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Listen to MP3 “Business Beyond the Reef” to discuss the problems with imports from China, telling all sides of the story and then expand the discussion to revitalizing Chinatown - Special Guest: Johnson Choi, MBA, RFC. President - Hong Kong.China.Hawaii Chamber of Commerce (HKCHcc) and Danny Au, Manager, Bo Wah Trading

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	The U.S. Commercial Service in China offers valuable assistance to U.S. businesses exporting goods and services to China. Our trade specialists can help you identify trade opportunities and local trading partners from our Embassy in Beijing, our four consulates1 in Shanghai, Guangzhou, Chengdu and Shenyang and 14 newly emerging markets2. From these locations we can access all of China!
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	The AmCham-China White Paper: American Business in China

BRENDA FOSTER, PRESIDENT OF THE AMERICAN CHAMBER OF COMMERCE IN SHANGHAI; "An Update of the Business Climate in China" to the Hong Kong China Hawaii Chamber of Commerce (HKCHcc) at the Pacific Club 2/14/2008

Shanghai World Expo 2010 http://www.expo.cn http://en.expo2010.cn/ May 1 - Oct 31 2010 Share

Shanghai World Expo Pictures on Facebook http://www.facebook.com/album.php?aid=108961&id=562941983&l=d01c8a8eda

Thing to do in Shanghai by our Director Yen Chun http://www.hkchcc.org/shanghai.pdf - information deemed reliable but not guaranteed (the $ listed on the tour guide is Chinese $Yuan US$1 = 6.8 $Yuan) http://www.b2bchinadirect.com/shanghaibiz.htm

AmCham Shanghai launches latest Viewpoint - U.S. Export Competitiveness in China - on the 2010 Washington, D.C. Doorknock - Please download report in PDF format: http://www.hkchcc.org/viewpointusexport.pdf

成功之道武进制造 Wujin - Changzhou - Jiangsu Province - China http://www.hkchcc.org/wujin.htm

China President Hu Jintao USA State Visit January 19 - 21 2011 http://www.b2bchinadirect.com/hujintaousavisit.htm

USCBC Special Report: Hu Jintao State Visit

Happy Chinese New Year - Year of the Dragon - January 23 2012

Honolulu Chinatown - Year of the Dragon 2012 Lion Dance with Firework http://www.youtube.com/watch?v=-VoFfOglJuI

President Obama's Lunar New Year Message - Year of the Dragon http://www.youtube.com/watch?v=C6gfkYAo5gE

Under the Hawaii State Law "Asian Lunar New Year Commemoration Week" The one week period following the day of the Chinese New Year shall be known and designated as the "Asian Lunar New Year Week of Commemoration in Hawaii". This week is not and shall not be construed as a state holiday. [L 2007, c 48, §2] click for more details

January 29 2012 Share

China Eyed as Next Educational Frontier By Andrew Browne

'The way I explain it to my friends in the U.S. is that you cannot achieve 10% GDP growth per year by working a 35-hour week – even if you're as smart as the Chinese,' Mr. Quelch said. Above, the dean attended the Lujiazui Forum in Shanghai on May 20, 2011. Education: Exeter College, Oxford University (BA and MA), the Wharton School of the University of Pennsylvania (MBA), the Harvard School of Public Health (SM) and the Harvard Graduate School of Business Administration (DBA); Career: Harvard Business School, London Business School.

Breakneck economic growth has far outstripped the supply of management talent. Meanwhile, Chinese companies in both the private and state sectors are responding to government incentives to "Go Out" and compete against the best companies in the world—while juggling fierce competition, rapidly changing technology and shifting macro-economic forces at home.

No wonder some of the world's most prominent business schools are eyeing China as the next educational frontier.

China Europe International Business School got to China early. That gives it a head start in terms of faculty and facilities. Its new pitch: "China Depth Global Breadth," marrying insight into how China works with an international perspective that attracts students from China and around the world.

Dean John A. Quelch, a veteran of the Harvard Business School and London Business School, insists that despite economic turmoil in Europe, the CEIBS brand in China remains untarnished. "Germany is held in very high regard," he insists. Besides, he adds: "People in China take the long view."

Mr. Quelch talked with Andrew Browne in Shanghai. The following interview has been edited.

WSJ: Like everybody else in China, CEIBS seems to be investing massively in infrastructure. Tell us something about your expansion plans.

Mr. Quelch: The Shanghai campus will double in size by the end of 2013. We also have a campus that we opened in Beijing in 2010 and we currently have operations in Shenzhen that may convert into a fully fledged campus within the next two to three years.

We also have an appetite for going west, and looking at that hundred million people in the Chengdu-Xian-Chongqing triangle, who will eventually want their own business school and will not necessarily want—or be able—to fly to Beijing or Shanghai.

The reason why Stanford exists is because Harvard always thought that Californians would be happy to come east to Boston, and never imagined they'd want their own Harvard, a.k.a. Stanford.

WSJ: The No. 1 complaint of foreign companies in China is lack of management talent. Isn't that a huge opportunity for you?

Mr. Quelch: First of all, China's pace of expansion has outrun the speed with which managers can experientially develop themselves, and so our role is to be an accelerant. We take experienced or high-potential young managers, and we accelerate the speed with which they can assume more management and leadership responsibilities.

Second, because we cannot serve everybody—obviously—the admissions criteria that we apply and the rectitude of our admissions policies is extremely important to our overall economic impact.

WSJ: What's the mix of students between college graduates and mid-career managers?

Mr. Quelch: We focus on more senior executives even compared with a Harvard Business School. We graduate 1,000 people a year, roughly, 800 of them are executive MBAs; average age 40. The other 200 are MBAs; average age 30.

You have to have an extremely strong teaching faculty—very practical, very experienced—to be able to command the sustained attention and respect of 40-year-old business people.

We are the No.1 revenue-generating business school in executive education in Asia built around our unique ability to deliver both "China Depth and Global Breadth."

WSJ: How do the changes in the CEIBS syllabus over the years reflect the shifting dynamics of the Chinese economy?

Mr. Quelch: Initially the focus was on functional competency [in] finance, accounting and marketing etc. Now the emphasis is on integrated general management and problem-solving across functional silos. Teamwork and leadership in fast-growth markets are stressed in our curriculum.

WSJ: Lack of integrated management is said to be one of the weaknesses of many Chinese companies? Why is that?

Mr. Quelch: The main reason is that China is run by engineers [who] typically have strong skills in finance and accounting and economics, but with less developed skills in the areas of leadership, change management, marketing, to some extent strategy as well.

So the soft skills, as we refer to them in the States, are the ones which are underdeveloped in China. The hard skills are well-developed. And so our curriculum places considerable emphasis on overlaying soft skills on the foundation of hard skills that many students bring to the classroom.

WSJ: Isn't part of the problem that state-owned enterprises have many of the same kinds of rigid hierarchies that you have in the Communist Party?

Mr. Quelch: That may be the case. But there's one thing that I've discovered in China: no-one—and I'm talking about the state sector—gets promoted for breaking the rules, but no-one gets to the top if they just follow the rules. So there is an art in China to taking new initiatives but doing so in a manner that is not destabilizing.

WSJ: But can that system generate true innovation?

Mr. Quelch: I think you can, if you throw a considerable amount of money behind it. But certainly a major challenge in the state-owned sector is to achieve innovation.

In every country the public sector is different from the private sector, whether it's the U.K. or the U.S., there's an approach, a culture and a style that is different, norms that are different. But in China I think that the gap is wider, certainly than it is in the States, and it's almost a case of natural selection where people come to a fork in the road in China and either go to the state sector or to the private sector. And the mental mind-set associated with each is more substantially different than it is in the U.K. or the U.S.

The innovation in China is much more likely to be generated out of the private sector, even though the state sector is hugely well-endowed with resources that could fund innovation.

WSJ: What advice would you give to Chinese companies headed overseas?

Mr. Quelch: Chinese companies should not go abroad as Chinese companies. They should go abroad as companies with an important differentiated value offering that consumers will be happy to pay for—and the country of origin is irrelevant.

WSJ: When will we see the emergence of global Chinese brands?

Mr. Quelch: I think that Chinese companies will add value initially in the B-to-B (business-to-business) sector, not the B-to-C (business-to-consumer) sector. Many people in China are eagerly awaiting the day when the first truly global Chinese brand enters the top-10 ranking of the world's most valuable brands. I think that's probably at least a decade away.

But Chinese companies like Huawei, ZTE—these companies have extremely good technology and know how to invest in technology acquisitions and, increasingly, they are acquiring or hiring non-Chinese to help them become global players. Those are the companies that are likely to be at the forefront of Chinese value-added overseas. Yes, there will be a Lenovo, there'll be a Haier, there'll be a Geely—we'll all, as consumers, be interested in following the fortunes of these B-to-C companies, but I think the B-to-B space is where Chinese companies are really going to excel.

You look at Sany at the moment: it's a very promising long-term competitor to Caterpillar.

WSJ: You say that Chinese companies are increasingly hiring foreigners and becoming diverse. Can you give examples?

Mr. Quelch: If you go to the U.K. website of Huawei, you will find that it's all about Basingstoke. It's not about Huawei as the global brand; it's about Huawei as a company that is in Basingstoke.

This is where the Chinese are going to move faster than the Japanese because a major brake on Japanese global expansion ended up being the shortage of talented Japanese who were interested in, or linguistically able to, operate in international markets.

But the Chinese are much more outgoing, and perhaps because they're coming 30 years later there are many more millions of Chinese who are English-language capable.

My guess is that whereas when a Japanese company made an acquisition the foreign executives immediately hit the equivalent of a glass ceiling, in the case of foreigners in a Chinese company, it's going to be easier for them to move up the ranks.

What will really make a difference in that regard is reciprocity. If and when, for example, Sam Su of Yum Brands becomes the first Chinese CEO of a Fortune 500 company born in China then they will accept a free flow of non-Chinese executive talent throughout their organizations.

WSJ: What was the biggest surprise for you working in China?

Mr. Quelch: The biggest surprise is that there are no weekends in China. I've always been a very hard-working person, but I have been amazed at the degree to which on Saturdays and Sundays I find myself involved in professional activities.

The way I explain it to my friends in the U.S. is that you cannot achieve 10% GDP growth per year by working a 35-hour week – even if you're as smart as the Chinese.

I remember Jack Welch famously held meetings on Saturdays with his people. But I think for many Chinese this is an historic moment of opportunity – a once-in-a-lifetime, maybe a once-in-a-millennium moment in time that no one wants to waste. So many Chinese display a relentless resolution to work hard today for themselves, their families and a better China.

January 21 2012 Share

United States to streamline travel visas for Chinese

The United States is expected to simplify and quicken the process of visa applications for Chinese travelers, US President Barack Obama announced on Thursday as part of an initiative to boost tourism.

"Every year, tens of millions of tourists from all over the world come and visit America. And the more folks who visit America, the more Americans we get back to work," Obama said in the White House news release.

US President Barack Obama unveils a strategy aimed at boosting tourism and travel in front of Cinderella's Castle at Disney World's Magic Kingdom in Orlando January 19, 2012.

Emerging markets such as China, Brazil and India are specifically mentioned in his plan as tourists from the three countries contributed about $15 billion and thousands of jobs to the US economy in 2010.

The number of travelers from China is projected to grow by 135 percent by 2016 compared to 2010. Chinese tourists on average spend more than $6,000 per trip, according to the US Department of Commerce.

Under the initiative, the non-immigrant visa processing capacity in China will increase 40 percent this year and 80 percent of non-immigrant visa applicants will be interviewed within three weeks of receiving the application.
Charles Bennett, minister counselor for consular affairs of the US embassy in Beijing, told China Daily earlier that 50 more American staff members will be deployed to the embassy and US consulates in China this year.

In addition, more interview windows and buildings will be built and the embassy is considering allowing people to arrange an interview date as early as two days after he applied, he said.

He said that nearly 90 percent of the Chinese applicants will be issued a visa in 2012, a figure that has seen steady growth in the past decade.

Walt Disney CEO Robert Iger told CNBC on Thursday he supports the effort to streamline applications for tourist visas.

People from Brazil, India and China in particular "have the wherewithal to travel to the US and have a growing desire to do so", Iger said. "So if you can make it easier to come, it's a big deal."

"Obviously the international tourist is very valuable to us, because they tend to stay longer and spend more money," Iger said.

Many US travel associations believe that the US has some catching up to do in improving its visa policy and travel services for Chinese travelers.

The State Department has quickened the process of non-immigrant visas in China in recent years, handling more than 1 million visa applications in 2011, an increase of 34 percent from the previous year.

Sylvia Dai, an employee at a Beijing-based Japanese auto company, said it was too difficult and took too long to get a US visa even though she was invited and guaranteed by her company's US branch.

"I went on business to the US twice, in 2006 and 2010. But I had to wait in line for a long time, about five hours," Dai said.

Jin Canrong, deputy dean of the School of International Studies at Renmin University of China in Beijing, said the US initiative is a "smart" one as it creates a new engine for the US to recover from its economic difficulties.

"The growth potential of emerging markets such as China and Brazil is huge, so focusing on attracting tourists from China and Brazil is just an easy choice to make," he said.

January 20 2012 Share

Dragon dance - China enters the Year of the Dragon in a stronger position to withstand economic shocks from the outside world than before the financial crisis in 2008 By Andrew Moody

Just over three years ago, China was heavily dependent on exports and lost 30 percent of its markets in a matter of weeks.

As we enter the Chinese New Year on Jan 23, the world's second largest economy - which grew by 9.2 percent in the last 12 months, according to the latest official figures - would be more resilient to a deepening eurozone crisis or a double-dip recession in the United States.

The economy is now more broadly balanced and less dependent on the export of inexpensive manufactured goods.

Donna Kwok, the Hong Kong-based China economist at HSBC, is confident GDP growth will hit 8.6 percent this year.
She says net exports (the difference between exports and imports) are now just between 2 and 3 percent of China's GDP, compared with 8 percent in 2007.

"We estimated that over the last year, net exports contributed next to nothing to headline GDP growth. Most of the growth has been internally generated," she says.

"Private household spending, public spending investment now make a much more significant contribution."

London-based Jonathan Fenby, director of China research at Trusted Sources, the emerging markets research service, and also author of the upcoming book Tiger Head, Snake Tails, says the China economy has moved on significantly in a short period of time.

"The trade effect on China's growth is certainly less than in the middle of the last decade going into the 2008 downturn," he says.

"If Europe goes into serious negative growth of 2 to 3 percent, it might result in China's growth slowing by just half a point to 7.5 percent. Exports contribute less to GDP growth than they did in 2007."

The situation in Europe and the prospect of a Greek default and exit from the euro was one of the factors that spooked the financial markets in China as well as the rest of the world in 2011.

The Shanghai Composite Index, China's main stock market indicator, fell 21.68 percent in the 12 months to the end of December - the third-largest drop ever in a single year but not as severe as the 65.39 percent slump in 2008 - but has rallied in the opening weeks of 2012.

Kwok at HSBC says it would be turmoil in the financial markets as a result of a euro collapse that would have the biggest impact on China, rather than anything to do with trade.

"The turbulence in global financial markets could potentially spill over into the real economy, not only in Europe and the United States but also in Asia," she says.

"I think this is where the major risk lies with the European sovereign debt crisis."

Some believe the euro crisis will become significantly more serious in 2012 and will risk dragging the world economy into recession.

The buoyant mood of the markets in the opening weeks of this year have been interrupted just once when ratings agency Standard & Poor's downgraded nine eurozone countries, even stripping France of its prized triple-A rating, on Jan 13.

Derek Han, chairman of North Square Blue Oak, a research and investment company with offices in Beijing and London, believes we are in for major drama in the first three months of the year.

"I think in the first quarter, we are going to get into a very difficult situation in Europe. It is not a question of whether there is going to be a default or a break-up but what kind. I believe the euro is unsustainable and it will come apart. It is an unthinkable mess," he says.

Han, who lives in Florida, says China will be unable to escape the ramifications of this.

"China is already seeing a slowdown of European imports of Chinese goods but they are soon going to stop dramatically. China's growth will certainly slow in the first quarter depending on what happens and how messy the default is."

The Chinese economy faced a number of key challenges in 2011 including rising prices, particularly of food which rose 9.1 percent in the year to December, and unprecedented levels of local government debt, which until the eurozone came along was one of the major international financial stories.

Inflation as measured by the consumer price index (CPI) reached a high of 6.5 percent in July but as a result of government monetary tightening measures had fallen to 4.1 percent in December, according to the National Bureau of Statistics. For the full year, it was down to 5.4 percent.

Many economists now expect further loosening of the bank's reserve requirement ratio (RRR) in the first half of the year - allowing more credit back into the banking system - and then for interest rates to start being cut in the second half of the year.

Wang Jianmao, professor of economics at the China Europe International Business School (CEIBS) in Shanghai, worries the government has not quite put the inflation genie back in the bottle and cautions about loosening monetary policy.

He believes if the government pursues a policy of relaxing the RRR, it should actually also raise interest rates as a precaution.

"I think any lowering of the Triple R and an increase in interest rates would be a very bad combination. I think the government needs to increase interest rates at the same time so we don't have a problem with inflation," he says.

Duncan Innes-Ker, senior economist for the Economist Intelligence Unit and a China analyst, also sees the danger of inflation rising at the end of 2012 but anticipates the government's anti-inflation measures to have the biggest impact in the early part of the year.

"We are expecting inflation to average around 3.5 percent in 2012, although it will probably be heading back above 4 percent year-on-year by December," he says.

Kwok at HSBC expects the government to go full steam ahead with a 0.25 percent interest rate reduction some time in the second half of the year after further reductions in the RRR.

"We will see three more Triple R cuts by the end of June and once inflation comes down below 3 percent, we shall see the first 25 basis points interest rate cut. We are only anticipating one this year."

The National Audit Office, China's leading auditor, revealed in June that municipal authorities had borrowed some 10.7 trillion yuan ($1.68 trillion, 1.33 trillion euros) in 2010, around a quarter of China's GDP.

Much of this expenditure was on infrastructure projects using the 4 trillion yuan of cash the central government had pumped into the economy in the wake of the 2008 economic crisis.

Many economists felt at the time this represented wasteful spending and could considerably slow China's juggernaut growth rate in the medium term.

Wang at CEIBs believes 2011 may prove a turning point and that this year any planned infrastructure project will come under much greater scrutiny.

"There is a need to spend money in a smart and not a stupid way. You need to look at getting a good return or else it will slow the growth of the economy," he says.

"Those government officials who have made the wrong decisions are simply bad decision makers and should be held accountable and punished so you get a more disciplined environment."

Wang says that instead of a focus on the hardware of infrastructure, the government should place more emphasis on the software of people.

"One way of doing this would be to improve the basic education in the rural areas of China and hire more higher quality teachers. You would then build more of an educated middle class in these areas which would boost consumption over the longer term," he says.

A major concern in China remains the property market, which has been subject to more than two years of tightening measures, after house prices tripled between 2005 and 2009.

According to an analysis of Chinese official figures, the prices of new homes rose by just 2.2 percent in November, the slowest rise for the whole year.

Kwok at HSBC says the risk remains of an over-correction of property prices.

"The China government has no intention of letting up on its current tightening measures being imposed on the property market until prices in tier-1 cities such as Beijing and Shanghai have fallen by 20 to 30 percent. If property price falls were to overshoot that, then growth could come in lower than expected."

Innes-Ker at the EIU says whereas in the West property price falls would be seen as bad for the economy, in China they actually provide a boost to consumption.

"When property prices are rising, people feel as though they have to save more to buy a property so when they fall they need to save less and therefore they spend more," he says.

"It is the opposite of what happens in the West when rising house prices encourage people to borrow against their houses and spend more."

Apart from the major headline economic data, some believe the Year of the Dragon could be when Chinese companies begin to assert their relatively strong financial position and begin to make acquisitions, particularly in Europe and North America.

Mike Bastin, a leading expert on Chinese brands and now a researcher at Nottingham University's School of Contemporary Chinese Studies, believes some of China's big name brand-owning companies could be involved.

"I see Chinese companies making a number of audacious takeover bids for established Western brands in 2012. I wouldn't be surprised if Lenovo, China's leading computer maker, or Haier, the household appliance maker, launch bids for American or European companies," he says.

There will be focus outside China in 2012 on whether there will be any moves toward a further internationalization of the Chinese yuan.

The yuan - the value of which is a major subject of debate in the US presidential race - reached a record level against the US dollar at the end of 2011, rising 4.86 percent over the year as a whole on top of a 3.1 percent appreciation in 2010.

"I think there will be an opening of new channels for Chinese people to invest overseas to prepare for the internationalization of the Chinese currency. It will be a gradual step-by-step process but I think it may happen much earlier than 2020, the timeline that some predict," he says.

One of the major issues of 2011 was whether the Chinese economy was heading for a hard or soft landing and while the debate still exists, many now are more confident of a soft landing.

"I think the question is now less about a hard or soft landing but more about what pattern we are going to see in growth," adds Innes-Ker at the EIU, who is forecasting 8.1 percent GDP growth for the year.

"I think what we are going to see is a very sharp downturn in the first and second quarters - mainly the lagged impact of measures to slow down the property sector - but then a sharp recovery in the second half."

Kwok at HSBC agrees: "We still feel comfortable about a soft landing because of the fact the government realizes the seriousness of the situation and will implement the loosening measures required."

January 17 2012 Share

U.S. Loses High-Tech Jobs as R&D Shifts Toward Asia

Caterpillar signed off Jan. 4 on expanding its Wuxi China, R&D center.

The U.S. is rapidly losing high-technology jobs as American companies expand their research-and-development labs in China and elsewhere in Asia, the National Science Board said Tuesday.

Global, U.S.-based companies such as 3M Co., Caterpillar Inc. and General Electric Co. have spent billions of dollars in recent years to expand their overseas research labs. Such companies aim to tap a broader pool of scientific talent, tailor products to overseas markets and curry favor with foreign governments by doing more research abroad.

3M is expanding labs overseas "in preparation for a world where the West is no longer the dominant manufacturing power," Chief Executive George Buckley told investors last year. "Given the moribund interest in science in the U.S., this is strategically very important." R&D spending at 3M, which is based in St. Paul, Minn., typically is 5% to 6% of annual sales and among the highest in the corporate world.

U.S.-based labs continue to innovate, developing such hit products as the iPad tablet and the Kindle e-book reader, but those products are made in Asia. That has raised fears that more R&D will flow to Asia. Researchers often find it easier to work near factories, where ideas can be tested quickly.

In the six years through 2009, about 85% of the growth in R&D workers employed by U.S.-based multinational companies has been abroad, according to the National Science Board, a policy-making arm of the government's National Science Foundation. U.S. companies generally aren't closing labs at home but rather focusing expansion abroad. The overseas portion of their R&D employment grew to about 27% in 2009 from 16% in 2004, the report said.

To a large extent, companies are setting up labs where engineering and scientific talent is becoming concentrated. About 56% of the world's engineering degrees awarded in 2008 were in Asia, compared with 4% in the U.S., the report said. Moreover, a large portion of engineering students in the U.S. are foreigners; 57% of U.S. doctoral degrees in engineering in 2009 went to foreigners, mostly from East Asia or India.

As a result of such trends, the U.S. lead in science and technology is "rapidly shrinking," the report said.

Overall U.S. employment in high-technology manufacturing—which includes computers, communications, medical equipment, aerospace, pharmaceuticals and measuring devices—has decreased 28% since 2000 to about 1.8 million jobs, the report said. That partly is because of more-efficient manufacturing methods and the recession, but it also reflects the growing abilities of China and other Asian countries to make high-tech goods.

The trends are "troubling," said José-Marie Griffiths, chairman of the committee charged with producing the biennial report. The U.S. continues to do well globally in aerospace and pharmaceuticals, she said.

Total U.S. spending on R&D in 2009 was about $400 billion, the highest in the world, but Asia is catching up. The total for China, India, Japan and seven other Asian countries came to $399 billion. The European Union's total was about $300 billion.

Caterpillar this month announced plans to expand a Wuxi, China, R&D center that opened two years ago and now has more than 500 engineers and support staff. The expansion will add research capabilities in engines, fuels and hydraulics, among other areas. The center is near Caterpillar factories making engines, parts and construction machinery.

A Caterpillar spokesman said Chinese R&D workers are better able to understand product needs for their market than U.S.-based researchers can. And having labs scattered around the world allows the company to work on urgent projects around the clock, passing them from one time zone to another, he said. Caterpillar's largest R&D center by far is near Peoria, Ill., where the company is based. Other research sites are in Chennai, India; Peterborough, England, and Ono, Japan, as well as Wuxi.

GE, which is based in Fairfield, Conn., in late 2010 announced plans to spend $500 million to set up six product-development centers in China. In November 2010, GE added a global research center in Brazil, its fifth such center in the world. Others are in India, China, Germany and Niskayuna, N.Y.

A GE spokesman said the company employs 2,000 people at its global research headquarters in Niskayuna, up more than 10% from a decade ago. "GE is investing in research and development in the U.S. and around the world," the spokesman said. "It's not an either-or proposition."

January 16 2012 Share

Beijing Takes On U.S. Envoy Over Rights

China sharply criticized comments by the U.S. ambassador to Beijing that China's human-rights record is deteriorating, adding to tensions between the two nations ahead of a sensitive visit by China's likely next president.

U.S. Ambassador Gary Locke told television interviewer Charlie Rose in an interview that aired on Monday that China is significantly cracking down on dissent. He said Chinese leaders were afraid they could face uprisings similar to last year's Arab Spring.

"The human-rights climate has always ebbed and flowed in China, up and down, but we seem to be in a down period and it's getting worse," Mr. Locke said.

In an unusually candid response to a question about human rights in China, Foreign Ministry spokesman Liu Weimin on Tuesday told a daily media briefing that Mr. Locke's comments don't accurately reflect China's human-rights situation and that the majority of Chinese were happy with the country's development.

"Some people always take viewpoints of the minority in China as the mainstream public opinion, and I think this is entirely wrong," Mr. Liu said. "Should we take the views of those in the Occupy Wall Street movement as society's mainstream public point of view?"

A U.S. Embassy spokesman declined to comment.

The remarks come at a sensitive time as both sides prepare for an important U.S. visit likely next month by Xi Jinping, who is widely expected to become China's next president in a once-a-decade leadership change that begins late this year. It is a rare opportunity for U.S. political leaders and diplomats to learn more about Mr. Xi, whom many analysts view as a business-friendly and largely pragmatic politician.

Mr. Liu acknowledged social problems existed in China and said they resulted in part from the country's breakneck development. "We have a population of 1.3 billion people, and we completed in 30 years what took the Western world 300 years," he said. The country "will naturally face some social problems, but the government is striving to resolve these. I think the efforts in this respect are also visible."

"We are willing to work with the international community on human-rights issues…but we also oppose the use of human-rights issues to interfere in China's internal affairs, including China's judicial sovereignty," Mr. Liu added.

Beginning in February 2011, following anonymous online calls for an Arab World-style Jasmine Revolution in China, security forces detained or confined to their homes dozens of lawyers, artists, writers and other political activists. Among the most recent cases, two veteran dissident writers were sentenced in late December to nearly a decade in prison each, in what human-rights observers described as unusually harsh penalties.

Religious followers, particularly Tibetan Buddhists, Muslims and Christians who worship in unauthorized churches, have also been targeted lately, religious experts say. In China's Tibetan-populated western regions, at least 16 ethnic Tibetans have set fire to themselves since March, according to state-run media and international advocacy groups. State Department spokeswoman Victoria Nuland said last week that the self-immolations were a manifestation of anger and frustration among Tibetans and highlighted "severe restrictions on human rights, including religious freedom inside China."

Last month, in an interview with the Associated Press, Mr. Locke also said the U.S. was concerned over human-rights developments in China during the past year.

January 14 2012 Share

In praise of the Chinese way By Chen Weihua

Ann Lee lists in her book a host of Chinese practices in areas such as education, Confucianism and banking that she believes the United States can learn from.

Ann Lee believes China's best practices are a good model for other nations

Over the past 33 years since China started its reform and opening-up policy, the country has looked to the West in its modernization drive. The zest for learning has been reflected in almost every area of society.

Most Chinese and Westerners believe China has all the things to learn from the outside world and few have fathomed that the West should also learn from China.

Not according to Ann Lee, a professor of finance and economics at New York University and a senior fellow at Demos, a non-partisan public policy think tank.

In her new book What the US Can Learn from China: An Open-Minded Guide to Treating Our Greatest Competitor as Our Greatest Teacher, Lee argues that sharing some of China's best practices and enduring principles can help foster much-needed change at home and could prove beneficial for sustainable economic growth and development around the world.

Lee says China has become a convenient scapegoat for American economic problems and the nations in the West have often overlooked these practices because they assume that China stands for values that are the polar opposite of their own. In many cases that is wrong.

Lee agrees that the book is biased. "It's not as if I think China can do no wrong. It's about best practices. Why would I talk about things that are not good, which is not the point of the book?"

The book lists a host of principles in areas such as education, Confucianism, work ethic, banking practices and even soft power and the ways government officials are selected as models that Lee believes the United States can learn from.

For example, contrary to the conventional wisdom in the West, Lee argues that China's leaders have earned their authority through a lifetime of meritocratic service that is far from arbitrary. "Their system of earned authority actually resonates strongly with Western values, is surprisingly popular with its population, and may even be used to strengthen today's democratic institutions.

"Although China's system is far from an ideal democracy, its system of meritocracy contains elements of democratic representation that permeate the entire governance structure.

"The Chinese believe that the privilege of leading a country should belong only to those who have proven that they can serve the country over long periods of time in a selfless way and accomplish a great deal. Thus the process of leadership selection in China at its heart is based on merit rather than mere popularity contests during elections."

Lee finds that unlike some US politicians who are elected to the federal government with limited leadership experience in both government and in the corporate world, a Chinese leader will have served in a variety of government roles that may be as diverse as leading several provinces as governor, engaging in trade negotiations, heading a State-owned company and running regulatory agencies.

A 2010 Pew Global Attitude Survey reported that 87 percent of Chinese said they were content with their country's direction; only 30 percent of American respondents said they were content with their country's direction.

Lee also sees the brilliance of China's five-year plans, which she compares to a strategic plan drawn up by a US corporation.

She argues that the beauty of China's system is that market forces are permitted to flourish at the corporate and retail level, but the government role is to make decisions independent of fleeting considerations like returns on investment.

"Despite historically widespread corruption at the local level, Party policy is at least predictable," says Lee, who migrated with her parents from Hong Kong to the US when she was in the second grade.

She says that in the US, politicians realize that pleasing their constituents with promises of quick fixes, like big tax cuts across the board, is a more effective way to win elections than putting forward long-term solutions to deep, structural problems like overhauling the entire tax code.

She says the lack of long-term planning in the US also makes it difficult for the Chinese to work with US government officials. In negotiations, foreign leaders never quite know whether the treaties they negotiate will ever get through Congress.

Lee, a former investment banker and a partner in a pair of multibillion-dollar hedge fund firms, is critical of Wall Street and cautions of an over-powerful financial industry, declaring that "rather than Wall Street serving the real economy, Wall Street has enslaved it. Financialization has put the cart before the horse."

She reckons that a vast majority of financial transactions conducted by banks and private equity firms are done for purely financial reasons, which often clash with the national goal of creating jobs or driving innovation.

She praises China for putting money into the real economy.

"There would be no China miracle if China followed the same monetary and fiscal policies as the United States."

Lee defends China's currency policy and believes its strong economic engine as a result of its peg to the US dollar has been a blessing for almost everyone. "After the 2008 financial crisis, China single-handedly brought the world out of recession, assisting countries from Brazil to South Africa to resume strong economic growth comparable to the pre-Lehman levels," she says, referring to the bankruptcy of the financial services firm Lehman Brothers.

According to Lee, who has traveled many times in China since the mid-1980s, including teaching at Peking University in 2008, China was able to engineer this feat because its financial institutions were heavily controlled and regulated by the government.

While Washington and Western media have been relentless in filling the airwaves with scathing accusations of China being a currency manipulator, Lee says that if she were to advise Chinese leaders, she would advise against buckling under such pressure.

She believes that people such as the economist Paul Krugman and the former treasury secretary and former CEO of Goldman Sachs Henry Paulson, who push for drastic renminbi appreciation, represent special interests. Given the fact that many top economists do not want to reveal their sources of funding, Lee says these economists are no better than politicians.

Lee argues that China's way of dealing with countries, including those in Africa, is often more civilized than the American way of relying on military resources.

In the epilogue she reminds readers that China still has a lot to learn from the US, which has made enormous contributions to the world. However, the list she proffers is meager and includes the concept of respecting uniqueness, the spirit of risk taking and brand awareness.

Lee says one of the reasons she wrote the book was that opinion pieces she offers for publication are often rejected. In that respect she is not alone, she says.

"The US media propaganda is so sophisticated, so nuanced. They are very good at blocking things that are substantial and showing only things that are ridiculous," she says.

January 13 2012 Share

Executive integral part of Air China By Wang Jun

Chi Zhihang has become a strong advocate for the loosening of visa restrictions for Chinese visitors.

Chi Zhihang is aptly named for his job as the head of North American operations for China's flagship carrier.

Zhihang in Chinese means aspiration for aviation, and as vice-president and general manager of Air China North America, the 48-year-old Beijing native has helped oversee the development of one of the most important markets for Air China, the world's largest carrier by market value, according to the International Air Transport Association.

Air China's unprecedented growth brought the company 12 billion yuan ($1.83 billion) net profit in 2010, according to Air China's annual report, making it the most profitable airline in the world, Air Transport World reported.

As a child, Chi memorized every single page of the aviation industry reference book, Jane's All World's Aircraft. Perhaps he was following in the footsteps of his parents, who were professors at Beijing University of Aeronautics & Aeronautics and "loved what they did", Chi said.

But, when he was readying for college, he realized that by becoming an aviation major would probably mean being assigned a job in some remote outpost after graduation, as most aviation majors who worked for the national defense did in the early 1980's. Chi chose to major in mechanical engineering instead.

The Chinese aviation industry has come a long way since the early 1980s. In 1981, the General Administration of Civil Aviation of China, now known as Civil Aviation Administration of China (CAAC), started a once-a-week China-US flight between Beijing and New York. In the spring of 1982, CAAC launched a flight between Beijing and Los Angeles.

At that time, the main purpose of the international flights was to take government leaders abroad for meetings and to send athletes to competitions, Chi said. The joke at the time was that CAAC stood for "Chinese airlines always canceled", Chi recalled, meaning performance wasn't important because commercial success wasn't important.

Chi flew to the US in 1988 via Beijing, Shanghai, San Francisco, Los Angeles, New York and landed in Boston to start the graduate program at Massachusetts Institute of Technology's Sloan School of Management.

"It took close to 24 hours," he recalled.

At the time, there were less than 30 flights between China and the US per week on any airline. Now, Air China alone has 28 flights connecting the two countries on a weekly basis, Chi said.

The same year that Chi landed in the US, China's civil aviation industry underwent an overhaul. The airline division of CAAC was divided in to six airlines, each named after the region where it had its hub, with CAAC acting solely as a government administrative and regulatory agency.

The six airlines were subsequently consolidated into three in 2002: the Beijing-based Air China International Corporation, the Shanghai-based China Eastern Airlines and Guangzhou-based China Southern Airlines. Air China International Corporation had all of the international routes at that time. Other Chinese airlines have caught up in recent years.

In 1994, Chi obtained a doctorate from MIT. His thesis topic, Dynamic and Network Effects in Airline Yield Management, guided by Dimitris Bertsimas, was a return to his early interest in aviation. Chi was recruited by Northwest Airlines that same year. For the next nine years, he worked in technical, marketing and management positions in Minneapolis, rising to the level of director. One of his major contributions to Northwest was developing the company's strategic alliance with Air China.

When Air China was searching for someone to manage its US operations, Zhang Lan, former executive vice-president of Air China, recruited Chi.

Chi was hired as the general manager for the Air China's Los Angeles office in 2004. It is the first time in China's civil aviation history that a foreign citizen had been hired as a senior executive (Chi is a naturalized US citizen).

"I know the position was very challenging," Chi said, "because I understood Air China's problems from our (Northwest's) alliance with them. However, it was irresistible to me to try to solve those problems."

One major problem was organizational. Air China had three offices in the US: San Francisco, Los Angeles and New York. They operated like three independent airlines, Chi said. Each had its own toll-free number, marketing strategy, sales plan and operational system; they even competed against each other for customers.

In 2006, the West Coast offices consolidated, with Los Angeles as the West Coast headquarters. Chi was appointed the general manager of the western US region.

Two years later, Chi was promoted to vice-president and general manager for North America, and was based in Los Angeles. All offices, including the New York office and Vancouver office, were placed under centralized management with a unified sales policy and centralized financial system.

According to Chi, Air China's next step will be to further streamline operations and customer service by adding directors to oversee those functions in all of the North America offices.
"Our models are Lufthansa and Cathay Pacific Airways, which we highly respect," Chi said. "Both of them operate by function, not location."

On Sept 1, Air China began a second daily non-stop flight between Beijing and Los Angeles. Before the second flight was added, seats on the flights were 90 percent full, on average, and 95 percent full during peak seasons. Now, flights are about 80 percent full, the airline reported.

At the inauguration of the second flight in Los Angeles, Air China Vice-Chairman Wang Yinxiang said that it took the airline 24 years to offer daily flights between Beijing and Los Angeles, but only five years to add a second flight. Chi attributed this to China's rapid economic development that has allowed more people to travel.

In 2012, Air China will gradually replace the Boeing 777-400 aircraft that fly between China and North America with Boeing 777-300ER aircraft. The first aircraft should debut in Los Angeles on Feb 1. The new twin-engine aircraft will save the company about 40 percent in operation costs - it burns four tons less fuel per hour than the current four-engine aircraft.

Growing with the company for the past eight years, Chi now finds himself working on something bigger than Air China - the China-US relationship.

Addressing the Global China Summit, an event at the United States Institute of Peace on Sept 27 attended by former US Secretary of State Henry Kissinger and former UK Foreign Secretary David Miliband, Chi, along with other participants, called for the US government to speed up the visa process and to allow more Chinese tourists and businesses to enter the US.

According to Chi, 1.1 million South Koreans came to the US in 2010, while only 750,000 Chinese were allowed into the country, even though China's population is 27 times that of South Korea's. The main reason for the difference: the US' tight visa restrictions on Chinese citizens.

"My biggest challenge in doing business here is that I cannot get enough people (to fly from China to America)," he told an audience of statesmen, scholars and officials.

Chi has become a strong advocate for the loosening of visa restrictions for Chinese visitors, giving speeches and lobbying US government agencies. On Nov 3, Chi was given the China Business Leadership Award for his "distinguished contribution to US-China relations" by the US-China Policy Foundation.

"My business is to bring people together," Chi said.

January 12 2012 Share

China and India join bid to build largest telescope in Hawaii

Countries to help North American institutes to build 30-metre instrument to look back billions of years - China and India are catapulting to the forefront of astronomy research with their decision to join as partners in a Hawaii telescope that will be the world's largest when it's built later this decade.

Both countries will pay a share of the construction cost - expected to top US$1 billion - for the Thirty Metre Telescope at the summit of Mauna Kea volcano. They will also have a share of the observation time.

It's the first advanced telescope in which either country has been a partner. "This will represent a quantum leap for the Chinese community," Shude Mao, professor of astrophysics at National Astronomical Observatories of China, said on Wednesday from Waikoloa on the Big Island, where he was attending a meeting of the telescope's scientific advisory committee.

