate of growth in China and at the same time improve the productivity of investment, thereby reducing the risks of unduly large fluctuations in growth," S&P credit analyst Kim Eng Tan said in a statement Thursday.
S&P doesn't expect any material disruptions between China and the U.S., its largest trading partner, despite rising protectionist attitudes in Congress. S&P affirmed its A long-term and A-1 short-term sovereign credit ratings on China.
"The ratings on China could rise if its leadership embraces market-based policies more readily, or if the government strengthened public finances further," Tan said.
The ratings-outlook revision by S&P comes after Moody's upgraded China's long-term foreign-currency bonds to A1 from A2 Thursday. Moody's cited the exceptional strength of China's external-payments position, favorable government debt trends, and continued progress in economic reform.
"China's very strong external-payments position provides insulation from external shocks and allows the authorities time to expand and deepen structural reform," Moody's Senior Vice President Tom Byrne said in a statement.
"Official foreign-exchange reserves continue to grow and now exceed $1.3 trillion, and external obligations of the government and state-owned banks are a small fraction of that sum," Byrne said.
China's Shanghai Composite index rose 0.5% to a record finish of 4,346.46 Thursday. The Dow Jones China 88 index, a measure of 88 highly liquid stocks listed in Shanghai and Shenzhen, rose 0.6% to 374.62. See Asia Markets.
51job, Inc. and Japan's Recruit Announce Cooperation Agreement to Establish Coupon Advertising Company in China
July 29th, 2007SHANGHAI, China, July 25 /Xinhua-PRNewswire-FirstCall/ -- 51job, Inc. (Nasdaq: JOBS), a leading provider of integrated human resource services in China, and Recruit Co., Ltd., a leading information services company in Japan serving businesses and consumers in numerous market segments, including human resource services, real estate and automobiles, announced today a cooperation agreement to establish a new company focused on providing coupon advertising services in China.
Independently incorporated, this new coupon advertising company will benefit from 51job's distribution expertise and leverage Recruit's deep product knowledge to help local businesses to tap into the rapidly growing consumer market in China. 51job operates 23 editions of 51job Weekly and distributes several million copies each week throughout China. A recognized market leader in the printing and distribution of free coupon magazines, Recruit publishes Hot Pepper, which was launched in 2001 and has expanded to 49 area-specific editions in Japan today.
"Combining our companies' strengths and experiences, we believe the new coupon company will provide a compelling and targeted advertising solution for businesses as well as an effective information channel for consumers in China," said Rick Yan, President and Chief Executive Officer of 51job.
AstraZeneca Cuts Worldwide Workforce 10% While Investing in China
July 29th, 2007The Anglo-Swedish pharmaceutical company AstraZeneca (NYSE: AZN - News) will cut its workforce by 10% in an attempt to cut costs. The company will eliminate 7,600 jobs, an increase from the 3,000 job cuts it announced in February. According to AstraZeneca, the reductions will save the company $900 million per year by 2010.
CEO David Brennan said the job cuts would most directly affect the company’s European sales and marketing staff. After that, the largest staff reductions would be in research and development – “and other areas” – in Britain, Sweden, Germany, France, the United States, and Canada. AstraZeneca will record a $1.6 billion charge in connection with the firings.
While AstraZeneca is cutting back on its expenditures elsewhere in the world, it is spending money to expand its presence in China and build revenues from the country. Also, it seems to be transferring some of its business to China in an attempt to keep a lid on costs.
Last year, AstraZeneca announced that it would spend $100 million over three years in China to build the AstraZeneca Innovation Center China. The R&D facility, to be based in Shanghai's Zhangjiang Hi-Tech Park, will focus on translational science, developing knowledge about Chinese patients, biomarkers and genetics. The goal is to discover innovative drugs that treat cancer patients in China.
Also, AstraZeneca has a $14 million pact with WuXi Pharmatech (see story), in which WuXi is performing compound collection synthesis for AstraZeneca. The big pharma also entered a collaboration with Shanghai Jiao Tong University that will seek to understand the genetics of schizophrenia.
AstraZeneca was an early entrant into China, establishing operations there in 1993. AstraZeneca China is headquartered in Shanghai, with branch offices in 20 other cities, and a production plant in Wuxi, Jiang Su Province, built in 2001. That facility manufactures about 80% of all the products the company sells in China. All told, AstraZeneca China has 2900 employees involved in the manufacturing, sales, marketing and clinical research of new products.
As we reported earlier (see story), AstraZeneca China will inaugurate a center in China to source APIs (active pharmaceutical ingredients) there, with the goal of placing orders for $100 million of API by 2010. Eventually, it expects 90% of its API to come from China.
The API initiative is a vote of confidence in the strengthened Intellectual Property rights now available in China and the high quality of manufacturing there – as well as the lower prices. At the same time as it began its API sourcing in China, AstraZeneca China changed its slogan from “In China for China,” to “In China for Global.”
3Com pins hopes on China's low labor costs
July 15th, 2007San Francisco (IDGNS) - Networking equipment vendor 3Com is counting on low labor costs in China to help the company earn better margins on its products and compete against rivals like Cisco Systems, the company's chief executive officer said Wednesday.
"There is one large player who is enjoying 68 percent to 70 percent gross margin on its products, while others are enjoying 40 percent to 45 percent gross margins," Edgar Masri, 3Com's CEO and president, said in an apparent reference to Cisco.
However, the disparity in salaries between China and other countries creates an "arbitrage opportunity" for 3Com, he said.
Arbitrage is the practice of exploiting price differences between two markets. While Cisco and others rely on expensive engineering talent in the U.S. and elsewhere, Masri is betting that cheaper labor costs in China will give 3Com an advantage, allowing it to price its products 30 percent to 40 percent lower than its competition.
3Com's strategy bears a striking resemblance to that employed by Chinese telecommunications equipment maker Huawei Technologies, which took advantage of lower costs in China to undercut its competitors and build a growing stake in the worldwide telecommunications market. Once a little-known Chinese company, Huawei is now a major player, having won deals across Asia and in Europe.
The resemblance is not an accident. In March, 3Com acquired the remaining shares in H3C Technologies, a joint venture the company set up with Huawei in 2003. As a result of that deal, 3Com acquired the 2,400 R&D engineers employed by H3C in China.
The engineers help give 3Com an advantage over its competitors, Masri said, claiming that rivals' labor costs are up to five times higher than 3Com's.
IDC: China will be top destination for off-shoring
July 8th, 2007By 2011 Chinese cities will unseat those in India and the Philippines as favored offshore delivery centers, says market research firm
Chinese cities are expected to unseat Bangalore, Mumbai, and Delhi in India, and Manila of the Philippines, as favored offshore delivery centers by 2011, according to IDC.
The market researcher has introduced a new Global Delivery Index (GDI), which compares 35 cities in the Asia-Pacific as potential offshore delivery centers, based on criteria such as cost of labor, cost of rent, language skills, government policies, infrastructure, and staff turnover rates.
Bangalore currently tops the list, followed by Manila, Delhi, and Mumbai. The Chinese cities that figure in the 2007 list include Dalian, Shanghai, and Beijing, at numbers five, six, and seven.
Indian cities have inherent challenges such as cost of staff and pressure on infrastructure, said Conrad Chang, a research manager at IDC’s Asia Pacific operations, in a telephone interview on Thursday. While India has focused on the U.S. and European markets, China has large opportunities in the Japanese and Korean markets, Chang added.
Chinese cities will overtake Indian cities by 2011 because of massive investments made in infrastructure, English language, Internet connections, and technical skills, which are favorable towards offshoring, IDC said Tuesday.
Forrester Research, however, takes a less optimistic view about China as an offshore destination.
Nearly two years ago, the country was widely viewed as a key challenger to India as an offshore services delivery location, however Forrester’s research shows that the market has not taken off as expected, the research firm said in a recent report.
China primarily attracts business from Korean and Japanese companies, but most of them have preferred to set up their own operations in China rather than outsource, because there are not many large service providers in China, said Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International (TPI) in Houston, on Thursday.
Many U.S. and European companies, that set up offshore services operations in India, may also have an operation in China, Pai said. “ But the Indian operation will typically be the larger,” he added.
China has still not overcome customers’ concerns about English language skills, intellectual property (IP) protection, and attrition in the country, Forrester said.
In contrast, India has a sophisticated and time-tested legal environment built around Western common law, Pai said. Even if China invests heavily in education, the population cannot get in four to five years as fluent in English as Indians, he said. “ Indians have been speaking English for over a hundred years,” he added.
India’s demographics also favor its continuation as a key offshore services location. On account of China’s one-child-per-family policy, the country’s population is aging. The country has about half as many people under 30 than India, Pai said. The IT industry primarily employs younger staff, he added.
The IDC GDI rates the potential of cities as offshore destinations, said Chang. The actual business decision by companies to offshore to these cities will depend on a host of other factors, he added. The GDI is a moving index, reviewed every six months.
“This is not about India versus China,” Chang said. IDC expects both countries’ offshore business to grow, he added.
Ford Focus drives sales growth in China
July 6th, 2007BY SARAH A. WEBSTER
Thanks to a refreshed 2007 Ford Focus, Ford Motor Co.’s retail sales in China jumped to 93,206 cars and trucks in the first half of the year, a 25% increase compared to the same period in 2006, the company reported today.
Ford sells imported and domestically produced Ford, Lincoln, Volvo, Jaguar and Land Rover models in the fast-growing Asian country.
But Ford’s hottest vehicle in China is the Ford Focus, which has been built in Chongqing since the third quarter of 2005 and posted a six-month sales volume of 55,676.
The third-generation Ford Mondeo will be launched later this year as a major player of domestic premium CD-car segment
Ford’s history in China can be traced to 1913, when its first Model T was imported and sold in Shanghai.
Ford now owns 30% of the shares of Jiangling Motors Corporation Ltd., which produces commercial vehicles and other products.
The Dearborn-based automaker also has a 50-50 passenger car joint venture with Changan Automotive Corporation Ltd., which is called Changan Ford Automobile Corporation Ltd. Changan Ford has launched two Ford passenger cars models, the Fiesta and Mondeo. In early 2005, Changan Ford's second passenger car plant in Nanjing started construction.
In April 2005, Ford, Changan and Mazda also announced a new three-way engine plant joint venture, Changan Ford Mazda Engine Company Ltd., and the new plant has been in production since April 2007.
In March 2006, the Chinese government approved Mazda's investment in Changan Ford. The restructured company has been renamed as Changan Ford Mazda Automobile Co., Ltd. (CFMA). Changan, Ford and Mazda hold 50 per cent, 35 per cent and 15 per cent shares in CFMA, respectively.
In the first half of the year, CFMA posted sales of 93,587, a 57% increase over the same period of 2006. CFMA, which has been in operation for less than four years, is now ranked as the 7th largest automaker in China, according to the China Passenger Car Association.
China, India pose different hiring challenges: Survey
July 2nd, 2007Hong Kong, June 28: Multinational companies in China have a hard task hiring people with leadership skills while in India they face unreasonably demanding fresh graduates, a survey shows.
The fast pace of business expansion in Asia's two emerging economic powerhouses has created a talent shortage and a host of challenges for employers.
"Staff are impatient and there are a lot of jobs out there," said Shalini Mahtani, chief executive of Hong Kong-based Community Business. "If companies are not providing good career opportunities, staff will leave."
Community Business, an organisation promoting corporate social responsibility, conducted the survey in Shanghai and Mumbai with Schneider-Ross, a UK-based business consultancy.
Pay is still important as staff in China have no qualms in leaving a company to pick up a higher salary elsewhere, according to the survey. In India, employers say younger professionals are demanding excessive compensation packages, inflated job titles and immediate opportunities for overseas assignments.
One multinational talked of a fresh graduate who came for interview saying he had four job offers on the table and how could the company better that. Such demands were not unusual, the company said.
Pay is talked about openly in India and employees are liable to switch jobs if they know that their fellow graduates from business school are earning more. This makes it difficult for companies to reward good performance, survey participants said.
In China, competition for staff is so acute that one company reported losing a junior member of staff to a local company that more than doubled her salary and offered a position for which she did not have any experience.
The survey interviewed 25 senior managers and HR directors at foreign companies in Shanghai and Mumbai and conducted a focus group in each of the two cities.
A lack of leadership skills among staff poses a real challenge in China and many employees there leave a company because of the attitude or behaviour of their boss, survey participants said.
Western multinational companies are no longer routinely seen as the preferred employer, as staff in both countries often see local companies that are expanding globally as a better opportunity to gain visibility and climb the career ladder. Multinationals now are having to approach second and third tier colleges for staff.
Diversity in the workforce, whether by gender, generation or culture, is also difficult to implement because local managers either are not sensitive to the issue or business is growing so fast they have no time to focus on it.
In India stereotyping of women is still common.
"There's an assumption that women will get married and they'll leave the workplace," said Mahtani.
In China, poor leadership skills means companies often have to bring in expatriates.
People with disabilities are largely unrepresented in both markets, according to the survey.
Long working hours are another problem, particularly in India where colleagues in different timezones expect staff to be available at irregular hours, the survey showed.
Foreign firms to get tax rebates for hiring disabled Chinese
July 2nd, 2007Foreign companies with disabled Chinese on the payroll will qualify for tax rebates from next year.
The maximum tax rebate per disabled worker will be 35,000 yuan (US$4,550) a year. Meanwhile, salaries of disabled workers will be exempted from employees income tax.
Companies whose work force comprises more than 25 percent of disabled workers will be eligible for rebates on both income and value-added tax, according to the new policy announced by the Ministry of Finance and the State Administration of Taxation (SAT).
Those with less than 25 percent of disabled employees will only get income tax rebates.
China has issued a series of preferential tax policies since the 1980s to promote the employment of disabled people.
But a SAT official said that current policies had left many private and foreign companies out in the cold, unable to qualify for tax rebates.
The new policy, which will apply nationwide from next month, is aimed at "creating a favorable taxation environment for fair competition and promoting employment for disabled people," the official said.
Statistics show that China has nearly 83 million disabled people, with only 22.7 million in employment and about 8.6 million officially listed in unemployment statistics.
Playboy will hire bunnies in China soon
July 2nd, 2007Entertainment complex with bunnies, gambling slated for debut in 2009
HONG KONG–Playboy Enterprises Inc., publisher of the most widely read men's magazine, plans to open a 40,000-square-foot entertainment complex, including gambling facilities and bunny-suited waitresses, in Macau, located on the southeast coast of China.
Playboy Mansion Macao, to be completed in 2009, will include dining, entertainment and retail shops, company chair and chief executive Christie Hefner said in an interview in Hong Kong. It will be part of the Macao Studio City complex, and the gambling operations will be run by casino operator Melco International Development Co., Hefner said in another interview, in Macau.
Billionaire Stanley Ho's gaming monopoly ended in 2002 when the government awarded licences to five other operators in the city, the only place in China where casinos are legal.
By this year's first quarter, 25 casinos were operating in the 26 square-kilometre territory, creating concern the industry may be starting to get crowded.
"I am less bullish about the ability of demand to soak up the capacity that's coming on line for both retail and hotels," said Peter Drolet, a Hong Kong-based analyst at UOB Kay Hian Pte.
Macao Studio City, a $2 billion (U.S.) joint venture between Hong Kong-listed ESun Holdings Ltd. and partners including Silver Point Capital LLC, is next to the Lotus Bridge, which will link Macau and the mainland Chinese city of Zhuhai. It will include a film studio, a million-square-foot shopping mall and gaming and convention facilities.
"Macau has vast growing power as a travel destination, with the number of visitors expected to double between 2006 and 2011," said Hefner, daughter of Playboy founder Hugh Hefner.
"We will look for the most beautiful, personable women from Asia and the United States" to possibly hire as Playboy bunnies, Hefner said.
She said it was "too early" to disclose how much will be invested in Playboy Mansion Macao and how much gaming will contribute to its revenue. Hefner also didn't say how much Playboy will pay Melco to run the project's gaming operations.
Macau's economy grew 16.6 per cent last year, compared with 6.9 per cent in 2005 and 28.4 per cent in 2004, the year the city's first foreign-operated casino began operating.
Macau, with a population of 500,000, is the closest location for the 1.3 billion people in China to gamble legally in casinos.
Gambling revenue in the former Portuguese colony surged 22 per cent to $6.95 billion last year, surpassing the Las Vegas Strip.
