Category: "Investing in China"
China's auto market in fierce competition: ACNeilsen
October 29th, 2006SHANGHAI, Oct. 29 (Xinhua) -- As automobile consumption soars, China's auto market will see fierce competition among both domestic and foreign brands in the next few years, said a latest ACNeilsen report.
The fierce competition primarily lies between some traditional auto giants, who have been losing some of their market shares in China in the past two years, said the report by the world most authoritative market research company.
According to ACNeilsen's report based on surveys in Beijing, Shanghai and Guangzhou, known as China's three commercial hubs from north to south, the market share of Volkswagen suffered the sharpest decline.
The market share of the German brand has dropped from 35 percent in 2004 to 23 percent in the three cities.
The report said the market share of Shanghai General Motors increased by one percentage point to 7 percent during the past two years.
ACNeilsen said the largest winners in China's auto market are Japanese cars, because they are designed and developed closely catering to market needs and their marketing strategies are also successful.
From 2004 to this year, the market share of Toyota in the three cities rose from 1 percent to 7 percent. Honda also managed to seized 6 percent of the market, but its market share was less than1 percent in 2004.
Chinese home-made cars are also acquiring larger market shares in China, said the report.
In Beijing, Shanghai and Guangzhou, China-made Chery cars accounted for 5 percent in the auto market.
How to do business in China
October 28th, 2006It is not surprising at all when many foreign investors complained when they do business in China. Many wondered why their years of experience in the business world could not be applied in China immediately. Doing business is about building mutual trust and benefit amidst establishing relationship with people. If you do not understand your counterpart well, it will be quite difficult to establish good cooperation with him/her. An old Chinese saying goes: know yourself and your enemy well and you can fight a hundred battles without any fear of defeat. This greatly emphasized the importance of knowing and understanding your counterpart.
Modern economic model differ greatly from the traditional one, whereby people in the past ‘fight’ till the last man standing. Today, people seek to achieve a “win-win” situation, and pursue long-term trade cooperation under a fair and healthy competition environment. Understanding factors such as China’s history, humanity and culture will be the key to investors’ success in China. As Western thinking and China’s traditional values do differ, encountering the culture differences is therefore inevitable, thus a better understanding of the cultural differences is necessary when doing business in China:
1. Learn how to handle Guangxi (relationship)
In China, Guangxi (relationship) is a complicated field. Establishing relationship with others does not mainly deal with achieving own self-interests or personal goals. A special feature of doing business in China will be that Guangxi (relationship) in China will have to include relationship with the government body, investors, partners and even relationship with your own staff. China government plays a large role in administrating the investment in China. This is because China is a socialist state; the economy is still largely controlled and managed by the government, so when doing business in China, it is important for foreign investors to learn to coordinate with the China government. At the same time, seeking a suitable local partner may be a shortcut and helping hand in developing your business in China market.
2. How to prevail over competition
China, at the moment, can be said to be a big, open market, and the ability to prevail over competition is a very important issue today. Investors should fully realize and maximize one's advantages. Some investors are afraid that the China’s imitation products will hurt the sale of their products. Even though this symptom is worrying, however in a free and competitive market, it will always be one that has the superior quality that will not be afraid of competition and will prevail eventually. China market is constantly undergoing standardization, and the China government has vowed to protect the quality of the market.
The Vice-Minister of the Ministry of Foreign Trade and Economic Cooperation had previously stated in his speech that being a member of the World Trade Organization, China government will continuously rectify and standardize the economic structure of the market, and will persistently crack down illegal acts of producing counterfeit products. Technology level in China is still relatively lagging behind, thus foreign investors should fully make use of their advantages in technology and expertise to produce high-quality products and services. One should not be over worried about the negative impact brought about by new counterfeited products. Continuous development of one’s technology and emphasizing on innovation will be the key to success.
3. Route for Investment
There are three options to take when make investments in China, mainly: wholly foreign-owned enterprise, Chinese-foreign cooperative enterprise and Sino-foreign joint venture. Which option to take will have to depend on factors such as the investors' investment direction, investment environment, and the amount of investment to be undertaken. Generally speaking, wholly foreign-owned enterprise require examination and approval from many government bodies and this process can be quite hassle and time-consuming. Government procedures for establishing Chinese-foreign joint venture and contractual joint ventures will be even more and the process will require even more from more government bodies. Thus Sino-foreign joint venture appears to be the ideal investment option as less governmental procedures and authorization time will be required. Possibility of encountering hiccups will be smaller.
Do you konw what kind of companies can be setted up in China?
October 28th, 2006There are three different business incorporation vehicles which can be utilised to do business in China. These are:
1. The utilisation of a representative office
2. Seeking a Chinese joint venture partner
3. Establishing a Wholly Foreign Owned Enterprise (WFOE)
Representative Office (RO):
A representative office is just a subsidiary of a foreign company in China. If your are looking for a company, which needs a local presence to manage services or coordinate outsourcing business activities or research developing Chinese market, then a representative office is useful and inexpensive vehicles for establishing a presence in China. Main purposes of a representative office are conducting market research, monitoring purchasing activities, marketing and sales administration for sales conducted between China and your parent company etc. Representative offices cannot write bill for service or sales to their clients in China. However, you can act like a liaison in matter of ordering, shipping, collecting money and so on.
Joint Venture:
Joint venture is business where a foreign firm goes into businesses with local Chinese partners. Joint venture is usually established to exploit the market knowledge, preferential market treatment, and manufacturing capability of the Chinese side along with the technology, manufacturing know-how and marketing experience of the foreign partner.
Wholly Foreign Owned Enterprise (WFOE):
These are 100% foreign owned companies, originally developed for the specific purpose of encouraging foreign investment in manufacturing for export in Special Economic Zones (SEZs) in China, and they were prohibited from selling to the Chinese domestic market. Since a recent change in regulations, from 1 December 2004, WFOE's can now trade within China, and can sell wholly foreign manufactured goods in China. The capital requirements for such companies have also been dramatically reduced.
The importance of Guangxi (relationship) when doing business in China
October 28th, 2006In China, Guangxi (relationship) is a complicated field. A special feature of doing business in China will be that Guangxi (relationship) in China will have to include relationship with the government body, investors, partners and even relationship with your own staff, so when doing business in China, it is important for foreign investors to learn to coordinate with the China government, especially establishing good relationship with government bodies dealing with foreign trade and economic cooperation.
Governmental procedures for foreign investors in establishing investments in China is extremely complicated, thus if one is unfamiliar of the procedures, one will delay his/her business opportunities. Therefore it is important for one to be familiar with the investment procedures before carrying out his/her investment in China. A safer and more appropriate way will be to seek help from local organizations familiar in the same field of business or consultant firms who are able to provide professional advice and assistance. Willpower and patience may be essential for an investor to be successful, however it is necessary for one to require help from professional bodies to ensure that success will be achieved.
Seeking a suitable local cooperative partner can be a shortcut one undertakes when developing the China market. Many investors had established Sino-foreign joint venture, Chinese-foreign cooperative enterprise, etc. as a stepping stone to enter the China market, thus which investment mode to choose one will have to accord with the enterprise's characteristics and has to be the most suitable for developing the enterprise’s business and assisting its march into the China market. Some investors who had made investments in China for many years proposed to small and medium-sized enterprises to take one step at a time when making investments. They should not be too ambitious initially. It will be best if they establish cooperation with local partners so as to reduce their investment risk. Even though China’s investment environment is constantly maturing, domestic regional developments imbalances still exist, therefore building cooperation with local companies will be the most ideal way to protect foreign investors’ interests and investments.
China’s labour market very much appeals to many foreign investors. This is because on one hand, labour cost is low, and on the other hand, through 20 years of reform, China’s workforce has become matured and their skills have been constantly upgraded, especially in the coastal cities. Educational development is undergoing at a tremendous pace in China, thus it is no longer difficult to hire high quality labour force in China today. Many successful foreign investors have even credited their success in China to their China’s local staff. One big problem that is causing headache to foreign investors is how to maintain good relationship (Guangxi) with the local staff. First of all, top management should cultivate the company’s vision and values into the employees because what the local people are taught under China’s educational system may crash with the foreign management system. Thus only by letting the employees understand the company better can allow the company to function better.
Chinese emphasize very much on courtesy and face-saving. This has to do very much with China’s traditional culture, and courtesy can be seen in every aspect in the business world. Being courteous to government official, cooperative partner and staff is thus essential. Senior president of China’s Siemens Company has rated courtesy as the top importance while summarizing his China’s experiences. Besides displaying courtesy on general commercial affairs, respecting traditional customs and practices is also vital. Chinese people are very hospitable, but their self-esteem is very strong and they pay very much attention on how other people view them and their attitude towards them. This phenomenon can be seen greatly in Northern China, which is associated with ‘face-saving’.
While doing business with the counterpart or partner, it is essential to give face or respect to the partner or the other party, so that in this way strong cooperation can be fostered and the business will be able to grow and last. Many foreign corporations have strict requirements on their staff in their home country, however in China, this management method may backfire. Past experiences have shown that this kind of strict management method may not be suitable for the Chinese’s gentle personalities. Employees’ morale will be affected and they may lose the willingness and motivation to work in the company. Thus handling organizational relationship in China context is a necessary skill for foreign investors to acquire in order to handle interpersonal problems in the Chinese way. It is important for foreign investors to be flexible in their management and be sensitive to China’s culture in order to devise an ideal management system best suited for their companies’ organizational culture.
5 tips to invest and do business in China
October 28th, 20061. Have clear understanding of China
It is essential to understand the culture of the country before investing in it. Understanding China is vital as China is a land of vast diversity. As such it is important for the company to understand the culture and the society’s values before establishing operations in China. Only through understanding the culture and values strong foundations can be built and higher chance of success can thus be achieved.
2. Understand local business practices
Given China’s distinct culture differences from the rest of the world, understanding China’s business culture is extremely crucial. What works in one’s country will not be applicable at all in China. Understanding how the local people think and their business practices can allow one to engage better and faster with them. Original organizational culture and practices may have to change in order to accustom to China’s practices. Thus flexibility and adaptability is the key for any organization to be successful in China.
3. Acquire local knowledge and establish local presence
Establishing a representative office in conjunction with a strong domestic private sector partner that has access to all necessary information and contacts in their field is the widely practiced formula practiced by foreign firms who already enjoyed success in China. Another way will be through setting up joint venture. Most importantly it has to be the selection of the correct partner. Finding the right partner may require more time, patience and experience but it is never a hassle to spend more efforts in choosing the partner because a wrong partner will definitely guarantees failure. Chinese expertise and local talent must also be incorporated into management or consulted during decision-making since local knowledge is essential as a source of information, access to networks and social and cultural learning, especially in China.
4. Need for establishing business relationships
Guanxi (relationship) is an important element in achieving successful business in China. Top management must learn to nurture close relationships with their local counterparts. This not only helps them to understand the Chinese domestic market, but also creates avenues for help in times of trouble or in need of assistance. Building strong relationships with business partners can aid in mitigating strategic and operational risks.
5. Establish close relations with government officials
Because the China government plays an important role in influencing market movement and administering foreign investments, a strong government relationship remains an important factor to do business successfully in China. Fewer hiccups may be met during paperwork applications or achieving local authorization if a strong relationship with government officials is in place.
How to export to China
October 28th, 2006Mainly there are 3 ways whereby one can export his/her goods in China:
1. Distribute your goods directly
2. Establish a joint venture
3. Find a qualified agent or distributor with a vast sales network
Before exporting your goods into China or choosing a Chinese partner, it is advised for you to conduct thorough market research and due diligence. Companies should be mindful of possible problems in export rights, regulations and intellectual property rights protection. If the company decides to distribute the goods directly, then it will have to be aware of the distribution rights and understand the licensing process in China.
Distributing your goods directly may be a complicated and time-consuming process as one may not be familiar with China’s business practices and government regulations. Application for distribution rights and establishment of own distribution channels will be difficult. Chances of failure will be higher as a result. Establishing a joint venture will thus be a better option. Establishing cooperation with a local partner can allow you to have faster access into China’s market and with the local partner’s knowledge and experiences of China’s market, your success rate will be higher and goods can be better distributed. Acquiring help from a local partner does give you many advantages in penetrating the China’s market. A side issue to note will be that joint venture usually requires large amount of capital and China’s government may have capital control towards outflow of funds should one transfer his/her funds back to his/her home country. The government will also need to assess the potential economic benefits that it can bring to China, e.g. does it create job opportunities for the local population before approving it.
For small and medium sized companies, the best way to enter the China market is through a reputable or well-known agent or distributor. These companies are located regionally and typically have large sales network. Thus they will be able to have a better understanding of the China’s market and can provide assistance in developing distribution strategies in China and the region. In this way, new products can be launched easier into the market and distribution network can be set up rapidly without any problems dealing with distribution rights and licensing.
Besides all these, the most important step that one must take before exporting his/her products into China will be have a thorough understanding China’s customs, regulations and controls towards imported goods. A sound market entry strategy is also necessary in order to penetrate the China’s market. An assessment of your goods’ strengths, weakness, opportunities and threats can allow you to promote and distribute your products better. Understanding the profitability and marketability of your products in the China’s market is thus vital before exporting your products into China.
Doing Business in China
October 28th, 2006The Chinese economy is roaring. But what does it take for foreign investors to succeed when doing business there?
Foreign investment in China has surged dramatically in the past few decades—from a few billion dollars per year in the 1980s and early '90s to tens of billions of dollars per year in the past decade. Despite this, doing business in or with China doesn’t come easily to most Westerners. For those who neglect their homework, failure can come easily. Huge and not readily defined, China is as diverse as its many regions and languages and is currently in the throes of rapid change. Fueled by tremendous economic growth, Chinese people have on the whole become richer. Yet the income gap between the wealthier Chinese, who tend to live in urban areas, and the poor, who tend to live in rural areas, is growing ever wider. And while the Chinese people recognize that foreign investment can help their economic situation, they are also steeped in an entirely different culture than are Westerners.
In matters of business, the differences are sometimes subtle, sometimes not—but either way, they can have a considerable impact. NEWSWEEK's Laura Fording interviewed Peter Liu, cofounder and chairman of WI Harper, a U.S.-based high-tech venture-capital firm, whose goal is to bring Silicon Valley and Chinese—as well as Hong Kong and Taiwanese—businesses together. The interview was conducted by e-mail. Excerpts:
NEWSWEEK: What is most on Chinese government officials' minds these days?
Peter Liu: The potential impact of rising unemployment, especially in rural areas of China. Also some of the white-hot growth sectors, which may be leading indicators and contributors to a possible hard landing: real estate, raw materials such as cement and steel and, of course, commercial lending.
I've heard that the chances that a foreign business will fail in China are high—that it's easy to invest there but much more difficult to bring the money back home. Why?
In general, this is true. Most foreign companies are handicapped by a lack of cultural understanding and patience to see [their projects] through. The most difficult thing is finding the right and trusted partner with shared interests in China. Often senior executives in these foreign companies underestimate how complex and frustrating doing business in China can be at times.
People are investing in computers and telecom. What other areas have the potential to do well in China?
Semiconductor, fabless IC design and outsourcing service sectors can be high-growth areas. Outsourcing and technology-enabled service companies, especially, will see high growth, given China's unique features. Often cutting-edge technology isn't what wins the day in China; rather, it's practical applications which can address an immediate need and are directly or indirectly linked to the mass consumer. We are less enthusiastic about enterprise [software companies] such as ERP, CRM, as they tend to have very, very long sale cycles and [a] high level of customization. The investment horizon in the West is normally two to five years, but in China, it is five to eight years.
Do larger companies have advantages over smaller start-ups when doing business in China?
To certain extent, yes, as larger companies tend to have the provincial [or] central government's support. But this is changing as smaller start-ups, equipped with foreign capital and better senior-management teams, become more and more competitive. These types of companies can change strategies quickly to better align themselves with the rapidly evolving technology-market conditions in China.
What are the some of the major obstacles encountered when doing business there?
Lack of a complete legal framework, lack of a viable and proven exit strategy and a channel for venture-capital investors, lack of strong corporate governance and, still, a lack of quality and experienced local managers with international and well-rounded skill sets.
Can you give some examples of how cultural differences affect relationships between Chinese and American businesspeople?
One example is the issue of currency [revaluation]: the more Americans push, the more difficult it is for the Chinese government to agree. There is clearly a lack of cultural understanding from Americans, if you put aside all the economic reasons for and against a revaluation.
Are products made by American companies too expensive for most Chinese people to afford?
In general, the answer is yes. American companies simply can't compete with China on manufacturing-based operations. In my mind, there are three things American companies can do to survive: 1.) Have a China strategy and find manufacturing partners in China. 2.) Innovate and differentiate with cutting-edge R&D at the same time. 3.) Localize product lines or services with local partners.
What is the typical reaction of the Chinese government to foreigners trying to do business in their country? Do they welcome it? Do the Chinese people welcome it?
The short answer is yes and yes. The Chinese government, both at the central and the provincial level, welcomes foreign investments in China and often has many preferential taxation treatments and better regulations to promote it. As for Chinese people, foreign investment often results in more jobs and they certainly are in favor of that, as well.
I've heard businesspeople say that the legal system in China is not particularly supportive of foreign business. What's your take?
The legal system in China still has a lot of room to improve in general, not that it is particularly unsupportive of foreign business. In general, our take is: proceed with caution and work with trusted partners to prevent or lessen the chance of legal matters down the road. A company can only increase its odds of succeeding in China by doing that and doing it early to prevent an unhappy situation from happening at all. If such an unhappy situation happens, China is rapidly improving its legal and mediation system. But the process of taking legal actions in China is very long and painful, still.
What about piracy? I've heard it's a huge problem in China. Is there any way to curb it?
Yes, piracy remains a huge issue, and it will NEVER go away. Instead of taking a combative and rigid attitude, one should find innovative ways to make sure the maximum benefit can be generated, given this environment. In order to operate in China, the issue of piracy needs to be taken into consideration as part of the core business strategy and dealt with in a practical way. Look at Microsoft as an example of not dealing with the issue right and now suffering from declining market shares year after year. We try to assist U.S. companies, for instance, in dealing with piracy issues. For instance, Hollywood can share their experiences with their Chinese [counterparts]. Then they can try to understand the professional way to project intellectual property. By doing so, government can support their act to balance the piracy issues between Hollywood and China.
Any advice for someone who has an idea for starting a business in China, or a business relationship with someone in China?
Be practical, set realistic and achievable goals, work with TRUSTED partners, and most importantly have a long-term view and BE PATIENT. "Patience, Patience and Patience."
Airbus plans China assembly plant
October 28th, 2006Airbus signed a framework agreement with the Chinese authorities on Thursday to build its first aircraft assembly plant outside Europe, at Tianjin in eastern China.
It also agreed a preliminary deal for its biggest single order from China, for 170 aircraft, which could eventually be worth about $14bn (€11bn) at list prices, before heavy discounts.
Airbus, a subsidiary of EADS, Europe's leading aerospace and defence group, is seeking to extend its industrial operations beyond its European base in France, Germany, Spain and the UK, and has made China a priority target both for increased sales and industrial co-operation.
It has failed to make much progress in breaking into the Japanese market, where Boeing, its US rival, has an entrenched position both in sales and as an industrial partner, and the European group is seeking to develop a counterweight presence in China.
Thursday's deals provided a temporary respite for EADS and Airbus from the prolonged crisis triggered by mounting industrial and management problems, including the costly two-year delays in early deliveries of the A380 superjumbo and a recent €4.8bn profits warning.
Airbus said it had signed a framework agreement to assemble its successful A320 family of single-aisle, short-haul jets at a plant in the coastal city of Tianjin, east of Beijing. The plant is expected to be located in the huge Binhai development zone, which China's government expects to rival manufacturing centres such as Shanghai and parts of the southern Pearl River delta.
Airbus said it would begin assembling aircraft in China in early 2009 with the aim of increasing production to four a month by 2011.
Louis Gallois, co-chief executive of EADS and chief executive of Airbus, said the aircraft sections for the A320 would continue to be produced in Europe but would be shipped to Tianjin for final assembly.
The Chinese consortium involved in establishing the plant will be led by the Tianjin Free Trade Zone and will include China Aviation Industry Corporation I (Avic I) and China Aviation Industry Corporation II (Avic II).
Olivier Andries, Airbus executive vice-president strategy, said Airbus would hold a 51 per cent stake in the joint venture and would appoint the general manager. It would invest €100m-€150m. "The main rationale in starting assembly is to build our presence in the Chinese market," he said.
The deal was signed during a visit to Beijing by French President Jacques Chirac, France's president, and still needs formal approval by the EADS board and Beijing.
It was supported by a general terms agreement for China to buy 150 A320 aircraft. Beijing also backed Airbus plans to develop the A350XWB, a new family of long-range, medium-capacity jets, by signing a letter of intent for 20 aircraft.
Separately Airbus said it had signed a firm contract for the purchase of 65 Airbus A319 aircraft with Skybus, a US lowcost, startup airline based in Columbus, Ohio. The airline is aiming to start operations in early 2007.
Ford to double China procurement
October 28th, 2006Ford is set almost to double the value of components it buys in China this year, becoming the latest global carmaker to tap low-cost Chinese parts producers to cut costs.
Bill Ford, executive chairman, said in Beijing on Thursday that the group aimed to source $2.5bn-$3bn worth of parts from China, up from $1.6bn-$1.7bn last year.
Mr Ford's comments are the latest indication that Chinese component makers, which have long been keenly competitive on price, are now also meeting the quality levels required by multinational carmakers. Chinese manufacturers' labour costs are about 5 per cent of those in Germany and 20 per cent of rival factories in eastern Europe.
Ford's announcement follows Volkswagen's move this year to raise the value of its Chinese parts imports from $100m in 2005 to $1bn. DaimlerChrysler is also sourcing more from China.
Analysts said General Motors was poised to follow suit, although the company would not comment on Thursday.
Goldman Sachs estimates that Chinese net exports of car parts will rise from $5.4bn in 2005 to $21bn in 2010 as Chinese products become more accepted overseas.
China still imports large volumes of more technologically sophisticated parts such as gearboxes and steering systems but it has become a big exporter of tyres, wheels, electronic components and glass.
Yale Zhang, analyst at the Shanghai office of CSM Worldwide, an industry consultancy, said the quality of Chinese-made components had improved thanks to increased competition and pressure from multinational carmakers that had established operations in China. The US, European Union and Canada asked the WTO last month to open a formal investigation into the tariffs China levied on foreign-made components.
Deutsche Bank plans China property JV -sources
October 28th, 2006SHANGHAI, Oct 27 (Reuters) - Deutsche Bank AG is set to establish a property venture in China, in which Germany's biggest lender expects to take a 50 percent controlling stake, industry sources and the venture's Chinese partners said on Friday.
Zhongzhu Real Estate, based in the southern Chinese city of Zhuhai near Hong Kong, plans to take 20 percent of the new joint venture, said a senior executive at Zhongzhu who is familiar with the situation.
"We're finalising the deal and we will sign an agreement" in the next few days or weeks, the Zhongzhu executive, who declined to be identified, told Reuters by telephone.
The sources declined to say how much Deutsche Bank would pay to invest.
A Shanghai-based banking source said Deutsche Bank had been negotiating with Zhongzhu and other parties for about half a year, though no final decision had been made yet.
The sources said a Macau company would take 25 percent of the joint venture, and another Chinese company would take 5 percent. ADVERTISEMENT
A spokeswoman in Sydney for Deutsche Bank's asset management division, which deals with property investment in Asia, declined to comment on Friday.
China's ICBC launches record IPO, shares soar
October 28th, 2006Chinese lender raises $21.9 billion, while shares climb 15 percent in market debut.
October 27 2006: 6:53 AM EDT
HONG KONG (Reuters) -- Shares in Industrial & Commercial Bank of China, which is raising up to $21.9 billion in the world's largest IPO, ended 15 percent higher in their Hong Kong debut on Friday after its stock sale generated huge investor demand.
The debut values the largest Chinese lender, making the first simultaneous Hong Kong and mainland China listing, at about US$139 billion, ranking it fifth among global banks, behind JPMorgan Chase & Co. (Charts) and ahead of Mitsubishi UFJ
China began listing its banks overseas last year, and all five mainland lenders trading in Hong Kong have drawn huge demand for their shares as investors downplay worries about the legacy of decades of state-directed lending.
Yang Liu, managing director at Atlantis Investment Management, bought ICBC's IPO shares as a play on the Chinese economy, a rising currency and growing middle class, despite her preference for China Merchants Bank and China Construction Bank
"It's too big to be ignored," she said.
The stock leapt as high as HK$3.63, or 18 percent above its offer price, shortly after the Hong Kong market opening, compared with an IPO price of HK$3.07, before closing at HK$3.52.
ICBC was the most active stock in Hong Kong, but fell short of expectations for a first-day gain of as much as 20 percent.
"It's better than what the average investor expected, given the size of the offering," said Kent Yau, deputy research director at Core Pacific Yamaichi in Hong Kong.
ICBC's domestically listed A-shares, however, disappointed investors by ending with just a 5.13 percent gain to 3.28 yuan, compared with an offer price of 3.12 yuan. The Shanghai shares rallied early by 10 percent before easing.
The Hong Kong debut was crimped by a 0.31 percent dip in the Hang Seng Index, which earlier on Friday hit a record high.
Big and bigger
ICBC raised $19.1 billion and is expected to expand the offering to $21.9 billion by exercising an overallotment option.
The stock sale was the most popular in Hong Kong and China history, and unmet demand for shares, combined with a surging Hong Kong market and an offering priced at a discount to peers, helped lift its first-day trading performance.
"Investors foresee China's economy maintaining 10 percent growth every year before the 2008 Olympics in Beijing, so they're buying mainland bank shares now to access that growth," said K.C. Chan, executive director at money management firm KDB International, which bought ICBC shares for its clients.
The IPO, about 75 percent of which was sold to Hong Kong and global investors and the remainder in the mainland, surpasses Japan's NTT Docomo, which raised US$18.4 billion in 1998, as the world's largest share sale.
"This is the world's largest IPO ever with the biggest ever subscription rate. That speaks volumes for the quality of the offer and for global investor confidence in China," said Damian Chunilal, president of Pacific Rim global markets and investment banking at Merrill Lynch, one of ICBC's underwriters.
Among its rivals, Bank of Communications trades 132 percent above its IPO price, while China Construction Bank and Bank of China are up 50 percent and 13 percent, respectively. On their Hong Kong debuts, Construction Bank closed flat and Bank of China ended up 15 percent.
Billions in bailouts
China has scrambled to get its creaky banks into better shape ahead of increased foreign competition set to kick in at the end of this year under its World Trade Organization obligations.
ICBC's IPO attracted share orders worth about $400 billion for the Hong Kong portion of its deal and 780.7 billion yuan ($99 billion) for its domestic deal.
That should hearten another mainland lender, China CITIC Bank, which plans to raise as much as US$2 billion in a Hong Kong and mainland share sale by early 2007.
ICBC's share sale was a bonanza for foreign institutional investors led by Goldman Sachs (Charts), which paid $2.58 billion in April for about 16.5 billion ICBC shares -- a stake that is now worth $7.45 billion. Allianz and American Express (Charts) also bought stakes alongside Goldman that are now worth a combined $3.5 billion.
All three investors have three-year lockups on their shares.
ICBC's IPO values the lender at 2.23 times its forecast book value. By comparison, No. 2 mainland lender Bank of China trades at 2.35 times 2006 book, No. 3 China Construction Bank trades at 2.66, and No. 5 Bank of Communications trades at 3.04 times book.
At the end of June, ICBC had total assets of 7.05 trillion yuan, 360,000 staff and more than 18,000 branches all over China.
China's "Big Four" state-run banks have received billions of dollars in government bailouts to help ease their bad loan woes.
ICBC received a US$15 billion capital injection from Beijing in April 2005, helping lower its non-performing loan ratio to 4.1 percent as of June 30 this year, compared with Bank of China's 4.2 percent and 3.51 percent for Construction Bank.
ICBC's investors will be rewarded with dividends of 45 to 60 percent of net profit for 2007 and 2008, compared with 35 to 45 percent for both Construction Bank and Bank of China.
ICBC's global IPO was sponsored by Merrill Lynch, China International Capital Corp., ICEA, Credit Suisse and Deutsche Bank
China's Spending on Research and Development Growing Faster than U.S.
October 28th, 2006While the United States still has a bigger share of the global R&D market, second-ranked China is gaining ground.
U.S. companies are falling behind on research-and-development spending, while their Chinese counterparts have upped their investments in recent years, according to a new report.
The study, conducted by R&D magazine and Battelle, a Columbus, Ohio-based research firm, could spell trouble for small businesses that benefit from local R&D activity.
This year, the United States is responsible for 32.4 percent of global R&D, but that number is down slightly from 32.7 percent in 2005, and is expected to drop to 31.9 percent in 2007.
China ranks second for most dollars spent, and while it's only responsible for 13.4 percent of the world's R&D, Battelle projects that number will rise to 14.8 percent in 2007. The percent changes may be small, but on a global scale, they translate into large figures -- R&D magazine reports that global spending on R&D topped $1 trillion in 2006.
"There still is a considerable gap, but it's closing," Jules Duga, a senior Battelle research scientist and co-author of the report, said in a statement.
Chinese growth has been fueled by the liberalization of Asian economies and the ongoing development of a highly educated, technology-oriented population, according to Battelle.
The report explains the results in terms of an evolution in international competition: After the global arms race subsided, focus shifted to a "hands race" for lower-cost manual labor. Now shifting once again, the world is entering a "head and brains race" for technological advancement.
Falling behind in the "race" could have a negative impact on small businesses in the United States. Earlier research has shown that small-business formation and growth is directly linked to local R&D.
A 2002 study published by the Small Business Administration showed that communities with larger amounts of university R&D activity are home to more start-ups, and those companies significantly benefit from R&D during their early stages of growth.
This is due in large part to a "spillover effect" of knowledge and technology to the surrounding area.
The SBA research found that there is generally a two-year lag between the year of R&D expenditure and the spike in the launch and growth of new firms, during which the spillover takes place. That means that universities, government laboratories, and corporations need to consider changing trends of today in order to protect the vitality of small businesses in the future, according to the SBA
"These challenges can be accommodated only by long-term strategic investment and will," Duga said.
Microsoft expands R&D team in China
October 28th, 2006SHANGHAI, China — Microsoft is planning to boost its R&D division in China by hiring 500 new engineers.
The recruits will join a team that has doubled in the last year to about 1,200. Within three to five years, Microsoft plans to increase its staff to 3,000 workers and invest $100 million in an effort to make China one of its core R&D bases.
The expanded staff will focus on mobile communications and embedded systems, Internet applications and services, digital entertainment and servers. Everything from basic research to product development will be conducted here in cooperation with local companies.
Yaqing Zhang, president of Microsoft's R&D group in China acknowledged that many Chinese engineers are still inexperienced, especially in managerial ability. Hence, half of the new recruits will come from overseas or from within the electronics industry, instead of from China's growing pool of job-seeking graduates.
China-ASEAN FTA necessary and beneficial
October 27th, 2006Upon entering the 21st century, the Chinese Government made timely diplomatic-strategy re-adjustments and started to push for better relations with its neighbouring countries, seeking mutual trust politically and co-prosperity economically.
As part of the effort, the process of bringing about a China-ASEAN (Association of Southeast Asian Nations) Free Trade Area (FTA) is being driven ahead.
As an arrangement for mutual benefits, the bidding for the FTA is powering the all-around economic co-operation between China and ASEAN that, in turn, works as a stabilizing factor for the region.
Since the 1990s, the integration of regional economies has had strong momentum a hallmark of accelerated economic globalization. Regional economic organizations such as the European Union (EU) and the North American Free Trade Area are acquiring increasingly important positions in the world economy. On the other hand, free trade agreements, those signed between developed countries in particular, are posing a serious challenge to both China and ASEAN because the preferential tariff rates granted to each other by free trade agreement members erode the economic and trade advantages enjoyed by developing nations.
China joined the World Trade Organization (WTO) in December 2001 after more than a decade of painstaking negotiations. As a result, the focus of the country's foreign trade and economic strategy began to shift to regional economic co-operation.