The Thirty Metre Telescope's segmented primary mirror, which will be nearly 30 metres long, will give it nine times the light-collecting area of the largest optical telescopes in use today. Its images will also be three times sharper.

G.C. Anupama, professor at the Indian Institute of Astrophysics, said the largest telescope in India had a two-metre mirror, though another was being built that would be 4 metres. be 4 metres.

"So it's a huge jump for us from the 4 metre to the 30 metre," Anupama said from the sidelines of the advisory committee's meeting.

The telescope, known as TMT, will be able to observe planets that orbit stars other than the sun and enable astronomers to watch new planets and stars being formed.

It should also help scientists see some 13 billion light years away for a glimpse into the early years of the universe.

The University of California system, the California Institute of Technology and the Association of Canadian Universities for Research in Astronomy founded the telescope, which is expected to be finished in 2018.

China joined as an observer in 2009, followed by India the next year. Both are now partners, with representatives on the TMT board. Japan, which has its own large telescope at Mauna Kea, the 8.3-metre Subaru, is also a partner.

Mao said Chinese astronomers would likely want to use TMT to study the origin of planets outside our solar system, black holes, dark matter and dark energy.

China had leading theoretical astrophysicists, but it lagged behind in the field of observational astronomy, Mao said. The telescope will help China overcome that.

He said China would contribute at least 10 per cent of the construction cost, and more if its budget allows. Like India, 70 per cent of its contribution will be in-kind.

Mao said the project would also be valuable for the image China broadcasts to the world. "There are many things that are manufactured in China, but we want to move up in terms of technology," he said. All astronomers, wherever they were from, look at the same sky, he said.

Honolulu (updated on Monday June 28 2010): The University of Hawaii Board of Regents unanimously approved a plan Monday to build the world's largest telescope at Mauna Kea's summit.

The decision clears the way for managers of the proposed Thirty Meter Telescope to seek a permit from the state to build the facility on conservation land. TMT managers aim to begin construction late next year and finish by 2018 if they can get a permit.

Some Native Hawaiians have opposed the telescope on the grounds it would defile Mauna Kea's summit, which they consider sacred. Environmentalists say the telescope would harm the rare wekiu bug.

But the board was moved by the potential it offered for advancing science, providing jobs and helping the economy. The university's board must vote on the project because it owns the lease for the land on which the telescope would be built.

"I think it would be almost unthinkable not to approve this project for what it would mean for scientific research and astronomy, what it would mean for education, and the answers it may provide to unlock the mysteries of the universe," said UH Board of Regents member Chuck Gee.

Seven members of the public testified in favor of the telescope at the board's meeting. No opponents spoke, though critics have been vocal about their arguments against the telescope in the past.

Of those who submitted written testimony, 30 were in favour and 10 were against.

The University of California system, the California Institute of Technology and the Association of Canadian Universities for Research in Astronomy are spearheading the project.

The telescope would be able to observe planets that orbit stars other than the sun and enable astronomers to watch new planets and stars being formed. It should also help scientists see some 13 billion light years away for a glimpse into the early years of the universe.

A lack of major cities on the Big Island also means there's little light pollution to interfere with observations.

Astronomers and observatories in Japan, China and India have signed on to participate in the Thirty Meter Telescope.

Jean-Lou Chameau, president of California Institute of Technology, said the telescope was one of the world's most important projects in science over the next 20 years.

January 10 2012 Share

Experts: Higher China wages won't see foreign exodus

All bets against China's economic successes during the past 20 years continue to come up empty. 2012 will not be an exception.

The Saving and Loan crisis in 1987, the Asian Financial crisis in 1997/1998 and the world financial crisis in 2008 (mishaps created by the world's largest western economic powers), China and Hong Kong have came out stronger both economically and financially. Chinese with its humble culture did not come out start pointing fingers, they just find ways to keep their houses in order.

Workers assemble Ford cars on the assembly line at Changan Ford, the joint venture between Chang'an Automobile (Group) Co Ltd and Ford Motor Co in Chongqing.

2010 growth rate in Shanghai was 9.0%, below national average while Pearl River Delta growth rate was 13.5% benefiting from the close ties with Hong Kong providing financial expertise and management skills.

Even with those changes, the country retains its huge market for products and services.

A variety of US companies, including the iconic Ford Motor Co, have been reported to be considering bringing some manufacturing back to the United States. Yet jobs continue to be added in China.

Because of an agreement struck with the United Auto Workers (UAW), a labor union, Ford has announced plans to shift 12,000 jobs back to the US from China, Mexico and Japan in four years.

Trevor Hale, a China-based spokesman with Ford's Asia Pacific and Africa operations, declined to say how many jobs the company will transfer, saying the plan "refers to a jobs shift from a supplier in China to a component plant in the US".

Meanwhile, he said the company is adding jobs in China, which has been the largest market in the world for automobiles since 2009.

"Ford remains committed to growing in China and, in fact, we will double the number of professional employees we have here by 2015," Hale said.

The company is adding 550 salaried jobs to its wholly owned entities in China in 2011, and it will add another 1,200 by 2015. The automaker also has plans to bring 15 additional types of vehicles to China by 2015.

Over the next four years, the Detroit "big three" - General Motors Co, Ford and Chrysler Group LLC - are likely to add more than 29,000 hourly and salaried employees in the US, according to the US-based Center for Automotive Research.

In recent contract talks with the United Auto Workers, the three carmakers agreed to increase the entry-level wage paid to autoworkers in the United States from about $14 an hour to about $19.28 over the course of a four-year labor contract.

An executive at a leading US automotive supplier in China - who declined to identify himself or his employer - said even though pay is bound to increase in China, labor costs in the country still remain much lower than in the US.

The cost of workers' wages was equal to about 1 percent of the supplier's revenue in China two years ago, and the number doubled to 2 percent in 2011, the executive said.

Moreover, the company expects to see its labor costs increase by 45 percent in three years, he said.

The salary for entry-level jobs in Guangzhou's automotive companies is about 1,800 yuan ($281) a month, roughly $1.70 an hour. The big three, in contrast, offer an entry-level wage of $19.28 an hour.

"Labor productivity is indeed higher in the US, but it is also rising rapidly in China," he said.

In 2011, minimum wages were increased in China to help workers cope with rising prices. In the first three quarters of the year, minimum wages increased by an average of 22 percent from the same period a year before, according to the Ministry of Human Resources and Social Security.

Shenzhen in Guangdong province has the highest minimum wage in China at 1,320 yuan a month. Next in the rankings are Shanghai and Beijing.

"Salary increases are significantly high in China," said Jim Leininger, a Beijing-based executive with the consulting-company Watson Wyatt Inc.

He predicted that most industries in 2011 would have experienced a salary increase of between 10 to 12 percent for local employees who work for foreign companies or first-tier domestic companies.

There can be no doubt that China is becoming a more expensive place to do business. In the past 10 years, salaries in the country have increased on average by as much as 12 percent a year.

But that does not mean companies will stop investing in China, said Leininger, who is also the chairman of the American Chamber of Commerce's human resources forum.

Business people keep coming to China and are still drawn by the country's optimistic economic outlook and large domestic market - not simply its abundant supply of cheap labor, he said.

According to a recent study by the Boston Consulting Group, 2 million to 3 million jobs could be added in the US in the next five years as China's labor costs increase and manufacturing in the US becomes less expensive.

But very few executives and analysts in China agree.

US companies in China say they are confident about their business prospects in the country, the American Chamber of Commerce said in a statement.

About 85 percent of US companies in China reported revenue growth in 2010, according to a survey conducted by the chamber.

"I doubt that many American companies are planning to close down their factories in China and move them back to the US," said Jack Perkowski, founder of JFP Holdings, which helps Western companies bring technology and products to China.

"The reason why foreign companies will not leave China is because the market is here."

He said some makers of cheaper products may want to move their manufacturing operations to Vietnam and other countries where costs are lower than in China. He advised against taking such a step, though, saying it would be better to move to places such as Chongqing, where costs are much lower than along China's coasts.

Li Xiaogang, director of the Shanghai Academy of Social Sciences' foreign investment research center, said patriotic loyalties are unlikely to be enough to prompt a company to move manufacturing back to its home country.

In the first 10 months of 2011, the value of foreign direct investment from the US came to $2.73 billion, which was down 23.05 percent from the year before. That led to concerns about a continued decline in the amount of investments coming from the US

In 2011, fewer investments came to China from the US, a result mainly of US economic troubles.

December 29 2011 Share

Chinese buyers' long march on Manhattan - Cashed-up Chinese companies are finding property bargains in the US, the land of opportunity but also of risk, as wealthy Japanese buyers discovered in the '80s By Sandy Li

Chinese companies are set to become the main overseas property buyers in New York, where they are generally welcomed

With real estate prices in the US souring, Chinese investors are marching to the heart of Manhattan.

HNA Property Holdings, the real estate arm of China's HNA Group, in June paid US$265 million for a prime office building in Manhattan. The group itself - parent of Hainan Airlines and Hong Kong Airlines, with additional investments in shipping and real estate - has declared its intention to buy more property in the US and Europe using a 40 billion yuan (HK$49 billion) line of credit.

Other Chinese companies are scouring New York and other major US cities, where commercial property prices have dropped about 40 per cent during the financial downturn. Among the suitors are Soufun Holdings, which operates the mainland's largest property website, and China Investment Corp (CIC), the country's sovereign wealth fund, which manages US$300 billion.

"No doubt Chinese investors are set to become the biggest buyers in US commercial properties this year, up from second place last year," said Allen Wu, managing partner of law firm Wu & Kao in New York, which is representing HNA in its acquisitions.

Unlike energy and telecommunication companies, which are often deemed strategic assets that carry national security concerns, the US real estate market is open to most foreign investors. So far, foreign investment in US property have not stirred widespread objections from politicians or the industry.

In fact, HNA, which owns China's fourth-largest airline, has been embraced as something of a "white knight" after it saved the owner of a prime office building at 1180 Sixth Avenue in Manhattan from bank foreclosure.

"HNA is a saviour to me," Norman Sturner, president and chief executive of Murray Hill Properties, the co-owner of 1180 Sixth Avenue, told the Post at his New York office.

Under the new arrangement, HNA bought 90 per cent of the 23-storey building. It bought 85 per cent from the Carlyle Group and 5 per cent from Murray Hill, leaving the latter with a 10 per cent stake. Murray Hill will continue to manage the building.

Early this year, Murray Hill and Carlyle had a hard time obtaining refinancing for the tower. The two were required to put up an additional US$60 million or face foreclosure because the loan-to-value ratio had declined from 85 per cent to 65 per cent due to falling prices. Carlyle decided to sell its stake, Sturner said.

The joint venture had bought the prime office building for US$300 million at the top of the market in 2007.

Taking advantage of the slump, HNA set its sights on another property, the Cassa Hotel and Residence - a four-star hotel that was seeking bankruptcy protection as the owner was unable to continue repayments to creditors. HNA bought the hotel, a block from Times Square in the city's Theatre District for US$126 million, its second acquisition in two months.

According to a research firm, Real Capital Analytics, sales of commercial property in the city to foreign buyers rose to US$6.7 billion last year, from US$3.8 billion in 2009. Purchases by Chinese buyers soared to US$127 million last year from US$18 million in 2009. The data, however, does not include purchases through property funds, a route commonly used by Chinese buyers.

"It is the beginning of Chinese large enterprises invading a market that was monopolised by Westerners," said Wu.

Adam Tan, executive director of HNA, said: "It is good time to buy when US commercial property prices drop to such a low level, particularly New York. We think it will provide an enormous upside potential."

Tan, a Harvard Business School graduate, said the group would continue investing selectively in New York's property market.

HNA is not alone. Soufun Holdings bought a 250,000 sq ft office at 72 Wall Street, the former AIG training centre, for US$46 million, three months after its US$124.1 million listing on the New York Stock Exchange in September last year.

In January, CIC, the sovereign wealth fund, reported it had joined forces with Area Real Estate Finance of New York to buy an unspecified preferred equity stake in 650 Madison Avenue. The 27-storey building is headquarters to fashion label Polo Ralph Lauren. The amount of the investment was not revealed.

Lee Wee Liat, regional property head of research at Samsung Securities, said Chinese enterprises, particularly state-owned enterprises (SOEs), were expanding overseas with encouragement from the central government to diversify overseas.

"If they focus on investing domestically, the cashed-up SOEs will bid up asset prices, which is definitely not what the central government wants to see," he said.

The aggressive property acquisitions were helped by the fact buyers from mainland China face fewer restrictions on investment in the sector than in the telecommunications, oil and natural gas sectors, which remain difficult to penetrate due to US national security concerns, he said.

China's acquisition binge in the US real estate market has alarmed some observers. They say it increasingly resembles Japan's painful lesson when it entered the US property market aggressively during the 1980s through high-profile acquisitions such as the Rockefeller Centre in Manhattan and Pebble Beach golf links in California. Japanese investors, who bought at the top of the market, lost billions when prices fell.

"That memory should be cautionary for investors because you really need to understand the [US real estate] market and you need a local partner," said Joseph Rubin, principal of transaction advisory services at Ernest & Young. "The US is a land of opportunities but also a land of risk." As an example, he citied the problems the US real estate market is facing now.

In the US, a typical benchmark is that each office job occupies 250 per square feet space, he said.

"Think about nearly eight million job cuts, which means a loss [of demand] of two billion square feet of office space," he said.

"Although not all jobs lost are office jobs, the message is clear that the loss of jobs has a huge impact on office demand."

But Wu, of law firm Wu & Kao, argues that China is coming into the US on a different acquisition path. "Chinese enterprises are entering US at a time of market slump," he said. "Commercial properties in Manhattan will be more resilient than the other states amid global financial crisis."

In the case of HNA's acquisition of Cassa Residence and Hotel, Wu said HNA not only conducted comprehensive due diligence but also sent several of its staff, who spoke fluent English and had studied abroad, to stay at the hotel for several days to appraise the business.

HNA's purchase comes as a flood of Chinese companies seek listings on the New York Stock exchange and tourist flock to the city.

"One hundred and sixty Chinese companies have listed on US stock exchanges," he said. "There is strong demand for commercial space as these US-listed Chinese firms will need an office in New York. If each firm needs a 5,000 to 15,000 square feet for its operations, HNA's building will be sought after, since most Chinese enterprises prefer to lease space at buildings owned by mainland companies."

He said tales are common of Chinese enterprises and big Chinese banks facing problems securing grade-A office space in the heart of Manhattan and being charged higher rents than US firms.

"Mainland enterprises expanding their presence in Manhattan will provide solutions for these Chinese companies," he said.

Flush with cash, Chinese companies could find a warm welcome in the US real estate market, since many distressed projects need large amounts of capital to keep them afloat, said Sonny Kalsi, a former Morgan Stanley investment banker who cofounded GreenOak Real Estate, a US investment and advisory firm.

"Chinese are very smart investors and I have been working with them for 15 years," he said. "They do due diligence and like to be very hands-on in their property acquisitions."

December 28 2011 Share

川客初嚐「港味」喜聖誕氣氛濃

來自四川的王氏夫婦認為，香港聖誕氣氛濃厚，商場布置漂亮。

香港文匯報訊（記者歐陽麗珠）適逢聖誕節，不少內地旅客來港感受聖誕氣氛。有首次來港的個人遊旅客表示，本港聖誕節日氣氛濃厚，商場設計繽紛多彩，各有特色，十分吸引，但商業味道較重。有旅客認為，聖誕來港是要體驗整體氣氛，消費只是其次，香港的懷舊氣息和博物館文化味道更有意思。

本港一向是內地旅客熱門旅遊地，適逢聖誕佳節，更有不少內地人專程來港感受節日氣氛。首次來港的王氏夫婦平安夜前來，打算留港7天至8天。來自四川的王太表示，很喜歡香港的聖誕節，節日氣氛特別濃厚，並指四川人在聖誕節只有少數宣傳和布置，於是來港感受香港聖誕氣氛。

王太表示，香港聖誕氣氛濃厚，許多商場都有漂亮布置、設有不同主題。她又指，時代廣場以兒時玩意布置，極富特色。而場內又有有趣的道具供遊人拿著拍照，十分體貼。她續稱，未來幾天會到海洋公園、淺水灣等地方走走，並說：「沒有特別要買的東西和預設消費額，看到喜歡的便會買。」

來自北京的陳先生和鄭小姐前天抵港，首次來港過聖誕，打算留港5天。兩人抵港後，逛了香港公園，參觀園內熱帶植物園，之後坐了一趟電車，遊覽香港城市景色。

京客指港聖誕商業味重

鄭小姐表示，本港聖誕節側重促銷宣傳、帶有濃厚商業味道。她又指，今次來港，「品嚐」香港文化更有意思。

欣賞港電車富懷舊味道

30多歲的陳先生表示，很欣賞香港的電車，富有懷舊味道，這正是他想看的老香港風格。他稱，小時候曾在大連坐過電車，很懷念那古舊的特色。他今次來港，會乘坐沿用木椅子的電車。鄭小姐表示，今次在香港住宿，已花上7,000多港元，在行程中遇上喜歡的東西便會購買，消費未設上限。

December 27 2011 Share

Asian hoteliers see room to grow stronger - UH TIM School could play a prominent role with better support from the State of Hawaii and the University of Hawaii

Banyan Tree hotel in Hangzhou, Zhejiang province. The Singapore-based hotel operator is planning to double the number of its properties by 2013.

The School of Travel Industry Management (UH TIM School) with excellent reputation in Asia and 100s of its alumni in key management position throughout Asia could play a prominent role. Current UH Administration lack the vision cost the State of Hawaii and the University of Hawaii the opportunity both long and short term.

Asian hotel chains are spreading their wings and, slowly but steadily, expanding globally.

Brands such as Shanghai's Jin Jiang International Hotel Group and Home Inns & Hotels Management, Thailand's Dusit International, Singapore's Banyan Tree and Malaysia's Holiday Villa Hotels & Resorts are rapidly expanding to take on their more established foreign rivals such as Hilton and Hyatt.

The annual list, based on the number of guestrooms and hotels owned or managed by companies, and published by Hotels magazine, is a pointer. It is purely a numerical ranking, with the biggest 300 on the list. Eight of the top 10 in the 2011 list (based on 2010 figures) are from the United States and two from Europe. That's not surprising given that these regions are the traditional "big two".

However, coming hot on the heels of the established giants are two Chinese companies, Jin Jiang International Hotel Group at 12th and Home Inns & Hotels Management at 13th. Of course, quantity isn't everything, but it does indicate potential income. More hotels mean higher visibility and greater brand awareness, leading to higher demand. More rooms mean more income, financial power and the muscle to expand.

Of the top 50 largest brands in the world, four are from China including 7 Days Inn from 7 Days Group Holdings (23rd) and Shanghai Motel Chain Co's Motel 168 (36th).

Outside the Chinese mainland, companies from Japan, Hong Kong, Singapore, Malaysia, India and Thailand are also progressing steadily. Currently, Mandarin Oriental operates 7,700 rooms and has 14 hotel projects under development, but said it will increase its portfolio of 27 properties to 41 in the near future. The strategy is to grow and go to all key cities and resort destinations around the world. The mid-term goal is to "successfully operate 10,000 rooms worldwide", said the company's chief marketing officer Michael Hobson. Meanwhile, Shangri-La, another Hong Kong-based hotel chain, which has a 30,000-room inventory, will add 37 new properties by 2015.

Thailand's Dusit International, boasting brands such as Dusit Thani, Dusit Princess and Dusit Residence, has plans for 13 new hotels. And while JAL Hotels, which manages the Nikko, Okura and JAL City brands, plans to add another five properties, Singapore's Banyan Tree Holdings will double its number of properties by 2013. Meanwhile, Holiday Villa Hotels & Resorts in Malaysia is looking to add 50 hotels to its portfolio in 10 years.

China is fast emerging as the common factor in all these expansion plans and all eyes are fixed on the rapidly growing hospitality market in the world's second-largest economy.

Lodging Econometrics reported that as of the first quarter of 2011, China had 1,260 projects with 353,254 rooms in the pipeline, accounting for 62 percent of the region's total projects and 70 percent of its rooms.

"Expansion in Asia has definitely helped our bottom line," said Eikon Ito, JAL Hotels' director of project planning & development. "It isn't only the revenue from the hotels that's important to us. It is also about building brand recognition with travelers, so that when visitors come to Japan or to other Asian markets where we have properties, they are familiar with our Nikko Hotels brand."

However, while China continues to attract the lion's share of growth, other Asian hotel companies also have their sights trained on home turf and the Middle East.

"More than 40 countries are now predicted to have more than one million additional outbound trips over the next five years. Many in the Middle East and the Asia-Pacific region are home to a growing middle class, keen to travel and explore overseas," said Angelo Rossini, an analyst with the researcher Euromonitor International.

The Singapore-listed luxury resort operator Banyan Tree spotted the spending power of Asian consumers as early as 2000. "When we started, most of our guests were either Europeans or Americans. By mid-2000, luxury travel from Asia started to outpace the traditional markets of Europe, Japan and the US, which in 2006 contributed close to 70 percent of our revenues," said Luca Deplano, Banyan Tree's vice-president of marketing. "Now, roughly half come from Western countries and half from the ranks of the newly affluent Asian middle class."

Picking up on the same trend, Shangri-La will put 12 new properties into Asia and the Middle East, while Furama Hotels International aims to expand in the Chinese mainland and Taiwan, as well as Indonesia and Thailand. Dusit is also moving in a similar direction: Catherine McNabb, vice-president of sales & marketing, said the group is focusing on Southeast Asia and is also exploring opportunities in the Middle East.

For JAL Hotels, Southeast Asian countries are the target: "We chose to focus on this region because it has expanding economies, which will create a greater need for hotel development," said Ito.

Another rising giant is India. According to Lodging Econometrics, the country had the region's second-largest hotel project in development and the third-largest in the world as of the first quarter of 2011 and Asian companies are already making tentative forays into the market. Singapore's Frasers Hospitality is set to open three new properties in the southern metropolis of Bengaluru. Meanwhile, The Ascott and Shangri-La both have plans for the country. "In this industry, a lot depends on the ability to foresee the future and move in first. If you are three years ahead of the closest competitor, you are in a much better position to get better returns. It's really how far ahead you can see," explained Shangri-La's Kent Zhu, director of sales and marketing.

In recent years, Asian hotel companies have also started venturing into Europe and the US. Mandarin Oriental hotels are already in many prominent European and US cities. Fraser Hospitality has properties in Europe. Shangri-La debuted in Paris last year and will soon open in London and Istanbul. Meanwhile, Banyan Tree is planning to enter Greece, Montenegro and Portugal.

Western locations are necessary to build a global business, according to Deplano: "The hotel industry is global in nature - our resorts and spas are located in 28 countries with a third of our guests coming from Asia, a third from Europe and the US, and a third from the rest of the world - so positioning ourselves as a global niche player steeped in the Asian tradition is strategic."

"These markets deliver brand presence for us. Although they will not offer the same level of profitability as the Asia-Pacific region because of higher operating costs, it is important for us to show Europe and North America what Shangri-La is all about. That value cannot be measured," explained Zhu.

December 26 2011 Share

China emerges as new job frontier for West's youth - Hundreds of US, European interns are flocking to Asia for experience as work dwindles at home By Ng Yuk-hang in London

As Western economies stagnate and China's continues to grow, students in Europe and the United States are increasingly looking eastwards for internships and placements.

Scant opportunities at home have driven more and more students to China and Asia-Pacific countries where they can brighten up their resumes, according to youth group AIESEC and the International Association for the Exchange of Students for Technical Experience (IAESTE).

The Oxford chapter of AIESEC alone sent 70 students to China last year, most of whom taught English and were on short-term, paid programmes, said Agnieszka Fal, a chapter leader.

"China is one of the BRIC [Brazil, Russia, India, China] countries and is increasingly important both in economic and political terms, while at the same time remains an exotic place. All these are motivations for students," said Fal.

"There is a significant demand for English-speaking students. Thus, UK students can find convenient, interesting and paid internships quite easily."

AIESEC sent 5,920 interns to Asia-Pacific destinations last year, three times the number it sent between 2008 and 2009. The Netherlands-based group attributes the surge to an increase in available jobs in development and charity sectors.

"I have been offered countless jobs in China. This demonstrates just how much opportunity there is," said Ramsay Kerr, 23, who worked for an education agency in Ningbo and recently founded his own firm.

"From what I see happening to my friends over here in London, I know that there simply aren't the same opportunities over here at the moment," he said.

The number of unemployed British people aged 16 to 24 hit a record 1.02 million last month, the UK Office for National Statistics said. The rise in youth unemployment helped drive the national jobless rate to 8.3 per cent - the highest since 1996.

In the United States, 18.6 million of those aged 16 to 24 are jobless, while the general unemployment rate was higher than Britain's at 8.6 per cent last month.

With Western economies in turmoil due to the euro-zone debt crisis and a slowdown in the US economy, Edward Pierce, head of a firm that facilitates internships for Western students in China, said it was easy to understand the East's appeal.

"China is a fast-growing country, whereas unemployment has become common in Western economies. To make themselves competitive, [Western] students are trying to equip themselves with a better understanding of China," he said.

Applicants typically pay £2,600 (HK$32,500) for a month-long internship and language programme. While it is not new for these students to prefer studying abroad - there are 3,300 British students currently studying in China alone, according to the British Council - they are looking to Asia for work experience as well, Pearce says.

Stephanie Edwards, 21, who was an intern at a British law firm in Hong Kong last year, said: "I think employers want people with experience both in China and the West."

Abigail Hird, 28, who landed an internship in Harbin through IAESTE, said: "I have heard that there is a need for business leaders in China, and that Western graduates may be more suited to these positions. This is something I would be interested in."

The language barrier has also become less of an issue for Western hires. Some Chinese employers like James Bian of a Shanghai-based light bulb company preferring foreign interns for their "broader horizons" even though they are not fluent in Putonghua.

Bian said foreign interns at his firm were usually given tasks that did not require Chinese-language skills.

But others like Jason Bedford, senior manager of financial service at KPMG China, said the ability to read Chinese was an essential skill needed by its foreign employees and interns.

"We need this skill especially in auditing, as more of our working papers are now in Chinese. We prefer people to have university-level Chinese skills," he said.

December 25 2011 Share

Chinese people more money? U.S. $ 9.7 trillion investment 中國人多有錢？9.7兆美元可投資 Read more: 世界新聞網-北美華文新聞、華商資訊 - 中國人多有錢？9 7兆美元可投資

Boston Consulting Group (BCG) and China Construction Bank announced on the 23rd, "China's wealth management market," report, as of the end of 2011, China's investible assets 6 million yuan (about $ 950,000) or more high net worth families reach 1.21 million total investable assets have reached RMB 27 trillion (about 4 trillion 263.4 billion U.S. dollars), accounting for Chinese individuals have to invest 44% of total assets.

BEIJING, reported in 2011, China maintained strong growth in the wealth management market, this year China can be owned by individuals investment expected to total assets reached RMB 62 trillion (about 9 trillion 790.1 billion U.S. dollars); the total number of high net worth families will reach 1.21 million, 35% of them concentrated in Beijing, Shanghai and Guangdong.

Personal investment assets are removed after the real estate owner-occupied real estate, cash, stocks and other assets.

Reported that from 2008 to 2010 three years, China's personal assets may be invested and the total number of high net worth families to maintain a three percent, respectively, and four percent of the average annual compound growth rate.

The report notes that China's high net worth individuals nearly 60% of the business owners.Survey, 59% of them are profitable industrial company founder and 14% of investment real estate profits, 12% of the investment earnings of financial markets, 10% rely on the accumulation of wages and benefits, 5% of the parents is inherited property.

The survey found that China's high net worth households are still concentrated in Beijing, Shanghai, Guangdong, Shenzhen and other parts of the southeast coast.Sichuan, Shanxi, Liaoning, Henan, Hebei, Shanxi, Hubei, Hunan, Fujian, there are a considerable number of high net worth families.

In natural resources and geographical advantages with Shanxi and Hainan, the number of high net worth families is increasing dramatically.Gansu, Anhui and Guizhou provinces, including parts of the Midwest, the growth rate has been leading the country.

波士頓諮詢公司 (BCG) 和中國建設銀行23日公布的「中國財富管理市場」報告顯示，截至2011年底，中國可投資資產在人民幣600萬元(約95萬美元)以上的高淨值家庭達121萬，共擁有的可投資資產規模達人民幣27兆元(約4兆2634億美元)，占中國個人擁有的可投資資產總額的44%。

中新網報導，2011年中國財富管理市場保持強勁增長，今年年底中國個人擁有的可投資資產總額預計達人民幣62兆元(約9兆7901億美元)；高淨值家庭總數將達到121萬戶，其中35%集中在北京、上海和廣東。

個人可投資資產指除去自住房產以後的房產、現金、股票等資產。

報導說，2008年至2010年三年間，中國個人可投資資產總額和高淨值家庭總數分別保持了三成和四成的年均複合增長率。

報告指出，中國高淨值人士近六成為私營企業主。調查顯示，他們中59%是創辦實業公司獲利，14%是投資房地產獲利，12%投資金融市場獲利，10%依靠工資和福利積累，5%則繼承父輩財產。

調查發現，中國高淨值家庭仍集中在北京、上海、廣東、深圳及東南沿海其他地區。四川、山西、遼寧、河南、河北、山西、湖北、湖南、福建也有相當數量的高淨值家庭。

在擁有自然資源和地域優勢的山西和海南等地，高淨值家庭的數量正急劇增加。甘肅、安徽和貴州在內的部分中西部省，增速已領先全國。

50萬「買」綠卡中國高管多 China's Super-Rich Buy a Better Life Abroad

根據美國公民及移民服務局 (USCIS) 的統計，去年中國通過在美國投資至少50萬美元而獲得美國永久居留權(即「綠卡」)的投資移民簽證獲得者，在各國中居首位。中國媒體調查顯示，成功投資移民美國的中國居民，多為公司法人和高管。

自1990年美國國會立法通過投資移民以來，主要以吸引外國投資者到美國投資和創造就業機會的移民方式(E-B5)，已經過了20個年頭。這種投資移民，只要外國投資者在美國境內投資100萬美元創建一個商業性公司，並創造十個直接就業機會。在美國經濟受益的情況下，投資者以及配偶和21周歲以下的未成年子女將可獲得二年期限的「條件式綠卡」。

兩年期滿後，如果該投資者的投資行為以及所創造的十個就業機會仍然存在，投資者可申請將條件解除，全家換取永久性美國綠卡。1993年投資移民法規中又特別增設了「區域中心」方案，並把投資額度從100萬美元降到了50萬美元。

「每日經濟新聞」報導，美國政策的逐漸放鬆，使得中國國內的投資類移民出現「井噴」。該報調查顯示，投資移民美國的大都是企業的法人、重要的股東等。一家移民公司表示，該公司每年做的投資移民在200人左右，其客戶條件是，資產1000萬元人民幣以上、有公司管理經驗。最重要的是，想移民的人要證明自己財產的來源一定具有合法性。

該移民公司的內部資料上可看到，投資移民的成功案例中，有建築集團的副總、房地產公司的高管以及大型超市的負責人等。

北京因私出入境中介機構協會會長、東方傑聖諮詢公司總裁齊立新說，投資移民的重點並非投資，而是身分的轉換。這些投資類的移民或者企業家到國外換了身分之後，事業重心其實還是在國內。

他指出，「在投資移民過程中，不可能將財富全盤轉移出去。這些財富包括工廠、設備、資源等，真正轉移出去的也許不是財富，而是他所拿到的現金這種財產」。

Education for the kids, clean air, and rule of law are luring wealthy families to emigrate - Self-made millionaire Li Weijie runs his own ski and golf resort outside Beijing and considers himself a patriot: A lifesize statue of Mao Zedong on a four-meter base towers over the entrance to his resort. What would Chairman Mao say if he knew Li was the proud holder of a Canadian residency card? “I wanted access to the education system and health care of a developed country,” says Li, 43, whose other businesses include one of Beijing’s largest private taxi companies, two car dealerships, and a real estate company. Li now has a $6 million house on Vancouver’s Westside, known for its rich Chinese. His wife tools around Vancouver in a black Maybach while his 20-year-old son drives a dark gray Maserati to classes at the University of British Columbia. His wife and son live in Canada full-time.

What began as a trickle a decade ago when Li moved his family to Canada has become a flood as China’s new rich seek foreign passports or residency permits (commonly known as green cards in the U.S.) largely from the U.S., Canada, Australia, Singapore, and New Zealand. More than 500,000 Chinese have investable assets of over 10 million yuan ($1.57 million), according to a joint survey released in April by China Merchants Bank and Bain & Co. The study says almost 60 percent are considering emigrating, have begun the process, or have emigrated.

In the U.S. so far this year almost 3,000 Chinese citizens have applied for investor visas, up from 270 in 2007. That’s 78 percent of the total applicant pool for this type of visa, according to U.S. Citizenship and Immigration Services (USCIS). The U.S. investor visa, also known as the EB-5, requires a minimum investment of $500,000 by the applicant in a commercial project in the U.S. that employs at least 10 Americans within two years. If the Chinese applicants can’t generate those jobs, they and their family may have to leave the U.S.

The drive to emigrate makes for brisk business for people like Jason Zhang, a broker at Realty Direct Boston, a branch of a nationwide chain. Zhang’s office specializes in settling Chinese in the Boston area. He says this year he has already helped dozens of Chinese families purchase homes and cars (the émigrés often pay in cash, he says) and find the right schools for their children, up from just two or three families in total a few years ago. Wealthy suburbs like Weston and Lexington are top choices.

For the most part, China’s richest aren’t permanently fleeing their country, as some Russian oligarchs have. About 80 percent of the wealthy Chinese emigrating don’t plan on giving up their passports, according to an October survey by the Bank of China and Shanghai-based Hurun Report, which publishes an annual ranking of China’s richest people. Instead, the most common model is that of Li Weijie: Wife and child get foreign passports and live abroad, husband gets a residency permit but spends most of his time in China. “If you think of emigrating like Russians, it is because they are afraid and so are leaving their country,” says Hurun’s founder, Rupert Hoogewerf. “This is not true of the wealthy Chinese at all. They still have their businesses in China and most of their assets are in yuan.”

So why are they looking at residency abroad? The top motive cited is to pursue better educational opportunities for their children, according to the Bank of China-Hurun and China Merchants-Bain surveys, as well as comments from émigrés. The feeling among rich Chinese is that U.S. universities beat out their Chinese equivalents, and their children need to understand the world. Émigrés note that top Chinese leaders such as Xi Jinping, likely China’s next president, send their children abroad to study. Escaping dire air quality and food safety problems are also factors.

Moving a family abroad and obtaining foreign residency cards could also prove useful in case of sudden legal or policy shifts that hurt entrepreneurs, or if social unrest reaches a boiling point. So-called mass incidents—riots, strikes, and protests—doubled in five years, to 180,000 in 2010, Sun Liping, a professor at Beijing’s Tsinghua University, wrote in a Feb. 25 article in the Economic Observer. “Some people in China are talking about class conflicts against rich people,” says Wang Xiaolu, deputy director of the National Economic Research Institute in Beijing. “Maybe some of those emigrating or getting residency are worrying about possible policy changes turning China ‘left’ that will put them in danger.”

One émigré in Boston (who asked only that his last name, Yang, be used since he still owns a factory in China) points out that the Chinese government spent more money on internal security (549 billion yuan) than on defense (534 billion yuan) in 2010. He says that if things got ugly, the rich would be targets not just for being rich but for their close connections with the government. Most of China’s wealthy have an “original sin,” or some illegality relating to earning their “first bucket of gold,” says Yang.

“China develops so fast, and the society is unstable,” says Shengxi “Tina” Tian, an attorney at MT Law, a firm based in Burlington, Mass., that helps wealthy Chinese emigrate to the U.S. Tian points out that the émigrés appreciate the rule of law in the U.S., Canada, and elsewhere.

Some wealthy émigrés are nervous talking openly about why they have sought foreign residencies. “For us businessmen, we go wherever is safe,” says another recent émigré in Boston. “China’s political system and legal system make us feel insecure,” says the businessman, who still runs a furniture business in Shanghai and would not allow his or his company’s name to be used. He later refused to talk further and instead declared his devotion to the Party.

In China, more than 800 licensed emigration service companies (and possibly hundreds more without proper government approvals) coach applicants for visa interviews, help them fill out forms, and identify possible overseas investments. Beijing-based Well Trend United, one of China’s oldest and largest emigration service companies, charges up to $30,000 per client. Well Trend, which has offices in 10 of China’s largest cities and more than 400 visa consultants and agents, says it has helped more than 10,000 Chinese get overseas visas since it opened in 1995. Business will remain strong for at least another decade, says founder Larry Wang. “It helps the U.S. get certain capital while Chinese can realize their dream of seeing the world. It’s supply and demand.”

A serious issue for both the Chinese applicants and their prospective host countries is the origin of their wealth. To ensure that those with criminal backgrounds aren’t let in, and to make sure they’re truly affluent, officials of the U.S., Canada, and other countries want thorough documentation of their assets. That can be difficult. “Wealthy Chinese almost all have a history of evading taxes,” says Gao Tong, who emigrated to Boston six years ago and is now setting up his own immigration services company called Harmonia Capital USA, with his brother, a wealthy Shanghai businessman. “They fear getting caught if they have to report their income globally.”

Some middlemen collude with clients to forge documents, say Well Trend executives, since many émigrés don’t have papers to prove the origin of their finances, or they may have gotten rich through illicit means. “There are more than a few bad apples,” says Victor Lum, a vice-president at Well Trend and a former Canadian visa official. “USCIS takes allegations regarding EB-5 program malfeasance very seriously,” USCIS spokesman Christopher Bentley wrote in an e-mail.

Longer term, if China’s economy continues to grow, the emigration surge could abate. Ski resort entrepreneur Li says some of his friends are reconsidering plans to get foreign residency. In part that’s because of stricter rules in Canada and elsewhere. And while rich Chinese still crave Canadian or U.S. degrees for their children, they may see less reason to emigrate. “When I first went to Canada, I thought China was very backward and it would take 50 years for us to catch up,” says Li. “After 10 years, we can all see that China will absolutely surpass the rest of the world.”

The bottom line: More than half a million Chinese are worth at least 10 million yuan. Many are seeking the insurance of a second home abroad.

Roberts is Bloomberg Businessweek's Asia News Editor and China bureau chief. Zhao is a reporter for Bloomberg News.

December 24 2011 Share

China Subway expansion enables flight to the cheaper suburbs By Wang Ying

New residential buildings keep going up. This construction site is in Rizhao, Shandong province

In the university town of Songjiang, about an hour's drive from downtown Shanghai, a real estate developer is making a big push to lure buyers to a project romantically named Milano Palace.

Shanghai Milan Property Development Co has hired a bus to ferry young couples to the site. As they alight, these prospective buyers are greeted by a horde of salespeople from various agencies waving brochures at their prey.

The main attraction of this project, said Wang Chenyun, a sales agent for Shanghai Deovolente Realty Co, is that all the apartments are the same size, about 90 square meters, which is "ideal for newly married couples".

The average price of an apartment there, around 1.17 million ($184,500), seems right for those buyers, too. To sweeten the deal, Wang said, "We are offering everyone who signs up today a fat discount."

Coco Yang of Milan Property said nearly half of the young couples who saw the apartments that November day made the plunge on the spot to take advantage of the 10 to 15 percent discount.