Playboy is the world's best selling men's monthly magazine with its U.S. paid circulation of 3 million.
Is Hong Kong Asia's New York City
July 2nd, 2007Ten years after the change-over, Hong Kong is positioning itself to become Asia's New York City.
By George Wehrfritz
Newsweek International
July 2-9, 2007 issue - On the rare days when Hong Kong's Victoria Peak isn't shrouded in smog, one of the world's great maritime hubs is on display from its heights.
Northward in Kowloon, modern container ports—their giant cranes lined up like robotic elephants on parade—load waiting freighters. Barges scurry like worker ants, flags from every port of convenience flap in the breeze and jetfoils buzz back and forth from Macau.
For decades, as East Asia's export economies rose to pre-eminence, the scene has grown more frenetic year by year. But sometime soon—or perhaps that day has already passed—the vast natural harbor that first attracted British opium traders to this spot on the South China Sea in the 1840s will reach its own peak, and start to fall.
The big question in Hong Kong—and it's one that has echoed since the jittery pre-handover days back in 1997—is elemental: what's next? Official statistics suggest a port that's maxed out, a maritime hub that has slipped from number one in the world to number three and sometime next year will likely be overtaken by a city that didn't even exist until the final few years of British rule: neighboring Shenzhen. What will happen, many Hong Kongers justifiably worry, when shipping follows the manufacturing up the Pearl River Delta into mainland China? Will their city slip to the global economic periphery, as some analysts forecast, becoming the 21st-century equivalent of Venice?
Ten years after the Union Jack flew over Hong Kong for the last time, change is most certainly afoot. But change, as they say, can be good. And although Hong Kong's traditional status as East Asia's premier shipping hub is already lost, the city is on the cusp of a reinvention so profound that the view from the peak will likely look quite different in a few decades. First there will be fewer freighters and barges. Then, perhaps, the dockyards will yield to new urban landscapes as they've done previously in places like London and New York. And, if all goes to plan, the scene that unfolds below the peak won't depend so much on whether the winds kick up to clear the toxic skies.
Think of Hong Kong as China's New York. Not today's N.Y.C., to be sure, but the Gotham that had hovered on the verge of bankruptcy in the 1970s and then struggled to reinvent itself by deregulating its two stock markets and becoming the world's leading financial center at the dawn of the digital age. Now China is the growth engine, and the transformation underway entails providing the financial savvy, rule-based business culture and global logistical reach that the vast Chinese economy demands but can't create for itself. ''Every economy changes as the major players [in the global arena] change," says Hong Kong's Financial Secretary Henry Tang. ''In the past we have always used China as a manufacturing base, but now we look to it as a market [with] a huge demand for world-class financial services. Hong Kong is where we supply it."
A ''paradigm shift" is underway in the city, Tang says with confidence. And in Hong Kong's case the consulting jargon actually fits, economically as well as politically. Truth be told, Tang and his fellow cabinet bosses are struggling to come to grips with what's happening all around them. Whereas New York confronted urban decay, high crime and tense race relations, Hong Kong's challenges center on today's rich-poor divide, quality-of-life issues such as air pollution and the city's still-unmet yearning for one-person, one-vote democracy.
Indeed, the influence tycoons exert on policymaking is under attack as never before. And the government's management—or, say its critics, mismanagement—of precious waterfronts and green spaces are major concerns among the middle class.
Although opinion polls show that most Hong Kong people support China's national government, Beijing's ham-fisted efforts to manage the city's democracy debate is engendering fear that the motherland could ultimately renege on its pledge to allow Hong Kong ''a high degree of autonomy."
Perhaps most significant, "a dynamic generational shift" is underway, argues former legislator Christine Loh, founder of the influential think tank Civic Exchange. A new and politicized middle class has emerged, one that's well traveled, technologically savvy and committed to more than getting rich. Their issues include the environment, education and protecting Hong Kong's cultural heritage—the common denominator being better official accountability. ''[This generation] presents the tycoons and the government with its next challenge, and it is where [questions over] how our society ought to be run and where our priorities lie will come to a head."
By most accounts Hong Kong is on the mend as it prepares to begin its second decade as a special administrative region of the People's Republic. Back in 1997, euphoria over the gala July 1 handover yielded quickly to an Asia-wide financial crisis that sent stock and property markets tumbling. Then the city sank into political indecisiveness, suffered a deadly SARS outbreak and after a botched 2003 government move to pass a new public-security law, experienced the largest political protests on Chinese soil since the 1989 Tiananmen Square demonstrations in Beijing.
The setbacks cost Hong Kong's first chief executive, Tung Chee-hwa, Beijing's confidence and eventually his job (he resigned citing ''health issues" in early 2005). And since then, Tung's successor, the bow-tie-clad Donald Tsang, has renewed public confidence, delivered strong economic growth and vowed ''to break barriers and realize Hong Kong's potential in an ever-changing world," as he said recently.
The clearest evidence of Hong Kong's transformation comes not from official rhetoric but in the city's economic data. Since 1997, market capitalization on the main stock exchange has ballooned almost fivefold to just under $2 trillion, about one sixth the size of the New York Stock Exchange today. Over the past three years, Chinese companies have raised about $84 billion with initial public offerings in Hong Kong, and, according to the accounting firm Ernst & Young, the city's main bourse generated 17 percent of the total capital raised worldwide during the first 11 months of 2006, ahead of London (15 percent) and New York (11 percent). The main driver was the Industrial and Commercial Bank of China's $22 billion dual listing, which garnered $16 billion in Hong Kong and $6 billion in Shanghai. This flurry of activity broke an old pattern whereby Chinese companies, fearing a lack of liquidity in Hong Kong, preferred listing simultaneously in either London or New York. ''We have always been successful, but these past few years have really put us on the map," says Tang.
Hong Kong's financial sector now accounts for 13 percent of GDP, up from 10 percent in 1997. And as big as it is, today's IPO boom represents only a part of what Hong Kong's money tribe can offer China.
Consider: the IPO market sends capital into the mainland from outside investors (both Hong Kong Chinese and foreigners). But increasingly, China's main challenge isn't raising funds abroad, but disposing of the enormous pools of money it has amassed by running huge trade surpluses.
Now trapped inside the country's closed financial system, this liquidity is too hot for China's banks and stock exchanges to handle. This year's stock bubbles in Shanghai and Shenzhen, for example, feature extreme volatility, rampant insider trading and price inflation driven by too much money chasing too few good companies.
China's embarrassment of riches represents a huge opportunity for Hong Kong. According to the city's top government economist, K. C. Kwok, Beijing has little choice but to channel ever-larger amounts of financial business Hong Kong's way. One example is a scheme enacted late last year that will allow Chinese banks to invest $75 billion in overseas assets, with much of it expected to land in Hong Kong. Another influx is coming from Chinese multinationals, which are gradually being freed from a longstanding requirement that they repatriate foreign earnings back to the motherland. A third source (and by far the largest) is Chinese households, which together have an estimated $2 trillion in savings squirreled away. ''Imagine you are a mainland Chinese sitting on a pile of money in your bank account," says Kwok. ''You look at all these companies going to Hong Kong to list and you think, 'Why can't I invest there, too?' "
Tourism is another growth sector with promise beyond filling hotel rooms or selling tickets to Hong Kong Disneyland. Since Beijing permitted its citizens to visit Hong Kong four years ago, not only have they bolstered a local travel industry slammed hard by the SARS epidemic, they've also revived the prospects of Hong Kong's private hospitals. Some had been struggling until Chinese nationals began showing up for everything from heart surgery to maternity care. ''You can't just walk in and get a [hospital] room because Chinese who are rich enough and do not trust their own hospitals are there," says Jimmy Lai, publisher of the Apple Daily and a harsh critic of Beijing. ''If you believe Hong Kong's rule of law, free-flowing information, professionalism and integrity are part of our comparative advantage, you can assume that the more we integrate with China the more our advantages will be manifested." Even the old port is transforming into a modern service industry. From 1995 to 2005, the percentage of Hong Kong's GDP derived from freight transport and storage stagnated; its contribution to the economy rose just a single point, to 4.8 percent, while container traffic to Shanghai and Shenzhen doubled every few years. But in a shift that remains ''off the radar screen" to many analysts, says Kwok, trade and logistics actually rose as a percentage of the city's GDP, from 18 to 23 percent, during the past decade. The new business comes from services that include managing complex supply chains that link Asian factories to American and European consumers, regional product sourcing and third-country trading that doesn't bring products into Hong Kong at all. ''We're seeing the globalization of production," says Kwok. ''And Hong Kong is the nerve center for a lot of these activities."
This shift is tectonic, and it gets to the heart of issues that now fuel much of the political debate in Hong Kong.
Like Japan, Hong Kong pours a staggering amount of concrete—much of it in the service of vested interest. It has spent $3.8 billion a year on capital expenditures since the handover, a figure roughly equal to what India now invests annually on its ambitious national highway program. The bulk has gone into new roads, additional reclamation (some along the scenic downtown waterfront) and campus like facilities built at taxpayer expense to bolster the nascent science and technology industries. Next on the drawing board: a massive government office complex that will occupy the last harborside plot near Hong Kong's postcard central waterfront, as well as a logistics hub, another container port and a massive bridge to Macau all located on Lantau Island, Hong Kong's largest remaining wilderness area.
Such projects are increasingly a tough sell in a city where public opinion is turning decidedly greener and local campaigns to preserve historic areas slated for redevelopment garner substantial middle-class appeal. Pressure groups have formed to demand more parkland, oppose demolition of historical landmarks (like the Star Ferry Terminal in Central, which recently went under the wrecking ball) and limit the height of buildings in certain areas to preserve views and keep breezes flowing. Even the business community has begun to lobby for waterfront redevelopment modeled on successful projects that have revitalized docklands in cities like Melbourne, Barcelona and London. ''It's not that people are against construction," argues Ma Ngok, a political scientist at the Chinese University of Hong Kong. "They're against [Hong Kong's] development-led ideology."
The opportunity costs of bad policy could be enormous. Hong Kong's environment is already deteriorating rapidly; air pollution, which on average reached hazardous levels every third day in 2006, is now a major deterrent to the professional talent the city needs to maintain its edge in finance and logistics. Last year, in a survey conducted for the American Chamber of Commerce in Hong Kong by A.C. Nielsen, 95 percent of business executives said they worried the city's smog would harm them or their families, and more than half said they knew professionals who had declined work opportunities in Hong Kong because of the city's poor environment. Earlier this year the city took a major PR hit when the Hong Kong Philharmonic's vaunted Dutch conductor, Edo de Waart, abruptly moved his wife and kids to Wisconsin to escape the city's ''terrible" smog.
Hong Kong's have-nots can't vote with their feet. But because they'll someday wield ballots, their lot is a major political issue. Since 1997, working-class incomes have stagnated; unemployment peaked at nearly 10 percent a few years back but has since fallen by more than half, and living costs have risen sharply. Job insecurity is also rife as labor-intensive industries continue their exodus to China. Since 1995, official data show, the percentage of semiskilled workers in the economy has declined by almost a quarter and now accounts for just 16 percent of total employment. That's good news in that it illustrates Hong Kong's climb up the service chain.
But because the government didn't implement compulsory education until 1978, there's a huge demographic of workers now in their 40s and 50s who can't easily be retrained for the information age and who cling to menial jobs paying meager wages. ''I was a bus washer 20 years ago, and I know a woman who cleans buses today," says legislative councilor Leung Kwok-hung, a.k.a. Long Hair, a 51-year-old Marxist political activist who won his seat in 2004. ''Her salary is lower than what I got and her working hours are longer than mine were. It's ridiculous."
Hong Kong's tycoons are famous for their resistance to political change. They never pushed for democracy under British rule, and since the handover they've argued that the city is not yet ready for it, or that universal suffrage would threaten the economy because low-income voters would elect populists promising costly social programs. ''This is their blind spot, their idée fixe, about people who have no money," says Loh. ''They think everyone who is poor wants welfare, and they kind of discount the middle class, which is concerned about aging parents, the state of public health and have kids in good public schools." Loh and other activists say the root of the debate lies in interest-group politics and a business elite that believes ''if we give average people a political say, they're going to upset our apple cart."
The old apple cart is toppling anyway.
Labor-intensive industries are leaving, and no matter how much the government invests in cross-border roads and additional container terminals, Hong Kong's days as the pre-eminent maritime gateway to a vast continental economy are over. As with New York and London, necessity is proving the mother of invention.
To avoid decline, Hong Kong has begun to rethink how best to manage its precious green areas, rescue its historic waterfront from overdevelopment and otherwise enhance itself as a financial center worthy of global attention even as it better addresses the needs of the city's have-nots. Ten years ago such ideas amounted to heresy; now they are central to the political debate. As always, Hong Kong is showing the world it can learn, adapt and stay ahead.
Over foreign opposition, China passes law meant to protect workers
June 30th, 2007BEIJING // China's legislature passed a sweeping new labor law yesterday that strengthens protections for workers across its booming economy, rejecting arguments from foreign investors that the measure would reduce China's appeal as a low-wage, business-friendly industrial base.
The new labor contract law, enacted by the Standing Committee of the National People's Congress, requires employers to provide written contracts to their workers, restricts the use of temporary laborers and makes it harder to lay off employees.
The law, which is to take effect in 2008, also enhances the role of the Communist Party's monopoly union and allows collective bargaining for wages and benefits. It softens some provisions that foreign companies said would hurt China's competitiveness but retains others that American multinationals had lobbied vigorously to exclude.
The law is the latest step by President Hu Jintao to increase worker protections in a society that, despite its nominal socialist ideology, has emphasized rapid capitalist-style economic growth over enforcing labor laws or ensuring an equitable distribution of wealth.
But it could fall short of improving working conditions for the tens of millions of low-wage workers who need the most help unless it is enforced more rigorously than existing laws, which already offer protections that on paper are similar to those in developed economies.
Coach Targets China Via New Hire
June 28th, 2007There are an estimated 1.3 billion people living in China. The suits over at Coach hope their newest hire will help all those folks line their closets with high-ticket handbags, scarves and patent leather belts.
Coach (nyse: COH - news - people ) has named Thibault Villet, formerly of L'Oreal, as President of Greater China. Villet was Vice President, Luxury Products Division in Japan at L'Oreal for 13 years. He was also Vice President, General Manager of the Luxury Products Division for China from 2002 through 2006.
Margaret Mager, an analyst at Goldman Sachs, says Villet's hiring highlights Coach's growing commitment to developing its presence and brand awareness in China, its next great market.
Mager said Coach plans to open at least 20 additional locations in Greater China during the next three years. Currently, there are 43 Coach locations in Greater China, with 19 in Taiwan, 12 in Hong Kong, and 12 on the mainland.
Though Villet's hire is unlikely to impact near-term fundamentals Coach continues to lay the foundation for long-term growth in the global accessories market, Mager said.
In morning trading Wednesday, shares of Coach increased 1.1%, or 50 cents, to $47.98.
Competition is the Driving Force of China's Resurgence
June 28th, 2007The weather is scorching hot in Beijing these days. The mercury has soared to a 30-year high. The Chinese call the heat at this time of year the "college admissions heat wave," kind of like our own "college admissions cold snap." (The SAT in South Korea is held in winter.) The Gaokao, the Chinese version of the SAT, is conducted at the beginning of summer every year, and ten million students, the largest number ever, took this year's Gaokao last Thursday and Friday. Before their scores are released on June 25, they still have to take a physical strength test. It feels as if the already hot summer has become all the hotter because of the Gaokao.
Chinese colleges recruit their freshmen based solely on Gaokao scores, without consulting school records. Chinese parents pay extreme attention to their children's education, starting from elementary school, to make sure they get into the top schools. A college professor in Beijing said that some families pack and move every few years to the most prestigious school districts so their kids can go to the best schools. Before the Gaokao, families go to hotels to snap up "college admissions specialty," a special food prepared with rare ingredients that are supposed to enhance brain activity. Some parents stock up on wonder "study drugs" from special pharmacies, while others head to Buddhist temples to pray for 100 days. One temple even sells incense bundles specially made to bring good luck for admissions for 99,999 yuan (US$1= CNY7.66).
This year marks the 30th anniversary of the revival of the Gaokao, which was suspended for 11 years during the Cultural Revolution (1966-1976). Mao Zedong abolished the exam as a bourgeois breeder of elitism. During the Cultural Revolution, only party loyalists and workers and peasants -- people with the "proper background" -- were admitted to colleges.
