Recruiting in China

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.

China, 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.

When living in Shanghai for quite some years, I did have a positive impress at Mr. Chen Liangyu, then vice-Mayor, mayor & later the city General Secretary of Party. Now when I am reading news titles from the subscribed RSS, I learned he was dismissed by being accused of violating discipline and law [links to Xinhua (in Chinese) or to BBC (in English)]. Snips of AP report seemly have other aspects of the case.

Shanghai is a bastion of Hu's predecessor, Jiang Zemin, and Chen's removal could be part of a strategy to weaken rivals in the collective leadership for Hu to better position himself and the allies he wants to maneuver into place.

Chen was viewed as a Jiang protege and therefore an ally in the former leader's attempts to wield influence even in retirement. He reportedly clashed with Premier Wen Jiabao over Beijing's efforts to cool economic growth, lobbying instead for ambitious infrastructure projects for China's wealthiest and most populous city.

"It's a serious warning to corrupt officials and to those who don't toe the party line," said Joseph Cheng, director of the Contemporary China Research Center at Hong Kong's City University.

Major reshuffles of local leaders are planned for many areas ahead of the congress, the Beijing-linked Hong Kong newspaper Wei Wei Po reported Monday. It said local leaders who have defied Beijing's economic policies would be singled out.

With his protector Jiang now descending into political obscurity, Chen could face a lengthy jail term or other harsh punishments.

"Sacking Chen shows that Jiang has no power to protect his proteges and is in no position to affect the choice of new leaders," said City University's Cheng.

Chen was last seen in public on Friday at a meeting of chief justices from China, Russia and four Central Asian states. Mayor Han also attended, but neither man spoke in public.

It was unclear what impact, if any, the scandal may have on Vice Premier Huang Ju, the most senior leader in the Shanghai faction and sixth-highest ranking Communist Party official.

Huang disappeared from the political scene early this year amid reports that he had cancer. But in recent months he has made a number of public appearances.

By 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.

SHANGHAI -- 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.

Jacob 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.