"I am really tempted," said Chen Weiming, 27, a white-collar worker at a foreign company in Shanghai, while his girlfriend nodded by his side. But, he said, "I want to see some more apartments in other suburbs before making up my mind."

A new way of life

Many young couples in Shanghai are looking for their dream homes farther and farther away in the suburbs. Just a few years ago, both developers and homebuyers in Shanghai largely ignored Songjiang and many other suburbs. That is changing, fast.

This year, hundreds of newly completed apartments in two projects, including Milan Palace, were put up for sale and many more are coming onstream. The trend of moving to the suburbs, especially among young Shanghai couples, is propelled by escalating property prices in inner-city districts and expansion of the subway system.

While Shanghai constructs one of the longest metro networks in the world, the living space of local people and new immigrants is undergoing a profound transformation. Dwelling in the suburbs and working downtown is a new way of life in this economic hub.

Metro boom

In 2005, the city had only three metro lines. By 2008, eight lines were operating. The metro boom was fueled by the successful bid for the Shanghai World Expo, and when it opened on May 1, 2010, a dozen lines were running over a network 420 km long.

By 2020, Shanghai will manage 20 lines with a length of 960 km, a new achievement for the city that flourished in the 1920s and '30s and was dubbed the top economic hub of the Far East.
Along with their stated goal of developing Shanghai's suburbs and satellite cities, city planners are eyeing a more efficient transportation system in the high-density urban areas. For the property sector, the expanding network will enable new, affordable homes in suburban areas to be connected with the traditional core downtown.
Selling the station

The metro network is also triggering more sophisticated forms of real estate development around the city's new hubs - metro stations. Opportunities abound for further development there, according to a report from Jones Lang LaSalle, a global real estate consultancy.

"According to our experience, homes near metro stations can quote a higher price and sell much better than those located less conveniently," said Song Huiyong, a research director with Shanghai Centaline Property Consultants.
Proximity to a metro station is not the deciding factor in a home purchase, but convenient transportation does help the sale, said Joe Zhou, local research director at Jones Lang LaSalle.

"The rapid expansion of the metro network helps people easily balance a life of working downtown and living in a suburban area," Zhou said. "As a result, we have seen a rising demand for homes on the outskirts, and such demand also helped the development of homes and pushed home prices in these areas."

Getting around

The result can mean a lifestyle change. Ma Chenyin, a 21-year-old university student, lived in Huangpu district when she was a little girl.

"I still remember the days I took a ferry to go to primary school in Pudong, since there was no tunnel at that time." In 2001, Ma and her family moved to Pudong New Area because a government construction project was going to take their old home.

Ma said transportation was not convenient at first, but her life improved when she was able to take metro Line 6 to People's Square, the city's center, within half an hour. "The metro lines are both convenient and cheap. I will definitely buy a home within walking distance of a metro station when I get married," Ma said.

"Closeness to a metro line station will bring added value to properties," Song, the research director, said. "Of course everybody loves to live in downtown, close to markets, hospitals and parks. However the affordability of living away from the city center is more practical."

December 23 2011 Share

US solar firms against China duties - Industry group says SolarWorld case threatens to seriously hamper more than US$71 billion of projects

A COALITION that says it represents 97 percent of the United States solar industry has urged solar panel maker SolarWorld to withdraw a petition asking US President Barack Obama's administration to slap punitive duties on China for unfair trading practices.

"The severe tariffs SolarWorld seeks would have a very damaging effect on the solar industry in the United States and would fundamentally undermine many years of effort by all of us who care about the future of solar power," the Coalition for Affordable Solar Energy (CASE) said in a letter to SolarWorld President Gordon Brinser.

"In simple dollar terms, your petition threatens the planned installation of solar electric power systems in the amount of US$11 billion in 2012 and the potential installation of US$60 billion currently in the total pipeline," the group said in the letter signed by CASE chief Jigar Shah.

Shah, who founded the solar services company SunEdison, argued that a 40 percent drop in solar panel prices between 2006 and 2011 has helped spur an eight-fold increase in demand for solar energy over the same period.

"By asking the government to interfere and artificially increase the price (equivalent to putting on a high tax) will only hinder the deployment, cost thousands of jobs, reduce our energy security and further negatively impact an already shaky economy," Shah said in the letter.

CASE said its 145 member companies employ more than 14,000 solar professionals across every major region and in more than two dozen states, including Arizona, California, Colorado, Florida, Nevada, New Jersey, New York, Oregon, Pennsylvania, Texas and Virginia.

In a separate interview, Kevin Lapidus, a senior vice president at SunEdison, said CASE was also beginning an effort to persuade the Obama administration the best way to resolve the case was through a negotiated solution with China.

He drew a comparison with a dispute between the United States and Canada over softwood timber. In that case, US industry also alleged unfair trade practices and the two governments eventually negotiated a deal to govern trade in the sector.

A worker inspects panels at a SolarWorld plant. The firm wants duties put on Chinese products

SolarWorld is the US arm of SolarWorld AG, one of Germany's largest solar products manufacturer. It accuses its Chinese competitors of receiving illegal government subsidies and selling in the US at unfairly low prices.

Along with six other US solar energy firms who have chosen to remain anonymous, SolarWorld filed a case in October asking the US Commerce Department to set duties of more than 100 percent on Chinese-made solar cells and panels.

December 20 2011 Share

The Name of the Trade Game - US court rebukes the US Dept of Commerce on anti-China tariffs

Don't tread on Chinese tire makers

Bills to punish China for not revaluing the yuan get lots of press attention, but the real protectionist damage to U.S.-China trade in recent year has come from old-fashioned antidumping and countervailing duty cases. So a court ruling Monday in Washington that forces the U.S. Commerce Department to rethink the way it handles such matters is welcome.

The ruling, by a three-judge panel of the Court of Appeals for the Federal Circuit, invalidates a methodological trick that Commerce has deployed since 2007 to jack up duties on imports from China and Vietnam. While the case is likely to stay tied up in appeals for some time, the decision is a win for the rule of law and economic good sense.

The case centers on whether Commerce can treat China and Vietnam as both "market" and "nonmarket" economies at the same time. Those terms of trade-law art pack a big punch. Antidumping laws allow Commerce to impose duties on goods that are sold in the U.S. at prices lower than the home-country prices. By designating these two countries nonmarket economies, Commerce gets to measure the "home-country price" by using proxy values from some third country such as Indonesia or the Philippines, on the theory that prices in a nonmarket economy are meaningless.

Yet at the same time, Commerce pretends China and Vietnam are market economies to apply countervailing duties to punish subsidies. Such duties can't be applied to nonmarket economies on the theory that in nonmarket settings subsidies are so endemic they're impossible to measure.

The result of this legalese has been higher duties on billions of dollars' worth of imported steel, tires and other products on which many American businesses and consumers depend. Using a nonmarket-economy procedure for antidumping cases often leads to higher duties than might be the case if Commerce based duty rates solely on the actual costs of production in China or Vietnam.

Meanwhile, if Commerce can't treat them as market economies under the antisubsidy laws, the countervailing duties would completely disappear. Over the past four years, Commerce has used the market-nonmarket trick to impose countervailing duties in 23 cases, with four more currently under investigation.

If this sounds unfair, well, it is. The World Trade Organization has ruled the practice out of bounds, and Commerce itself used to agree. For at least the 25 years before 2007, the department argued it had to pick one designation or the other for trade cases related to countries in the former Soviet bloc or China and Vietnam. The same appeals court that heard this case ruled in the 1980s that Commerce was right then, a view Congress implicitly accepted when it passed two trade-law revisions in the 1980s and '90s that declined to change the law to allow what Commerce now wants to do.

Commerce charged ahead anyway in 2007 with its own creative interpretation of the law aimed at fast-growing, politically contentious imports from China and Vietnam. The court has now put the brakes on that, finding that if Commerce wants to play this game it will need Congress's explicit permission first.

There's always the danger that protectionists in Congress will try to do exactly that, although given the high costs to the U.S. economy it would be foolish to do so. Meanwhile, at least Chinese companies subject to such duties can take comfort from a court ruling that says not even the Commerce Department is above the rule of trade law.

December 9 2011 Share

China Aims to Bypass Heaven in Securing Rain for Crops By Chuin-Wei Yap and Josh Chin

Fresh from scoring another record grain harvest this year, China now plans to get the weather to heel as well.

Rainmaking has now become part of the government’s five-year-term goals, the state-run China Daily reported Friday. Over the next four years, Beijing wants five regional weather control programs to increase artificial rain by 10 percent, it says.

The plan marks a major expansion of China’s “weather modification” efforts, deployed for years in Beijing to sometimes mixed results. Cloud-seeding – accomplished by shooting shells or rockets filled with silver iodide particles into promising puffs of white – was instrumental in clearing the smog out of the skies during the 2008 Olympics and has helped relieve the capital from chronic water shortages. But the effort has occasionally gone horribly, and expensively, awry.

A rocket launcher used to seed clouds to induce rain is seen at a station of the Beijing Meteorological Bureau in Beijing, China.

Existing weather modification operations in Beijing and the northeastern province of Jilin currently produce 50 billion cubic meters of artificial precipitation, the China Daily said, citing the China Meteorological Administration (CMA). The number could read 280 billion cubic meters if “more effective weather intervention measures are taken,” the paper said.

“Because clouds are boundless, weather control is boundless,” CMA official Zheng Jiangping was quoted by China Daily as saying.

The paper said the new rainmaking programs would be established in the northwest, south, southwest and north but added that specifics of the plan had yet to be set. The program was expected to cost roughly 1 billion yuan ($157 million) according to an earlier China Daily report.

Although the techniques used to marshal the weather are modern, the ambition itself is as old as, well, the Mandate of Heaven. One of Beijing’s most famous landmarks, the Temple of Heaven, was built so that Qing Dynasty emperors would have a place to beseech higher powers for plentiful rain and good harvests.

Appropriately, the latest goals for rainmaking are linked to Beijing’s aim of maintaining annual grain yield at about 550 million tons through 2020.

While poor harvests as a result of dry weather were often the political death-knell for emperors of yore, the current rulers have been luckier. They just posted a bumper harvest for an eighth year running, breaking all manner of convention in an industry that usually sees one bad year alternate with two or three successive bumpers.

Amid questions over how long China can keep up that level of grain production, the Communist Party doesn’t appear to be taking any chances with its own mandate.

December 7 2011 Share

A perfect match - A US firm is tapping into China's huge market for wedding services by training planners, who are now often asked to add Western elements to the events

As young mainlanders become wealthier, there is one area where they are increasingly looking to make a big impression on their families and friends and create lifelong memories for themselves: weddings.

And with Chinese spending US$57 billion a year on weddings and half of the young people in the country saying they need help planning their marriage ceremonies, an American company is looking to capitalize on what it sees as a huge business opportunity here: training Chinese wedding planners.

Weddings Beautiful Worldwide has just set up a joint venture on the mainland to bring its expertise in training wedding planners to the country, where young couples can use help figuring out how to spend the equivalent of thousands of dollars or more to celebrate their nuptials.

"With the fast economic development in China, consumers are choosing more unique and personalized weddings, giving a boost to the wedding industry in China," said Raul Vasquez, president of the joint venture, known as Weddings Beautiful China.

Weddings by Ling, the Chinese partner in the venture, is a boutique wedding-planning firm catering to wealthy couples, expatriates and celebrities, and providing online consultation.

It brings a range of established partnerships with flower shops, car-rental companies, hotels offering wedding banquets and other vendors and service providers.

Living in a globally connected world and in a fast-growing economy, young Chinese wanted not only a traditional, formal Chinese wedding ceremony, but modern Western elements such as walking down the aisle with bridesmaids, ushers, a flower girl and a ring bearer, Vasquez said.

The joint venture plans to groom a new generation of wedding planners through an 18-part training course to become a "certified wedding specialist" - a career for which there appears to be ample demand.

"I started preparing for my wedding at the beginning of the year by myself, but it was killing me that I didn't have enough time to think about it and make all the arrangements," said Xue Cong, who works at a real-estate company in Beijing and who got married last month.

"Fortunately my friend introduced me to a Chinese wedding-planning company, which helped me with everything in getting ready for our wedding," said Xue, 27. "They organised a terrific ceremony we will remember all our lives."

There were 250 guests at Xue's wedding, which featured rented limousines and a banquet hall garnished with lights and lilies for a romantic, music-filled party.

Young Chinese are spending more on weddings. With increasing attention on a hopefully once-in-a-lifetime event, greater numbers of young Chinese are pouring more money into wedding-related expenses - some US$57 billion a year, according to the China Wedding Industry Development Report, an industry study. Much of that goes on pre-ceremony photographs, limousine rentals, wedding gowns and honeymoons abroad.

And the price of the all-important wedding banquet has also been steadily rising, accounting for about a tenth of total wedding expenses.

Marriott, the international hotel chain, has seen prices for wedding banquets rise this year by at least 10 per cent, reaching into thousands of yuan per banquet table. But that does not deter young couples from throwing lavish parties.

"We offered various sets of wedding banquets with different prices ranging from 4,888 yuan (HK$5,973) to more than 10,000 yuan per table," said a saleswoman at a Marriott in Beijing who gave her name as Li.

"Reservations for banquet halls this year have dramatically increased compared to previous years, even though the price has risen by hundreds of yuan per banquet table."

Sales of wedding banquets were so popular that celebrating couples needed to book the banquet hall at least six months ahead of time, Li said, adding that she had no doubts that prices would rise further next year.

The cost of fresh flowers has also increased and shoots up even more on days which Chinese consider lucky, such as those with even numbers - especially the number eight, which sounds like a Chinese word meaning to bring about wealth.

One rose costs two yuan this year, double the price last year, said Qin Xiuling, who sells flowers in a wholesale market in west Beijing. Lilies have gone from eight yuan to 10 yuan this year.

"The price goes up by 30 per cent to 60 per cent during golden week, which is the most popular time for Chinese weddings," Qin said, referring to the week-long National Day holiday in October. "The price probably will keep going up as long as there are more weddings next year."

And amid increasing wealth and busier social lives, China has seen growing demand for professionals who can take over organizing their weddings. There are 1,168 wedding-planning companies registered in Beijing, according to the Committee of Wedding Service Industries.

Weddings Beautiful China, which operates only in Beijing for now, is already attracting students from as far away as Shenzhen and Guangzhou. But Vasquez says the company limits the numbers of students to create an intimate learning environment.

"Our job is not only to teach current and aspiring wedding planners western traditions, but to also make them better entrepreneurs by teaching them business management, customer service, marketing and social media, time management, presentation and communications skills," Vasquez said.

And, he said, teaching the future planners the most important lesson in creating the perfect wedding: "Learning to listen to the bride."

December 5 2011 Share

United States willing to issue 5-year multiple entry visas to Chinese: Gary Locke - Envoy says Beijing's reciprocity is a 'prerequisite' for permit scheme that aims to boost America's economy By Verna Yu

"United States throw a curve ball back to China to response" Johnson Choi, President of Hong Kong.China.Hawaii Chamber of Commerce http://www.hkchcc.org/index.htm

The United States is willing to start issuing five-year visas to Chinese nationals, but a reciprocal arrangement is a "prerequisite", Gary Locke, the US ambassador to China, said yesterday.

"Travel and exchanges between our two countries foster a better understanding of our cultures and our people," he told the Committee of 100's Fourth Greater China Conference in Hong Kong. "We'd like to issue five-year visas for Chinese visitors to the US whether for business, travel or study."

Locke said the number of US visas issued to Chinese nationals has almost doubled in the past few years. The number of visa applications from China has also "virtually doubled" in the past five years, with a 40 per cent surge last year, he said.

The US processed more than one million US visas for Chinese applicants in the past fiscal year, which ended on September 30.

Locke said a top priority of his was to reduce processing and waiting times, and increasing the number of visitors to the US.

He pledged to make visa applications more efficient by adding staff members to meet the demand.

More Chinese visitors would help create jobs in the US and help lift its sluggish economy, Locke said.

"If you turn them away, they'll go to France, they'll go to Canada," he said.

"It's in our economic self-interest to ensure we get as many people from China travelling to the US as possible."

Figures from the US Department of Commerce show that more than 801,000 mainlanders visited the US last year, contributing more than US$5 billion to the US economy. The number of Chinese students in the US has risen to nearly 158,000, or about 22 per cent of America's total foreign student population, according to a joint report by the Institute of International Education and the US Department of State.

Acting undersecretary of state Ann Stock said last month that foreign students injected US$21.3 billion into the US economy last year.

Separately, Locke said Washington was concerned about Beijing's shift towards state intervention in the economy and urged Beijing to provide a level playing field for foreign investors. He said opening up China's financial services sector, expanding domestic consumption and fostering innovation would "unleash huge growth potential" for Chinese and foreign firms.

"Increasingly, trade frictions with China could be traced to its pursuit of policy that relies on trade-distorting government action to promote or protect China's state-owned enterprises and domestic industries," said Locke.

"China seems to be embracing state capitalism more strongly each year rather than continuing to pursue economic reform goals. The United States urges the Chinese government to reverse the trend."

December 3 2011 Share

US businessmen helping China devise strong investment model By David Larviere

Seminars, such as this one in Chengdu, help Chinese investors understand the US market.

Normally when business models are discussed, the image which comes to mind doesn't involve Chinese investment. But the result may turn out just as beautiful and captivating. On a recent information-gathering trip to Sweden, James Wang, deputy secretary-general of the China Industries Corporation Association (CICA), was observing Chinese factories that Wang hopes will serve as a business model for US investors in 2012.

"Since several months of development went into how to structure a joint venture in Sweden, it made good sense to use this agreement as a jumping off point to the development of contractual arrangements between the parties in the US," says Florida businessman Joe Walsh, who has spent several weeks meeting with CICA officials. "We will parody these concepts and constructs within the US contracts."

Because the business plan was first deployed in Sweden, it is being referred to internally as "the Swedish model". The project involves several members of the CICA and entails the development of an industrial park in Sweden.

"The Swedish model reflects the basic ideas of developing an industrial economic park," Walsh says. "Although the particulars relating to green technology will not play within the documents, the construct of the financial aspects will be common to both developments. These documents will be meant as a guide to the finished energy park economic development plans."

Beijing-based CICA, with 1,800 members and several chapters throughout China, has been in existence since the 1930s.

"(China) has $1.3 trillion in exports (annually) and, to be honest, there's jealousy among other countries," Walsh says.

"They are wise enough to know that, so they want to put plants in local areas. But here's the problem: They don't know how to build office buildings, warehouses and develop enterprise zones. They don't know how it works in America. They don't know about tax abatement. They want what they call 'services' addressed, such as legal, immigration, real estate, accounting and tax advice," Walsh explains, adding his US group would put together a consortium of professionals who can address all these needs.

Walsh, president and chief executive officer of the South Atlantic Regional Center, signed a Memorandum of Understanding with China in September to develop green technology in the US. "Our goal is to create these technology parks and make them applicable from town to town, much like a mall, with well-known anchor tenants. That's our model," Walsh says. "The Chinese are very interested in anything to do with greening." Walsh says pollution is a problem in Beijing and other large cities because so many Chinese move from the suburbs to the cities to work and buy cars in large numbers.

"They are going through their industrial age but the metrics are so much larger," Walsh says. "We had 100 million people when we (the US) went through ours (in the late 1800s)," he adds. China has about 1.3 billion people in comparison.

"Things are moving very fast and pollution is part of the relationship," Walsh notes. "I spoke to one businessman over there and he wants to make it a cleaner and better world, but it's not going to work unless there's a monetary motive. The motivation is there because in Beijing you can see (the thick pollution) in the air."

Walsh, who is returning to the States in mid-December for Christmas, estimates the project is in the second of about five stages at this point. The third stage will take place in January when Chinese investors start committing dollars. "After setting up the model, we'll have two levels of investment (direct investment and EB-5) with an initial $75 million-$100 million for Phase I, then another $200million-$250 million in two years," Walsh explains. "EB-5 is hot right now because it's a great way to help create US jobs."

The investment immigration initiative, known as EB-5, was enacted by Congress in 1990 as an employment-based immigrant visa for qualified foreigners seeking to invest in a business that will benefit the US economy and create or save at least 10 full-time jobs. Congress is considering adding to the program a real estate investment of at least $500,000 in designated areas.

The EB-5 program is slated to end in October 2012 but Walsh says "there has been a lot of chatter about making it a permanent thing." Currently, it is extended every two years. "It works so we need to make it that way right now," adds Walsh.

Kevin Wright, an attorney who works with Walsh and specializes in securing EB-5 designations, says, "EB-5 is not an immigration bill - it's a job creation enterprise. EB-5 is not selling out America."

Wright has a 100 percent success rate in securing Regional Center designations with about 35 all over the country.

Another appealing aspect of the model is it will incorporate university students. "There will be a quality technology school and development area on our properties for Chinese students and American students, an education process where they can get hands-on experience," Walsh says.

However, the students aren't the only intelligent ones involved. "The Chinese are very smart and shrewd, and they want to nip protectionism in the bud," says Walsh. "But they still need innovation from Western culture."

Walsh has ulterior motives. "I'm 58 years old, so I want to leave something for the next generation. I want to get it started and I think we can do something."

December 2 2011 Share

United States vows to speed up visa process for Chinese Citizens - HKCHcc lobbying efforts seems to be paying off

Robert Griffiths, Consul General, Consulate General of the United States of America, Shanghai, China

Lobbying efforts by Hong Kong.China.Hawaii Chamber of Commerce (HKCHcc is the only Chamber of Commerce in Hawaii supporting this efforts) http://www.hkchcc.org/ in partnership with U.S. Travel Association http://www.ustravel.org/ and Others seems to be paying off.

Chinese citizens applying for US visas will face shorter wait times in the future as the US embassy vowed to speed up the visa application process.

The pledge comes amid an online campaign to stop the use of a call center which charges premium per-minute rates when setting up visa screening interview appointments.

More than 8,700 people in the United States have signed an online petition calling for an end to the 70 US cents a minute charge when making an interview appointment, required as part of the visa process.

In an exclusive interview with China Daily, Charles Bennett, minister counselor for consular affairs at the US embassy in Beijing, said the US was planning a new system that would make the interview scheduling process as easy as "booking an airplane ticket" online.

"Our call center has done very good work for us for many years, but I think we could do better," he said.

It's one of many measures the US is taking in an effort to open its doors to Chinese citizens and investors.

Several steps, such as reducing the interview-screening process, building a new consulate in Guangzhou and expanding current offices, are being taken to ease the entry process for Chinese visitors.

"If we can make some of these changes, and certainly add people and make our processes a little more efficient, it's going to benefit everybody," Bennett said.

During the summer, when students apply for visas for the fall semester and tourism reaches its height, applying for a visa can take up to 100 days.

By increasing staff and eliminating inefficiencies in the application process, the US hopes to shorten the waiting time for visitors, making it easier to travel to the US without having to plan three months ahead during the peak season.

For Chinese business travelers, who often get caught in the mix during the peak season, a quicker interview process means fewer chances of missing a golden opportunity.

"Sometimes it's not possible to plan a couple months ahead, sometimes you can lose opportunities," said Chris Murck, president of Beijing American Chamber of Commerce.

"It would clearly be advantageous to limit the waiting period to two weeks max."

According to Brenda Foster, President of the American Chamber of Commerce in Shanghai, the American Chamber of Commerce's 2011 white paper, 36 percent of businesses said they avoid arranging meetings for suppliers, customers and employees in the US because of the difficulty and waiting time required for US visas. Still, the demand for US visas from China has skyrocketed in the past two years.

In 2010, the US received roughly 800,000 Chinese visitors, more than double the figure 10 years ago, according to the Department of Commerce. With the tourists, businesspeople and students contributing roughly $5 billion to the US economy in 2010, the move is not just an attempt to strengthen ties but also a chance to draw overseas spenders.

"You see a lot of people who, because of the current economic conditions in the US, see increasing the number of foreign tourists to the US, Chinese and others, as something that could be very beneficial to the US economy," Bennett said.

"On the other hand, our primary job still is to protect our borders. That's why we're here, that's why we interview people."

November 26 2011 Share

Children of the China's Revolution By Jeremy Page

China's 'princelings,' the offspring of the communist party elite, are embracing the trappings of wealth and privilege—raising uncomfortable questions for their elders.

Bo Xilai, with his son, at a memorial ceremony held for his father in Beijing, in 2007. Grandfather, Bo Yibo — Helped lead Mao's forces to victory, only to be purged in the 1966-76 Cultural Revolution. Subsequently rehabilitated. Son, Bo Guagua — Graduate student at Harvard's Kennedy School of Government. Father, Bo Xilai — Party secretary of Chongqing and Politburo member, likely to rise to the Politburo standing committee in 2012.

One evening early this year, a red Ferrari pulled up at the U.S. ambassador's residence in Beijing, and the son of one of China's top leaders stepped out, dressed in a tuxedo.

Bo Guagua, 23, was expected. He had a dinner appointment with a daughter of the then-ambassador, Jon Huntsman.

The car, though, was a surprise. The driver's father, Bo Xilai, was in the midst of a controversial campaign to revive the spirit of Mao Zedong through mass renditions of old revolutionary anthems, known as "red singing." He had ordered students and officials to work stints on farms to reconnect with the countryside. His son, meanwhile, was driving a car worth hundreds of thousands of dollars and as red as the Chinese flag, in a country where the average household income last year was about $3,300.

The episode, related by several people familiar with it, is symptomatic of a challenge facing the Chinese Communist Party as it tries to maintain its legitimacy in an increasingly diverse, well-informed and demanding society. The offspring of party leaders, often called "princelings," are becoming more conspicuous, through both their expanding business interests and their evident appetite for luxury, at a time when public anger is rising over reports of official corruption and abuse of power.

State-controlled media portray China's leaders as living by the austere Communist values they publicly espouse. But as scions of the political aristocracy carve out lucrative roles in business and embrace the trappings of wealth, their increasingly high profile is raising uncomfortable questions for a party that justifies its monopoly on power by pointing to its origins as a movement of workers and peasants.

A look at China's leaders, past and present, and their offspring, often known as 'princelings.

Their visibility has particular resonance as the country approaches a once-a-decade leadership change next year, when several older princelings are expected to take the Communist Party's top positions. That prospect has led some in Chinese business and political circles to wonder whether the party will be dominated for the next decade by a group of elite families who already control large chunks of the world's second-biggest economy and wield considerable influence in the military.

"There's no ambiguity—the trend has become so clear," said Cheng Li, an expert on Chinese elite politics at the Brookings Institution in Washington. "Princelings were never popular, but now they've become so politically powerful, there's some serious concern about the legitimacy of the 'Red Nobility.' The Chinese public is particularly resentful about the princelings' control of both political power and economic wealth."

The current leadership includes some princelings, but they are counterbalanced by a rival nonhereditary group that includes President Hu Jintao, also the party chief, and Premier Wen Jiabao. Mr. Hu's successor, however, is expected to be Xi Jinping, the current vice president, who is the son of a revolutionary hero and would be the first princeling to take the country's top jobs. Many experts on Chinese politics believe that he has forged an informal alliance with several other princelings who are candidates for promotion.

Among them is the senior Mr. Bo, who is also the son of a revolutionary leader. He often speaks of his close ties to the Xi family, according to two people who regularly meet him. Mr. Xi's daughter is currently an undergraduate at Harvard, where Mr. Bo's son is a graduate student at the Kennedy School of Government.

“Princelings were never popular, but now ... there's some serious concern about the legitimacy of the "Red Nobility." ”
Already in the 25-member Politburo, Bo Xilai is a front-runner for promotion to its top decision-making body, the Standing Committee. He didn't respond to a request for comment through his office, and his son didn't respond to requests via email and friends.

The antics of some officials' children have become a hot topic on the Internet in China, especially among users of Twitter-like micro-blogs, which are harder for Web censors to monitor and block because they move so fast. In September, Internet users revealed that the 15-year-old son of a general was one of two young men who crashed a BMW into another car in Beijing and then beat up its occupants, warning onlookers not to call police.

An uproar ensued, and the general's son has now been sent to a police correctional facility for a year, state media report.

BO XILAI waves a Chinese flag during a concert with revolutionary songs in Chongqing on June 29.

Top Chinese leaders aren't supposed to have either inherited wealth or business careers to supplement their modest salaries, thought to be around 140,000 yuan ($22,000) a year for a minister. Their relatives are allowed to conduct business as long as they don't profit from their political connections. In practice, the origins of the families' riches are often impossible to trace.

Last year, Chinese learned via the Internet that the son of a former vice president of the country—and the grandson of a former Red Army commander—had purchased a $32.4 million harbor-front mansion in Australia. He applied for a permit to tear down the century-old mansion and to build a new villa, featuring two swimming pools connected by a waterfall.

Many princelings engage in legitimate business, but there is a widespread perception in China that they have an unfair advantage in an economic system that, despite the country's embrace of capitalism, is still dominated by the state and allows no meaningful public scrutiny of decision making.

The state owns all urban land and strategic industries, as well as banks, which dole out loans overwhelmingly to state-run companies. The big spoils thus go to political insiders who can leverage personal connections and family prestige to secure resources, and then mobilize the same networks to protect them.

The People's Daily, the party mouthpiece, acknowledged the issue last year, with a poll showing that 91% of respondents believed all rich families in China had political backgrounds. A former Chinese auditor general, Li Jinhua, wrote in an online forum that the wealth of officials' family members "is what the public is most dissatisfied about."

One princeling disputes the notion that she and her peers benefit from their "red" backgrounds. "Being from a famous government family doesn't get me cheaper rent or special bank financing or any government contracts," Ye Mingzi, a 32-year-old fashion designer and granddaughter of a Red Army founder, said in an email. "In reality," she said, "the children of major government families get very high scrutiny. Most are very careful to avoid even the appearance of improper favoritism."

For the first few decades after Mao's 1949 revolution, the children of Communist chieftains were largely out of sight, growing up in walled compounds and attending elite schools such as the Beijing No. 4 Boys' High School, where the elder Mr. Bo and several other current leaders studied.

In the 1980s and '90s, many princelings went abroad for postgraduate studies, then often joined Chinese state companies, government bodies or foreign investment banks. But they mostly maintained a very low profile.

Now, families of China's leaders send their offspring overseas ever younger, often to top private schools in the U.S., Britain and Switzerland, to make sure they can later enter the best Western universities. Princelings in their 20s, 30s and 40s increasingly take prominent positions in commerce, especially in private equity, which allows them to maximize their profits and also brings them into regular contact with the Chinese and international business elite.

Younger princelings are often seen among the models, actors and sports stars who gather at a strip of nightclubs by the Workers' Stadium in Beijing to show off Ferraris, Lamborghinis and Maseratis. Others have been spotted talking business over cigars and vintage Chinese liquor in exclusive venues such as the Maotai Club, in a historic house near the Forbidden City.

On a recent afternoon at a new polo club on Beijing's outskirts, opened by a grandson of a former vice premier, Argentine players on imported ponies put on an exhibition match for prospective members.

"We're bringing polo to the public. Well, not exactly the public," said one staff member. "That man over there is the son of an army general. That one's grandfather was mayor of Beijing."

Princelings also are becoming increasingly visible abroad. Ms. Ye, the fashion designer, was featured in a recent edition of Vogue magazine alongside Wan Baobao, a jewelry designer who is the granddaughter of a former vice premier.

But it is Bo Guagua who stands out among the younger princelings. No other child of a serving Politburo member has ever had such a high profile, both at home and abroad.

His family's status dates back to Bo Yibo, who helped lead Mao's forces to victory, only to be purged in the 1966-76 Cultural Revolution. Bo Yibo was eventually rehabilitated, and his son, Bo Xilai, was a rising star in the party by 1987, when Bo Guagua was born.

The boy grew up in a rarefied environment—closeted in guarded compounds, ferried around in chauffeur-driven cars, schooled partly by tutors and partly at the prestigious Jingshan school in Beijing, according to friends.

In 2000, his father, by then mayor of the northeastern city of Dalian, sent his 12-year-old son to a British prep school called Papplewick, which according to its website currently charges £22,425 (about $35,000) a year.

About a year later, the boy became the first person from mainland China to attend Harrow, one of Britain's most exclusive private schools, which according to its website currently charges £30,930 annually.

In 2006, by which time his father was China's commerce minister, Mr. Bo went to Oxford University to study philosophy, politics and economics. The current cost of that is about £26,000 a year. His current studies at Harvard's Kennedy School cost about $70,000 a year.

“'The children of major government families get very high scrutiny,' says the granddaughter of a Red Army founder.”

A question raised by this prestigious overseas education, worth a total of almost $600,000 at today's prices, is how it was paid for. Friends said that they didn't know, though one suggested that Mr. Bo's mother paid with the earnings of her legal career. Her law firm declined to comment.

Bo Guagua has been quoted in the Chinese media as saying that he won full scholarships from age 16 onward. Harrow, Oxford and the Kennedy School said that they couldn't comment on an individual student.

The cost of education is a particularly hot topic among members of China's middle class, many of whom are unhappy with the quality of schooling in China. But only the relatively rich can send their children abroad to study.

For others, it is Bo Guagua's freewheeling lifestyle that is controversial. Photos of him at Oxford social events—in one case bare-chested, other times in a tuxedo or fancy dress—have been widely circulated online.

In 2008, Mr. Bo helped to organize something called the Silk Road Ball, which included a performance by martial-arts monks from China's Shaolin temple, according to friends. He also invited Jackie Chan, the Chinese kung fu movie star, to lecture at Oxford, singing with him on stage at one point.

The following year, Mr. Bo was honored in London by a group called the British Chinese Youth Federation as one of "Ten Outstanding Young Chinese Persons." He was also an adviser to Oxford Emerging Markets, a firm set up by Oxford undergraduates to explore "investment and career prospects in emerging markets," according to its website.

In 2008, Bo Guagua invited Jackie Chan to lecture at Oxford—and sang with him on stage at one point.

This year, photos circulated online of Mr. Bo on a holiday in Tibet with another princeling, Chen Xiaodan, a young woman whose father heads the China Development Bank and whose grandfather was a renowned revolutionary. The result was a flurry of gossip, as well as criticism on the Internet of the two for evidently traveling with a police escort. Ms. Chen didn't respond to requests for comment via email and Facebook.

Asked about his son's apparent romance at a news conference during this year's parliament meeting, Bo Xilai replied, enigmatically, "I think the business of the third generation—aren't we talking about democracy now?"

Friends say that the younger Mr. Bo recently considered, but finally decided against, leaving Harvard to work on an Internet start-up called guagua.com. The domain is registered to an address in Beijing. Staff members there declined to reveal anything about the business. "It's a secret," said a young man who answered the door.

It is unclear what Mr. Bo will do after graduating and whether he will be able to maintain such a high profile if his father is promoted, according to friends. He said during a speech at Peking University in 2009 that he wanted to "serve the people" in culture and education, according to a Chinese newspaper, Southern Weekend.

He ruled out a political career but showed some of his father's charisma and contradictions in answering students' questions, according to the newspaper. Asked about the pictures of him partying at Oxford, he quoted Chairman Mao as saying "you should have a serious side and a lively side," and went on to discuss what it meant to be one of China's new nobility.

"Things like driving a sports car, I know British aristocrats are not that arrogant," he said. "Real aristocrats absolutely don't do that, but are relatively low-key."

November 23 2011 Share

China to Cancel College Majors That Don’t Pay By Laurie Burkitt

College students wait in line to hand in their resumes to get interview opportunities from a company at a job fair held on the campus of Shanghai University of Finance and Economics in Shanghai, China.

Much like the U.S., China is aiming to address a problematic demographic that has recently emerged: a generation of jobless graduates. China’s solution to that problem, however, has some in the country scratching their heads.

China’s Ministry of Education announced this week plans to phase out majors producing unemployable graduates, according to state-run media Xinhua. The government will soon start evaluating college majors by their employment rates, downsizing or cutting those studies in which less than 60% of graduates fail for two consecutive years to find work.

The move is meant to solve a problem that has surfaced as the number of China’s university educated have jumped to 8,930 people per every 100,000 in 2010, up nearly 150% from 2000, according to China’s 2010 Census. The surge of collge grads, while an accomplishment for the country, has contributed to an overflow of workers whose skillsets don’t match with the needs of the export-led, manufacturing-based economy.

Yet the government’s decision to curb majors is facing resistance. Many university professors in China are unhappy with the Ministry of Education’s move, as it will likely shrink the talent pool needed for various subjects, such as biology, that are critical to the country’s aim of becoming a leader in science and technology but do not currently have a strong market demand, a report in the state-run China Daily report said.

An op-ed in the Beijing News criticizes the approach for a different reason, saying that it will only spur false reporting of employment rates from schools that are looking for greater autonomy to produce more diversified, higher qualified students.

Official data already shows that the country’s educated jobless, referred to as the “ant tribe,” appear to be decreasing. In 2010, 72% of recent graduates found work, up from 68% in 2009, according to the Ministry of Education.

None of the reports specified which majors would be cut under the new rules, but there are signs that some universities have already started taking steps to decrease the size of programs that don’t result in paid positions. Enrollment in a Russian program at China’s Shenyang Normal University was cut to 25 students this year from 50 in previous years, according to a report in the China Daily.

Education has become a heated topic in China, as the country looks to propel the rise of its own companies and its own technologies. To succeed in that quest, the government has said, the country must produce more innovators. Tight restrictions over education are seen as the reason that creativity in China has been stifled and as the reason that so many have chosen to flee overseas for their studies.

Chinese have questioned whether someone like Apple founder Steve Jobs could ever emerge from an education system that seeks to push down students who stand out from the crowd.

Many Chinese students with enough funding have turned to universities in the U.S., which have a history of churning out graduates who’ve gone on to become some of the world’s top innovators. Last year, 128,000 Chinese students went to the U.S., making China the country with the highest number of overseas pupils in American universities, according to a 2010 report from the Institute of International Education.

But as the U.S. struggles to cope with its own generation of jobless graduates, the American education system has also come into question and many American college students are rethinking the value of their own majors. What if the U.S. government were to adopt China’s approach? According to the most recent U.S. census data, among the first majors to go: psychology, U.S. history and military technologies.

November 15 2011 Share

Amy Tan on China, Then and Now - the divide between China and America through novels that examine the emotional minefields of families and the clashes that come from cultural misunderstandings By Debra Bruno

Novelist Amy Tan has spent most of her life examining the divide between China and America through novels that examine the emotional minefields of families and the clashes that come from cultural misunderstandings.

Now the writer — whose novels “The Joy Luck Club,” “The Kitchen God’s Wife” and “The Bonesetter’s Daughter” all tackle the conundrum of Chinese-American identity — is applying her perspective on that divide to this week’s U.S.-China Forum on the Arts and Culture.

Ms. Tan reflected on what she hopes will come of the forum, and what it means to be an American with emotional connections to China.

What do you think of China today?

It’s unbelievable. What strikes me as funny, though, is how many people in the U.S. still believe it’s so repressive that you can’t carry a camera around. I tell them the biggest danger is that someone will try to sell you a cheaper camera. They think it’s hard to do anything. They think of it as Shangri-la, with Byzantine ways to get around. They ask me, how do I come here? You take a flight. There’s a knowledge gap in the U.S.

What was it like the first time you visited China?

It was in 1987. Pudong and the Shanghai skyline were unbuilt. You look at the skyline now, it’s unbelievable. It’s a symbol of the degree and rapidity of change.

At a certain point, China seemed to have changed every six months. But I don’t come here often enough to keep abreast (of the changes). When I came in ’87, there were no private cars, just those for government officials. Everyone used a bicycle. The streets were just filled with bicycles and carts and these Stalinist-patterned trucks.