But in 1977, Deng Xiaoping, who had resumed power, revived the Gaokao and removed the barriers of class background and party fealty from the college admissions system. These days the revival of the Gaokao is seen as a turning point in the history of modern China, one of the steps on the path to becoming the competitive nation it is today. The Nanfang Daily, one of the three biggest newspapers in Guangdong, wrote, "China's history has changed thanks to Deng's courage and foresight."
In 1977, the first year the Gaokao was revived, 5.7 million students took the test; only two percent were admitted to colleges and universities. Among them were a brickyard worker who was more than 30 years old and housewives with two or three children. These were young people who had prepared for their future despite the hardships of life on farms or in factories during the dismal Cultural Revolution days. The competition was just as fierce the following year. The students, many of whom were older, had studied harder than any other generation. These people have since become the backbone of today's newly-emergent China.
Among them are Li Keqiang, secretary of the Communist Party of China's Liaoning Provincial Committee who is believed to be the likely successor to President Hu Jintao, and Bo Xilai, the minister of commerce of the world's third-largest trading power. Also from this generation are world-renowned film directors Zhang Yimou and Chen Kaige, both of whom have brought Chinese film-making to the international level. Many famous scholars hail from this generation, including Wang Jisi, dean of the School of International Studies at Peking University and a foreign affairs advisor to Hu, and Yi Zhongtian, a professor at Xiamen University who has created a boom in classic Chinese literature with the publication of his book "Pinsanguo." Chinese websites distribute e-books that teach about the school days and study methods of the famous students of those two special years, 1977 and 1978. The media is encouraging the younger generation to learn about their seniors' enthusiasm for education and teaching them that competition is good.
China's current resurgence is the outcome of all this competition. Meanwhile, South Korean politicians are attempting to replace academic competition with a standardized and equalized education system, with the idea that competition is bad. They should look to China to understand the mistakes they are making.
China's software power
June 18th, 2007It's a brave new world for China's software firms as they come of age
WHY China? Even two years ago, Ben Wang had to answer the question every time he tried a sales pitch for software service contracts from overseas clients.
These days, instead of answering the question, Wang asks the questions as he meets executives from scores of companies every month, all keen to outsource software work to his company.
"China is becoming a top destination for software outsourcing," says Wang, CEO of Beijing-based Beyondsoft Co Ltd. His company, started in 1995 with only four people, now has an army of 2,000 engineers, providing outsourcing services for tech giants such as Microsoft and IBM.
China's fledgling outsourcing companies are now expanding rapidly, trying to woo multinationals scouting for low-cost information technology (IT) talent. By trying to pry open the US market, they now aim to become international players like their successful counterparts in India.
But they are not the only ones driving China's IT outsourcing dreams. Leading IT services companies such as US-based EDS and India's Satyam have mapped out aggressive expansion plans in the nation. Some are even looking at acquiring local players to speed up the process.
"It's a critical time for Chinese outsourcing companies," says Wang.
"We will either grow into giants or will be gobbled up by a giant."
Unlike their Indian cousins, Chinese outsourcing companies usually made their first millions in Japan rather than Western countries like Britain and the US.
In 2006, China's software outsourcing companies raked in US$1.4bil in revenues, up more than 40% compared with a year earlier.
And 60% of this revenue came from the Japanese market.
Yet, compared with the US and Europe, the Japanese market is still a small pie. According to IT consultancy IDC, North American and European markets accounted for 75% of the world's US$320bil IT service and outsourcing market. And these two markets are expected to expand more than 60% annually in the coming years, almost twice the speed of the Japanese market.
With the US market firmly in their sights, Chinese outsourcing companies have kicked off an acquisition spree, trying to gain access to it.
In March this year, Beijing-headquartered hiSoft Technology International bought out Envisage Solutions, a California-based IT consulting firm that boasts a client base of biggies such as Novell and General Electric.
Despite their ambition to go global, Chinese outsourcing companies are facing increasing competition in the neighbourhood. As salaries for software engineers keep rising in India, the world's leading outsourcing giants are now eyeing China's universities as the new sources of low-cost software talent.
Tata Consultancy Services, one of India's most powerful IT outfits, established a new outsourcing joint venture in Beijing with Microsoft and two Chinese partners this February.
The company expects the venture to increase its headcount in China tenfold to 5,000 by 2010, and help it become one of the biggest players in China.
Two months later, India's fourth largest software exporter Satyam kicked off a global delivery campus in Nanjing, capital of East China's Jiangsu Province as part of its efforts to increase its number of engineers to more than 3,000 by 2008.
"The labour cost in China could be 15% to 20% lower than India's," Satyam chief executive officer Rama Raju said during the opening ceremony of the Nanjing centre.
"Besides organic growth, we are also studying the possibility of acquiring local companies to speed up our expansion."
Top-Ranked U.S. Business School Offers Entrepreneurial Immersion Trip to China
June 18th, 2007The University of Chicago Graduate School of Business, ranked #1 in the latest business school ranking by Business Week, is offering an entrepreneurial immersion trip to China August 26 to September 4, 2007.
(PRWEB) June 18, 2007 -- The University of Chicago Graduate School of Business, ranked #1 in the latest business school ranking by Business Week, is offering an entrepreneurial immersion trip to China August 26 to September 4, 2007. (http://ChicagoGSB.edu/entrepreneurship/immersion).
"The trip will help facilitate meaningful business networking and help novice entrepreneurs overcome some of the major obstacles to doing business in China," said Linda Darragh, director of entrepreneurship programs at Chicago GSB. The obstacles include cultural norms, business regulations and processes, financial practices, language issues and transportation, she said.
The trip, offered by the school's Polsky Center for Entrepreneurship (http://ChicagoGSB.edu/entrepreneurship), will also familiarize participants with key cities in China including Dalian, Beijing, Shanghai, Hong Kong and Macau. Participants will learn from U.S. companies already operating in China, meet with Chinese government officials and U.S. trade directors, and network with Chinese entrepreneurs and investors.
The trip also includes a tour of Chinese entrepreneurial companies to learn the benefits and challenges of working with local partners in China, and a visit to a major research park to understand incubation strategies offered to Chinese entrepreneurs by local economic development organizations.
A signature event of the trip is a visit to the Shanghai Knowledge and Innovation Community, where high-tech entrepreneurs, educators, researchers, and venture capitalists will meet, network and work together. The facility, now under construction, is scheduled for completion in 2010. Vincent Lo, developer of the facility and one of the leading entrepreneurs in China, will speak to participants.
Chicago GSB has been teaching courses in Asia since 2000 when the school opened a permanent campus in Singapore for its Executive MBA Program (http://www.chicagogsb.edu/execmea/index.aspx).
For more information about the entrepreneurial immersion trip to China, or to register, contact Linda Darragh at 773-702-9108 or by e-mail.
The University of Chicago Graduate School of Business is one of the oldest and largest business schools in the world. The school's faculty includes many renowned scholars and its graduates include many business leaders across the U.S. and worldwide. The Chicago Approach to Management Education is distinguished by how it leverages fundamental knowledge, its rigor, and its practical application to business challenges.
Chicago GSB offers full-time and part-time MBA programs, a PhD program, open enrollment executive education, and custom corporate education. The school has campuses in London and Singapore in addition to two campuses in Chicago. More information about Chicago GSB can be found at http://ChicagoGSB.edu.
China labour law seen costing foreign cos more
June 16th, 2007HONG KONG, June 12 (Reuters) - A new employment law in China will increase labour costs for foreign companies and restrict their flexibility in hiring staff, Australian law firm Minter Ellison said on Tuesday.
However the law, expected to go into effect in January, will also make it easier for companies to make large-scale layoffs in certain circumstances, such as bankruptcy.
The law is partly aimed at protecting employees in the private sector, lawyers say, and keeping up with changes in the labour market as a result of China's rapid economic expansion.
Thirty percent of new jobs in the country are now in service industries and private enterprises have replaced state-owned enterprises as the major employers.
"The greater part of the workforce is now employed by private enterprises and that brings a fear that those organisations don't necessarily have the interests of workers at heart," Pattie Walsh, an employment lawyer at Minter Ellison, told a conference in Hong Kong on Tuesday.
Foreign companies, which have flocked to China to tap into the country's booming economy, have favoured fixed-term employment contracts for local employees as laying off staff in China is difficult.
But under the new law, all companies will have to pay compensation at the end of a fixed contract and will have to allow employees to switch to an open-ended contract after twice renewing a fixed contract.
Lawyers also say probationary periods will be less effective because an employer will have to show evidence that an employee has failed to perform during probation before they can dismiss them.
"That means a company will have to monitor the employee during the probation period much more closely and will need to set criteria or an appraisal system so they can prove that an employee is not fulfilling the role," Walsh said. "This will put more pressure on the employee selection process to get the right people in."
Some analysts say foreign companies are being targeted in a drive to increase unionisation and U.S. retailer Wal-Mart Stores Inc and fast-food chain McDonald's , which has been accused of breaching minimum wage laws, are among companies that have moved to set up branches of state-backed unions.
Walsh said an existing employment law, introduced in 1995, is not always enforceable because it applies differently depending on the region and is often ignored in favour of local practices.
A final draft of the new labour contracts law is expected to be published within weeks and lawyers expect it to become effective on Jan. 1, 2008.
Many employees in China are working without formal contracts but the new law will require every employee to have a written contract drawn up within a month of starting work and companies will be liable to pay compensation if there is no contract.
Companies will however have more flexibility to lay off large numbers of staff in the event of bankruptcy, production difficulties, relocation to prevent or control pollution and changing economic circumstances.
Walsh said this indicated Beijing was bowing to pressure from companies to enable them to take difficult decisions when they go through tough times.
The law will also modify a "non-compete" clause, enabling a company to stop a senior member of staff or some other employee with confidential company information from joining a competitor within two years of leaving the company by providing compensation. Under the existing law the term is three years and is not restricted to senior staff and other special cases.
The terms of compensation will be agreed between the employer and employee when the employee first joins the company.
Lawyers said the "non-compete" clause helped companies protect their intellectual property and was a step ahead of some other jurisdictions.
U.S. recruitment firm Kelly Services taps China mkt
June 11th, 2007HONG KONG, June 4 (Reuters) - U.S.-based Kelly Services Inc. , the world's fifth-biggest recruitment firm, said on Monday it was expanding into China by acquiring a staffing company with offices in seven cities in mainland China.
Kelly Services, which is based in Troy, Michigan, said it had agreed to acquire P-Serv, a privately owned company which is based in Singapore but has offices in Hong Kong and seven cities in mainland China, including Beijing, Shanghai and Guangzhou, as well as second-tier cities Chengdu and Suzhou.
It would not disclose how much it had paid for the Singapore company but said the acquisition would enable it to do executive search, middle-management placement and temporary and contract staffing in China.
"We've got a number of multinational clients worldwide who are finding it difficult to find talent in China and want to use a recruitment company that has integrity," Dhiren Shantilal, Kelly Services' senior vice president for the Asia-Pacific, said by telephone.
A shortage of managerial talent in China has created a tight labour market and foreign companies face difficulty keeping staff amid rampant poaching.
Kelly's clients include Intel Corp. , the world's top chip maker, which has operations in second-tier cities Chengdu and Dalian. Shantilal said Kelly hoped to expand into three more second-tier cities in the next six to eight months.
He estimated that revenues earned by recruitment companies in China amounted to about US$2 billion in 2006 and would probably reach US$3 billion in 2008.
Foreign recruitment firms have been eying expansion in China since Beijing last year partially relaxed restrictions on investment in the sector.
In February this year Chicago-based Hudson Highland Group Inc , the world's sixth-biggest recruitment company, acquired a Chinese IT recruitment firm to better serve its multinational clients.
Who from the West is doing well in China?
June 11th, 2007BEIJING--Every American company wants to expand into China, but so far none that has is doing that well. Baidu, the Chinese search engine, has a huge lead over Google. Amazon bought a growing local online bookseller to get its business going, but customer service and other issues caused sales to slow.
So what do people here think of U.S. companies? I decided to ask the CNET staff in China and here's what they said:
Apple: The iPod, although it costs a lot by local standards, is very popular, particularly with young consumers. Still, Steve Jobs has never visited China and that rankles people. The view is that he just views China as a market. The iPhone could do well, although it's expensive. Phones that imitate some of its style are already coming out.
Microsoft: Like Americans, Chinese consumers aren't really fond of the big M. For one thing, the software is expensive. A legal copy of Windows XP costs around 1,000 RMB (or $130). That's a monthly salary for some people. Plus, the Chinese think the Zune is ugly. MSN, however, is somewhat popular. The diplomatic overtures that Microsoft has made--Bill Gates inviting China's president to his house and Microsoft's investments in local companies--have helped.
Qualcomm: it's the place everyone wants to work. What? Qualcomm employees get their own offices and the offices are located in the Kerry Center, Beijing's most prestigious address. China Mobile and pretty much any other wireless company is a premier landing.
Google: If you can't land a job in cellular, Google will do. Google, however, isn't succeeding as many thought it might: the search giant only has about 30 percent of the market. Baidu came from nowhere by offering search for MP3s, which then helped them in other areas. Google needs to expand its services. Google's hiring of Kai Fu Lee, heralded in the States as a significant event, hasn't had much of an impact here. Most people shrugged at the name.
YouTube: Everyone knows the Google division, but it's not so popular. It's not in Chinese. Besides, video sites have cropped up like mad.
Yahoo: The company is kind of marginal, even though Jerry Yang is Chinese. People instead wanted to know if Americans knew much about Robin Li, founder of Baidu.
Dell: Dell has done well here, but now it has a reputation for poor customer service and low quality. But the prices are low. Dell also didn't do great PR here on the battery recall: the average buyer thinks the problem was Dell's notebooks, not Sony's battery.
American TV: Bring it on. 24, Lost and Prison Break are all big and viewers know how to get around government restrictions. Such restrictions may loosen up, however. The government is contemplating plans that would let racier content in legally, but only for certain age groups.
Sony: Good products, but expensive.
IBM: Boring. We truly do live in a global village.
Kelly Services to expand in Asia
June 11th, 2007Kelly Services Inc. said today it has acquired an Asian staffing firm that will expand Kelly's reach in the Pacific region.
Troy-based Kelly said it will purchase P-Serv, a company that offers temporary and permanent staffing, recruiting and outsourcing services in mainland China, Hong Kong and Singapore.
Terms of the deal were not disclosed.
Kelly said China's staffing market is expected to reach $2.5 billion this year.
Lenovo Loses One of Its Most Familiar Chinese Faces as CFO Ma Retires
June 11th, 2007MORRISVILLE, N.C. – The abrupt announcement last week that Mary Ma was stepping down as chief financial officer at Lenovo could be a sign of internal wrangling among the PC company’s management.
At least that’s the word from Forbes magazine.
“Her retirement as chief financial officer, ostensibly for unspecified ‘personal reasons,’ probably signals the end of Lenovo’s effort to merge its mostly China-focused operations, along with a Chinese management culture, with IBM’s America-centric international PC businesses, and the beginning of a phase that will focus more on cost-cutting and boosting efficiency,” wrote Shu-Ching Jean Chen out of Forbes’ office in Hong Kong.
Ma, whose Chinese name is Ma Xuezheng, is only 54 years old and has been with Lenovo for 27 years. She also has been widely regarded as not only one of the most powerful women in China but also in the world. In fact in 2005 and 2006 Forbes ranked her as one of the globe’s most powerful female executives.
When Lenovo purchased IBM’s personal computing unit in 2005, Ma played a crucial role.
Ma’s departure was disclosed even as Lenovo reported a quarterly profit of $66 million that far exceeded analysts’expectations. The profit news also triggered a 15 percent surge in Lenovo stock.
But Ma is likely to be missed.
“Her straight-taking style and fluency in English have won her many fans in the financial markets,” Forbes said. “Over the years, she has built a reputation as a no-nonsense, trustworthy businesswoman, and analysts thought she had a firm grip on the company's finances.”
A source cited as a “senior company employee” at Lenovo told Forbes: “It might be a good time for her to retire when Lenovo seems to turnaround. But definitely it is a big loss to Lenovo as she is so instrumental to molding different cultures.”
Ma was more than just a Lenovo executive, however. She also had become a symbol of China’s private enterprise efforts. In fact, the prestigious McKinsey Quarterly published a lengthy interview with her in its April issue.