China's WTO membership means that the country's economic development will become increasingly responsive to the world economy.
At the moment, regional economic integration is picking up speed and China would risk being marginalized if it did not join this process.
If China failed to embrace regional integration, it would find its global competitiveness significantly diminished.
Fortunately, involvement in regional economic co-operation constitutes a new focus of the nation's overseas economic strategy.
In the meantime, the economies of the ASEAN members started recovering in 1999 from the ravages of the 1997 Southeast Asian financial crisis, which dragged on the once fast growing economies of the member states. Coincidentally, while ASEAN rose out of economic stagnation, the Chinese economy entered a phase of high-speed development.
Doubtless, Chinese demand helped facilitate their economic growth. In light of that, the nature of ASEAN's economic recovery recommended a strengthening of relations with China.
It then became obvious that pursuing a China-ASEAN FTA was a wise strategic option beneficial to both sides.
In November 2002, therefore, the Chinese and ASEAN leaders signed the Framework Agreement on Comprehensive Economic Co-operation between China and ASEAN and decided that a China-ASEAN FTA would be set up in 10 years. The process of establishing the China-ASEAN FTA was thus set in motion.
Starting on January 1, 2004, the two parties began implementing an Early Harvest Plan (EHP), cutting tariffs on more than 500 products, as part of the effort to facilitate the birth of the FTA.
The Chinese and ASEAN economies complement one another as shown by the results of the EHP. ASEAN's tropical fruits and China's apples, pears, cabbages and potatoes are competitive respectively. The China-ASEAN FTA plan has already produced good initial results.
At the Eighth China-ASEAN Summit convened on November 29, 2004 in Vientiane, capital of Laos, the two parties signed a package of agreements on trade in goods and dispute settlement, laying down foundations for standardizing tariff cutting and resolving disputes.
Starting from July 20, 2005, China and ASEAN began to cut tariffs on more than 7,000 products, which marked the coming of the phase of substantial tariff reduction between China and ASEAN in the run-up to the establishment of the FTA.
The Framework Agreement on Comprehensive Economic Co-operation between China and ASEAN has helped advance bilateral trade, with the China-ASEAN trade volume crossing the threshold of US$100 billion for the first time in 2004 and hitting US$130.37 billion the next year.
In addition, the two sides have been co-operating closely in direct investment, services and technology, which has also yielded significant results.
From the point of view of regional economic integration, the future Asian economic integration should be based on a more extensive and more economically powerful regional co-operative entity, of which the China-ASEAN FTA is a vitally important component.
Once founded, China-ASEAN FTA will be the largest FTA in Asia, the most populous FTA in the world and the biggest FTA in the developing world. The China-ASEAN FTA is expected to accelerate the trend of regional integration in Asia and, in turn, will have positive impacts on the world economy.
The author is a researcher with the Economic Research Institute under the Ministry of Commerce.
HONG KONG -- The elusive China Dream is fast becoming reality for many US companies.
October 27th, 2006US corporate profits in China passed $2 billion the first six months of 2006, up more than 50% from the first half of last year, according to the US Bureau of Economic Analysis. US companies are on pace to earn more in China this year than they earned there during the entire 1990s, notes Joseph Quinlan, chief market strategist at Bank of America.
The government numbers are consistent with private surveys: 81% of companies belonging to the US-China Business Council, a lobbying group, reported that their China operations were profitable. More than half said profitability in China matched or beat their worldwide profit margins, according to a recent council survey.
In 1999, the US State Department found that just 57% of US firms were profitable in China.
Equipment manufacturer Caterpillar cited strong growth in China, among other things, last week when it reported a 21% increase in third-quarter earnings. Like most US companies, Caterpillar doesn't report China revenue and earnings separately and won't talk about them in any detail.
But a telling sign of China's importance to the company: Over the past 2.5 years, Caterpillar has doubled its China workforce to 5,000, says Jim Dugan, the company's spokesman in Beijing.
"Just about any place you go in China, there are road and railroad and construction and energy projects," Dugan says. "Those are all fields where we play ball."
'Business is good'
Starbucks, which already operates more than 190 stores in 19 Chinese cities, doesn't break out its financial performance in China. But spokesman Eden Woon says, "Business is good. We are accelerating our growth."
Not all successful US companies in China are household names: Greif, a Delaware, Ohio-based maker of industrial packaging, says profits are strong and growing in China, a market it entered five years ago when it acquired a competitor already operating there.
For centuries, Western businesses have cast covetous eyes at China, a dream market with the world's biggest population, now 1.3 billion. And it's virtually untouched by modern marketing. But their visions of profits, dating back to Marco Polo and before, usually came to nothing. They've been dashed by war, political turmoil, corruption, bureaucracy and grinding rural poverty.
"Time and again," journalist Joe Studwell wrote in his 2002 book, The China Dream, "China has failed to fulfill the promise that foreigners ascribe to her."
But now, China's economy, which began opening to foreign investment and trade in the late 1970s, is booming, expanding at about 10% a year.
Living standards have improved in urban centers such as Beijing, Shanghai and Shenzhen, creating a middle class -- and opportunities for US firms from Starbucks to General Motors.
From 1999 to 2004, according to statistics compiled by the American Chambers of Commerce in Beijing and Shanghai, the number of broadband lines rose to 31.7 million from 2.2 million.
Automobile ownership rose to 22 per thousand Chinese from one per thousand. Cellphones surged to 111 per thousand Chinese from three per thousand.
Learning how to do business
China's entry into the World Trade Organization in 2001 made it easier for foreign companies to operate there. The WTO deal required China in 2004 to start letting foreign firms distribute their goods without first entering into alliances with state-owned Chinese partners, which often siphoned profits and stole technology. These days, more US companies are going it alone profitably without Chinese partners. The percentage of American Chamber members operating as joint ventures in China slid from 78% in 1999 to 27% in 2005.
US companies have learned how to do business in China. "Companies have gained experience from the early years," says Robert Poole, vice president of China operations at the US-China Business Council. "They trained people, established management systems, built reputations for their products."
US firms still face problems in China. Good help is hard to find. Theft of intellectual property is rampant. Competition is fierce as young Chinese companies try to take on more-established Western firms. Greif, for instance, reckons it has 400 competitors in China. But for now the profits are rolling in, and US companies are confident about the future: 97% told the US-China Business Council that they were optimistic about their prospects in China over the next five years.
"When the economy is growing this fast, profits will increase," says Studwell, founder of the China Economic Quarterly. "At the same time, foreign firms have learned hugely from their mistakes of the 1990s."
Courtesy of USA TODAY
Bayer agrees Topsun purchase
October 26th, 2006German industrial giant Bayer said yesterday that its healthcare group had agreed to acquire Topsun Science and Technology's over-the-counter cough and cold medicine business for 1.072 billion yuan (US$135.69 million).
Bayer said it would pay another 192 million yuan (US$24.30 million), subject to the fulfilment of certain performance criteria.
Topsun is one of the largest privately owned pharmaceutical firms in China. Its brands include White and Black, one of the leading cough and cold medicines on the Chinese market.
The transaction, which is now subject to the regulatory approval, will include the transfer of the Gaitianli manufacturing facility in Qidong, a city in East China's Jiangsu Province, as well as the sales force and distribution network associated with the brands.
The transferred employees and assets will become part of Bayer Healthcare China Ltd and operate within its consumer care division.
"With this transaction Bayer HealthCare follows its global strategy to strengthen our over-the-counter business, as well as our presence in China, one of the fastest-growing over-the-counter markets," said Bayer Healthcare Chairman Arthur Higgins.
Bayer Healthcare acquired Roche Consumer Health last year, making it one of the world's top three over-the-counter businesses.
"The Topsun deal provides us with an entry into the very important cough and cold category in China. The transaction, which is expected to close within 2007, will double the size of our consumer health business in China and puts us within the top 10 over-the-counter companies in this important market," said Gary Balkema, president of the Bayer Worldwide Consumer Care Division.
The over-the-counter medicine business is believed to have huge potential in China.
According to a study of China's pharmaceutical industry issued in March by global consulting firm PricewaterhouseCoopers, sales of over-the-counter medicines accounted for less than one-fifth of the country's pharmaceutical market. But it grew 11.2 per cent last year to US$4.2 billion, making it the fourth-largest over-the-counter medicine market in the world, as well as the fastest growing of all major economies.
Bayer Healthcare, with an annual growth rate of 30 per cent, is the fastest growing global pharmaceutical firm in China, according to US-based market consultancy firm IMS Health.
Commenting on the deal, Topsun Chairman Guo Jiaxue said the firms "intends to develop its modern Chinese medicine as its core business."
Heirs of family enterprises start their own careers
October 26th, 2006Zhejiang University set up a special class to help 29 heirs of the family enterprises to build confidence and to gain experiences in management; however, none of them chose to go back to inherit the family heritage, but to start their own careers from scratch instead.
All the 29 graduates have started their own career. One started a game company, and all the other 28 found jobs in property, cars and Internet industries.
Wang Weixiao, an heir of a big hardware factory, now works in a car factory in Zhejiang. ¡°I don¡¯t want my career to be based on the achievement of my father,¡± said Wang. In fact, his father really wants Wang to help him, and the post of ¡°vice general manager¡± is left vacant for Wang.
The other reason for Wang to refuse his father¡¯s offer is that he doesn¡¯t like the atmosphere in the family enterprise, where all the important posts are taken by family members, and every decision must be based on an emotional basis. ¡°The ineffective organization of my father¡¯s enterprise really chokes me, ¡±concluded Wang.
EU paper puts China at centre of world affairs
October 24th, 2006Oct. 24 - The European Union (EU) has drafted a new strategy for its relationship with China, with the nation being described by senior EU officials as "having returned to the centre" of world affairs.
The EU's executive Commission will release the new policy paper today.
In it China-EU relations are described as positive but there are also calls for a closer partnership, to deal with global challenges such as energy supply and sustainable development as well as smoother economic and trade co-operation.
"We both have a huge stake in effective multilateralism, and in international peace and stability across the globe," said EU Trade Commissioner Peter Mandelson and External Relations Commissioner Benita Ferrero-Walder in a joint article for the International Herald Tribune newspaper.
"We have a shared responsibility to address climate change, sustainable development and energy security. We have a shared responsibility to work more closely on issues such as development assistance in Africa."
They said that China's economic success in the past two decades had "lifted more people out of poverty more quickly than ever in human history" and China had become "an increasingly active international player."
The two EU officials will jointly present the policy document to the European Parliament today in Strasbourg, according to European Commission (EC) spokesman Stephen Adams.
The document, which will review China-EU relations over the past 10 years and map out a new strategic initiative for the 25-member bloc's interaction with China, is accompanied by a policy paper on trade and investment, the EU's first ever strategic paper solely focusing on trade and investment with China, said Adams.
On bilateral economic and trade ties, the joint article said "Europe has benefited from China's market for advanced technology, high-value goods and complex services, and European consumers and businesses have benefited from competitively priced Chinese imports."
"Europe should continue to offer open and fair access to China's exports and to adjust to the competitive challenge," they said, urging China to strengthen its commitment to economic openness and market reform.
"It (China) should improve legal protection for foreign companies and reject anticompetitive trading practices and policies," they said.
China becoming a strong nation in developing biomedicine
October 23rd, 2006Chinanews, Beijing, Oct. 23 ¨C According to information from the Ministry of Science and Technology, nearly 30 kinds of biomedicines developed by China have been put to clinical use. About 170 kinds of biomedicines are at the stage of clinical research. China can produce eight of the ten major biomedicines in the world. China¡¯s SARS and bird flu vaccines are among the best in the world. All this shows that China is becoming a strong nation in developing biomedicines.
Wang Hongguang, director of the China Biotechnology Development Center, says that China has already finished technology accumulation in biotechnological field. At present, China is able to develop and industrialize biotechnology at the same time. This is shown in the following aspects:
First, China is the world¡¯s largest producer and user of vaccines. By applying human vaccines, China has eradicated or curbed the spread of major contagious diseases such as malaria, plague and poliomyelitis, making great contributions in increasing people¡¯s life expectancy. In China, people¡¯s average life expectancy has increased from 37 in 1949 to the present 73, and the use of vaccines has played a very important role in this aspect.
Secondly, the use of hepatitis B vaccine has prevented 20 million new-born babies from contracting the disease, and saved 700 billion yuan of medical cost for the country. The research of hepatitis B vaccine, an effectual remedy for the disease, has entered into the second stage for clinical use. Animal tests show that the vaccine can kill the virus inside animal body, and it might help change the virus condition of humans from positive to negative.
Research of the AIDS virus will soon enter the second stage of trial clinical use. Research of the AIDS vaccine which has a curable effect on the disease is also being conducted, and will be put to trial use.
China is also the world¡¯s largest antibiotics and vitamins producer. The use of antibiotics such as penicillin has played an important role in preventing infectious diseases, and the use of vitamins in improving the health of its people.
The bird flu vaccine will soon enter the second stage of trial research.
China Life Insurance Sector Takes a Giant Leap
October 21st, 2006Insurance sector in China is showing a continuing growth during the past few years. There‘re hordes of opportunities present for players in this sector.
According to recent news, there’s been a remarkable increase in the profits of China LIC (Life Insurance Co.) during the 1st half of 2006. The insurance company is said to have earned around 8.97 Billion Yuan during this period as compared to 5.21 Billion Yuan in the year-earlier period.
As per Macquarie’s research note released Sep 18 2006, the results would probably be dominated by investment gains from both sharp rally in the equity markets in China and strong post IPO rally of Bank of China, of which China Life holds 394 Million shares.
Bank of China has cautioned a slow down in the equity markets in China. Growth in policy fees and premium is likely to decelerate from 22 percent to 15 percent in the 2nd half of 2006.
“China Insurance Sector Analysis (2006)” the latest market research report published by RNCOS- a market research and analysis firm- provides an analytical overview of every aspect of the insurance sector in China.
According to this report, “Higher income among the Chinese and growing need for financial products to safeguard any unexpected loss are the main drivers for the China insurance market. Considerable amount of time and efforts have been put in to develop modern insurance solutions, so that insurance needs among the Chinese are met.”
Issues and facts addressed by this report include:
- Marketing strategies of key players in the insurance industry
- Growth in Health and Group insurance driving the Insurance sector in China
- Demographic factors, like death and birth rates, which affect the insurance market in China
- Emerging opportunities and challenges in this sector
- Factors that spur the growth of Life and Non Life insurance in China.
About the Report
RNCOS report on insurance sector in China provides extensive research and objective analysis of the Insurance Sector in China. It helps clients in analyzing the opportunities critical to the growth of Insurance market in China.
About RNCOS
RNCOS, incorporated in 2002, provides Market Research Reports for your business needs and aims to put an end to your information pursuit. Our expertise in gathering global business information for industry research, corporate training, growth consulting, and business consulting, brings reputed companies and firms to us for business enhancement solutions. We can be your one-stop-shop for Industry research information and niche market analysis.
Morgan Stanley buys bank, gets China licence
October 21st, 2006SHANGHAI/SINGAPORE, OCT 2: Morgan Stanley, the world’s largest securities firm by market value, said it acquired Nan Tung Bank, China, giving it a commercial banking licence in China from which it can apply to do business in the local currency and offer new products, including mortgage-backed securities.
The acquisition, approved by China Banking Regulatory Commission, will enable Morgan Stanley to apply for a licence to offer yuan- denominated services in the world’s fastest-growing major economy.
The commercial banking license currently enables Morgan Stanley to offer foreign -currency denominated services, including deposits, mortgage loans, and trade finance to individual and corporate customers based primarily in the Pearl River Delta region of Guangdong Province, the New York-based firm said on Monday.
‘‘Nan Tung Bank is a good strategic fit for our China business,’’ Wei Christianson, chief executive officer of Morgan Stanley in China, said in an e-mailed statement. ‘‘This platform will allow us to provide a wider array of new product capabilities that are currently being offered only by commercial banks with a presence within China.’’
Zhuhai-based Nan Tung Bank, formerly funded by a Macau-based unit of Bank of China, is now a wholly owned subsidiary of Morgan Stanley, the US firm said, without giving details on pricing. Nan Tung Bank, which has only one branch and fewer than 40 employees, serves customers mainly from Hong Kong and Macau.
By fully acquiring Nan Tung, Morgan Stanley will be eligible to apply for a local-currency license immediately, rather than wait for five years had it started operations in China from scratch. Morgan Stanley can also apply to offer derivatives and foreign-exchange products to local and overseas clients based in the world’s mostpopulous nation.
‘‘That’s the right thing to do but you’d need to get the products past the regulator,’’ said Roman Scott, a Singapore-based partner at Boston Consulting Group Inc. ‘‘Everyone would love to do structured products or derivatives if they were allowed to do so in China, if the markets were stable enough to do it.’’
Rivals including Goldman Sachs Group Inc and UBS AG have bought minority stakes in Chinese lenders, which won’t help them win banking licenses to offer services on their own.
Still, a ban by the China Securities Regulatory Commission last month on international securities firms from buying stakes in local brokerages has blocked a route for Morgan Stanley’s expansion in China.
China Gaining Ground in Global 'Head and Brains Race'
October 21st, 2006COLUMBUS, Ohio, Sept. 29 /PRNewswire-FirstCall/ -- Global competition, once defined by the Cold War arms race, has evolved into a "head and brains race" where nations measure success through the development and application of technology.
That was one of the conclusions from a Battelle-R&D Magazine report on international research and development trends. The report frames international competition as evolving from the arms race to a "hands race" based on lower-cost manual labor and now to the head and brains race driving the current escalation of R&D spending.
"It is tempting, and certainly reasonable, to acknowledge the fact that each of these races has involved a reliable adversary," says Dr. Jules Duga, senior research scientist at Battelle and co-author of the report. "These adversaries continue to present challenges to the United States that can be met and conquered or accommodated only by long-term strategic investment and will."
While the U.S. remains the standard-bearer in terms of worldwide R&D, China is emerging as an R&D giant. That trend will continue, the report projects.
The U.S. is responsible for 32.4 percent of global R&D this year, compared to 13.4 percent for China. Those numbers were first and second, respectively, worldwide but represent a decline for the U.S. and an increase for China. The same trend will continue in 2007, according to the report, when the U.S. will be responsible for 31.9 percent of global R&D and China 14.8 percent.
"There still is a considerable gap," says Duga, "but it's closing."
With China leading the way, Asia continues to seize more and more of the international R&D market. Asia's share of global R&D grew from 34.9 percent in 2005 to 35.6 percent this year and should continue to grow to a projected 36.5 percent in 2007, according to the report. The U.S., over the same period, has declined from 32.7 percent to 32.4 percent this year and is projected to dip to 31.9 percent next year.
Changes in government attitudes, direct government investments, liberalization of their economies, and an increased emphasis on developing a highly educated, technology-oriented population are some of the factors leading to the R&D growth in Asia. These also are reasons why industry from all over the world is changing the way it develops relationships with the R&D communities from these burgeoning countries. The first steps could be characterized as casual, "testing-the-waters" interactions that included preliminary contract research arrangements. These quickly have evolved into major investments in institution-building, the creation of subsidiary operations, and the development of a wide range of joint ventures.
"It is apparent that the modifications in the internal policies of East and South Asia, in particular, have had and will continue to have an influence on the amounts and patterns of R&D performance in the U.S. and other nations," says Tim Studt, editor of R&D Magazine and Duga's co-author on the report.
Outsourcing of R&D has been a growing trend and will continue to grow as long as the cost of doing business makes sense for U.S. companies, concludes the report. The lower costs in most areas, especially China and India, enhance the competitive position as compared to other (usually domestic) resources and lead to measures of higher productivity. When other advantages, such as enhanced global R&D infrastructure and improved support for other global operations, are considered, the value of outsourcing becomes apparent, says Duga.
"Host countries like China and India have come well down the road in terms of providing a technology-friendly environment," Duga says.
Battelle has prepared a report on U.S. R&D funding annually for more than 40 years, including the last 12 in partnership with R&D Magazine. Duga has co-authored that forecast for 27 years. This is Battelle's second comprehensive report on international R&D spending.
The full report is included in the September issue of R&D Magazine. Reprints are available by contacting Battelle's Jean Hayward at (614) 424-7039 or at haywardj@battelle.org.
Battelle is a global leader in science and technology. Headquartered in Columbus, Ohio, it develops and commercializes technology and manages laboratories for customers. Battelle, with the national labs it manages or co- manages, oversees 20,000 staff members and conducts $3.4 billion in annual research and development. Battelle innovations have included the development of the office copier machine (Xerox); pioneering work on compact disc technology; fiber optics for telecommunications; development of new medical products to fight diabetes, cancer and heart disease; breakthroughs in environmental waste treatment; homeland security technologies; and advancements in transportation safety and security.
Nasdaq and NYSE Seek China IPOs
October 21st, 2006BEIJING -- The New York Stock Exchange (NYX - commentary - Cramer's Take) and the Nasdaq Stock Market (NDAQ - commentary - Cramer's Take), worried they're losing out on big IPOs from China, are trying to boost their visibility in the region. They're staffing up and touting the benefits of a U.S. listing to dealmakers at investment banks, private equity outfits and law firms in China.
"Obviously China is a very exciting market. We see it as the fastest-growing market outside the U.S., as well as the strongest market internationally," says Charlotte Croswell, the London-based head of Nasdaq International.
This year the Nasdaq started publishing Going Public: A Guide for Chinese Companies to Listing on the U.S. Securities Markets. Written in both Chinese and English, it details minimum listing requirements, explains the role of investment banks and accountants, and even sets out a sample 20-week IPO timetable, from start to finish.
There's no mystery why the American exchanges are feeling anxious.
Last year, China's IPO proceeds of $24.3 billion ranked second only to those of the U.S., whose companies raised $33.1 billion, according to Ernst & Young/Thomson Financial. And in 2005 China claimed three of the world's 10 biggest public offerings.
But a U.S. listing is no longer the default for ambitious Chinese firms. All three of the Chinese companies on 2005's 10-biggest IPO list -- China Construction Bank, China Shenhua Energy and Bank of Communications -- passed up the U.S. in favor of listing in Hong Kong. The Bank of China, another multibillion-dollar IPO, followed suit earlier this year.
The moves are part of a broader trend of foreign firms passing up the U.S. exchanges.
Companies are discouraged by America's higher regulatory burdens, litigious investors and different accounting requirements. (The U.S. uses generally accepted accounting principles, or GAAP, while some other countries employ a framework called international financial reporting standards, or IFRS.)
And foreign companies that list outside the U.S. don't have any problem reaching American money managers. They can simply arrange ahead of time to sell shares to big institutional investors on the day of their IPO.
As a result of all this, the American exchanges are having to work harder to attract overseas listings -- and China is a key focus. Currently the NYSE has 17 companies listed from mainland China, while the Nasdaq has 29.
The NYSE "has an aggressive marketing campaign out to show the advantages of listing in New York as opposed to listing overseas," says Alan Seem, a Beijing-based partner at the law firm of Shearman & Sterling.
The NYSE and Nasdaq both are seeking Beijing's go-ahead to open offices in mainland China. The NYSE now has two salespeople on the ground in mainland China, with another in Hong Kong.
The Big Board is also hoping to score new listings business through NYSE Arca, an all-electronic trading platform aimed at small, fast-growing companies that don't yet meet the standards of the main board -- a category likely to include many firms from emerging markets such as China. Companies can aim to graduate to the NYSE as they grow bigger.
This year Nasdaq tapped a new Asia-Pacific executive to be based in Hong Kong who will work with another salesperson already focused on China.
Both exchanges say they're seeing progress on the mainland. The NYSE is in talks with four or five Chinese companies "that are considering the U.S. capital markets," according to Noreen Culhane, the NYSE's executive vice president of the global corporate client group.
"Our pipeline, I would say, is stronger now than it was 12 months ago," says Nasdaq's Crosswell, although she acknowledges that some of those IPOs may not take place for a couple more years.
Even as they vie for more Chinese business, both U.S. exchanges deny competing with the Hong Kong bourse.
"We say we don't compete with local markets," explains Crosswell. Chinese IPOs "have always gone to Hong Kong. That has always been quite a natural home for them as well as Shanghai and Shenzhen." Nasdaq offers a "complementary" listing that can increase their visibility, market liquidity and access to capital, she says.
But in fact, while Shanghai and Shenzhen are still crowded with weak, poorly run government-owned companies from the mainland, the Hong Kong exchange has emerged as a more powerful regional force over the past few years. Its legal infrastructure is much stronger than that on the mainland, and its regulations are respectably high -- though not as burdensome as those in America.
Still, American exchanges contend they are in a different league from their peers in Hong Kong and elsewhere. The 2,700 companies listed on the NYSE claim a total market value of $23 trillion. "This is the deepest investor pool in the world. Companies come here because they understand there is a valuation premium that comes with being associated with high listing standards," says Culhane.
Companies that trade on an American exchange are able to give stock options to employees based in the U.S. They also benefit from a higher profile that can help them attract stateside customers, business partners and employees.
That's important for Chinese outfits with international ambitions -- or so say the NYSE and Nasdaq. But lately, a small but notable number of major Chinese companies don't seem convinced.
IBM to move procurement HQ to China
October 21st, 2006IBM said on Thursday it would move its global procurement headquarters from New York to China in an endorsement of the country's ever-growing role as a supplier to the global economy.
The company said John Paterson, its chief procurement officer, had relocated to Shenzhen, the Chinese special economic zone that borders Hong Kong.
It is the first time the company has moved the headquarters office of a global unit outside the US.
The company said the move would not affect staffing levels in the US, where it employs about 2,500 people in its procurement operations.
IBM has operated a China procurement centre in Shenzhen for more than 10 years, and also established a PC manufacturing joint venture there in the early 1990s.
The company sold its PC business to Chinese rival Lenovo two years ago and has also hived off its hard-drive business to Hitachi, but it still maintains a large sourcing operation in Asia.
IBM says it spends about 30 per cent of its $40bn annual procurement budget in Asia, and also employs more than 1,850 procurement and logistics staff in the region.
Shenzhen has successfully attracted investment from a large number of multi-national IT companies, as it seeks to upgrade its industrial base.
The government has actively encouraged low-tech industries to move out of the zone, to cheaper locations inland.
Shenzhen raised its mandatory minimum wage rates by up to a quarter earlier this year in a bid to accelerate the flight of labour-intensive businesses.
While rising labour and other costs in Shenzhen are also a concern for high-tech investors such as IBM, these are mitigated by a dense network of component suppliers that have taken root in the Pearl River Delta, as well as the region's first-rate infrastructure.
Corporate talent much sought after in China
October 18th, 2006SHANGHAI: Minutes after the news he had quit as chief financial officer of KongZhong Corp, J.P. Gan took a call from a headhunter.
On offer was a top spot at a venture capital-backed Chinese company with plans for an overseas initial public offering.
Chief financial officers and top level executives are in high demand across the globe as cash-rich investment companies put their money to work buying companies, changing management teams, and growing the businesses.
In China, the effect is amplified. Young, western savvy CFOs who have language skills, regulatory knowledge and international experience are highly sought after and hard to find. “Talent is limited, in general. That's just the way things are in China,” said Jixun Foo, a Shanghai-based managing director of venture capital company Granite Global Ventures.
Aggravating the shortage is the flow of Western educated executives out of the corporate and investment banking sectors and into private equity firms and hedge funds.
While talented chief executives are in demand in China, many investors view equally talented CFOs as more significant and harder to find, given the increased accounting demands required by global securities markets.
Chinese companies need CFOs who can put in place or modernise their financial infrastructure to satisfy investors and regulators.
Gan is leaving KongZhong, a US$250mil Chinese wireless services company, for venture capital firm Qiming Venture Partners in Shanghai. He said he knew at least 10 venture-backed companies hunting for CFOs.
One key executive requirement is solid English skills.
A CFO of a foreign-listed or Hong Kong-listed Chinese company can expect to earn anywhere from US$150,000 to US$500,000, plus options, said several people interviewed for this article, with CEO's earning slightly more.
Also fuelling CFO demand is a string of successful new China listings, which have sparked a rush to the initial public offerings market. – Reuters
Shanghai aims to be China's Detroit
October 18th, 2006By Brian Schwarz
SHANGHAI - In its quest to make this city China's auto-manufacturing capital, the municipal government is increasing investment in the Shanghai International Automobile City, according to local media reports.
Analysts say Shanghai has a competitive edge over rival Chinese cities in automobile manufacturing. However, they also caution that Shanghai's ambition to become China's Detroit could be hampered by worsening overproduction at home and growing trade tensions with potential importers of Chinese-made cars.
The Shanghai Daily reported that the municipal government has set the goal of turning Auto City, in the Anting area of the city's western district of Jiading, into a multi-functional regional hub with an additional investment of 38 billion yuan (US$4.75 billion) or more in the run-up to 2010 and bolstering its research and development capacity.
The additional investment in the manufacturing park could encourage car makers such as Shanghai Automotive Industrial Corp (SAIC) and Shanghai Volkswagen to increase production to 500,000 vehicles per year. Zhou Bin, manager of the planning department of Shanghai International Autocity Development Co Ltd, expects Auto City to generate 300 billion yuan worth of automobile trade revenue annually.
With the introduction of a new Formula One racetrack, Auto City has made significant progress. During the past five years, 184 industrial projects have commenced, with investment from 100 auto-part makers. A few weeks ago, for example, SAIC, China's second-biggest auto maker, began construction on a new automobile research institute, which is intended to help the firm develop self-branded models and new-fuel vehicles. Tongji University, which helped develop China's first fuel-cell sedan, has also moved its automobile research department to Anting.
And it's not just domestic producers using the auto park to their advantage. Auto City also hosts foreign parts suppliers such as Delphi and Visteon, both of which work in close cooperation with DaimlerChrysler AG and General Motors Corp in China.
Shanghai's competitive edge
With overcapacity looming in the domestic market and trade tensions simmering with Western trading partners, some may question Shanghai's ambitions. While it enjoys a superior location, the metropolis has comparatively high labor costs and high real-estate prices.
And other Chinese cities are racing ahead in search of greater auto investment. How do Shanghai's capabilities compare with those of other cities such as neighboring Nanjing and the southern manufacturing center of Guangzhou?
Jeff Lin, a principal at Booz Allen in Greater China, says Shanghai has many hidden factors that make it an attractive location. With its international outlook and competitive energy, there is an emphasis on quality among Shanghai residents. Compared with inland Chinese cities, it enjoys superior infrastructure, such as the new Yangshan deep-water port, and a location to serve export markets in the region.
Shanghai is also home to many key suppliers, such Baoshan Iron and Steel, and is close to the fast-growing Yangtze Delta region. Baosteel is considered one of the most competitive steel producers in the world and has expanded its cooperation with FAW-Volkswagen.
Lin says Shanghai also holds an advantage in developing new engineering and management talent. With many industries suffering from a lack of experienced auto professionals, Shanghai universities, on average, have a better pool of young talent than Nanjing and Guangzhou.
"We have attracted car manufacturers and auto-part makers to build plants here and have laid a solid foundation for the development of Shanghai's auto industry," Auto City's Zhou Bin told the Shanghai Daily.
Overcapacity looms
China's central government has identified the auto industry as a "pillar" of the nation's economy and offers incentives and protections to domestic producers. And to encourage the growth of local brands, Beijing announced plans in late June to offer low-interest loans to domestic car makers and aims to lift the share of Chinese nameplates to 60% by 2008, from 20% today.
"Years of large investments in the market have made China a top global auto-manufacturing hub behind the United States, Europe and Japan. The manufacturing strength will be enhanced further," said Wang Liangfeng, an analyst with Shanghai-based Autobeat Consulting firm.
By the end of this year, China is expected to become the world's third-largest car maker, following the US and Japan, according to a report released by Polk Marketing Systems. Government policy will also play a role in the nation's efforts to become a world-class auto exporter.
Sales of Chinese-made cars are climbing both at home and abroad. Despite higher consumption taxes on big-engine cars, rising gasoline prices and stricter bank lending policies, passenger-car sales soared 50% during the first six months of 2006 over the same period a year ago, with second-tier cities such as Chengdu and Chongqing in the southwest leading the way. At the same time, China's exports of automobiles doubled in 2005 to $1.58 billion, according to government figures.