When I met my sisters (Tan’s mother had left children in China when she emigrated), they were wearing very bland blue suits, kind of a transition between the old blue uniforms. My uncle was wearing a nice tan wool Mao jacket; he looked very dignified.

Your mother plays such a large role in everything you write. What do you think your mother would think of today’s China?

She would say, “Maybe I could live here part-time.” She used to threaten me, “Maybe I go back to China — you don’t care.” When we were here together (in 1987), she focused on the cleanliness. She came and stayed for a couple of months. But now she would have been complaining about the prices.

Would you say you’ve spent your career bridging the gap between the U.S. and China?

At the beginning of my career as a writer, I felt I knew nothing of Chinese culture. I was writing about emotional confusion with my mother related to our different beliefs. Hers was based in family history, which I didn’t know anything about. I always felt hesitant in talking about Chinese culture and American culture.

Listen, I am an American, steeped in American values. But I know on an emotional level what it means to be of the Chinese culture.

You’re on a panel with Yo Yo Ma. What do you hope will come of the conversation?

I think it will be interesting to those of us with the forum, for one thing. We’ll have our eyes opened to how we view art and culture. But for the Chinese people on the panel and audience, it will be more, because they’ll open the eyes of the American side.

I think many in the States think Chinese people have no voice whatsoever, no means of expressing themselves. I think the forum participants are more knowledgeable, but I think they will be surprised at the degree of the individuality of the art.

Do you think the question of censorship will come up?

Chinese artists have been subversive over thousands of years, taking what they think of the government and embedding it in their art. There might be censorship of not going as far as they might.

But the thing that people don’t realize when they criticize the government is that the consequences are not necessarily good. They do not necessarily lead to positive change on this side. I’ve heard people say, “They must be listening to us because they just increased the sentence of an artist.” But that’s not a good outcome.

That’s why I’m happy to be part of a group like this. [Director of the Asia Society’s Center on US-China Relations] Orville Schell (one of the principal organizers of the conference) understands this; he said that the relationship has to move beyond a lack of trust and build on something more constructive. But it’s not starting with the most controversial or abrasive.

When I think of building relationships, I use my mother as a metaphor. If I disagreed with her, would yelling at her lead to any kind of change? No. Would building a relationship? Yes.

Speaking of your mother, we’re approaching the anniversary of her death. Do you mark the occasion?

We have the family over, and it’s always around Thanksgiving. We make potstickers and criticize them. We say, “no one could make them as she did.”

But for me, it’s not just once a year. She’s in my mind all the time. I hear her voice every day.

October 13 2011 Share

United State's reality gap on trade deficit - about US$10 to firms who assemble the iPhone in China

A student holds up Apple iPads outside Apple's flagship store in Beijing. The impact of the yuan on trade is under scrutiny.

Economic arguments may have little impact in Washington, but US efforts to put pressure on China are unlikely to create American jobs.

For every Apple iPad sold in the US, that nation's trade deficit with China increases by about US$275.

Yet by far the most value embedded in the device accrues to Apple and sustains thousands of well-paid design, software, management and marketing jobs in the United States.

By contrast, the value captured in China by the laborers who assemble Apple's products is only about US$10 or so, according to researchers led by Kenneth Kraemer of the University of California, Irvine, who collated the data.

Viewed through this prism, offshore manufacturing of electronic products such as the iPad is a solution, not a problem, for the US, and seeking to punish China for its purportedly undervalued exchange rate is wide of the mark.

"Without China, Apple could not be so successful and Apple products would not be so affordable," Yao Shujie, professor of economics at the University of Nottingham in England, said.

In the case of the iPad, China is the final assembly point for components imported from economies including South Korea, Japan, Taiwan, the European Union and the US. There are no Chinese suppliers for the iPad.

"China is sitting in the middle. It is processing goods for rich countries," Yao said. As such, he argued, it would be more accurate to allocate most of China's bilateral "iPad trade surplus" to those supplier countries.

Kraemer agreed that trade data could mislead as much as inform.

Statistical agencies are working on more accurate breakdowns of the origins of traded goods by value added, which would be attributed based on the location of processing, not on the location of ownership, he said.

"This will eventually provide a clearer picture of who our trading partners really are, but, while this lengthy process unfolds, countries will still be arguing based on misleading data," Kraemer and fellow authors Greg Linden and Jason Dedrick said in a recent paper.

Such economic niceties have little impact on US politicians. The US Senate on Tuesday passed a bill aimed at getting China to raise the value of the yuan in an effort to save American jobs. The legislation now heads for the House of Representatives, where its fate is uncertain.

The bill would allow the US government to impose duties on products from countries found to be subsidising their exports by undervaluing their currencies.

Fred Bergsten, director of the Washington-based Peterson Institute for International Economics, reckons a US$100 billion improvement in the US current account deficit would translate into 600,000 jobs.

But Fredrik Erixon, director of the European Centre for International Political Economy, a think tank in Brussels, said America's trade deficit had deep demographic and other structural roots. As such, even a substantial rise in the yuan would lead to only a marginal increase in US jobs.

"Multinational firms that think currency appreciation is going to have a big effect on their export capacity from China to the United States are going to shift to other countries, not to the United States," he said.

Indeed, manufacturers are already abandoning low-margin sectors in response to the steady rise in the yuan, which is up 30 per cent in nominal terms against the US dollar since 2005, plus fast-rising costs for labour, land, energy and other inputs.

Jonathan Anderson, chief emerging-markets economist for UBS in Hong Kong, said US and EU trade data showed that China's share of total low-end light manufacturing imports had peaked over the past 24 months and was falling outright in the US.

Gaining at China's expense were its even cheaper neighbours, including Vietnam, Bangladesh and Indonesia, as well as Mexico, Anderson said.

Strikingly, while overall US imports of apparel and furniture have continued to increase over the past two years, domestic production has plummeted. Foreigners have gained, not lost, market share.

Anderson said it made perfect sense that US workers were not the beneficiaries of rising Chinese wages.

"If US$300 per month for a 65-plus hour working week is too rich for, say, basic toy manufacturers, do they go to the US and pay US$1,200 a month plus benefits for a 40-hour week at the minimum wage, or do they go to Bangladesh or Cambodia, where workers put in Chinese-style hours for less than US$100 a month?" he wrote in a recent report.

Only by forcing a massive rise in the yuan or imposing implausibly high tariffs could such a cost gap be closed. The threat of trade and currency wars, which is likely to be a refrain at this weekend's meeting of Group of 20 finance ministers in Paris, could then become a reality.

"The gradual concentration of electronics manufacturing in Asia over the past 30 years cannot be reversed in the short to medium term without undermining the relatively free flow of goods, capital, and people that provides the basis for the global economy," Kraemer, Linden and Dedrick wrote.

They said they did not want to imply that there was no hope for US manufacturing, but it was design, computing and marketing, not snapping a moulded plastic case in place, that created high-wage jobs. In any case, Mexico could handle final assembly at a relatively low cost.

"Bringing high-volume electronics assembly back to the US is not the path to `good jobs' or economic growth," they wrote.

September 19 2011 Share

How foreign shores lost their luster? Many Chinese who have been educated and lived abroad return to the motherland - some affected by the September 11 attacks, others by the bad economy By Ed Zhang in Beijing

Many Chinese who have attended graduate school and worked in the West are moving back to their homeland to start up their own enterprises or serve international companies. They are commonly called haigui, literally "sea turtles", or overseas returnees.

Some from the United States carry with them the memories of the September 11 terrorist attacks 10 years ago, as well as a deeper and more complex understanding of their former host country.

Eugene Sun, a corporate communications consultant, said that even though he and his family moved back to his hometown of Beijing six years ago, he still missed New York.

"That's why we got our apartment near the Chaoyang Park. It makes me feel as if we're overlooking Central Park," he said.

His return was partly because of September 11, Sun said, calling the US Patriot Act, passed a month after the attacks, "a reproach to democracy". The law led to a tightening of immigration controls in the US.

"To think that one man could screw up the strongest country in the world like this," he said, referring to Osama bin Laden.

Sun was a day trader back then. He was on a cigarette break with a Russian friend near their office a few blocks from the Empire State Building when they saw the first World Trade Centre tower collapse.

Xiao Yan agrees that September 11 changed everything. Xiao, who now works for an international financial services company on the mainland, said tighter immigration policies and cuts in financial aid made things difficult for foreign students for a time.

But Joe Xia - working for the New York edition of a Hong Kong-based Chinese-language newspaper at the time - said the damage from September 11 was only on the surface.

"It produced a great visual impact, an effective piece of propaganda work," said Xia, now working in the energy industry in Beijing.

"The aftermath was only brief, by which you could tell that [the US] was a very strong and resilient society - with strong industry and creative people."

In fact, he said, nothing had harmed the US more than the "reckless behavior of Wall Street" - referring to the toxic securities that led to a global financial meltdown and the subsequent government bailouts, in which the public paid for losses incurred by a few people.

Xia returned to China only recently, partly because of the rapid change in the media industry and partly because of the 2008 recession, he said.

In contrast, Daniel Hu made up his mind to return to work in China a long time ago.

"From the time of the Oklahoma City bombing [on April 19, 1995], I learned how they would treat foreigners, even in primary school," he said. "For days, people thought the suspect must be some sort of foreign die-hard, and even kids in our school were separated into different groups - American kids, Muslim kids, non-Muslim foreign kids.

"Then it turned out that the suspect was just a local man. And it turned me off so much. Anything happens, they blame foreigners. And bin Laden was just smart in using this to lure the US into fighting two costly wars and not attending to their own economy."

Hu is now between jobs after working for a state-owned company for three years.

For most Chinese returnees, the primary reason for coming home is economic opportunity. That was why the emigration wave did not crest right after September 11, but only after the economy showed danger signs.

There are two career tracks for the most successful returnees: They either work in universities, or for the China operations of a reputable international company.

Wang Shufeng, a chemical physicist, said he was satisfied with working at a top-notch university in China. He has a laboratory, students, assistants and grants from the government.

"I have no problem with any of these," he said, although he acknowledged that he was still at a loss in dealing with all of the red tape.

Among the 86 candidates listed this year for membership of the Chinese Academy of Science, 71 have had overseas educational and work experience and 30 obtained their doctorates at universities in other countries.

Xu Heng, who works for a leading international firm in Beijing, said that when she graduated in the US, it was obvious that the job market there had dried up and China still had plenty of opportunities. "The horizon for personal development looks much broader here," she said.

Partly because of the economic difficulties in the US, more than 80 per cent of returnees say they believe there are more business opportunities in China right now, according to www.People.com.cn, a subsidiary of the official People's Daily.

Figures from mainland education authorities show that from 1978 to last year, 1.9 million students went abroad, in contrast to only 130,000 during the previous 106 years.

The number returning to China after their study overseas increased steadily in the mid-2000s, from fewer than 34,900 in 2005; to 70,000 in 2008; 100,000 in 2009; and 135,000 last year.

Because of relaxed student-visa policies and an increase in domestic household incomes in recent years, the number of outbound students has also seen a marked increase, from 229,000 in 2009 to 285,000 last year, official media reported.

For returnees, the welcome mat is out. The government is eager to recruit more overseas-trained professionals for its 12th five-year plan. It hopes to draw half a million or more returnees for the whole period, said Xia Wenfeng , an official familiar with "returnees' affairs" at the Ministry of Human Resources and Social Security, during a meeting of the Western Returned Scholars Association late last month.

The government aimed to recruit returned scholars for a few priority areas, including in new technologies, regional development, agriculture and social programs.

September 9 2011 Share

Hiring employees from Hong Kong, Macau amd Taiwan for your China operation will save you 37% Social Security Tax By Daniel Ren

Hongkongers may dodge new tax after U-turn - Mainland bosses could be stung for 37 per cent of expat salaries but Chinese nationals from HK, Macau and Taiwan likely to escape social security payment.

Chinese nationals from Hong Kong, Macau and Taiwan are likely to be exempt from the mainland's new social security tax going into effect next month. But all expats from countries that have not signed bilateral agreements with Beijing will have to pay up to 11 per cent of their income to social security funds.

Employers will be required to pay an extra 37 per cent of a foreign employee's salary to the social security accounts under the rule published by the Ministry of Human Resources and Social Security.

The new rule represents an about-face by Beijing, which previously planned to apply the tax to residents from Hong Kong, Macau and Taiwan. Two people who saw a draft copy of the rule said the ministry deleted the clauses involving residents from the three places in the final version. The ministry could not be reached for comment yesterday. "It's not clear why the rule was revised to exempt the Hong Kong workers," said one corporate official who is close to the regulators.

"But the authorities have to clarify many details of the new policy since the impact will be huge on thousands of companies."

The rule will take effect on October 15.

It is unknown whether non-ethnic Chinese who obtained ID cards in Hong Kong are exempt from the tax.

At least 10 countries - including the United States, Japan and Russia - have lobbied Beijing to sign bilateral agreements so that the rule could contain a waiver for their passport holders.

The ministry did not mention which countries had already signed the pacts.

Before, foreigners and Hong Kong people working on the mainland could voluntarily pay social security tax to local accounts if they hoped to receive pension income from the mainland accounts after retirement. The new rule "is designed to protect the legal rights of the foreigners so that they can benefit from the domestic social security system", the ministry said.

However, businesses and individuals thought otherwise.

"It doesn't seem to be a well considered rule," said David Lore, an American journalist who has been working on the mainland for more than a decade. "My concern is that our money would go into somebody's pockets."

All of the company officials interviewed by the South China Morning Post (SEHK: 0583, announcements, news) were critical of the new rule and said they were confused about the motivations behind the policy.

"This is another fresh example of the Chinese government spoiling the business environment for foreign businesses," said a human resources officer with a British consultancy. "We would choose not to abide by it initially since there's no mention of a penalty in the rule."

Hu Jingjing, a corporate lawyer at state-owned recruitment firm China International Intellectual Shanghai, said: "The rule will certainly have a negative impact on both domestic and foreign companies."

September 6 2011 Share

China to Overtake Japan in Luxury Demand

Shoppers look at an Emperor Watch & Jewellery display in Hong Kong.

China’s consumers are pushing the nation to the top once again.

It will overtake Japan this year to be the country with the biggest appetite for luxury goods, HSBC predicts in a research report issued late last week. The broker said that it expects China’s consumers to keep spending, even if their affluent counterparts in the West stop.

The reasons are, at least in part, cultural. “Displaying wealth has become a trend in China, and we think this will continue to translate into growing purchases of luxury goods for oneself, or as gifts,” HSBC said. “We think consumer habits may not necessarily always correspond to income levels due to the need to socially fit in and show off wealth.”

It added a historical note: “In Chinese and Russian communist societies, individual property was not allowed and private wealth was traditionally suspicious. With the liberalization of the economy, a new class system was created where your place on the ladder may depend on how much money one earns, and owning luxury goods can help display the level of one’s wealth.”

Social changes occurring around the world, such as people marrying later, women’s growing financial independence and increasing brand awareness, may also be fueling the growth in China, HSBC said.

Aug 31 2011

Hong Kong: China’s RMB Center

Speaking at a forum on China’s 12th Five-Year Program, China’s Vice Premier of the State Council Li Keqiang unveils new economic initiatives to strengthen Hong Kong’s developing role as the mainland’s renminbi center

Beijing has unveiled a raft of new economic measures to boost Hong Kong’s status as an international financial centre, and help Hong Kong companies gain a stronger foothold into the Chinese mainland market. The mainland’s Vice Premier of the State Council Li Keqiang announced the latest Central Government initiatives during a visit to Hong Kong earlier this month. Mr Li said it was in the interests of all concerned that Hong Kong continue “to bring out the unique advantages it has developed over the years and play its irreplaceable role in the mainland’s reform, opening-up and modernization drive.”

The new initiatives will further open up the mainland market to Hong Kong’s services industry. It will also upgrade Hong Kong’s standing as an international financial capital, expanding Hong Kong’s role as an offshore renminbi centre.

Green Light for Mainland Equity Investors

More mainland companies will be allowed to sell renminbi bonds in Hong Kong under new measures announced by the Central Government

Of the measures unveiled, 12 are related to financial services and the development of the offshore renminbi market. One will allow mainland investors to invest in Hong Kong stocks through the long-awaited index-tracking Exchange Traded Fund, which will be launched this year. Another scheme, allowing companies to settle trade in renminbi in 20 provinces, will be expanded nationwide.

More mainland companies will also be allowed to sell renminbi bonds in Hong Kong. Mr Li, during his visit, officiated at the launch of the third issuance of Rmb20 billion worth of mainland sovereign bonds in Hong Kong, the largest to date.

Industry representatives believe the move will reinforce Hong Kong’s role as China’s renminbi centre. “Encouraging more mainland enterprises to issue yuan bonds in Hong Kong will help diversify yuan-denominated products in the city,” Standard Chartered Bank (Hong Kong) Chief Executive Benjamin Hung was quoted in The Standard, a Hong Kong daily newspaper.

“China is speeding up its pace of internationalising the currency by these new measures,” Andrew Fung, head of treasury and investment at the Hang Seng Bank, told the South China Morning Post. “Most importantly, the Vice-Premier has confirmed Hong Kong’s role as an offshore yuan trading centre for China.”

Free Trade by 2015

Vice Premier Li Keqiang checks out the day’s trading results during a visit to the Hong Kong Stock Exchange

In addition, the latest supplement of the Hong Kong-mainland Closer Economic Partnership Arrangement, expected to be signed in October, will broaden Hong Kong’s access to mainland services industries. “The target is to realise free service trade with Hong Kong by the end of the 12th five-year period,” Mr Li said at a Hong Kong forum on China’s 12th Five-Year Program. Sectors to be opened up include banking and insurance, allowing Hong Kong companies to set up across the border.

“Taken as a whole, this comprehensive range of new measures will provide substantial opportunities across a wide spectrum of Hong Kong business activity,” said Hong Kong Chief Executive Donald Tsang. “This will help us maintain economic growth at a time when global economic conditions are fragile.”

Services Advantage

Financial Secretary John Tsang said that moves to open up the mainland services industry offer huge advantages to Hong Kong companies. He noted that Hong Kong’s services industry makes up 93 per cent of the city’s GDP.

“China lags far behind developed countries by 20 per cent, where the service industry on average accounts for about 70 per cent,” he said. “For those companies that want to tap the mainland’s market and help lift the industry standards higher, there is a huge and long-term opportunity for Hong Kong, as the services sector is one of our strengths.”

August 13 2011

New US envoy Locke aims to cement ties - Internet users amazed at low-key arrival in Beijing of first Chinese-American ambassador By Zhuang Pinghui

America's new ambassador to China, the first Chinese-American to hold the critical post, has arrived in Beijing amid speculation on how the new envoy will promote mutual trust while handling the many differences between the two countries.

Speaking at Beijing airport (SEHK: 0694) late on Friday night, Gary Locke expressed his excitement at taking up his new assignment and was confident he would be good bridge between the two nations.

"I am very excited to be here as US ambassador to the great country of China. The whole family is excited," said Locke during an interview with China Central Television. "The US and China have many areas of co-operation and great opportunities to improve our relations."

He said he would present his credentials and visit schools yesterday.

Locke's flight to Beijing itself has become an online sensation, with many internet users amazed that one of America's most important diplomats was seen flying in economy class, with no bodyguard or entourage and carrying his own luggage.

An internet user at weibo.com, Tang Zhaohui , a technology businessman, said he was standing in queue for coffee behind Locke at Seattle airport when the ambassador, who was carrying a backpack, handed what appeared to be a voucher to the cashier who later told Locke it could not be used.

"He didn't give the ambassador any face at all," Tang said. "But the ambassador wasn't angry and paid with his credit card instead." Tang posted a photo Locke at the coffee lounge online.

Locke's family were also seen on television carrying their own luggage.

Almost 7,000 internet users left comments at Tang's photo, with most praising the Locke's down-to-earth style.

Some joked that the ambassador, previously the US secretary for commerce and a former governor of Washington state, looked more like a petitioner in Beijing than "a typical township official from China who would be taking a far more extravagant trip than this".

Some also warned about holding too high expectations of Locke that, despite his Chinese roots and appearance, was an American who would stand up for the interests of his country.

The state-owned media welcomed Locke with reports urging him to help "rebuild" America's financial reputation.

"Amid the concerns over the gloomy economic future of the US, it is Locke's responsibility to relieve anxiety in China towards US debt after the downgrade of US government's credit rating," reported China Daily, citing Zhou Qi, a top researcher at the Chinese Academy of Social Sciences.

By far America's largest foreign creditor, China held US$1.16 trillion in US debt in May.

Locke has his work cut out for him, but boosting the credibility and stability of US debt and minimising the side effects brought by the US' recent credit rating downgrade were certainly important.

August 2 2011

United States has much to gain from China: Gary Locke - the new US ambassador to China

Hillary Rodham Clinton swears in former commerce secretary Gary Locke as the first Chinese-American US Ambassador to China

Gary Locke on Monday formally resigned as United States commerce secretary and became the new US ambassador to China, promising to reap benefits from a difficult and sensitive bilateral relationship.

Sworn in by US Secretary of State Hillary Rodham Clinton, who alluded to the challenges he will face, Locke, the first Chinese-American to hold the prestigious post, said both countries had much to gain from each other.

Locke said he would continue co-operative work to curb climate change, seek cleaner sources of energy and stop nuclear proliferation, as well as efforts he pursued as commerce secretary to open Chinese markets to US goods and services.

The new envoy succeeds Republican former Utah governor Jon Huntsman, who left Beijing three months ago to run against former boss, US President Barack Obama, in next year's election.

Locke also vowed to manage areas where he said the two countries have "differences" or "serious disagreement". These include Beijing's export-driven economic policies, and growing military spending.

Locke, 61, takes over at a time of tensions in U.S.-China relations, which have been fraught over a range of disputes including Beijing's export-driven economic policies, growing military spending and human rights record.

The two countries also have differences over U.S. arms sales to Taiwan, U.S. support for Tibet and China's pursuit of claims over potentially resource-rich islands in the South China Sea.

“I will work to keep the lines of communication open, to convey the administration's positions clearly and to engage with Chinese government officials at the highest levels,” Locke said, referring to “sensitive” areas.

He also hoped “to do more to communicate directly with the Chinese people to improve understanding between our two great nations.”

In May, Obama nominated John Bryson to serve as the next commerce secretary. Pending his confirmation, acting deputy commerce secretary Rebecca Blank will serve as acting commerce secretary.

In a Commerce Department statement announcing his resignation as commerce secretary, Locke touted what he said were increased exports, a reduced backlog for patent applications and a first step toward reforming export controls.

July 27 2011

Branding on the Mainland China

Alex Lau, Manager of the Intellectual Property Center at the Federation of Hong Kong Industries, is an IP advisor to the Hong Kong Trade and Industries Department. He recently spoke at a China Business Workshop, organized by the Hong Kong Trade Development Council, on how to brand on the Chinese mainland.

What are the first steps for an enterprise that wants to set up on the Chinese mainland?
If you want to do business on the mainland, the first thing is to get a registered trademark and a registered domain name. The three: product, brand and trademark, should be one.

Companies should think of developing different brands if one brand has already been well accepted. Doing so increases the chance of being remembered and helps the company gain market share. It also raises the bar for other companies entering the market. Many such examples abound, including P&G, which has developed different hair-care brands under the names: Rejoice, VS Sassoon, Pantene Pro-V, Head & Shoulders, Wella and Clairol, to meet the diverse needs of consumers and to target different customers.

When does trademark ownership take effect on the mainland?
The protection of intellectual property is such an important issue including on the mainland. Due to different rules and regulations, trademark ownership is decided based on the time the brand was registered. In Hong Kong, trademark useage takes effect immediately. You are allowed to use the trademark before registering it. But on the mainland, a trademark is allowed to be used only after registration and if no other companies have registered the trademark before.

It also usually takes three months for a trademark to get registered in Hong Kong whereas on the mainland, it could take up to three years. If a company has no trademark, the brand name should be unique enough to stand out from others. Names such as Kodak and Revlon were especially designed in order to create brand awareness in a shorter period of time.

What are some of the little-known details businesses should be aware of when registering a trademark on the mainland?
The Nice Agreement is a classification of goods and services for the purpose of trademark registration, which has become international practice since 45 classes were identified in France in 1957. It’s extremely important for applicants to specifiy what classes their trademarks belong to when planning to register.

Sometimes you get a situation when company A registers a trademark for classes 1 to 10, and company B registers the same trademark for classes 11 to 20. If that’s the case, it takes a great amount of time for the companies to succeed in the market. That’s why a trademark should always come with a suitable market strategy for brand promotion.

What are some of the pitfalls?
Businesses on the mainland should stay vigilant to all the products they sell under the trademark because they would be held accountable if there are quality concerns even in just one of the products.

A successful brandname does not come overnight. For example, McDonald’s slogan “I’m loving it” did not take off until 2006 after a three-year advertising campaign. And it took nearly a decade for Nokia’s “Connecting People” and Apple’s iPhone to start becoming household names.

What specific advice do you have for would-be franchisers and licensors?
Franchising and licensing are common strategies for companies to expand on the mainland. A franchisor or a licensor would be responsible for the quality of the products sold by their franchisees or licensees, which is clearly stated by mainland rules and regulations. However, these rules do not apply to franchisors or licensors in Hong Kong. The Chinese Trademark Law has clear provisions regarding this. There are other relevant provisions on other aspects regarding quality inspection and control, consumer protection and fair competition.

Are there any other unique rules specific to trademark registration?
Language is important. It is crucial to assign a Chinese name for an English brand when it comes to registration, because there could be homophonic Chinese names already in use.

Companies also need to pay attention to time limits on the mainland. For instance, a company might lose a registered trademark if it has been inactive for three consecutive years; and companies with a well-known trademark can’t sue a similar trademark for infringement if no action was taken within five years.

July 19 2011

Trading Progress With Beijing - The global trading system incentivized China to drop its "indigenous innovation."

If there's one bright spot in a financially unstable world, it's that the international trading system is proving more resilient. China won a World Trade Organization Appellate Body ruling on EU-imposed antidumping measures last week. And earlier this month Beijing avoided a possible WTO complaint and voluntarily rolled back measures that restricted foreign competition in its domestic markets.

Blades for wind turbines manufactured for Tang Energy Group in China are off-loaded for delivery to Tooele Army Depot in Tooele, Utah, at the Port of Long Beach, California, U.S., in 2010.

China eliminated three "indigenous innovation" rules that gave domestic companies preferential treatment to government contracts. During his visit to Washington in January, President Hu Jintao pledged to eliminate the protectionist rules, and Beijing carried through on that promise. However, the true test of whether this protectionist episode is in the past will be how the new policy is implemented at the local level.

The idea of promoting indigenous innovation surfaced in 2006, as Beijing directed several government agencies to come up with laws which would promote domestic products and technologies. This expanded into a regulatory framework that gave those domestic companies deemed sufficiently innovative access to tax benefits, financing, priority in receiving government contracts and other forms of preferential treatment.

The biggest component of "indigenous innovation" policies deals with the government procurement market. The American and European Chambers of Commerce in Beijing complained these polices shut out foreign companies from business with government at all levels. With three of the most irritating rules removed, foreign businesses are encouraged but warn not all their concerns have been allayed.

Among the biggest questions is how local governments will respond. City and provincial governments account for the bulk of the government procurement market. While the central government's Ministry of Finance has directed the changes at them, local government bureaucrats and politicians may still favor local companies when making purchasing decisions.

Many local governments have set up product catalogues which determine what they can buy, and these catalogues are now made up almost entirely of domestic products. The US-China Business Council found that of 523 products listed in Shanghai's "indigenous innovation" catalogue, just two were made by foreign companies. China has yet to direct local governments to eliminate these catalogues, which constitute a major barrier to foreign companies obtaining access to the government procurement market.

The Commerce Ministry expressed its satisfaction Saturday with its antidumping win at the WTO. That victory is a reminder that respect for trade agreements benefits all countries, but arguably none more than China. Beijing has plenty of incentive to make sure local governments live up to Mr. Hu's promises, and not to embark on more programs that let the protectionist genie out of the bottle.

July 18 2011

How to Marry Rich in China By Robert Frank

With wealth comes gold-diggers, and China now has a bounty of both.

Chinese now can learn how to shop for millionaires and billionaires.

A new school called in Beijing called the Moral Education Center for Women is offering courses in how to snag a billionaire or millionaire. The 30-hours of training, which costs $3,000, teaches them everything from proper make-up application to conversational skills and traditional tea-pouring techniques, according to this Reuters article. They also learn how to read a man’s character and status. (China has yet to launch an equal-opportunity school for male gold-diggers.)

The school has attracted 2,800 women.

As one student explained: “I thought to myself, if I can marry a rich man, at least I won’t have any worries.”

The school also serves as matchmaker between the gold and diggers. Rich bachelors can pay $4,500 for an “introductory fee” to the students.

July 13 2011

China’s Regional Boost

Spurred by galloping production of electronics goods in the Chinese mainland’s coastal regions – the traditional engine of mainland manufacturing over the past three decades – demand has grown for electronics production in the country’s central and western regions, forming new manufacturing and supply clusters.

The trend is expected to accelerate as development of the inner regions kicks off under the 12th Five-Year Programme (FYP). The FYP sets out to improve the inland region’s investment environment, through policy support,enhanced infrastructure, and by helping relocate supply chains inland. The moves are expected to draw foreign electronics investment from the coastal regions and overseas to the mainland’s inland region, where there’s an abundant supply of workers and technical personnel. The goal is to wean investors away from the coastal regions where labour shortages have become dire. The upside is that there are new domestic markets to explore and skilled workers are available.

While still based in the coastal province of Shandong, China’s largest home-appliances maker, Haier, produces electrical goods in inland Hubei province to tap the local and nearby markets

Chengdu, Chongqing and Xian, as well as the central provinces of Hubei and Hunan, make up the western regional triangle representing models for the gathering trend.

Electronics plants have been moving inland to meet the increasing input demand on the mainland. For example, Taiwan’s Foxconn, the largest producer of Apple’s iPhone and iPad, along with its parts and components suppliers, has been setting up production facilities in the central and western regions. Local giants such as Midea and Haier are more interested in expanding their production capacity in central China in order to capitalise on the logistics infrastructure there. Other multinationals are studying how to make the most of the western region’s skilled labour and engineering personnel.

The low export-to-sales ratios illustrate how industries in the inland regions rely heavily on domestic sales, with enterprises largely producing parts and semi-manufactures for further processing in coastal regions. These manufacturers have therefore benefited from the keen input demand on the mainland over the past few years. The number of manufacturers are expected to grow further during the FYP period, with the mainland determined to develop inland economies and industries.

Tapping Western China’s Advantages

Western China has nurtured a large number of electronics engineers and related technology personnel (photo: EPN)

To serve their global business needs, multinationals are increasingly “going west” to capitalise on western China’s advantages. Intel, for example, relocated its Shanghai production lines to Chengdu a couple of years ago. Half of its chips produced worldwide are now tested and packaged in its Chengdu plant, which flies against the general perception that western China is not a convenient export base. Intel air-freights the wafers from its fabrication plants in the United States, Israel, Ireland and Dalian to Chengdu, and sends the packaged chips from Chengdu to domestic and global markets by air, primarily through Hong Kong.

IBM, on the other hand, has set up its service centre in the Chengdu Tianfu Software Park to perform IT outsourcing tasks for its clients on the mainland and overseas markets. IBM’s service centre is well-supported by Sichuan’s local workforce and returning software engineers, who are now less willing to work in the more congested coastal regions.

Western China has nurtured a large number of electronics engineers and related technology personnel. Its well-developed military industry is also a source of high-tech talent for electronics players, with the mainland now transforming more military technology for civilian applications.

Hewlett-Packard’s (HP’s) Chongqing facilities also started operations last year to assemble computers for the booming China and global markets. Apart from cost considerations, HP is capitalising on the abundant supply of local workers.

The movement of multinational electronics companies proves that western China is no longer an obscure region, with its talent, labour and markets conducive to the development of electronics clusters. Also, mainland giants and Taiwan players are increasingly keen to capitalise on the resources and market potential of the western region, while upstream suppliers have followed their clients to tap the increasing input demand there.

Central China Opportunities

The central Chinese mainland city of Wuhan is home to the so-called “Optics Valley of China,” the largest production base for optical fibre cable and optical apparatus

Foreign investors are attracted to set up production facilities in central China to take advantage of lower operational costs, tax benefits, the availability of engineering talent, as well as relatively abundant labour supplies.
But upstream electronics suppliers are also aware of the growing input demand stemming from production activities there. A natural distribution hub, Hubei, is one example. With its skilled labour force and developing supply chains, it has attracted a number of overseas electronics investments in recent years. Foxconn set up production lines in Wuhan, producing computers and electronic game devices for export, while TPV Display Technology makes LCD display monitors and televisions for distribution to domestic clients in the province and nearby.

China’s own Gree, Midea and Haier, on the other hand, produce electrical appliances in the province to tap the local and nearby markets. But Hubei’s electronics suppliers overall still only have limited capacity. Its enterprises need to rely on the Pearl River Delta (PRD) and Yangtze River Delta (YRD) for supplies, such as passive components and testing equipment, and imports for core components such as ICs and semiconductors from abroad.

Wuhan, in Hubei Province, is also home to the so-called “Optics Valley of China,” the largest production base for optical fibre cable and optical apparatus. It is also a leading mainland laser industry base whose businesses are mainly related to industrial laser and medical/consumer electronics applications. The swift expansion of the China opto-electronics market has sparked input demand in Optics Valley, where enterprises have been expanding their production to meet increasing orders.

Hunan Province is also an emerging industrial base. Cities such as Changsha, Hengyang and Chenzhou are eager to establish development zones to promote technology industries and take in processing production that have relocated from coastal regions. Given its proximity to Guangdong and its lower operation costs, Hunan could be an ideal destination for Hong Kong’s electronics companies to relocate or set up additional production facilities outside the PRD.

But Hunan will continue to rely on material supplies from other provinces, as its supply chain is not likely to be developed quickly enough in the short term to satisfy manufacturers. With the speed of development, the influx of foreign investment is likely to put pressure on the local labour market, while pushing up land costs in the medium term.

The availability of engineers and middle-level staff is another concern for newly established enterprises in Hunan. Some investors even need to transfer workers and staff from their PRD or YRD operations to help build their Hunan plants. But the upside to the development process is that some transferred staff may actually come from Hunan, and are keen to work in their home province. Hong Kong manufacturers should consider this when looking at Hunan as a potential alternative to the PRD.

July 12 2011

Bridge changes China's image By Wang Ying

Project success provides visibility, credibility in global infrastructure - "Made in China" used to be synonymous with cheap consumer goods, but one machinery maker wants to change the image of the nation's manufacturing sector by taking part in the world's most challenging infrastructure projects.

On Monday, China's Shanghai Zhenhua Heavy Industry Co Ltd (ZPMC), formerly known as Shanghai Zhenhua Port Machinery Co, finished the final four pieces of fabricated steel for the San Francisco-Oakland Bay Bridge.

A section of the San Francisco-Oakland Bay Bridge made by Shanghai Zhenhua Heavy Industry Co Ltd (ZPMC) being loaded onto a ship in Shanghai on Monday.

In 2006, the company beat strong rivals from Japan, South Korea and Western Europe to win the bid for the Bay Bridge project, due to be open for traffic in 2013.

The 50,000 tons of steel, with a contract value exceeding $350 million, are part of the $7.2 billion Bay Bridge project. The project includes reconstruction of the eastern span, which was damaged in a 1989 earthquake.

The new section will be able to resist quakes of up to magnitude 8 on the Richter scale.

The Bay Bridge project has a global profile "and it is also a milestone for Zhenhua in entering the world's major bridge construction" sector, Kang Xuezeng, president of ZPMC, said during the steel fabrication completion ceremony on Monday.

"I am here to announce that we are qualified and confident of constructing more sophisticated steel bridges and building our presence in the world market," Kang said.

ZPMC, founded in 1992, now accounts for 75 percent of the global port equipment production market.

The construction company is entering the bridge sector and "I expect many more great things" from the company, said Steve Heminger, executive director of the San Francisco Bay area's metropolitan transportation commission.

"It is time to be confident, but not yet to be proud," said Xiang Haifan, a professor at Tongji University, who is also a member of the Chinese Academy of Engineering.

According to Xiang, ZPMC's chief competitive advantage over international rivals is cost.

A Japanese company wanted more than $600 million to undertake the project, while a South Korean company quoted more than $400 million.

"Our cost was about half that of Japan's, which makes Zhenhua outstanding with its high quality," Xiang said, adding that China's bridge construction abilities still lag behind those of Japan or South Korea, but the gap is likely to vanish in the next 10 to 20 years.

"Although the Bay Bridge project didn't bring Zhenhua substantial profit, it brought many large international contracts and gave the company fame in the global bridge sector," said Wang Hexu, an industrial analyst from Huachuang Securities Brokerage Co Ltd.

Since 1998, ZPMC has undertaken several major steel bridge projects in China and abroad, including the Shanghai Donghai Bridge and the Golden Ears Bridge in Vancouver, Canada.

Since it already dominates global port equipment production, ZPMC is finding it increasingly hard to expand in this sector, so it has decided to explore related industries.

"Steel fabrication has become our next goal. Through providing steel decks, we have driven into the world's high-end bridge construction market," said Huang Hongyu, vice-president of ZPMC.

"Currently, steel fabrication and marine engineering account for more than 40 percent of Zhenhua's total revenue, and by the end of 2015, the proportion will reach as much as 50 percent," said Kang.

July 11 2011

What a Chinese Hotel Guest Wants: Congee, Slippers and Tea By Jason Chow

Hoteliers are bending over backward to woo Chinese travelers these days, and hotel chain Hilton Worldwide thinks slippers and tea will do the trick.

The international chain unveiled on Monday a new program called “Hilton Huanying” (which means “welcome” in Mandarin) — what the company touted as “a tailored experience for Chinese travelers.” Thirty hotels in destinations around the world are part of the program, which, the hotel company says, has been backed by extensive research in the ethnic demographic.

So what does Hilton think Chinese travelers want from a hotel? First: a staffer to help them check into their room in their native Chinese language. Then, once in the room, travelers from China will have access to tea kettles, Chinese tea and slippers as well as a welcome letter in Chinese and TV channels dedicated to Chinese programming. But perhaps most telling is the breakfast buffet: Two varieties of congee, fried noodles, dim sum, fried fritters and soy milk will be on offer. (Scene Asia has also documented Chinese travelers’ breakfast obsession.)

The Chinese travel market is growing strong, and everybody in the travel industry – including state governors and mayors of middling Canadian cities – is trying to grab a share of it. As China becomes increasingly wealthy and as the Chinese government relaxes restrictions on outbound travel, the market has exploded over the past two years – Paris and Shangri-La hotels being the preferred destination and hotel of the Chinese jetset.

Still, Hilton’s efforts are just the latest among several chains, including Starwood Hotels & Resorts Worldwide and Marriott International Inc., the latter of which is also offering congee on its breakfast menu. The WSJ’s Alexandra Berzon on Monday wrapped up what various chains are doing to cater to the fast-growing Chinese market.

July 9 2011

China vs. America: Which Is the Developing Country? By Robert J. Herbold - retired COO of Microsoft

From new roads to wise leadership, sound financials and five-year plans, Beijing has the winning approach. The just-completed Beijing to Shanghai high-speed rail link is the crown jewel of China's current 5,000 miles of rail.

Recently I flew from Los Angeles to China to attend a corporate board-of-directors meeting in Shanghai, as well as customer and government visits there and in Beijing. After the trip was over, in thinking about the United States and China, it was not clear to me which is the developed, and which is the developing, country.