“The success of [the IBM] deal, heralded as a signal moment in China’s transition from a developing to an industrial economy, was due in no small part to Lenovo’s energetic senior vice president and CFO, Mary Ma,” wrote Gordon Orr and Jane Xing.
Ma told the reporters that cultural integration between companies of the east, such as Lenovo, and of the west, such as IBM, is quite a challenge.
“These East-West cultural differences are built into our identities from a very early age and affect the very basic ways that people interact,” Ma told The McKinsey Quarterly. “Many Chinese companies still don’t realize how much a long-term effort is needed for cultural integration at this level.”
China gets 10.2% more FDIs in first 4 months
May 21st, 2007CHINA'S foreign direct investments jumped 10.2 percent in the first four months of this year, as the nation's lower costs and market attracted a steady inflow of funds.
The amount of FDI totalled US$20.4 billion from January to April, the Ministry of Commerce told a press conference in Beijing yesterday. April saw a FDI flow of US$4.5 billion, up 5.5 percent from a year ago, the ministry said.
"Foreign direct investments into China have kept steady since last year as the nation shifted its focus to the quality instead of quantity of foreign funds (investments)," said Liang Futao, an analyst with Shenyin & Wanguo Securities Consulting Co.
He said the monthly FDI is around US$5.2 billion on average.
Investors are now being encouraged to pump investments to other sectors, including high-end manufacturing, research and development, services, agriculture and environment protection, Li Zhiqun, an official with the foreign investment department of the ministry, said earlier this year.
China's continuous opening-up, a booming consumer market and lower costs continue to serve as magnets for foreign investments, even if the government has curbed funds heading to industries with high pollution, low energy efficiency and lower added value, industry officials have said.
Intel Corp, for instance, will spend US$2.5 billion to build its first computer-chip plant in China's Dalian in Liaoning Province in the northeast, its first in Asia too, the US chip maker said earlier this year.
Caterpillar Inc, the world's largest maker of earthmoving equipment, also opened a plant in eastern China's Jiangsu Province.
Foreign-invested companies had more than 300,000 factories in China by the end of 2006, according to a report this month by HSBC Holdings Plc.
The second round of Sino-US strategic economic talks, set for next week, is expected to benefit long-term investment relationship between the two nations as topics of market opening and others will be addressed, Liang said.
Rising FDI also fueled the nation's record foreign exchange reserves which have topped US$1.2 trillion, more than a fifth of the world's total, industry officials said.
China's FDI rose 4.5 percent last year to a record US$63 billion, according to the ministry.
Total FDI has surpassed US$700 billion since China accepted funds from overseas investors, Commerce Minister Bo Xilai said in March.
China: China Employment / Labour Contract
May 20th, 2007The Labour Law of the People’s Republic of China (“Labour Law”) is applicable to all employment relationships between individuals and enterprises in China. However, local governments of provinces, autonomous regions and municipalities may, and most of them do, issue detailed measures and rules for the implementation of the Labour Law. Such detailed measures are promulgated based on the Labour Law, with changes and specific details made in light of the local conditions. Thus, when dealing with China labour or employment matters, reference should always be made to the local regulations (in addition to the Labour Law), particularly as regards social insurance benefits and welfare benefits.
The Labour Law requires the establishment of an employment or labour contract (“Contract”) between the employer and employee for the purposes of recording an employer-employee relationship. The Contract is required to be made in writing and must necessarily be based on the principles of equality, voluntariness and mutual consent. If the Contract is not concluded based on such principles or is otherwise in violation of any PRC laws, administrative rules or regulations, the Contract may be treated as invalid in its entirety, or as regards the affected parts only, depending on the seriousness and nature of the violations.
Any dispute over the validity of the Contract or otherwise should in the first instance be referred to the relevant labour dispute arbitration committee (being part of the labour tribunal) for determination, and if the employer or employee concerned does not find the arbitration outcome acceptable, either side may refer the matter to the relevant People’s Court for a judgement to be made.
The Contract should deal with the following:
1. term or duration of the Contract;
2. job description or the scope of work to be performed;
3. labour/employment protection and working conditions;
4. labour/employment remuneration;
5. labour/employment disciplines;
6. conditions for termination of the Contract; and
7. responsibilities for breach of the Contract.
The parties are free to agree on other matters for inclusion in the Contract. It is in fact common to agree on a probationary period, the employee’s duty to observe confidentiality or non-disclosure obligations, non-competition covenants, etc.
The Contract may be terminated at any time by mutual agreement between the employer and employee. Severance is generally payable to the employee on termination of the Contract, save in the case of a summary dismissal or where termination is due to the employee’s resignation.
Where severance is payable, it is calculated with reference to the:
• number of years of service rendered; and
• average monthly income based on the employee’s income for the 12-month period immediately preceding the date of termination (and “income” includes base salary, bonus, subsidy, allowance, commission, etc., paid to the employee).
The severance amount payable equals the average monthly income multiplied by the number of years of service. In most localities, an incomplete year of service is treated as a full year for purposes of calculating the severance.
Smaller Firms Are Finding Ways to Get Started in China
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While some of Philadelphia's largest firms are still looking for ways to navigate the onerous path to entering the Chinese legal market, two smaller firms have quietly found their place in the booming economy thousands of miles away.
White & Williams has had a China business practice group since 2003 and has had an informal alliance with the Chinese-based Xue Law Firm since the summer of 2006.
The two firms made official last month a strategic alliance, which White & Williams said it hopes will facilitate its existing work in the region and create opportunities for representation of Chinese companies.
"We have been assisting our U.S.-based clients with their China operations, and the Shanghai alliance will provide us with a vehicle to serve Chinese companies looking to the U.S," firm Chairman George J. Hartnett said in a statement. "We believe the Shanghai alliance will make the Chinese market a two-way street for us -- we and the Xue Law Firm can help companies coming and going."
Beyond the alliance option, one local firm is looking to be on the ground in China.
Benesch Friedlander Coplan & Aronoff, which expanded beyond its Ohio roots for the first time last month with the addition of Philadelphia and Wilmington, Del., offices, will have one of its attorneys in China in a few months. The firm received its license from the Chinese Ministry of Justice on Feb. 7, and is now set to open a Shanghai law office.
Partner Yanping Wang will serve as chief representative in the office and will move to Shanghai this summer, firm Managing Partner James M. Hill said.
Wang practices in the firm's corporate and securities practice group and is admitted to practice in both the United States and China. Her practice focuses on assisting clients who are entering the Chinese market through mergers, joint ventures and strategic alliances.
Hill said the firm started a subsidiary, Benesch Pacific, about two and half years ago to help clients with business needs in China. He said it was staffed by one person with a master's in business administration who handled nonlegal needs.
The firm began its application process for a license to practice in China about a year later, and Hill said it was tedious but not problematic.
Benesch Friedlander saw a gap in the market, and Hill said the firm thought it would be able to service its clients from Chicago to the East Coast through a Chinese office.
Most companies, regardless of size, are forced to use the largest of law firms when doing work in China, he said.
"You're not really important to them as a $350 million manufacturing company," he said.
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Despite how the manufacturing industry may be portrayed in the media, Hill said the industry becomes a larger part of the gross domestic product each year and those are the types of companies that abound in the Midwest.
Several of the firm's clients, such as the Eton Corp., have become globalized over the years, he said.
"We saw there was a big opportunity there," Hill said, adding that the firm's typical clients range from $50 million to $1 billion companies.
White & Williams' interest in the Chinese market started when partner Gary P. Biehn had a client who was looking to complete a joint venture there in 2003. The firm started to see a larger interest in the market from its existing regional and Pennsylvania-based clients, he said.
Many middle-market companies have larger customers who are working in China or are seeing their competitors move in that direction, Biehn said.
White & Williams is also representing Chinese companies who are involved with business and litigation matters in the United States, he said.
There are currently four attorneys within the firm who are dedicated to the China business practice. Biehn, associates Chunsheng Lu and Robert C. Maier and immigration group leader Robert C. Seiger III.
Thomas S. Clay of consulting firm Altman Weil said it would be unusual to find many firms the same size as White & Williams or Benesch Friedlander that had any sort of presence in China.
There are several firms with clients who have business opportunities in the country, but Clay said he applauds any who are even thinking about entering the market in some way.
Smaller firms need even more of a strategic reason to enter a new market than do larger firms, consultant Joel A. Rose said.
"Unless they had an opportunity to do work [within China], I cannot believe that they would just build the stadium and they will come," Rose said of White & Williams and Benesch Friedlander's decisions to enter the Chinese market.
When opening an office in a market like China, Clay said firms need to be sure they will "have enough oomph" with just one or two attorneys on the ground. In an alliance situation, he said firms have to work at making it successful and not just mention it on their Web sites.
White & Williams sent one of its associates, Chinese native Lu, to spend 10 weeks at the Xue Law Firm over the summer of 2006. Lu is a member of the Chinese National Bar and the Pennsylvania bar. Hartnett said Lu would spend part of his time working in the Xue firm.
According to the consultants who spoke to The Legal Intelligencer, the biggest concern for smaller firms entering China is whether the work is available.
"There's been probably more money lost in London than you can shake a stick at" by U.S. firms who figured they would open an office and hope the work follows, Clay said.
The Chinese market is even more difficult, and firms need to be sure they will have work to do before opening an office there, he said.
While the market has traditionally seen firms from the West Coast or with particularly strong Washington, D.C., offices looking to enter China, Sandra Mannix of Abelson Legal Search said there are a few reasons why China might make sense for White & Williams.
The firm's insurance defense work could mean it has clients who have coverage needs in China. And just by virtue of being an old, Philadelphia firm, White & Williams may have had clients who evolved into national or international companies with needs around the world, she said.
White & Williams' alliance formed out of a relationship Lu had with the Xue Law Firm and has been almost five years in the making, Biehn said.
"Like anything in China, you have to do your research, be patient," he said.
Hill said it would be helpful for the firm to have Wang in China because she can help recruit other attorneys. He said he hopes to build the office to about 10 or 15 attorneys.
Wang has family members in China who are in prominent political positions. In a country that is heavily based on relationships, Hill said that could help grow the firm's contacts in the area.
The influx of Chinese companies interested in business opportunities in the United States has also increased in just the last year, he said.
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U.S. staffing companies in China see chance for profits
May 17th, 2007By Nick Zieminski
China may have plenty of man power, but it could also use some help from Manpower.
U.S. staffing company, Manpower Inc. , is one of a number of business recruiters putting emphasis on the world's most populous country, where a rapidly developing economy is driving the demand for engineers, finance professionals and technology specialists.
China's growth rates of about 10 percent per year, which already makes it the world's No. 4 economy, pushes companies to develop leaders at a faster pace than most other countries.
A McKinsey & Co. study estimates that, within five years, China will need 75,000 executives who have either Western technical skills or language ability -- ideally, both. Only about 5,000 are in the work force now.
"The challenge is not in finding 500 or 1,000 people to man the factory. The challenge is in finding leadership skills and functional management skills," said Iain Herbertson, president of Asia-Pacific for Manpower, which has 350 consultants in 11 Chinese cities. About half its contracts are for information technology workers.
For now, the numbers are relatively modest. Of Manpower's $4.4 billion in second-quarter revenue, the "other" segment -- which includes China, Japan and Australia, as well as Mexico -- reported sales of $577 million. Its operating profit of $15 million was about 9 percent of Manpower's quarterly total.
But the segment is among the company's fastest growing. Within three to five years, Manpower will have a staff of 1,000 to 1,600 in mainland China.
New rules this month allowed foreign companies to own a controlling stake in their local joint ventures if they set up shop in Pudong, the fast-growing financial center in Shanghai.
The move is part of a broader relaxation of rules, which should help draw more companies to China, and will enable Manpower to expand its range of services, Herbertson said.
"Our business is more than doubling every year," Herbertson said in a telephone interview from Shanghai.
Monster Worldwide , which this year raised its stake in ChinaHR.com to 45 percent, may take majority control of the venture by 2008, though the unit is currently losing about $2 million per quarter.
"We don't expect it to be (profitable) because we are at the beginning of the beginning," said Marcel Legrand, Monster's senior vice president of strategy and corporate development. "Profit is not of great interest to us in that particular market -- it's about an investment."
ChinaHR has about 600 staff and 4 million resumes on file, but those numbers will grow as more Chinese go online, Legrand said.
Monster, parent of the world's largest recruitment Web site, followed customers like Procter & Gamble , L'Oreal , and Hewlett-Packard to China, which fits with a goal for international operations to account for more than half of its revenue by next year.
That global expertise, including serving multinationals in other markets, is what differentiates companies like Manpower and Monster from their smaller competitors.
"We can bring to China the best of what happens in Brazil, or what happens in Korea, and they can help us export their best practices," Legrand said.
This week, Monster hired a former Nike Inc. executive, Tony Balfour, to head its Asia-Pacific operations.
He will have competition.
Rival job site Careerbuilder.com on Wednesday said it was entering the Chinese market in an exclusive deal with human resources company 51job Inc. , to link to each others' sites and sell job postings and access to their resume databases.
At executive recruiter Heidrick & Struggles International Inc. , Asia-Pacific operations had faster revenue growth and highest profit margins than either the United States or Europe. The region accounts for 10 percent of total company sales, and China about a fifth of that.
Since rules are different depending on the services offered, Heidrick owns 90 percent of its Chinese joint venture, said Kevin Kelly, who heads Heidrick's European and Asian operations, adding that consumer goods, technology and industrial companies are its main clients.
Financial companies, including investment banks, will need experienced staff starting in 2008, when new rules take effect under China's commitment to the World Trade Organization.
Heidrick's China operations are expected to double within three years, and the company is recruiting Chinese-speakers in the United States and Europe for positions there, Kelly said.
"European and U.S. markets are more mature, so everyone sees China's huge potential for developing or expanding their businesses," Kelly said.
Compensation and Benefits Data and Trends in the Shanghai R&D Sector - Invitation
May 16th, 2007Wednesday, May 23, 2007
Type: Science and Technology Committee Meeting
Venue: Regus Shui On Plaza Centre
12/F Shui On Plaza, 333 Huai Hai Zhong Road
雷格斯环业会议中心
淮海中路333号,瑞安广场12楼
Time: 16:30 to 18:30
Price: Members (RMB): 0
The AmCham Shanghai Science and Technology Committee is pleased to host its third roundtable discussion of the year on May 23, 2007.
Eric Fiedler, Regional Director of Hewitt Associates and current AmCham Chairman, will discuss compensation and benefits data and trends in the Shanghai R&D sector. Fiedler’s presentation will cover how your company can attract and retain talent in this increasingly competitive market, especially regarding leadership and managerial positions.
The S&T Committee meets on the fourth Wednesday of each month. The forum will include an invited guest speaker to address a key topic of interest followed by an in-depth roundtable discussion.
Please email your RSVP to Christine Li at Christine.li@amcham-shanghai.org no later than Monday, May 21, 2007.
Best regards,
Science & Technology Committee
AmCham Shanghai
METSO PAPER: Metso Paper to establish a new service center in Guangzhou China
April 26th, 2007Metso Paper, Inc.
Metso Paper to establish a new service center in Guangzhou, China
Metso Paper will establish its second Service Center in China. The
center, which will be located in Guangzhou, Guangdong province, will
provide advanced machinery maintenance and process development services
to the pulp and paper making industry in southern China. The value of
the investment is close to EUR 10 million.
The new greenfield Service Center will be operational in 2008. In the
beginning, the center will employ 40 service professionals - recruiting
of personnel is already ongoing.
The Guangzhou Center will feature a fully equipped roll service workshop
providing rolls, roll covers as well as mechanical roll maintenance for
all makes and sizes of pulp and paper machines. In addition, the center
will offer a full scope of spare part and mill site services.
Establishment of the new Guangzhou Service Center is a natural
continuation to Metso's commitment to serve the Chinese pulp and paper
industry locally. In line with this, Metso Paper is also strengthening
its existing service operations in China. The Wuxi Service Center that
was opened in Jiangsu province in 2001 will double its roll service
capacity by opening an extension in October 2007.
In 2003, Metso Paper established a logistics center in Wai Gao Qiao,
Shanghai, to support fast deliveries of spare parts and consumables.
To serve the growing paper, board and pulping equipment market, Metso
Paper also has a production plant in Shanghai with 500 employees, and
a 1,100-strong manufacturing joint venture in Xi'an.
