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A Turbulent Year Ahead in 2004 for China-US Trade Relations?   Special Report - China Northeast updated on Oct 14, 2004

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The ICAC (Independent Commission Against Corruption) of Hong Kong and 13 professional organizations/chambers of commerce have collaborated to produce the captioned Guide. It is tailor-made for managers who are not trained IT experts but who have to supervise their teams in the use of computers and the Internet. The Guide offers managers practical advice on how to identify integrity risks in the workplace and proactively reduce them by ethical management. Free copies are now available for collection by business organizations. Contents of the Guide include: Case illustrations from the ICAC's investigation files / An analytical framework for addressing corruption from the legal and ethical perspectives / An ethical management model and some practical measures / A directory of services provided by publishers, particularly the ICAC....Click here to read the Guide

All roads in the global supply chain run through China but appearances can be deceptive. Editorial Director Neil Shister went there to see for himself what's going on - By Neil Shister

China Legal Issues    China Central TV - English Channel 24 hours live webcast

December 30, 2005

How to Cope With RMB Exchange Rate Reform

1. Enterprises

Under the current situation, export-oriented enterprises with foreign currency assets or liabilities must lose no time in taking measures to cope with the RMB exchange rate reform:

1) They should raise their awareness of market risks and cultivate the sensitivity and ability of their financial personnel for coping with market risks.

2) They should strengthen cooperation with banks and rely on the financial and investment advisers of banks to avert and steer clear of market risks.

3) They should comprehensively consider the exchange rate risks for assets and liabilities of individuals and enterprises.

4) They have the responsibility to improve staff welfare, treat their staff well, establish harmonious employer-employee relationship and good corporate culture, and foster and attract outstanding personnel. They should gradually develop their work force from a low-cost low-quality work force into a high-cost high-quality one.

5) They should fully take the currency and term structure of their assets and liabilities as well as their cash flow into consideration and fully utilise market tools to steer clear of risks and increase income with the help of financial advisers. They must closely watch out for possible RMB exchange rate changes and increase their risk return, and consider whether or not to make foreign exchange settlements in the light of their development strategy.

6) They should make it clear that their first priority is to fix the cost of risk aversion and that their second priority is to increase income.

2. Individuals

Individuals with considerable foreign currency assets should also take appropriate measures to cope with the RMB exchange rate reform:

1) Individuals should fully take into consideration their assets, liabilities and cash flow and balance their income and expenditure in the light of education, travel and other needs of themselves and their families.

2) They should comprehensively consider the currency and term structure of their assets, liabilities and cash flow as well as the nature of their movable and immovable properties. They should watch out for possible changes in RMB exchange rate and increase the risk returns of their assets in the midst of changes.

3) They should establish a foreign currency asset portfolio and prevent risks of exchange rate fluctuations.

4) Individuals should make suitable foreign currency investments, such as buying foreign currency products to increase the earning ratio of their foreign currency assets.

5) Individuals with US dollar deposits may sell their dollars in anticipation of RMB appreciation, but they must face the risk of RMB interest rate fluctuations. Interest rate growth is a global economic trend.

6) They should make it clear that their primary priority is to steer clear of exchange rate risks and their second priority is to increase income.

December 28, 2005

China to Issue First Batch of Direct Selling Licence in March 2006

China is gradually easing control over direct selling. More than 50 enterprises have applied for licence following the implementation of the Direct Selling Regulations. According to the Ministry of Commerce, interested parties may now submit their applications and should be able to receive a reply within 90 days.

Enterprises may submit their applications to the Ministry of Commerce through the commerce supervisory bureaus in their respective provinces, autonomous regions or municipalities. According to regulations, applicants must furnish seven types of documentation, including proof that they meet the relevant access thresholds, marketing plan, sample of contract they intend to sign with direct sellers, and agreement they have reached with designated banks that they will use the deposits in ways stipulated in these regulations.