However, while China's auto industry has made significant progress in recent years, serious production overcapacity and falling prices are bound to take their toll. The government warned this year that the country was on course to produce twice as many cars as it needs.
China's annual auto-production capacity, now at 8 million units, has already exceeded anticipated sales of 5.5 million units this year. And the government estimates that motor-vehicle production will hit 20 million units in 2010, more than double the expected sales of 9 million units.
Booz Allen's Lin predicts that this overproduction will lead to a shakeup in the industry, with many inefficient players either consolidating or going out of business.
Overproduction may not translate into a greater reliance on export markets, which could increase trade tensions, but it certainly will put downward pressure on global prices.
Growing trade tensions
In 2004, China's vehicle exports exceeded imports for the first time, as 172,800 units went overseas. But in mid-September this year, China's Chery Automobile was forced to delay its ambitious plan to export cars to the US. In cooperation with maverick entrepreneur Malcolm Bricklin, the firm now hopes to send cars to the very competitive US market beginning in 2009, two years behind its original target date.
According to a recent report in BusinessWeek, Detroit-based Chrysler has been in discussions with Chery about the possibility of jointly manufacturing a small car. Chery produces 400,000 vehicles a year and plans to increase production by 1 million vehicles per year.
With the top Chinese auto makers making plans to export more to the West, trade officials are starting to raise concerns. Although import duties have dropped significantly since China joined the World Trade Organization in 2001, foreign auto makers are limited to a 50% stake in Chinese producers for the domestic market, while there is no limit on ownership of export operations. Government support for local auto makers is raising the eyebrows of WTO officials and creating friction among trading partners.
Last month, trade officials from the US, the European Union and Canada formally petitioned the international trade body to prohibit Chinese duties on imported car parts, which they say are hampering foreign car makers in China. The complaint alleges that the government requires foreign car makers to buy at least 40% of their parts from local suppliers or pay almost double the import duty applied to assembled vehicles. Under Chinese rules, imported auto parts making up more than 60% of the value of a car are subject to a 28% tariff, which is the same duty imposed on complete new cars.
And while many other labor-intensive industries have done well by exploiting the country's low labor costs to export at a rock-bottom prices, the auto industry does not lend itself to a so-called "China price", at least not in the near future, according to Susan Helper, an economics professor at Case Western Reserve University's Weatherhead School of Management in the US state of Ohio.
In a recent Warton University e-newsletter, Helper notes two differences between autos and many other labor-intensive industries, such as textiles, that China has come to dominate. Unlike clothing or electronics, shipping costs are significant when it comes to autos, which include more "dead airspace". Hindering the Chinese auto industry's efforts to become a low-cost producer are commodity prices and the costs of developing automotive technology and research capability.
All these pose big challenges to the Shanghai government's ambition to turn the largest commercial metropolis of China into a new Detroit. The city in the US state of Michigan has ridden the auto industry's boom-and-bust cycle for generations. Now, if local government planners get their way, Shanghai is poised to join the ride.
Brian Schwarz is an American freelance writer and corporate trainer based in Shanghai.
China: Investment curbs paying off
October 17th, 2006Updated: 2006-10-17 07:11
BEIJING -- China's efforts to curb runaway expansion in some industries are starting to pay off, but fixed-asset investment growth remains too rapid, the country' top economic planning official said in remarks published on Monday.
Ma Kai, head of the National Development and Reform Commission, said curbing the launch of new investment projects remained the main focus of the broad array of macro-control measures that Beijing was deploying.
In a speech made on Friday and posted on the agency's Web site, Ma said the economy was in good shape but the country faced some striking problems: fixed-asset investment and credit were still expanding too fast, while the trade surplus was too large.
"The government has taken a series of timely macro-economic measures and these measures have initially helped contain the momentum of blind expansion in some industries, but the problem of overcapacity has yet to be fundamentally resolved," the top economic planner Ma said.
Excess capacity in sectors such as steel, alumina, coking and autos showed no let-up, while risks remained for overinvestment in other industries including coal, power and textiles, he said.
Fearful that overcapacity could wipe out profits and deluge banks with new bad loans, the government has taken a raft of measures to cool some fast-growing sectors.
Investment growth slowed in August, but Ma said the authorities needed to keep tight controls on bank credit and land supply while implementing tougher environmental and safety standards.
"The top priority of macro-economic policy is to strictly control the launch of new projects," Ma said.
Toward that end, the central government has dispatched six inspection teams to the provinces to spearhead a drive launched in early August to scrutinize new projects, he said.
Half of all new coking industry investments flouted government rules, Ma said. The figure for coal was 42 percent, for cement 35 percent, for electricity and steel 26 percent and for textiles 22 percent, he added.
Echoing Ma's comments, Cheng Siwei, a top legislator, was quoted by the official Xinhua news agency as saying that overly rapid investment and credit growth and the swelling trade surplus were the biggest concerns for China's economy.
The underlying source of those imbalances was the country's overly high savings rate, which pushed interest rates down and fueled capital spending, said Cheng, who is vice-chairman of the standing committee of the National People's Congress.
That, in turn, was largely the result of the social security system being relatively underdeveloped, he was quoted as saying.
Michael Moritz goes “oo” in China: Qihoo, Yahoo, Google
October 13th, 2006Sequoia and its lead venture capitalist Michael Moritz have got quite a tangle of interests over in China.
Yahoo China (operated by Alibaba.com) has filed a lawsuit against Sanjiwuxian, the owner of a Chinese search engine called Qihoo, on grounds of unfair competition. Qihoo is backed in part by Sequoia Capital.
Qihoo’s software has been telling users that Yahoo’s toolbar is malware and prompts deinstallation, according to the lawsuit, and has taken a cut of Yahoo toolbar’s market share. (Ironically, points out John Battelle, a search for “Qihoo” in Google produces the spelling correction “Did you mean: Yahoo?”.)
Sequoia Capital, an early backer of Google, where Moritz is on the board, helped pour $20 million into Qihoo, which we reported here. Google’s getting some indirect help here, if Qihoo is badgering Yahoo. Finally, remember that Moritz made his name by backing Yahoo. Eventually, he faced conflict while on the boards of both Google and Yahoo, and had to leave Yahoo’s board to resolve it.
Update: There’s an unconfirmed yet interesting comment below suggesting there may be more to this. And we forgot to mention Sequoia poached Fan Zhang, a former director of DFJ’s China operations, who’d helped invest in Baidu, the other big search player in China. So it is full circle.
Chinese property market still attractive to foreign investors
October 12th, 2006Chinanews, Beijing, Oct. 12 ¨C Foreign investment activities in Chinese property market reached a climax during the first half of this year. According to Daily Economic News, a report titled "Globalization Leads to Investment Boom" and released by Jones Lang LaSalle, a world real estate services and money management firm, shows that as a burgeoning market, China remains attractive to foreign investors. During the first half of this year, direct investment in Chinese real estate market reached 4.75 billion US dollars, doubling the figure of the corresponding period of last year. The first-tier cities such as Beijing and Shanghai have become foreign businesspeople¡¯s most favorable places for making investments.
Global funds management companies have placed a large amount of their money into the Shanghai property market. By September 2006, 15 buildings had been entirely sold to one company. Transaction volume of these buildings reached 1.8 billion US dollars, most of the buyers being foreign investing companies based in the United States, Europe and the Asia-Pacific region. Among these 15 buildings, seven are luxury hotel-style apartments or high-class residential houses later renovated into hotel-style apartments. Insiders say the best time has come for investors to buy luxury hotel-style apartments located in a good place in Shanghai, and their rents are climbing steadily.
Senior manager in Jones Lang LaSalle's China office Deng Wenjie predicted that multinational companies would continue to expand their business in China. As China further opens its finance sector, more A-class offices will be in demand. As the number of foreign staff workers increases in China, it will stimulate the demand for luxury hotels and hotel-style apartments. Meanwhile, people¡¯s increasing disposable income and the ever-expanding middle class group will benefit domestic shopping malls greatly. As the market becomes more transparent, it will attract more foreign investment.
He also predicted that during the latter half of this year, more transaction deals would be clinched in China. Foreign investors who have a clear investment plan will further increase their investment in China. As competition becomes fierce in the first-tier cities, investors will shift to the second-tier cities to seek for gains.
U.S. Insurers Press China for Access
October 3rd, 2006BEIJING — American life insurance companies are pressing China to make good on WTO commitments to give them equal access to its booming market, arguing that they can help meet the needs of a fast-aging population, the head of an industry group said Tuesday.
Insurers want Beijing to remove obstacles that limit their ability to set up nationwide operations and cap foreign ownership of a Chinese insurer at 50 percent, said Frank Keating, president of the American Council of Life Insurers.
He said China's life insurance market, now about one-tenth the size of the $540 billion-a-year U.S. market, could grow in coming years to become the world's biggest.
Keating said his group pressed regulators in meetings this week to bring China's licensing system in line with its promise to the World Trade Organization to treat foreign and Chinese insurers equally.
China's current system requires foreign insurers to apply to open new offices one at a time, while Chinese competitors can win permission for a nationwide operation, Keating said.
China promised in 2004 to end such geographic restrictions and officials acknowledge that they are no longer required by regulations, but regulators still use the old system, he said.
"Our message here was a gentle chiding message that as this process goes forward it is important to be prompt, to be fair and to provide a competitive market for all," Keating told reporters.
China faces a Dec. 11 deadline for meeting commitments to open its banking, insurance and other financial industries to foreign competitors.
Trade groups say Beijing has met most of its commitments to repeal formal barriers to foreign competition. But they say that in some areas, companies are still waiting for promised regulations that are meant to put them on an equal footing with Chinese competitors.
Keating said he told Chinese officials that foreign insurers can help Beijing cope with the needs of a rapidly graying population by selling life insurance, annuities and other retirement-related services to millions of families who can afford them.
That would let government focus on helping the poor, he said.
Keating, a former governor of the U.S. state of Oklahoma, said he plans to meet with U.S. Treasury Secretary Henry Paulson in hopes of having equal treatment in insurance made part of a U.S.-Chinese dialogue on economic matters.
The dialogue was launched last week when Paulson visited Beijing.
Keating also said that while Beijing has met its WTO commitment to let foreign investors own up to 50 percent of a Chinese insurer, his group wants to see that limit raised to allow full ownership.
The American Council of Life Insurers represents 377 companies that sell life insurance, annuities and pensions, including about 20 that operate in China.
U.S. insurers accounted for $1.5 billion of the $61.6 billion in life insurance premiums paid in China last year, according to Brad Smith, the insurance group's vice president for international relations.
The Chinese market for insurance has been growing by 15 percent to 20 percent a year over the past decade, Smith said.
Smith said he couldn't estimate what share of China's insurance market foreign companies might be able to capture. But elsewhere in Asia, foreign companies account for 25 percent of Japan's insurance market and 13 percent of South Korea's, he said.
Insurers hope to see Beijing create tax and other incentives for families to invest in annuities, long-term health care policies and other retirement services, Keating said.
"That will free the government to focus on the 60 million poorest people," he said. "That's good public policy."
Calpers looks at investing in China
October 3rd, 2006The California Public Employees Retirement System, the largest US public pension fund, is considering investing for the first time in Chinese companies, aiming both to capitalise on the country's booming economy and to raise its exposure to emerging markets.
Such a move by Calpers, which has not invested any of its $208bn (€164bn) portfolio in Chinese companies because of poor corporate governance standards, could have a ripple effect on other US public pension funds and increase demand for Chinese shares.
In an interview with the Financial Times, Russell Read, Calpers' recently appointed chief investment officer, indicated that the fund could begin by investing in Chinese companies with US or international listings through American Depository Receipts and Global Depository Receipts.
He said the pension fund's staff could recommend the strategy to Calpers' board in the coming months.
Mr Read, who shaken up Calpers' investment strategy since joining in June, said the issue of how to invest in China and other emerging markets was a primary focus for the Sacramento-based fund. "Investing properly in the emerging markets . . . is fundamental to our investment success," he said.
Calpers, which has a reputation as a tough guardian of shareholders' rights, has so far excluded China from its list of investable markets.
The list is updated yearly and is up for re-evaluation by the Calpers board in February, although permission to invest in ADRs and GDRs could come sooner.
In spite of China's fast-growing economy, its capital markets have proved disappointing to foreign investors. The local stock markets have been volatile and are closed to all but a small group of investors picked by the Chinese government.
However, several big companies, including the state oil giants Petrochina and CNOOC and telecommunications operators China Telecom and China Mobile, have listings in Hong Kong and trade ADRs in the US.
Calpers has some real estate holdings in China. Other US public pension funds also have a degree of exposure to China, although in most cases it appears to be limited to real estate.
Morgan Stanley obtains China banking license
October 3rd, 2006Oct. 2, 2006 (China Knowledge) – Days after launching the first U.S.-registered fund to invest in China A-shares, Morgan Stanley has made a move to acquire a coveted Chinese commercial banking license.
The world’s largest securities firm by market value has taken over Nan Tung Bank, and in the process, gained a foothold in the China’s US$5.1 trillion banking industry. Now a wholly-owned subsidiary of the New York-based firm, the Zhuhai-based Nan Tung Bank was formerly funded by a Macau-based unit of Bank of China Ltd..
Following an approval by the China Banking Regulatory Commission, the acquisition will give Morgan Stanley a banking license to offer foreign-currency denominated services, including deposits, mortgage loans, and trade finance to individual and corporate customers based primarily in the Pearl River Delta region of Guangdong Province.
Morgan Stanley believes the license would propel it ahead of its investment banking rivals, such as Goldman Sachs Group Inc., Merrill Lynch & Co. Inc. and Lehman Brothers Holdings Inc.
The securities firm is yet to win a license to offer local-currency denominated services. However, by fully acquiring Nan Tung, Morgan Stanley will be eligible to apply for a local-currency license immediately, rather than having to wait for five years should they have started their operations in China from scratch.
Nan Tung Bank, which is one of the few Chinese banks open to foreign ownership, serves customers mainly from Hong Kong and Macau.
Since joining the World Trade Organization in December 2001, China has allowed foreign banks to conduct local-currency business with companies in 25 cities. The government will also remove all geographic and business restrictions on overseas lenders by the end of this year.
Foreign banks are allowed to own up to 25% of local lenders, with a single financial institution restricted to no more than 20%, which is 5% higher than in 2003.
Microsoft to invest 100 mln USD in China over five years
October 3rd, 2006U.S. computer giant Microsoft plans to invest 100 million U.S. dollars in China over the next five years, said Microsoft China chief executive Chen Yongzheng on Wednesday.
The investment plan was widely regarded as a reward for China's anti-piracy efforts. The U.S. company has already invested 65 million dollars in three Chinese software enterprises this year.
China Business News reported sales of personal computers installed with authorized software systems rose from 25 percent in the last quarter of 2005 to 48 percent in the first quarter of this year in China.
This was partly due to Microsoft's two-billion-dollar purchasing contract with Chinese PC producers Lenovo, Tsinghua Tongfang, Fangzheng and TCL early this year.
The banning of sales of PCs installed with non-authorized operating systems by China in April also played an important role in this regard.
Microsoft awarded Microsoft China the title of "best subsidiary company" this year, the report said.
Microsoft China has 1,000 staff engaged in research and development and the figure will rise to 3,000 in five years.
Source: Xinhua
Intel Capital invests $40 million in China's Neusoft
October 3rd, 2006BEIJING : Microchip giant Intel Corp said on September 26 that its investment arm, Intel Capital, had agreed to invest $40 million in China's Neusoft Group Ltd.
The investment, which was still subject to regulatory approval, was the largest to date from Intel Capital's $200 million China fund, which was established a year ago, said Intel in a statement.
Intel and Neusoft also signed an agreement to strengthen co-operation in software and hardware integration, education and training, said the statement.
Intel had said earlier that individual Intel Capital investments are typically under $5 million and represent less than a 20 percent equity stake. Intel Capital invested $265 million around the world in 2005, around 60 percent of which went outside the United States, up from 40 percent in 2004.
Fund raising by venture capitalists for China hit a record $4 billion in 2005, according to research company Zero2ipo.com.
China Lures Foreign Retailers With Rule Changes
October 3rd, 2006SHANGHAI, China -- Toys "R" Us Inc., Best Buy Co. and Home Depot Inc. are part of a new wave of foreign retailers about to enter China's quickly developing consumer market.
Over the past year, Chinese authorities have approved more than 1,000 applications by foreign retailers and wholesalers asking to open wholly owned businesses in the booming country of 1.3 billion people. That number of approvals, a sharp surge from previous years, follows a long-awaited liberalization of China's retail sector in 2005. In line with pledges made when joining the World Trade Organization, Beijing stopped requiring foreign retailers to form joint ventures with local partners.
According to the Shanghai Foreign Investment Commission, the bulk of the new applications are from companies that have a China presence through local partnerships. But some prominent U.S. retailers will be new players in China's rapidly changing -- and increasingly competitive -- retail landscape. Closely held Toys "R" Us, for example, will be opening its first mainland China store, a 27,000-square-foot outlet in Shanghai's Superbrand Mall, in December.
"It's the start of our entry strategy to grow the market in China," said Pieter Schats, the company's Asia chief executive. Toys "R" Us executives said the company will formally announce details of its entry in coming weeks.
Toy "R" Us and others are coming in at a time when Chinese authorities are weighing whether to restrict large-scale expansion of chain-store outlets, which could affect major chains like Wal-Mart Stores Inc. that entered China more than a decade ago.
But because they are just entering the Chinese market, the new retailers aren't likely to be subject to any possible rule changes. And few plan to go into China's interior cities, where giants Wal-Mart and Carrefour SA are venturing.
Retail analysts say the newcomers' entry is likely to improve China's still-evolving mall industry, where high-end brands are lumped with unknown names and facilities and parking are frequently substandard. For example, Beijing's Golden Resources Mall -- which is larger than the Mall of America in Minnesota -- has pools of dirty water on bathroom floors even though it boasts shops selling $15,000 Italian leather sofas.
Although China has some of the world's largest malls, only about 10% of them are profitable, estimates Morgan Parker, president of shopping-center developer Taubman Asia.
Previously, foreign retailers would leave it to their local Chinese partners to handle real-estate decisions, which often hinged on price, he said. Foreign retailers "tend to be more holistic -- they want to know things like tenant mix and facilities, to protect their brand image," he said.
The 2005 rule change has prompted an influx of foreign retailers. About 80 to 90 foreign retailers applied to open operations in China in the first 20 years after China opened up its economy, according to Simon F. Huang, deputy director at the Shanghai Foreign Economic Relations & Trade Commission. But in 2005, 432 new retail applications were approved by the Ministry of Commerce.
This year, local governments were given the autonomy to approve retail projects, which accelerated the process. Shanghai, China's major retail hub, approved 496 projects in the past six months alone.
The newly entering retailers say they plan to go slowly, opening outlets only in major cities such as Shanghai or Beijing.
Bob Willett, chief executive of Best Buy International, told reporters in Shanghai this past week, "We're only going to open when it's right. This is not a race." The company will be opening its first outlet in Shanghai by December.
China to see more mergers and acquisitions in retail sector
October 3rd, 2006More mergers and acquisitions are expected in China's retail sector in the near future, according to Ernst & Young. Ernst & Young, one of the world's top consultancies, said China's retail sector is expected to grow 12 to 13 percent in 2006 to reach sales of 7.6 trillion yuan (950 billion U.S. dollars) as consumption hots up.
China saw a total of 417.6 billion yuan (52.2 billion U.S. dollars) of M&A (mergers and acquisitions) activity in 2005, but only 3 percent or 11.1 billion yuan in the retail industry, said the report Retail Revolution--A Look at Mergers and Acquisitions in China's Retail Industry published here on Wednesday.
The report said mergers and consolidation within the industry will reduce fierce head-to-head price competition among retailers. China's top 100 retail companies currently only have 10 percent of the retail market. The vast majority of retailers in China are small family-operated businesses, fragmented and often inefficient, that keep costs low by using family labor.
Mergers and acquisitions would lead to a more rational and consolidated landscape and allow the bigger, better-organized groups to increase market share. In developed countries such as the United States, 85 percent of retail activities are highly organized, but the equivalent figure for China is only 20 percent.
According to the report, domestic players Bailian and Gome and foreign retailers Wal-Mart and Carrefour will emerge as market movers and shakers over the next five years, upping their market share. However, other voices suggest that foreign mergers and acquisitions may threaten domestic firms, and even pose threats to national security. Concerns range from the dilution or demise of Chinese brands, reduced incentives for innovation among local retailers and domination by multinationals.
Carrefour hopes to acquire at least 10 local retailers as part of its expansion plan in China, but no specific targets or time frames have been given. Best Buy, the largest consumer electronics chain store in the United States, acquired a 75 percent stake in China's fourth largest home appliance retailer, Jiangsu Five Star Appliance, in May earlier this year and is reportedly seeking to conclude an 800-million-yuan acquisition of Sanlian Commerce, a retailer in East China's Jiangsu Province.
The report said mergers and acquisitions enable retailers to reinforce their presence in markets where they do not currently operate or do not have significant market share.
China: Citigroup opens software and technology centre in Dalian
October 1st, 2006Citigroup has officially opened a new software and technology center in Dalian. The center will form part of Citicorp Software and Technology Services Limited (CSTS), a subsidiary of Citibank N.A.. A ceremony was held to mark the opening, attended by Lee Ah Boon, Country Business Manager for Citibank China, Stephen Bird, CEO of Credit Cards and Consumer Finance Japan, Aaron Ho, General Manager of CSTS, as well as senior Dalian government officials.
The CSTS Dalian center is positioned to support both Software Application Development and Maintenance and Business Process Outsourcing services to a wide range of Citigroup businesses in Asia and around the world. The new center is located in the Development Zone half an hour's drive from the city, and will have an employment capacity of about 300 professionals.
"It is exciting to be expanding our presence to the vibrant city of Dalian, an important city in which we look forward to playing an active role as we continue to consolidate our presence in China," said Mr. Lee Ah-Boon.
In the next three years the CSTS Dalian center is expected to expand to support different Citigroup business units throughout the region and globally, especially those requiring Japanese or Korean language capabilities. Aaron Ho, General Manager of CSTS, said, "We are very pleased to be opening this state-of-the-art center in Dalian. With its strong language capability, professional talent pool, and its support for foreign investment, Dalian represents a great fit with our business."
Lin Hua, Deputy-Secretary General, said, "We are very pleased to have Citigroup opening a new center in our city and our Development Zone. We believe Citigroup's presence here will provide a significant boost to our reputation as a technology sector and will help train and nurture local IT talent. We are committed to providing an excellent environment for CSTS Dalian center, and we wish it all the best of success."
The establishment of the Dalian center reflects Citigroup's continued efforts to contribute to the development of Chinese IT industry. In April 2004 the Citigroup Financial IT Education Program was established, designed to increase local financial IT talent and support the development of China's finance sector. The program benefits students from 20 major universities in China, including Dalian University of Foreign Languages and Dalian University of Technology. CSTS also provides internship opportunities for participating students and offers them outstanding career and growth opportunities.
CSTS was established in 2002 to provide software development and related technical services with the goal to participate in and support the development of China's information technology industry. Headquartered in Shanghai, CSTS has branches in Guangzhou and Zhuhai in addition to Dalian. CSTS currently has more than 1600 employees in all three branches, about 75% of whom are software developers.
Re-disseminated by The Asian Banker
Avon powers ahead with China recruitment
October 1st, 2006Having received the first license for a foreign-owned company to resume direct sales of cosmetic products in China, Avon added more than 33,000 new sales staff to its workforce there last month, according to data from the Chinese Ministry of Commerce.
The data, which was cited by Morgan Stanley in a note to investors, stated that the 33,339 new representatives were added to the work force in the month of August, bringing the total number of representatives to 188,273.
The figures indicates that the company is recruiting at an even faster rate than it had originally expected. Back in July the company said that its China sales force had reached 114,000 and that it was hoping to recruit a further 31,000 new employees.
Avon received the go ahead to resume door-to-door sales back in January of this year. The move followed the government lifting a total ban on direct sales implemented in 1998 in an attempt to quash pyramid schemes and other scams that were being offered on a door-to-door basis in the country.
Morgan Stanley reiterated in its note to investors that China remains Avon's brightest hope for future growth at the moment, with the recruitment drive likely to boost sales for the second half of the year and helping to buoy the company's overall results in the Asia Pacific market.
Although the general trend in the company's global sales has been positive, the Asia Pacific region has proved particularly disappointing for the company as a whole. With the exception of China, the company reported a poor performance in other countries in the region, contributing to a 10 per cent drop in sales during the second quarter of the year.
But where other Asian markets are showing slow retail sales, the China market remains robust. Currently China is seeing some of the largest industry growth in the world, with almost all cosmetic and toiletry categories reporting sales growth well into double figures - figures that are in line with GDP that continues to exceed 10 per cent.
This growth could prove the key to getting Avon out of a difficult situation. Restructuring charges have hit the company hard of late, forcing investors to shy away from its shares. Following the announcement of its second quarter results at the beginning of August, the Avon share price fell over $5 to reach $27.40 on August 8. Since then the share price has leveled off and finished trading at $29.54 this week.
But the downward trend in the company's share price reflects a general loss of confidence. The company's latest results showed that sales had gone up, but underlying growth was below analyst's expectations, due mainly to the heavy restructuring charges the company incurred.
During its second quarter net income dropped 54 per cent to reach $150.9m on the back $2.1bn in sales, up 5 per cent on the same period last year.
This figure was impacted by a $49m charge, as part of its massive $500m restructuring program, introduced in the last quarter of 2005. The scheme has seen profits tumble by 54 per cent but eventually could save the company $100m a year.
The restructuring costs have included organizational realignments and a reduction in the workforce, particularly in its middle management that has seen the elimination of more than 25 per cent of its management positions and lowered the number of management tiers from 15 to eight.
To date the company has now eliminated 10 per cent of its 43,000 worldwide workforce, however the expansion into China is helping to reverse that trend, emphasizing just how important the upturn in the China market is to the company.
About.com Eyes China
October 1st, 2006China, which is likely to become the largest broadband nation sometime in 2007, is attracting the attention of overseas Internet giants recently. Last week it was Rupert Murdoch’s MySpace1 plans, and their talks with China Mobile.2 This week it is The New York Times, and its About.com3 division.
GigaOM has learned that About.com is seriously eying China for future expansion. About.com’s CEO Scott Meyer confirmed that the company is in the process of planning a move into China, looking to build a team there and is headhunting for a general manager. Meyer said the plans are still in the early phase. Thirty percent of About’s unique visitors are from outside of the U.S., Meyer said.
Meyer wouldn’t disclose how the Chinese operations would be financially structured, or if the company would use a new Chinese brand or an About China brand. The timing of the launch remains fuzzy.
Like most non-Chinese Internet companies, About will have to figure out how to navigate the Chinese markets, and adapt to the local government regulations, the business models, and the consumer tastes of the Chinese market. Murdoch has said that he has struggled over the control of content with Chinese regulators1 in his attempts to move MySpace to China.
About’s content will likely face similar issues. When we asked Meyer what he thought of Murdoch’s troubles thus far in China, he said “We are spending a lot of time staying up to speed on the Internet market in China, and MySpace is just one of those examples.” He didn’t seem too concerned. We will call him in a few months and see if he’s still so relaxed.
China's Capital Markets Set for Growth
September 24th, 2006By Angela Pasceri, Financial Correspondent
HONG KONG (HedgeWorld.com) - The Shanghai and Shenzhen stock markets will once again draw attention, as China's financial reforms of the past two years are expected to provide the catalyst for a rapid expansion in market capitalization.
The value of China's stock market is expected to quadruple by 2010, according to a recent Credit Suisse report authored by Vincent Chan, with the dual listing of major Chinese H shares and red chips being the major driver.
If China's market capitalization-to-GDP ratio reaches 50% by 2010, the report noted that People's Republic of China capital markets would reach a value of $1.88 trillion, compared with $402 billion at the end of 2005. If China's more successful offshore- listed companies sought a dual-listing on the A-share market, and share prices were valued at 10 times 2005 earnings, the capitalization of the mainland stock market would rise to $2.6 trillion in 2010.
The regulatory reforms, which were taken up at a pace far quicker than the market predicted, and the recovery of mainland share prices, will give Hong Kong a run for its money in attracting mainland listings. Hong Kong found its niche as the key destination for China listings over a period stretching from 2001 to 2005. That was when China restricted fundraising activities on the mainland as it launched its reform of listed companies. During this time, mainland companies raised $149 billion in Hong Kong versus $48 billion in China.
Along with the China Securities Regulatory Commission's push in 2005 to push through non-tradable share reform, where listed companies converted non-tradable shares into tradable stock, other regulations were implemented to create market supports. This bodes well for Chinese companies, which are increasingly considering dual listings.
There are 53 Chinese companies with a total market capitalization over $3 billion listed in domestic and overseas markets. The top three companies by market capitalization are PetroChina, China Mobile and Bank of China. Within the broader group, 29 stocks are listed only overseas, and not accessible to domestic Chinese investors under the current capital account control framework in China. "There is a good chance that almost all of these 29 companies would seek a dual listing in the domestic China market within the next five years," according to the report.
The total market capitalization of these 29 companies, based on current valuations, is $731 billion, which is greater than the current aggregate market cap of the Shanghai and Shenzhen stock exchanges.
What would drive activity on the Chinese stock market even more, said to Aaron Boesky, chief executive of Hong Kong's Marco Polo Investments Ltd., are the Olympics.
China fulfills commitment to WTO to open securities market
September 24th, 2006SHANGHAI -- China has fulfilled its commitment to the World Trade Organization to open its securities market, China Securities Regulatory Commission chairman Shang Fulin has told the Sino-French Financial Forum in Shanghai.
Since beginning of this year, the government had taken a series of measures to further open its capital market, he said.
In February, the regulations on foreign strategic investment in Chinese-listed companies started to take effect, allowing overseas investors to put long-term investment into listed companies, Shang said.
Regulators had also relaxed QFII (qualified foreign institutional investors) rules to attract more overseas investment to the securities market, he said.
Slashing the QFII threshold, the new regulations made it possible for more overseas foreign institutional investors to qualify as investors in the Chinese A-share (Renminbi-dominated) markets, he said.
The rules, which came into effect on September 1, stipulate the minimum securities assets managed by QFII applicants -- such as fund management institutions, insurance companies and other institutions that stress long-term investment -- as five billion US dollars for the current fiscal year, half the earlier QFII provisions.
Insurance companies must exist for at least five years to become a QFII, a much shorter period than the 30 years in the previous rules.
QFIIs will be allowed to open three securities investment accounts with each of the country's two stock exchanges. Under the old rules, they could only hold one account with each stock exchange in cooperation with their trustees and local partners.
By the end of August, seven joint-venture securities companies and 23 joint-venture fund management companies had been established in China.
Foreign investors hold at least 40 percent of equity in nine fund management firms, and overseas securities agencies had been allowed to deal directly in China's B-share (overseas currency dominated) market, he said.
China Ranks Among In Top Ten For Reforming Business Practices
September 24th, 2006Jacob Cherian - All Headline News Staff Writer
Beijing, China (AHN) - The Doing Business Report 2007 created by the World Bank and International Finance Corporation (IFC) reveals that China is now one of the ten top business reformers among 175 nations following speedy reforms in the country during the past year.
The report confirms that China has executed reforms to make it easier to set up business registrations and also make deals. It has also made efforts in making credit more accessible as well as protecting investors. The rate of reforms in China is now marked first in East Asia and Pacific region, not to mention a fourth-ranking in the world.
The Corporation Law in the country is now upgraded and the time for business registration has been modified from 48 to 35 days. The minimum confirms starting a business has been altered from 947 percent of per capita income to 213 percent. Furthermore, China has also strengthened deals made within the country and increased security measures for investors.
China now has a consumer credit information system. Banks are able to consult the records of the nations' 340 million before handing out loans.
Also, the new customs application procedures over the Internet has decreased the time it takes for imports and exports to get through customs by two days.