During the last ten years the Chinese pulp and paper industry has made
substantial investments in new machinery and technology. Metso Paper has
been involved in many of these projects, and is currently the leading
technology supplier to this industry.
Metso is a global engineering and technology corporation with net sales
of approximately EUR 5 billion. Its 25,500 employees in more than 50
countries serve customers in the pulp and paper industry, rock and
minerals processing, the energy industry and selected other
industries.
www.metso.com
Siemens' China Healthcare Project Answers Clinton Global Initiative
April 10th, 2007Siemens will invest a total of US$10 million over the next five years to achieve sustainable improvements in healthcare in rural areas of China.
The project is a Siemens contribution to the Clinton Global Initiative to support poorer regions in threshold countries.
An agreement on the project was signed by Siemens and the Shaanxi Bureau of Health. Zhang Huaixi, vice chairman of the Chinese People's Consultative Conference; Dr. Richard Hausmann, president and CEO of Siemens China; Dr. Siegfried Russwurm, member of the executive management of Siemens Medical Solutions; and Dr. Bernd Ohnesorge, president and CEO of Siemens China Medical Solutions, all took part in the signing ceremony held in the Great Hall of the People in Beijing.
"All people, regardless of their status or origin, should have access to high-quality healthcare. This is an important prerequisite for a peaceful and just society. We are especially pleased when leading companies like Siemens provide their competence for such efforts," commented Zhang Huaixi.
With the help of pilot projects, a pool of valuable experience will be built up for giving people in rural regions of China better access to high-quality healthcare. In this project, Siemens will focus on developing tailored solutions to meet the specific needs of local healthcare organizations.
Siemens will initially outfit a number of pilot hospitals with diagnostic equipment, beginning with the first facility in Luochuan County in Yan'an, in the Shaanxi Province. This equipment will include ultrasound and x-ray systems as well as computed tomography imaging systems. Not far away from each rural hospital, Siemens will equip six urban health centers with x-ray and ultrasound systems. Siemens will maintain the technical infrastructure once it is in place.
The project, headed by China's Ministry of Health, is part of the Clinton Global Initiative, which brings together key figures from politics and business, as well as wealthy individuals and philanthropists, to jointly tackle challenges faced by societies
Baxter aims to increase staff, investments in China
March 31st, 2007Baxter International Inc. will be stepping up its investments in China, hiring an additional 200 workers a year as part of a larger strategy to increase its international business, the company told analysts recently.
Baxter generated 56 percent of its sales from international operations last year.
Baxter's international sales increased by 6 percent last year, to $5.8 billion. The firm's total sales were nearly $10.4 billion.
The company also has more employees outside the U.S. Currently, about 1,500 of Baxter's global workforce of 45,000 are in China.
Baxter has 18,500 workers in the U.S.
Baxter is not a traditional pharmaceutical company that makes pills and tablets. Rather, it makes money on medication delivery devices, genetically engineered blood therapies and dialysis medicines.
The emphasis on China did not get as much attention as Baxter's overall plans announced last week to increase spending on research and development and to give consideration to acquiring companies in the $100 million to $500 million range.
However, many analysts have taken note of Baxter's international plans in notes they have written in the week following the March 14 analyst meeting.
In particular, Baxter sees China as a growth market because dialysis rates are low, particularly for peritoneal dialysis, a form of in-home therapy.
Baxter, which sells intravenous systems, also sees a huge opportunity in medication delivery.
China is a country that still has hospitals that make use of glass bottles as containers for solutions and medications, instead of the plastic bags commonplace in U.S. health facilities.
"The company is investing in new low-cost products, clinical studies and marketing activities to position itself for faster growth in these countries as they come to appreciate the benefits of home dialysis," said Ben Andrew, an analyst with William Blair & Co. of Chicago in a report he issued last Friday, two days after the Baxter analyst meeting.
The Deerfield-based medical products giant sees markets such as China, where per-capita spending is growing 10 percent or more annually, as critical to achieving a sales growth rate of 7 percent to 9 percent over the next five years.
John Greisch, corporate vice president and president of Baxter's international operations, said fast-growing economies such as China's are also expanding health insurance coverage of their citizens and increasing reimbursement to providers of medical care.
By comparison, the number of uninsured in the U.S. is rising while increasing numbers of workers are paying more out of pocket for their health benefits.
Baxter's sales from China were about $150 million last year.
The company expects them to grow about 25 percent a year and approach $500 million annually by 2011.
Google on a search for engineers in China
March 18th, 2007BEIJING: Google, owner of the world's most-used Internet search site, is planning to more than double the number of engineers it has in China to help win users in the world's second- biggest Internet market.
The company aims to have between 200 and 300 engineers in the cities of Beijing and Shanghai in a year's time, Google China's president, Lee Kai-fu, said after a press briefing Friday in Beijing. Google has more than 100 engineers in the nation, he said.
Google plans to hire "thousands of people" for its Beijing development center to create services for China's more than 137 million Internet users, the company's chief executive officer, Eric Schmidt, said last April. The Mountain View, California, company added online map and Internet spreadsheet services last month in a bid to catch Beijing's Baidu.com, which has a China market share three times larger than Google's.
"Google is already hiring people away from Baidu," Florian Pihs, assistant vice-president at the Beijing-based researcher Analysys International, said Friday by telephone.
"Google is after people who are highly coveted not only by Baidu," but by Microsoft other companies, Pihs said.
The search company is planning to open a development center in Shanghai this summer, Google's Lee said, declining to provide further details. An announcement about the center will be made in a few weeks, he said.
In the fourth quarter, Google's share of the Chinese search market rose to 17 percent from 16 percent in the previous three-month period, according to Analysys. Baidu's share rose to 58 percent from 57 percent, while Yahoo!'s was unchanged at 13 percent.
Google on Friday began offering a service that allows users to search for information in Chinese-language books, Lee said. The company began offering search services for mobile phones in December last year in partnership with China Mobile, the nation's biggest wireless carrier.
In January, Google bought a stake in Shenzhen Xunlei Network Technology, a Chinese company that helps users download movies, music and software from the Internet.
Baidu's search revenue could grow 15 percent on a quarterly basis during 2007, slower than Google's rate in China of between 20 percent and 25 percent, according to a Feb. 2 Credit Suisse report.
By Dune Lawrence and John Liu Bloomberg
China Impacts The World
March 18th, 2007By Frank Mulligan - Recruit China
By now I am sure you have seen the headlines. ’Chinese stock plunge sets off a worldwide sell-off’, and ominously, ‘It began in Shanghai’.
If you haven’t been paying attention to this story maybe it is time to take a look. It looks and sounds like the beginning of a Hollywood thriller except that this time it’s for real.
Putting aside the negative consequences of the world-wide stock sell-off, it is clear that China has come of age. Ten years ago, or even five, no one paid any attention to the stock markets in China. There was little incentive to do this as the exchanges in Shanghai and Shenzhen were inaccessible to foreigners. Additionally, the stocks themselves were not of sufficient quality to grab anyone’s interest, and the market was extremely opaque.
It was more akin to gambling than investing.
The situation has changed a lot since then but it is still hard to come to terms with the fact that the Chinese stock exchanges were the first to fall and that they triggered a world-wide panic. It’s a bit like growing up. Suddenly you have all these additional skills but don’t know how to use them.
The source of the sell off appears to be the idea that the former US Federal Reserve Chairman, Alan Greenspan suggested a recession in the United States, and soon. The good news is that if you look at his comments, he did not specifically say that he expected a recession in the US. What he said was ‘ While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 … with some slowdown’.
Not exactly the sky falling down, is it?
Here in China the upside of this is that the narrative of a recession and a falling stock market may cause companies in China, both foreign and local, to hold back investments in new factories and offices. Big companies are like that. Staffers don’t make strategic investment in uncertain times.
This should trickle down to a slowdown in hiring, albeit small, just at a time when it would normally increase rapidly. Candidates might also absorb the current headlines and become a little more conservative. The net effect might be an increased stability in retention patterns. So look out for a little fewer resignations than usual, which is a definite positive.
On the flip side you may have a harder time convincing candidates to join your company if you are new to the China market or the role is risky.
51job: Set to Capitalize on China's Evolving HR Market
March 18th, 2007Ashish R. Thadhani (Gilford Securities) recently sent a note to clients raising his price target for 51job, Inc. (JOBS) based on the Company's strong Q406 results. Key excerpts follow:
* Investment Conclusion. After incorporating stepped-up S&M – funded by lower G&A and near-term taxation -- we are maintaining our estimates: 2007 GAAP EPADS at $0.60 on net revenue of $100 million (20% YoY growth and up from our prior $99 million projection); and 2008 GAAP EPADS at $0.80 on unchanged net revenue of $122 million (22% YoY growth). Due to the late Chinese New Year, our 1Q07 assumptions reflect a shorter peak recruiting period of five weeks vs. eight a year ago. We are raising our target from $26 to $28. In 12-months, this would correspond to 35x forward GAAP EPS of $0.80. Our recommendation is backed by an EV of $344 million or 20x forward earnings plus continued purchases by CEO Yan. We also point out 1) recent newspaper alliances in the U.S. should validate the 51job online/offline model to maximize local reach; and 2) 2007 is expected to be the last year in investment mode for rival ChinaHR.com, which remains much smaller and less profitable than 51job.
* 4Q06 Results. GAAP EPADS of $0.09 vs. $0.08 a year ago on net revenue of $20.8 million (23% YoY growth) matched our $0.09 estimate on net revenue of $20.1 million. Non-GAAP EPADS of $0.14 vs. $0.10 also met our $0.14 expectation. 51job posted positive variances in print advertising revenue and G&A expenses – offset by gross margin and S&M spend. Non-operating interest, subsidies, forex and tax variances offset each other. Revenue was driven by online recruitment services, which advanced 37% YoY to 34% of the total. Operating income of $2.6 million (12.6% margin) was right in line with our estimate of $2.5 million (12.5%). Other highlights included diminished seasonality (-4% QoQ) and clear market leadership based on online postings, traffic quality and pricing -- despite competitor claims to the contrary. Metrics showed growth in print advertising page-count (+33% YoY from a depressed level) and lower revenue per page (-14% in dollar terms due to seasonal promotions and city-mix); and moderating growth in the number of employers using online services (+30%) with steady revenue per employer (+5%). Net cash climbed to $111.3 million (~$3.90 per ADS) from $104.5 million on September 30.
Noteworthy developments
December 2006. In an SEC filing, Recruit Co. disclosed an increase in its holdings to 5.1 million ADS equivalents (18% ownership stake).
November 2006. CEO Rick Yan reported additional market purchases totaling 317K ADSs at an average price of $16.04 between November 13-22. This activity took his ownership to 8.6 million ADS equivalents or 30% of the total. Separately, the class action lawsuit against 51job and its officers, which followed a 4Q04 EPADS shortfall, was dismissed.
September 2006. CEO Rick Yan reported market/private purchases totaling 818K ADS equivalents at an average price of $14.57 during the 30 days ended September 13. This activity took his ownership to 8.2 million ADS equivalents -- well above what is covered under the agreement with Recruit.
August 2006. 51job announced an exclusive partnering agreement with CareerBuilder.com (owned by Gannett, Tribune and McClatchy), under which the two sites will have links that provide job posting and resume access.
June 2006. Mr. Charles E. Phillips, Jr. – President of Oracle (ORCL) – resigned from the board citing personal reasons. Mr. Phillips had served as a director for two years.
April 2006. In a private transaction, existing shareholders comprising management and Doll Capital Management [DCM] sold to Recruit Co. the equivalent of 4.2 million ADSs (or 15% of the total) at $26 each (47% market premium). Recruit holds a three-year option to purchase an additional 25% stake from these shareholders at the higher of two prices: 1) floor of $26 per ADS – as long as JOBS does not drop below $10 at the time; or 2) 15% market premium with a $51 cap. If exercised, management ownership would decline (from 50% before April 2005) to 35% and that of DCM (from 25%) to nil. Separately, 51job entered into a business alliance with Recruit that will explore new information service opportunities in China. Founded in 1963, privately held Recruit is the leading provider of HR services in Japan. It also provides information services across diverse businesses such as learning, real estate, automobiles and coupons. In fiscal (Mar.) 2005, Recruit operating income exceeded $1 billion on sales of $3.5 billion.
October 2005. 51job signed a letter of intent to purchase a $14 million service and headquarters complex in Shanghai, which it began occupying in late-2006... July 2005. The Chinese government changed its currency policy. Over time, anticipated Renminbi appreciation should translate into higher dollar-denominated operating income, offset by near-term currency translation losses.
May 2005. Shareholders approved a $25 million stock repurchase program over a 12-month period. In 2H05, 51job repurchased 686K ADSs at an average price of $13.65.
February 2005. Monster Worldwide acquired a 40% stake in rival ChinaHR.com for $50 million – or 9x 2005E revenue of $14 million (up 100% YoY and 70% online). At the time, ChinaHR.com had 3.2 million registered users and 480 employees in 10 major cities. In 1Q06, Monster increased its ownership to 44.4%. It acquired shares from existing holders for $20 million, implicitly valuing ChinaHR.com at $450 million. Monster expects to assume full control of this subsidiary in early-2008. Financial backing by Monster has not altered the competitive landscape materially. However, 51job does anticipate heated competition until such time that ChinaHR.com – which is likely to remain unprofitable through 2007 – becomes directly answerable to public shareholders.
January 2005. 51job pre-announced a 41% shortfall vs. 4Q04 EPADS guidance due to unprecedented revenue softness in late-December. The sudden (post-IPO) slowdown was attributed to a shift in budget allocations to earlier quarters of the year – borne out in 4Q05 – and moderation of overall demand from ~70% YoY growth.
September 2004. 51job raised net proceeds of $76.8 million from its IPO at $14 per ADS.
Investment Thesis
51job is enviably placed to capitalize on the rapidly evolving market for HR services in China – by applying a proven business model across its vast labor force (5x U.S.). Compared with traditional job search channels such as referrals and fairs, pioneers like 51job offer significant reach and speed advantages. Favorable demographic drivers include GDP growth (~10% in recent years), Internet usage (ranked #2 behind the U.S.), an aging workforce and increasing private, urban and service sector employment. iResearch forecasts that the total recruitment market in China will increase from $570 million to $1.26 billion in 2005-10, implying 17% compound annual growth. During this period, the online recruitment segment is expected to advance from $100 million (18% of the total) to $570 million (45%), or 42% compound annual growth. Superior positioning includes: premium brand/pricing; a comprehensive online/offline offering; wide geographic presence (25 cities); large direct sales force (over 1,200 representatives); and unmatched job seeker database (access to more than 11 million resumes for professional, clerical, industrial and hourly jobs). EPS visibility stands to benefit from top-line, profitability and taxation drivers. Specifically, ramp-up of online subscriptions (from single-digit penetration of client budgets at present); a scalable model offering 30%-plus operating margin (excluding share-based compensation); and initiatives to avail of tax incentives.
JOBS is suitable for aggressive investors. In our opinion, principal risks include the following:
* Deterioration of economic conditions in China, slowing of hiring activity or a “hard landing” scenario.
* Competition from ChinaHR.com and Internet portals could pressure future profitability by way of lower pricing and/or higher marketing expenses.
* Rapid online migration could result in cannibalization of offline revenue.
* Despite recent improvement, 51job has an inconsistent execution record.
* Uncertainties in the PRC regulatory and legal system, particularly laws governing foreign ownership and licensing/operation of HR and Internet business entities. Note that 51job is incorporated as a holding company in the Cayman Islands.
* Disruptions such as spread of the H5N1 virus or a recurrence of SARS, political unrest, breakdown in relationship with a major publishing/distribution contractor, etc.
* Influence of Recruit Co. and current management over all matters requiring a shareholder vote.
* Correction in the U.S. markets.
How to talk business in China
March 18th, 2007Reviewed by Michael Jen-Siu
Tim Cole, a magician from Las Vegas, Nevada, met me in a Beijing coffee shop about two years ago and said he had been cheated out of US$127,000 because his Chinese business partner canceled several performances in violation of their contract. The partner also stuck Cole with the trans-Pacific shipping bill for the show equipment, he told me.
His story followed a series of interviews I had done with the
owners of a Hong Kong engineering company that lost a large hotel to court receivership in Dandong, northeastern China, because the Dandong partner tried to pass off its own loans on the Hong Kong side.