Infrastructure: Let's face it, Los Angeles is decaying. Its airport is cramped and dirty, too small for the volume it tries to handle and in a state of disrepair. In contrast, the airports in Beijing and Shanghai are brand new, clean and incredibly spacious, with friendly, courteous staff galore. They are extremely well-designed to handle the large volume of air traffic needed to carry out global business these days.

In traveling the highways around Los Angeles to get to the airport, you are struck by the state of disrepair there, too. Of course, everyone knows California is bankrupt and that is probably the reason why. In contrast, the infrastructure in the major Chinese cities such as Shanghai and Beijing is absolute state-of-the-art and relatively new.

The congestion in the two cities is similar. In China, consumers are buying 18 million cars per year compared to 11 million in the U.S. China is working hard building roads to keep up with the gigantic demand for the automobile.

The just-completed Beijing to Shanghai high-speed rail link, which takes less than five hours for the 800-mile trip, is the crown jewel of China's current 5,000 miles of rail, set to grow to 10,000 miles in 2020. Compare that to decaying Amtrak.

Government Leadership: Here the differences are staggering. In every meeting we attended, with four different customers of our company as well as representatives from four different arms of the Chinese government, our hosts began their presentation with a brief discussion of China's new five-year-plan. This is the 12th five-year plan and it was announced in March 2011. Each of these groups reminded us that the new five-year plan is primarily focused on three things: 1) improving innovation in the country; 2) making significant improvements in the environmental footprint of China; and 3) continuing to create jobs to employ large numbers of people moving from rural to urban areas. Can you imagine the U.S. Congress and president emerging with a unified five-year plan that they actually achieve (like China typically does)?

The specificity of China's goals in each element of the five-year plan is impressive. For example, China plans to cut carbon emissions by 17% by 2016. In the same time frame, China's high-tech industries are to grow to 15% of the economy from 3% today.

Government Finances: This topic is, frankly, embarrassing. China manages its economy with incredible care and is sitting on trillions of dollars of reserves. In contrast, the U.S. government has managed its financials very poorly over the years and is flirting with a Greece-like catastrophe.

Human Rights/Free Speech: In this area, our American view is that China has a ton of work to do. Their view is that we are nuts for not blocking pornography and antigovernment points-of-view from our youth and citizens.

Technology and Innovation: To give you a feel for China's determination to become globally competitive in technology innovation, let me cite some statistics from two facilities we visited. Over the last 10 years, the Institute of Biophysics, an arm of the Chinese Academy of Science, has received very significant investment by the Chinese government. Today it consists of more than 3,000 talented scientists focused on doing world-class research in areas such as protein science, and brain and cognitive sciences.

We also visited the new Shanghai Advanced Research Institute, another arm of the Chinese Academy of Science. This gigantic science and technology park is under construction and today consists of four buildings, but it will grow to over 60 buildings on a large piece of land equivalent to about a third of a square mile. It is being staffed by Ph.D.-caliber researchers. Their goal statement is fairly straightforward: "To be a pioneer in the development of new technologies relevant to business."

All of the various institutes being run by the Chinese Academy of Science are going to be significantly increased in size, and staffing will be aided by a new recruiting program called "Ten Thousand Talents." This is an effort by the Chinese government to reach out to Chinese individuals who have been trained, and currently reside, outside China. They are focusing on those who are world-class in their technical abilities, primarily at the Ph.D. level, at work in various universities and science institutes abroad. In each year of this new five-year plan, the goal is to recruit 2,000 of these individuals to return to China.

Reasons and Cure: Given all of the above, I think you can see why I pose the fundamental question: Which is the developing country and which is the developed country? The next questions are: Why is this occurring and what should the U.S. do?

Let's face it—we are getting beaten because the U.S. government can't seem to make big improvements. Issues quickly get polarized, and then further polarized by the media, which needs extreme viewpoints to draw attention and increase audience size. The autocratic Chinese leadership gets things done fast (currently the autocrats seem to be highly effective).

What is the cure? Washington politicians and American voters need to snap to and realize they are getting beaten—and make big changes that put the U.S. back on track: Fix the budget and the burden of entitlements; implement an aggressive five-year debt-reduction plan, and start approving some winning plans. Wake up, America!

Mr. Herbold, a retired chief operating officer of Microsoft Corporation, is the managing director of The Herbold Group, LLC and author of "What's Holding You Back? Ten Bold Steps That Define Gutsy Leaders" (Wiley/Jossey-Bass, 2011).

July 7 2011

China’s Retail Market, 2011

Overview

Real growth of retail sales of consumer goods moderated to 14.8% yoy in 2010; retail sales grew nominally by 16.6% yoy in the first five months of 2011

Retail sales are primarily urban-driven; urbanities contributed to 86.5% of China’s total retail sales in 2010

In 2010, eastern provinces and municipalities accounted for 59.9% of the national total retail sales of consumer goods; inland regions are expected to demonstrate better growth momentum in the years ahead

The declining trend of consumer confidence index was arrested in March 2011; entrepreneur confidence index of the wholesale and retail sector was significantly higher than the national average

Luxury sales in China registered strong growth in 2010

Boosting domestic private consumption is a major theme of China’s 12th Five-year plan (2011-2015)

Competitive landscape

The Top 100 retailers had around one-tenth of total market share; their sales revenue grew by 21.2% in 2010
Most domestic retailers are region-focused

Eyeing huge opportunities, foreign retailers continue to flock to China; nevertheless, winning in China is not an easy task
Multi-format operation is common, especially among domestic retailers

Franchise businesses are expanding

Latest developments

Retailers face climbing costs

Online retailing market continues its staggering growth

Retailers strive to improve competitiveness

Retailers extend their footprints to lower-tier cities and the rural market

More active retailers’ IPO activities

Retailer- supplier relationship continues to catch attention

Consumption safety remains a major concern; we expect retailers in China to pay more attention to compliance and quality issues

I. Overview

1. Real growth of retail sales of consumer goods moderated to 14.8% in 2010; retail sales grew nominally by 16.6% in the first five months of 2011

According to the National Bureau of Statistics (NBS), the total retail sales of consumer goods reached 15,455.4 billion yuan in 2010, up nominally by 18.4% year-on-year (yoy); real growth in 2010 was 14.8%, slower than the 16.9% real growth in 2009.

In the first five months of 2011, the retail sales of consumer goods grew nominally by 16.6% to reach 7,126.8 billion yuan. Exhibit 2 demonstrates the nominal monthly retail sales growth from April 2010 to May 2011. Nominal retail sales growth dropped to 11.6% in February 2011, before climbing to 17.4% in March 2011 and moderating to 17.1% and 16.9% in April and May 2011. The fact that the Lunar New Year holiday in 2011 was in early February and part of consumers’ holiday spending was realized in January partly explains the relatively lackluster growth in February.

June 10 2011

Selling Tea to China - Where do Chinese people go to purchase the best Chinese tea? Not China By Ilaria Maria Sala

Mainland Chinese visitors to this former British colony are renowned for stocking up on luxury goods like Prada and Louis Vuitton handbags that are cheaper than at home, and less likely to be counterfeits. But now there's a new trend in trophy purchases to show off back home: top-quality Chinese tea.

Catherine Tam, shop manager at Fook Ming Tong, one of Hong Kong's best-known tea shops, explains that Chinese customers are buying up a variety called Da Hong Pao, or "Big Red Robe." From the oolong (or semi-fermented) family, it's grown in the fabled Wuyi mountains in northern Fujian province. Shrouded in mist during most of the year, this area comprised of 36 stony peaks has been used to cultivate "rock teas" since the Tang dynasty (A.D. 618-907).

Rock teas brew a dark, reddish liquor, with an initially bitter, slightly woody flavor, that quickly metamorphoses into a sweet and lingering aftertaste, with delicate hints of honey and fruit. The leaves, long and twisted, can be infused up to 15 times. As is common with many products in China, Da Hong Pao is believed to have health benefits: "It helps fight cholesterol, and has antioxidant properties," explains Ms. Tam.

As legend has it, Da Hong Pao derives its name not from the reddish hue of its leaves, or the tea liquor, but from an emperor's favor. The mother of a Ming dynasty emperor was cured of what today we would call high cholesterol by drinking Da Hong Pao. To thank the bushes that saved her, the filial emperor sent mandarin red silk robes to cover the tea trees—rewarding them, so to speak, by giving them scholar status.

The original handful of Da Hong Pao bushes, which have been harvested since the Song dynasty (A.D. 960-1279, a golden age for tea appreciation), are said to produce the very best Da Hong Pao, and a few grams of it can fetch hundreds of dollars. Until 2005, these leaves were reserved for the Chinese government. Then, the tea plantations on Wuyi mountain were privatized, some cultivars removed from the original bushes transplanted to other locations, and a lot of different grades of Da Hong Pao have since been hitting the market.

Tea connoisseurs appreciate Da Hong Pao's finer qualities, but it commands high prices for another reason: the thrill of enjoying something that used to be reserved for the most exclusive elite due to its rarity. Previously, other than imperial and Communist Party big shots, the tea was reserved for visiting dignitaries. An oft-quoted story recalls that Richard Nixon was given 50 grams of Da Hong Pao by Mao Zedong in 1972. Shortly afterward, Nixon quipped with his aides that the Chinese leader must be quite stingy to part with such a small amount of leaves, but he understood the value of the gift when someone told him that what he had been given was half of the whole harvest of top-grade Da Hong Pao for that year.

As with many other coveted products in the freewheeling Chinese marketplace, however, there are now plenty of counterfeits swirling around. Unscrupulous suppliers have been packaging lower-quality oolong as Da Hong Pao, or enhancing low-quality leaves with chemical additives. Which in turn explains why Hong Kong is so popular as a place to buy it.

"Mainland customers buy it from us in Hong Kong mainly because they trust our thoroughness with provenance," says Ms. Tam. "We have very strict quality controls, with our own personnel at every step of the way, which guarantees that what we market as Wuyi Da Hong Pao really is what it says. We only provide 70 boxes a year, and no more, as this is the amount we can guarantee to be pure, high-grade Da Hong Pao."

Farther afield, too, Chinese shoppers stop at the best tea retailers. In Paris, you might be surprised to see the flagship store and tea room of Mariage Freres, in the trendy Marais neighborhood, packed with excited Chinese tourists, but Laurent Sonnino, the shop manager, is not. "We stopped being surprised years ago. Chinese visitors just keep flocking in," he beams.

"They are very brand conscious, in particular for gifts to carry back home that show refinement and luxury," Mr. Sonnino explains. "Nowadays, a growing minority is buying the best teas imported from India and some of our mélanges, and, yes, increasingly, some of the top-grade Chinese tea as well."

As Chinese consumers remain weary of the countless food scandals that rock the country on a seemingly daily basis, tea, that commodity so coveted by foreign traders coming to China in the 18th century, is now making an unexpected round-trip journey.

June 2, 2011

Get Ready: Here Comes the Yuan By Tom Orlik

The rise of China's currency could reshape the global monetary system— and fundamentally alter the world's main engine of growth.

The wall is starting to crack.

For years, China has made it tough for capital to flow to and from its economy, the second-largest in the world. Now, the government in Beijing is forging ahead with a campaign to bring the yuan onto the world stage—and breaches are appearing in that formidable financial barrier.

What's Ahead for the Yuan?
A yuan that's more widely used in international trade and investment could eventually challenge the dollar's supremacy, correct some of the imbalances that plague the Chinese and global economy, and force a profligate U.S. to live within its means.

It won't be an easy transition. There are powerful vested interests in China that are satisfied with the status quo and will try to put the brakes on any reform effort. But the changes China has made so far have generated momentum both at home and internationally—and may prove too strong to resist.

For more than a decade, China's closed capital account has been a defining feature of the global economy. It has insulated the mainland from international capital flows, enabling China to ride out the Asian financial crisis in 1997 and leaving its banks unscathed by the near-collapse of the U.S. financial system in 2008.

As important, denying foreign-exchange markets a role in setting the exchange rate has allowed the government to maintain the value of the yuan at an artificially low level—supporting a 30-year export boom. Since Chinese savers can't take their money overseas, banks have also gotten away with offering them low interest rates, keeping the cost of capital for industry at bargain-basement prices and underpinning an investment binge.

Take the example of Shenzhen—a fishing village in 1979, in 2011 a metropolis of 14 million built around the world's fourth-busiest port. Low-cost capital subsidized the construction of transport and power infrastructure, factories and production lines. An undervalued yuan, combined with low cost of labor, enabled companies to undercut their foreign rivals on price.

But manipulation of the exchange rate and repression of the interest rate comes at a cost. Cheap capital has resulted in overcapacity in the industrial sector and bubbles in the mainland's property market. Managing the exchange rate in the face of trade surpluses has resulted in the buildup of gargantuan foreign-exchange reserves—$3.04 trillion that China has little choice but to recycle as cut-price loans to the U.S.

One of the first cracks in China's restrictive policy came in July 2009, with a plan to allow settlement of import and export transactions in yuan. Wider international use of the yuan is intended to reduce transaction costs for China's importers and exporters, guard against the risk of a collapse in dollar trade financing—as occurred at the end of 2008—and fly the flag for a rising economic world power.

By the first quarter of 2011, $55 billion of China's trade—7% of the total—was settled in yuan. At the end of April 2011, yuan deposits in the Hong Kong banking system had risen to 511 billion, or $79 billion, up roughly ninefold from July 2009 when the settlement program was launched.

Restrictions on outbound flows are also being lifted. In the past month, the Shanghai government announced plans to allow residents of the city to make investments overseas.

But more substantial opening of the capital account will require progress in two areas: an exchange rate that is close to fair value and market-set interest rates. The yuan is still undervalued, but two factors suggest it's much closer to market value than it used to be: It has appreciated 20% in real terms against a trade-weighted basket of currencies since 2005, and China's current-account surplus fell to 5.2% of gross domestic product in 2010 from 10.1% in 2007.

If the yuan is approaching fair value, the Chinese government will be able to loosen controls on the capital account with less chance of triggering destabilizing speculative inflows.

China's interest rates, meanwhile, are still set by the government. But the People's Bank of China is attempting to make progress, by taking a leaf out of the mainland's economic history.

At the beginning of the reform era, China's government designated Shenzhen as a special economic zone where market-based policies could be tried before being expanded to the rest of the country. Hong Kong will serve as a similar site of experimentation for reform of the mainland's financial system. Yields on yuan-denominated debt trading in Hong Kong are already set by the market rather than with reference to the People's Bank of China's benchmark interest rate.

According to the Royal Bank of Scotland, the value of bonds outstanding in this so-called dim-sum market has risen to the equivalent of $15.8 billion from about $5.3 billion at the end of 2009. McDonald's Corp. and Caterpillar Inc. are among the companies that have turned to the new market for financing.

The increase in trade settlement and the development of Hong Kong as a yuan financial center are mutually reinforcing. More yuan trade settlement adds to the pool of liquidity in Hong Kong, encouraging the development of more yuan investment products, and greater variety of investment products reinforces the incentive to use the yuan in trade settlement.

What Comes Next
Now pressure is building on China to open further channels into its capital markets. The question is whether change comes fast or slow. China's leaders seemed to be taking the cautious route. The target of making Shanghai an international financial center by 2020 was regarded as the de facto target date for capital-account opening. But the rapid progress of the past year has raised expectations of opening earlier.

If China accelerates its timetable, the implications are enormous. A higher interest rate will mean slower expansion of investment, eating into the mainland's appetite for commodities and shifting the main domestic growth engine down a gear.

A more expensive yuan will limit demand for exports that have catalyzed the explosive growth of China's east coast. Low-value-added makers of textiles, toys and tools—where margins are razor thin—will be the first to shut up shop. High-technology manufacturers like Foxconn—the trade name of Hon Hai Precision Industry Co., which makes the iPad—have already decided to move production facilities inland, to find cheaper labor away from the coast.

The same dynamic that will make investment less affordable and exporting less profitable means more spending power for China's households—kick-starting efforts to bring domestic demand to the fore as a driver of growth. In the U.S., businesses from Napa Valley wine makers to manufacturers of cinema projectors in Nebraska are hoping to cash in on the rise of the Chinese consumer.

Not all of the changes will be so positive for the U.S. Reduced intervention by China in foreign-exchange markets will lead to a reduction in demand for U.S. Treasury debt, not just from China but also from other Asian nations that have followed China's lead in managing their exchange rates. That will increase the cost of borrowing for the U.S., making it more difficult to finance public debt and continued current-account deficits.

Displacing the Dollar?
The next step in the development of the yuan as an international currency—a role as a reserve currency held by central banks—will require more substantial progress. A capital account that still remains tightly controlled means the Chinese currency can't fulfill the main function of reserves: a liquid asset that central banks can use to stabilize the value of their domestic currency.

The transition to an open capital account won't be easy. Powerful groups in the export sector, state-owned enterprises, banks and local government benefit from a low interest rate and undervalued yuan. The door to reform is not wide open, but neither is it locked.

Reform has its own logic and its own momentum. Companies that raise yuan financing offshore today will demand increased opportunities to bring those yuan onto the mainland tomorrow. If interest rates are higher offshore, investors on the mainland will find opportunities to move their yuan in the other direction. If legitimate channels don't exist, companies with an onshore and offshore presence will find ways of circumventing China's capital controls.

We aren't there yet. Yuan deposits in Hong Kong aren't yet equal to 1% of those on the mainland. But the pool of offshore yuan, available at interest rates set by the market, is growing fast—reducing the effectiveness of China's capital controls and the ability of the central bank to use administrative tools to control the mainland economy.

When the tide of offshore yuan starts to wash over the wall Beijing has built around its domestic financial system, the impact on the Chinese and the world economy will be far-reaching. China's closed capital account has been the defining feature of the world economy in the past decade; its opening could be the defining feature of the decade ahead.

May 28 2011

Business Jets Take Off in China By David Pearson

The world's makers of executive jets are pinning their hopes for sales growth on the swelling ranks of China's super-rich.

The Chinese market is booming while mature markets in Europe and North America remain lackluster after nose-diving last year. For example, half of new orders for Dassault Aviation SA's Falcon jets since the beginning of this year have come from China.

"China has become a very important part of our business," John Rosenvallon, head of Dassault's Falcon division, said at the annual European Business Aviation Convention and Exhibition here last week.

Executive-jet orders are starting to rise in China. Above, visitors toured a Bombardier Global Express XRS corporate jet in Hong Kong in March

What the business-jet builders like about the Chinese market is that it is virtually untapped. Almost all the new orders are from customers who have never owned an aircraft before, unlike in the U.S., where some two-thirds of new orders are from repeat customers. And unlike in the West, Chinese buyers are jumping in at the top end of the market, buying planes with sticker prices over $50 million.

"In the U.S. business-aviation market, people tend to start with a small aircraft and then graduate to bigger aircraft—for example, going from a Cessna to a Hawker Beechcraft to a Gulfstream, and finally they get to a Boeing business jet," says Li Bing, head of Boeing Co. business-jet sales for China and South Korea. Boeing has sold eight business jets to Chinese buyers in the past four years and is aiming to retain its 50% share of the Chinese market for large business jets.

Meanwhile, Airbus, of Toulouse, France, expects to continue selling about five corporate-jet versions of its commercial aircraft a year to Chinese customers. These top-of-the-market jets typically sell for $65 million or more apiece.

Airbus, a unit of European Aeronautic Defence & Space Co., has sold 25 corporate models of its commercial airliners in China, Hong Kong and Macau over the past eight years. Both Airbus and Boeing offer cabin designs tailored to Chinese customers, including a circular dining table with a lazy Susan, to allow passengers to eat "family style" or play mahjong.

"The potential for long-term growth in China is huge," says Charles Edelstenne, chief executive of Dassault Aviation.

Well-heeled Chinese individuals aren't shy about flaunting their wealth, and it is one of the few markets in which manufacturers can openly vaunt the luxurious nature of their products. Mr. Edelstenne says Chinese buyers able to spend tens of millions of dollars on executive jets tend to be entrepreneurs, often in real-estate or mining. And they often pay cash.

At present, there are just over 130 executive jets registered in China, a fraction of the 15,000 in the U.S., which has only a quarter of China's population.

The Chinese authorities are struggling to deal with a massive influx of registration requests from foreign aircraft manufacturers. For now, big Chinese state-owned companies are chartering rather than buying planes, but it is only a matter of time before they start leaning toward outright ownership, industry experts say.

The current leader in the Chinese market is Gulfstream, a division of General Dynamics Corp. It has close to 40% of the Greater China market, with sales of more than 58 planes, half of which are based in Hong Kong. "The Chinese market barely existed 10 years ago," says Jeff Miller, Gulfstream's head of communications. But, he adds, it would be a mistake for the company to embark on a major sales push before it has established a proper infrastructure offering quality after-sales service. "We're being realistic. We don't have stars in our eyes," he says.

The Chinese government's latest five-year economic plan places heavy emphasis on developing private aviation by easing flight restrictions and building a huge number of airports. "The important thing right now is the relaxation of aerospace control by the army at lower altitudes," says Bill Boisture, chief executive of Hawker Beechcraft Corp., one of the leading U.S. business-jet builders.

The relaxation and airport expansion should automatically lead to a significant increase in demand for aircraft, he says. Sales numbers to date have been low, "but five to 10 years from now we'll see a market that's able to grow," he says. China will become "one of the engines of the industry," he says.

Business-jet makers say the infrastructure ramp-up must also include developing fixed-base operators—essentially, aviation gas stations with maintenance and flight-crew facilities and amenities for upscale travelers—and this will require the involvement of the private sector financially and operationally. As the general aviation infrastructure develops in China, Chinese companies are expected to set up manufacturing facilities in more distant parts of the country, increasing business-jet traffic and creating even more demand for facilities.

VistaJet Holding SA, a Swiss luxury-jet charter and aviation-services company, is considering a move into China alone, with a local partner or through a franchise agreement, Chief Executive Thomas Flohr says.

Like other industry players, Vistajet knows that moving into China entails a steep learning curve as the country develops an entire industry largely from scratch. Mr. Flohr says he is taking his time to sound out the potential market, to understand what Chinese customers need in terms of types of aircraft and to figure out how to organize his sales force.

"Once these elements are defined, we will go," he says.

May 25 2011

At cross-purposes By Lanxin Xiang

Chinese history shows that the Americans have misread the intentions of their 'strategic rival'. Unfortunately, it has paved the way to a vicious cycle of mutual misunderstanding.

It is extremely rare for an American administration to formulate a clear strategy for its China policy during the first presidential term. Richard Nixon is one exception, thanks mainly to the help of a world-class strategic thinker, Henry Kissinger, the architect of the rapprochement between the US and China in 1971. Now Kissinger, ever the optimist on this relationship, has become a pessimist, as his new book, On China, reveals.

Kissinger has good reason to worry.

Though the Obama administration, too, has made an attempt at defining this bilateral relationship, arguably the world's most important, from the outset of its first term, so far its strategy seems misguided and confusing. In a short span of less than four years, the relationship has metamorphosed from an intimate G2 to strategic rivalry. Such an odd phenomenon is, perhaps, due to the lack of serious strategic minds within and around the White House.

In recent months, Barack Obama has adopted a seemingly innovative "soft containment" strategy, and the core is to reconcile two contradictory priorities: pursuing a universalist world policy in ideal and maintaining American exceptionalism in reality. Put another way, he wants to rejuvenate the American empire, albeit an insolvent one, by drinking from a universalist fountain of youth, much like strengthening the Roman Empire on the ideological basis of ancient Greece.

This has resulted in the start of a new-style cold war between China and the US. But this cold war is not so much based on the 20th-century ideological dichotomy of communist dictatorship versus democratic freedom, as on a much deeper chasm - the misunderstandings between two cultures.

To begin with, there is a misreading of history. When Hillary Rodham Clinton blasted China's human rights record recently, she claimed that Beijing was on a "fool's errand", trying to stop the process of history. But what and whose history was she talking about? Apparently, she was referring to a history after the European Enlightenment, during which the concepts of democracy and human rights became a political theology. Of course, the United States itself is a product of the Enlightenment, so this way of thinking and reasoning comes naturally. But the Chinese prefer to remember pre-Enlightenment history, as well.

The first ideological encounter between China and the West took place in the late 16th and early 17th centuries, and the first debate about the differences and common ground between the two cultures was a serious one. Pioneered by the Jesuit priests, such as Matteo Ricci, a healthy dialogue about fundamental aspects of the two cultures yielded significant results, which prompted the Vatican to consider an "accommodationist" approach. Unfortunately, this extraordinary achievement was destroyed by European power politics in a long struggle between the defeated accommodationists and their foes, centred on a controversy over Chinese religious rites.

For the Chinese, a real debate today on fundamental cultural values would mean restarting the original one with the Renaissance humanists, but this is hardly possible between Washington and Beijing, because the US has no collective memory about the Renaissance and remains the key defender of its counter-culture, the Enlightenment.

In the practical policy arena, there is also a habitual misreading of some crucial specifics in history, which could result in dangerous consequences. Armed with seemingly superior values, the Americans naturally think they can dictate the process of the "rise of China", while the Chinese view as highly problematic the very notion of the nation's "rise". Such a concept assumes at least two things: first, that China has not occupied the position as the most economically prosperous nation before and, second, that China's recent progress is primarily due to the Western-dominated globalisation process.

These assumptions are historically inaccurate. Not only did China experience sustained economic prosperity (SEHK: 0803) for centuries, it was also quite accustomed to its position as a trade-surplus country and leading holder of reserve currencies (silver and gold) up until the opium war. As late as 1820, Chinese gross domestic product was estimated to be more than 30 per cent of the global total. Today, despite all the sensation caused by the "rise of China", that figure is less than 10 per cent.

Hence, for China, its recent success is part of an ongoing process of cultural and historical restoration after a 160-year lapse.

But for the US, seeing China as a newly rising power or "emerging market" leads to the logical conclusion that China's "rise" and its negative consequences must be contained by forcing it to embrace Western value systems. Thus, the reasoning goes, since China has embraced the market economy that originated in the West - a notion that is itself problematic - political democratisation must follow. If not, China should be seen as another Imperial Germany at the end of the 19th century, a dangerous authoritarian economic dynamo with global expansionist ambitions. Such is the mentality behind the new cold war strategy.

The misreading of each other's minds in the security relationship is even more alarming. While traditional Chinese culture emphasises preparation for a potential attack by building sufficient capability, or the "offensive defence" approach, the US is accustomed to an equally pre-emptive approach; the difference is, the US strategy is euphemistically called "deterrence".

Thus, a vicious strategic cycle could result: China's military build-up will be seen automatically as having aggressive intentions, though history does not bear any serious evidence of expansionist tendencies in the Chinese state. At the same time, the US "deterrence" effort around China, even though this term confers higher moral value, could easily be seen by the Chinese as a military encirclement.

It is precisely because the two nations have so far been unable to transcend this vicious psychological cycle that Kissinger is worried about the long-term prospects for the relationship. And he is, of course, right.

Lanxin Xiang is professor of international history and politics at the Graduate Institute of International and Development Studies in Geneva

May 16 2011

Power of China's internet can't be ignored - 70pc of mainland consumers search the web for information on luxury brands every month By Celine Sun

A KPMG report says the web is an increasingly popular and effective tool for mainland consumers to find promotions on luxury brands.

No luxury brand can afford to dismiss the power of the internet when doing business on the mainland, the second-largest luxury goods market in the world. A recent study found that nearly 70 per cent of luxury consumers on the mainland search online for information on luxury brands every month, although only a small fraction actually make purchases through the web.

KPMG, a global audit and advisory services firm, issued the report yesterday, saying the internet has become an increasingly popular and effective tool for mainland consumers to find promotions and special offers.

KPMG surveyed 1,200 middle-class consumers in first and second-tier mainland cities. Thirty per cent said they searched for information on luxury goods online every week, while 39 per cent did so once every two weeks or once a month.

One reason for the high percentage was the emergence of a younger generation of big-brand shoppers on the mainland.

Despite the fast-growing number of online viewers, only 5 per cent of respondents showed a serious interest in making purchases over the internet, the report said.

Discounts and the convenience of being able to compare products were the major benefits that attracted people to online shopping. But concerns about authenticity, after-sale service and payment security remain the big deterrents for many.

"China continues its march towards becoming the largest luxury market in the world," said Nick Debnam, partner and Asia-Pacific chairman of consumer markets with KPMG. "Year on year, as this market becomes more crowded, it is harder for luxury brands to enter this space."

The report also found that French, Italian and Hong Kong brands were the top choices. Mainland consumers have a stronger interest in fashion and cosmetics products from France, footwear made in Italy and some jewellery brands in Hong Kong.

The most important reasons they consume expensive brands are to reward themselves, which was followed by "for important occasions" and "to pamper themselves", it said.

Meanwhile, mainland consumers also showed more awareness of luxury brands, with respondents recognising 57 compared with 34 brands three years ago.

An earlier CLSA study said customers from the Greater China region, which includes Hong Kong, Macau and Taiwan, would account for 44 per cent of global luxury-goods sales by 2020.

May 12 2011

China's CAAC encourages carriers to change to increase international routes

A flight attendant awaits the arrival of Emirates Airlines' first A380 at Pudong International Airport in Shanghai. The Civil Aviation Administration of China said it will take measures to encourage carriers to explore the international market.

China's civil aviation authority on Wednesday encouraged the country's airlines to add more wide-body jets to their fleets.

The Civil Aviation Administration of China (CAAC) also said it will take measures to encourage carriers to explore the international market.

Li Jiaxiang, head of CAAC, told the China Civil Aviation Development Forum that of the country's air transport fleet of 2,600 planes, only some 150 are wide-body airliners. The majority, or 80.8 percent, are single-aisle planes, while another 150 are regional aircraft, which carry fewer than 100 passengers.

"Some airlines even regarded wide-body planes as a burden. But with flight time slots at major airports becoming scarce and the globalization (of travel), wide-body jets will be very useful," said Li.

He said that as the nation's high-speed railways push to dominate the lucrative domestic transport market, and the increasing number of Chinese traveling overseas is providing airlines with fresh opportunities.

Previously, carriers put too much capacity into the booming domestic market in their search for profit. As a result, the share of Chinese airlines' in the international passenger transport market is shrinking, from 45.3 percent in 2005 to 44 percent in 2010, according to statistics from CAAC.

Among the limited capacity allocated to international routes, airlines have focused on Japan, South Korea and Southeast Asia. Their concentration on a few lucrative international routes has undercut the strength of China's air transport industry as a whole, he said.

"We observed that in the case of countries with flights to China, usually only one airline is designated to operate flights on a certain route. But in our case, several airlines are crammed onto a few routes, which offsets the country's competitiveness. The government will direct them to integrate capacities and make alliances," said Li.

He said the government will encourage both large and regional airlines to engage in cooperation and consolidation to eventually achieve the goal of having two or three large competitive airlines.

Li also noted that some airlines were granted rights to operate flights on routes that they did not fully exploit or simply wasted. "The CAAC will regularly publicize the carriers' use of traffic rights and retrieve the rights from those who have not made good use of them," he said.

By the end of 2010, China had signed bilateral air transport pacts with 112 countries and regions. However, Chinese airlines opened scheduled flights only to 54 countries. Meanwhile, on some international routes, the number of flights operated by domestic airlines is insufficient.

On routes between China and the United States in 2010, US airlines opened 34 scheduled passenger and cargo flights and offered 199 flights each week, but Chinese carriers opened only 15 scheduled flights and offered 140 flights each week.

Li said that China's major carriers should also note the potential of low-cost airlines and offer differentiated services.

Kong Dong, chairman of Air China Ltd, said at the forum that the national carrier's fleet will add 10 more wide-body jets this year: four Boeing 777s and six Airbus 330s. "The fact that we did not expand the fleet during the past two years has made us lose some opportunities," said Kong.

"With the new jets, Air China will operate flights to Africa and South America, and add flights to Los Angeles. Before that, we will also open new flights to Europe, such as the recently added flights to Milan and Dusseldorf."

May 11 2011

America Gains From Chinese Investment - These companies, like the Japanese before, are creating jobs and growth in the U.S. By Daniel Rosen and Thilo Hanemann

Traditional macroeconomic issues usually dominate U.S.-China economic conferences such as the Strategic and Economic Dialogue (the "S&ED") held in Washington this week: exchange rates, trade disputes, market access and the like. But beyond the familiar laundry list, a new topic has burst on the scene: direct investment by Chinese firms in the United States.

Between now and 2020, we expect Chinese firms to deploy between $1 trillion and $2 trillion of direct investments abroad. Americans could be a major beneficiary of this—if anti-China sentiment in Washington and around the country does not bring down the curtain just as the show is starting.

China started investing overseas in a big way in the mid-2000s, almost entirely in the natural resources sector. Chinese firms made some attempts to invest in the U.S.—notably CNOOC's failed bid for oil company Unocal in 2005—but through 2008, such forays were few and far between. Since 2009 that story has begun to change. In a new study, we find that over the past two years direct investment expenses by Chinese firms in America have grown more than 130% a year.

In 2010 alone, Chinese firms spent more than $5 billion in America on a combination of 25 "greenfield" projects built from scratch and 34 acquisitions of existing companies. While China still accounts for only a tiny share of total foreign direct investment in the U.S., Chinese firms are today invested in at least 35 of 50 states and an upward trend is clearly underway.

It is not politics but profit that is driving the vast majority of Chinese firms to invest in the U.S. With over-investment leading to excess capacity in much of industrial China, Chinese companies increasingly see greater profit opportunities across the Pacific.

The shift of China's growth model toward domestic consumption and increasingly intense competition at home forces Chinese firms to upgrade their technology; capture the higher levels of the value chain they traditionally conceded to foreign partners; and augment their managerial skills and staff base to remain globally competitive. Investments abroad are a way to do all this.

Ren Zhengfei, CEO and managing director of Huawei Technologies.

China's gain could also be America's gain, as demonstrated by an earlier round of Asian investments: Japanese firms had a difficult start in the U.S. in the 1980s, as they were greeted with skepticism and fear. Today, Japanese firms employ almost 700,000 Americans with an annual payroll of nearly $50 billion.

Yet, as with Japan, the high growth of Chinese investment—albeit from a tiny base—is already sparking a political firestorm in the U.S. Recent controversies have flared around various investments by telecommunications equipment supplier Huawei, as well as steel maker Anshan in a Mississippi rebar plant, and the acquisition of small aircraft maker Cirrus by a Chinese state-owned company.

There is a clear danger that anti-China reactions will only grow louder as the numbers increase, and even result in more restrictive terms for firms from China. Such a closed-door policy would be bad for Chinese firms. It would also be tragic for American communities to lose the jobs, innovation and tax revenue additional investment dollars could create.

Preventing a bilateral investment shut-down will require effort by both sides. In America, clearer thinking on national-security issues is important. The inter-agency Committee on Foreign Investment in the United States review process is generally working well to vet deals for security threats, but a hyperbolic tone emanating from Congress and others on this issue is toxic. Congress and the White House together must send a clear bipartisan signal that Chinese investment is welcome in the U.S., lest Chinese investors take their checkbooks to less hot-headed countries.

China also has ways to help its cause. It's little wonder deals get bogged down in Washington, given the non-transparent, politically influenced nature of many Chinese companies. Improving governance within companies will help this. So will regulatory changes to brighten the line between government and companies. For instance, a clearer separation between regulators and the firms they oversee would send a good signal.

China must recognize that its restrictions on American direct investment affect the political mood in Washington. Beijing maintains barriers to foreign investors in many sectors, such as telecommunications or financial services, and U.S. negotiators are working to remove those hurdles. China can help sustain openness to Chinese investment abroad by continuing to reform its inward investment rules.

That said, however, it is critical that Washington not play a tit-for-tat game with Chinese investment. America has tried to keep politics out of the foreign-investment screening process not to do foreigners a favor, but because openness to investment is good for American firms, workers, communities and the economy as a whole.

That logic applied to Japan in the 1980s, and it holds with China today. Now would be a terrible time for the U.S. to drop its own successful principle. If we do, we risk Chinese firms setting up plants in Ontario instead of Michigan, or Juarez instead of El Paso.

Messrs. Rosen and Hanemann are partners at the Rhodium Group, a New York-based advisory firm, and authors of the new study: "An American Open Door? Maximizing Benefits from Chinese Direct Investment in the U.S."

May 10 2011

Hawaii, California and USA could benefit from the Wenzhou China overseas investments - individuals can invest up to US$3 million (HK$23.4 million) in a single overseas project, rising to US$10 million for groups

http://en.wikipedia.org/wiki/Wenzhou

The mainland's currency regulator is keeping an eye out for speculators in a pilot scheme that allows individuals in Wenzhou to invest overseas.

The State Administration of Foreign Exchange has yet to decide whether to include stock trading in the scheme, deputy director Wu Shuiping said yesterday.

Authorities in Wenzhou said at the start of the year individuals can invest up to US$3 million (HK$23.4 million) in a single overseas project, rising to US$10 million for groups. But investments are banned in overseas stock markets, real estate, energy and mining. Agricultural, educational, wine, medical, technology and film sectors could benefit from the China investment.

The developments are drawing close attention in Hong Kong as approval for stocks would accelerate the so-called "through-train" policy that allows funds to flow into the local market.

Wu also warned of the impact on inflation from burgeoning foreign exchange reserves that have hit about US$3 trillion.

That comes as Zhang Anyuan, a director at the National Development and Reform Commission, said the People's Bank of China lost US$271.1 billion over the past seven years in investments using foreign exchange reserves.

Zhang estimated the loss to hit US$578.6 billion if the yuan appreciates to six against the US dollar. The yuan gained 0.05 percent to 6.4933 yesterday.

At present, the mainland is the largest investor in US treasury bills.

Zhang suggested diversifying the risk "as soon as possible."

The news comes as the Ministry of Commerce announced that foreign direct investment hit US$30.3 billion in the first quarter and involved 5,900 firms.

Hong Kong is the top investor in terms of both number of companies and investment amount, with 2,767 firms and a total investment of US$17.9 billion.

Denmark earns the biggest share of its national revenue from producing windmills and other clean technologies, the United States is rapidly expanding its clean-tech sector, but no country can match China's pace of growth, according to a new report obtained by The Associated Press.

China's production of green technologies has grown by a remarkable 77 per cent a year, according to the report, which was commissioned by the World Wildlife Fund for Nature and which will be unveiled on Monday at an industry conference in Amsterdam.

"The Chinese have made a conscious decision to capture this market and to develop this market aggressively," said Donald Pols, an economist with the WWF.

Denmark, a longtime leader in wind energy, derives 3.1 percent of its gross domestic product from renewable energy technology and energy efficiency, or about euro6.5 billion ($9.4 billion), the report said.

China is the largest producer in money terms, earning more than euro44 billion ($64 billion), or 1.4 percent of its gross domestic product.

The US ranks 17 in the production of clean technologies with 0.3 percent of GDP, or euro31.5 billion ($45 billion), but those industries have been expanding at a rate of 28 percent per year since 2008.

"The US is growing substantially, so it seems the policy of (President Barack) Obama is working," Pols said. But the US cannot compare with China, he said.

"When you speak to the Chinese, climate change is not an ideological issue. It's just a fact of life. While we debate climate change and the transition to a low carbon economy, the debate is passed in China," Pols said. "For them it's implementation. It's a growth sector, and they want to capture this sector."

The report was prepared by Roland Berger Strategy Consultants, a global firm based in Germany. It gathered data on 38 countries from energy associations, bank and brokerage reports, investor presentations, the International Energy Agency and a score of other sources. It measured the earnings from producing renewables like biofuels, wind turbines and thermal equipment, and energy efficiency technology such as low-energy lighting and insulation.