How to do business in China
September 24th, 2006It is not surprising at all when many foreign investors complained when they do business in China. Many wondered why their years of experience in the business world could not be applied in China immediately. Doing business is about building mutual trust and benefit amidst establishing relationship with people. If you do not understand your counterpart well, it will be quite difficult to establish good cooperation with him/her. An old Chinese saying goes: know yourself and your enemy well and you can fight a hundred battles without any fear of defeat. This greatly emphasized the importance of knowing and understanding your counterpart.
Modern economic model differ greatly from the traditional one, whereby people in the past ‘fight’ till the last man standing. Today, people seek to achieve a “win-win” situation, and pursue long-term trade cooperation under a fair and healthy competition environment. Understanding factors such as China’s history, humanity and culture will be the key to investors’ success in China. As Western thinking and China’s traditional values do differ, encountering the culture differences is therefore inevitable, thus a better understanding of the cultural differences is necessary when doing business in China:
1. Learn how to handle Guanxi (relationship)
In China, Guanxi (relationship) is a complicated field. Establishing relationship with others does not mainly deal with achieving own self-interests or personal goals. A special feature of doing business in China will be that Guanxi (relationship) in China will have to include relationship with the government body, investors, partners and even relationship with your own staff. China government plays a large role in administrating the investment in China. This is because China is a socialist state; the economy is still largely controlled and managed by the government, so when doing business in China, it is important for foreign investors to learn to coordinate with the China government. At the same time, seeking a suitable local partner may be a shortcut and helping hand in developing your business in China market.
2. How to prevail over competition
China, at the moment, can be said to be a big, open market, and the ability to prevail over competition is a very important issue today. Investors should fully realize and maximize one's advantages. Some investors are afraid that the China’s imitation products will hurt the sale of their products. Even though this symptom is worrying, however in a free and competitive market, it will always be one that has the superior quality that will not be afraid of competition and will prevail eventually. China market is constantly undergoing standardization, and the China government has vowed to protect the quality of the market.
The Vice-Minister of the Ministry of Foreign Trade and Economic Cooperation had previously stated in his speech that being a member of the World Trade Organization, China government will continuously rectify and standardize the economic structure of the market, and will persistently crack down illegal acts of producing counterfeit products. Technology level in China is still relatively lagging behind, thus foreign investors should fully make use of their advantages in technology and expertise to produce high-quality products and services. One should not be over worried about the negative impact brought about by new counterfeited products. Continuous development of one’s technology and emphasizing on innovation will be the key to success.
3. Route for Investment
There are three options to take when make investments in China, mainly: wholly foreign-owned enterprise, Chinese-foreign cooperative enterprise and Sino-foreign joint venture. Which option to take will have to depend on factors such as the investors' investment direction, investment environment, and the amount of investment to be undertaken. Generally speaking, wholly foreign-owned enterprise require examination and approval from many government bodies and this process can be quite hassle and time-consuming. Government procedures for establishing Chinese-foreign joint venture and contractual joint ventures will be even more and the process will require even more from more government bodies. Thus Sino-foreign joint venture appears to be the ideal investment option as less governmental procedures and authorization time will be required. Possibility of encountering hiccups will be smaller.
China is Nasdaq's fastest source of growth in new listings, executive says
September 24th, 2006SHANGHAI, China Chinese companies are the Nasdaq's biggest source of new listings and don't appear to be discouraged by stricter legal requirements, the U.S. exchange's international president said Wednesday.
Mainland Chinese companies now account for 29 of about 3,300 companies listed on Nasdaq, said the president of Nasdaq International, Charlotte Crosswell, in an interview in Shanghai.
The exchange also lists around 50 firms from Hong Kong, a Chinese special autonomous region, putting China third behind first-place Israel and second-place Canada in having the most non-U.S. listings on the Nasdaq, Crosswell said.
"Obviously the growth is coming from China, and that's where we're really seeing the pipeline expand, in terms of numbers of companies coming to market," said Crosswell, who was in China's commercial hub to encourage the parade of new Chinese firms marching toward listings on America's largest electronic stock market.
The growth comes despite the potential disadvantage American exchanges face from the relatively strict rules on reporting and corporate governance required by the U.S. government.
Nasdaq President and CEO Robert Greifeld earlier this month said efforts to attract international listings have been hampered by the Sarbanes-Oxley Act, which took effect in 2002 in response to several U.S. corporate scandals.
However, Crosswell said Chinese companies tell her the regulatory hassles are offset by the added trust from investors. Chinese firms also have comparatively little difficulty implementing the requirements because they are often too young to have developed rigid corporate structures, she said.
"They believe it's a good thing to have," Crosswell said. "They're actually very happy they can prove they can comply with it because they think that's a good story for investors."
As part of its expanded presence in China, Crosswell said Nasdaq was now advising firms that were still two to three years away from listing. It formerly worked mainly with companies that were much closer — usually six months to a year — from listing on the exchange.
While Nasdaq listings from China have traditionally come from the high-tech sector, they are now hailing from increasingly diverse industries, including services, manufacturing, health care and media, she said.
Business has also been boosted by agreements with the governments of Zhejiang and Jiangsu, two of China's most economically dynamic provinces, to steer local companies toward Nasdaq listings.
Crosswell declined to give a figure on numbers of upcoming new listings or any other specific business plans in China, but she said growth was accelerating.
"It's really starting to pickup," she said. "It's certainly our fastest growing market."
Crosswell said the Nasdaq doesn't seek to compete with local stock markets and prefers to encourage firms to launch dual listings at home and in the United States.
Internationally the exchange continues to view the New York Stock Exchange as its chief rival, she said.
Along with competing to draw foreign listings, the Nasdaq and NYSE have become rivals in expanding overseas in a first wave of consolidation in global stock markets.
Nasdaq amassed a 25 percent ownership stake in the London Stock Exchange, Europe's biggest market, after the LSE rejected Nasdaq's initial US$4.2 billion takeover offer in March.
SHANGHAI, China Chinese companies are the Nasdaq's biggest source of new listings and don't appear to be discouraged by stricter legal requirements, the U.S. exchange's international president said Wednesday.
Mainland Chinese companies now account for 29 of about 3,300 companies listed on Nasdaq, said the president of Nasdaq International, Charlotte Crosswell, in an interview in Shanghai.
The exchange also lists around 50 firms from Hong Kong, a Chinese special autonomous region, putting China third behind first-place Israel and second-place Canada in having the most non-U.S. listings on the Nasdaq, Crosswell said.
"Obviously the growth is coming from China, and that's where we're really seeing the pipeline expand, in terms of numbers of companies coming to market," said Crosswell, who was in China's commercial hub to encourage the parade of new Chinese firms marching toward listings on America's largest electronic stock market.
The growth comes despite the potential disadvantage American exchanges face from the relatively strict rules on reporting and corporate governance required by the U.S. government.
Nasdaq President and CEO Robert Greifeld earlier this month said efforts to attract international listings have been hampered by the Sarbanes-Oxley Act, which took effect in 2002 in response to several U.S. corporate scandals.
However, Crosswell said Chinese companies tell her the regulatory hassles are offset by the added trust from investors. Chinese firms also have comparatively little difficulty implementing the requirements because they are often too young to have developed rigid corporate structures, she said.
"They believe it's a good thing to have," Crosswell said. "They're actually very happy they can prove they can comply with it because they think that's a good story for investors."
As part of its expanded presence in China, Crosswell said Nasdaq was now advising firms that were still two to three years away from listing. It formerly worked mainly with companies that were much closer — usually six months to a year — from listing on the exchange.
While Nasdaq listings from China have traditionally come from the high-tech sector, they are now hailing from increasingly diverse industries, including services, manufacturing, health care and media, she said.
Business has also been boosted by agreements with the governments of Zhejiang and Jiangsu, two of China's most economically dynamic provinces, to steer local companies toward Nasdaq listings.
Crosswell declined to give a figure on numbers of upcoming new listings or any other specific business plans in China, but she said growth was accelerating.
"It's really starting to pickup," she said. "It's certainly our fastest growing market."
Crosswell said the Nasdaq doesn't seek to compete with local stock markets and prefers to encourage firms to launch dual listings at home and in the United States.
Internationally the exchange continues to view the New York Stock Exchange as its chief rival, she said.
Along with competing to draw foreign listings, the Nasdaq and NYSE have become rivals in expanding overseas in a first wave of consolidation in global stock markets.
Nasdaq amassed a 25 percent ownership stake in the London Stock Exchange, Europe's biggest market, after the LSE rejected Nasdaq's initial US$4.2 billion takeover offer in March.
SHANGHAI, China Chinese companies are the Nasdaq's biggest source of new listings and don't appear to be discouraged by stricter legal requirements, the U.S. exchange's international president said Wednesday.
Mainland Chinese companies now account for 29 of about 3,300 companies listed on Nasdaq, said the president of Nasdaq International, Charlotte Crosswell, in an interview in Shanghai.
The exchange also lists around 50 firms from Hong Kong, a Chinese special autonomous region, putting China third behind first-place Israel and second-place Canada in having the most non-U.S. listings on the Nasdaq, Crosswell said.
"Obviously the growth is coming from China, and that's where we're really seeing the pipeline expand, in terms of numbers of companies coming to market," said Crosswell, who was in China's commercial hub to encourage the parade of new Chinese firms marching toward listings on America's largest electronic stock market.
The growth comes despite the potential disadvantage American exchanges face from the relatively strict rules on reporting and corporate governance required by the U.S. government.
Nasdaq President and CEO Robert Greifeld earlier this month said efforts to attract international listings have been hampered by the Sarbanes-Oxley Act, which took effect in 2002 in response to several U.S. corporate scandals.
However, Crosswell said Chinese companies tell her the regulatory hassles are offset by the added trust from investors. Chinese firms also have comparatively little difficulty implementing the requirements because they are often too young to have developed rigid corporate structures, she said.
"They believe it's a good thing to have," Crosswell said. "They're actually very happy they can prove they can comply with it because they think that's a good story for investors."
As part of its expanded presence in China, Crosswell said Nasdaq was now advising firms that were still two to three years away from listing. It formerly worked mainly with companies that were much closer — usually six months to a year — from listing on the exchange.
While Nasdaq listings from China have traditionally come from the high-tech sector, they are now hailing from increasingly diverse industries, including services, manufacturing, health care and media, she said.
Business has also been boosted by agreements with the governments of Zhejiang and Jiangsu, two of China's most economically dynamic provinces, to steer local companies toward Nasdaq listings.
Crosswell declined to give a figure on numbers of upcoming new listings or any other specific business plans in China, but she said growth was accelerating.
"It's really starting to pickup," she said. "It's certainly our fastest growing market."
Crosswell said the Nasdaq doesn't seek to compete with local stock markets and prefers to encourage firms to launch dual listings at home and in the United States.
Internationally the exchange continues to view the New York Stock Exchange as its chief rival, she said.
Along with competing to draw foreign listings, the Nasdaq and NYSE have become rivals in expanding overseas in a first wave of consolidation in global stock markets.
Nasdaq amassed a 25 percent ownership stake in the London Stock Exchange, Europe's biggest market, after the LSE rejected Nasdaq's initial US$4.2 billion takeover offer in March.
Case study: Smiths Group - doing business in China
September 24th, 2006Clint Witchalls, Computing Business 21 Sep 2006
John Lytle the chief technology officer (CTO) of Smiths Group, a global engineering company, needed to expand his networking capabilities into China after the company entered the region.
China represents an increasingly important area of business both as a manufacturing location and a sales hub, according to Lytle.
‘We have made a strategic decision to go into China, driven by the size of the opportunity in that market as it emerges as a global consumer,’ says Lytle. ‘China represents a huge opportunity for most multinational corporations. We just can’t ignore it.’
As China opened its markets, Smiths moved in to explore where China stood from a business and consumer standpoint. ‘Historically, we’ve had a few small operations there,’ says Lytle. ‘Mostly they were joint ventures, low-cost manufacturing centres, but we are now opening our Asia-Pacific corporate headquarters in Shanghai. The purpose of that office is to grow our presence there as a producer, as a consumer, as a supplier.’
But doing business in China is not always plain sailing. The Chinese have a concept called guanxi (pronounced gwon-shee), which roughly translates as ‘relationships.’ To get things done in China, personal connections matter a great deal, but developing them takes time. In China, they cannot be hurried.
‘From a networking standpoint, you have to work with someone who has done it before,’ says Lytle. ‘You cannot assume that you can walk in there and get things done as quickly as you can in other markets. You need to work with people who know how to get things done in China.’ These people are often referred to as old China hands.
Patience is a key virtue if you want to succeed. Not only because of guanxi, but also because the country is still suffering growing pains. ‘There are some place we can’t go, not because the Chinese government won’t let us, but because the infrastructure cannot support the levels of rapid expansion,’ says Lytle. ‘So we have to move somewhat slowly as the government builds their infrastructure.’
Another challenge Lytle faced was IT security – one of China’s key weaknesses. ‘We do a lot of defence aerospace work with a number of different governments, so we have concerns around security of intellectual property,’ says Lytle. ‘Security concerns are being pressed on us by our other government customers, so we have to isolate our Chinese business from the rest of the organisation.
‘We have to set up a firewall between China and the rest of our organisation, just to assure other governments that Chinese nationals will not have open play into our virtual private network. So far, it’s been successful, but we are constantly monitoring traffic to know what is going on and to ensure the firewall is not being breached.’
Lytle’s recipe for working successfully in China is to move very slowly and do a lot of due diligence. ‘It does not hurt to get your feet on the ground and look around,’ says Lytle. ‘You cannot assume that from a couple of conversations or a few written articles, you can understand what goes on there.’
Record number of large enterprises in China
September 24th, 2006With an increase of 81, the number of large enterprises in China last year reached 2,845. These companies have combined assets of more than 20 trillion yuan, and grew 18.5 from 2004. These enterprises have also witnessed a 23 and 25.3 percent growth in operating income and gross profit from the same period last year.
These statistics, released at the 1st and 6th Sessions of the Press Conference on China's Top 500 Competitive Large Enterprises, show that China's large businesses have taken shape and are growing in strength.
It is reported that the assets of these enterprises are worth more than 23,076 billion yuan, up 4.1 percent from last year. There are currently 19 enterprises with an operating income of over 100 billion yuan, four more than that in the previous year. Sinopec, China Petroleum and Chemical Corporation, with a gross income of 857.2 billion yuan, ranked highest.
The statistics have also revealed that in 2005, most of China's large enterprises are operating in the areas of manufacturing, wholesaling and retailing, construction, real estate, traffic and transportation, storage and postal services, mining, production and supply of power, gas as well as water, agriculture, forestry, animal husbandry, accommodation and catering. Of those, the manufacturing, production and supply of power, gas and water as well as mining industries are the largest.
China foundries offering more MPW programs for IC designers
September 24th, 2006Claire Sung, Taipei; Rodney Chan, DigiTimes.com [Friday 22 September 2006]
China's foundries are offering more multi-project wafer (MPW) programs to lower costs for the country's more than 400 IC designers, most of whom are small players.
CMMC Technologies, which currently offer MPW services at the 0.5 and 0.6 micron processes, have announced that it will add the 0.35 micron process to its MPW programs.
Shanghai Hua Hong NEC Electronics will also offer MPW services for the 0.15 and 0.18 micron processes, according to industry sources. Hua Hong NEC is already planning a MPW program for the 0.18 process, while its 0.15 micron MPW service is expected to be launched in 2007, the sources added.
Other China-based foundries, such as Semiconductor Manufacturing International Corporation (SMIC), Hejian Technology, also offer MPW services, the sources noted.
The sources pointed out that MPW programs enable multiple low-volume clients to put their designs onto a single wafer, cutting the clients' costs by as much as two thirds compared to a single client occupying the entire wafer.
According to sources with China's IC design sector, there are over 400 IC designers in China, most of whom are small players who use the mature 0.35-0.18 micron processes. Consumer electronics are their chief markets, the sources added
DaimlerChrysler opens new China factory
September 24th, 2006By JOE McDONALD, AP Business Writer 1 hour, 3 minutes ago
BEIJING - DaimlerChrysler AG on Friday formally opened its first factory to make Mercedes-Benz and Chrysler sedans in China, joining a rush of foreign automakers scrambling for a share of the booming Chinese car market.
The company plans to expand its financing business and is talking to potential Chinese partners about possibly producing a lower-cost model for the U.S. market, said chairman Dieter Zetsche.
Earlier, Zetsche and VIPs, including the Communist Party secretary of Beijing, attended a grand opening ceremony with fireworks and traditional Chinese drummers and dancers.
General Motors Corp., Volkswagen AG, Toyota Motor Corp. and other competitors already make cars in China.
A key challenge for foreign automakers in China is the government‘s insistence that at least 40 percent of their components come from Chinese suppliers, whose quality is still uneven. Zetsche said DaimlerChrysler intends to meet that target, though he acknowledged that it would not be able to do so immediately.
Zetsche declined to comment on U.S. and European complaints that China‘s tariffs on auto parts are too high. The governments are reportedly considering filing a World Trade Organization complaint against Beijing.
Zetsche said the company expected sales to meet those levels but would not say how long it would take. He said the factory is expected to be profitable when sales are well below its full capacity.
"We‘ve had a very slow ramp-up to make sure we get the quality right," Hale said. "As we identify more suppliers that meet our standards, we bring them into the supply chain."
The company has not disclosed prices for the models made in Beijing.
"With one partner, we have very much progressed (in talks), but still haven‘t come to a final decision," he said.
The company‘s new Beijing factory is a joint venture with a Chinese partner, state-owned Beijing Automotive Industries Corp.
Beijing Automotive‘s chairman, An Qingheng, said the venture hopes eventually to produce 300,000 vehicles a year.
The joint venture‘s president, Guenter Butschek, said it plans to launch a new Chrysler advertising campaign in China shortly.
"This brand will for sure be far better known to the Chinese customer in a couple months," he said.
Chrysler Corp. opened a joint-venture Jeep factory in Beijing in 1983, becoming the first Western company to produce vehicles in China since the 1949 communist revolution. Chrysler merged with Stuttgart, Germany-based Daimler Benz AG in 1998 to form DaimlerChrysler.
China aims to export US$70 bln worth of autos and auto components by 2010
September 24th, 2006China aims to increase exports of automobiles and automobile components to 70 billion U.S. dollars by the end of 2010, said an official with the Ministry of Commerce.
In the first half of 2006, China exported 34,500 units of sedans, surpassing the total export volume of 2005, and now exports to 207 countries and regions, China Automotive News reported.
From 2000 to 2005, China averaged 40 percent growth in auto and auto component export volume per year, with exports of complete vehicles growing at a rambunctious 70 percent per year.
Last year, the country's car and auto parts exports hit 10.9 billion dollars, up 34 percent on the previous year.
However, to put this impressive growth into perspective, it needs to be remembered that China's market share in world automobile and automobile component exports is less than 1 percent.
Source: Xinhua
China Auto Parts Scheme Challenged
September 24th, 2006US joined by EU and Canada on WTO dispute settlement action
WASHINGTON, DC – 09./16/06 – The US has joined with Canada and the European Union to request that the World Trade Organization (WTO) establish a dispute settlement panel regarding China’s overall treatment of US-made auto parts.
According to the Office of the US Trade Representative, Beijing is imposing charges that “unfairly discriminate” against imported auto parts and discourage automobile manufacturers in China from using imported auto parts in the assembly of vehicles.
Under China’s current regulations governing the importation of auto parts, all vehicle manufacturers in China that use imported parts must register with China’s Customs Administration and provide specific information about each vehicle it assembles, including a list of the imported and domestic parts to be used, and the value and supplier of each part.
If the number or value of imported parts in the assembled vehicle exceed specified thresholds, the regulations assess each of the imported parts a charge equal to the tariff rate of around 25% on complete automobiles, rather than the 10% tariff applicable to auto parts.
The regulations encourage auto manufacturers in China to use Chinese parts in the assembly process – at the expense of parts from the US and elsewhere.
The regulations also provide an incentive for auto parts producers to relocate manufacturing facilities to China.
China “appears to be acting inconsistently with several WTO provisions including Article III of the General Agreement on Tariffs and Trade 1994 and Article 2 of the Agreement on Trade-Related Investment Measures, as well as specific commitments made by China in its WTO accession agreement,” the statement said.
The US originally initiated the case on March 30, when it requested formal WTO consultations. The US, Canada, and the EU held joint consultations with China on the issue in Geneva in May.
Australia, Japan, and Mexico, which also export auto parts to China, participated in the consultations as third parties.
"While we remain open to settling this dispute, China’s current stance leaves us no choice but to proceed with our WTO case,” the statement said.
The US, it added, “is committed to providing a level playing field for US exporters to China and, as we have made clear, we will not hesitate to pursue dispute settlement if necessary."
The US exported $681 million in auto parts to China in 2005, an increase of 6.5% over exports in 2004.
Over this same period, the market for automotive components in China increased by 16.8%, and the number of passenger vehicles sold in China increased by 27%.
US exports of auto parts to China accounted for 1.4% of total US auto parts exports in 2005, representing approximately 10% of China’s auto parts imports.
Honda opens new Accord factory in China
September 24th, 2006TOKYO, SEPT 19: Honda Motor Co, Japan’s third-largest automaker, opened a new factory in China, as it seeks to maintain its lead over Toyota Motor Corp and Nissan Motor Co in the world’s fastest growing major vehicle market.
The new factory, located in the southeastern city of Guangzhou, will have a capacity of 1,20,000 vehicles a year, the company said in a statement. Guangzhou Honda Automobile Co, Honda’s venture with Guangzhou Automobile Group Co, invested 2.2 billion yuan ($277 million) in the factory, which will make Accord models.
Honda, the first Japanese carmaker to set up a venture in China, is opening the plant after capacity shortages stunted its sales growth in the first half. The factory may enable Honda to maintain its lead over Toyota and Nissan, which are also investing in the world’s third-largest vehicle market.
‘‘Demand in China will continue to grow so Honda will likely add more capacity,’’ said Norihito Kanai, a senior research analyst at Meiji Dresdner Asset Management Co which manages $2.5 billion in equities in Tokyo. ‘‘If Honda can’t supply enough cars, customers will go elsewhere.’’
Honda set up its first venture in China in 1998, five years ahead of Toyota and Nissan. The company had about 5.7% of China’s passenger car sales in the first half, compared with Toyota’s 4.5% and Nissan’s 4.1%, according to the China Association of Automobile Manufacturers. Market leader Volkswagen had a share of 17.1%, the carmaker said.
—Bloomberg
China's Auto Output Will Exceed 7 Million Cars in 2006
September 24th, 2006(Akron/Tire Review – Asiaport) China's automobile output in 2006 will exceed 7 million cars, making a big leap from 5.7 million cars in 2005, forecasted by Zhang Xiaoyu, the deputy head of China Machinery Industry Federation, and chairman of the Society of Automotive Engineers of China. China’s automobile industry has become an integral part of the national economy after rapidly growing in the first five years of the new century. In 2005, the whole industry generated output value of approximately $151 billion and contributed near $25 billion taxes directly and indirectly, as well as providing 17 million jobs.
Seek jobs on the line in China
September 24th, 2006ONLINE job ad company Seek has kicked off its global expansion with a $26.6 million investment in Chinese company Zhaopin, which it says is one of the country's three leading recruitment websites.
Seek, which is backed by James Packer, will pick up a 25 per cent stake in the company. Andrew Bassat, joint chief executive of the company with his brother Paul, said he hoped it would be the "first of several" offshore acquisitions.
"We think that the internet employment space is a wonderful space and if you get it right, it is high margin, high profit and high growth," Mr Bassat told the Herald.
"These things take time but we hope over the next year or so we're able to announce a couple more [offshore acquisitions]."
Seek shares rose 11c, or more than 2 per cent, to close at $5.04 yesterday.
The company's move into China comes amid speculation that its 25 per cent shareholder, Publishing and Broadcasting Ltd, is eyeing the online property ad market.
PBL has renamed one of its companies myhome.com.au and is rumoured to be partnering with the Raine family of Raine & Horne real estate.
It has also sounded out shareholders in online car ads business Carsales.com.au with a view to increasing its 41 per cent stake.
Some analysts believe PBL may look to amalgamate its online classifieds businesses at some stage.
But Mr Bassat said yesterday Seek was focused on jobs over the next year or two.
"Our focus is very much on employment and training in the short to medium term," he said. Seek has a 55 per cent share of the Australian online employment ads market in terms of the volume of ads it carries, more than double the number two and three sites run by News Ltd and Fairfax.
Its revenue jumped more than 53 per cent to $109 million in the year to June 30, as it attracted more business in sectors such as government and health care and boosted its education and training division.
Net profit rose 68 per cent to $34 million, exceeding analysts' expectations.
Mr Bassat said the company expected Zhaopin to become profitable in 2008.
He said over the next two years the company would "invest heavily".
"Our model is to find a strong Chinese management team, give them capital and share some of our experience and expertise and support them.
"We are very much there to support them rather than control them."
Zhaopin was founded in 1997. Its headquarters are in Beijing and it has branches in more than 30 cities in China.
Infosys to Expand China Operations
September 24th, 2006A number of Indian outsourcing companies have set up operations in China to tap the local market for IT services and to support the operations of some of their multinational clients in the country. Infosys, India's second-largest outsourcer, plans to increase its staff in China to 6,000 over the next five years.
India-based software outsourcing company Infosys plans to increase its investment in two new centers in China to a total of US$65 million over five years, after which it will be able to house a total of 6,000 engineers at its three centers in that country.
The centers will produce work in the areas of software development, IT services and business process outsourcing, and will also have training and research facilities.
Tapping Into China
A number of Indian outsourcing companies have set up operations in China to tap the local market for IT services and to support the operations of some of their multinational clients in the country.
Infosys plans to double the number of its workers in China to 1,000 this year. Bigger rival Tata Consultancy Services plans to increase the number of employees in China to 5,000 by 2010, from about 400 now.
"China is a domestic market for us because many of our multinational clients are expanding in China," Chief Executive Officer Nandan Nilekani said in an interview in Singapore.
It is a "potential source of resources for our global clients and a potential base for serving the region because of the" Chinese script, he said.
China's exports have soared as foreign companies, including many of Infosys' clients, have set up factories in the country to benefit from low labor costs.
Expansion in Line With Strategy
Expansion in China may also help Infosys boost business in Japan, the world's second-largest economy.
India's second-largest outsourcer, Infosys plans to increase its staff in China to 6,000 over the next five years.
"The expansion is in line with our strategy to tap local talent as well as to expand our global delivery model to other locations," said Bani Paintal Dhawan, a spokesperson for the company.
As of June 30, Infosys had 39,806 employees altogether, most of whom were located in India.
The company is setting up a center in Hanghzhou, China, at the Hanghzhou Hi-Tech Development Industry Zone, the company said in a statement.
The company said on Wednesday that it would set up a new center in Shanghai with seating capacity for 1,000 engineers over the next two years. That facility will be in addition to a facility the company already has at the Shanghai Pudong Software Park that employs about 250 people, according to Dhawan.
Low-Risk Delivery Model
The initial investment in the new Shanghai facility will be $10 million over the next two years, while the initial investment in Hanghzhou will be $15 million, according to the company.
Infosys provides consulting and IT services to clients globally -- as partners to conceptualize and realize technology driven business transformation initiatives. With over 58,000 employees worldwide, it uses a low-risk global delivery model to accelerate schedules with a high degree of time and cost predictability.
China to receive bigger IMF voice
September 19th, 2006By Steven R. Weisman The New York Times
Published: September 18, 2006
SINGAPORE Member states of the International Monetary Fund, yielding to demands from China and leading Western countries, have adopted a plan to modify the fund's power structure and take steps to expand the voice of China and other rapidly developing nations, officials said Monday.
The modification of the governance of the IMF, the international agency that monitors the global economy and rescues countries from insolvency, was widely described as the biggest step since the fund was established in the 1940's, the era when the victors of World War II created the vast cooperative superstructure for the world economy.
China's share of the votes at the IMF, which has 184 members, would go up only slightly, from 2.98 to 3.719 percent. The shares of South Korea, Turkey and Mexico, the other countries that gained more power from the vote Monday, was similarly modest. But it was hailed by the United States and other nations as a decisive reform.
"It looks like a small step forward, but it's a large step," said Henry Paulson Jr., the U.S. Treasury secretary, who was here for the annual meeting of the IMF and the World Bank and participated in morning-till-night sessions assessing the global economy and possible steps to assure its health.
The precise tally of the IMF members was not available early Monday evening.
In a separate development, a committee of finance ministers that oversees the World Bank endorsed in principle a plan by Paul Wolfowitz, the bank president, to crack down on corruption in the bank's lending, but not unreservedly. They added a proviso that the bank's board of executive directors, a separate group that oversees the day-to-day bank operations on behalf of donor and recipient nations, be able to override the way Wolfowitz carries out the plan.
Wolfowitz, a conservative intellectual who was an architect of the Iraq war as deputy secretary of defense in the first term of President George W. Bush, has stirred unease in the bank with his corruption policy. Many directors fear that it could be overly punitive and lead to cutbacks in aid to poor countries.
The finance ministers' committee also raised concerns, Wolfowitz said, involving the standards to apply to various countries and the question of how much the bank's resources should go to anti-corruption plans.
The finance ministers' committee issued a statement that supported the anti-corruption campaign but with what seemed to be muted wording. It backed the bank's "engagement" on the issue but demanded further information on implementation, and in a suggestion of unhappiness, "stressed the importance of board oversight of the strategy."
Some officials here indicated that the wording of the committee's statement reflected discomfort with Wolfowitz, but Wolfowitz said he was pleased the board had given him a green light to proceed with what has become a signature issue for him in his 15 months at the bank.
Throughout the meetings of the last few days in Singapore, much of the criticism of participating countries has focused less on the World Bank than on the overhaul of the IMF. The fund vote needed 85 percent of the 184 member countries' voting shares to be adopted.
The United States has about 17 percent of the vote and Europe in aggregate about 23 percent. Paulson and his European counterparts have spent much of their time here lobbying other countries to agree to the reform. Japan has 6.1 percent.
The vote was not very much in doubt, but many countries that voted in favor said they did so under protest and insisted that in a second round of discussions, also approved by the vote here, scores of countries will be demanding a bigger voting share for themselves.
The change in the fund governance was advocated by the United States and many European countries as a way of getting China and other developing countries to feel more invested in the international economic system.
The IMF is one of many institutions that American and European officials say are in need of change. There are fears of disaffection with the World Trade Organization, the successor of a global trade regime set up 60 years ago, following the collapse last summer of trade talks.
Western leaders also want to change the composition of the United Nations Security Council, adding some countries to the roster of five permanent veto-bearing members. But they have been unable to agree on which countries to add. The United States wants to add Japan and one of several developing countries seeking membership.
Wolfowitz has said that his organization, the World Bank, also needs to change its governance to give more say to China and other fast-growing countries in the developing world.
Under the surface of the IMF vote was another objective of the United States: to engage China in the fund as it expands its role in monitoring currency flows and exchange rates. Washington hopes that the fund will become another voice urging China to let its currency fluctuate more freely in relation to the dollar.
If there was one overriding consensus among European and American finance ministers, it was that China is artificially keeping the value of its currency low in relation to the dollar, and that this is an unhealthy pattern also being followed by Japan and other Asian nations.
The net effect, economists say, is that Chinese exports are cheaper than they should be, and its imports are more costly than they should be, aggravating the huge U.S. trade and current-account deficits that have turned the United States into the world's biggest debtor nation.
The gigantic American debt that the United States owes to Asian and oil-producing countries was widely seen as posing a major threat to the global economy, along with other threats like the failure of trade talks, rising oil prices and fears of a major new terrorist attack.
As a partial solution the United States wants China to let its currency, the yuan, float more freely in the marketplace, where it would presumably rise in value and lead to fewer exports to the United States. The flip side of an appreciating yuan would be a lower value of the dollar, but American officials never like to be seen "talking down" the dollar.
Paulson told reporters Monday that the Bush administration favored a "strong dollar." But when asked about a comment from Zhou Xiaochuan, governor of the People's Bank of China, the central bank, that the yuan might not rise in value if it were to fluctuate freely, the Paulson smiled broadly and said: "It was an interesting comment."