I remember these two cases because they go against the overwhelming majority of China business news stories, which generally follow China's fast-track investment deregulation and the natural flood of foreign businesses entering an anticipated record- sized consumer market. But the magician and the engineering firm showed paperwork to prove that they had been cheated despite the hype.
The Chinese Negotiator, a topically overdue book published this year, suggests that the magician or the engineering firms might have misunderstood their Chinese counterparts when they agreed to do business together. Maybe Cole or the engineering firm upset their local partners during contract negotiations, I started to imagine. Maybe they didn't even have a solid enough deal before business began.
Authors Robert March, a negotiator and consultant since 1985, and Wu Su-hua, an entrepreneur for 25 years in Taiwan and Australia, provide 280 pages of tips on how to negotiate with teams of stoic chain-smokers who don't say what they're thinking. They tell foreign companies to negotiate according to a 12-step process and to pick a team with refined social graces and a taste for Chinese food. They explain why foreign teams must come to the table as a unified front but with a clear leader and every other member assigned non-conflicting responsibilities to avoid the appearance of uncertainty or risk spilling sensitive details too soon.
More important, The Chinese Negotiator shares scores of subtle, example-rich insights about Chinese versus non-Chinese psychology in language that brilliantly transcends stereotypes. These lessons could help almost anyone get along in any Sino-foreign environment, whether as a negotiator, a boss or a common employee. The authors point out that overlooking these subtleties during a contract negotiation can quietly offend the Chinese side, which in turn might sign with a competing foreign firm or plot revenge against the offending party.
March and Wu note, for example, that Western negotiators bristle too obviously when deals don't come together soon enough and do not see how non-business chats over alcohol can improve later negotiations. Chinese, for their part, are as flexible as street-market vendors, take a shared-destiny view of joint ventures, and may look to an absentee boss far removed from the negotiations for serious contract decisions, even after deals are struck at the table. They also subconsciously use any of 36 classic Chinese war stratagems that promote deception, secrecy and elaborate mind games to get what they want.
The book's top lessons, threads that bind one chapter to the next, are that interpersonal trust must precede business, that the Chinese value a harmonious negotiation atmosphere (despite their own poker faces), and that negotiations can last much longer than foreigners expect - though we're never told exactly how long. Another piece of repeated advice: foreigners should avoid talking too much about business in opening negotiation rounds so the parties first get to know each other personally.
The Chinese Negotiator leaves one big red elephant in the negotiating room. That's the profound influence of China's government. Almost every day of my seven years in China, as a reporter or a colleague or a teacher or just someone in the street, I met with the nationalism of modern Chinese people. Much of their distrust, resentment or superiority toward foreigners stems directly from the government's relentless teachings in school or through media that Chinese are historically superior people victimized by foreigners.
The government promotes especially strong anti-Japan sentiment and the questionable idea that ethnic Chinese inside and outside China are all the same except that outside they're lucky to be rich. Before 2000, it was legal to overcharge foreigners at government tourist landmarks. These prejudices are not checked at the negotiation-room doors. Local courts normally back the Chinese side in any dispute, another sign of us-versus-them nationalism. And because of China's non-consultative policymaking and lack of public participation in government, many laws touted as business-friendly via government-run English-language media are vague, redundant and even contradictory.
Cole or the Hong Kong engineering firm might have blundered in their negotiations, but they could easily have been cheated out of sheer resentment, or fallen into the red through a legal gray area. The Chinese Negotiator might have noted the state's formative role in Chinese psychology and advised companies on how to reach sound, cheat-resistant business agreements that have the flexibility to withstand undulating local laws on key matters such as currency conversion and patent protection.
Key foreign countries are also missing from the book. Most of the advisory anecdotes feature firms from developed Western countries, but what about growing powerhouses such South Korea or Russia, where business cultures differ, likewise stereotypes held by the Chinese? And if I were a sole proprietor magician or hotelier, rather than a company with a big staff, I'd want to know how to negotiate against a complex Chinese organization without hiring a team. Is there a network of negotiators for hire?
Finally, The Chinese Negotiator could further explore China with a few more anecdotes from the book's namesake. Experienced contract negotiators at the foreign-affairs offices of state companies or the poker-faced Chinese bargainers who quietly evaluate their foreign counterparts across a table might tell revealing stories about what it's like on the home court.
Influential Chinese people do not always open up to foreign writers, but some will talk, especially if contacted through personal connections. Chinese sources also might offer details on how they arrange room, board and meeting venues for the negotiators - and who pays for it all. Maybe we would learn that some Chinese publisher is about to release "The Foreign Negotiator".
The Chinese Negotiator: How to Succeed in the World's Largest Market by Robert M March and Wu Su-hua. Kodansha International, February 2007. ISBN-10: 4770030282. Price US$24.95 hardback, 280 pages.
Michael Jen-Siu is a wire-service reporter living in Taipei.
Tech Flocks To Shanghai
March 14th, 2007HONG KONG - Lured by the vast size of China’s domestic market and its lower labor costs, plus a raft of corporate tax breaks, foreign technology companies are setting up shop in Shanghai in droves.
According to a report from Russell Reynolds Associates based on Shanghai government statistics, 144 foreign companies now have their Asia-Pacific headquarters in Shanghai, 48 of which established operations there only in the last year.
Alcatel (nyse: ALA - news - people ) was the first major multinational to make the move in 2001; now there are 11 in Shanghai.
This list includes AlliedSignal, Delphi (nyse: DPH - news - people ), FedEx (nyse: FDX - news - people ), General Electric (nyse: GE - news - people ), General Motors (nyse: GM - news - people ) , Goodyear Tire, IBM (nyse: IBM - news - people ) , Johnson & Johnson (nyse: JNJ - news - people ), Kodak (nyse: EK - news - people ), Rhodia (nyse: RHA - news - people ), Roche and Sharpe.
Russell Reynolds said 15% of the top 50 U.S. tech companies now have their Asia-Pacific headquarters in Shanghai, compared to 40% in Singapore, the city dubbed “Asia for beginners,” and 20% in Hong Kong.
Of the top 50 European technology companies, the executive search firm said 14% have their regional headquarters in Shanghai, 50% are in Singapore and 4% are in Hong Kong.
Beyond the tax breaks, low manufacturing costs and the desire to have executives on the ground in what many believe will soon be one of the most lucrative markets in the world, the report said one of the top reasons companies set up regional HQs in Shanghai is to make a political statement to the Chinese government.
The negatives of operating out of Shanghai include a lack of experienced talent at the executive level and the high cost of expatriate housing and schooling, often higher than comparable cost in Singapore.
Shu-Ching Jean Chen, Forbes
International forum
March 13th, 2007A MEMBER of the World Bank Technical Assistance team in China, Patrick Dixon, will join other international business leaders and economists on May 28 at Shanghai Marriott Hotel Hongqiao, looking into the future trends and their impact on investors and business in China.
Venture capital jumps 55% on mainland
February 14th, 2007VENTURE capital investments on the Chinese mainland jumped 55 percent last year, reaching a three-year high, an industry report said yesterday.
Venture capital valued at US$1.89 billion poured into the mainland last year in 214 deals, said a report jointly released by Dow Jones VentureOne and Ernst & Young.
It marked a 37 percent increase in the number of deals year on year.
Information technology remained the dominant industry for investment.
By industry, 131 IT companies were financed last year, receiving US$920.7 million, up 34 percent from 2005 in terms of capital.
Meanwhile, there was significant growth in areas such as healthcare, retail companies and clean technologies.
The business, consumer and retail industry category posted 57 deals and US$613.3 million last year, 20 more deals and 40 percent more capital than in 2005.
The energy segment climbed with 10 deals, up from one in 2005, and US$212.6 million invested, up from US$80 million a year earlier.
"The continuous growth of the Chinese economy and the middle class in China - as well as the increased focus on innovation - are the primary drivers for the significant investment growth in these sectors," said Bob Partridge, China leader of Ernst & Young's Venture Capital Advisory Group.
Stephen Harmston, director of global research for VentureOne, said: "Another sign of the strength is that investors are helping their companies to ramp up quickly in the global marketplace by funding them with increasingly larger sums."
The median deal size in China is now US$5.9 million, up 59 percent from US$3.7 million in 2005.
In addition, the level of second round investment activity illustrates the growing maturity of the venture capital market in China, Harmston said.
"Investors are helping companies to move past the start-up stage into the next phase of development," he said.
Investment options continue to expand
February 12th, 2007INSURERS are improving profitability as investment vehicles increase.
The investment returns for the country's insurers sat at 5.8 percent last year, up 2.2 percentage points from 2005. It marked a three-year high.
Total profit for the industry topped 95.5 billion yuan (US$11.94 billion) last year, according to the China Insurance Regulatory Commission.
The top insurance regulator is considering further expansion of the investment channels insurers can utilize.
"The watchdog is researching the possibility of expanding the upper limit of insurers' investments in the stock market," said an official with the commission who asked not to be named.
Domestic insurers were formerly restricted to bank deposits and bonds as main choices. The low returns made it difficult to boost profit.
At present, insurers are allowed to invest up to five percent of their total assets in the stock market. However, the watchdog is also concerned that the strict limit curbs insurers' investment returns from the stock market, especially now that has entered a period of strong gains.
China's stock market stepped out of a five-year low last year as the Shanghai Composite Index surged 130 percent. It is expected the bull run will continue for another two years, according to analysts.
Insurers can now invest in stocks, infrastructure and overseas fixed income markets. Insurers invested US$2.46 billion overseas last year while 10 billion yuan alone was invested in the high-speed railway linking Shanghai and Beijing.
Insurers are making money from investments in the banking sector. Last year, insurers bought stakes in Industrial and Commercial Bank of China and Bank of China. Both banks' shares have surged since their debut in Hong Kong and Shanghai.
Authorities are considering giving insurers more options to invest abroad by allowing them to invest up to 15 percent of total assets in overseas markets including stocks, funds, fixed-return products, options, deposits, bonds, commercial bills and other products allowed by the regulator, the top regulator said.
It has been soliciting public opinion on the plan in a draft rule posted in December. More moves are also under way.
Shanghai will test using insurance capital to build apartments in Pudong New Area on a trial basis, the Shanghai Bureau of the CIRC said last week.
"I am expecting wider investment vehicles which will make my job more challenging and exciting," said Xiao Hua, an official within the investment department of a local insurer. "And I see the trend coming quicker these days."
Mayfield Fund Ready To Focus On China's Technology Sector
February 7th, 2007Mayfield Fund has announced the closing of a US$200 million fund, dedicated to investing in China's technology sector.
'We look forward to a deeper relationship with Mayfield Fund and know that our portfolio companies will benefit from the venture capital and sector expertise of their team,' said Richard Lim of GSR Ventures. 'Together, we are confident of building the next generation of global Chinese companies.'
The fund, GSR Ventures II, was formed in partnership with GSR Ventures, a China focused fund. The dedicated fund follows a two year affiliation between Mayfield and GSR, during which the firms say they made eleven direct investments in China.
GSR Ventures II was over-subscribed and has a mix of existing Mayfield limited partners and GSR's limited partners from its first fund. It will target investments in the semiconductor, wireless and Internet media sectors and will have representative offices in Menlo Park and Beijing.
Mayfield Fund reports to have US$2.6 billion under management and a team of twelve investing professionals. Since Mayfield's founding in 1969, the firm has invested in more than 470 high-growth companies, taken more than 100 public, and more than 150 have merged or were acquired.
Private firms 'new force' in overseas investment
February 7th, 2007Privately owned Chinese enterprises are set to become the new force among China's overseas investors.
So said Hou Zhirui, an official from the All-China Federation of Industry and Commerce, based on data from an eight-year period.
The organization's statistics showed that the growth rate of private enterprises has seen more of them become large companies with sales volumes of 300 million yuan. And these firms will be ready to go abroad when they reach a certain level.
"It will not take a long time (for Chinese private enterprises to become a new force in overseas investment). Maybe only three to five years," he said.
A large number of private Chinese firms have already increased their presence in overseas markets.
Outbound investment includes overseas processing, technology and equipment exports, establishing sales channels, and mergers and acquisitions. But most of the firms still focus on small-scale projects.
The federation's Zheng Yuewen said the Chinese government should remove restrictions on private enterprises "going out".
He said the government should, for example, remove the approval process for outbound investment.
The outbound investment of Chinese firms totaled $16.1 billion last year, according to statistics from the commerce ministry. China went from being the 17th largest investor in the world to the 13th in 2005.
Although the figure reflects a 31 percent increase from a year earlier, it is still small compared with the $64.5 billion of foreign investment China attracted last year.
Chinese overseas investors are facing major obstacles such as a lack of core technologies, cultural differences and a lack of well-known brands, according to a report on Chinese transnational corporations by the Research Institute under China's commerce ministry.
"But enterprises cannot go out until everything is ready," said Wang Zhile, a researcher with the institute.
The report suggested the Chinese government should offer more policy support to Chinese enterprises for their overseas investments, quoting the successful experience of South Korean companies.
"Only by cultivating a large number of Chinese transnational companies can the country concentrate its limited resources to lay a solid foundation for economic strength," the report said.
Meanwhile, the report said Chinese enterprises must improve their abilities in overseas investment and management.
"Chinese investors must learn how to shun trade obstacles such as safeguards, tariff barriers and trade conflicts brought by foreign countries," it said.
Tariff cuts may ease trade surplus
January 23rd, 2007CHINA will further reduce import tariffs on energy, raw materials and advanced technology in a bid to ease the country's growing trade surplus, Fu Ziying, assistant minister of commerce, said over the weekend.
The rapidly expanding trade surplus is "threatening the economy with the danger of rebounding investment and rising inflation," Fu said at an economic conference in Beijing.
China aims to narrow the surplus, which jumped 74 percent to a record US$177.5 billion last year, in an effort to adjust economic structure and curb rapid foreign exchange inflow that floods the world's fourth-largest economy with liquidity and adds pressure on its currency to rise.
China's exports rose 27 percent, and imports gained 20 percent in 2006, according to government data cited by Bloomberg News. To slow exports, China raised export taxes on oil, steel and nonferrous metals in November. In the same month, it cut import tariffs for alumina, the raw material for aluminum.
In September, it cut export incentives for steel and textiles.
The commerce ministry will further cut export rebates, Fu said, without elaborating. It will also adjust toll policies on companies that import raw materials and then export processed products, he added, without providing further details.
A more flexible currency is helping the government's effort to ease the trade surplus, Fu said. The yuan rose 0.31 percent to 7.7739 against the United States dollar in Shanghai last week, according to the China Foreign Exchange Trade System. It has risen 6.3 percent since a fixed exchange rate of 8.28 to the dollar ended in July 2005.
The government has asked the Export and Import Bank of China, a state-owned policy lender, to increase lending to importers, Liang Xiang, assistant president of the bank, told reporters on Saturday.
SAIC and GM plan to raise JV output
January 17th, 2007THE Shanghai Automotive Industry Corp and partner General Motors Corp plan to invest US$650 million in their Chinese joint venture to expand production and increase market competitiveness.
The capital injection is part of SAIC's 9.2 billion yuan (US$1.15 billion) investment plan to introduce new models, add capacity in its joint ventures and boost research and development of its self-branded vehicles.
As part of the plan, SAIC and GM intend to spend a combined US$217 million to increase the registered capital of their equally owned Shanghai General Motors Automobile Co Ltd, according to a statement from Shanghai Automotive Co Ltd, the listed unit of SAIC.
General Motors Corp and SAIC will retain their existing shareholdings under the deal.
Communications officials did not provide details on the capacity expansion. But a company source said the investment would be used to upgrade existing assembly lines for future products rather than build new plants.
GM said earlier that the company plans to launch production of a hybrid vehicle that uses gas and electricity next year at Shanghai GM.
Shanghai GM is also expected to roll out a new version of the Buick Regal and other models under the Chevrolet brand.
SAIC also announced a series of investments in auto parts makers as well as a research and development institution to support the development of Shanghai GM and its self-branded models.
SAIC, the Chinese partner of GM and Volkswagen AG, ranked first among Chinese car makers in sales last year.
Shanghai plans to open service sector further
January 10th, 2007SHANGHAI: The municipality will further open its service sector and aims to lure more foreign investment, Vice-Mayor Zhou Yupeng said yesterday.
The service sector attracted the largest share of Shanghai's contractual foreign capital last year $9.76 billion, or 67 percent, of the total $14.57 billion invested. The investment was mainly in commerce and real estate.