"Clean technologies are really growing fast, but China is responsible for the majority of that growth," said Ward van den Berg, who compiled and analyzed the data for the consultancy firm.

Until recently, Chinese massive production of solar cells was aimed at the export market, but they are now making solar systems for the home market, as they have been doing for several years in wind energy, Van den Berg said.

Following Denmark and China, other countries in the top five clean-tech producers, in terms of percentage of GDP, are Germany, Brazil and Lithuania, the report said.

May 4 2011

The China Greentech Initiative (CGTI)

The China Greentech Initiative (CGTI) has launched The China Greentech Report 2011, outlining five reasons why China has surpassed other markets in greentech implementation, including summaries of 19 specific high priority greentech market opportunities. The report cites five specific trends that are driving China’s emergence as a global greentech leader. It includes market updates of six greentech sectors – Cleaner Conventional Energy, Renewable Energy, Electric Power Infrastructure, Green Building, Cleaner Transportation and Clean Water – and summaries of 19 prioritized specific greentech market opportunities.

As an official CGTI Supporting Partner, AmCham Shanghai is hosting a series of CGTI roundtables highlighting key insights and analysis from the China Greentech Report 2011. CGTI roundtables are open to AmCham Shanghai members and are held at the AmCham Shanghai office.

To download the full China Greentech Report 2011 in English http://www.hkchcc.org/2011greentechinitiativereport.pdf

May 2 2011

Battleground for US car wars shifts to China - GM, Ford and Chrysler look to expand in world's biggest market By Neil Gough

For the first time in American carmaking history, the battleground for Detroit's "Big Three" - General Motors, Ford and Chrysler - has shifted offshore from the United States to China. Since the outbreak of the financial crisis in 2008, GM, Ford and Chrysler have laid off tens of thousands of workers in the US, closed dozens of domestic plants and dramatically downsized their portfolios of car brands.

This contrasts with the scenario on the mainland, where GM has announced plans to double its sales by 2015 to five million cars and microvans, up from 2.35 million sold on the mainland last year.

Rival Ford is in the process of building two new mainland plants for vehicles and one engine plant to deliver a much-needed production capacity boost. It plans to double its professional workforce and dealership network on the mainland and launch 15 new models by 2015.

GM is the biggest US carmaker in the United States by sales volumes, but as of last year the company's number one market was China. Not surprising, since China became the world's number one vehicle market in 2009.

Ford entered the mainland market in 2003, about five years after GM, and now sells about a third as many passenger cars in China as GM.

"It's fair to say we could've and should've gone faster, but over the last 18 months we are going about as fast as we can go," Ford China chairman and chief executive Joe Hinrichs said. "We are adding two dealerships a week in China, and we have been doing that for over a year. The scale of growth is just amazing."

So how to explain the success of Detroit - best known for producing big and brawny gas guzzlers - in a market like mainland China, where around 90 per cent of the passenger car sales consist of vehicles with fuel-sipping engines of less than two litres?

"Most Chinese today buy cars for social image projection first and function second, and many admire America or at least the power that America projects," said Michael Dunne, an industry consultant and author of the forthcoming book American Wheels, Chinese Roads: The Story of General Motors in China.

"The story of the Detroit Three in China has been how to take advantage of this natural appeal. It's meant making major adjustments to their products."

Some of those changes have been fairly fundamental to Detroit's heritage. For example, mainland buyers like the size and spaciousness of American rides, but shy away from big block engines that suck up small fortunes at the petrol pump.

GM brought the mid-sized Buick Regal to the mainland in 1998 with a 3.0 litre engine, but it proved a laggard on showroom floors until it was swapped for a 2.5-litre version in 2003, said Dunne.

Today, Regals are available with 2.0 litre engines on the mainland and are GM's seventh-best seller in the market, with 80,000 units sold last year, according to data from J.D. Power & Associates.

Still, while two-thirds of Detroit's "Big Three" are seeing booming business in China, the firm that was the first to gain access to the mainland market continues to struggle.

Beijing Jeep, established in 1984 as the first Sino-foreign carmaking joint venture, was acquired by Chrysler in 1987 and seemed to be the perfect window for the smallest of Detroit's "Big Three" to gain access to the mainland market. But success proved elusive throughout changes in ownership at Chrysler and strained dealings with its mainland joint venture partner.

Last year, the group's three main brands - Chrysler, Jeep and Dodge - combined to sell less than 20,000 units on the mainland. "Chrysler is a sad story," said Dunne. The firm "never had good partner relations".

That lesson has not been lost on GM or Ford when it comes to managing their all-important relations with the joint-venture partners they are required to work with on the mainland.

Relations with the joint venture partner were "the heart of the matter", said Tim Lee, GM's Shanghai-based president of international operations and the chairman of its collaboration with SAIC Motor - a tie-up that forms China's biggest passenger car producer.

"The value of the partnership is in the level of trust that you can develop between the two parents," Lee said. GM's dealings with SAIC now extend beyond China: SAIC paid US$500 million for a 1 per cent stake in GM during its US share sale last year, prior to which the two inked a deal to make and sell cars in India.

Detroit carmakers' strengths and weaknesses in the mainland market are the inverse of their position at home. In China, they are strongest in the small to medium-sized sedan segment, where in the US they face their fiercest competition from Japanese and Korean carmakers.

Surprisingly, the Americans lag behind in the mainland market's hottest growth segment: sport-utility vehicles or SUVs. US drivers' appetites for big-engine SUVs built on truck platforms delivered bumper profit margins to Detroit throughout the 1990s and early 2000s.

But in China, where SUV sales doubled last year and rose another 44 per cent in the first three months of this year, the top 10 best selling SUVs are made by Japanese, local, Korean and German firms. The US companies do not rank. Mainland buyers prefer the smaller engines and sportier styling of so-called crossover-utility vehicles or CUVs, usually built on a car platform.

"In terms of growth, they are the fastest-growing segment and we are not where we need to be there," said one executive from a Detroit firm. "We've got catching up to do on that, and we intend to."

For Detroit, it is all part of the learning curve in the world's (new) biggest car market.

"In the US, they really only compete with the Japanese and Korean firms," AutoForesight Shanghai managing director Yale Zhang said. "But China is probably the most competitive market in the world ... you do battle with almost everyone."

April 29 2011

Companies to boost overseas investment By Lan Lan

Survey: Sharp rise in firms planning more spending in foreign markets

BEIJING - Almost 90 percent of domestic companies involved in international trade plan to increase overseas investment, a survey reveals.

Of the 1,024 companies surveyed, about 88 percent said they want to boost investment overseas over the next two to five years, a sharp rise from a year earlier when 61 percent of the firms surveyed said they planned to expand investment.

The China Council for the Promotion of International Trade (CCPIT) and the United Nations Conference on Trade and Development conducted the survey between December and March. China's foreign exchange reserves, the world's largest, hit $3.04 trillion at the end of March.

Li Xiaojing, head of the Bank of China's financial market department, said overseas investment will help diversify some of the reserves.

Asia, Europe and North America will be prime destinations for investment and Africa is gaining increasing importance as 22 percent of the companies surveyed had already invested there.

However, overseas investment remains small with about two-thirds of the companies surveyed investing less than $5 million in 2010. Only 8 percent made investments of more than $100 million.

In the next two to five years, about 30 percent of the companies surveyed expect to invest more than $5 million.

The central bank in January allowed the yuan to be used in direct overseas investments. Asia and South America will be potential markets, at least in the initial period, Li told China Daily.

But Jia Huai, the survey's project director, said he believed many companies still lacked the technical knowledge to take advantage of the yuan policy but it was a step in the right direction.

Sun Lujun, director of the capital management department of the State Administration of Foreign Exchange, said on Wednesday that the new policy will facilitate overseas investment and better support companies seeking markets overseas.

Sun also said China will continue to loosen restrictions on capital control and facilitate overseas investment by the end of 2015.

In addition to traditional investment models, such as building plants or upgrading existing facilities, a growing number of companies are looking at mergers and acquisitions.

Chinese investment overseas through mergers and acquisitions in 2010 was worth $23.8 billion, accounting for 40 percent of total investment.

Last year saw a new wave of companies targeting overseas acquisitions, including the high-profile private automaker Zhejiang Geely Holding Group buying Volvo Cars and Sinopec Group acquiring a stake in Repsol's Brazilian subsidiary.

Companies investing overseas traditionally favored the machinery and textile sectors, but recently investments in agriculture, mining and energy have surged, the survey said.

Other sectors are also attracting interest, an analyst said.

"High-tech and clean energy technology companies are becoming hot targets for overseas mergers and acquisitions," said Xu Weiqing, an analyst with Zero2IPO Group, a capital market research company.

In 2010, Chinese firms invested in 3,125 overseas companies in 129 countries and regions and total foreign direct investment in non-financial sectors rose 36 percent to $59 billion, according to the Ministry of Commerce.

China has become the world's second-largest acquirer of foreign companies, only next to the United States, according to a recent research by the Chinese Academy of Social Sciences.

But a lack of diversified fundraising channels also restricts investment overseas, the survey showed.

"Fundraising difficulties and lack of international operation experience are major limitations for Chinese companies hoping to expand overseas, especially for small- and medium-sized enterprises," said survey project director Jia.

Using the companies' own capital and borrowing from banks are the two main channels for overseas investment. Other financing channels such as stocks, securities and other market instruments are not widely used, Jia said.

April 28 2011

Growing concern over school milk program By Zhou Wenting

Kindergartners in Zhuhai, Guangdong province, are treated after drinking contaminated milk. The company that provided the milk was not qualified for the school milk program but was a longtime supplier.

A parent checks the labeling on a carton of school milk in Yulin, Shaanxi province, on Friday after 251 children fell ill at Yuhe Town Central Primary School. Initial tests found no pathogens.

Health scares continue to damage public confidence, reports Zhou Wenting in Beijing.

A national school milk program intended to improve children's health has soured again.

On Friday morning, 251 children at Yuhe Town Central Primary School in Yulin, Shaanxi province, fell ill after drinking school milk produced by the Mengniu Dairy Group. They were sent to hospital for treatment, and were all discharged by the following day.

Test results released on Tuesday afternoon said the milk met China's national standards for food safety, and no pathogens were detected in the milk or the students' vomit and feces. They did not say why 251 students suffered from the discomforts collectively. The tests were conducted by Yulin's Center for Disease Control and Prevention and the results were announced by the city's food safety committee.

On Tuesday evening, Mengniu said on its website that it would work with the school and the local health department to track the students' health. But public confidence in China's developing school milk program suffered another blow.

Dairy enterprises are impaired by suspected and real poisoning incidents and low profits. Schools stay out of the program because they do not want to be implicated in safety scandals. And the country has no unified management or supervision of the program it started in 2000.

Milk producers and local watchdogs are the first to be blamed for bad quality control, but experts also have doubts about the guiding theory behind the program.

Two tests, two results

Mengniu breathed a corporate sigh of relief at the test report, but food safety experts didn't let it go easily.

"Why do accidents always happen at branch plants?" said Sang Liwei, a food-safety lawyer in Beijing and a representative of the Global Food Safety Forum, a non-governmental organization.

The milk the Yulin children drank was processed at a local plant in Baoji that is owned by Inner Mongolia-based Mengniu. "One month ago," Sang said, "milk withdrawn from circulation was also produced by a subsidiary plant", that one in Zhengzhou, Henan province, and owned by Shanghai Bright Dairy & Food.

Mengniu was involved in two milk incidents in Shaanxi province within the past year, but test results for both set it free. Experts called for a new test by higher authorities.

Sang mentioned safety concerns at Nongfu Spring in Haikou, Hainan province, in 2009. Haikou Municipal Industrial and Commercial Bureau detected excessive mercury in the drinking water, but a later test by the provincial bureau showed the water met standards.

"No matter what happened behind the scenes, it at least showed that two tests can give different answers," Sang said.

Food safety experts said if the questioned milk indeed passed the tests, then the standard for dairy products in China is doubtful.

"We have two tests: qualitative and quantitative," Sang said. "Sanlu's baby formula had also been qualified before 2008, because there wasn't a test target for melamine," Sang said.

An estimated 300,000 infants, including six who died from kidney stones or other kidney damage, became victims of baby formula produced by Sanlu Group Co in 2008. The chemical melamine, which was added to the milk, caused it to appear to have a higher protein content.

So what really caused the Yulin schoolchildren to become ill?

Hours after the test results were announced, Mengniu suggested two possible reasons - the "unscientific" way the children drank the milk and hysteria, because "only 16 students vomited and felt nausea at first".

"After drinking the cold milk on an empty belly, some students experienced upper abdominal pain, nausea, vomiting and other symptoms of gastritis," said Zhao Yuanhua, vice-president of Mengniu Dairy Group.

Parents were skeptical. "Is this blaming the children's poor physical condition? Could it be said that hundreds of students are all in poor condition?" Chen, parent of a third-grader, was quoted by the Beijing News as saying.

Zhao told China Daily there are other reasons to believe the milk was safe. "Students at another primary school in Hanzhong, Shaanxi province, drank 700 cartons of milk from the same batch, but none experienced discomfort."

Zhao said teachers at the Yulin school have said the symptoms appeared first among 16 students and then seemed to spread. "That might be caused by hysteria," he said.

Mental health experts said it can happen. "If several children began to vomit and have stomachaches, it's possible that hundreds of others may be influenced . . . and undergo a collective reaction," said Ji Xuesong, a professor at Peking University's institute of mental health.

"If some students showed symptoms like nausea and vomiting, a teacher should avoid asking if others have the same feelings," Zhao said. "Asking that may make more children get infected."

An outbreak

When China launched its national school milk program, nine ministries and bureaus established a coordination group, which is affiliated with the Ministry of Agriculture.

School milk carries special symbols on its packaging and cannot be sold in the marketplace. Authorized enterprises must pass expert evaluation and approval of the coordination group. The price of school milk must be lower than the market price of similar products in the same region.

"Direct delivery was compulsive, and the service was regulated," Wang Dingmian, former vice-chairman of the Guangdong Provincial Dairy Association, told China Daily on Monday. "But when the management system ended in 2003 and the administration and approval rights were passed on to local departments below the provincial level, problems began to erupt."

The incident with the widest impact happened in Haicheng, Liaoning province, in March 2003. A total of 3,936 students and 260 teachers in eight primary schools showed symptoms after drinking soymilk at school. A 13-year-old girl died.

An investigation found that the food poisoning was caused by the soy flour, the raw material used in soymilk.

Five years later, 152 children in several kindergartens in Zhuhai and Jiangmen, Guangdong province, were poisoned when they drank milk processed by Zhuhai Bigshot Dairy Co. The company did not meet the qualifications for supplying school milk but had long been a major supplier for local schools.

The Ministry of Health reported, "The milk was contaminated by a kind of coccus (bacterium) in the process of adding ingredients, and was not effectively disinfected."

Five incidents occurred in April 2010 in Shaanxi province. In two cases, investigations showed that the milk from Mengniu Dairy Group and another dairy giant, Yili Industrial Group, met national standards for food safety.

Shaanxi Renrengao Dairy, a private company based in Baoji, was the culprit in two of the cases. Its filling machines did not seal milk packages well, so air sneaked in and the milk spoiled.

The company had acquired a license for manufacturing of industrial products, a food hygiene license and ISO9001 quality management accreditation.

No reports were found about how the enterprises were punished. Bigshot and Renrengao have multiple product lines today.

In the fifth case, nine pupils at Qianwei town's Andai Primary School in Lantian county suffered abdominal pain after ingesting milk and eggs at school. No reports about the culprit were found.

Well off target

China's school milk program is still in a fledging phase, covering only 1 percent of students. The original target was 30 percent in 2010.

The program's broader goals were to improve the health of children and teenagers, advocate the concept of scientific diet, and promote the rapid development of the dairy industry.

In 2000, five major cities carried out pilot programs. By 2006, four of them had sunk in stagnancy.

For example, the Shanghai Municipal Education Commission called it quits after the soymilk poisoning in Liaoning province in 2003. Guangzhou had been the best performer, but participation dropped from 40 percent in 2007 to 12 percent this year, according to a milk market analysis and a dairy industry plan from Guangzhou.

The national school milk program continues, but experts say it seemingly has become philanthropy.

"Parents in developed cities are more willing to buy expensive and high-quality milk for their children by themselves," said Sang, the food-safety lawyer. "So the school milk project is now more noticeable in backward areas, including many cases where local governments pay the bill."

Experts say that if the program is called off in some areas, students will be harmed.

"The school milk program should be a boon for students nationwide," Sang said. "Local governments shouldn't give it up for fear of milk scandals. Large-scale businesses and State-owned enterprises can take part in and shoulder more social responsibilities."

'Invest in children'

The United Nations Food and Agriculture Organization reports that 62 countries have implemented school milk programs. Roughly half are developed countries and half are developing.

Experts are frustrated to see the program cannot find its place in China. They attributed the failure to weak supervision and overwhelming business costs.

Wang, the former Guangdong dairy association official, said a local permit to produce school milk is a stepping stone for companies to enter a local market. But once the permit is obtained, he said, companies might not strictly follow the processes and meet the standards for student milk.

Detection equipment, inspectors and other means of ensuring product safety are costly, Sang said. If an enterprise cannot produce a profit - remember, the school milk price must be lower than market price - it has fewer resources to ensure the quality of its products.

Even local watchdogs have proved to be of little help. "In many areas, one could find a 'school milk office', which is responsible for supervising the local school milk program," Wang said. However, he added, the office usually has other responsibilities that take priority.

Experts suggested a national program that is fully carried out by the government as a solution.

"It can be managed by the cooperative efforts of the Ministry of Education, quality inspection department and others, who are in charge of unified bidding, establishing a long-term mechanism and implementing strong penalties," Sang said. "This is also a good way to prevent collusion of local governments and businesses."

Wang came up with the same solution. "The government can set up a production chain and supervise the whole process, from raw material collection to delivery."

In many places, especially well-developed ones, Wang said, local governments are doing well on social service programs. "Why can't we invest more in children?"

Sang said China can learn from the United States, which experienced serious food safety problems a century ago but reversed its plight. The president, Theodore Roosevelt, was determined to make a change. Later, the Food and Drug Administration and a quality inspection system were established in succession.

"The Chinese government can also solve the problem," Sang said, "and the key is determination."

April 27 2011

China, Australia ties get trade boost - Wen and Gillard sign deals to increase economic cooperation By Wu Jiao

Premier Wen Jiabao chats with Australian Prime Minister Julia Gillard during a welcoming ceremony at the Great Hall of the People in Beijing on Tuesday.

President Hu meets with Australian PM Gillard - Chinese President Hu Jintao meets with Australian Prime Minister Julia Gillard in Beijing, capital of China, April 27, 2011.

BEIJING - China and Australia signed a series of cooperation agreements on Tuesday as Australian Prime Minister Julia Gillard attempted to boost ties and smooth over recent spats with China.

Yet analysts said that achieving smooth bilateral ties would take some time despite strong trade relations.

There was an upbeat tone for the visit on Tuesday with a lavish red-carpet welcoming ceremony given by Premier Wen Jiabao, and a signing ceremony for bilateral agreements witnessed by both Wen and Gillard following their meeting at the Great Hall of the People, the seat of the legislature in the heart of Beijing. According to a press release by the Foreign Ministry, both Wen and Gillard agreed to further economic and trade cooperation in a bid to promote bilateral ties.

Opening their discussions, Wen reaffirmed the importance of China's relations with Australia, saying that "we have always seen Australia as an important partner in our win-win relationship".

Wen proposed that the two states establish "long-term and stable strategic cooperative ties" amid booming cooperation in energy and natural resources.

He also encouraged bilateral cooperation in the research, development and utilization of new, clean and renewable energy, as well as in the construction of information networks, rail systems and ports.

Wen urged the two states to promote the ongoing Sino-Australian free trade talks, explore financial cooperation and expand cooperation in culture, education, science and technology and tourism.

Gillard said Australia's economic ties with China were "in good shape" and trade between the two countries was growing in "leaps and bounds".

Gillard also said that Australia welcomes more Chinese students and tourists and greater investment, despite a number of controversial incidents.

In 2009, China Nonferrous Metals Mining Group Co Ltd was blocked from buying a controlling stake in rare earths miner Lynas Corp.

Australia also stymied China Minmetals Corporation's bid for Oz Minerals' Prominent Hill copper and gold mine because the mine was too close to a defense rocket range.

Of the five agreements signed by the two countries on Tuesday, one allows for the establishment of a joint fund, worth $18 million over four years, for science cooperation, according to ABC News.

Another enables Tourism Australia to promote products to individual Chinese customers and not just tour groups.

Gillard is the first Australian prime minister to visit China in three years.

Despite robust bilateral trade, ties deteriorated in 2009 after China arrested Australian iron industry executive Stern Hu and later sentenced him to 10 years in prison on charges of bribery and infringing trade secrets.

The two sides also feuded over Australia's permission for Uygur separatist leader Rebiya Kadeer to visit in August 2009 despite China's strong objections.

Observers said that for Australia, finding the balance between courting and criticizing China is especially tricky.

According to Reuters, no advanced economy is as dependent on China for its fortunes, but as a close ally of the United States shares many of Washington's concerns.

China buys more than a quarter of Australian exports, having overtaken Japan as the country's largest trading partner in early 2009. Two-way annual trade has now passed $107 billion, up from $61 billion in 2009.

"There's a desire on both sides to put 2009 behind them. I think the government is looking to reset the relationship and put it on a more pragmatic footing," said Andrew Shearer, director of studies at the Lowy Institute for International Policy in Sydney, who formerly worked as a policy adviser in the Australian government.

Yet analysts also warned that Australia's China policy means that it is hard to expect an overhaul in bilateral ties.

Gillard's visit to China follows the release of a survey showing 75 percent of Australians viewed China's growth as good for Australia, but 57 percent believed there was too much Chinese investment there.

The survey published by the Lowy Institute on Monday also shows Australians remain concerned over Beijing's military power and global influence.

According to Su Hao, an expert on international security at the China Foreign Affairs University, Gillard's adjustment to Australia's China policy is only on the economic level, not on the strategic level.

"The mutual mistrust is still there," Su said.

According to Su, Gillard's visit to the Republic of Korea and Japan in the last few days, and her support for defense ties with them, sent negative signals to China, and possibly means a backward step in Australia's China policy.

April 22 2011

Micro blog leads revolution in China By Zhang Jing, Yang Yang and Meng Jing

Weibo may reshape Internet behavior in China over next few years - It is the new kid on the block and growing leaps and bounds. Soon it may tower like a goliath over other better known peers in the Web world as suitors from the government, public and corporate sector jostle for attention on its platform.

Weibo, or micro blog, the sending of brief text, audio or video to select groups, is making rapid strides in China and reshaping the way information flows with their multiple sources and diversified, authentic content. It is also becoming an attractive platform for companies to showcase their products and reach out to more consumers.

click on the picture for full view

Unlike Twitter, micro blog is relatively new to China and just two years old. Despite being a late entrant, the weibo has already started to reshape people's lives in China, thereby indicating its growing prowess.

A typical weibo starts with an "@" before the user's nickname, and like Twitter, has a word limit of 140 words. There is, however, one exception. Internet company www.Tom.com has set the weibo limit at 163 words to match with its parent company name 163.com. Unlike Twitter, a weibo can also be a picture, a voice message, a song and a video.

In February this year, Beijing rock singer He Yong posted a short message on his micro blog styled, "Weibo the Almighty, please save my child!" It was a request for help to cure his 30-month-old daughter as she refused to take any food or water for five days in a row. In the same month, the Ministry of Foreign Affairs saved over 900 stranded Chinese workers in Libya as they were able to locate them through their weibo messages for help.

The weibo power came to the fore in March, when irate netizens in Nanjing, Jiangsu province, led a campaign to stop the felling of the city's famed parasol trees for a subway construction. Netizens urged micro blog followers to hold protest meetings in front of a local library until the authorities agreed to their demands.

Nothing personifies the growing popularity of weibos than the example of a 12-year old boy in remote Fujian province who has a weibo account with all the four major providers - Sina, Tom, Tencent and Sohu.

Tencent, the world's third-largest Internet company by market capitalization, said in February this year that its number of registered weibo users has risen to nearly 100 million. Sina also claims that its numbers have swelled considerably and it has started making profits from the weibo services. That is indeed impressive, considering that the feat was achieved in less than two years, whereas it took Twitter nearly four years to build a network of 195 million users since inception in 2006.

Though Tencent and Sina are the biggest players among Chinese weibos, there is also a sea change when it comes to the customer profile on the two platforms. Tencent Weibo users are mostly teenagers who use the company's instant messaging service QQ, which has nearly 630 million active accounts. Users of the Sina services are in contrast aged between 30 and 40 and better educated.

With a big surge in user numbers expected by the end of this year, both the companies are leaving no stone unturned to boost market share. The Data Center of China Internet (DCCI) says that by the end of 2011, independent weibo users will reach 100 million and grow to 253 million by 2013. The weibo market is expected to take off from 2013, it says.

"Though the data differs from company to company, there is no doubt that micro blog is poised for explosive growth," says Liu Yan, director of Digital Influence with Ogilvy Public Relations Worldwide.

"Micro-blogging has a real-time news function," says Yang Guobin, author of The Power of the Internet in China: Citizen Activism Online and associate professor at the Barnard College of Columbia University in the United States.

"Its basic follower function gives a clearer structure to the increasing expansive and formless flow of information in cyberspace.

"By following another weibo user, I automatically receive his or her messages. Popular weibos can have large following. A person with a large following has enormous broadcasting power," says Yang.

By Jan 12 this year, the number of Tencent followers on Liu Xiang, China's 2004 Olympic 110-meter hurdle champion, crossed 10 million, well surpassing that of Lady Gaga on Twitter. Since then, Liu has become the most popular micro-blogger in the world.

Entrepreneur Lee Kai-fu, the former China head of Google, is another leading light in the weibo world and has more than 3 million followers. Lee admits that his entry into the weibo world was by chance. In June 2009, his friends told him that someone with the name of @kaifulee had been publishing news concerning Google and responding to fans' comments on Twitter. This made Lee aware of the power of Twitter.

"If a fake Kaifulee could enjoy such popularity, I thought that I should micro blog myself for more influence," says Lee, who later verified his account and posted a message saying "Dear impostor Kaifulee, you pretended to be me for three months. You've been reasonable, but with the Reuters' coverage, I had to get my name back."

An experienced micro-blogger now, Lee was invited to give a speech at the first China Weibo Developer Conference 2010. Lee named his latest book, Weibo Changes Everything, in which he has predicted the end of WAP era, and the coming of the new age of Mobile Internet, embodied by weibo.

"Weibo's social networking function is further enhanced by external applications, like those found on compatible mobile phones that can read, receive and send micro blogs," says Yang Guobin.

A recent report by Sina shows that nearly 36.6 percent of their weibo users log onto the service with their mobile phones. Over 43 percent of such users are women and they account for nearly 65 percent of the active weibo accounts.

Lee Kai-fu at the release of his book Weibo Changes Everything in Beijing in February.

"The level of stickiness and salience on the micro blog sphere is beyond any other forms of media," says Liu from Ogilvy.

"With the advent of weibo, one can immediately feel that social network sites like Kaixin001.com are losing their sheen. I used to visit Kaixin every day, but now I visit the site only once or twice a week. But for weibo, it's a different story. I can publish a microblog in a restaurant, at bedside, on the subway... It can be anywhere, any time. It is said some real fans would publish a micro blog even when they go to the toilet."

"They (weibo) can help us find those with similar interests instantly and build a network through information sharing," says Elli Li, a business development representative with Bianfeng.com, a leading online gaming company in China.

"In the social network system (SNS) of weibo, the clearer one is about what his or her interests are, the more effective the process of information gathering will be. For example, once I wanted to buy certain cosmetics products online and my followers immediately told me to go to a global purchasing website. That helped me save nearly $80 (56 euros).

Liu Xiang, the 2004 Olympic 110-meter hurdle champion, meets with his followers at Tencent Weibo on Jan 22 in Shanghai.

"Nowadays, I don't read newspapers nor do I watch TV. Most of my information feed is from weibo. The speed of weibo SNS information sharing and the vastness of its spread are also beyond reach for blogs or forums, which, in a way, has brought about the decline of the latter. MSN blogs closed on March 17 after a five-year existence," says Li.
According to the Internet Real-time Public Opinion Index Annual Report 2010 released by the Communication University of China in Beijing, weibo has become the third-favorite online source of information for public opinion, after news portals and online forums.

"At the moment, weibo serves more as a content provider and disseminator than a social networking platform," says Zheng Yingqin, a PhD from Cambridge University and a senior lecturer with the De Montfort University in UK, who specializes in information & communication technology (ICT) and social development.

"According to research, the main content providers on Twitter largely fall into four categories - celebrities, media, individual bloggers and enterprises/organizations. The first two are mostly interested in their own networks, i.e. they follow weibo accounts in the same category, while the other two have broader interests and may pay more attention to other groups. It is likely that the same applies to weibo," says Zheng.

"People log onto weibo for a variety of reasons, and social networking is only one of them. Weibo differs from existing social networking services such as QQ or Facebook in that its connections can be unidirectional. One can follow other people without their permission or reciprocal attention and nor does one necessarily need any fans (followers) to enjoy a fulfilling weibo experience. It also provides minimal tools to support one to one interactions, unlike QQ or Facebook."

"Weibo may evolve to incorporate stronger social networking functions in the future, as there seems to be such a demand from some users. More importantly, it is changing the way we perceive the world and the way we connect to each other. Potential opportunities of open innovations, for example, user-led product development and network-based business models, are yet to be explored," says Zheng.

The huge population base of weibo has greatly enhanced its potential in social commerce and influence. By the end of August 2010, a total of 466 major media companies, including TV, radio, print and magazines, have registered with Sina Weibo. The latter has also verified some 2,500 companies as its weibo users, covering over 30 industries such as automobiles, food, film and entertainment.

Sina chief executive Cao Guowei says that his company's advertising revenue grew 28 percent in 2010 thanks to the weibo platform. "There is still enough room for Sina Weibo's growth," says Cao.

Other companies are also taking advantage of weibo, but in more creative ways. Sohu is providing weibo dating services, while several companies are using it for recruitment by asking potential employees or interns to describe themselves on weibo in whatever way they like. Prominent include French advertising company Publicis Groupe, Taobao.com, and Hangzhou City Express, a local newspaper in Hangzhou, Zhejiang province, that attracted some 500 million yuan (53.7 million euros) advertising revenue in 2010.

Many European companies and organizations in China have also followed the trend of creating weibo accounts in China. These include the Netherlands Board of Tourism and Conventions and the British Tourist Authority. The Delegation of the European Union to China officially launched its "EU in China" blog and micro blog service in Beijing on March 28.

"Blog and micro blog are a promising way to reach out to different types of people whom we don't meet in our daily work," says Markus Ederer, ambassador of the EU Delegation to China.

The EU Delegation blogs on four major Chinese portals - Sina, Tencent, Tom and Sohu. Most topics are on European lifestyle and pertain to films and travel. "Hopefully the interactiveness of blogging will help Chinese understand why we are the way we are," says Ederer.

William Fingleton, press officer with the EU Delegation, says blogging the EU in China "is perhaps the best way to reach out to young people who spend a lot of time indoors and in front of their computers."

The EU delegation has chosen food as its first blogging theme, to coincide with the recent visit of the EU Agricultural Commission and the introduction of its geographic identification system in China. Special guests to the ceremony included Chinese food bloggers like Great Chef Bai Du and Transparent Purple, who showcased their self-made favorite European dishes to the audience.

"Weibo has made understanding our customers easier, and them us," says Ogilvy's Liu. She says her team addresses questions to followers of their clients, sometimes trivial questions like the duration of time taken to apply cosmetics. Feedback from the followers also helps us understand their interests and also whether they are more interested in brand history and culture, or whether they are more interested in sales and discounts.

"Weibo is an integral platform for companies to communicate with their customers or potential clients. What you get is first-hand material. It is fast and effective and without the participation of any third parties. Previously, we may have to physically go to 10 cities to collect samples, which are time consuming, and the samples are limited. But within two days, an online survey on weibo may get more than 100 feedbacks from across the county," she says.

Each company approaches micro blogs differently and their styles vary. Dell China has set up several micro blogs, intended for differentiated customers, like one for medium- and small-sized companies, and one for after-sales. L'Oreal decides on the next city for its road show by fans' votes on its micro blog.

"When the fans' wishes are answered, they feel they are respected," says Liu. "And once an emotional bond is connected, it will last for a long time. Eventually it may lead to sales."

"But everything is still in the early stages of trial and error. A business model with weibo is yet to be set up," says Liu.

April 20 2011

Creating an International Renminbi

Increasing renminbi trade settlements should lead to higher demand for related financial transactions

Jing Ulrich: Renminbi to Appreciate 5% in Both 2011 and 2012 http://www.vimeo.com/22653447

Having engineered such a large economy, China is now focused on developing its domestic financial system, which includes reforming and liberalizing its capital account. In the process, creating an offshore renminbi market in Hong Kong, with its sound banking system and mature, well-developed financial infrastructure, makes sense. Hong Kong serves as a testing ground for renminbi internationalization and acts as a buffer for funds going in or out of the Chinese mainland market.

The fact that Hong Kong has launched offshore renminbi businesses before the currency is freely convertible is unusual. By comparison, Japan had already liberalised its capital account by the time it started developing offshore markets.

Though China’s situation is different, Japan’s development of offshore markets and financial products priced in yen provides a useful guide. The Japanese experience demonstrated that developing diversified renminbi investment vehicles in an offshore market such as Hong Kong can contribute to the use and accumulation of the renminbi by international investors.

Issuing renminbi bonds of different terms of maturity help to establish an offshore renminbi yield curve. That also provides a pricing basis of high transparency for related financial products and derivatives, thereby lowering the transaction costs of financial products.

Developing various renminbi derivatives also offers more choice for hedging transactions, leading to a substantial lowering of hedging costs and an increase in demand for the use and holding of renminbi.

Adopting Renminbi Pricing

Mainland exporters can gain greater bargaining power in using the renminbi as a pricing currency

Promoting the use of a home currency to settle import trades is a useful step in the internationalization process. Japan’s reliance on imported commodities should have been an excellent opportunity to push the yen to the world, but most international commodities transactions habitually use the US dollar as the pricing currency.

Furthermore, Japan’s huge trade surpluses since the 1960s hindered the export of the yen through international trade.

Most of Japan’s finished goods made with imported raw material are exported to developed markets such as the United States. But Japanese manufacturers prefer to use the same currency as the pricing unit to avoid the exchange-rate risk involved in importing and exporting. Most exporters will also use US dollars for pricing, since they are bound by the pricing currency of the imported raw materials. China currently faces a similar situation: the processing trade accounts for about 40 per cent of its overall trade. Therefore, China will encounter many difficulties in promoting the use of the renminbi to settle international trade, making it hardly favorable to renminbi internationalization.

At the same time, increasing renminbi trade settlements should lead to rising demand for related financial transactions. Adopting a “new” settlement currency, however, ultimately depends on whether the habitual use of the existing currency – the US dollar – can be broken down. It’s a change that’s likely to take a long time.

Trade financing is common in international trade, and the currency for trade finance is typically the same used for pricing or invoicing. The provision of high efficiency and low-cost renminbi trade financing would make the currency more attractive in trade settlements.

Promoting Innovation

Renminbi deposits in Hong Kong are still tiny but, through Hong Kong, the mainland currency can venture out into the world

From the yen’s experience, the degree of product differentiation is bound to affect how much say producers have in choosing the currency for pricing. Keen competition in homogeneous goods such as raw materials, energy resources commodities and electronic components has eroded the bargaining power of the producers. In such cases, either the importer’s currency or the US dollar will likely be adopted as the pricing currency. Promoting independent product innovation and developing home-grown technology can only help raise the competitiveness of Chinese products and lower the elasticity of demand by consumers in the export markets. In turn, Chinese exporters can gain greater bargaining power and say in using the renminbi as a pricing currency.

Currency Stability

For the renminbi to become an international currency, liberalising China’s capital account and realising the currency’s full convertibility will eventually be necessary. But it’s also important to maintain the stability of the currency’s value.

A widely fluctuating exchange rate would mean higher risks and hedging costs to trading companies, which would weaken the currency’s role as a unit of pricing. That would dampen the confidence of international investors to hold the currency and reduce its attractiveness as a reserve currency or as an investment vehicle.

Developing a currency as a medium of exchange in international trade will supplement the currency’s role as a store of value and help advance its internationalization. Since Hong Kong started launching renminbi businesses in 2004, progress has been bright and investment vehicles in the form of renminbi bonds have been successively introduced, with the cross-boundary renminbi settlement business liberalized.

The amount of renminbi deposits in Hong Kong is tiny compared to the mainland market. Hong Kong’s great advantage, however, is that it can take the renminbi to the world.

April 19 2011

`Hawaii of China' lures locals with rebates By Samson Lee

Hainan, long known as the Hawaii of China, takes on a new identity from tomorrow, April 20 2011 as a shopping paradise. But unlike most countries that pitch their shopping to foreign tourists, it is aiming to woo a bigger market - mainland travelers.

The island's duty-free rebates to foreigners will now be offered to domestic tourists.

A total of 18 items will be exempted from consumption and business taxes and will retail at 70 percent of their original prices.

A mainland tourist will not need to pay taxes on items totaling no more than 5,000 yuan (HK$5,945) for a single trip, and can enjoy duty-free shopping up to twice a year.

The goods include watches, perfume, makeup, pens, eyewear, scarves, ties, clothes, shoes, belts, bags, candies, sporting goods, and leather, woolen and cotton products,

The aim is to attract more tourists to Hainan and boost consumption.

Paul Tse Wai-chun said he does not think the move will affect Hong Kong's reputation as a shopping paradise in Asia.

The tourism lawmaker said there are still some restrictions in Hainan while Hong Kong has a lot of international brand-name stores that are an attraction for mainland tourists.

"We also provide good customer services," he said.

Travel Industry Council executive director Joseph Tung Yao-chung said Hong Kong and Hainan offer different markets for mainlanders. "They come to Hong Kong to buy brand- name products. And they have confidence in the quality of products sold in Hong Kong," he said.

The Hainan arrangement was introduced after Beijing implemented a tax-refund program in January that allows foreign tourists, as well as Hong Kong, Macau and Taiwan residents, to obtain tax rebates of 11 percent.

Local travel agencies said there have been no obvious increase in the number of people joining Hainan tours.

"I think Hainan is a place for sightseeing instead of shopping," China Travel Service general manager Ng Hi-on said.

Lee Chung-ming, a Hong Kong resident, agrees. "Hainan is a beautiful place. I think I would go there for the scenery rather than the tax refund," he said.

April 4 2011

Legal system less arbitrary but still a work in progress - Overseas-educated lawyers bring change to mainland courts By Glen Norris and Daniel Ren in Shanghai

Mainland courts are inching towards a system based more on the ''rule of law'', but foreign lawyers are still restricted and issues of independence, training and impartiality remain.

New talent and rising competition is helping to boost the transparency of the mainland's legal sector, long derided as being a Communist Party offshoot.

With foreign investors in the world's second-biggest economy demanding legal certainties for their billion-dollar projects, Chinese courts are slowly moving towards a system based more on the "rule of law" rather than on official whim.

But there is still a long way to go. For foreign lawyers working in the country, the legal system is still a closed shop in many respects; and issues of independence, training and impartiality remain.