But many economists fear that the solution of stronger Asian currencies might create a new problem. If a decline in the dollar effective reduces the hundreds of billions in dollar-denominated securities held overseas, it could lead to a panic-driven sell-off of dollars, driving up interest rates with possible damaging effects to the U.S. economy.
Paulson, meeting with reporters, said the IMF vote marked an incremental bit of pressure on China to do something about its currency, and he aimed to reinforce American concerns when he goes to China on Tuesday for his first visit as Treasury secretary.
He cautioned against "immediate solutions or quick fixes" flowing from his trip, but he also said "that doesn't mean I don't like results."
Few other economists and officials here expect Paulson to get Beijing to move quickly on currency, despite the many years of relations he cultivated with Chinese leaders as head of Goldman Sachs, the investment bank he left last summer for his current post.
SINGAPORE Member states of the International Monetary Fund, yielding to demands from China and leading Western countries, have adopted a plan to modify the fund's power structure and take steps to expand the voice of China and other rapidly developing nations, officials said Monday.
The modification of the governance of the IMF, the international agency that monitors the global economy and rescues countries from insolvency, was widely described as the biggest step since the fund was established in the 1940's, the era when the victors of World War II created the vast cooperative superstructure for the world economy.
China's share of the votes at the IMF, which has 184 members, would go up only slightly, from 2.98 to 3.719 percent. The shares of South Korea, Turkey and Mexico, the other countries that gained more power from the vote Monday, was similarly modest. But it was hailed by the United States and other nations as a decisive reform.
"It looks like a small step forward, but it's a large step," said Henry Paulson Jr., the U.S. Treasury secretary, who was here for the annual meeting of the IMF and the World Bank and participated in morning-till-night sessions assessing the global economy and possible steps to assure its health.
The precise tally of the IMF members was not available early Monday evening.
In a separate development, a committee of finance ministers that oversees the World Bank endorsed in principle a plan by Paul Wolfowitz, the bank president, to crack down on corruption in the bank's lending, but not unreservedly. They added a proviso that the bank's board of executive directors, a separate group that oversees the day-to-day bank operations on behalf of donor and recipient nations, be able to override the way Wolfowitz carries out the plan.
Wolfowitz, a conservative intellectual who was an architect of the Iraq war as deputy secretary of defense in the first term of President George W. Bush, has stirred unease in the bank with his corruption policy. Many directors fear that it could be overly punitive and lead to cutbacks in aid to poor countries.
The finance ministers' committee also raised concerns, Wolfowitz said, involving the standards to apply to various countries and the question of how much the bank's resources should go to anti-corruption plans.
The finance ministers' committee issued a statement that supported the anti-corruption campaign but with what seemed to be muted wording. It backed the bank's "engagement" on the issue but demanded further information on implementation, and in a suggestion of unhappiness, "stressed the importance of board oversight of the strategy."
Some officials here indicated that the wording of the committee's statement reflected discomfort with Wolfowitz, but Wolfowitz said he was pleased the board had given him a green light to proceed with what has become a signature issue for him in his 15 months at the bank.
Throughout the meetings of the last few days in Singapore, much of the criticism of participating countries has focused less on the World Bank than on the overhaul of the IMF. The fund vote needed 85 percent of the 184 member countries' voting shares to be adopted.
The United States has about 17 percent of the vote and Europe in aggregate about 23 percent. Paulson and his European counterparts have spent much of their time here lobbying other countries to agree to the reform. Japan has 6.1 percent.
The vote was not very much in doubt, but many countries that voted in favor said they did so under protest and insisted that in a second round of discussions, also approved by the vote here, scores of countries will be demanding a bigger voting share for themselves.
The change in the fund governance was advocated by the United States and many European countries as a way of getting China and other developing countries to feel more invested in the international economic system.
The IMF is one of many institutions that American and European officials say are in need of change. There are fears of disaffection with the World Trade Organization, the successor of a global trade regime set up 60 years ago, following the collapse last summer of trade talks.
Western leaders also want to change the composition of the United Nations Security Council, adding some countries to the roster of five permanent veto-bearing members. But they have been unable to agree on which countries to add. The United States wants to add Japan and one of several developing countries seeking membership.
Wolfowitz has said that his organization, the World Bank, also needs to change its governance to give more say to China and other fast-growing countries in the developing world.
Under the surface of the IMF vote was another objective of the United States: to engage China in the fund as it expands its role in monitoring currency flows and exchange rates. Washington hopes that the fund will become another voice urging China to let its currency fluctuate more freely in relation to the dollar.
If there was one overriding consensus among European and American finance ministers, it was that China is artificially keeping the value of its currency low in relation to the dollar, and that this is an unhealthy pattern also being followed by Japan and other Asian nations.
The net effect, economists say, is that Chinese exports are cheaper than they should be, and its imports are more costly than they should be, aggravating the huge U.S. trade and current-account deficits that have turned the United States into the world's biggest debtor nation.
The gigantic American debt that the United States owes to Asian and oil-producing countries was widely seen as posing a major threat to the global economy, along with other threats like the failure of trade talks, rising oil prices and fears of a major new terrorist attack.
As a partial solution the United States wants China to let its currency, the yuan, float more freely in the marketplace, where it would presumably rise in value and lead to fewer exports to the United States. The flip side of an appreciating yuan would be a lower value of the dollar, but American officials never like to be seen "talking down" the dollar.
Paulson told reporters Monday that the Bush administration favored a "strong dollar." But when asked about a comment from Zhou Xiaochuan, governor of the People's Bank of China, the central bank, that the yuan might not rise in value if it were to fluctuate freely, the Paulson smiled broadly and said: "It was an interesting comment."
But many economists fear that the solution of stronger Asian currencies might create a new problem. If a decline in the dollar effective reduces the hundreds of billions in dollar-denominated securities held overseas, it could lead to a panic-driven sell-off of dollars, driving up interest rates with possible damaging effects to the U.S. economy.
Paulson, meeting with reporters, said the IMF vote marked an incremental bit of pressure on China to do something about its currency, and he aimed to reinforce American concerns when he goes to China on Tuesday for his first visit as Treasury secretary.
He cautioned against "immediate solutions or quick fixes" flowing from his trip, but he also said "that doesn't mean I don't like results."
Few other economists and officials here expect Paulson to get Beijing to move quickly on currency, despite the many years of relations he cultivated with Chinese leaders as head of Goldman Sachs, the investment bank he left last summer for his current post.
DaimlerChrysler Opens New Manufacturing Facility in China
September 17th, 2006Beijing Benz-DaimlerChrysler Automotive Ltd. (BBDC) celebrated the opening of its new manufacturing facility today at a ceremony which included government officials, executives, community leaders and more than 1,000 employees of the joint venture and its two shareholders, DaimlerChrysler AG and Beijing Automotive Industry Holding Co. (BAIC).
The hour-long ceremony included presentations of two vehicles produced at BBDC – the Mercedes-Benz E-Class and the Chrysler 300C. Local production of the Mercedes-Benz E-Class began ramping up last December, while production of the Chrysler 300C will begin soon.
"Almost a quarter of a century after DaimlerChrysler co-founded the first international automobile joint venture in China, the opening of the BBDC’s new manufacturing facility is another milestone in our long tradition in China," said Dr. Dieter Zetsche, Chairman of the Board of Management of DaimlerChrysler AG and Head of the Mercedes Car Group. "This brand new facility is tangible example of our continued growth in Northeast Asia and a major step towards realizing our ambitious goals in the fastest growing market in the world."
Zetsche was joined by Beijing Lord Mayor Wang Qishan; DaimlerChrysler Board of Management Member responsible for Corporate Development, Dr. Rüdiger Grube; BAIC Chairman An Qinghen; DaimlerChrysler Northeast Asia Chairman and CEO Dr. Till Becker, BBDC President Guenter Butschek, and other officials and executives.
With a total land area at the site of 2 million sq. meters, BBDC’s new facility is located in the Beijing Development Area (BDA) in Southeast Beijing. The 210,000 sq. meter facilities currently produce Mercedes-Benz E-Class and Mitsubishi Outlander sedans, and will begin producing Chrysler 300C sedans soon. The next-generation Mercedes-Benz C-Class is also slated for production. BBDC has the capacity to build up to 25,000 Mercedes-Benz vehicles, and 80,000 Chrysler and MMC vehicles annually, with room to expand as needed.
The overall manufacturing site includes a “Mercedes Car Group” facility, a “Chrysler Group / MMC” facility, paint shop and stamping facilities, as well as environmental, logistcs, and energy management centers. The Mercedes Car Group and Chrysler Group/MMC facilities each include separate body shops and assembly areas designed to accommodate the specifications for each brand. Both operations are flexible enough to introduce new models and to adjust particular volumes based on demand.
By adopting best practices in vehicle production and technology worldwide, the facilities’ main processes of stamping, painting, welding and final assembly set a new benchmark for the Chinese domestic automotive industry.
As in all DaimlerChrysler plants, the production system in China has been designed to ensure that any abnormality in the manufacturing process is properly identified and fixed. Both BBDC and DaimlerChrysler engineers have been training production colleagues to ensure that they are fully capable of meeting the high standards, and they are also empowered to continue to make improvements. The BBDC Automotive Technical Training Center, jointly built with Beijing Automotive Industrial School, trains employees on the DaimlerChrysler production system. The training center uses trainers from Germany, and will also send colleagues to train on the line in Germany.
Founded on August 8, 2005, BBDC is a joint venture between the Beijing Automotive Industry Holding Co. Ltd, and DaimlerChrysler. It is an expansion of the original Beijing Jeep Corporation, which was the first international automotive joint venture in China.
DaimlerChrysler and its partners are making significant investments in China for its ongoing and future projects to produce Mercedes-Benz passenger cars and vans and realize the production of heavy-duty and medium-duty trucks. The Chrysler Group will build the Chrysler 300C in Beijing, and license minivan production in Fuzhou (PRC) and Yangmei (Taiwan). DaimlerChrysler Auto Finance China became the first company in China to offer vehicle financing for both passenger cars and commercial vehicles. Additionally, DaimlerChrysler Northeast Asia imports passenger cars and commercial vehicles to Northeast Asia under the Mercedes-Benz, Maybach, smart, Chrysler and Jeep brands.
Obstacles To Innovation In China And India
September 17th, 2006From the CEO of Infosys
Globalization and the convergence of information and communication technologies have dramatically boosted the power and speed with which businesses, organizations, and individuals can access, process, and adapt information. This has given rise to the knowledge economy, where markets can trade what has long been untradable: workers' education and skills. In the new dynamic, efficiencies in productivity growth are less important. Instead, growth is driven by the capacity of economies to create knowledge and innovate.
Three new innovation models are emerging. One is process innovation: wiring everyone to the same network and leveraging the cost, talent, and volume of an integrated global economy. Another is creating pint-sized products and services sold cheaply to masses of poor people. A third is innovating through local partnerships and networks to get around external hurdles, whether bad roads in India or bad government policy on IP in China. You see all three models in India. Boston Consulting Group put out a list of 100 emerging global companies; 21 of them were in India.
Initially, cost advantages attracted global companies to the emerging markets of China and India. China's Pearl River Delta quickly became a hub of low-cost manufacturing, and the country's manufacturing sector grew annually at 11.4% from 1993 to 2003. After economic reforms in 1991, India's large pool of low-cost, technically trained talent made possible that nation's growth as a global provider of IT services.
But today multinationals are beginning to leverage the skills of Indian and Chinese knowledge workers to innovate, and they are building strong R&D capabilities in these markets.
Innovation in China and India, however, has not grown on a truly global, commercially significant scale. Indian companies have yet to come up with significant innovations in entire product lines. Chinese outfits have launched clever but imitative products, and China's R&D capabilities lag those of Taiwan and South Korea.
China and India rank 49th and 50th in the world respectively in terms of productivity growth. Their economies face major challenges to improved innovation. They lack end-to-end logistics, effective infrastructure, and strong regulatory systems. By understanding such weaknesses, corporations can devise alternate strategies and business models to transform the two countries into growth markets.
India has poor infrastructure, low literacy levels for many people, and labor inflexibilities. So high-volume manufacturing has not taken off yet in a big way. Yet businesses are using technology and communication networks to build virtual, interconnected innovation ecosystems to overcome the gaps. A network can tap multiple sources of innovation, including entrepreneurs, research labs, and students and faculty in educational institutions, such as the Indian Institutes of Technology (IITS).
Unearthing specific consumer needs in emerging economies can also aid innovation. HP Labs in India identified power outages as a key factor limiting the access and utility of computers in rural areas, so it designed a community PC that can run on car batteries.
There's huge innovation in creating a high-volume, low-price business. CavinKare, an Indian company, began selling shampoos in the 1990s in cheap, single-serve sachets to make them accessible to the nation's rural poor. This business model was replicated by Unilever (UL ) and Procter & Gamble (PG ).
India absorbs about 4 million to 5 million mobile phones a month, and its mobile rates are about 1 cents a minute, the lowest in the world. Clearly companies have innovated: They figured out how to stay profitable even selling telecom services at a penny a minute. They're reaching consumers who are essentially not part of the formal financial system. If you can deliver to such people products or services in small units at a low price, the market is suddenly open to a much larger base.
In the end, innovation capability depends on economic flexibility. The U.S., with its entrepreneurial culture, relaxed labor markets, and free capital flows, continues to be the most innovative economy in the world. India and China need such an environment to bridge the growth and productivity gap between emerging markets and the developed world and to truly transform themselves into innovative, energetic economies.
Avon powers ahead with China recruitment
September 17th, 20069/16/2006 - Having received the first license for a foreign-owned company to resume direct sales of cosmetic products in China, Avon added more than 33,000 new sales staff to its workforce there last month, according to data from the Chinese Ministry of Commerce.
The data, which was cited by Morgan Stanley in a note to investors, stated that the 33,339 new representatives were added to the work force in the month of August, bringing the total number of representatives to 188,273.
The figures indicates that the company is recruiting at an even faster rate than it had originally expected. Back in July the company said that its China sales force had reached 114,000 and that it was hoping to recruit a further 31,000 new employees.
Avon received the go ahead to resume door-to-door sales back in January of this year. The move followed the government lifting a total ban on direct sales implemented in 1998 in an attempt to quash pyramid schemes and other scams that were being offered on a door-to-door basis in the country.
Morgan Stanley reiterated in its note to investors that China remains Avon's brightest hope for future growth at the moment, with the recruitment drive likely to boost sales for the second half of the year and helping to buoy the company's overall results in the Asia Pacific market.
Although the general trend in the company's global sales has been positive, the Asia Pacific region has proved particularly disappointing for the company as a whole. With the exception of China, the company reported a poor performance in other countries in the region, contributing to a 10 per cent drop in sales during the second quarter of the year.
But where other Asian markets are showing slow retail sales, the China market remains robust. Currently China is seeing some of the largest industry growth in the world, with almost all cosmetic and toiletry categories reporting sales growth well into double figures - figures that are in line with GDP that continues to exceed 10 per cent.
This growth could prove the key to getting Avon out of a difficult situation. Restructuring charges have hit the company hard of late, forcing investors to shy away from its shares. Following the announcement of its second quarter results at the beginning of August, the Avon share price fell over $5 to reach $27.40 on August 8. Since then the share price has leveled off and finished trading at $29.54 this week.
But the downward trend in the company's share price reflects a general loss of confidence. The company's latest results showed that sales had gone up, but underlying growth was below analyst's expectations, due mainly to the heavy restructuring charges the company incurred.
During its second quarter net income dropped 54 per cent to reach $150.9m on the back $2.1bn in sales, up 5 per cent on the same period last year.
This figure was impacted by a $49m charge, as part of its massive $500m restructuring program, introduced in the last quarter of 2005. The scheme has seen profits tumble by 54 per cent but eventually could save the company $100m a year.
The restructuring costs have included organizational realignments and a reduction in the workforce, particularly in its middle management that has seen the elimination of more than 25 per cent of its management positions and lowered the number of management tiers from 15 to eight.
To date the company has now eliminated 10 per cent of its 43,000 worldwide workforce, however the expansion into China is helping to reverse that trend, emphasizing just how important the upturn in the China market is to the company.
Google Opens China; Hiring In Japan
September 17th, 2006Kai-Fu Lee and company now have new office space available to them in China. Meanwhile, Google has begun searching for more engineers in Japan to work on new mobile technologies.
The People's Daily Online celebrated 85 years of the Communist Party of China with a banner atop the announcement of Google's new office space in Beijing. Commentary from the news organization stated Google moved into their new quarters on September 4th, having temporarily been housed at Xinhua Insurance Mansion and Tsinghua Science Mansion.
The report described a picture of one workspace as "easy to mistake the office for a personal study." I don't know how many personal studies have dual widescreen computer monitors on the desks and sheathed swords on the walls, but that must be more commonplace in China.
Another set of photos of Google's China staff at work and play shows them making sculptures out of a magnetic construction set and rocking out to Dance Dance Revolution. If they get hungry, there are plenty of snacks available.
Meanwhile in Japan, Google's Omid Kordestani addressed a conference in Tokyo. Reuters reported that Kordestani wants to grow the company's international sales from 42 percent of revenue to more than half.
They will recruit engineers in Japan to help accomplish this. Google already has a deal in place that delivers its mobile search and advertising to cellphones, and they want more from the market according to Kordestani:
"We hope to be much bigger in Japan," Omid Kordestani, Google's senior vice president in charge of global sales, told a conference in Tokyo. "We want more innovation in this market."
"The mobile search and ad in Japan has been very successful," Kordestani said. "It was developed by our engineers in Japan, New York and other locations."
Kordestani also said that Google is seeking to develop new technologies for social network services (SNS.)
"Activities on SNS are bigger than any other activities on the Internet," the executive said. "We're looking to work more in this area."
Citigroup seeks higher China investment quota
September 17th, 2006By Brian Kelleher and Jack Reerink
BEIJING (Reuters) - Citigroup Inc. (C.N: Quote, Profile, Research), the world's most valuable bank, has applied to raise its Chinese securities investment quota as it seeks to strengthen its foothold in the mainland's developing capital markets.
Citigroup already has a Qualified Foreign Institutional Investor (QFII) quota of US$550 million to invest in Chinese stocks and bonds, and the bank is keen to raise that amount, China Chief Executive Richard Stanley told the Reuters China Century Summit in Beijing.
"The QFII business has been very successful. We have the second-largest quota right now, and we'd love to increase that," Stanley said, declining to give the application amount.
The New York-based financial services giant, which plans to add three China outlets in coming months for a total of 15 locations, also wants to play an active role in China's fledgling securities markets.
"I would look forward to the opportunity to participate in the domestic securities business," Stanley said when asked about the potential of setting up a securities joint venture, but he declined to go into further detail.
Goldman Sachs (GS.N: Quote, Profile, Research), Merrill Lynch (MER.N: Quote, Profile, Research) and UBS (UBSN.VX: Quote, Profile, Research) have struck partnerships in the mainland securities industry, but Beijing put a hold on granting any new licenses late last year.
Citigroup, which has a market value of US$244 billion, is part of a group including Credit Suisse (CSGN.VX: Quote, Profile, Research) and JPMorgan (JPM.N: Quote, Profile, Research) that does not want to be left out of the securities sector.
The bank, which will be allowed to sell local currency products to Chinese individuals when the market opens up under WTO obligations in December, has put high hopes on its retail banking operations, from mortgages and consumer loans to funds.
"All of this to a huge degree is dependent on the development of the capital markets," said Stanley, a New York native who has been in his current job since January 2005.
Indeed, as foreign banks prepare to target local consumers, their efforts are stymied by a lack of derivatives, corporate bonds and funds -- exactly the type of products people need to finance their retirement.
MASSIVE POTENTIAL
JPMorgan estimates that Chinese domestic stock listings will raise about $10 billion this year, which includes a simultaneous Hong Kong-Shanghai listing from Industrial & Commercial Bank of China (ICBC.UL: Quote, Profile, Research) that could be worth a total of $21 billion.
QFII and securities businesses will be parts of the broader China expansion strategy of Citigroup, which has more than 3,000 employees in the country and is hiring about 100 people a month.
Beijing began the QFII scheme about three years ago when it gave UBS the first quota. There are now more than 40 international banks and asset managers with quotas totaling more than $7 billion, which will eventually rise to $10 billion.
Stanley said that Citigroup is focused on growing its own business. But the bank is also leading a consortium bidding for a combined 80 percent stake in Guangdong Development Bank worth more than $3 billion, sources say.
It also has announced plans to increase its stake in Shanghai Pudong Development Bank (600000.SS: Quote, Profile, Research), its partner in a venture that has issued about 400,000 credit cards, to 19.9 percent from less than 5 percent.
Stanley declined to comment on both.
The bank, along with partners including top life insurer China Life Insurance Group (2628.HK: Quote, Profile, Research) (LFC.N: Quote, Profile, Research) and buyout firm Carlyle Group (CYL.UL: Quote, Profile, Research), is competing with France's Societe Generale (SOGN.PA: Quote, Profile, Research) for Guangdong Development Bank in a bidding that sources say may be resolved by the end of the month.
China is finalizing rules ahead of its WTO opening that may include requiring foreign banks to incorporate locally, pay higher taxes and put up an additional 1 billion yuan (US$126 million), proposals that have met with some controversy from overseas bankers.
But Stanley said Citigroup, which made only a small percentage of its $735 million in non-Japan Asian profits from China in the second quarter, has worked well with regulators.
"The process has been very open and consultative," he said.
(US$1=7.948 yuan)
Venture capital investing in China doubles in Q2 2006 from Q2 2005
September 17th, 2006Capital investment into deals totalled $480.1m in the second quarter of 2006, slightly more than double the amount invested in the same quarter of 2005 ($239.1m). Venture capital deal flow to companies headquartered in mainland China reached a high point with 54 deals occurring in Q2 2006, according to the inaugural China Quarterly Venture Capital Report released by Dow Jones VentureOne and Ernst & Young.
At the half-year point there were 85 deals and $757.9m invested in China, indicating investment in 2006 is likely to surpass the levels of both 2002 ($1.19bn invested in 145 deals) and 2004 ($630.4m invested in 103 deals).
Bob Partridge, China leader of Ernst & Young's Venture Capital Advisory Group, said, 'With China's emergence over the past several years as a source for new technology and services, investors from around the globe have taken notice and are demonstrating this by providing them with the economic support necessary to compete in the global marketplace.
'The increased early stage deal flow in China this quarter is also a sign that investors are ramping up investments in new enterprises. This substantial pipeline of companies lays the groundwork for continued investment in the region,' Partridge continued.
The increase in the second quarter was boosted by a significant level of activity and capital for first-round deals. As a percentage of the total activity, 54 per cent of the quarter's deals and 38 per cent of the quarter's capital went to first rounds. Second-round deals also rose substantially. However, despite the level of early stage investing, most of the venture capital-backed companies being financed in China are more mature, established businesses.
'We also are already seeing a broadening of the marketplace in China, with business services and other emerging segments now drawing investors' attention,' said Steve Harmston, director of global research for VentureOne. 'Information technology remains the beneficiary of the majority of investment activity in China, as it does in the US and Europe, but it is also interesting to see pockets of activity in business and consumer services, healthcare, and even in alternative energy occurring in China.'
Executives Trained Abroad Are Sought After in China
September 15th, 2006By Andrew Browne
From The Wall Street Journal Online
When Dominic Leung moved to China this year as chairman of the country's second-largest life insurer, the Hong Kong executive startled his senior managers with a blunt message: Skip the formalities.
On his first outing to a branch office, the staff formed a welcoming line that snaked from the elevator lobby down a long corridor to the reception counter -- the kind of over-the-top gesture that strokes the egos of many Chinese corporate VIPs. But Mr. Leung was embarrassed, and annoyed. "I said to the general manager: 'You never do that again,' " he recalls. " 'I don't need that.' "
Mr. Leung, who worked previously for American International Group and the United Kingdom's Prudential PLC, says he is now trying to persuade managers at Ping An Life Insurance not to greet him personally at the airport. "To me it's wasting time -- they should be working in the office," he says.
Mr. Leung, a 56-year-old insurance-industry veteran, is part of a new wave of "overseas Chinese" being recruited to fill top slots in Chinese companies. These executives -- from Hong Kong, Taiwan, Singapore and other locales where Chinese have settled -- have long been wooed by multinationals to run their China operations. Now, some of the brightest are jumping to Chinese companies instead.
In some ways, the trend points to the relative fortunes of Chinese companies in China's vast domestic economy, where local businesses have proved to be at least the equal of multinationals in the battle for market share. Increasingly, Chinese companies are seen as a springboard for the ambitions of overseas Chinese with U.S. and European graduate degrees in business. Some who have made the leap say they were prompted by a glass ceiling at multinationals for ethnic Chinese employees.
Once the new recruits get over initial culture shock, they report few regrets. Middle-ranking managers who once reported up a chain of command to New York or Frankfurt suddenly find themselves controlling companies that are emerging as national leaders in the world's fastest-growing major economy.
In a multinational company, "headquarters calls all the shots. But if you work for a Chinese company, you call the shots," says Zheng Xue-cheng, a corporate search executive with Egon Zehnder International, which recruits high-level talent for Ping An and other Chinese companies.
Corporate perks may be meager in Chinese firms, but pay is competitive and stock options can be generous -- in rare cases, sensational. After quitting his job running Microsoft China, Tang Jun, a naturalized U.S. citizen, joined Chinese online gaming company Shanda Interactive Entertainment and picked up 2.6 million stock options now valued at more than $90 million. (The company was listed on the Nasdaq Stock Market this year.)
Tan Wee-Seng, an ethnic Chinese from Malaysia, gave up housing, education and car allowances when he left a senior business role at Reuters news service last year to join Li-Ning Sports, a sportswear company run by a former Chinese Olympic gymnast. "But the options are better," says Mr. Tan, Li-Ning's chief financial officer who steered the company through a Hong Kong listing this year.
Another lure: the chance to "help and transform this country," says Mr. Tan. Ping An's Mr. Leung says moving to the company gives him a feeling of belonging in China. Working for a multinational "I was an outsider, maybe even a foreigner," he says. "Now I'm one of them."
Chinese companies are more open-minded about international recruitment than their counterparts elsewhere in Asia. In part, the openness is driven by necessity: Chinese companies planning to raise capital overseas often lack financial managers with the skills to navigate complex international regulatory and compliance issues.
In some industries, like banking and insurance, Chinese companies face an onslaught of foreign competition as domestic markets open, and they need managers who can implement smart sales and marketing strategies and internal restructuring.
China Construction Bank, one of the country's Big Four lenders, planning to issue shares next year, has invited a leading Japanese banker to sit on its board of directors -- a first for the bank. The Bank of China, also in line to list, is searching overseas to fill positions up to the level of vice president.
Ping An Group, parent of Ping An Life Insurance, has gone further than perhaps any major Chinese company in opening its staff ranks: Half of its top 50 managers come from outside the Chinese mainland, says Sun Jian Yi, the group's deputy chief executive officer. As a start-up in 1988, Ping An was up against an established state monopoly, the People's Insurance Co. of China. To compete, it had to look as different from PICC as possible. "We said we wanted to follow the international market," says Mr. Sun. "We needed overseas money, overseas systems, overseas talent."
Goldman Sachs Group and Morgan Stanley came in as early private-equity investors. The Shenzhen-based company, which listed just across the border in Hong Kong this year, hired the McKinsey & Co. consultant who drew up the company's long-term strategy, Louis Cheung.
Mr. Cheung, a 40-year-old Cambridge-educated Hong Kong native, joined Ping An after turning down offers from an international investment bank and a dot-com. Mr. Cheung, 36 when he joined Ping An, says he wanted a company offering super-charged growth, and "China is the only country where you can get that kind of growth." Now Ping An's chief operating officer, he shuttles between Shenzhen and Hong Kong, where his wife, a Singaporean investment banker, lives.
For Ping An and other Chinese companies, overseas Chinese are an easier fit than other outsiders. For a start, they can speed-read office memos in Chinese handwriting. But the high-paid recruits can also spark resentments. Ping An runs a two-track pay system. "At first people asked: 'Why are you paying so much?' " says Mr. Sun, who happily admits he earns less than some of the overseas Chinese who work under him. "We had to educate our work force."
And imported management methods don't always go down well. Staff at Ping An headquarters are fuming over a new electronic card system at the main door. Employees who leave the building for longer than 30 minutes must explain their absence to a supervisor. "Not even a mosquito can get out of this place without permission," grumbles a junior manager.
Alan Ku, Ping An's Taiwan human-resources manager formerly with Unilever, says the system is now being reviewed.
Firms in China Think Globally, Hire Locally
September 15th, 2006By Cui Rong
From The Wall Street Journal Online
BEIJING -- Du Limin is living the American Dream -- in China.
A decade ago, Ms. Du joined Wal-Mart China as an accountant. Today, she is a director overseeing three Sam's Club supercenters and more than 1,500 employees in China for the U.S. retailer, Wal-Mart Stores Inc.
Ms. Du's rise has been replicated across China as multinational corporations fill management positions with local talent. According to Taihe Consulting Co., of Beijing, about 70% of foreign firms' top positions today are filled by Chinese workers. In the mid-1990s, almost all such posts were filled by non-locals.
In recent years, more Chinese have studied or worked overseas, strengthening their English-language and leadership skills and making them more suitable for management positions, executives at multinationals say. "My first choice will always be local," says Niklas Lindholm, human resources director for Nokia Corp.'s Chinese investment unit in Beijing. "We are an international company and we need the variety."
Multinationals in other developing countries also have localized their staff after establishing themselves in a market. Many locals, for example, have moved up through the ranks of foreign corporations in India. These kinds of developments have uncovered a wellspring of new managerial talent and are changing the way global corporations do business locally.
Executives at foreign companies in China say local hires cost less to employ than expatriates and often have a better understanding of the Chinese market. A Chinese manager, on average, has a total compensation package that is only 20% to 25% of that of a hire from a Western country, says Taihe Consulting. Having a local boss also serves as a morale booster, giving career hope to ambitious junior employees.
When multinationals first opened in China in the early 1990s, expatriates filled most mid-level and senior management posts. Locals settled for junior positions. The expats, usually from the company's home country, were valued for their knowledge of corporate culture. Some multinationals would tap managers from Singapore or Hong Kong where they were already established, before they would consider developing local talent.
Chinese managers began gaining ground in the late 1990s. Expats usually had costly relocation expenses, and often they proved less effective than locals as a result of cultural and language differences. Meanwhile, changes in China's labor market -- such as the reform of state-owned businesses and restructuring of government offices -- freed many experienced managers to take jobs at multinationals.
The trends have helped transform the staff makeup of many companies.. At Siemens Ltd. China, a unit of Siemens AG, seven of nine regional managers are Chinese. Richard Hausmann, chief executive of the Chinese unit, says he wants to elevate a Chinese executive to the China operation's six-person board of directors. Three of four regional managers at Motorola Inc.'s unit in China are local Chinese. At FedEx Corp.'s China operations, locals account for 78% of management positions.
Tu Min, vice president of communications at Telefon AB L.M. Ericsson's China subsidiary, graduated from college in 1992 and took a government job. Three years later, as some of China's best and brightest went to work for foreign companies, Ms. Tu heard about an opening for a translator at Ericsson. She joined the company in 1995, a year after it had set up its wholly owned business in China.
Her supervisor recognized her as a "quick learner" and "cheerful person," and recommended her for a job as a public relations executive, she recalls. After stints in sales and business development, Ms. Tu was promoted to manage the communications department.
Ericsson helped pay for her advanced degrees, including a master's in journalism and an MBA from the company's China Academy in Beijing. Last October, Ericsson promoted Ms. Tu to vice president. Local managers now account for 90% of the firm's middle management posts and half of its senior management.
Wal-Mart's Ms. Du was also in one of the first waves of Chinese to benefit from localization. A few years after graduating with an accounting degree from a Shanghai college in 1986, Ms. Du took a job as an accountant in a Chinese cartoon company in the city of Shenzhen, bordering Hong Kong. When Wal-Mart started recruiting staff for its first China store, which was set to open in Shenzhenin 1996, Ms. Du applied for a job -- although she knew nothing about retailing and had never heard of Wal-Mart, except that, as a friend told her, it was a big name in the U.S.