Total contractual foreign investment in Shanghai surged 5.4 percent year-on-year in 2006.
During yesterday's briefing on Shanghai's foreign trade and investment, the vice-mayor said Shanghai would intensify the process of opening-up in 2007, especially in the service sector.
"The municipality will attract more institutions including multinational companies' global headquarters and regional centers, research and development centers, investment firms and operating centers," he said.
To further boost investment in the modern and manufacturing-based service industries, foreign-funded financial institutions, forwarders, shipping service providers as well as professional service providers are welcome in Shanghai, he added.
One of the first "service outsourcing base cities" in China, Shanghai will take measures to enhance its service outsourcing business and attract investors.
Foreign-invested enterprises have contributed a lot to the municipality's economic growth, according to figures from the Shanghai Economic Relations and Trade Commission.
Active participation in the region's economy in turn has brought considerable profits. In the first 11 months of last year, foreign-funded enterprises in Shanghai reported a combined 1.4 trillion yuan in sales revenue, a year-on-year jump of 12.8 percent, with total profit surging 30 percent.
The foreign-invested companies were major contributors to the municipality's total output.
In 2006, the combined output value of overseas players accounted for 63.5 percent of the municipality's total, 66.8 percent of exports and 28 percent of local revenue.
They are also major employers in Shanghai foreign companies had hired 1.68 million personnel by the end of November, about a quarter of the municipality's total.
Foreign trade volume reaches US$500 bln in Guangdong
January 9th, 2007Chinanews, Guangzhou, Jan. 4 ¨C Statistics show that foreign trade volume of Guangdong Province reached US$500 billion in 2006, compared with $400 billion in 2005.
Private enterprises in Guangdong also developed well last year, and the total number reached 500 thousand. Their industrial value-added had surpassed state-owned enterprises, ranking second among all kinds of enterprises.
Private enterprises also have helped to change the foreign trade style of Guangdong Province. The head of Guangdong Foreign Trade Bureau said that private enterprises have helped to boost the provincial export. Related statistics show that the export volume of private enterprises has reached $41.93 billion from Jan. to Nov. 2006, an increase by 57.7 percent.
Export in Guangdong was dramatic in 2006, with the export volume to Middle East, South America and Africa increasing by 48.9 percent, 59.9 percent and 51.4 percent respectively.
China's growth presents opportunity for Latin America
January 5th, 2007China's economic growth presents an opportunity for Latin America, said a report of UN Economic Commission for Latin America and Caribbean (ECLAC) on Wednesday.
The report said China became the fourth-largest economy in the world in 2005, replacing Britain and that China's share of the world trade volume has jumped from 1 percent to 6 percent in less than 20 years.
China has been the primary target of anti-dumping cases in recent years, the report pointed out, adding that many emerging economies harbored bias against China over its strong competitive edge from low labor costs, with some even blaming China for their poor exporting performance.
However, the report said China's enormous domestic market presents an opportunity to many countries, adding that Latin American countries will continue to benefit from China's economic growth and its ever-expanding domestic demand. Brazil's exports to China has quadrupled over the past four years, it added.
Meanwhile, the ECLAC stressed that there is no direct trade competition between China and Latin America in the U.S. market.
China's trade increase has little impact on Paraguay, Venezuela, Bolivia and Panama and China is a net importer of raw materials while Latin America is rich in natural resources.
Therefore, the report said China's economic growth and its integration in world trade would "obviously" benefit Latin America, the report added.
Foreign investment meets city's target for 2006
January 4th, 2007FOREIGN investment is expected to continue to pour into Shanghai at a healthy pace after contracted funding paced by the service industry met forecasts in 2006.
The city approved 4,061 foreign-invested projects with contract value totaling US$14.6 billion last year, a 5.4 percent increase over 2005, the Shanghai Foreign Economic Relations and Trade Commission reported yesterday.
Among the new projects, 2,962 deals worth US$9.8 billion were in the service industry, the city's trade and investment authority said.
"Contracted foreign investment in the service industry jumped 33.5 percent in 2006," said the commission's Chen Zhangyuan.
The service sector contributed 67 percent of contracted foreign investment to the city's total last year.
Shanghai's foreign direct investment - the amount actually received - exceeded US$7 billion in 2006, compared with US$6.9 billion a year ago, the authority said.
"The retail sector, which featured a batch of world-famous brands landing in the city, some service outsourcing projects and rapidly expanding overseas financial service projects fueled the growth in the service sector," Chen said. "In addition, investments in energy, environmental protection, information technology and petrochemicals were very active in the past year."
Shanghai is no longer posting double-digit growth in attracting foreign funds as it focuses on attracting high-value-added investment projects that help optimize the city's industrial mix.
Shanghai is now home to 154 multinational regional headquarters and 196 research and development centers.
Foreign trade barriers cost Chinese exporters US$70 billion
December 26th, 2006Technical barriers established by foreign countries cost Chinese exporters up to 69.1 billion US dollars last year, said a report from the Commerce Ministry in Beijing on Monday.
"The textile industry has been most affected by barriers, taking up to 43 percent of the losses," said the report. "Exports of food, poultry, wood products, electronic and machine products were also greatly affected."
The report said the European Union and the United States had taken the lead in setting high technical standards for Chinese export products, followed by Japan and the Republic of Korea.
These countries usually added items to inspection and quarantine lists or revised trade regulations on the grounds of environmental protection, consumer health and other reasons, said the report.
Among 22 categories of Chinese export commodities, 18 had encountered technical barriers in 2005, said the report.
Chinese export companies were learning to respond rapidly to foreign technical barriers and improve competitiveness in exports, but there was still a long way to go, said the report.
The government started to set up centers across the country this year to analyze technical standards for foreign market access, issuing regular reports for the government and industries.
Under WTO rules, every WTO member has the legitimate right to question new trade regulations by other nations within 60 days of the promulgation. However, the lack of assistance from technical experts and the abstruseness of technical standards often frustrate Chinese companies and prevent them from taking effective action.
One hundred technical service centers are scheduled to be set up by 2010 to cover more than half the country's export commodities, according to the ministry.
China's West Attracts 300 Bln Yuan Investment from East
December 25th, 2006Firms based in the east of China have invested more than 300 billion yuan (about US$37.5 billion) in western China, Fu Ziying, assistant minister of Commerce, said on Wednesday.
The 10,000 east China-based enterprises include state-and private-owned enterprises as well as foreign companies, Fu said at a press conference at the 11th China Chongqing Investment and Global Sourcing Fair (CCISF).
Abundant resources, preferential policies, and cheap land and labor in the region spelt opportunities for investors. The rapid expansion of manufacturing, high-tech, power, and tourism industries in the region has added to its attractiveness.
The CCISF, held every two years, promotes trade and investment in west China. It is a platform that allows the western region to seek investment from outside, according to Fu.
The 11th CCISF will be held between April 18-21, 2007 in Chongqing Municipality, focusing on the theme of "Global sourcing and investment."
China launched the western development program in 2000 to narrow the economic gap between the region and the country's east.
In 2005, the region generated a total of 3.37 trillion yuan in gross domestic output, up 12 percent on 2004, significantly higher than the national average of 9.9 percent.
Jefferies ups the ante in China
December 13th, 2006AMERICAN investment bank Jefferies & Co expects to arrange 10 deals worth US$1 billion in transaction value for China-based clients next year, its Vice Chairman Paul Deninger said.
The deals, which include public offerings and stake transactions, compare with six China-related mandates worth US$500 million in transaction value for the past two years, he said. The Chinese clients cover alternative energy, shipping, natural resources and industrials, according to Wei Hopeman, the firm's chief representative in Shanghai.
One third see China as opportunity
December 5th, 2006Dec.5 - One third of Europeans and Americans see China's rapid economic growth to be an opportunity, while nearly 60 percent remain wary of China's rising economic power, an opinion poll showed on Monday.
The survey, by the German Marshall Fund, a transatlantic think tank, comes as policymakers in Brussels and Washington are planning to update trade and investment ties with China, wary of its new economic might but keen for more of its huge market, the Reuters reported.
China skeptics worrying about China's economy see its inexpensive goods export and their companies relocating to China as a threat, according to the poll which covered France, Germany, Italy, Poland, Slovakia, Britain and the United States.
Of the six European countries covered, 70 percent of people in France and only slightly fewer in Poland, Italy and Slovakia expressed jitters over China's emerging economy, said the Reuter report.
Traditionally free-trading Britain had more people who saw China as an opportunity than a threat, the survey found.
With European manufacturing coming under pressure from Asia, the European Commission has imposed anti-dumping duties on a range of Chinese exports, including leather shoes.
EU and Chinese negotiators are due to begin talks next month on a broad new bilateral agreement, including economic issues. And, US Treasury Secretary Henry Paulson is leading a high-level Washington delegation to China later this month.
In potentially good news for attempts to break a deadlock in world trade talks, the poll showed 52 percent of respondents favored globalization in general, up from 46 percent in 2005.
Possibly behind that was a fall in dissatisfaction about the local economy -- 41 percent of Americans and 27 percent of Europeans were satisfied with their own economy, up from 30 and 20 percent respectively in 2005, the survey found.
But in a sign of how sensitive an issue free trade remains, two thirds of the French and over half the American respondents in the poll favored keeping trade barriers when local companies are at risk, even if it means slower economic growth at home.
The poll heard the views of about 1,000 people in each of the seven countries between September 5 and 25.
Investment in China increases
November 24th, 2006Recruitment companies have increased their investments in China, according to a new study by the1, the M&A specialists for the human capital sector.
The study identified a cumulative total of 156 investments in China by 106 foreign recruitment or human capital groups over a 20-year period.
China as a whole, including deals made in Hong Kong, has seen a 70% boost in investments, from 40 transactions in the 1995-1999 period, to 68 in the post-2000 period.
Director Mark Dixon says: ¡°China is the human capital sector¡¯s number one opportunity long-term, with a population of 1.3 billion, you don¡¯t have to be a rocket scientist to do the maths. It¡¯s a numbers game, with some very big numbers.¡±
The growth was fastest (132%) for investments in Mainland China (58 post-2000 versus 25 in the prior period), the first empirical evidence that foreign human capital companies have stepped up their investment on the Mainland.
Huge rail investment announced
November 23rd, 2006SHANGHAI, Nov.23 - China will invest 1.5 trillion (US$190 billion) to increase the nation's rail network to over 90,000 kilometres by 2010.
"We will invest 300 billion yuan (US$38 billion) in railway construction next year," Li Guoyong, transportation director of the National Development and Reform Commission, said Wednesday at the China Railway Financing Forum.
The investment, described by Li as "the biggest in China's history," would increase the size of China's rail network by almost 20 per cent.
The 1.5 trillion yuan (US$190 billion) investment includes 250 billion yuan (US$31.6 billion) for vehicle purchasing, over 600 billion yuan (US$76 billion) for railway lines and over 625 billion yuan (US$79 billion) for civil engineering.
China's 11th Five-Year Plan (2006-10) states that solving hardware problems, such as the network and machinery, are the core issues for the development of the nation's railways.
"The transportation turnover rate for railways will double with the completion of main trunk lines in 2010," said Long Hua, an analyst from Industrial Securities Co.
"The railway industry's boom is expected to last over 10 years."
Slow and relatively poor-quality services and busy trunk lines remain the major problems confronting China's rail industry.
A lack of services will remain a problem in 2010, but the Ministry of Railways expects this to be solved by 2015.
"We plan to set up an inter-city passenger transportation express, which will reach a speed of at least 200 kilometres per hour," said Li.
China to be the biggest energy producer
November 16th, 2006¨C China is working hard to improve its energy efficiency, and it is planning to expand the energy market scale to 10 trillion yuan before 2020. It is estimated that China will overtake USA in 2 years to become the biggest energy producer in the world.
Though China is well on the way to developing more energy resources, and the country does have a great potential in this field, it will still be wise for it to use energy in a sustainable way.
Besides fossil energy development, great achievements have also been made in developing clean energies like windpower, hydropower and solarpower.
Environmental protection will pose a great challenge, too, as even rapid growth of energy industry in the country should never harm eco-environment.
China will stick to the open-market policy in the future, which will bring mutual benefit to both China and the world.
Currently, a law on renewable energies is under being in preparation, and specific regulations on the development of clean energies will be made, too, to ensure energy security.
4th Chinese private enterprise summit opens in east China
November 6th, 2006HANGZHOU, Nov. 4 (Xinhua) -- The fourth Chinese Private Enterprise Summit, the largest of its kind in China, opened Saturday in east China's Zhejiang Province.
More than 3,000 private entrepreneurs both at home and abroad attended the two-day summit held in Hangzhou, the provincial capital.
With the theme of "Innovation, Credibility and Harmony", the summit had a series of forums on innovation, real estate development and Chinese private entrepreneurs.
"Weakness in innovation and enterprise management now hinder the development of private enterprises in China," said Jiang Zhenghua, vice-chairman of the National People's Congress Standing Committee, China's top legislature, at the opening ceremony.
Chinese private enterprises should make use of the opportunities in globalization and nurture their own brands on the basis of good management, he said.
The summit was sponsored by the Private Economic Studies Centerunder the Chinese Academy of Social Sciences, Zhejiang Provincial Administration for Industry and Commerce, and Zhejiang Private (Non-Governmental) Enterprises' Association.
A key sector in the province's economy, private enterprises hold 90 percent of jobs and 70 percent of the gross domestic product in Zhejiang. Enditem
China to provide 500,000 USD for human resource development in Central Asia
November 6th, 2006China will give half a million U.S. dollars to Central Asian countries to support their human resources development, said China's Vice Finance Minister Li Yong.
The money will come from the Regional Cooperation and Poverty Reduction Fund (RC Fund) set up by China at the Asian Development Bank (ADB), said Li at the Ministerial Conference on Central Asia Regional Economic Cooperation (CAREC) in Urumqi.
"China actively supports regional economic cooperation in Central Asia," said Li.
China provides technological aid for the area's agricultural development, environmental protection and capacity building through the RC Fund, and supports cooperation in prevention and control of AIDS and bird flu, said Li.
China is committed to providing 20 million U.S. dollars to Central Asian countries between 2005 and 2009. It established the RC Fund last March to promote regional cooperation in reducing poverty among the developing member countries of the ADB.
In June 2004, China gave Kyrgyzstan 60 million yuan (7.5 billion U.S. dollars) in aid to build a 937-kilometer highway linking the country with China and Uzbekistan.
From 2006 to 2008, the ADB, together with the European Bank for Reconstruction and Development, the International Monetary Fund, the Islamic Development Bank, the United Nations Development Program and the World Bank, will invest 2.3 billion U.S. dollars in regional transport, energy and trade infrastructure in Central Asia, with 1.4 billion coming from the ADB.
Created by the ADB in 1997, CAREC is a regional cooperation mechanism focusing on transport, trade and energy initiatives that are critical to the economic performance of the region.
It is also financing infrastructure projects in order to improve living standards and reduce poverty in CAREC countries.
Source: Xinhua
China to encourage investment from green companies
November 6th, 2006The Chinese government is to encourage more foreign investment in energy-saving and environmentally-friendly industries, Vice Minister of Commerce Ma Xiuhong has said.
The government would also make more efforts to optimize the industrial structure of foreign investment, said Ma.
Foreign investors have invested 665 billion US dollars in China in the past 27 years, Ma said. By the end of last September, China had recorded capital from over 200 countries and regions and more than 800 research centers have been established by foreign companies.
Foreign investment played an important role in China's economy, with taxes from foreign firms contributing 634.9 billion yuan (80.36 billion US dollars) last year, 21 percent of the country's total tax revenue.
By the end of last year, foreign-invested companies were employing more than 25 million people, accounting for 11 percent of China's total jobs.
Foreign companies are also encouraged to set up regional headquarters as well as purchase, logistics and training centers in China.
Nortel ramps up China R&D staff
November 6th, 2006Beijing — After two years of slashing jobs at home, Nortel Networks Corp. has revealed another big increase in its engineering staff in China, accelerating a trend that has seen it shifting to lower-cost countries for its manufacturing and R&D.
Nortel disclosed Thursday that its R&D staff in China has grown by almost 30 per cent in the past year. The company now has about 1,800 research and development employees in China, compared with about 1,400 last year. This means that China now accounts for 15 per cent of Nortel's worldwide R&D jobs, up from 12 per cent last year.