According to a study in 2009 by the Carnegie Endowment for International Peace, the mainland's legal system remains a "work in progress" despite three decades of reform. The study found half of corporate litigants admitted to giving judges "gifts or banquets" to sway legal decisions.

But it was not all bad news - only 8 per cent of litigants who lost their case thought it was due to preferential treatment.

Increasingly, Chinese lawyers educated in the common or civil law systems of the West are rising through the ranks of the legal system. Many have degrees from universities in the United States or Britain, home to two of the most respected legal systems in the world.

"It is a relatively young legal system," says mainland-born and US-educated Howard Wu, a partner with Baker & McKenzie in Shanghai. "But it is becoming less arbitrary and there are clearer rules and procedures that people can follow."

Until the 1990s, legal education was not considered an important priority even as China shifted towards a market-based economy. Very few lawyers trained outside the country and most locally trained lawyers were heavily steeped in community dogma rather than legal rules and principles. Only a small minority of judges in those days had law degrees.

Young lawyers like Luke Zhang are at the coalface of a central government push to put more emphasis on legal training. In 2007, there were close to 600 law schools or law departments on the mainland, with nearly 300,000 students studying law.

A partner with Zhonglun Law Firm, Zhang majored in English rather than law, becoming a certified Chinese lawyer after just two years of preparation for examinations organised by the Ministry of Justice. In a sign of the heightened demand for legal talent in the world's secondbiggest economy, the ministry awarded licences to those who passed the exams, regardless of their educational background.

China has 190,000 lawyers, or one for every 6,977 people. That compares with one for every 303 in the United States.

Zhang, a graduate of Shanghai Jiao Tong University, the city's top engineering institute, specialised in English, science and technology. "Through the preparations for the exams, I acquired the basic knowledge though it was just a self-study process," Zhang said. "I felt academic points about legislation and jurisdiction were badly needed. So I continued my self-study without tutors."

Gong Zhenhua, a partner with Shanghai Ronghe Law Firm, is more frank about the shortfalls. "Education for students majoring in law is far from adequate to develop them into qualified lawyers or judges," Gong, a bachelor degree graduate from East China University of Political Science and Law, said. "I didn't understand what the basic role of a lawyer was until after graduation. I learned how to become a true lawyer through years of working experience."

Both lawyers said the mainland's legal system - particularly in the commercial area - had a lot of room for improvement.

"China has many laws that appear outdated," Gong said. "Many of the existing laws governing businesses, investment and trade were promulgated during the planned economy era and legislators failed to make proper and punctual amendments, even though we have been in a market economy for two decades."

Wu says the mainland legal system is developing rapidly, especially in the area of commercial law. The country introduced an antitrust clearance procedure for foreign company acquisitions in China in 2003 and an anti-monopoly law in 2008.

Born in Shanghai before moving to the US when he was 11, Wu says returning to his native land in 2001 was like the difference between "night and day". "I grew up in a house [in Shanghai] with American plumbing but it was circa 1948 plumbing."

The gleaming skyscrapers of 21st century Shanghai are not the only changes in the city. The legal system has also undergone an overhaul.

For a lawyer like Wu with degrees from the prestigious University of California at Berkeley, Columbia University and Fordham University School of Law, the system can still feel foreign. Unlike lawyers in the US, Australia or Britain, Chinese lawyers cannot rely on hundreds of years of precedents - judgments from earlier cases followed in later cases that make up the body of common law.

"A client will ask whether there is a precedent for something and it is difficult to advise them as you are only looking back 15 to 20 years," Wu says. Important rules on foreign joint ventures, for instance emerged only in the late 1970s and early 1980s, and the country did not have a company law until 1994.

Wu notes that a foreign lawyer on the mainland plays a more advisory role - on everything from cultural norms to the political environment. This is mainly because of regulatory restrictions that prevent them from giving formal advice in a legal capacity.

Andrew Tortoishell, managing partner for Greater China at Herbert Smith, says the mainland legal system presented a number of challenges for lawyers. "The legal system in China is evolving rapidly. Situations do arise where laws are interpreted or applied differently in different provinces," he says. "Naturally this increases the commercial risks faced by foreign investors who seek legal certainty before they make investment decisions."

But Tortoishell says the situation is improving as a new generation of lawyers start practising. "Mainland law schools are producing some very talented graduates and many are also training overseas, often in the US or Britain," he says. "A growing number are being recruited by international firms."

David Fleming, a partner at Baker & McKenzie in Hong Kong, says as a civil system, the Chinese state plays a different role than in a common law system. "It involves a greater degree of interpretation, so the same law may be interpreted and applied differently between provinces," he says.

The view of the mainland's legal system as arbitrary is outdated, Fleming says, although foreign lawyers are still restricted in what they can do.

March 8 2011

China Vanke to invest in housing for elderly By Peggy Sito

China Vanke, the mainland's largest developer by market value, said it planned to invest in housing developments for the elderly in light of the country's ageing population.

"The investment potential of the market is huge," said president Yu Liang at a press conference in Shenzhen. "Vanke's housing projects for seniors will be developed first in Hangzhou, Beijing and Shanghai this year."

The ageing population provided the company with a new business opportunity because the government had not provided sufficient housing for senior residents, said Yu, quoting People.com.cn, an official media outlet. But he said the company had not finalised what types of housing for the elderly would form its investments.

According to world population statistics published by the UN, the proportion of the global population over 60 will increase to 21.9 per cent from 11 per cent by 2050. In particular, the numbers of elderly will rise to 31.1 per cent of the population from 12.3 per cent over the same period.

During the next five years (2011-2015), the ageing of the mainland population is expected to accelerate, according a report on housing for the elderly published by international property consultant DTZ.

In 2010, an estimated 690,000 senior citizens lived in more than 11,000 government or government-sponsored welfare care homes. Fewer than 270,000 lived in non-profit, non-government care homes. Together that represents only 0.57 per cent of a total population of 167.14 million citizens aged over 60 in 2009.

Apart from housing for the elderly, Yu said Vanke also planned to increase the development of environmentally friendly residential properties.

Meanwhile, its contract sales surged to a record of more than 100 billion yuan (HK$118.7 billion) last year - mainly through the development of mass housing.

Results for 2010 announced on Monday showed contract sales rose 71 per cent to 108 billion yuan, making it the first mainland developer to exceed 100 billion yuan. Net profit last year grew to 7.3 billion yuan, up from 5.3 billion yuan a year earlier.

China to be world's top luxury market by 2015 By Minnie Chan

A growing base of vibrant young consumers will see the mainland replace Japan as the world's biggest luxury market by 2015, comprising 20 per cent of the global market, according to a new McKinsey report on China's luxury goods consumption. The survey found that 45 per cent of luxury consumers on the mainland were aged between 18 and 34, compared with 37 per cent in Japan and 28 per cent in Britain.

"Luxury consumers in China are younger than their global peers. They are not only second-generation rich but also those born in the 1980s who are still saving for buying houses ... but they still have passion for luxury goods," Yuval Atsmon, a partner in McKinsey's Shanghai office, said yesterday.

"They are different from peer groups in Japan and other countries because they are confident and very optimistic about their financial future. In Japan, young people ... are moving away from luxury goods, while in [South] Korea, the percentage of luxury consumers is declining."

The report was based on interviews with more than 1,500 consumers in 17 mainland cities last year.

It showed that 72 per cent of wealthy luxury consumers, with annual incomes of more than 250,000 yuan (HK$296,800), believed their earnings would "increase significantly" in the next five years, 13 percentage points more than the national average.

The report estimated that in the next five years, the number of upper-middle-class households, defined as those with annual incomes of 100,000 yuan to 200,000 yuan, would increase from 13 million to 76 million.

It said luxury sales were expected to reach US$27 billion by 2015, comprising 20 per cent of the world's luxury market and surpassing Japan as the No1 luxury goods market.

Thirty per cent of respondents indicated they preferred to buy goods abroad to avoid a 20 per cent tariff. But the report said that in the next five years, the top 36 cities and 25 other developed cities would capture 74 per cent of growth in the market.

The McKinsey report also found luxury consumers were willing to buy good-quality brand names, even if they had to pay a premium price, but they were being more rational about their purchases.

"Some luxury consumers would consider their luxury goods as one of their investment tools, with some saying that they prefer to buy luxury goods with lasting value because their price won't drop or [may] even increase," Atsmon said.

Spending on luxury services such as spas, massages and other wellness activities was growing even faster, the report said. It found 20 per cent of luxury consumers said they had increased spending on such services while 13 per cent spent more on goods.

The survey findings are in line with remarks made by Commerce Minister Chen Deming on Monday. Chen said China would become the world's largest market for luxury goods in five years, adding that it would become the largest retail market in 10 years, surpassing the US.

March 4 2011

Retail giants square up for rich pickings in China By James Sinclair

Take a walk around one of Beijing's neighborhoods and you're more than likely to see a Walmart and a Carrefour, as well as many other hypermarket chains from around the world.

The hypermarket business in first-tier cities is fast reaching saturation, with fierce competition and little room left for newcomers. So retail giants are turning to China's dozens, if not hundreds, of smaller cities, tapping the retail growth that's emerging across China.

However, as global leaders move into smaller cities, transforming local retailers from traditional shops into more modern chains, they face new challenges.

All the top international chains are in China. For Walmart, Carrefour and Tesco, the world's top three players, China is now the fastest growing market worldwide.

Walmart has the largest hypermarket footprint of the three, generating 34 billion yuan (3.73 billion euros) in revenue through 189 stores in 101 cities. Carrefour has 159 stores in 47 cities and 37 billion yuan in revenue, while Tesco has 78 stores in 35 cities, generating 13 billion yuan. Many other international chains are also in the chase.

The trend is clear: International chains will expand rapidly. Tesco, for example, will likely open more floor space in China over the next five years than it has done in eight decades in its home country, the United Kingdom.

But Chinese chains still dominate the domestic market. Among them are China Resources Vanguard (CRV) and Lianhua Supermarket, among China's top five retail groups.

CRV generated 72 billion yuan in revenue in 2010 from 3,200 stores in more than 100 cities. In the past year, CRV opened more than 450 stores, including 60 large supermarkets. It plans to open 400 more this year, including 70 to 80 large supermarkets.

And the Chinese chains are becoming much more sophisticated when it comes to shopper experience.

Beijing Hualian Supermarket, one of China's top 20 chains, is among the most forward thinking. It is now seeking to differentiate against its international and domestic peers by developing a deeper understanding of the Chinese shopper and providing them with a better shopping experience.

Yet while the stronger Chinese chains are moving to better compete in bigger cities, international chains are heading into smaller cities. One of the most successful has been RT-Mart, the joint venture between Taiwan-based Ruentex Group and the Auchan Group from France.

RT-Mart enter China in 1997, a few years after Carrefour, with an astutely tailored approach. And instead of concentrating on bigger cities, RT-Mart secured prime properties in smaller cities. The result: RT-Mart recently surpassed Carrefour to become the largest international chain in China by retail sales.

However, Chinese chains are strongest in the smaller cities, with chains such as CRV and Lianhua Supermarket having grown from provincial strongholds. And they are still in the process of building national coverage.

For example, CRV has more than half of its stores in East China's Jiangsu province alone. This pattern is reflected in most provinces, with scores of regional chains growing from their provincial base. They tend to have about 100 outlets and revenues in the region of 1 billion to 5 billion yuan.

Behind them are hundreds of local chains growing from their municipal bases, often with 20-100 outlets and revenues ranging from 100 million yuan to 500 million yuan. Other chains may have just a handful of outlets in one or two cities.

As the international chains penetrate smaller cities, they will face these regional players, which are even moving into first-tier cities to compete against national and international chains. These regional chains are seeking to learn from their more sophisticated international and national counterparts, and a new source of global expertise has arrived in China to do just that.

The Independent Grocery Association (IGA), a US-based association of regional hypermarket and supermarket chains, recently established a chapter in China, with 20 members operating 2,500 stores so far.

IGA has started to train members, joining the University of Wuhan to establish an IGA Institute and cover modern retail management disciplines. IGA is also starting to use the combined scale of its members to generate greater negotiation power over suppliers than individual chains would have alone. Given this support, IGA will be an important force in the shaping of China's retail environment over the coming decade.

Another force will be acquisitions and consolidation. In addition to the normal consolidation drivers, such as achieving economies of scale, securing prime locations will be a critical driver for the chains.

And the best locations are in crowded urban cores, close to dense residential neighborhoods and commercial complexes. Clearly there are a finite number of these sites, and as regional chains have been in the smaller cities for more than a decade, they already occupy them.

In the past, international chains used their joint venture partners to leverage local relationships and gain access to good locations. At present, we are seeing the chains forming strategic relationships with property developers, or investing in commercial complexes - all with the intention of their stores becoming anchor tenants.

Another strategy is to acquire regional chains and their prime locations. This will bring two benefits. First, acquisitions will provide premium hypermarket players with new formats and brands, allowing them to play in smaller formats and mid-level positions better suited to smaller cities.

Second, acquiring chains will come with local know-how, including an understanding of brand preferences and consumer behavior in each province or city. Carrefour is a case in point. In July last year, Carrefour acquired 51 percent of Hebei Baolongcang, which operates 14 hypermarkets, mainly in smaller cities, recording net sales of 1.06 billion yuan in 2009. Now, the chains - which are focusing on China's next 600 cities - may soon have to start thinking about China's thousands of towns.

The author is managing partner and a consumer and retail specialist at InterChina Consulting, a strategy and M&A advisory firm headquartered in China.

February 28 2011

Gaokao trainers foresee a bright future By Huang Ying

A large billboard stands in the lobby of a Beijing training organization advertising various educational programs for high school students to study at overseas universities.

Demand rises for classes in how to excel in the national college exam

BEIJING - With the beginning of a new semester, many education-training agencies are seeking to boost their profits by offering courses designed to better prepare students for the upcoming 2011 gaokao, or national college entrance examination, held in June.

"The college entrance examination is a very big thing for Chinese students. Parents and students alike are willing to invest as much as they can to get a good result," said Luo Ping, director of U-Can Middle School Education Center, operated by New Oriental School in Beijing.

The number of students scheduled to take the college entrance exam started to fall in 2009. It decreased from 10.5 million in 2008 to 9.46 million in 2010, according to statistics from the Ministry of Education.

However, the supplementary education market for senior high school students remains confident about its prospects.

New Oriental School is one of the top brands in English training on the Chinese mainland and it entered the area of supplementary education for middle and high schools in 2007 with the establishment of U-Can Middle School Education Center.

"We saw a 30 percent to 50 percent annual average growth in profits from 2007 to last year in this section," said Luo, adding that parents' growing expectations for their children's performance in the gaokao spurred a family's investment in education.

The huge demand attracted many others to the market. Global Education & Technology Co Ltd began college entrance examination training in December 2009, three years after it was established, and had provided gaokao-oriented education services to more than 300 students by the end of 2010.

The education institution offers one-to-one tutoring services as its major business. It will expand classes this year as more and more students are registering for its gaokao-oriented courses.

"We received 15 million yuan ($22.5 million) in revenues in this part of our business last year, and I expect it to increase to 30 million yuan this year," said Chen Tianfu, director of the operations department at Global Education & Technology Co Ltd.

Teachers may be the most valuable assets for a training agency because they have direct influence on the final results of students' grades in the gaokao. Generally, these teachers are from public high schools or are full-time training teachers.

Chen said that his company's more-than-200 teachers tutoring senior high school students are from various public high schools in the city, which he said was a guarantee that they could always get first-class educational materials and information about the gaokao.

"Years of experience in the field has also enabled them to better understand the exam system," he added.

At New Oriental School, one-third of its teachers are from public high schools, one-third of them are full-time professional-training teachers, and the rest are teachers it trained, most of whom are originally overseas students or graduates of prestigious universities in China.

"I have more confidence in teachers from key public high schools," said Shi Shigang, father of Shi Di, a senior student of the high school affiliated to Renmin University of China in Beijing. Shi paid 400 yuan an hour for his daughter's supplementary maths course provided by a teacher from Beijing No 4 High School.

The cost of gaokao-oriented supplementary education varies according to the types of classes chosen.

At Global Education & Technology Co Ltd, the average cost is 230 yuan an hour for a one-to-one tutoring service, rising to 350 yuan to 400 yuan for teachers from key high schools.

At Juren Education Group, one of the top private education brands in China with its focus on primary, middle and high school students' education, the average cost for a one-to-one tutoring service is between 300 yuan and 500 yuan an hour.

Juren was founded in 1994 and launched in the gaokao-oriented supplementary education sector in 2000.

"The average annual spending on a student's supplementary education for a college entrance exam surged from 2,000 to 3,000 yuan in 2000 to 15,000 yuan nowadays," said Yin Xiong, president of Juren Education Group. These training institutions all believe the market holds great promise.

"The desire of parents for a better performance by their children in the college entrance exam has no limits, and the demand will exist and continue to grow as long as the difference in quality between Chinese universities exists," said Yin Xiong.
Although many private education organizations of all levels have now entered the market, there will be a trend toward integration, said Chen from Global Education & Technology Co Ltd.

Global Education & Technology acquired two small private education organizations at the end of 2010. One of them had been in operation for seven years.

"I think the whole market will become more mature because parents are showing a more rational attitude in making their choices," said Luo from New Oriental School.

In order to differentiate itself from competitors in the market, New Oriental School provides an assessment service for students who are considering whether to sign up for its U-Can Middle School Education Center.

The assessment system could help students better understand their abilities, so that they could select the appropriate classes for themselves. The assessment also acts as a reference for the teachers who are designated to tutor them.

February 6 2011

Look out, dollar. Watch it, yen. The yuan is going global By Ed Zhang in Beijing

Moves towards yuan convertibility begin to pick up pace - The "internationalisation" of China's currency is expected to be a highlight of Premier Wen Jiabao's speech for China's 12th five-year plan, during the nation's annual parliamentary session in Beijing next month.

The groundwork for the acceleration of the currency's emergence on the world stage was laid two months ago when the central bank - the People's Bank of China - stated that the nation "has good reason to expand its opening-up of capital accounts in the mid-term".

The opaque language was interpreted by currency managers as a sign the bank was looking at making the yuan internationally convertible. And though "mid-term" wasn't clearly defined it is commonly used by mainland economic planners to refer to a five-year period.

In short, the central bank seemed to be setting its sights on full convertibility of the yuan by the end of the coming five-year plan, or at the end of 2015.

The intense anticipation in the market means the internationalisation of the yuan will be one of the biggest global trends to watch this year, according to Nariman Behravesh, chief economist from HIS Global Insight.

Speaking at the World Economic Forum in Davos last month, he warned, however, that it would take "some years" for a freely convertible yuan to be traded on par with the likes of the US dollar, the euro or the yen.

Rather than a big bang, currency reform is likely to be incremental and gradual. But the subtle change in language suggests the process may unfold in accelerated fashion.

Until the second half of last year mainland officials preferred to use the term "regionalisation" rather than "internationalisation" when discussing the yuan's future status, said Jing Ulrich, JP Morgan's chairman of China equities and commodities.

Restrictions on the use of the yuan to settle foreign trade deals were lifted last June. A month later, the central bank issued a memorandum of co-operation with the Hong Kong Monetary Authority, allowing companies to set up commercial yuan business in the city and open yuan accounts and trade the currency in Hong Kong without limit.

The changes strengthened Hong Kong's position as China's offshore yuan centre, Ulrich said.

Now a new chapter beckons for Hong Kong's financial industry as it leverages its connection with mainland China and the global market; its rule of law; and its rich talent pool, said Robert Subbaraman, chief Asia economist of Nomura. By the end of last November, yuan-denominated trade settlements in Hong Kong had reached 385 billion yuan (HK$456.32 billion), and Qu Hongbin, chief economist for China at HSBC (SEHK: 0005, announcements, news) , predicted that by 2016 one third of China's cross-border trade would be settled in yuan.

Hong Kong's yuan deposit base, currently at around 300 billion yuan, would reach more than 2 trillion yuan in 2013, according to a projection by Deutsche Bank economist Ma Jun. As mainland banks continue branching out in North America and western Europe, yuan-denominated security and investment products are also going to become more diversified and popular, he added.

The first yuan-denominated bonds were issued in Hong Kong in the second half of 2010 and issues now total 30 billion yuan. Ronald Wan, the investment executive of China Merchants Securities, predicted that figure could rise to between 45 and 50 billion yuan by the end of this year.

The Stock Exchange of Hong Kong is meanwhile preparing for the issue of yuan-denominated shares. Expectations in the mainland financial service sector are that the first yuan-denominated shares will be issued in the middle of this year.

And the next thing to come, financial service executives say, will be an increase in yuan-denominated funds.

"Once yuan stocks are issued, yuan funds will have to follow in due course," said a senior manager of CICC, a Beijing-based brokerage with international operations.

Ann Wyman, Nomura's London-based emerging markets specialist, said her clients in the Middle East - especially managers of sovereign funds - are eagerly anticipating the issue of yuan-denominated low-risk assets to offer alternatives to US treasury bills.

Many have already set up beachheads in Hong Kong, she added, waiting for investments.

Yuan internationalisation was interrupted by the global crisis in 2008, said He Jun, senior economist of Beijing-based Anbound, a non-governmental consulting service.

He said, however, that circumstances now favoured an acceleration of that process.

January 28 2011

Pushing their duck - Hong Kong restaurateurs are helping to redefine Beijing's dining scene By Mark Graham

It takes entrepreneurial effrontery to open a restaurant in Beijing offering a Cantonese reinterpretation of the capital's most iconic dish, Peking duck. Still, the gamble by Hong Kong restaurant group Elite Concepts has paid off in a big way - its gourmet restaurant, Duck de Chine, is packed every night with locals and visitors. There, the duck is roasted over a fruitwood fire in the classical way, but sauce options include herb-infused hoi sin with peanuts, garlic or sesame. French music plays in the background and a champagne bar greets diners at the entrance.

Duck de Chine is among several innovative Hong Kong-run ventures that are helping to redefine the Beijing dining scene. The 2008 Olympic Games sparked a culinary revolution that is still transforming the once-dull capital. Although Hong Kong restaurateurs are by no means the only ones introducing new concepts to Beijing, they operate some of the most high-profile venues.

Several are located at Opposite House, a stylish, minimalist, lobby-free hotel owned by the Swire group (SEHK: 0019). Sureno, the hotel's open-plan, light-flooded restaurant, is a favorite with the art, fashion and design crowd; Bei restaurant's Japanese and northern Chinese dishes, prepared by an American chef, has a coterie of fans.

"There are just so many more options these days in Beijing, upscale and international-inspired things," says the restaurant and bar manager of Opposite House, Milan Sekulic. "Investors are prepared to put more money into the design to give things a much more contemporary style. The whole feel of the city is becoming more international."

That growing cosmopolitan awareness inspired advertising executives Patrick So and Ellis So (no relation) to launch an upscale burger bar, convinced that expatriates and locals would pay HK$80 for a top-quality burger and french fries.

The pair enlisted Danish-Chinese chef Kevin Lam as the third partner in Let's Burger, located on lively Nali Patio in the nightlife zone of Sanlitun. "We both like burgers but to find a decent one in Beijing you had to eat in a hotel, so we thought opening a burger shop would be a good opportunity," says Patrick So. "It is a simple idea - burgers are simple - and we offer a cosy environment where people can sit and chat with friends."

But running the eatery, which cost about HK$1 million to set up, has been challenging. "We were naive before opening: we thought we would be able to sit and enjoy a glass of wine and talk to people but that is not the case," Patrick So says. "In the food and beverage business you have to work hard; you have to put everything into the restaurants - time and money."

Their burgers, made with Australian meat, organic lettuce and tomato and thick-cut fries, and served with a range of sauces such as wasabi mayonnaise, have proved hugely popular.

Buoyed by that success, the pair went on to open Let's Seafood in an adjoining space. Its menu features such items as classic English-style fish-and-chips and Thai-style fish curry. Prices there are higher, with customers spending an average of HK$150 per head.

"There were no seafood restaurants like this in Beijing" says So. "It was more expensive and more difficult to source the seafood we wanted but our aim was to provide good food at a reasonable price; there are plenty of people in Beijing with money to spend on quality food."

Tom Pattinson, a British entrepreneur and long-time Beijing resident who runs the annual Affordable Art fair, appreciates the improved options.

"A lot of restaurants opened for the Olympics and the dining scene skyrocketed, but now it has levelled off and the best operators have been left standing. In recent years, we have also seen the rise of the value restaurant. At the top end, Duck de Chine is always on my personal list for entertaining people; it is a special restaurant but can be affordable if you don't go for really expensive wines," Pattinson says.

"If you live a local lifestyle in Beijing it can still be incredibly cheap. You can spend 20 yuan (HK$24) to 40 yuan a head and it will be decent food."

One downside for restaurateurs is the Beijing weather, which makes often generous patio space unusable for much of the year. The extreme cold in winter and the stifling heat and buzzing mosquitoes during the midsummer months make sitting out impossible.

Finding capable staff is also difficult. "In Hong Kong two guys take care of eight tables and do everything," So says. "Here, you have to ask three people to take care of six tables. They are learning fast but one of our main problems is turnover. People just change all the time and salaries in Beijing are rising fast, especially at Sanlitun."

Drilling staff to the service levels that are the norm in Hong Kong is an ongoing process at Duck de Chine. "Most of the staff now understand the Hong Kong hospitality style," says director Amin Yip. "We want them to have a passion for service we try to train them so they can understand the Hong Kong way by using the magic words like `Thank you'. We put a lot of effort into it."

Duck de Chine is among several outlets that Elite runs in a converted machinery factory compound, now known as 1949 - The Hidden City. Diners enter the 60,000 sq ft complex via an art gallery, before making their way through a garden to the Japanese, Mediterranean and Peking duck restaurants. The compound also features a tiny noodle bar that seats just 12 people and, in summer, an outdoor bar.

Chien'men 23, a cluster of outlets occupying the former American diplomatic complex just off Tiananmen Square, was set up on a similar concept with high hopes it would attract food-lovers. But the operation has been less than successful: Hong Kong-based Aqua group, one of the flagship tenants, closed its Japanese restaurant, lounge and rooftop bar and relocated its Spanish restaurant, Agua, to bustling Sanlitun.

Across the street, however, a venture by Michelle Garnaut attracts patrons who pay upwards of HK$550 a head for a three-course Mediterranean-style meal with wine. Capital M has become a favorite among diplomats, businessmen, expatriate residents and affluent locals alike. The food is dependable, the decor elegant and the location stunning, with terrace views towards Tiananmen Square.

"Timing is crucial with opening a restaurant - having the right thing at the right time," says Garnaut, who launched M at the Fringe in Hong Kong and M on the Bund in Shanghai.

"We painted ourselves into a corner with M on the Bund because the expectation was that our next place would be spectacular. I think we have delivered on that in Beijing, but it took seven years to find the right place. It is a fabulous location.

"People in Beijing are not the going-out type and they don't like to spend money like people in Shanghai and Hong Kong. They are still extremely price-conscious. It is also a city that is hampered by the traffic, weather and politics."

Master chef Jereme Leung, who learned his trade in Hong Kong, also established a restaurant in Shanghai before opening the Whampoa Club in a converted merchant's house in Beijing. Leung dreams up unusual combinations such as bean curd and vegetable roll with foie gras terrine, Beijing-style pork and bean jelly, and cheesecake with Beijing pea custard.

For all their entrepreneurial verve, the trailblazing restaurateurs face many challenges in Beijing, not least among them opaque rules and niggling bureaucracy.

"It is an expensive place to do business - rents are expensive and salaries are expensive. We are doing fine, but it is not an easy business environment," Garnaut says.

Still, the potential of an increasingly affluent city of 20 million people continues to attract adventurous restaurateurs. Food writer Lillian Chou reckons Hong Kong operators have a head start over rivals from the United States, Europe or Australia because they are used to Chinese and Western ways of running businesses.

"They have been working both sides for ever and are familiar with China," says Chou, an American.

Bei: The Opposite House, 11 Sanlitun Lu, Chaoyang, Beijing; tel (10) 6410-5230, 6410-5230
Capital M: 3/F, No.2 Qianmen Pedestrian Street; tel (10) 6702 2727.
Duck de Chine: Courtyard 4, Gongti Beilu, Chaoyang, Beijing; tel (10) 6501-1949
Let's Burger: D101a, Nali Patio, 81 Sanlitun Beijie, Beijing; tel (10) 5208-6036
Whampoa Club: 23A, Jinrong Jie (bet. Fuxingmennei Dajie & Guangningbo Jie) tel (10) 8808-8828
Afternoon tea memories add zest to Cambridge graduate's bakery

Lexie Morris could have had a promising corporate career in London. Instead, the neophyte businesswoman, who was born in Hong Kong and went to school here, gave it all up to start a cupcake business in Beijing.

"After university, I got a job at a strategy consulting firm in London. I was the highest-paid graduate coming out of my year, but I absolutely hated it," she says.

But Morris, 25, who had studied in Beijing as part of her degree in Chinese studies at Cambridge University, figured there would be a market in the Chinese capital for properly made, prettily packaged cupcakes and relocated to launch her venture.

"The idea for cupcakes came from going for high tea in London, to the Ritz or Fortnum & Mason. I also knew how successful the Peninsula in Hong Kong was with its afternoon tea," says the keen baker. "I knew from experience that Beijing did not have anything like that - one thing I hated about the city when I was there as a student was that there was no cake." Morris did all the baking out of her 800 sq ft flat when she set up Lollipop Bakery (www.lollipopbakery.cn) a year ago. Her biggest expenses at the time were rewiring the place to cope with an electric oven in constant use and placing an order for 10,000 packaging boxes (the minimum her supplier would accept).

"At first it was just an order a day, and then it really began to snowball," she says. "Since last September, it has been insane - I get orders from individuals and also supply coffee shops. I have never done any advertising or marketing; it is all word of mouth."

With the business expanding, Morris (pictured) has since moved into commercial premises and hired three full-time workers. A standard order of 24 mixed cupcakes costs about HK$220, with a choice of chocolate, vanilla, Earl Grey, spiced carrot, red bean, cookies and cream, black sesame and red velvet flavours. The bakery also customises the cupcakes with inscriptions for birthday parties or other special occasions.

Morris's base in Beijing makes it convenient to meet her father, a civil engineer, when he visits Hong Kong as a designer on the new bridge linking the city with Zhuhai. Martin Morris worked on all three cross-harbor tunnel projects and met his wife, Fifi Chan Lai Thiong, while posted to Hong Kong.

Lexie Morris has clearly inherited her Cantonese mother's entrepreneurial genes. "Right now, I am really engaged with what I am doing," she says. "I find it really satisfying when compared to the corporate world. I feel I am creating something. I have to decide where to go from here, whether to hand over day-to-day control, do a coffee shop or franchise it."

January 27 2011

US will lose business if export controls remain in place By Ding Qingfen

The United States will probably allow huge business opportunities to go to European Union (EU) countries and Japan if it refuses to rescind controls on exports to China as soon as possible, according to Chinese government officials. The comments came at a monthly forum on China-US Economic Relations held by the China Center for International Economic Exchanges (CCIEE) - a high-level business thinktank - on Wednesday.

Wei Jianguo, a former vice-minister of commerce, and now secretary-general of the CCIEE, urged the US to quickly reduce restrictions on high-tech exports to China in a bid to narrow the trade surplus, an issue that has become central to bilateral trade conflicts.

"The sooner the US does it (loosens the restrictions), the more leverage it will gain in the future and the more commercial benefits it will gain otherwise, the business opportunities (in terms of high-volume Chinese imports of high-tech products) will naturally slip away to other nations, including those in the EU and Japan," said Wei.

During the 3rd China-EU High-Level Economic and Trade Dialogue held in Beijing in December, the EU agreed to set up a working panel to examine boosting high-tech sales to China.

A meeting on the issue is expected to be held early this year, after the two sides reached a consensus on increasing cooperation on high-tech trade.

China has a large trade surplus with the US, which the US attributes to the yuan being undervalued.

China denies this, and says that the best way to promote Chinese imports is for the US to abandon its restrictions on high-tech exports.

The export of high-tech products to China, for both military and civilian use, has long been forbidden by the US despite repeated calls for change. During President Hu Jintao's four-day visit to Washington last week, China again made a proposal on the issue during the bilateral high-level meeting.

Although China signed a series of agreements on purchasing US goods worth as much as $45 billion, no progress was made on the issues of export controls.

"China and the US have been cooperating well, but US export controls are a big problem in bilateral economic relations," said Sun Zhenyu, the former Chinese ambassador to the World Trade Organization, at the forum.

"US exports to China would easily increase if such a restriction did not exist."

Some US companies have also agreed with that statment.

"The US government has to look at reducing controls, because erecting barriers cannot be the answer to US need to create jobs and prosperous growth," said Mark Norbom, president of General Electric China.

GE, the largest US industrial company by market value, announced a number of deals with Chinese groups last week that will create about 4,500 jobs in the US, including the formal signing of a joint venture agreement with the Aviation Industry Corporation of China to set up a 50-50 joint venture to provide avionics for the new Chinese C919 airliner.

January 26 2011

World’s Most Globalised Economy

Hong Kong has topped the list in a global ranking of the world’s 60 largest economies. Hong Kong, one of only two Asian economies to place among the study’s top 10, was cited as the most globalized economy for doing business.

Hong Kong has been ranked the world’s most globalized economy in the latest Globalization Index survey by Ernst & Young

Hong Kong is leading the world in the trend towards globalization, particularly in the exchange of goods, capital and labor. That’s the conclusion of a new study from the global advisory services firm Ernst & Young, in association with the Economist Intelligence Unit. Its findings show that Hong Kong in 2010 embraced the highest level of globalization among 60 of the world’s largest economies.

“Hong Kong is playing a very significant role in the world,” said Agnes Chan, Ernst & Young’s Regional Managing Partner, Hong Kong and Macau. “China now is the second-largest economy in the world. Investors regard Hong Kong as the gateway to enter and invest in mainland China, while Chinese enterprises view Hong Kong as a springboard to expand into the international market.”

The Globalization Index tracks and measures the performance of the world’s 60 largest economies, based on 20 indicators of cross-border business integration. The indicators fall into five broad categories: openness to trade; capital movements; exchange of technology and ideas; movement of labor; and cultural integration. The Index measures relative rather than absolute globalization, meaning that the five categories are measured relative to the economy’s GDP.

The 2010 index is based on a survey of 1,050 global senior business executives and in-depth interviews with 20 senior executives and high-level experts.

Embracing Globalization

Hong Kong’s rule of law, transparency and availability of talent make it an especially attractive base

Rounding out the top three was Ireland, which scored highest on technology, and Singapore, which dropped from number one to number three.

“Significantly, two out of the top three economies are from Asia-Pacific, which shows how the region is embracing globalization,” Ms Chan said. “It also demonstrates how these economies are willing to stake their economic legacies on creating the right environment to facilitate the freedom of movement of goods, people, capital and ideas.”

According to Ms Chan, Hong Kong ranked top in the areas of openness to trade, movement of capital and finance and cultural integration. But she noted that the city lags behind in the areas of exchange of technology and ideas, and in net labour migration. The group proposed that the Hong Kong Government introduce business tax and financial incentives to encourage investments in innovation. The report also called on the Government to improve the environment and education system in order to attract talent to Hong Kong.

Experts discuss the merits of doing business in Hong Kong at the unveiling of the Globalization Index survey

To maintain Hong Kong’s edge, business operators also stressed the importance of continuing to provide a free operating environment. “To retain the number-one position is to have an all-embracing attitude in areas such as trade openness, exchange of culture,” said Tony Tsoi, CEO of Varitronix International Ltd.
As a gateway to China, Mr Tsoi said Hong Kong’s advantage is “indisputable.”

But the challenge, according to Mr Tsoi, is to raise the bar higher. “Hong Kong’s advantage over other economies is that being able to base in Hong Kong is an assurance of quality. So it’s all the more important at this juncture not to be lax in our standards, and to raise the quality even higher,” he said.

International firms are taking heed. According to Invest Hong Kong, 280 regional headquarters set up in the city last year. Hong Kong’s rule of law, transparency and availability of talent make Hong Kong an especially attractive base, according to David Wong, Deputy Chief Executive of the Bank of China Hong Kong. He said that Hong Kong’s role as a renminbi offshore centre will also enable the creation of innovative financial products in the city. But he added that Hong Kong companies must remain responsive to customer needs and stay sensitive to regulatory changes.

Localizing Strategy

The study noted that globalization is now spread more evenly between developed and emerging economies. But while access to markets, talent and technology is easier thanks to globalization, the study showed that the pace of recovery and growth, as well as business environments and customers needs, differ.

Those two developments raise the importance of having a globalized team that understands the needs of the local market, according to Ernst & Young. It also advised business from developed countries to pay greater attention to policy issues when expanding into emerging markets, where governments play a prominent role in business.

January 19, 2011

US, China Make Progress on Procurement, IPR Issues; Announce Export and Investment Deals

US President Barack Obama and PRC President Hu Jintao emphasized cooperation on the economic, security, and political issues facing both countries at a joint press conference at the White House Wednesday afternoon. In addition to announcing billions of dollars worth of business deals, US and PRC government officials also announced potentially important progress on China's government procurement policies and intellectual property rights (IPR) protection.

According to a joint statement released by the White House today, China agreed to delink its innovation policies from government procurement--a top US-China Business Council (USCBC) advocacy priority for the Hu visit. "We're making progress on making sure that the government procurement process in China is open and fair to American businesses," Obama said at the press conference. "And we've made progress as a consequence of this state visit."

China also bolstered its IPR protection commitments by agreeing to audit the use of legal software in government offices and publish the results of those audits. The commitment goes a step further than the agreement at last December's Joint Commission on Commerce and Trade meeting, at which China only agreed to ensure that its government uses licensed software. China also agreed today to submit a revised offer to join the Government Procurement Agreement to include purchases by central government and sub-central entities.

Companies from both countries signed several lucrative business deals, including a $19 billion deal to sell 200 Boeing airplanes to China over the next three years. The White House said that the deals are worth more than $45 billion in increased US exports that "will help support an estimated 235,000 jobs in the United States."

Earlier in the day, Obama welcomed Hu with a ceremony on the south lawn of the White House. Obama and Hu also attended a meeting of Chinese and American business leaders that included four USCBC board members--Coca Cola Co.'s Muhtar Kent, Dow Chemical Co.'s Andrew Liveris, Boeing Co.'s Jim McNerney, and Motorola Solutions' Greg Brown.

At a luncheon for Hu hosted by Vice President Biden and Secretary of State Hillary Rodham Clinton, Biden announced that he would visit China this year and will invite PRC Vice President Xi Jinping to visit the United States.

US and PRC government officials participated in a number of events related to Hu's visit Wednesday.

US and PRC government officials participated in a forum hosted by USCBC, the China Council for the Promotion of International Trade (CCPIT), and the US Chamber of Commerce. USCBC and CCPIT signed an agreement to continue "Invest in America" programs.
US Energy Secretary Steven Chu announced the signing of a five-year work plan to develop the $150 million US-China Clean Energy Research Center. The center will initially focus on energy efficiency, clean coal, and clean vehicle technology research.

Tomorrow Hu will make the major policy speech of his visit at a luncheon hosted by USCBC and the National Committee on US-China Relations before departing for Chicago. He will meet in the morning with members of Congress, including House Speaker John Boehner and Senate Majority Leader Harry Reid.