Ms. Du's first job at Wal-Mart was as team leader of the Shenzhen store's finance department. She says virtually all the managers at that time were Westerners or from Hong Kong. When the store's general manager, who was from Hong Kong, predicted at a staff meeting that five years later someone from China would head the store, "all of us burst out laughing, thinking he was telling a joke," Ms. Du recalls.
Ms. Du was named the store's training manager in 1997 and its general manager in 2000. She became director of Sam's Club in January. Today, local Chinese account for 100% of Wal-Mart China's middle managers, and 99% of its senior managers.
Stephanie Wong, vice president of Wal-Mart China's personnel division, describes Ms. Du as "an outstanding performer and one of many success stories at Wal-Mart China." Ms. Du says one advantage she has as a local Chinese manager is that she can communicate better with her employees. "They take me as their big sister and they confide their family issues with me," says Ms. Du, 43 years old. That "is impossible if you're an expatriate."
When SARS hit China in 2003, people were reluctant to go to stores and other public places. To assuage customers' fears, Ms. Du required staff at the Shenzhen store she was managing to disinfect shopping carts after use by each customer. Although almost all of Shenzhen's stores saw a decline in sales volume during the period, Wal-Mart's Shenzhen branch maintained growth, Ms. Du says.
Ms. Du says for many Chinese, a barrier to advancement to Asia-Pacific or other regional posts is their lack of knowledge about the rest of the region. "We need to know more about other countries before heading the regional operations," she says. But China's vast market is a great training ground, she adds. "Being successful in China, Wal-Mart's Chinese managers surely have a better chance to move up," she says.
Ping An May Cash in on China Finance Share Craze
September 15th, 2006A possible $2.5 billion secondary offering bid by the insurance giant highlights how hot the market for mainland financial services remains
The stampede by Chinese financial services players to raise megabucks with initial or secondary stock offerings shows no signs of letting up. China Merchant's Bank, the nation's sixth biggest lender, has been overwhelmed by applications from institutional and retail investors for its $2.4 billion initial public offering that will start trade on Sept. 22.
In October, the mainland's biggest lender, Industrial & Commercial Bank of China (ICBC), hopes to rake in $19 billion in a dual listing of shares in Hong Kong and Shanghai in what will likely be the biggest IPO in history (see BusinessWeek.com, 9/5/06, "China Bank Stocks: What, Me Worry?").
Now Chinese insurers may be jumping into the act. Ping An Insurance, China's second biggest life and No. 3 non-life insurance company, may be planning to raise $2.5 billion in a secondary share offering either in Shanghai or Shenzhen during the first half of 2007, according to a report by Bloomberg News. Reached by e-mail, a spokesman for Ping An, which is based in Shenzhen, declined to comment on the report.
EASY MONEY. Given the rapacious appetite for Chinese financial stocks, the odds are pretty good Ping An is taking a serious look at the offering idea. Global and mainland investors just can't seem to get enough of Chinese bank and financial service shares. Two big, mainland, state-owned banks, China Construction Bank and Bank of China, had little trouble selling a combined $22 billion-plus worth of share offerings over the past year in listings in Hong Kong and Shanghai (see BusinessWeek.com, 5/31/06, "A Golden Age for Chinese Banks").
Many are betting that China's stellar growth, burgeoning middle class, and rising disposable incomes will set the stage for the mainland to emerge as one of the most dynamic financial services markets in the 21st century. Meanwhile, Chinese banks and insurers have a choice opportunity to raise a lot of money effortlessly, to grow their businesses, and to hunt for acquisitions.
For instance, China Construction Bank, whose share price has appreciated more than 40% since its IPO last October, announced on Aug. 24 that it will spend $1.24 billion to buy the Hong Kong consumer-banking operations of Bank of America (BAC). Ping An spent more than $600 million in July to buy 89% of Shenzhen Commercial Bank, which will move the insurer into the explosively fast-growing mainland credit card business as well as into commercial banking.
STRONG BALANCE SHEET. Ping An, which is 19.9% owned by HSBC (HBC), is considered a well-managed company by analysts, and has ambitious plans to diversify beyond insurance and into banking, securities, and asset management. It also has a strong balance sheet compared to other Chinese insurers. "Ping An group's capitalization is strong by domestic standards," says a recent report by Standard & Poor's credit analysts Connie Wong and Qiang Liao.
Thanks to robust growth in its core life insurance business, Ping An's 2006 first-half net income jumped 85% to $524 million. Ping An chairman and Chief Executive Ma Mingzhe has won high marks for recruiting overseas talent and building up a strong brand presence in China. "Half of the company's high-level management team members are from overseas," Sun Jianyi, vice-CEO at Ping An, told BusinessWeek in a recent interview.
Ping An ranked No. 6 in a BusinessWeek.com and Interbrand Asia survey of China's top 20 brands published last month (see BusinessWeek.com, 8/28/06, "BW's 20 Best Chinese Brands"). That kind of name recognition will come in handy should the Chinese insurer ask mainlanders to pony up a cool $2.5 billion next year.
IBM eyes China expansion amid strong growth
September 13th, 2006IBM, the world's biggest computer-services firm, said on Wednesday it could open four offices annually in second-tier Chinese cities in coming years to take advantage of robust growth and a deep talent pool.
Any expansion would come after IBM's Asia-Pacific office completed its move to Shanghai from Tokyo this year, attracted by vibrant growth and deep talent pools in China.
The move also brought the company closer to India, IBM's fastest growing market.
"We set up four new offices last year," Michael Cannon-Brookes, vice president for business development in China and India, told Reuters on Wednesday.
"And that pace is sustainable in the near term."
IBM, based in Armonk, N.Y., had 22 offices in China at the end of last year. It employs 43,000 staff in India, the center of the world's software services industry, and 7,300 in China, the world's manufacturing hub.
"That's why I'm in Shanghai," said Cannon-Brookes.
IBM's business in India grew 61 percent in the first quarter from a year earlier as telecoms, banking, insurance and services sectors bought computer hardware and services to spur expansion.
Its revenue in China rose 15 percent. The company did not give sales figures for individual countries, he said.
IBM, which derives about half its revenue from information technology consulting and outsourcing, has made India a global delivery hub for software needs and client services.
Finding talent challenging for China tech firms
September 13th, 2006By: Steven Schwankert
Tao Sixuan sighed when asked about hiring people for her start-up, Beijing Rose Technology Ltd. "It took a lot longer than I expected, to say the least," she said, recounting difficulties finding staff to perform basic tasks such as Web design with hosting and back-end support.
"One girl wanted 5,000 renminbi (US$627) per month as a personal assistant--and I had to show her how to use the fax machine," said Tao, who passed on the interviewee. Someone at that level would normally receive a salary of about 2,000 renminbi per month.
Technology industry employers face a number of problems finding good workers in China, including the spoiled, "Little Emperor," attitude among young people in many parts of the country, a by-product of the government's one-child policy.
Raised as only children under China's population control policy, they are seen as spoiled, lacking any practical experience, and unwilling to endure even basic work-related discomforts such as long commutes or occasional overtime, executives say.
"The attitude is 'me, me, me, me... and now,'" said Cyrill Eltschinger, chief executive officer of Beijing-based Information Technology United Corp. (I.T. United), a software development outsourcing firm. Eltschinger referred to the attitude of many entry-level employees, who, unlike some of their Western counterparts, couldn't care less about non-salary benefits like retirement packages.
Other serious issues include a lack of skills and creativity, breaches of business ethics, and a dearth of understanding of how to function in a Western or other type of multi-cultural work environment.
Unlike their parents, who often spent their entire lives at a single employer, regular job changes in China's tech sector are common enough that spending even two years at one position or company can be seen as too long. Demand for workers is so high that employees regularly seek higher bidders for their services, one reason they change jobs frequently.
Finding workers with basic IT skills is not a big problem for companies in need, but asking them to do more can be difficult.
"If you need someone who understands and can use the software or hardware, that's no problem," said Tao. "But if you need them to do something with it on their own, something creative, that's entirely different."
Several employers interviewed for this article complained about workers who show up completely unprepared for interviews, who start off by asking questions about what the company does and what the job entails.
"Not so much now, but earlier we got applicants who never looked at our Web site, never Googled us, and came in without the slightest inkling of who we are or what we do," said Sam Flemming, chief executive officer of Shanghai-based CIC Data LLC, which monitors Internet-based public opinion via bulletin boards and blogs.
Business ethics have also become a major hiring concern, with everything from theft of intellectual property all the way up to more enterprising workers forming their own companies based around their employer's infrastructure.
One technology executive in Beijing, who spoke on condition of anonymity because of a pending legal investigation, told of an employee he just fired this week.
"He had a full-time employment contract with another company while working full-time for us," said the executive, adding that the man, "registered with our company using his Chinese ID card. He never told us he was a Canadian citizen."
For foreign companies, hiring workers in China can be particularly difficult due to language and cultural barriers.
Offshore companies often find plenty of talented IT workers in China but face difficulties finding such talented workers who also have excellent English or Japanese communication skills, Eltschinger said. While language skills are improving, hiring people who understand the needs of Western or foreign clients, what he called a "cultural market perspective," is still difficult, he said.
Eltschinger said retaining people is also a major challenge for small companies. Brand-name corporations carry greater prestige, and therefore give "face" to the people who work for them. As such, smaller firms have a tougher time holding onto employees for periods beyond two years, even with incentives such as advancement and training.
But being a foreign company with a big name can also work against an employer. When one candidate requested a salary four times more than his previous position, Eltschinger asked why he felt he deserved such an increase. "Because you're a foreign company. You should pay more," was the reply.
China funds scramble for pros
September 13th, 2006HONG KONG/SHANGHAI (Reuters) -- Poaching and job hopping is rampant in China's $64 billion fund industry, making it a struggle to hire and retain ace money managers.
With markets rebounding from a four-year slump and money pouring in, analysts say salaries are jumping to Hong Kong levels while the shortage of fund managers is likely to last for at least the next few years.
"Everyone is screaming for better professionals. What has happened is that there's been serious poaching between the fund managers," said Joseph Ngai, an associate principal with management consultants McKinsey & Co. in Hong Kong.
"Managers have told us they've had a lot of their lower level staff poached to fill senior positions at other funds, which they are clearly not qualified for. But for lack of better talent right now, there's nothing they can do about it."
A Chinese fund manager, on average, will run a fund for just about one year, with more than 30 percent of funds managed by one manager for less than half a year, according to a recent survey conducted by the official Securities Times.
"Every Chinese fund house is struggling to obtain and retain skilled fund managers. The fund industry is a very young industry in China, and we did not have proper training programs to keep up with the demand," said Jeanne Zhen, an investment consultant with Watson Wyatt.
"That's why you've seen a lot of joint ventures in the fund management industry, because the government realized the shortage of skills."
Pay nears Hong Kong levels
China now has more than 20 joint ventures with global fund management firms, which are keen to lure China's $2 trillion in personal savings into fee-rich products such as mutual funds.
While the foreign players have brought much-needed expertise, industry watchers said their deep pockets have also helped fuel turnover and drive up salaries.
"(Pay packages) are reaching Hong Kong levels at this point. For the joint venture mutual fund companies, the joint venture asset management companies, they're definitely getting close to Hong Kong territory," said a Hong Kong-based partner with an executive recruitment firm.
"The local firms are no dummies either. They know what it takes to keep and attract good quality people."
Industry sources said a junior manager at a mid-level Hong Kong firm could make from $130,000 to $190,000, while a chief investment officer could make more than $1 million. But a pay package of $200,000 to $400,000 is typical, they said.
Analysts said rising salaries will eventually curb the shortages as financial professionals are lured away from industries such as insurance, but the process will take time.
Fast growth
The fund industry's overall outlook is bright, with assets from both mutual funds and pension funds likely to reach almost $1 trillion within a decade, said McKinsey's Ngai.
"On the talent pool catching up, to be honest, we're not as worried because it's proven to be a very attractive industry," he said.
"The talent imbalance will be there for a few years. But we think it will get to more of a state of equilibrium given another three years or so."
The mainland Chinese fund industry had 54 firms managing 511.4 billion yuan ($64.4 billion) in assets at the end of the first quarter, according to data from regulators.
These include joint ventures with global fund powerhouses such as UBS AG, JPMorgan Chase & Co., and HSBC Holdings Plc.
While small when compared with most developed markets, the industry has made a huge increase from 1998, when six firms managed just 10.74 billion yuan ($1.35 billion).
The rapid growth has put fund management talent at a premium, and spurred many managers to jump to larger state lenders and foreign brand-backed fund companies.
Industry sources cite the case of Merchants Fund manager Du Haitao, who left for larger rival ICBC Credit Suisse Fund in the first half of this year.
"The turnover in China has been relatively higher than at Western firms," said Frank Yao, executive vice president with Huaan Fund Management Co. Ltd. in Shanghai.
"In some Chinese fund firms, a fund manager could only work for up to half a year and then he or she hopped to a rival firm," added Yao, whose firm manages nearly 40 billion yuan.
Watch out India! China wants to be outsourcing powerhouse
September 13th, 2006Already known as the world's factory floor, China now wants to turn into an international outsourcing powerhouse, a report said Friday, a move which could challenge India's prominence in the industry.
Outsourcing will become a new area of foreign investment for the country and China will encourage multinationals to outsource from here, the official Xinhua news agency quoted Vice Premier Wu Yi saying at a forum in the southeastern city of Xiamen.
China, already a favorite with multinationals for manufacturing and research and development would make a snug fit for outsourcing services, Wu said.
With four million graduates entering the workforce every year China offers a huge pool of talent for high-end industry outsourcing, she said.
China wants to restructure its low-end manufacturing economy by investing in services, outsourcing, high-end manufacturing and Research and Development services, Wu said.
India, the global leader in outsourcing services such as software and call centers, employs about 350,000 people in an industry that earned US$6.7 billion in the year ended March 2005.
However, rising costs could threaten India's headline position as major IT groups such as Apple Computer and software maker Pervasive, have joined Anglo-German Powergen in closing operations in technology hub Bangalore.
Separately, the Indian science minister said in Beijing on Friday that India and China plan to set up a Cabinet level body to pursue joint technology development amid rapid growth in trade between the former Asian adversaries.
New Delhi also is looking to China as a market for farm exports and a source of investment for infrastructure projects, said Indian Science and Technology Minister Kapil Sibal.
"From the Indian standpoint, China will be our biggest partner in years to come," said Sibal, who was on a five-day visit to the Chinese capital.
Sibal said he signed a memorandum of understanding Thursday with his Chinese counterpart, Wu Guanhua, to set up a committee to promote joint research. He said a formal agreement is expected to be signed when Chinese President Hu Jintao visits New Delhi in November.
Under the agreement, the two sides will create a "road map" for joint research on high-tech projects and on solutions to common problems facing their vast, poor populations, Sibal said.
"If you were to marry China's hardware with Indian software, we could make goods for the international market that are high in quality and low in cost," he said at a news conference. "This is an ideal relationship that we can nurture for the future."
Sibal's visit coincided with a trade show in Beijing by 48 Indian companies, ranging from biotechnology and electronics firms to makers of textiles and machine parts.
The minister said the two governments also hope to collaborate on solving environmental and other problems where he said India and China have unique experience.
China faces a critical talent shortage
September 13th, 2006VANCOUVER - Canadian companies doing business in China are having trouble finding people - the right people - in the world's most populous country.
As multinational corporations race to set up shop in the economic powerhouse, China's supply of experienced, English-speaking workers is rapidly dwindling.
"There is intense competition for well-educated, English-speaking, professional staff who have experience working with multinational companies," said Diana Barkley, director of public affairs for Vancouver-based Methanex Corp.
Partly to avoid that problem, Methanex, the world's biggest methanol producer, decided not to establish its Asia-Pacific headquarters in mainland hot spots such as Beijing and Shanghai when it moved from New Zealand earlier this year.
The company maintains a small marketing office of three workers in Shanghai, but it chose, instead, to base its regional head office in the former British colony Hong Kong, where the pool of talent is wider. ''When we chose to relocate our Asia-Pacific logistics office that was, in fact, one of many criteria we looked at," Barkley said.
Despite a population of more than a billion, China is facing a critical talent shortage, according to a report released last month by the international employment services company Manpower Inc.
Managers and executives are in greatest demand, the report, titled The China Talent Paradox, stated.
Older managers arising from China's Cultural Revolution lack the education and training needed to work as senior managers for foreign-based companies, while recent university graduates lack management experience, it said.
Most Chinese employees also have low English-language skills, and those who do meet companies' standards for high-level positions tend to be difficult to retain, especially when they're presented with higher salaries, career advancement opportunities and benefits by competing firms.
Although Chinese students and workers recognize the need to learn English, the shortage of fluent English-speakers is "still a very big issue," said Vincent Wong, president of Richmond, B.C.-based ACT360 Solutions Ltd., which markets its language-skills testing software to universities and companies in China.
Most university graduates have good English reading and writing skills, he said, but their ability to speak the language is often poor.
"Even in some of our own dealings there, the English standard isn't as fluent as needed for high-level business discussions," Wong said.
With the exception of some of the "more progressive" multi-national companies in China, most business operations there don't provide internal corporate training, leaving it up to employees to learn English themselves, he said.
But, in light of the strong competition for talent, Wong said he expects more companies in China will start offering language training for their staff.
According to the Manpower report, the number of university graduates in China is expected to increase by 22 per cent in 2006 to 4.1 million, which will add to the pool of educated potential employees.
Even so, demand is outpacing supply, and the report estimated it will still take six to eight years before graduates gain sufficient work experience to ease the current competition for mid-level and senior managers.
In a survey of 141 companies, Manpower found two in every five are struggling to fill senior management positions in China.
Manpower's spokeswoman Britt Zarling said recruiting and retaining qualified staff can be even more of a problem for small and mid-sized businesses.
Nearly 75 per cent out of more than 300 Chinese job candidates surveyed by Manpower said they would prefer to work for a wholly owned foreign company rather than a joint-venture or domestic Chinese firm because they tend to offer higher wages, and better training and working conditions.
But with large multinational corporations clamoring for the best workers, the competition among smaller foreign companies is all the greater, Zarling said.
In the report, Manpower noted China's talent shortage deals a "quadruple blow" for many companies. They aren't able to quickly jump on growth opportunities because they can't recruit workers needed to expand their businesses; they face higher attrition rates as staff defect to other companies; they are forced to replace people that have significant knowledge about their products and services; and they are distracted from their core business while they train new employees to replace those leaving.
As well, higher labour costs boosted by the rising demand for trained professionals is squeezing companies' margins, the report added.
Still, Manpower said, foreign-based companies find it more beneficial to hire local Chinese employees, rather than bring in expatriate managers.
"Local managers have an advantage over their western counterparts when it comes to working with their local staff, given cultural considerations," Zarling wrote in an e-mail.
It's important for western companies to adapt to the local environment and adopt an insider's perspective, she said.
"For those hardest-to-fill positions, companies may bring in their foreign managers (expats) to run the business but sooner or later it is likely that they will be replaced by local people," she added.
And despite rising labour costs, foreign companies still find it more affordable to shell out for local staff than to bring in foreign workers, said Alison Winters, general manager of the Canada China Business Council's Vancouver office.
Winters said some sources have indicated that companies can, on average, hire five Chinese workers for the same amount of money required to hire a single North American worker.
"They know it's terribly expensive to hire expats and the expats don't want to stay that long," she added.
Winters said that many of council's member firms have been able to weather the talent shortage in China by building loyalty among their staff over time.
The fundamentals of attracting and retaining employees are the same in China as anywhere else, she said. Employers need to select people that fit well within their company, offer strong leadership, and provide opportunities to move up in the company, as well as bonuses or other incentives.
"It's not any different from any other country," she said.
Western companies find China hiring surprisingly tough
September 13th, 2006PARIS (MarketWatch) -- Hubert Giraud of French IT and consulting company Capgemini (12533.FR) never thought hiring people in China, the world's most populous country, would be so difficult.
As multinationals like Capgemini flood the market looking for skilled workers, they are running up against unforeseen problems. Salaries among qualified workers are rising faster than expected, mid-level managers in their 40s are scarce, education standards are weak and many Chinese say they'd rather work for a local rather than Western company.
Strong competition for experienced employees, the cultural complexities of working in a Western company and the sense that the top positions will always be held by European or U.S. managers push many Chinese workers out of Western companies after only a few years.
"Eighty million people live in this province," Giraud says, referring to Guangdong in southern China, where Capgemini employs 500 people in its business outsource unit. "When you see that you think you can get anything you want. It's just not true."
In a nation of 1.3 billion only 5.2% of the population has a college degree and above, China's National Bureau of Statistics reported in March. By comparison, roughly 25% of the U.S. population of 298 million have college degrees.
Many multinationals, which spend heavily on training young Chinese graduates to compensate for the educational shortfalls, lose them to local companies after a few years because young Chinese perceive that opportunities for career development and promotion are greater.
In China as well as rapidly developing economies like India, it isn't unusual for Western companies to lead investment and import their own educational standards. What surprises some companies are the lengths to which they have to go to train young Chinese, as opposed to Indians who generally have workable English.
It's not uncommon, managers interviewed for this article say, for a company to lose a third of its workforce in a year. Heidrick and Struggles, a headhunting firm, said in a July study that "talented managers" in China change jobs every 15 months at present.
Heidrick says most companies are happy if they can limit turnover to no more than 15%, particularly in fast-growing industries like technology and telecommunications. Bob Krysiak, STMicroelectronic NV's (STM) president and general manager for Hong Kong, Taiwan and China, says attrition rates for the company's China operations range between 12% and 15%.
"China is like the Internet bubble in the U.S. - vibrant and bullish," says Vincent Gauthier, general manager for Hewitt Associates in Hong Kong. "If you are in your 30s, have English and skills you can walk right out of one job and into another without breaking a sweat. And people do."
The recent influx of college students to Chinese universities means it is easy to recruit 22-year-olds with no job experience. However, people with even a few years of experience are in deep demand.
The surge in employment opportunities has been driven by China's entry into the World Trade Organization in 2001, which led to a leap in investment in China. Last year foreign companies invested $60 billion in China from $38 billion in 2000, according to the China's National Bureau of Statistics.
China's Ministry of Commerce said in the first four months of 2006 roughly 12,000 new foreign companies began operations in China. Heidrick and Struggles notes that established companies in China, both local and foreign, are rapidly expanding their ranks. Of the companies polled by Heidrick, the number of those with staff of more than 5,000 tripled in the last two years from two to six.
Few companies are backing down from ambitious plans to carve out a corner for themselves in China's thriving marketplace, despite rising wages and intense competition. That is because most companies see the Chinese market itself as an important source of revenue. According to Heidrick and Struggles, two-thirds of respondents cite selling to China's 1.3 billion people as the key reason for being in China while setting up operations to outsource goods for the West is a secondary concern.
Both U.S. based and other foreign companies face intense competition for staff and rising salaries to increase their operations. Capgemini, which derives 1% of its revenue from China, is looking to triple its staff in China in the next four to five years to 2000-3000 employees.
STMicro, which draws a quarter of its sales from China, announced last spring it would invest $500 million in a new semiconductor factory. It plans to hire 2,500 across China during next few years.
Meanwhile, General Electric Co. (GE) said it is looking to maintain its annual 10% earnings growth in part by outsourcing to China. At present the company makes about $5 billion in revenue from China and recently Chairman Jeff Immelt said he expects that number to double in the next four to five years. GE employs 13,000 people in China.
The labor shortage, particularly among experienced workers, means companies routinely poach talent from each other, driving up salaries in the process. Hewitt Associates estimates that wages are rising as much as 15% a year for experienced, English-speaking workers, but anecdotal evidence puts the number much higher.
Stefan Dyckerhoff, head of Capgemini's consulting arm in China, hires first-year consultants for $5,000 a year but bumps their pay up to $35,000 by the third. By comparison the average rural salary in China is $225 annually and the average urban salary is $1,164 according to the China's National Bureau of Statistics. Dyckerhoff says salary inflation is outpacing what the company charges in consulting fees, though profit is still possible.
STMicro which employs 4,000 people in China, pays a relatively experienced engineer in Shanghai about $40,000 a year, about a third less than an engineer's salary in Silicon Valley, but not a pittance, the company says.
The problem says STMicro's Krysiak, is that raising salaries alone doesn't keep workers. Many are leaving for rising Chinese technology companies or even to become entrepreneurs.
"There is a lot of venture-capital money chasing Chinese enterprises," he says. "We lose people because some of these guys all want to be part of the next IPO."
Junwen Mo, a 22-year-old Chinese business student, has an internship at BNP Paribas SA (13110.FR) but says many Chinese want to work for a Chinese company in the long run. "For prestige and personal satisfaction it is better to work for a Chinese company," he said, adding that foreign companies might pay better salaries but they don't grant promotions. "If you are ambitious you have to work for a Chinese company after a few years of experience."
Losing people like Mo is painful for Western companies that have spent both time and money training them.
Although China produces 3.1 million college graduates a year, educational standards are lacking, U.S. consulting firm McKinsey & Co. (MCK.XX) says in a 2005 report. Even engineering students from the most prestigious universities in Beijing receive little practical training in either projects or working with a team. Few speak passable English. As a result McKinsey estimates that only 160,000 engineering graduates a year are suitable to work in multinationals - a pool no larger than the U.K.'s, who's population is about 60 million.
To compensate for the poor education system companies are investing in training programs to get new recruits up to speed which can add 15% to personnel costs, McKinsey says.
STMicro routinely trains new recruits for six months or more. Teaching English is the biggest problem but the basics of business - everything from marketing to how to say no to your boss - has to be taught.
Steven Shaw, head of Networks for Nokia China (NOK), spends a fifth of his time mentoring Chinese workers.
"We have English classes, technical training classes, lots of training." Shaw says. "It can be expensive, but it has to be done. It's one of the most important things to young Chinese. They want skills."
However, they also want to believe that they can reach the highest echelons of the companies. It's a message that Western companies are finally getting loud and clear, although finding Chinese managers to head operations is by far the most vexing personnel issue, several managers said.
"Graduate degrees were basically suspended in the late '60s and '70s," says Gauthier, referring to China's cultural revolution. "The 45-year-old manager who speaks English really isn't available."
Nevertheless companies are bending over backward to find Chinese-speaking managers, increasingly poaching talent from firms in Hong Kong, Taiwan or Malaysia.
Capgemini recently hired Chen Bo, the former vice-president of Hewlett-Packard China (HPQ), as chief executive officer of Capgemini China, despite the fact that he doesn't speak English. Chen works closely with a multilingual assistant.
Nokia, too, has boosted its Chinese representation. Shaw says on his management board two thirds are Chinese nationals.
Other companies are also taking notice. Heidrick and Struggles reported that three-quarters of firms operating in China today have native-born Chinese represented on their management teams, up from half two years ago.
"It's important for morale to have Chinese managers, either from China, Hong Kong or Taiwan, at the top," Shaw says. "It is not always the easiest thing to find them."
(Mimosa Spencer in Paris contributed to this article.)
With boom, China faces work force shortages
September 13th, 2006In the three years since receiving his engineering degree in Shanghai, Jason Zhang has switched jobs twice and quintupled his salary as overseas companies scour China for professional workers.
"If you have language skills, if you have technical skills, it's very easy to find a job," says Zhang, 26, who speaks fluent English and now writes software for International Business Machines. "There are more jobs than even two years ago because of the outsourcing from Europe and the U.S."
Employers like General Electric, Freshfields Bruckhaus Deringer and Ernst & Young are struggling to find engineers, lawyers and accountants as Chinese universities fail to turn out qualified professionals, especially those who speak English. The shortage is threatening expansion plans and driving up salaries in the world's fastest-growing major economy.
"We could argue that more than water, energy and infrastructure, talent is the greatest constraint on China's growth," said Andrew Grant, who heads the greater China office of McKinsey, a consulting firm that advises two-thirds of the Fortune 1000 companies.
Fewer than 10 percent of Chinese job seekers are qualified for accounting, finance and engineering jobs at overseas companies, according to a November report by McKinsey that was based on interviews with more than 80 human resources officials. Most lack English skills and a "cultural fit," the report said.
Ernst & Young, which plans to expand its work force in China fivefold to 25,000 in the next decade, has turned down clients because it cannot hire enough accountants, said Anthony Wu, a senior adviser and former chairman of the firm's China office.
China lifted a one-year ban on share sales this year, and public companies are required to meet international accounting standards by next year, spurring demand for accountants.
The country has 69,000 licensed accountants and needs more than 300,000, said Chen Yugui, secretary general of the Chinese Institute of Certified Public Accountants. China did not have a university major in certified public accounting until 1994.
"The gap between the need and the supply is still huge," Chen said.
Other professions are suffering, too. Even though a third of China's university graduates receive engineering degrees, international companies cannot find enough engineers. Many graduates are not qualified because they are steeped in theory and have not learned to handle projects or work in a team, McKinsey said in its report.
Freshfields, a London-based law firm that has offices in 18 countries, is searching for qualified lawyers as it plans to add as many as 65 attorneys in China over the next five years, said Mary Wicks, human resources director for Freshfields in Asia. Freshfields is recruiting lawyers who are fluent in Mandarin and have international law degrees.
China has 120,000 lawyers, or one for every 10,800 people, compared with a ratio of one to 375 in England and Wales.
"Competition is tough," Wicks said.
Companies are increasing pay and benefits to attract talented workers. The average salary for accountants at firms such as Ernst & Young and Deloitte & Touche Tohmatsu rose 30 percent to $9,000 last year, according to a survey by Mercer Human Resource Consulting, based in New York.
Ernst & Young is offering more vacation time and flexible work schedules, said Catherine Yen, head of human resources for China.
In the first half of this year, average annual wages in urban China rose 14.3 percent from a year earlier to $1,160, the National Bureau of Statistics reported.
Many companies are responding to the shortage by expanding internship programs and sponsoring university training programs.
General Electric has forged relationships with 17 of China's 50 top universities, including Fudan University in Shanghai and Peking University, said Heather Wang, personnel director for GE in China. "China has a significant imbalance of supply and demand for talents," Wang said. "It's still tough to find people who are strong in technical expertise and bilingual."
The search for talent has led to rapid turnover. Manpower, one of the world's largest providers of temporary workers, said in June that 24 percent of the more than 300 employees it had surveyed in China planned to leave within the next year.
Ernst & Young, one of the biggest U.S. accounting firms, has watched its own clients lure away auditors.
"Everyone is striving very hard, so they poach," Wu, the former chairman, said. "Who better to pinch than the auditors working on your company?"
The loss of senior employees is especially costly in China because of the concept of "guanxi," or relationships based on mutual interests, said Victor Apps, Manulife Financial's general manager for Asia. Manulife, the biggest Canadian insurer, has 12 offices and 4,500 workers in China, and is preparing to open offices in the cities of Jiaxing and Jiangmen, as well as in Shandong province.
"Guanxi and relationships are very important to business," Apps said. Workers are the winners in this competition.
Zhang, who has been at IBM for a year, said that his first job at a software developer paid 2,000 yuan, or $251, a month. Within six months, Citibank hired him away for twice as much. Now he earns 10,000 yuan a month.
"For young people today, job security is really not a problem," Zhang said.
Best Buy to Open First China Outlet
September 13th, 2006SEPTEMBER 01, 2006 -- Best Buy Co. Inc., Richfield, Minn., has announced plans to open a store in Shanghai's busy Xujiahui shopping district by year end--the chain's first outlet in China. Best Buy is partnering with Jiangsu Five Star Appliance Co., China's fourth-leading appliance and consumer electronics retailer, to open the new store. In May, Best Buy announced that it paid $180 million for a majority stake in Jiangsu Five Star, giving the retailer an immediate presence in Asia's fast-growing market. Best Buy says it is concentrating on researching the market and recruiting and training staff before making its next move in China, which is one of Asia's most saturated and competitive markets for appliance retailers and manufacturers. "We are still learning about this marketplace," said Robert Willett, Best Buy's CEO. "The Chinese consumer is pretty unforgiving if we get it wrong."