Canadian politicians have criticized Nortel for shifting jobs overseas. The company announced in 2004 that it was cutting 950 jobs in Canada, including a large number at its R&D headquarters in Ottawa. It announced another 1,900 job reductions worldwide this year, and some of those job losses will be in Canada.
Four months ago, in another cost-cutting move, Nortel shifted its procurement office from Ottawa to Hong Kong. And within three years it plans to buy 80 per cent of its components and materials from low-cost countries, primarily in the developing world, compared with 30 per cent last year. The company has announced that it is adding about 800 new jobs in two low-cost countries — Mexico and Turkey — by 2008.
“China is becoming much more important for Nortel — not just in revenues but also in employment, as an R&D centre,” Nortel chief executive officer Mike Zafirovski said Thursday at the official opening of its new China headquarters in Beijing. “We have more and more operational responsibilities for all of Asia now being handled out of Beijing. It's a very good commitment to China but also very smart from a Nortel perspective.”
He would not rule out the possibility of further job cuts in North America as the company focuses more on opportunities in the developing world.
“We are not as competitive as we need to be,” he said. “Our costs are not at world-class levels, but they will be. Nothing will stop us in our pursuit of being the most competitive enterprise out there.”
Most of the planned cost savings, however, are likely to be from efficiencies such as better on-time delivery and improved systems, rather than shifting jobs to low-cost countries, he said.
The state-of-the-art office in Beijing is an example of the trend toward low-cost countries. With 180,000 square feet of space in the high-tech Wangjing industrial zone, the gleaming glass-and-steel campus is making it easier for Nortel to recruit China's new generation of R&D engineers. About 1,000 of its 1,800 R&D staff are based at the new Beijing campus, which was built as part of a $200-million investment announced in China in 2003.
China is also an increasingly important centre for Nortel's operations in Asia. A growing share of its Asian executives and R&D staff are based in China with a mandate to serve all of Asia. “We're utilizing the skills here for the benefit of Asia,” said Michael Pangia, president of Nortel's Asia division.
As it expands its operations here, Nortel is hoping for steady revenue growth from China, which accounts for the biggest share of the Asian division that now provides almost 14 per cent of Nortel's global revenue. China is also likely to benefit from Nortel's plans for greater investment in Asia.
“China would be a logical place for that to happen,” Mr. Zafirovski said Thursday. “We view China to be a major growth opportunity. We'd love to be twice as big in China.”
Reuters opens China development centre, sees staff tripling
November 6th, 2006BEIJING, Oct 9 (Reuters) - Global news and information company Reuters Group (RTR.L: Quote, Profile, Research) opened a development centre in China for key products such as its 3000Xtra desktop terminal and said it expected to triple the operation's staff to 600 in three years.
The centre, located in the capital's technology hub of Zhongguancun, will also input data related to mergers and acquisitions, company financial reports and forecasts, and economic data for markets in China, South Korea and Japan, Reuters said in a statement on Monday.
It gave no figure for the amount invested.
"This investment underscores our commitment to China and our desire to participate in its future as a global leader in technology and financial markets," Chief Executive Tom Glocer said in the statement.
Hollywood to conquer Chinese home video market
November 3rd, 2006Chinanews, Beijing, November 3 ¨C After its huge success in hitting box offices in China, Hollywood is ready to take Chinese home video market too.
Now Hollywood is working hard to release more DVDs in China. Currently at least 8,000 DVD shops have been set up in the country, and the number is likely to grow to 10,000 before 2007.
China¡¯s successful campaign against piracy has drawn Hollywood¡¯s attention and put its confidence back. Furthermore, the huge market needs for movies must be met after the eradication of pirated ones, thus it is a golden opportunity for copyrighted works to take their shares at reasonable prices.
Fortunately, Hollywood is determined to sell their DVDs at prices based on the consumption level in China, from 15 to 25 yuan.
Airbus to hire 600 staff for new China plant
November 2nd, 2006ZHUHAI • Airbus said yesterday it would hire 600 staff for its new assembly plant to be built in the north Chinese port city of Tianjin.
Speaking at a media briefing at Airshow China, the country’s only air show and exhibition, Laurence Barron, president of Airbus China, said staff would be trained on the existing production line in Hamburg, Germany.
Airbus announced last week that it would open an Airbus A320 assembly plant that would eventually make four planes a month, with the first expected to be completed in 2009.
Airbus will ship sections of aircraft from Hamburg to Tianjin for final assembly.
The construction of the plant, near Beijing, was announced last week, along with China’s purchase of 150 A320 aircraft in a deal worth about $10bn, with delivery expected from 2009, Barron said.
It brings the total order to 300, following China’s order last year of 150 Airbus planes.
Barron said some of the Chinese order would be made in Tianjin but some planes would also be made for the European market.
He would not reveal further details about the plant or its future development until it received final approval from the Chinese government, which was preparing a formal feasibility report.
However, Barron highlighted the importance of the fast-growing Chinese market.
“(China) is a very important market. With its air traffic doubling here every five years, it’s becoming or has already become a major market in the world. We are taking China extremely seriously,” he told reporters.
Airbus estimated that China would need around 1,790 planes over the next 20 years.
The European company is seeking to undercut US rival Boeing, which has about two-thirds of the lucrative Chinese civil aviation sector and says it is aiming for a 50 per cent market share.
Analysts said the latest developments could be significant in helping Airbus achieve its goal.
Recruitment firms boost investment in China
November 2nd, 2006Recruitment companies have increased their investments in China, according to a new study by the1, merger and acquisition (M&A) specialists for the human capital sector. The study identified a cumulative total of 156 investments in China by 106 foreign recruitment or human-capital groups over a 20-year period.
China as a whole - including deals made in Hong Kong - has seen a steady rise in the number of investments over the years. It saw a 70% boost in investments, from 40 transactions in the 1995-99 period to 68 in the post-2000 period.
However, the growth was faster (132%) for investments in mainland China (58 post-2000 versus 25 in the prior period), the first empirical evidence that foreign human-capital companies have stepped up their investment on the mainland.
"China is the human-capital sector's number [one] opportunity long-term," said Mark Dixon, a director of the1. "With a population of 1.3 billion, you don't have to be a rocket scientist to do the math. It's a numbers game, with some very big numbers."
Explaining this shift in investor attitude, Dixon said, "People have been aware of the potential of the Chinese job market but most viewed 'M&A for people businesses' as too theoretical - the country, the culture and the prospect of profits all being too far off.
"But now we now seem to have passed a tipping point. Although the Chinese recruitment industry is nascent and impeded by red tape, profits are already being made. This has negated the old excuse in the industry that China should be left as a challenge for the next generation."
Commenting on the maturity of the investment flow, Dixon said, "We haven't entered a land-grab phase yet. In coming years, investors will move on from toe-hold investments to building national brands and large office networks across China. We'll see them pour in real capital.
"Larger recruitment groups are starting to feel pressure from clients, institutional investors and boardrooms," he said. "The result is clear. The attitude to China is moving from opportunity to obligation. Obsession may not be far away."
Hong Kong
Hong Kong, which saw most of the early investment, has been receiving less attention. It attracted 10 transactions post-2000, compared with the 58 on the mainland during the same period. Hong Kong now is viewed more as a market in its own right rather than as the gateway to China. Companies wanting to capitalize on "the China opportunity" are discovering they need to be in China proper.
Cumulatively, Hong Kong has received 51 deals, compared with 105 on the mainland. Before Britain handed Hong Kong back to China in July 1997, the small territory attracted more human-capital-sector investments (53%) than the entire mainland. It is no longer where the action is. After the handover, a period that coincided with an investment flow into China from many countries and industries, the balance has switched - mainland China has attracted 82% of all deals.
This move inland is even seen among the pre-handover investors in Hong Kong themselves, who made 35 deals. Some 77% of these groups have subsequently expanded into mainland China.
Commenting on this trend, Dixon said, "Hong Kong used to be King Kong - the 800-pound gorilla on the Chinese human-capital stage, a sort of bouncer standing outside the stage door of China. Kong has now gone, at least in that capacity."
Legal structures used
A range of different legal structures is being used by investors to operate in China, some on a solo basis and some with partners.
More than half (55%) of the investments involve the foreign company setting up a new subsidiary in China. This compares with 28% of investments in the form of representative offices. Just 17% are new joint ventures with a local partner or the partial acquisition of an existing local company (which results in effect in a joint venture after the transaction).
Regulations have allowed 100% foreign ownership of some categories of human-capital investment, notably human-resources consulting, rather than headhunting or recruitment, which have found it difficult to get licenses at any level of ownership.
Since October 2000, rules have been loosened, allowing 49% foreign participation of all categories. Joint ventures are thus becoming more popular. Just 17% of the total investment count for all periods, joint ventures accounted for 35% of investments since 2002 compared with a negligible 9% prior.
China not to witness qualitative change in economy in 2007, expert
November 1st, 2006Chinanews, Beijing, Nov. 1 - An economist from the Chinese Academy of Social Sciences said recently that China would not witness an qualitative economic change in 2007. Next year, the economic growth rate in China would be kept at around 10%, less than the 10.5% growth rate in 2006. Such economic slowdown was normal as the Chinese government tried to take some measures to control the macro economy. It would not indicate that Chinese economy would have some qualitative change next year.
The statement was made by Wang Tongsan, director of the Quantitative Economics and Techeconomics Research Institute under the Chinese Academy of Social Sciences, in an interview given to a reporter of the People¡¯s Daily Overseas Edition.
Wang said that normally, three situations might lead to a qualitative change in the economy: the eruption of wars, the occurrence of natural disasters, or some external influences such as the Asian financial crisis or oil crisis. So far, none of these situations has occurred in China.
Apart from the eruption of wars, China has taken some protective measures to prevent other negative factors from happening. As Chinese national strength has increased, China is more able to prevent natural disasters, Wang said.
He said that Chinese government had tried to control the economy so that it wouldn¡¯t fluctuate too severely. With twenty years of experiences, Chinese government is now more capable of controlling the macro economy. In theoretical field, China has gained plenty of knowledge about macro economic control, therefore, it has become more and more mature in exercising its macro control policies in practice. When one looks back on China's economic changing trend in history, one will notice that the degree of economic fluctuation now becomes much smaller, unlike those in the 1980s or the 1990s when economic fluctuations could reach as large as five percentage points.
China to enhance beneficial co-op with ASEAN
October 31st, 2006NANNING, China, Oct. 31 - China is fully prepared to enhance mutually beneficial cooperation with the Association of Southeast Asian Nations (ASEAN), and will strive to become ASEAN members' permanent good neighbor, good friend and good partner, the Chinese Premier Wen Jiabao said on Monday.
On the sidelines of the commemorative summit marking the 15th anniversary of China-ASEAN Dialogue Relations, Wen met separately with leaders from the Philippines, Singapore, Indonesia, Malaysia and Cambodia. The leaders recalled the development of China-ASEAN relations in such fields as politics, economy and trade, culture, and security, and pledged to enhance their friendly relations to a higher level.
China and the Philippines have selected agriculture, infrastructure construction and mineral resources exploitation as the top priorities for bilateral cooperation. China hopes that all the cooperation agreements in these fields will be fully implemented at an early date, Wen said while meeting with Philippine President Gloria Arroyo.
Singapore is China's biggest trading partner among the 10 ASEAN members, and the two countries have carried out fruitful cooperation in recent years, Wen told Singapore's Prime Minister Lee Hsien Loong.
Wen hoped that the China-Singapore cooperation project in the Suzhou Industrial Park would be further pushed forward, and that Singapore would take an active part in the economic cooperation in China's coastal and inland areas.
Meeting with Malaysian Prime Minister Abdullah Ahmad Badawi, Wen proposed four priority areas to strengthen the friendly bilateral relationship.
The four areas include: to improve exchanges of high-level visits and increase political mutual trust, to launch a feasibility study on a closer economic partnership aimed at pushing forward the bilateral economic and trade cooperation comprehensively, to strengthen energy cooperation, and to reinforce joint efforts to combat transnational crimes.
Describing economic and trade cooperation the pillar for the development of China-Indonesia relations, Wen agreed with Indonesian President Susilo Bambang Yudhoyono that the two sides should work together to expand the two-way trade and mutual investment, and make more efforts to facilitate cooperation in the tourism industry.
Wen also told Cambodia's Prime Minister Hun Sen that China would take more measures to contribute to Cambodia's sustainable growth and to achieve win-win outcomes.
With closer economic and trade bonds, China will continue to help with ASEAN countries in their infrastructure construction, encourage Chinese enterprises to invest in the ASEAN market, and join ASEAN countries' local economic development efforts, the Chinese premier told ASEAN leaders.
On the joint exploitation between China, the Philippines and Vietnam in the South China Sea, Wen said that the cooperation had yielded some results. He stressed that the three countries should strive to push for substantial progress in the future.
The joint exploitation is conducive to maintaining peace and stability in the South China Sea, and significant to enhancing mutual trust and cooperation between the three countries, Wen said, urging the three sides to hold consultations over the joint exploitation for the next phase so as to achieve substantial outcomes.
The ASEAN leaders agreed that their countries' relations with China had gained momentum, and were willing to cooperate closely with China to achieve substantial development.
They said the China-ASEAN commemorative summit was an important event that would surely usher a new era in the development of the relationship between the two sides.
Renewed focus of trade
October 31st, 2006The adjustment of customs duties that is to take effect tomorrow marks a significant change in the way China prioritizes its trade sector.
As a fast-developing economy, China has benefited tremendously from its export-led growth during most of the past quarter of a century. However, no longer will the country put trade growth before everything.
The Ministry of Finance recently announced that the country decided to impose temporary tariffs on 110 exported goods and cut tariffs on 58 imported products since the beginning of November.
Clearly, this move shows that the Chinese authorities now attach more importance to external trade balance and domestic industrial restructuring than merely double-digit trade growth.
On the one hand, the hike of export taxes and the cut in import duties will definitely put a drag on the country's soaring trade surplus.
Along with China's rise as a global manufacturing power in recent years, value-added processing trade fueled by an accelerated inflow of foreign direct investment has hugely inflated the country's trade surplus.
In the first nine months of this year, the country's imports and exports increased by nearly one-fourth to hit US$1.27 trillion, generating a trade surplus of US$109.85 billion. This three-quarter net export exceeded that record-high annual trade surplus of US$102 billion in 2005, which had already more than tripled the US$32 billion in the previous year.
Given intensifying trade tensions with major trade partners like the United States and the European Union, which suffer a huge trade deficit with China, it is fairly reasonable for the Chinese Government to rein in the rapid growth of the trade surplus.
Such efforts will both help reduce imbalances in global trade and ease pressure a soaring trade surplus and inflow of foreign investment exert on the country's monetary policy. The Chinese central bank has been trying to squeeze the credit supply to cool down economic growth, but a ballooning foreign exchange reserve has kept pumping liquidity into the domestic market.
On the other hand, by controlling the export of goods, the production of which involves the mass consumption of energy and resources as well as heavy pollution, the Chinese Government is sending a clear-cut signal to domestic industries that they must bid farewell to the extensive growth pattern for now.
In the past, as long as the trade sector could serve as a growth engine by creating jobs and a trade surplus, local governments did not pay much attention to the environment and resource costs of extensive trade growth.
Nonetheless, as the country is shifting away from a growth strategy that stresses speed towards a new one that focuses on sustainability, the country's trade pattern also needs to undergo a fundamental change.
A customs duty that discourages energy-and-resource-intensive export is a needed step to push domestic enterprises to raise their energy efficiency and environmental awareness.
China Daily
IBM, Lehman create 180-million-dollar fund for investments in China
October 30th, 2006BEIJING (AFP) - Computing giant IBM and investment bank Lehman Brothers, both of the United States, said they had tied up to create a 180-million-dollar fund earmarked for investments in China.
The China Investment Fund will target mid-stage to mature public and private companies across several industries, the companies said at a joint briefing in Beijing.
Christopher Manning, managing director of Lehman Brothers Private Equity, said the two companies had capabilities that were "highly complementary."
The partnership, which marks the first cooperation between the two, will bring together 90 million dollars and three support staff from each side to manage the fund.
Beyond funding, IBM and Lehman will also provide management and technology support to the companies in which they invest.
Manning said that Lehman Brothers currently has an investment group focused on China's real estate market, a sector excluded from the China Investment Fund's scope.