Related links

Fact Sheet: US-China Commercial Relations (White House, 01/19/11)
Fact Sheet: US-China Economic Issues (White House, 01/19/11)
Transcript of the joint press conference (White House, 01/19/11)

January 7 2011

Ministry tries to clear up VoIP confusion By Wang Xing

Skype introduces its voice over Internet protocol (VoIP) telephone services on a telecommunication products fair in Nanjing, Jiangsu. Since 2005, Chinese authorities have permitted only China Telecom and China Netcom to operate pilot VoIP services in four cities.

In a move that has confused China's telecom industry as well as Skype users in the nation, the Ministry of Industry and Information Technology said it has always been supportive of Internet-based telephone services, a remark that contrasts with a Dec 10 notice by the ministry.

Last month, the ministry issued a notice calling for a crackdown and ban on illegal voice over Internet protocol (VoIP) telephone services in China. The announcement, which many believe was designed to protect the interests of State-owned telecom carriers, has sparked concerns that companies such as Skype will be forced out of China.

But during a recent telecom industry conference, Wen Ku, director of the ministry's technology department, told China Daily that the ministry is not against Internet-based telephone services, "but only those operating illegally in the country".

"VoIP phone service is a world trend in the telecom industry. We are not against that technology," Wen said.

Industry experts told China Daily that Wen's remark is a possible sign that the ministry may not execute its crackdown or ban.

Wang Lijian, ministry spokesman, told China Daily on Wednesday that the "whole issue is over". He refused to comment on whether the ministry will adopt any measures to crack down on Skype.

But what constitutes a legal or illegal VoIP service is hazy at best. The ministry on Dec 10 called for a crackdown "on illegal VoIP telephone services" and said it was collecting evidence against them.

At the conference, Wen would not define what an illegal VoIP service is but noted that the crackdown is mainly to fight online crimes and fraud done through VoIP services.

Since 2005, Chinese authorities have permitted only China Telecom and China Netcom, which merged with China Unicom, to conduct trial VoIP services in four cities. Experts say that this rule technically means that all VoIP phone services provided by other companies are illegal, said Wang Yuquan, senior consultant with research firm Frost & Sullivan in China.

The pilot programs by China Telecom and China Unicom never happened, while so-called illegal VoIP services have grown rapidly over the years.

"I think the Chinese authorities will be extremely cautious in dealing with the regulations to avoid raising international concerns," said Kan Kaili, a professor at the Beijing University of Posts and Telecommunications.

Kan, a former official in China's telecom regulation agency, said Chinese telecom regulators don't want to see another foreign firm forced out of China, especially after the Google debacle.

That doesn't mean Chinese State-owned telecom carriers are not worried. Many carriers, experts said, fear that the rapid expansion of third-party VoIP providers will threaten their revenue from long-distant calls.
Skype's partner in China, TOM Group, said earlier this week that the Web-based calling service complies with the Chinese law.

A TOM Group spokeswoman said that "the operation of Skype in China is compliant with local laws and regulations" and "it is business as usual".

Chinese users currently have no problems accessing Skype.

Hong Kong billionaire Li Ka-shing owns 51 percent of the TOM Group. In 2004, the company launched a partnership with Skype to provide a customized, simplified Chinese version of Skype in China. The two companies established a 51-49 joint venture in 2005 to expand their partnership.

The two announced in 2005 that the co-branded software attracted over 3.1 million registered users in China, making the country one of Skype's top three markets.

December 24 2010

Made in China iPhone give a bilateral surplus of US$48 million in favor of the USA by Tom Holland

One of the most popular presents in American stockings this Christmas will be Apple's sleek new iPhone. But although the fortunate recipients will no doubt be delighted when they unwrap their iPhones tomorrow, a good many Washington politicians will be incensed.

What gets their goat is that Apple's iPhones are made in China. As a result, for every iPhone sold in America this Christmas, the US trade deficit with China will go up by around US$170. (Actually that figure is based on an iPhone 3G. For each iPhone 4, the US deficit goes up a shade more).

Considering Apple is forecast to sell almost 16 million iPhones in the US this year, that deficit soon mounts up. Altogether iPhones are likely to contribute almost US$2.7 billion to this year's US trade deficit with China, which is on target to hit a record US$270 billion (see the first chart). That means iPhones alone will account for 1 per cent of the bilateral trade imbalance in 2010.

No doubt this huge imbalance will infuriate politicians on both the right and left of the Washington spectrum and prompt renewed calls for a sharp appreciation of the yuan when the new Congress meets late next month.

Yet if they were to smash their iPhones in anger, the US politicians threatening trade retaliation against Beijing might realise that America's bilateral trade deficit with China is not all it seems.

Although iPhones are made in China, few of the components, and none of the valuable ones, are manufactured there. Teardown analysis of an iPhone 3G reveals that the touch screen is made by Toshiba of Japan, the application processor comes from Korea's Samsung, the camera unit is manufactured in Germany by Infineon, and US company Broadcom provides the Bluetooth gadgetry. China's only significant contribution is the actual assembly, which costs only US$6.50, or just 4 per cent of the total manufacturing cost (see the second chart).

Seen this way, the bilateral trade imbalance between China and the US looks radically different. On a value-added basis, China's iPhone exports to the US were not worth US$2 billion last year, as the headline figure indicates, but a mere US$73.5 million. Given that companies in the US shipped iPhone components worth US$121.5 million to China for assembly, that means far from running an iPhone trade deficit with China of almost US$2 billion last year, the US actually notched up a bilateral surplus of US$48 million.

This not only means that US anger at China is misdirected, it also means that the 20 per cent yuan appreciation that many in Washington are demanding would have little impact on America's overall trade deficit.

In a research study published earlier this month, analysts at the Asian Development Bank Institute in Tokyo calculated that a 20 per cent rise in the yuan's exchange rate against the US dollar would add just US$1.30 to the manufacturing costs of an iPhone 3G which sells in US shops (without a mobile contract) for US$499. Given Apple's 60 per cent profit margin, the ADBI analysts argue that the company would not even bother to pass these cost increases on to customers.

The effect would be more pronounced if a rise in the value of the yuan triggered a parallel appreciation of other Asian currencies including the yen. In that case, the ADBI estimates that a 20 per cent across the board rise in Asian currencies would push up the iPhone's manufacturing costs by almost US$34, or 19 per cent.

Even then, however, sales would barely be affected. If Apple were to pass all the extra costs on to consumers, the retail price of an iPhone would only rise by 6.8 per cent, which would not be enough to deter significant numbers of buyers.

More likely, however, the productivity gains from rising sales volumes around the world would more than compensate for the cost increase. As a result, the ADBI concludes that a even joint appreciation of Asian currencies would not dent US consumer demand for imported iPhones.

Clearly, American politicians' fury at China over the US trade deficit is misplaced. Perhaps instead their anger should be directed at those companies like Apple which chose to manufacture in China rather than in US factories.

Even allowing for the difference between US and Chinese labour costs, the ADBI estimates that Apple could manufacture all its iPhones in the US and still make a profit margin of 50 per cent.

Apple doesn't do that, of course, because it is trying to maximize the returns made by its shareholders - which no doubt include many of the same US politicians who will be in such a lather about the trade deficit this Christmas.

December 22 2010

Tradition Chinese Medicine (TCM) cosmetics that pass test of time By Cheng Anqi

Traditional Chinese medicine cosmetics have a history of 1,600 years but have only recently started to compete with modern international brands.

University student Lu Jing has been battling acne for the past three years, using dozens of products to get rid of the disfiguring scars on her face - all without success. Three months ago, however, a doctor prescribed her traditional Chinese and Tibetan medicine in her hometown in the Innner Mongolia autonomous region. He told her to mix a mystery powder with egg white every night and apply it to the face. Now, the 25-year-old has a clear complexion free of comedones (blackheads and whiteheads) and with just a few fading scars.

According to the Chamber of Beauty Culture and Cosmetics of All-China Federation of Industry and Commerce, foreign companies have more than half the domestic cosmetics market and rake in 80 percent of the profits.

But people like Lu are increasingly turning to traditional Chinese medicine (TCM) cosmetics to sort out their skincare problems, moving away from Western beauty products.

So, when Lu returned to Beijing, she stopped using imported skincare products and instead went to reputable domestic pharmacies to buy suitable TCM cleansing milk, creams and facial masks, such as products from the 140-year-old pharmacy, Beijing Tongrentang Group Co Ltd.

"Tongrentang promotes TCM cosmetics products and has become the market leader," says Huang Xing, the general manager of Guangzhou Yanzhuang Cosmetics Ltd.

Meanwhile, Jiang Xiaojun, director of the Tongrentang publicity department, says the company's skincare products have passed the test of time.

The company's products include medicine originally prescribed by Wang Tao, a Tang Dynasty (AD 618-907) doctor that uses tuckahoe, the root of red-rooted salvia, ginseng and herba leonuri to improve sallow skin and moisturize.

Many young customers come to buy the whitening-and-moisturizing facial masks, says Zhang Can, a shop assistant at Tongrentang.

"Nearly 100 boxes are sold every day," she adds.

The move away from foreign cosmetics brands to domestic versions is a slow one, as domestic consumers have grown to trust and admire foreign brands.

Huang, of Guangzhou Yanzhuang Cosmetics Ltd, recalls that in the 1990s the senior manager of an international cosmetics company said Chinese companies could not build a global brand because they were just making copycat products.

"His words were unpleasant because they labeled Chinese goods as imitations, but it was true and to the point," says Huang, who has been involved in TCM cosmetics for 17 years.

"My friends always ask me to take a large empty case every time I go abroad and bring back luxury cosmetics, because they are cheaper abroad. It upsets me a bit," Huang says.

He believes TCM cosmetics have three directions in which to develop.

One is developing traditional eco-cosmetics, such as curing chloasma with honey and tuckahoe powder, a long-standing folk remedy.

Second is developing TCM cosmetics that meet modern cosmetic and marketing requirements, such as Tongrentang's whitening-and-moisturizing facial masks.

Third, extract chemicals from traditional Chinese medicines, such as amylase, polypeptides and alkaloids, and do research on their safety and beauty treatment values.

With a history of 1,600 years, TCM cosmetics will not fade away as trends change, Huang says.

He refers to beauty products from the Sui Dynasty (AD 581-618); the 81 products for facial care written by Sun Simiao, China's King of Medicine in the Tang Dynasty; and the 168 facial care products recommended in Compendium of Materia Medica by Li Shizhen in the Ming Dynasty (1368-1644).

"These facts cannot be changed by multinational companies, and it surely creates an opportunity for domestic cosmetics companies to compete with foreign brands."

World-class brands have a genetic blueprint, Huang says. If Chinese elements are built into the foundation of cosmetics, then strong brands like Tongrentang will find their place in the international market.

December 1 2010

Developing Retail Channels in China

The mainland consumer market is rapidly developing, with short product cycles and fast-changing consumer preferences

There can be little doubt that the Chinese mainland’s huge consumer market holds massive potential. But the overall scale and density of development of mainland chain stores – including department stores and supermarkets – have yet to match levels seen in the West. In addition, the volume of goods produced for domestic sale is no match for that made for export. Further development of the mainland economy and rapid urbanisation will lead to gradual expansion of distribution chains. But in the meantime distributors are becoming increasingly aware of the need to enhance cooperation with suppliers. Modern multi-purpose shopping malls also provide new sales venues for franchisees to choose from. In turn, these developments have led to an easing of restrictions Hong Kong companies face in developing distribution channels on the mainland.

“Convenient sales channels are very important to fast-moving consumer goods (FMCGs) – such as daily necessities, food and beverages, and groceries – because consumers need to purchase these products on a regular and recurring basis,” said Pansy Yau, HKTDC Deputy Chief Economist. “With the rapid development of various retail formats such as the supermarket, hypermarket and convenience store in mainland commercial districts and residential areas, consumers have grown accustomed to buying daily necessities and food from nearby outlets.”

According to the China General Chamber of Commerce, 31 out of the mainland’s top 100 retail enterprises in 2009 mainly operated supermarkets; and among the top-100 chain enterprises dealing in FMCGs in 2009, 19 supermarket enterprises achieved an annual sales volume of more than Rmb10 billion. This shows that chain supermarkets are developing rapidly on the mainland and the size of related enterprises is also continuously expanding.

Modes of Distribution

Chinese mainland consumers are accustomed to buying daily necessities and food from nearby supermarkets and convenience stores

In contrast with mature overseas markets, mainland convenience stores are still at their nascent stage, and generally operate as small local or independent stores. To consumers, the most essential requirements of these outlets are convenience and time-saving features. These stores are mainly situated in densely populated locations like office buildings as well as commercial and residential areas. They rely on the flow of people to generate sales, and their target customers are mainly singles because people with families usually make their purchases at supermarkets and hypermarkets.

According to international market experience, the convenience store enters a market when per-capita income reaches US$3,000. These stores will enter a stage of growth and then peak development when per-capita income hits US$4,000 and US$6,000 respectively. The growth of convenience stores on the mainland, therefore, is concentrated in regions that are economically well-developed, with a high population concentration and relatively high per-capita income, such as in the cities of Guangdong, Shanghai and Beijing.

Franchise operations have advantage such as fast expansion of the sales network and the establishment of brands with limited funds. They can also benefit from the strong local knowledge and connections of franchise holders, who face fewer difficulties and risks than the franchisors themselves would while setting up new stores. The quality of franchisees varies on the mainland and companies with experience in the sector tend to be bigger and better-performing operators.

After establishing themselves in the franchise system, some franchisees can even assist the franchisors to develop sub-franchise or expand into other regions. Under the Regulations on the Administration of Commercial Franchise Operations, franchisors that plan to develop their domestic sales through franchise operation must have at least two directly operated stores that have been in business for no less than one year.

Apart from physical stores, online sales have become the future growth target for the sales channels of FMCGs and general merchandise. As conditions for online shopping improve, and transactions and payments become more secure, the popularity and volume of online shopping transactions are rising. According to the China Internet Network Information Center (CNNIC), the mainland’s Internet population had reached 420 million as at June 2010, up 24.3 per cent from June 2009. The Internet penetration rate stood at about 31.8 per cent on the mainland, with a 142 million-strong online shopping community (up 61.6 per cent). The mainland’s online shopping penetration rate still lags behind other mature markets such as Japan, Korea and the United States, where the rate has reached 53.6 per cent, 57.0 per cent and 70 per cent respectively. However, the mainland’s online shopping rate continues to grow, rising from 26 per cent in 2009 to 33.8 per cent in 2010, underscoring the mainland’s tremendous potential.

Market Positioning

International brands have established their presence in first-tier Chinese mainland cities, making second and third-tier cities ideal for new brands

In order to capture the market and build brands, Hong Kong companies need not only to carefully choose the market positioning of their brands and sales venues suitable for their image, they also need to understand the positioning and strategy of their competitors. “Mainland consumers are becoming more sophisticated and pay considerable attention to price-performance ratios,” Ms Yau said. “The mainland consumer market is also rapidly developing, with short product cycles and quick changes in consumer preference. A brand must follow closely the changes in mainland consumer demand if it is to enjoy sustainable development.”

She noted that it is also important for Hong Kong companies to take note of regional differences on the mainland market. The various climate conditions, living habits, customs and traditions as well as different regions such as south, north, central and west, translate into different preferences for product design and functionality. That also means that the degree of homogeneity of the mainland market is low. Even within the same region, different cities will have different income levels and consumption power because of their different degrees of economic development, she pointed out.

“For example, people in the northeast love to shop for fashion and accessories and pay great attention to how clothes are matched. However, in selling garments and accessories to this market, Hong Kong companies have to bear in mind the short product cycle, the distinct seasons, and that local people’s tastes are very much influenced by trends in Japan and Korea due to geographic proximity,” Ms Yau said. To capture this market, Hong Kong companies must be sensitive to trends and market changes and launch new items every season, or they will face slow sales, unmarketable merchandise and business losses, she added.

As they approach the mainland market, Hong Kong companies need to adapt to the demands and preferences of the mainland consumer as well as the different operating environment. Ms Yau advises companies to start on a pilot basis and build a name brand before expanding. There are a large number of distributors of various sizes on the mainland, and Hong Kong companies can make use of a number of trade exhibitions to identify suitable distributors. Smaller distributors have the advantage of being more flexible and possessing local knowledge and networks, and owners usually have a hands-on style and are able to maintain close relationships with clients. The larger nationwide wholesale agents have more professional marketing know-how and experience, more investment in information technology resources and computer support, and are able to provide more systematic and analytical information about the market. But their operating costs are higher and their fees more expensive.

Many international brands have already captured markets in first-tier mainland cities. In contrast, consumers and retailers in second and third-tier cities may be more receptive to new brands, and hence, prove more profitable to Hong Kong companies entering the mainland market. In any case, before Hong Kong companies approach the market, they should carefully research conditions and consider joining relevant mainland trade associations to build up their network and to better understand mainland operations.

November 16 2010

US$33.3 Billion 1,318km Beijing to Shanghai High-Speed Railway completed in 2 1/2 years - Journey between Shanghai and Beijing to be cut to four hours.

Track-laying work for the long-anticipated Beijing-Shanghai high-speed railway stood complete when Railways Minister Liu Zhijun tightened the line's last bolt on a windy Monday morning. "The project has entered its last stage," Lu Chunfang, vice-minister of railways, said at a ceremony to celebrate the latest success in the city of Bengbu, situated in the center of the railway line. Since the project kicked off on April 18, 2008, some 135,000 workers have toiled hard to lay 1,318 km of high-quality tracks.

In the next few months, workers will race against time to install the railway's power supply, communications and signal systems, and carry out operation trials to test the line and trains to ensure the railway can open to traffic next year, Wang Yongping, spokesman of the Ministry of Railways, said.

"The Beijing-Shanghai high-speed railway incorporates China's latest high-speed railway technologies," he said.

The 1,318-km railway costs 220.94 billion yuan ($33.29 billion) in total.

"The core factor that can tell a country's high-speed railway technology is the speed," said Guo Zhiyong, deputy chief engineer of China Railway Siyuan Survey and Design Group Co Ltd, which is in charge of the line's design.

"The future trial operations on this line are expected to beat the speed record of 416.6 km per hour achieved by the Shanghai-Hangzhou railway on Sept 28. And its future operation speed will also exceed that of the current 350 km per hour," he said.

The ministry aims to slash the travel time between China's two largest cities to only four hours, down from the current 10 hours.

Other technical highlights include engineers' innovations in tunnel design and construction that allow trains to encounter each other in the tunnel at a speed of 350 km per hour safely, and the world's first six-line high-speed railway bridge, the Dashengguan bridge in Nanjing, Jiangsu province, which spans 336 meters and allows trains to pass through at a speed of 300 km per hour.

The railway winds through seven provinces and municipalities along China's eastern coast, where one-fourth of the country's population lives, generating 40 percent of the country's GDP.

Along the way, there are 24 stops, including five major stations - Beijing South, Tianjin West, Jinan West, Nanjing South and Shanghai Hongqiao stations.

The new railway is expected to relieve the existing line of pressures from both passenger and cargo transport, said Wang Yongping.

For a long time, the railway department found it difficult to meet transportation demands along the line. Only 35 percent of the demand for cargo transportation could be met in the past, he said.

With the new rail line ready, the ministry estimates that it can ferry 80 million passengers in one direction annually. This will greatly enhance the railway transport capability between Beijing and Shanghai, as the existing railway will be used for cargo transport, he said.

China now leads the world with 7,431 km of high-speed railways in operation.

The country plans to build a high-speed railway network of 13,000 km by 2012. By then, passengers would be able to reach most provincial capital cities from Beijing in eight hours by train.

November 14 2010

Doing business in China needs differenct approches: U.S. expert

Opportunities abound in China, but doing business in China needs different sets of thinking and approaches, some U.S. experts said Wednesday.

The advices came from the 2010 Ernst & Young Strategic Growth Forum held in Palm Springs, California.

The forum is the largest gathering of entrepreneurs in the United States which is attended by more than 1,700 industry icons and business leaders.

At the forum's China Panel held on Wednesday, introducing to the audience the thinking and approaches to do business in China was what Dr. Robert Lawrence Kuhn planned to achieve, as many American businesses and companies have been trying to enter the emerging vast market.

Kuhn is a well-known international investment banker, corporate strategist and long-time adviser to the Chinese government.

"Every company in this room has a China strategy," Dr. Kuhn said. "You may say: 'No, I don't.' Yes, you do," he said,. "Because if you don't have a strategy, you have one by default, and that's not good enough."

The changes in China over the past 30-plus years have been constant, Robert Nardelli, CEO of Cerberus Operations & Advisory Company and panelist at the forum noted.

He pointed out that China's advantage, as is the case with many developing countries, lies in its ability to leapfrog ahead of Western countries.

John Rice, Vice Chairman of General Electric Company, said his company is doing joint ventures with more than 20 state-owned enterprises, which "is not something we ever would have thought about 15 years ago."

As one of the significant keys to business success, Rice suggested a win-win arrangement. "You'd better be prepared to really create a win-win, or that thing is not going to work," he said.

Alignment with the government policy is another key of doing business in China, Kuhn said. "Alignment is key in China. To be aligned with policy in terms of technology area or industry area and geography area. This is a critical factor."

Kuhn noted that one of the most effective ways of doing business in China for a large and medium-sized company is work the provincial level. "The provincial level is really the source of power, decision-making for almost all of the business," he said.

At the meeting, Kuhn also made a brief introduction to China's political and social reality, and answered inquiries about politics in China, the China's stance on rare earth exports and China's policy of promoting peaceful development.

Kuhn is the author of "The Man Who Changed China: The Life and Legacy of Jiang Zemin" and "How China's Leaders Think: The Inside Story of China's Reform and What This Means for the Future."

October 18 2010

Distribution systems separate men from boys as China e-commerce grows By Bien Perez

Mainland consumers are buying and selling more goods over the internet, prompting the nation's largest online retail players to sharpen their distribution systems to keep customers satisfied and help the industry further expand. "Only those companies with a mastery of logistics as part of their value proposition will succeed in China's e-commerce race," Deutsche Bank analysts in Hong Kong said in a recent "China Internet Insights" report. Logistics, they said, comprised warehousing, trunk transport and delivery.

The mainland's profitable business-to-consumer and consumer-to-consumer e-commerce market segments are forecast to grow an average of 42 per cent annually over five years and be worth 1.523 trillion yuan (HK$1.78 trillion), or 7.2 per cent of the country's total retail sales, in 2014, according to the report.

Taobao, the mainland's leading online retail services provider, has championed what analysts call the "platform" approach, which involves outsourcing most logistics requirements to specialist third-party partners. The other approach is called "self-build", which provides more control to the e-commerce player.

Tom Group (SEHK: 2383), the diversified media arm of conglomerate Hutchison Whampoa (SEHK: 0013), in August unveiled what could be considered the best example of the self-build approach.

Tom's new internet retail joint venture with China Post, known as Beijing Ule E-Commerce, had a highly developed, nationwide infrastructure not possessed by the likes of Taobao and Joyo Amazon, owned by United States-based Amazon.com.

The Deutsche Bank report described the mainland's warehousing market as "underdeveloped".

"China's warehousing is unable to meet the demand from growing e-commerce platforms, especially business-to-consumer [players], which have more exacting requirements for warehousing than consumer-to-consumer [players]," the report said. It noted that trunk transport, involving the transfer of goods through road networks from province to province, was comparatively developed and dominated by traditional business-to-business e-commerce players.

The delivery part of logistics "remains a largely labour-intensive industry", the report said, adding that it "could be fuelled by reasonably low labour costs in the next three to five years". While the sector might be underdeveloped in terms of equipment and service quality, it was largely driven by the robust transaction volume growth of Taobao, the report said.

According to the China Express Association, Taobao-related transactions generated one billion parcels last year and accounted for 50 per cent of the total market volume.

The analysts predicted the major domestic business-to-consumer e-commerce players, including Joyo Amazon, Dangdang.com, Vancl and the Beijing Jingdong Century Trading-operated 360buy.com, would increasingly widen their product categories, a development that would entail setting up more strategic distribution centres across the country.

That expansion is expected to result in industry consolidation over the next few years.

The report noted that companies that have raised their investment and expertise in logistics would be more competitive in a market where quality user experience is as important as price.

The authors suggested a preference for the "platform" approach to solve most of the logistics issues of domestic e-commerce players because "it is more cost-efficient and scalable", and needs less capital.

"We believe that Taobao is the only e-commerce platform that has been able to leverage this approach extensively due to its scale," the report said.

Taobao, which is Hangzhou-based Alibaba Group's other flagship unit after business-to-business e-commerce giant Alibaba.com (SEHK: 1688), declined to provide the amount of investments it has made in logistics, which culminated in the creation of its "Wuliubao" platform earlier this year.

"Our platform consolidates logistics information, transaction information and also the enterprise resource planning systems of merchants," an Alibaba Group spokeswoman said.

"This allows seamless interaction between back-end logistics management systems and offline distribution systems."

Stars Express and Annto are current third-party logistics partners listed on Taobao's website. Of the 13 distribution centres set up by its partners, six are in Shanghai.

Taobao, which iResearch estimated had a 79.3 per cent share of the mainland's online shopping sector in the second quarter, has also established guidelines for third-party logistics companies that relate to handling inventory, security deposits, customer complaints and penalties.

The standards set were designed to improve the service quality and abilities of logistics vendors, the spokeswoman said. "Any future expansion plans will depend on these partners and follow customer needs," she said.

Tom chief executive Ken Yeung Kwok-mung said many mainland manufacturers and merchants were looking for more than just a pure information exchange type of e-commerce platform.

"They need an integrated solution with excellent customer service support and logistics capabilities, especially warehousing," Yeung said.

Ule, the Tom-China Post joint venture, was able to provide "individually tailored solutions that combine online and offline requirements", he added.

With a network of 46,000 post offices, 36,000 Postal Savings Bank branches, 150,000 workers, 56,000 delivery vehicles and 17 aircraft, China Post will provide the offline sales channels, logistics support and transaction fulfillment for its 51 per cent-owned joint venture.

Health and beauty chain Watsons, casual garments supplier Giordano (SEHK: 0709), computer maker Lenovo (SEHK: 0992), skin care supplier Vichy Laboratories and entertainment giant Walt Disney were Ule's launch partners in August. Ule now serves more than 1,000 local and international brands.

October 12 2010

Through the red door - New York designer Phillip Lim is expanding his horizons on the mainland By Tessa Chan

New York-based designer Phillip Lim compares his years in fashion to dog years: one year feels like seven. "It's been such a fast ride I didn't even realise it was our anniversary," he says, when I remark upon his eponymous label's fifth birthday. "Yet at the same time it's so intense, I feel like I've been doing this forever."

He sounds like a parent. "Either way, we're still at the `early learning' stage, and I think I'll always feel that way."

The son of Chinese immigrants who fled to the US to escape the civil war, 35-year-old Lim has returned to his roots to promote "4 X 3:1" an artistic collaboration with Lane Crawford, comprising four short films by four up-and-coming female directors. While many fashion brands use film as a medium to promote their latest collections, Lim gave Victoria Tang, Rain Li, Elle Muliarchyk and Yi Zhou carte blanche over the content.

Only one outfit from the Philip Lim 3:1 label - so named because he was 31 when he founded it - unifies the films: a white trench coat, "Baroke" pumps and a Phillip Lim bag. Each item has its symbolic significance, as does the red door the female protagonist steps through. "It represents the beginning of an adventure, and the colour also reflects my cultural heritage."

Lim will hold an inaugural fashion show in Beijing this month to introduce his designs to a broader audience on the mainland.

Seeing the Phillip Lim woman from the perspective of others has opened his eyes to new possibilities. "I'm always open to collaborating with other artists and mediums to create a new energy. You never know what you're going to find; it's a constant evolution. If you stay still, you're dead."

Has technology and, in particular, the internet forced fashion labels to rethink the way they communicate with their customers? "Definitely," he says. "It breaks the bubble, removes that sense of distance. I like that, though. That's what our brand has always been about: accessibility."

Lim is proud of his label's independence, and believes that not having the heritage of a major couture house has given him more creative freedom, allowing him to work on pure instinct. "They say that naivety is bliss, and that's true," he says. "So in the process of getting more history, I'm going to enjoy and maximise my naivety...while it lasts."

Known for producing elegant, wearable clothes with a youthful twist, Lim describes himself as a neoclassicist. Rather than try to reinvent himself every season, he aims to create what he believes will become new classics. "Your aesthetic evolves, but it shouldn't change," he says.

Lim rebels against the showmanship that many big labels resort to on the catwalks, and instead limits himself to simply showing the audience what he sells. "It's never a big show. It's just a chance to show the world what we've been working on. It's like, `these are clothes... that you can actually wear!'" he says, laughing. "And the funny thing is, because everyone's trying to be so edgy, to be classical is kind of counter-current."

For spring-summer 2011, he has opted to present a look he dubs the "dandie-lion". "It's the female form of a dandy, with the strength of the lion," he explains. "The new dandies are very subtle, but what they have in common is that eccentric soul."

A scene from Victoria Tang's film for Phillip Lim.

Rather than introduce them in a theatrical production, models, towering in platform heels, showed off the collection, which featured predominantly neutral layers of nude, camel, black and bone white and a contrast of leathers, sheers and elaborate lace. Future classics included tan lambskin halter tabards, an antique rope-embroidered panel dress and chic trenches updated in translucent organza, juxtaposed with playful items, such as flora-dot track pants or a "Bougie Blue" leather pinafore.

Classic with a touch of madness, he calls it, and, as always, a blend of masculine and feminine elements.

The way Lim is dressed for our meeting encapsulates this. From a distance he looks like any other smartly dressed man with his simple, clean-cut suit. Step closer and you notice that his top is rich blue suede and glance down and you're greeted with grey and black leopard-print calfskin loafers - Yves Saint Laurent, he confesses, the only thing he's wearing that's not from his own label.

Another thing that defines Lim's clothes is their reasonable prices. Today, more than ever, he says, it's hard to justify charging exorbitant prices for an item of clothing, especially when it may fall out of trend by next season.

"Some clothes you look at and think, `I could buy this dress, or I could buy a car,'" he says. "It's like an alternate reality. But that's up to the individual."

Evidently not the kind of individual he's looking to appeal to with 3:1. "You can't appease everybody. If you try to, you confuse your customer. It shows a sense of desperation - it makes them lose faith. If you don't have confidence in who you are, why should they?"

There is, however, one luxury Lim wishes he had more of - time. "If I could have one wish it would be to have more time. It's not something you own and you can't buy it," he says. "There are only so many days in the year and we make our clothes from scratch - this isn't like fast fashion where things happen overnight."

What helps keeps him sane when the pressure's on is his sense of humour. "And accepting the fact that it's insane," he says. "And remembering I'm not the only one. My team shares it with me; we're all insane so it's OK."

The people he works with have been crucial to his success, he says. "You spend more time with your colleagues than with your family. So you'd better hope you surround yourself with inspiring, supportive people."

Does he feel he has evolved since he co-founded his first label, Development, at the age of 27? "Besides a couple of pounds and a few wrinkles?" he asks. "I know myself better. I know what I want. It's about self evolution and self acceptance. That's the biggest part of this journey, and that comes out in the clothes."

These clothes are now available in 50 countries worldwide, and his fashion show in the Chinese capital will expand his exposure beyond the fashionable few who can buy his designs at Lane Crawford Beijing.

"My parents are from the mainland. About two years ago I went to Beijing for the first time, and I've made a commitment to come back more [often]," he says. "I grew up in California, but at home our culture was Chinese. The language, the food, the values... everything."

Lim says 3:1 will be the first young designer brand to have an independent show in Beijing, but for him the milestone is a personal one. "What's really touching for me is that my mother is flying out to Beijing for the show," he says. "She has never been to a fashion show of mine. So it's like I'm bringing her home. I'm extremely nervous about how it'll be received."

So as he steps through the "red door", does he believe that China is ready for him? "There's definitely an appetite for something new, and it's incredibly fast-paced, so I hope so."

August 18 2010

Winding Road to the China Market

Chinese mainland authorities recently announced tighter regulations on foreign representative offices on the mainland

Representative offices (ROs), once among the most popular corporate vehicles used by foreign firms for initiating business on the Chinese mainland, seem to be fading from favor among small- and medium-sized (SME) trading companies.
What was a minimally regulated means of accessing the mainland market since the 1980s became misused over time, say observers, and the strong corrective medicine of tighter regulation and more comprehensive taxation might not be what foreign traders can stomach.

Under regulations jointly announced by the State Administration of Industry and Commerce and the Ministry of Public Security last January, ROs must comply with annual rather than tri-annual renewal of registration certification, as well as notarised obligations of the foreign head office for new RO setups. There are also restrictions on the number of representatives among other new administrative measures. (Please see chart below)

New measures for foreign representative offices At issue is whether ROs, which are currently numbered in the hundreds of thousands, continue to be useful, as their business scope remains limited. At the same time, they could face a higher tax burden and administration requirements.
Some senior legal, tax and trade professionals see the RO as a bygone vestige of the last century. But there are also those who view this hybrid corporate vehicle, which is banned from taking part in revenue-taking activities, as still playing a key role liaising with mainland firms and facilitating international supply chains.

Choice of Vehicle

Much depends on the size and operations of the foreign company. Large retail players are already far advanced in building extensive revenue-taking networks. For them, the RO is a device that has served its purpose already.

For smaller entrants, newly formed regulations for ROs are proving more difficult to work with for lack of full definition. Further official explanation of how the modified RO will operate is due at any time.

Large, successful players have moved on from ROs to access the Chinese mainland market

For these smaller foreign firms, Hong Kong-based corporate entities seem to have been gaining in popularity, not only for the relative simplicity of their legal framework and ease of setting up, but also for their accessibility to financial services. Also, Hong Kong-based entities may be eligible for the preferential tax treatment under the existing arrangement on the avoidance of double taxation, on income arising between Hong Kong and the mainland in respect of mainland operations.
In particular, withholding tax on dividend repatriation may be reduced from 10 per cent to five per cent for Hong Kong firms with mainland operations. Elizabeth Thomson, President of corporate financial services firm ICS Trust (Asia) Ltd, says she invariably advises trade clients – many small- and medium-sized, capitalised at between US$10 million and US$500 million – to use Hong Kong’s jurisdiction to provide a holding structure in its well-regulated legal environment. ICS Trust has itself been established in Hong Kong for 30 years. “Based in Hong Kong, a lot of people are happier, with easier travel options and continuing to be in touch with people on the mainland.”

Ms Thomson says this is also why her company offers integrated “one-shop” solutions in Hong Kong, primarily to avoid exposure to risks existing for mainland entrants, particularly new ones. Anthea Wong, a partner for China Tax and Business Advisory Services with accountancy firm PricewaterhouseCoopers (PwC) in Hong Kong, advises clients – whether large multinationals or mid-sized firms – to take what she calls “a holistic approach” when planning their China investment structure.

Investing in Hong Kong is not contradictory to investing on the mainland, she says. The two structures can actually be complementary if the roles and functions between the entities in both jurisdictions are carefully designed. This could help investors capitalise on Hong Kong’s sophisticated banking system, tax regime and legal structure, while having a mainland-based entity to penetrate the China market. “You have to look at both angles; if the client is expanding in the mainland market, there would be a need for a presence [on the mainland],” says Ms Wong.

ROs and Other Species

Many foreign firms prefer to go straight to becoming revenue-handling entities

ROs were set up in the 1980s as part of an array of foreign-invested enterprises, which included different types of ventures. Of the other categories, the most often used are wholly foreign-owned enterprises (WFOEs) and joint ventures (JVs).

Lawyers agree WFOEs are comparatively flexible corporate entities that allow manufacturing and services firms to set up on the mainland, provided they are not under restriction in so-called state “strategic sectors.” The uncertainty lies in the fact that what is “strategic,” can change.

The main advantages for foreign investors are in the fact that WFOEs are independent, allow freedom of management and operation, invoicing in Rmb and IP protection.

Comparatively, some believe JVs with mainland partners offer the attraction of a shared investment risk, as well as good market access and intimate knowledge of the country. But partners have to offer the right fit; there’s plenty of potential for disagreement.

There are still other, more specialised vehicles that may not be suitable for smaller players. Of these, strategic alliances are said to have the benefit of flexible operation, but lack the stability of a formal corporate structure. Relatively new licensing agreements require both branding and a large-scale operation to generate the profits that foreign firms expect of a mainland investment.

Passive and Active

ROs are structured as “passive investment” entities, mainly to lay out foreign companies’ long-term goals and oversee mainland operations. In turn, these foreign-manned corporate units were popular with multinationals striving to make an impact on a largely unknown but seemingly lucrative Chinese market.

Times have moved on and a proportion of ROs is said to have been “too creative” with their manning and operations, leading to this year’s thorough shake up.

William Soileau, Senior Associate with UK-based law firm Pinsent Masons in Shanghai, says that mainland ROs are an “historical anachronism.” But since China joined the World Trade Organization in 2001, a number of ROs have been “used in a sloppy fashion” by firms, with lax oversight and inadequate bookkeeping. Indeed, there’s trade talk of so-called “credit card factories” grouped as ROs, with their only function being to pay for goods destined for export, using credit cards to hide what are real revenue flows.

The overall effect of the mainland regulation was seen by some as cracking down on the exposure of ROs to tax after they were revealed to be carrying out physical trades. According to one account, this even involved foreign teachers and traders that formed the easy-to-establish ROs and bypassed mainland employment regulations. They’re now subject to tax, assuming they have the right to work on the mainland.

Mr Soileau says Pinsent recommends a Hong Kong company as a “special-purpose vehicle,” establishing bona fide residence for the foreign entity on the mainland, whichever one is chosen.

The law firm tends to prefer WFOEs to either ROs or joint ventures, unless the latter are situated in the Guangdong special economic zones of Shenzhen or Zhuhai. That’s because the cultural and operational differences between foreign and mainland enterprises vary significantly according to region, with consequences for the success of the joint venture. For her part, Ms Thomson says she advises clients to look closely at whether they need to set up an RO or a WFOE. Some indeed adopt the RO, due to the type of businesses they operate.

For example, one client is involved in selling auto industry parts to a US-based car producer. The company’s RO is responsible for finding the factories on the mainland and negotiating contracts for shipment of the parts back to the United States. In this case, the RO acts as a facilitator for all aspects of the contract, which is usually directly drawn between the US and Chinese firms.

Ms Thomson believes some aspects of the new regime are intriguing, including the registration certification for ROs, which ran for three years. Under the regulatory change, this has been reduced to one. “A lot can happen to a company in three years,” Ms Thomson says.

From PwC, Ms Wong admits that the new regulatory framework doesn’t fully answer how the “new” RO will fit into a modern supply chain that assumes revenue flows through different entities to achieve efficient business models; this is required by most foreign traders on the mainland.

But she still insists there will be foreign companies that prefer to enter the mainland intending to “look first before trading” (therefore opting for an RO), even though the process of dismantling this and forming a WFOE is a cumbersome one. It’s still not possible to “transform” a mainland RO. A new WFOE will have to be separately established, whereas the RO may be de-registered if it is no longer useful.

As for the income tax of ROs, most were taxed on a deemed basis at the profit rate of 10 per cent in the past. However, from this year, ROs are requested to compute tax on an actual basis or on a deemed basis at the rate of no less than 15 per cent. This could conceivably result in some ROs paying more in tax than previously, under some circumstances.

Ms Thomson of ICS Trust (Asia) hopes to see “a new RO take the place of the present one,” believing that an improved model can emerge from the mainland’s regulatory work in progress. It would be wise not to pronounce the RO dead quite yet.

August 17 2010

China 'overtakes Japan in economic prowess' By Wang Xiaotian and Li Xiang