China Labor Paradox: Manpower Research Report Reveals Management Shortage Affecting U.S. Multinationals
September 13th, 2006Wednesday August 30, 12:01 am ET
MILWAUKEE, Aug. 30 /PRNewswire/ -- Despite China's population of 1.3 billion, a critical talent shortage has multinational corporations struggling to retain their management and employees. A new White Paper by Manpower Inc., a world leader in the employment services industry, examines this paradox and offers insight to help multinationals improve their talent management strategies in China.
"The United States is the biggest investor country in China, yet many of its companies are struggling to generate the growth they want because of people issues," said Jonas Prising, President of Manpower North America. "Recruiting the right people, retaining the best staff and developing leaders of the future are difficult tasks in any market. For foreign companies operating in China, there is the added difficulty of understanding how to adapt talent management strategies to the country's unique business culture and values."
The White Paper, The China Talent Paradox, reports that rapid economic and social change has spurred a skills shortage that is set to escalate in the next few years. The labor shortage in China is even more problematic than in other nations because it is most severe among managers. Two in every five companies find it difficult to fill senior management positions. Mid-level managers are also in short supply, particularly those who are Chinese nationals and can interact with local people.
Competition is stiff for this elite group of employees, and high turnover compounds the issue. Management-level attrition rates in China are more than 25 percent greater than the global average, and replacing a high-performing manager can cost 300 percent to 2,000 percent of that individual's salary.
The White Paper details Manpower's proprietary Workforce Optimization Model, which offers practical strategies for multinational corporations to improve employee attraction, engagement and retention in China. These talent management strategies rely heavily on understanding Chinese cultural nuances and leveraging that knowledge.
"To fuel the current level of growth that multinationals are experiencing in China, they need to attract and develop competent leaders that can work effectively in the Chinese workplace," said Lucille Wu, Managing Director of Manpower China. "Chinese employees respond best to hands-on leadership and having a role model to demonstrate what is expected of them so that they may replicate their actions. They are also unlikely to tell a manager when they do not understand how to complete their work. This requires a different leadership approach than most Western multinationals expect when they come to China."
There is good news for U.S. multinationals operating in China if they are successful in developing an employment strategy that fits the culture and values. Although employee retention is an issue, these businesses have a distinct advantage in competing for talent in China. Nearly 75 percent of Chinese employees would prefer to work for wholly-owned foreign companies rather than joint venture companies and wholly-owned Chinese companies, according to Manpower research.
Apple says it's trying to resolve dispute over labor conditions at Chinese iPod factory
August 31st, 2006Apple Computer said Wednesday it was trying to settle a dispute over alleged labor abuses at an iPod factory in China, an awkward case highlighting the challenges big companies face in living up to their codes of conduct while outsourcing most of their production.
The case also reflects the pressures Chinese journalists confront in doing their jobs.
The dispute involves a defamation lawsuit filed by Hongfujin Precision Industry Co., a major exporter owned by a Taiwanese company, against two journalists at the state-run newspaper China Business News who ran stories alleging that some workers on iPod assembly lines were paid only US$50 a month while working 15-hour shifts.
Hongfujin is suing the two, reporter Wang You and editor Weng Bao, for 30 million yuan (US$3.8 million;euro3 million) in the Intermediate Court in the southern city of Shenzhen, which froze the journalists' personal assets pending the trial, according to local media reports.
The case has provoked criticism in the Chinese media and an open letter from the journalists' advocacy group Reporters Without Borders demanding that Apple's chief executive, Steve Jobs, to intervene.
"We believe that all Wang and Weng did was to report the facts and we condemn Foxconn's reaction," said the letter, signed by Robert Menard, secretary-general of the Paris-based group. "We therefore ask you to intercede on behalf of these two journalists so that their assets are unfrozen and the lawsuit is dropped."
Hongfujin is a wholly owned subsidiary of Taiwan-based Foxconn Technology Group.
"Apple is working behind the scenes to help resolve this issue," an Apple spokesman, Jill Tan, said Wednesday. She said she could not comment further.
Court officials in Shenzhen refused comment Wednesday.
Apple's iconic iPod players are made abroad, mainly in China. The Cupertino, California-based company has sold more than 50 million iPods since the product debuted in 2001.
The allegations of harsh conditions at the iPod maker's factory in Shenzhen originally surfaced in a report in June by the British newspaper, the Mail on Sunday.
Apple responded by promising to immediately investigate conditions at the factory. It issued a report earlier this month saying that it found some violations of its stringent code of conduct but no serious labor abuses. It pledged to immediately redress some problems with overtime, employee accommodations and administrative issues.
The report discounted allegations of forced overtime, noting that a chief complaint among workers was a shortage of overtime during slack periods.
Staff who answered the phone at Hongfujin refused to take any media inquiries.
Earlier, Foxconn issued a lengthy statement denying the allegations and defending its labor policies. The statement detailed amenities it says the company offers to employees, including free medical care, "complimentary professional laundry services," soccer fields, libraries and an Internet cafe.
"Foxconn has been recognized by Shenzhen government as a role model," it said.
Foxconn is a trade name for Taiwan's Hon Hai Precision Industry Co. It claims many customers, including Intel Corp., Dell Inc. and Sony Corp. It is one of many Taiwanese companies with operations on the Chinese mainland, despite the political divide that has persisted since China and Taiwan split amid civil war in 1949.
Hongfujin was reportedly China's biggest export manufacturer last year, with overseas sales totaling US$14.5 billion (euro11.3 billion).
China Business News, a respected publication backed by several big media groups, has given Wang and Weng its unconditional backing, saying the two have evidence to support the allegations.
"Our newspaper will definitely back Wang You and Weng Bao since what they did was not a violation of any rules, laws or journalistic ethics," said an official in the newspaper's publicity department. Like many Chinese, he gave only his surname, Yang.
The financial magazine Caijing, meanwhile, accused the Shenzhen court of violating the law in freezing the journalists' assets.
Wang and Weng were not available for comment Wednesday. However, they have set up a blog recounting their ordeal and reflecting on the risks associated with doing their jobs.
"This is the toughest time I have faced since I entered the media business 10 years ago," Weng wrote.
Chinese journalists working in the state-controlled media have always had to cope with censorship and stonewalling by officials and threats and beatings from local henchmen. In recent years, companies have become increasingly aggressive in taking legal action against unfavorable reports.
At the same time, some reporters have come under fire for violating journalistic ethics for taking money in exchange for running favorable reports, or withholding unfavorable ones.
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Recruiting Top Talent In China Takes a Boss Who Likes to Coach (WSJ)
August 29th, 2006SHANGHAI -- Any company that wants to succeed in China -- and the list grows longer every day -- needs to understand what matters even more than an understanding of distribution networks and good relationships with government officials: executives on the ground who truly enjoy coaching their employees.
Whether they work in Beijing, Shanghai or Guangzhou, executives at multinationals who stay behind closed doors and rarely offer performance feedback or advice are bound to fail. That's because the local hires they need to run their offices and plants will be seeking out bosses who will help them advance their careers.
With China's economy growing so rapidly, multinationals and private and state-run Chinese companies are competing fiercely for talent. Young, educated Chinese from top schools with a few years of work experience often have their pick of entry and midlevel jobs in sales, marketing, finance, government relations and manufacturing.
They can also command much higher salaries now than they could a few years ago, though they're still paid far less than expats. Money, though, isn't necessarily their top priority when weighing offers. In a recent study of several dozen Chinese managers placed by Korn Ferry, Grace Cheng, the managing director of the search firm's Beijing office, says she found that "money is a less important reason to change jobs than the potential to grow and have a close working relationship with an immediate boss."
James Rice, a Tyson Foods vice president and the company's general manager in China, understands this sentiment and has made mentoring part of his job. A 16-year veteran in China, he previously worked for Dannon and Kimberly Clark. One of his current sales managers first worked for him as a secretary at Dannon and, with Mr. Rice's coaching, advanced to management. He quit Dannon when Mr. Rice moved to Tyson last May. "I didn't want to poach [from Dannon] but he was going to take another job anyway, so I asked him to work for me again," says Mr. Rice.
A few weeks ago, he recruited a young manager with an MBA degree from the University of North Carolina by promising training and promotion. The manager was weighing another offer from a multinational, and Mr. Rice didn't have a specific opening for him. But he was determined not to lose the chance to hire him. "He's very smart and speaks perfect English, and we're growing by more than 20% a year so it makes sense to hire ahead," says Mr. Rice, who plans to expand Tyson's China-based operations through acquisitions. "I pitched him very heavily on what I'd do to work with him and help him grow his career. I told him that for the next 12 months, he'll be my assistant, going with me wherever I go -- and then he'll get a line position," Mr. Rice says.
Stella Hou, who manages the compensation measurement practice for Hewitt Associates in China, is often a personal counselor as well as a career coach to her 30 employees. In the U.S. and Europe, "managers don't feel they should trespass into employees' personal lives, but Chinese employees often expect their bosses to do that," she says. She spent hours listening to an employee vent anger and grief when her marriage fell apart.
Young recruits, many of them products of China's one-child policy, also often require coaching on how to gain independence from their parents. Mr. Rice has had to tell some prospective employees that their parents aren't welcome to sit in on job interviews. And when an intern in Ms. Hou's office talked constantly about how much his mother takes care of him, co-workers began counting the number of times he invoked his mother's name and then subtly suggested he change that habit. "He'd say, 'my Mommy bought me this shirt,' or 'my mommy made me this meal,' " says Ms. Hou. "One day he brought her up 25 times."
She prefers hiring employees whose parents live in provinces far from Shanghai or who went to boarding school at young ages. "They've been less pampered" than only children who have had their parents' and grandparents' undivided attention, she says.
For their part, Chinese employees, especially those in their 20s and 30s, don't want to stay in any one job for more than a few years. They are looking for training and frequent promotions, and they're willing to job hop to advance.
Among the companies that has benefited is Beijing-based Sohu.com, one of China's main Internet portals. Founded eight years ago, Sohu.com, which now has 1,400 employees, has wooed hundreds of upwardly mobile young Chinese from multinationals. Andy Zhao, a group leader in human resources at the company, formerly worked at McDonald's, where he advanced from trainee to store manager over a six-year period. But then he quit, because his boss, he says, "was too vague" about his chances for future promotions.
He says he likes Sohu.com's innovative culture and his "caring bosses," who encourage him to "make fast changes every day." But he adds that how long he stays there will depend on "whether I can keep growing and changing."
This is the first of several columns about managing in China.
Local manufacturers struggle to compete with China
August 29th, 2006The World Today - Friday, 25 August , 2006 12:38:00
Reporter: Andrew Geoghegan
ELEANOR HALL: As BHP Billiton's multi-billion dollar profit result revealed this week, China's relentless growth has been a huge boon for many Australian business.
But there's a downside. A survey of Australia's manufacturing industry has found that this sector of the local economy is losing out to Chinese competition. In just the last year, manufacturers have suffered a net financial loss of almost $900 million in trade with China.
And as finance correspondent Andrew Geoghegan reports, some manufacturers are warning that the local industry will not survive.
ANDREW GEOGHEGAN: It would be an understatement to say China is a country on the move. The rapid pace of economic growth has created huge demand for private transport. In Beijing alone, 1,000 new cars are estimated to be pulling onto the roads every day.
JASON LI: The car and the growth of the car is just an extraordinary phenomenon in china.
ANDREW GEOGHEGAN: Jason Li, a Chinese Australian living in Beijing, works for the China Automobile Association.
JASON LI: It's really stuff of dreams. It's very much tied to growing economic development, the rise in middle class. It's such a status symbol. It's such a centrepiece of lifestyle now.
ANDREW GEOGHEGAN: And Australian business is cashing in on the Chinese dream.
GLEN DOBINSON: Certainly with the population based in China of around about 1.2 billion people, and that's a lot more than the Australian population, quite a few fold.
ANDREW GEOGHEGAN: Glen Dobinson is the Managing Director of Dobinson's Springs and Suspension, a Rockhampton manufacturer. He's been successful in capitalising on the growth of China's car industry.
GELN DOBINSON: So we are trying to capitalise on that four wheel drive market, particularly up there where they have suspension range of products and we've had a client dealing with us since early this year, who's had around three orders, and we have to grow on that base.
ANDREW GEOGHEGAN: However, Glen Dobinson says he's making hay while the sun shines. He sees some very dark clouds on the horizon in the form of cheap manufactured goods imported from China.
GLEN DOBINSON: We find, one of our competitors now is starting to import product out of China, and distributed though Australia as well, to our client base, we are going to have to compete head on with Chinese imports, which, I can only see in the long term, if that keeps up, we are ... it's not going to be an easy ride for us down the road further, yeah.
ANDREW GEOGHEGAN: To the point where you think you might struggle to survive here?
GLEN DOBINSON: Yeah, I think 10 to 15 years time it could be a different story to the stage, where if we can't compete, yeah, we might have to look at maybe importing and rebranding our product ourselves, that's, either that or you got no business. So that's something that we'll have to think seriously about in the long-term future.
ANDREW GEOGHEGAN: Glen Dobinson's problems are symptoms of an Australian manufacturing industry in decline.
And the car components sector is suffering the most acute pain, as highlighted this week by the struggling Ajax fasteners business in Melbourne. It's been bailed out by carmakers, because it can't compete with cheap imports.
HEATHER RIDOUT: A lot of the benchmark prices are China prices, so, if Ajax have to quote for their fasteners, they have a benchmark, Chinese fastener producers, as a price they have to match. So it is very tough.
ANDREW GEOGHEGAN: Heather Ridout is the Chief Executive of the Australian Industry Group.
It's surveyed 700 manufacturers and found that they've accumulated almost $7 billion in benefits from China. However, cheap Chinese competition has cost those businesses closer to $8 billion in lost sales.
Heather Ridout.
HEATHER RIDOUT: Australian manufacturers are now doing much more business in China. China has been identified as the strongest potential overseas market, for industry in terms of their exports, in terms of their overseas production, in terms of their overseas access to Australia. But in that term, the equation still remains strongly in China's favour with a loss of approaching $1 billion.
ANDREW GEOGHEGAN: While the outlook may be gloomy for manufacturers the forecast for Australia's services sector is bright.
Australian Andrew Stoler is a former deputy director general of the World Trade Organisation and is in China at the moment.
ANDREW STOLER: Just as the Australian manufacturing sector is nervous and sensitive up here in China, they have a very inefficient services sector, which is quite worried about increased competition from Australia.
ELEANOR HALL: That's Andrew Stoler, the former Deputy Director General of the World Trade Organisation, ending that report from Andrew Geoghegan.
Manufacturers face testing times with China, study shows
August 29th, 2006 Monday 28 August 2006
Australian manufacturers are experiencing increased competitive pressures in their dealings with China, while at the same time they now see China as the most important market in which to grow their business outside Australia, according to a major new study released today by the Australian Industry Group.
The report, Australian Manufacturing and China: Deepening Engagement has estimated that while Australian manufacturers in 2005/6 have accumulated over $6.8 billion in benefits from China (for example, through increased exports to China and savings from using Chinese global supply chains), the benefits fall short of the losses in sales in domestic and overseas markets from competition from China (totalling over $7.6 billion), resulting in a net financial loss of $880 million.
Ai Group chief executive Heather Ridout says the findings, based on a survey of 700 Australian manufacturers, confirm that China is imposing ever increasing competitive pressures on their businesses.
"Over the past two years, the proportion of companies impacted by China has grown from 70% to 84% and China is making deeper inroads into Australia's domestic and overseas markets," she says.
"Manufacturers identified China as the strongest potential overseas market"
The study found that among surveyed companies around 8% of manufactured exports go to China; one in every 16 surveyed companies has an operation in China; and China is the chief source of foreign inputs into domestic production. Annual income from manufacturing investments in China is estimated to be close to $1 billion.
"While very large manufacturers and affiliates of foreign owned entities are starting to reap slight net financial gains, the majority of manufacturers are finding it tough to secure benefits," Ridout says.
"Overall there remain considerable concerns about non-tariff barriers in China, including the lack of intellectual property protection. A major finding of the study was that Australian businesses are highly concerned about the incidence of Chinese made counterfeit and pirated goods being sold on the Australian market.
"The perception of Australian manufacturers is that dumping of Chinese goods on the Australian market (at below the price to make and sell in China) is also accelerating significantly.
"Consequently, many manufacturers remain unconvinced of the overall benefits of a Free Trade Agreement, although support for an FTA is growing and has increased from 13% in 2004 to 24% in 2006."
Ridout calls on the Federal government to put in place mechanisms as part of its planned Industry Statement so that Australian manufacturers can boost their competitive position in their business dealings with China.
"We need to strengthen our innovative capacities, build world-class skills among our manufacturers, and be prepared to deal with the ever increasing impact of Chinese competition, as well as helping to open up the Chinese market to Australian businesses so that they can establish partnerships and build supply chains," Ridout says.
Ai Group has also welcomed the recent clarification of the government's position that the existing tariff phase-down plans for the Textile, Clothing and Footwear and auto industries were "not negotiable" under FTA discussions with China.
IBM eyes China expansion amid strong growth
August 29th, 2006Reuters
Published on ZDNet News: August 23, 2006, 8:37 AM PT
IBM, the world's biggest computer-services firm, said on Wednesday it could open four offices annually in second-tier Chinese cities in coming years to take advantage of robust growth and a deep talent pool.
Any expansion would come after IBM's Asia-Pacific office completed its move to Shanghai from Tokyo this year, attracted by vibrant growth and deep talent pools in China.
The move also brought the company closer to India, IBM's fastest growing market.
"We set up four new offices last year," Michael Cannon-Brookes, vice president for business development in China and India, told Reuters on Wednesday.
"And that pace is sustainable in the near term."
IBM, based in Armonk, N.Y., had 22 offices in China at the end of last year. It employs 43,000 staff in India, the center of the world's software services industry, and 7,300 in China, the world's manufacturing hub.
"That's why I'm in Shanghai," said Cannon-Brookes.
IBM's business in India grew 61 percent in the first quarter from a year earlier as telecoms, banking, insurance and services sectors bought computer hardware and services to spur expansion.
Its revenue in China rose 15 percent. The company did not give sales figures for individual countries, he said.
IBM, which derives about half its revenue from information technology consulting and outsourcing, has made India a global delivery hub for software needs and client services.
Rising labor costs may dim China's appeal
August 29th, 2006The Yomiuri Shimbun
Labor costs in China are skyrocketing. The low-cost environment in the country where abundant, talented human resources can be obtained cheaply is declining.
One major factor is the presence of migrant workers. In China, about 120 million farmers once worked at factories and construction sites in urban areas, sustaining the nation's economic growth.
Over the past three or four years, however, the number of migrant workers has decreased, resulting in increases in labor costs at a record high pace.
Last year, the average salary for workers throughout the country increased by 14.1 percent compared with 2004.
This year, many local governments are raising the minimum wages of workers, set independently by localities. The move is in line with a policy set out by the administration of President Hu Jintao to protect the poor.
The local government of Shanghai, where the average salary is the highest in the country, decided to boost the minimum wage by about 9 percent. Major cities such as Guangzhou, Beijing, Tianjin and Dalian, where many foreign companies have their Chinese bases, have decided to introduce double-digit increases in the minimum wage.
The decline in the portion of migrant workers in the labor force is partly due to economic reasons, including an increase in farming income and increased job opportunities in provincial regions.
===
Shifts in population
In addition to the economic factors, demographic changes in the country, in particular the decline in the number of young people in farming villages, are affecting the labor supply. The labor shortage in the relatively developed coastal regions, including Guangdong Province, has started to spread inland.
Under the circumstances, local governments of major cities are growing more concerned. Hikes in the minimum wage have started to take on a tinge of competition to secure sufficient numbers of workers.
If labor costs continue to climb in China, foreign companies doing business there may have to revise their management strategies.
Furthermore, China is reviewing its policy of giving favorable treatment to foreign companies.
One major issue is whether to unify corporate income tax, which is similar to Japan's corporate tax, as the rates for foreign and domestic companies differ. China has given a preferential tax rate to foreign firms in an attempt to procure funds from overseas as it has suffered from a shortage of capital.
===
Attractive tax arrangement
While the tax levied on domestic companies is about 33 percent, foreign companies pay less than 15 percent.
However, with competition between domestic and foreign firms intensifying, criticism has increased over the preferential treatment given to foreign firms in China.
As debate on whether to abolish favored treatment for foreign companies continues, the State Development and Reform Commission recently announced unification of corporate income tax rates. The commission manages China's economic policies.
At the same time, the commission said it would shift its policy of luring foreign companies from "quantity" to "quality." To enhance its international competitive edge, China will probably become more selective toward foreign businesses, giving priority to foreign companies in high-technology industries.
If the new policies are put into effect, the investment environment will be greatly affected. For foreign firms, China's attraction as a target for investment will inevitably decline.
However, compared with other Asian countries, China still holds economic advantages. Increases in labor and other costs will promote advancement of domestic markets and industrial structures.
Both positive and negative aspects of the increased costs in doing business in China must be thoroughly examined.
(From The Yomiuri Shimbun, Aug. 28, 2006)
(Aug. 28, 2006)
Labour Law in China - Where are we now?
August 21st, 2006By Frank Mulligan, Talent Software
The labor law in China is about to be changed radically. The current law has been in operation for many years but it was created many years ago and necessarily has weaknesses.
Setting out the basis of the current law, I thought, might be a good way to build a base for comparison with the expected changes in the new law.
So here is a quick summmary of where we are now. It is meant as a quick refresher and should not be taken as legal advice.
* Employer and employees need to enter into a written employment contract. However, an oral contract is also enforceable.
* Contracts can apply to a fixed period, an open period, or a specific project.
* There can be a trial period of no more than six months during which time the employer can terminate the employment contract.
* The law allows for a clause requiring employees to keep business information confidential.
* Employers can terminate on 30 days notice, if the employee is not able to do his work due to illness or injury but if he is still being treated this does not apply.
* Termination can be carried out if the employee is not suitable for the work he is doing. This decision must be made after training or alternative work has been given.
* The contract becomes unenforceable because a ’major situation’ has changed on which the employment contract mainly relies. This has not been defined.
* Employees should give 30 days notice except when they are are in the trial period or the employer does not satisfy his end of the contract.
* Redundancy is a vague area that allows an employer to dismiss an employee if the company is about to go bankrupt. Payments to employees equate to one month’s pay for every year with the company.
* The work week is an 8-hour day with no more than 44 hours per week and at least one day off per week, in practice always 2.
* Paid leave is mandatory but depends on local regulations. There is a 90 days maternity leave provision.
* Disciplinary action has a definite path. First an oral warning, then a written warning and finally, dismissal. If this is not followed the dismissal is invalid.
* If the breaches of discipline is very serious instant dismissal is available.
So we can easily see that the basic labor laws in China are not so complicated and many areas are sufficiently vague as to require a new definition.
The current regulations are under review and the government has invited submissions from concerned parties. The new contract law is likely to differ considerably from the current law in terms of details and provisions. The object is to make it fairer and clearer for all parties, and to underline the rights of workers in a market that is considerably different from the one that pertained when the original law was written.
Next week we can make a comparison with what is expected in the new law.
Apple says probe finds no serious labor violations at China iPod factory
August 18th, 2006Apple Computer Inc.'s investigation into claims of poor working conditions at a Chinese iPod factory found no forced labor or other serious violations, the company said Friday.
Apple added that it was taking immediate steps to deal with excess overtime and other issues.
The probe by the Cupertino, California-based company, was in response to a report by a British newspaper, the Mail on Sunday, which alleged that workers at the factory were paid as little as 27 British pounds (US$50; euro40) a month and forced to work 15-hour shifts making the digital music players.
"The team reviewed personnel files and hiring practices and found no evidence whatsoever of the use of child labor or any form of forced labor," Apple said in a report on its Web site that summarized the findings of its audit of the facility.
However, the probe did find that in many cases workers were exceeding the company's limits for overtime, which specify a maximum of 60 hours or six days a week.
"We found no instances of forced overtime," the report said. But it said weekly limits were exceeded 35 percent of the time in a seven-month period and that employees worked more than six days in a row 25 percent of the time.
The company running the factory, which was not named in the report, was ordered to enforce Apple's overtime limits, it said.
The inspection also found that in at least two instances workers were made to stand to attention for disciplinary reasons.
"Apple has a zero tolerance policy for any instance, isolated or not, of any treatment of workers that could be interpreted as harsh," the report said. It said the factory has launched an "aggressive" manager and employee training program to prevent such behavior, it said.
While conditions in the factories, cafeterias and most dormitories were good, the audit found overcrowded conditions at two leased dormitories, which are now being expanded to allow more space.
The factory, which supplies electronics components and accessories to other companies as well as Apple, is a small city in its own right, with clinics, recreational facilities, buses and 13 restaurants serving its 200,000 workers.
Cherokee Closing Plant In Mexico; Relocating To China
August 17th, 2006By Anita LaFond, News Editor, Manufacturing.net
Manufacturing.Net - August 11, 2006
Cherokee International Corp., a power supplies manufacturer, will be closing its manufacturing operation in Guadalajara, Mexico by the first quarter of 2007 and is moving those production operations to a new facility in Shanghai, China.
The Guadalajara plant, in operation since 1988, recently employed about 250 full time and temporary employees to produce power supplies. Cherokee owns the building and is seeking a buyer for the 35,000-square-foot property.
In February 2006, Cherokee opened a new, 120,000-square-foot, state-of-the-art manufacturing facility in Shanghai, China. As part of Cherokee's China strategy, they are moving and consolidating, into the new facility, high-volume, low-mix manufacturing from plants that are a higher cost basis to operate.
The design and location of Cherokee's new Shanghai facility optimizes their and their customers' supply chains as an increasing number of Cherokee's customers and suppliers have their own manufacturing operations in China. It also positions the Company to take advantage of the overall business growth in Asia.
Cherokee expects annual recurring savings of approximately $1,700,000 to $2,200,000, plus the value of the facility once it is sold. Cherokee also expects restructuring costs of approximately $900,000 to $1,400,000 to be incurred over the third and fourth quarters.
International investment firms launch $400m realty fund in China
August 17th, 2006Amwal Investment, a prominent Omani investment firm and the Cayman Islands-based NCL Fund Management Ltd have launched a $400m real estate fund along with Simon Zhu, a Chinese real estate developer to tap into the thriving Chinese real estate market. The five-year old fund would focus mainly on the residential and commercial properties in some of China’s fast-growing second-tier cities.
The ‘Wanyuan-New China Land Fund’ would be a Cayman Islands unit trust, which would be managed by NCL Fund Management, a Cayman Islands entity. “This a great opportunity for GCC investors to participate in the huge growth opportunities in China,” said Jasser Saleh Al Aulaqi, CEO of Amwal.
The real estate fund which has a minimum subscription of $5 million for institutions and $1 million for individuals, expects returns of at least 15 percent. The fund aims to develop residential, retail and land master-use projects in provincial cities, apart from acquiring partially complete for existing developments from distressed owners in order to attain a cost or time advantage.
Caterpillar Will Build New Manufacturing Plant In China
August 11th, 2006July 24, 2006 -- A new wheel loader manufacturing facility will be built in the Suzhou Industrial Park in China's Jiangsu province. Caterpillar intends to begin construction of the 350,000-square-foot building in early 2007 pending appropriate governmental approvals.
"This facility will add to Caterpillar's growing operations in China and provide the primary manufacturing source for Caterpillar wheel loaders in the Asia Theater," said Rich Lavin, vice president of operations for Caterpillar's asia pacific division. " This site offers Caterpillar a business-friendly environment with excellent access to port and ground transportation facilities, established suppliers and great people."
Caterpillar operates 13 China-based facilities which manufacture products including: hydraulic excavators, track-type tractors, motor graders and paving products, large diesel engines used primarily for marine and power generation applications and generator sets for use in China and the Asia Pacific region. Caterpillar also manufactures components at several facilities in China. In addition, Caterpillar holds a minority stake in Shandong SEM Machinery Co., Ltd. (SEM), one of China's leading wheel loader manufacturers.
In the 1980s, Caterpillar launched technology transfer agreements with Chinese manufacturers who began building Caterpillar licensed products. Caterpillar's expansion in China accelerated in the early 1990s with the establishment of a more significant local production strategy.
Jupiter to launch China fund for Ehrmann
August 11th, 2006By Margaret Taylor
Jupiter is to launch a China equity fund by the end of the year, to be run by former Gartmore manager Philip Ehrmann.
Ehrmann, who left Gartmore following its management buyout partnership with Hellman & Friedman in May, is to join the firm in October and, subject to regulatory approval, the portfolio will launch thereafter.
At Gartmore Ehrmann was head of Pacific and emerging markets and, among other managerial roles, was lead manager on the firm’s China Opportunities fund.
China VC Gold Rush Continues
August 11th, 2006Report on VC investment in China in first half of 2006 sees more money chasing deals.
July 12, 2006
Beijing—Venture investment in China in the first half of 2006 nearly doubled to $772 million compared to the same period in 2005, according to a new report.
The report, released by Zero2IPO, a Beijing-based venture capital research firm, at the China Venture Capital Semi-Annual Forum 2006 on Tuesday, found that 121 Chinese firms received venture investments, an increase from the first half of 2005 by 49 percent.
The number of firms, however, also represents a 17 percent decline from the 147 firms that landed venture funding in the second half of last year. Still, total venture investment has risen 5.4 percent over the second half of 2005.
“Valuations are up, and the average deal size is now $6.2 million, up from $4.2 million last year—an increase of almost 50 percent,” said Zero2IPO CEO Gavin Ni.
But Mr. Ni called this trend a “low-grade fever,” not a clear valuation bubble.
‘Things may get even hotter.’
-Rocky Lee,
Eleven new China-focused funds were raised during the first half of the year, with an average fund size of $90 million.
Non-Chinese funds continued to dominate, with 71 percent of projects funded by non-Chinese venture firms. Eight-five percent of total venture investment came from dollar-denominated funds.
The Lion’s Share
IT firms continued to win the lion’s share of funding with 84 IT companies receiving $562 million in venture backing in the first half of the year, representing 69 percent of the total number of venture-invested firms and 73 percent of the investment dollars.
The Internet sector in particular attracted the largest number of investments and greatest total amount of venture funding. Thirty-nine Internet companies were funded in the first half of the year, with $276 million dollars invested.
“During the first and second quarters, we saw some very aggressive plays by investors, especially in the web 2.0 space, with high valuations that some of the VCs are now having second thoughts about,” said Rocky Lee, a Beijing-based venture and private equity attorney at DLA Piper Rudnick Gray Cary.
“There seems to be a return to a focus on business models, revenue models, and other fundamentals,” he added.
Telecommunications followed IT, with 18 projects receiving $152 million. Eleven integrated circuit companies drew a total of $50 million, and seven software companies were funded for a total of $42 million, the report said.
“This was something of a surprise to me,” said Mr. Ni. “I had anticipated that there would be more non-TMT [technology, media, and telecommunications] deals in the first half. But the non-TMT deals tend to take longer, and we expect they will make up a greater percentage in the second half.”
Beijing Leads Shanghai
Beijing-based firms accounted for 51 percent of the received investment dollars and 40 percent of funded companies. Shanghai trailed with 20 percent of the investment dollars and 29 percent of the companies.
Fifty-eight firms—69 percent of firms attracting funding—were early-stage startups, pulling in a total of $241 million for an average of $4.1 million per project, said Mr. Ni.
Rules issued by China’s State Administration of Foreign Exchange (SAFE) in April and July scared off overseas venture investors in the first half of 2005. But with the repeal of the SAFE regulations in October, VC money gushed back in.
“A number of VCs are doing larger and larger deals,” said Mr. Lee. “This might be driven by higher valuations, or it might be because the target companies have to have larger war chests in this increasingly competitive environment.”
“In the second quarter alone, we closed eight venture deals,” said Mr. Lee. “We helped deploy almost $100 million in that quarter alone.” With new opportunities related to third generation (3G) applications now heating up, he added, “things may get even hotter.”
ArvinMeritor To Establish New Manufacturing Facility In China
August 11th, 2006SHANGHAI, China, Aug. 7 /PRNewswire/ -- ArvinMeritor, Inc. (NYSE: ARM) today announced it will open a new wholly-owned operation in Wuxi, Jiangsu Province, China. The 300,000 sq. ft. facility will initially manufacture trailer axles and suspensions for key trailer manufacturers in China, as well as for export of components to North American and European plants. The company's board of directors approved the investment in the new facility.
Production is estimated to begin in the first half of 2007.
Other drivetrain and brake components will be added to the operation's portfolio, as the company continues to pursue its strategic enterprise model.
"As the country's infrastructure improves, tractor-trailer configurations are expected to rise exponentially, and we will be ready to support both current and future market needs with advanced technology," said Sergio Carvalho, vice president and general manager of ArvinMeritor's Trailer Products and Suspensions business.
Investment in the Wuxi operation will include $35 million for new equipment.
The company has identified local sourcing for its components, which furthers its integrated manufacturing strategy to bring all aspects of the supply chain within close proximity of the facility.
Background
ArvinMeritor is the worldwide market leader for trailer axles and plans to become a major player in China's growing trailer undercarriage market.
Today, the company has four Commercial Vehicle Systems (CVS) manufacturing facilities in China, with one being wholly-owned and the remaining three operating as joint venture partnerships. These locations assemble or produce axles, brakes and related components for medium- and heavy-duty trucks, off- highway and bus and coach markets, in addition to the aftermarket. All products are produced for export or are supplied to leading vehicle manufacturers in China.
ArvinMeritor, Inc. is a premier global supplier of a broad range of integrated systems, modules and components to the motor vehicle industry. The company serves light vehicle, commercial truck, trailer and specialty original equipment manufacturers and certain aftermarkets. Headquartered in Troy, Mich., ArvinMeritor employs approximately 29,000 people at more than 120 manufacturing facilities in 25 countries. ArvinMeritor common stock is traded on the New York Stock Exchange under the ticker symbol ARM. For more information, visit the company's Web site at: http://www.arvinmeritor.com.
Web site: http://www.arvinmeritor.com//
Expected Flood of Chinese Funds Flowing Offshore May Be a Trickle
August 5th, 2006BEIJING -- When China announced in April it was easing its strict foreign-exchange rules to allow individuals and companies to invest offshore, markets in Hong Kong and other parts of Asia sensed quick profits.
Reality is starting to disappoint. In the past week, Industrial & Commercial Bank of China and Bank of China launched the first products through which Chinese savers will be allowed to access global markets. But now analysts don't expect more than a trickle of money from China anytime soon. That is bad news for any bulls anticipating a near-term boost to Chinese stocks listed in Hong Kong, which would be the natural first destination for Chinese-mainland funds chasing higher returns.
April's announcement that Chinese authorities had approved outbound fund flows under the long-awaited Qualified Domestic Institutional Investment, or QDII, system looked like an obvious boost for regional markets, particularly Hong Kong. China has some $4 trillion in savings, about half owned by individuals and half by companies, and most of it sits idly in banks collecting paltry interest. Companies like China Eastern Airlines and Sinopec Yizheng Chemical Fibre seemed like they could be the biggest beneficiaries, since their Hong Kong shares trade more cheaply than a separate class of their shares listed in Shanghai -- making the Hong Kong shares a natural arbitrage play for mainland investors.
In the longer term, that pattern may yet play out. But the QDII system is both cumbersome and costly -- making any quick expansion of the program unlikely.
The QDII system offers foreign-exchange quotas to approved banks, insurance companies and asset-management firms for overseas investment. But to protect novice investors, banks and insurers that control the bulk of China's savings will only be allowed to offer customers products that invest in fixed-interest instruments, like bonds, instead of more volatile equities. Asset-management companies will be free to offer equity funds -- but to selected clients, not the general public.
Heavy-handed regulation is likely to limit the Chinese public's interest in QDII investments, analysts say. The impact on global bond and equity markets of QDII outflows will be "virtually negligible" said Hong Kong-based HSBC analyst Zhi Ming Zhang in a research report last month.
One problem for banks offering QDII products is that they must contend with requirements that they give full protection to clients against currency risks that arise when they convert savings in yuan into foreign currency. This adds to the expense of running the funds -- and limits the range of products banks can sell, since no yuan hedging tools are available to cover currency risks on products with long maturities, like 10-year U.S. Treasury bills.
The Industrial & Commercial Bank of China's first QDII product, which went on sale Monday, will invest mainly in money-market notes with a six-month maturity. It promises investors returns of 3% to 7%.
Impediments aside, the hefty size of the first QDII quota allocations surprised many analysts -- a total of $4.8 billion was divided between Industrial & Commercial Bank of China, which received $2 billion; Bank of China, with $2.5 billion; and Hong Kong-based Bank of East Asia, with $300 million.
Kinger Lau, a Hong Kong-based Goldman Sachs analyst, says he expects Beijing will expand the quotas to $10 billion this year and says that "long term, it's very positive news" for the Hong Kong stock market. Mr. Lau says an obvious QDII winner will be Hong Kong Exchanges & Clearing, the listed holding company of the Hong Kong stock and futures exchanges, which will benefit from rising turnover. Hong Kong Exchanges' shares closed trading yesterday at 50.20 Hong Kong dollars (US$6.46), up about 56% since the start of the year, although off highs in May of about HK$65.
Morgan Stanley analyst Jerry Lou argues that in time there could be upside for Hong Kong-listed firms in sectors that are under-represented on mainland bourses, such as banking, insurance and telecommunications.
There are plenty of other head winds for outbound portfolio investments from China. For a start, China's own equity markets look enticing again after a long slump. The Shanghai index is up almost 40% since the start of this year. Among the star performers: Beijing-based Citic Securities has surged 160%, and car maker Shanghai Automotive is up more than 70%.
There also are strong incentives to keep savings in yuan amid expectations that Beijing will be forced to allow faster currency appreciation to narrow its huge trade surpluses, which are causing friction with the U.S. The few Chinese companies allowed to hold foreign exchange offshore for investment have been pulling their money back home. Shanghai-based Bank of Communications has repatriated all of the proceeds of its $2.2 billion stock-market listing in Hong Kong last year.
Wang Jizhou, a professor at the Capital University of Economics & Business in Beijing, says right now "money would rather stay in China." QDII, Mr. Wang argues, "is more meaningful in political terms than in economic ones" because it signals China's willingness to start draining its vast foreign-exchange reserves. The reserves, which stand at $941 billion, draw attention to China's politically sensitive trade surpluses.
China's Rise as Auto-Parts Power Reflects New Manufacturing Edge
August 5th, 2006BEIJING -- Raising the bar for competitors around the world, China is shifting its manufacturing resources to increasingly sophisticated goods, as shown by its rapid emergence as a global powerhouse in the auto-parts industry.
Just a few years ago, Chinese-made automotive components were plagued by a reputation for poor quality, and often cost more than U.S. or German parts. Detractors said the precision engineering required for the best parts was beyond the reach of inexperienced Chinese companies and their low-cost workers.
Last year, however, China for the first time exported more parts than its fast-growing auto industry purchased from abroad. Quality has improved so much that major Western auto makers like Volkswagen AG and DaimlerChrysler AG say they plan in coming years to buy billions of dollars of Chinese-made components -- such as brakes, fuel pumps, wheels and steering systems.
Those gains show how China continues to evolve as a manufacturer, posing new challenges for rivals in the U.S., Europe and Japan. After earning its stripes as a maker of simple consumer goods, such as furniture and textiles, China has branched out, quickly coming to dominate more labor-intensive parts of the consumer-electronics business, such as computer assembly, and moving into a broader range of industries.
The country's production of machinery and transportation equipment has surged, and export of those goods -- which range from auto parts to forklifts to vacuum cleaners -- totaled $352 billion last year, a fourfold increase from 2000.
Meanwhile, motor-vehicle production here has nearly tripled, and China is on pace to overtake Germany as the world's third-biggest auto maker. It has become the world's second-largest car market in terms of sales as millions of Chinese buy cars for the first time. Millions more are expected to do so as their incomes rise and car prices fall.
Now, "China competes in the entire range of products from telecom equipment to textiles," says Hafiz Pasha, director of the United Nations Development Program's Asia bureau.
The transition comes at a sensitive time for the U.S. and Europe, which have been finding it harder to hold on to high-paying manufacturing jobs. Employment in the U.S. auto-parts industry fell to about 644,000 in 2004 from about 721,000 in 2002, according to government figures.
More job losses could be on the way: Some major U.S. parts makers -- including Delphi Corp., which has plants in China -- have sought bankruptcy-court protection. And small and midsize suppliers, which often don't have the resources to set up lower-cost operations abroad, are facing growing pressure.
"In the past two years, Chinese bids for auto-parts orders have driven customer price targets to a level below our costs on some products," said Larry Denton, chairman and chief executive of Rochester Hills, Mich., parts maker Dura Automotive Systems Inc., at a recent government hearing in the U.S.
U.S. parts makers have also raised concerns about their access to the huge Chinese market. Earlier this year, the U.S. joined the European Union in asking the World Trade Organization to overturn a Chinese tariff policy that the two trading partners say discourages imports of auto parts.
China says the policy, introduced in 2005, is designed to prevent tariff fraud. It imposes additional tariffs on auto parts that exceed certain thresholds in terms of value or number of components. China says the idea is to discourage anyone who might seek to circumvent its auto tariffs by importing dismantled vehicles at the lower tariff rate that applies to parts and reassembling them in China.
The growth of the Chinese parts industry comes as manufacturers here increasingly grapple with rising wages and higher energy and raw-materials costs. In China's booming coastal areas, where many factories are located, land and labor are no longer as cheap and abundant as they once were, says Lü Tie, a scholar at the Institute of Industrial Economics in Beijing. Those areas "are now pretty close to the level of middle-income countries. Their comparative advantage is changing," he says.
With local wages on the rise, Chinese manufacturers are seeking to improve their efficiency and reduce their reliance on low-cost labor. They are increasingly churning out higher-value products such as auto parts and shifting away from traditional exports such as textiles and toys.
Some Western companies are reaping the benefits of China's quest for greater productivity. Rockwell Automation Inc., a Milwaukee maker of high-end equipment and software to run factories, said it has seen its China business grow by more than 30% a year since 2003.
"There is a misperception" about China, says Scott Summerville, Rockwell's president for Asia Pacific. While China still has a lot of labor-intensive manufacturing, he says, "there's a big push right now to make Chinese companies globally competitive. You can't do that just with cheap labor."
Rockwell is part of an influx of foreign money and expertise that has contributed to the improving quality of Chinese-made auto parts and other products. The world's biggest auto companies are also bulking up in China, looking for growth that is increasingly hard to come by in mature markets. They, in turn, often demand that their parts makers be able to supply them directly in China.
In recent months, such major Western auto-parts suppliers as Robert Bosch GmbH, of Stuttgart, Germany, and ArvinMeritor Inc., Troy, Mich., have made significant investments in Chinese factories that can make parts for the local market as well as for export.
The higher standards that global companies have introduced, combined with the international growth of local auto-parts makers like Wanxiang Group, has spurred innovation. To gain access to more customers and better technology, Wanxiang has bought several U.S. companies and has expressed interest in buying some assets from Delphi. It says its sales have been growing an average of 26% a year and reached 25.2 billion yuan, or about $3.15 billion, in 2005.
Smaller Chinese companies are also climbing the technology ladder. Huaxiang Group, based in the coastal city of Ningbo, started out in 1982 making plastic caps for medicine bottles. Now it makes molded plastics for auto interiors. Though it has been supplying VW's China operations, about 20% of its 2005 revenue of 2.25 million yuan came from exports, says Xu Peiqi, who runs the office of the board of directors. Huaxiang opened an office in May in VW's hometown of Wolfsburg, Germany.
"The companies are very focused on exports," says Huang Xiaohua, secretary general of the Auto Parts Industry Association of Ningbo. "Products are going up-market," as local manufacturers are increasingly becoming first-tier and second-tier suppliers for the major auto makers, he says.
"When we started exporting in 1997, people argued that you couldn't make" auto parts cheaper in China, says Jack Perkowski, chief executive of Beijing-based parts maker Asimco Technologies Ltd. "People also argued that China would never be a large car market."
Now, he says, "the conventional wisdom is that China can copy but not create. That's going to go too."
Joint ventures give China edge
June 18th, 2006By LARRY RINGLER Tribune Chronicle
YOUNGSTOWN — It’s well known that China is quickly becoming the world’s manufacturing center.
It might not be as obvious that it’s also closing the gap in research and development, which someday will be the seed corn of China’s homegrown manufacturing base.
That’s why two area business and labor leaders say it’s important to tap the skills of U.S. engineers, production experts and other skilled workers who face losing their job at shrinking American companies.
Think Warren-based auto parts maker Delphi Packard Electric. John Russo and Jim Cossler certainly are.
‘‘Delphi is in the forefront of making components for wiring harnesses. They could leave their technology in joint ventures that aren’t competition to them,’’ said Russo, codirector of Youngstown State University’s Center for Working Class Studies in Youngstown and a recent visitor to China.
Delphi Packard has a proven ability to generate patents. The Community of Science database of patents for the Warren-Youngstown area lists the Delphi Corp. division with 82 patents from 2000 to 2004 — more than the next seven companies combined.
Such brainpower is needed to keep pace with China, which is getting technology from joint ventures with Delphi, General Motors Corp. and other U.S. companies that are jockeying for a piece of the burgeoning market.
Russo got a sense of China’s meteoric growth as he recently visited Nanjing in eastern central China and Shanghai on China’s eastern coast.
Delphi Corp., he said, is investing $50 million to employ 1,500 Chinese engineers by 2009. The knowledge the Chinese glean from Delphi likely will help fledgling Chinese car companies such as Geeley Holding Co. and Chery Automobile Co. to export cars to the U.S., he said.
Chery, which is China’s largest car company, could start shipping vehicles to the United States by 2009, especially if it gets a $200 million investment from billionaire investor George Soros. Auto industry trade paper Automotive News carried a story last week that Soros may pump that much into Chery to help the company begin exports.
Russo noted Chinese automakers such as Chery, Geeley and Brilliance Automobile Corp. that make their own vehicles can export them. Shanghai GM, a joint venture with General Motors Corp., and other such collaborations can’t export their products.
China has encouraged joint ventures because the country lacked the technical expertise needed to design and build vehicles. Joint ventures also allowed vehicles to be made more cheaply because the Chinese company didn’t need to develop its own research and development, Russo said.
The same American technology that China covets would be valuable in the Mahoning Valley, Russo and Cossler said.
Cossler, whose Youngstown Business Incubator includes fast-growing software company Turning Technologies Inc., said he was ‘‘stunned’’ when he saw some of Delphi’s software.
‘‘I’m sure they don’t want rivals to have it, but we see it as of tremendous interest to any company that does business in electrical controls,’’ he said.
‘‘Delphi always focuses on making their plants as efficient as possible,’’ Cossler added. ‘‘We’d love to work with Delphi to examine the intellectual property they use. If they’re laying off some engineers, we’d like to help those engineers start new technology companies in the Mahoning Valley.’’
Delphi Packard’s parent, Troy, Mich.-based Delphi Corp., filed for Chapter 11 bankruptcy reorganization last October. Deep wage and job cuts for hourly workers have garnered most of the headlines, but the company also plans to shed *thousands* of engineering and other white-collar jobs.
Cossler and Russo noted Delphi holds the patents on inventions and processes developed by its employees. The division is a world leader in designing and building complex wiring harnesses that most often are used in vehicles to power the growing array of electronic devices, but which also could be used in computers, appliances and medical equipment.
They believe that by licensing the technology or forming a joint venture with a startup company, Delphi could benefit as the new company explores different markets for the product or process.
‘‘Our suggestion,’’ Cossler said, ‘‘is to take the training and experience of those workers and think electrical controls outside (Delphi’s) vertical markets.
‘‘We need innovative ways to work with Delphi on new technology that they may not even recognize,’’ he added.
Delphi Packard is well aware of the role its technology could play in local startup companies. The division held discussions last year about what role it might play in the incubator program but no talks have been held lately, spokeswoman Ann Cornell Vickers said.
‘‘The incubator is Ö a great idea for the area,’’ she said, ‘‘but we’re a company in bankruptcy, so we’re not able to enter into funding development of other companies. We need to focus on getting this company turned around.’’
Delphi Packard already has a number of agreements to license its technology, Cornell Vickers said, adding, ‘‘We’d certainly entertain discussions with the incubator.’’
She said she didn’t know the terms to which departing engineers would have to agree, such as promising not to develop products that would compete with Delphi Packard.
‘‘The particulars would have to be done in private discussions,’’ she said.
Cornell Vickers said Delphi Packard also has a number of engineers and other workers who can either retire or who are close to retiring. The company has announced its intention to trim its salaried work force globally, but no plan has been communicated to workers.
‘‘Everything right now is at the choice level’’ as to whether a salaried worker will decide to retire or leave, she said.
‘‘We’ve had some excellent engineers leave and go to work at universities. They may consider taking some of their expertise and parlay that into a development at the incubator or other companies,’’ she said. ‘‘Their knowledge doesn’t end just because they retire.’’
China firms struggle to find top talent.
May 7th, 2006Increased FDI, the relatively small pool of locally-experienced talent and a growing trend in salary package inflation are the most common complaints of companies struggling to hire suitable staff in China, research by the recruitment group, Antal International has found.
More than half of the companies in China questioned are being held back by problems recruiting quality staff, according to the latest China Market Survey conducted by global recruitment firm, Antal International. Most of the 500 company managers who were questioned in the bi-annual survey believe their operation is being held back by a combination of increased competition for candidates caused by more new entrants to the market, fast-rising packages as companies offer more to attract staff and a concern at the size of the experienced talent market given the number of middle to senior vacancies on offer.
Academic qualifications are less of a concern; most candidates are highly educated with just ten percent of managers showing this as an area of concern. What mattered more to the overwhelming majority was the shortage of people with local market or regional experience as a reason for being unable to find the right person to fill a vacancy. “The fact that over 50% of companies in China are struggling to recruit using their own methods at the management level is a great concern to new market entrants and those players already here,” said Robert Parkinson, head of Antal’s Asia region. “There are so many other intellectual property, licensing, regulatory, cultural, and other important issues for business managers to deal with today that this adds greatly to their already crowded agenda” said Parkinson.
While over-fishing in the talent pool has exacerbated the shortage of experienced people, the competition for staff has led to increased wage inflation with people moving roles more frequently as increasingly higher packages are offered to tempt them. Added to this, the risks associated with hiring the wrong people; especially in a place like China make it a minefield, particularly at a time when growth and opportunity is at stake. Some companies are looking for Chinese staff in Europe, USA and wider Asia and bringing them back to fill the gaps. Having an international reach into other markets to cover domestic market issues like staffing is now a key aspect to success in China.
The research found that the Media & PR, Technology & Telecommunications and FMCG sectors were most affected by skills shortages, with 59% of companies reporting trouble finding suitable candidates without resorting to external solution providers such as Antal. This was followed by Shipping and Transport with 51% reporting hiring issues as their market expanded.
Functionally, experienced Marketing and Sales skills, across a broad range of industries, far outweighed the rest as the area with the most scarcity but was closely followed by Accountancy and Finance. In freight and transport, Chartering and broking skills were in high demand.
Geographically, businesses in the major cities reported the most difficulties with Shanghai and Guangzhou in third and fourth place. Beijing and nearby cities in the north were the worst hit, with 63% of companies saying they struggled to recruit adequately experienced staff on time without enlisting the help of external recruiters.
Robert Parkinson, who has seen his own business grow four fold in headcount in the last 12 months, sympathised with the findings. “It is difficult to find the right people on your own or using only a single sourcing methodology such as the web as it exposes you to those who may just be after an increase. It also has an effect on the amount of management time spent in sifting and hiring. This is why our clients use us as we can scour the market more thoroughly and use a combination of methods to find the best people for them. Additionally our in-depth screening and matching process identifies traits that might be a warning of candidates who job-hop from package to package.
Baxter Announces Investment of $60 Million to Expand Manufacturing Capacity in China
April 14th, 2006DEERFIELD, Ill., March 22 /PRNewswire-FirstCall/ -- Baxter International Inc. announced today plans to invest approximately $60 million over the next five years to expand production capacity at its four manufacturing facilities in China to support sales growth in the company's Medication Delivery and Renal businesses. Baxter's sales in China, which were approximately $100 million in 2005, are expected to more than double by 2010, given the anticipated increase in demand for the company's intravenous solutions (IV) and peritoneal dialysis (PD) products.
"This investment symbolizes Baxter's strong commitment to meeting local needs for critical products and advancing healthcare in China and across the Asia Pacific region," said Peter J. Arduini, president of Baxter's Medication Delivery business. "It also underscores the importance of this key market in Baxter's continuing geographic expansion and growth."
Baxter provides hospitals throughout China with a range of intravenous solutions and specialty products that are used in combination for fluid replenishment, general anesthesia, nutrition therapy, pain management, antibiotic therapy and chemotherapy. The company also serves a growing population of patients within the country with products and services to treat end-stage kidney disease.
In addition to four manufacturing facilities in China, Baxter operates seven others in countries across the Asia Pacific region, including India, Japan, Singapore, Australia and the Philippines.
"In the last year and a half, Baxter has significantly strengthened its regional presence, including the recent opening of the company's new Asia Pacific headquarters in Shanghai," said Gerald Lema, president of Baxter Asia Pacific. "Baxter's new regional focus positions the company well to meet the growing healthcare needs of patients across the region."
Baxter International Inc., through its subsidiaries, assists healthcare professionals and their patients with the treatment of complex medical conditions, including cancer, hemophilia, immune disorders, kidney disease and trauma. The company applies its expertise in medical devices, pharmaceuticals and biotechnology to make a meaningful difference in patients' lives.
This release includes forward-looking statements concerning investment and sales growth in China. The statements are based on assumptions about many important factors, including the following, which could cause actual results to differ materially from those in the forward-looking statements: the continuing development of demand for company products in China, competitive market dynamics, local regulatory requirements with respect to products and investment, and other risks identified in the company's most recent filing on Form 10-K and other SEC filings, all of which are available on the company's web site. The company does not undertake to update its forward-looking statements.
Baxter International Inc.
CONTACT: Media Contacts, Deborah Spak, +1-847-948-2349, or Tom Kline,+1-847-948-2251, or Investor Contacts, Mary Kay Ladone, +1-847-948-3371, orClare Sullivan, +1-847-948-3085, all of Baxter International Inc.
Web site: http://www.baxter.com/
QUALCOMM Makes Investment In China
April 14th, 2006Wednesday, March 22, 2006
Qualcomm today announced in Shanghai that it is working with China TechFaith Wireless Communications Technology (TechFaith) to create a new Chinese firm, TechSoft. Qualcomm and TechFaith will invest up to $35M to found TechSoft, a new company focused on developing application software for wireless devices. The investment by Qualcomm is part of a $100M effort the firm announced in 2003 to invest in early- to mid-stage Chinese companies building CDMA-based products. TechFaith is a handset application software provider based in China.
Corning Announces $15 Million Investment to Expand Emissions-Control Manufacturing Plant in China
April 14th, 2006Company Cites Growing Global Demand for Clean-Air Products for Passenger Cars
CORNING, NY - March 29, 2006: Corning Incorporated announced today that its board of directors recently approved a capital expenditure of approximately $15 million to expand the manufacturing capabilities for clean-air products at Corning Shanghai Company, Ltd. (CSCL) in Shanghai, China.
This investment will increase the manufacturing capability of the facility to meet anticipated demand for Corning advanced ceramic substrates for light-duty vehicle applications. Corning advanced ceramic substrates include thin-wall products that deliver higher performance for emission reductions. The expansion is expected to be fully operational by mid-2007.
"The tightening of emissions standards in Asia and around the world continues to drive demand for Corning clean-air products," said Thomas Appelt, vice president and general manager, Corning Automotive Technologies. "Through the expansion of our facility in China, we will be better able to supply clean-air products to our global customers, while still maintaining a strong presence in China."
"Corning is proud of its long history in China," said Curt Weinstein, general manager, CSCL. "We value our highly skilled, dedicated employees and the many relationships we have developed over the years. This additional investment in the facility is further proof of our commitment to the region."
In China, demand for cleaner vehicles is being driven by the Euro III and upcoming Euro IV regulations that will require lower emissions. Tighter global regulations, along with growth in the China economy, make China an attractive market for Corning.
CSCL, which is wholly owned by Corning Incorporated, is a state-of-the-art, high-tech emissions control substrate facility, that first began shipping product in early 2001. In addition to manufacturing advanced substrates, CSCL also includes sales, marketing and engineering operations that provide world-class service for Corning customers in China and throughout Asia.
Corning is a leading supplier of advanced catalytic converter substrates and particulate filters, supplying all of the world's major manufacturers of gasoline and diesel engines and vehicles. The company invented an economical, high-performance cellular ceramic substrate in the early 1970s that is now the standard for catalytic converters worldwide. Corning also developed the cellular ceramic particulate filter to remove soot from diesel engine emissions in 1978.
GE Real Estate Enters China With US $20 Million Investment in CITIC Capital Vanke China Property Development Fund
April 14th, 2006Wednesday March 22, 11:26 am ET
STAMFORD, Conn., March 22 /PRNewswire/ -- GE Real Estate today announced its first commercial real estate investment in China. GE will invest US $20 million and be the sole Strategic Investor in the newly formed CITIC Capital Vanke China Property Development Fund.
The Fund, together with China Vanke Co., Ltd., the largest publicly listed real estate developer in China, plans to invest a total of US $100-150MM in residential real estate assets in specified economically developed regions in China, including the Pearl River Delta Region, the Yangtze River Delta Region, the Pan Bohai Region and other selected inland cities.
The Fund will be managed by CITIC Capital, a member of the CITIC Group (CITIC), a Chinese transnational financial services conglomerate. China Vanke Co., Ltd. will be the exclusive development manager for all Fund investments. A CITIC group entity and China Vanke Co., Ltd. will also make a substantial capital commitment to the Fund. The Fund will be domiciled in the Cayman Islands and governed by Cayman Islands law.
Michael Pralle, President and CEO of GE Real Estate, commented, "The CITIC/Vanke China Property Development Fund is the ideal vehicle for entry, as we are partnering with two of the most reputable companies in China."
"Investing in residential properties is the right entry strategy, because it is the most robust and liquid commercial real estate segment in China. The value of this partnership exists in learning this market and establishing a confident presence in multiple business centers throughout China," noted Mark Hutchinson, President, GE Real Estate Asia-Pacific. "Also, as the sole strategic investor we have a right to further co-investment, giving us the potential to scale up the portfolio managed by this partnership significantly."
Pralle added, "Also, we will be exploring investment opportunities in other asset types throughout China, including retail, hotel, office and industrial properties. We have a pipeline of deals totaling several hundred million dollars which we will review as we move forward. We see great potential in China."
Following this transaction GE Commercial Finance Real Estate Asia-Pacific will have real estate investments and operations in Japan, South Korea, Australia, New Zealand, India and China.
Notes to editors:
About GE Real Estate
GE Real Estate (http://www.gerealestate.com) is a world leader in real estate capital. Formed in 1972, the business has more than $35 billion in core assets with 34 offices located throughout North America, Europe, Asia, and Australia/New Zealand. GE Commercial Finance Real Estate, backed by its parent company's AAA rating, offers a broad range of financing, equity and servicing solutions including: intermediate and long-term mortgage financing, restructuring and acquisition capital, niche equity investment/joint ventures, capital markets securitization and placements, and asset management. As one of the fastest growing units within GE Commercial Finance, Real Estate has experienced annual growth of more than 10% for the last ten consecutive years.
GE Commercial Finance (http://www.gecommercialfinance.com) offers businesses an extensive array of financial services and products worldwide. With approximately $217 billion in assets and an expertise in the mid-market, GE Commercial Finance provides loans, operating leases, financing programs and innovative structured capital to help customers grow. GE Commercial Finance is a wholly-owned subsidiary of the General Electric Company (NYSE: GE - News), a diversified services, technology and manufacturing company with operations worldwide.
Economists Say China Now Offering Promising Investment Opportunities
April 14th, 2006Tuesday March 21, 8:00 am ET
DENVER, March 21 /PRNewswire/ -- China's economic growth has stabilized and offers exceptional investment opportunities over the long term, according to research published by economist Burton Malkiel and others in the most recent issue of the Journal of Investment Consulting, the formal publication of the Investment Management Consultants Association (IMCA®).
In their paper, "Investment Strategies to Exploit Economic Growth in China," Malkiel and co-authors Jianping Mei and Rui Yang show why they expect China to enjoy economic growth rates well above those of the developed world.
They acknowledge, "returns from investments in Chinese equities have been unattractive for the past decade, and corruption and corporate governance issues, as well as a variety of restrictions, make direct investment in Chinese opportunities difficult."
However, the Chinese economy has turned a corner, they write, and China is becoming more appealing and less risky for investors. "Chinese equities are now attractively priced relative to their earnings, their historical valuations, and their growth rates, and ... some risks have been attenuated over time."
The authors say that they believe there is an excellent probability that the growth of the Chinese economy will continue to be "exceptionally rapid" over the decades to come. They back up their optimism with the following three observations:
1) The market economic institutions necessary for growth in China are
established and the country already has enjoyed years of success;
2) China's government is pragmatic and will continue to guide the
economic transformation of the economy; and
3) China is home to an abundance of underutilized human capital and
considerable savings, both of which are necessary to fuel growth.
Finally, the authors outline the potentials and risks of the various ways that investors can directly and indirectly take advantage of this promising forecast.
Malkiel, a long-time professor of economics at Princeton, is best known for his book, A Random Walk Down Wall Street. Mei, an expert in international asset pricing and real-asset finance, is a professor at New York University. Yang is deputy director of research for Boshi Fund Management in Shenzen, China.
The Journal of Investment Consulting is the formal publication of the Investment Management Consultants Association, the premier professional and accreditation organization of the investment consulting industry. For more information about IMCA and this issue of the Journal, visit www.imca.org.
Red Hot China Venture Capital Forum Strikes Reform Gong
April 8th, 2006China's venture capital's emerging industry has struck the gong for much needed reforms for domestic venture firms at the sell out China Venture Capital Forum now being held in Shenzhen with over 1000 attendees. Sure, this discussion does reaffirm the purpose of this blog to educate and inform more global investors on these prescient trends: China's policy drivers have full intentions to reform its nascent venture capital industry, liberalize the listing requirements for domestic startups and increase the available research and development funding for science parks.
According to an article in the Red Herring, "of the total of 183 Chinese venture-backed IPOs to date, 76 percent, or 143 were in foreign capital markets, and only 24 percent (4) were domestic claims the father of China's venture industry, Cheng Siwei, Vice Chairman of National People's Congress.
Siwei's keynote address was bolstered by the voice of Xu Guanhua, the Minister of Science & Technology, who also sounded a clarion call to the Communist Party to dramatically relax listing requirements for Chinese companies so they no longer have to go offshore.
Of course, there are many reasons for the short march of Chinese venture capital liberalization. Professor Haiyang Li, Assistant Professor at the Jesse H. Jones Graduate School of Management at Rice University commented on this trend in a recent e-mail to CVN.
"I believe that the rush of venture capital funds into China's technology industries is driven by two types of factors: domestic and international. From a domestic point of view, over the past 15 years, many Chinese technology firms have been growing very fast and they are facing "bottleneck" right now in terms of managerial capabilities, strategic market selection and financial support."
Many western investors believe that the increased entry of China venture capital funds might solve some of these problems.
The key point sounded at the opening day forum is China's ambitious goal to increase funding for research and development by 20010 to almost $112 billion. The view form both academics and industry watchers is that the Chinese government's mandate on proprietary innovation over the next decade sends a clear signal to the capital markets that China Inc. expects to see more technology entrepreneurship.
Expect to read here about a flood of deals to be announced over the course of the next few months.
http://www.chinaventurenews.com/50226711/red_hot_china_venture_capital_forum_strikes_reform_gong.php