The Ministry of Commerce will process licence applications in accordance with stipulated procedures. According to regulations, after an enterprise has submitted its application to the local commerce supervisory bureau where its headquarters is located, the application form together with the relevant documentation will be passed on to the Ministry of Commerce for examination and approval. The Ministry of Commerce will make its decision or whether or not to give its approval after consulting the State Administration for Industry and Commerce. Those granted approval will be issued a direct selling licence by the State Administration of Industry and Commerce. It is reckoned that it will not be until March 2006 that the first batch of direct selling enterprises will be able to do their business under licence in China.

Dongguan, Guangdong China to Lift Ban on Cyber Cafe

Enterprises can soon apply for licences to operate cyber cafes in Dongguan. The detailed licensing conditions have been drawn up by the Guangdong cultural department and will be promulgated shortly.

It is understood that the cultural departments of many towns were earlier given a consultation draft of the Measures for the Administration of Cyber Cafes in Dongguan. The draft has subsequently been revised and submitted to the municipal government for consideration, and applications for licences are expected to be invited soon for the city's 400 cyber cafes. This is good news for those interested in entering the market including Hong Kong businessmen. The measures, though still under consultation, set stringent requirements on cyber cafe operators. Interested Hong Kong businessmen should adjust their business strategies accordingly.

Market access requirement 1:

The minimum registered capital of an individual cyber cafe is Rmb1 million, while the minimum registered capital of a cyber cafe chain is Rmb10 million.

The Dongguan authorities have all along adopted a conservative approach towards cyber cafes and imposed a total ban on the business. Hence there is now no proper cyber cafe in the city. This strict regulatory approach has been under criticism for years. In August this year, Dongguan mayor Liu Zhigeng talked at a seminar with young entrepreneurs about plans to relax the restriction and issue cyber cafe operation licences to anyone who can meet the requirements on operation scale.

Under the new measures, two business models, individual cyber cafe and cyber cafe chain operation, will be introduced. Cyber cafe chain includes directly-operated stores and franchised stores. A direct store should be wholly owned or majority owned by the chain operator, while a franchised store should be 51% or more owned by the chain operator.

The registered capital of an individual cyber cafe should not be less than Rmb1 million. It must be manned by one qualified safety management staff, one operation manager and more than one technical staff. There should be at least 150 but not more than 230 computer kiosks in the cafe. Each computer kiosk should occupy an area of not less than 3 sqm, and the total area of the cyber cafe should be between 460 sqm and 700 sqm, excluding areas for its office, toilet, snack shop and external corridors.

As regards cyber cafe chain, the minimum registered capital is Rmb10 million. The chain should have more than two qualified management staff, and more than three technical staff who are well-versed in computer network development and management, possess a university degree in computer or three or more years' computer development and maintenance experience. An enterprise which has already established two or more directly-operated chain stores at the time of licence application will be granted a temporary chain operation licence at once. If it succeeds in expanding its network to five or more stores through merger and acquisition or franchising within one year, a formal licence will be granted.

A cyber cafe chain store has to meet the same requirement on the area of computer kiosks as an individual store. A direct store should have at least 100 but not more than 230 computer kiosks, and occupy a total area of between 310 sqm to 700 sqm. As for a franchised store, there should be at least 150 but not more than 230 computer kiosks, and its total area should be between 460 sqm and 700 sqm.

Market access requirement 2:

A franchise period of five years will be granted, after which the government will recover the franchise without compensation.

Under the measures, licence applications should be made during a specified period to the Town Cultural, Radio, Film and Television Service Centre. The centre will then submit the qualified applications to the Municipal Cultural, Radio, Film and Television Bureau for examination and review. Lots will be drawn openly to determine the successful applicants.

Successful applicants will be issued the Notification on Cyber cafe Operation Indicators and asked to sign the Contract for the Operation Right of Cyber Cafe in Dongguan with the Municipal State-owned Assets Supervision and Administration Commission. Operators can then proceed instantly with the establishment of the cyber cafe. To prevent speculation of the operation licence, the legal person of a cyber cafe operator cannot be changed within two years.

According to the measures, the franchise period is five years, beginning from the contract signing day. At the end of the franchise period, the municipal government will recover the franchise without compensation. An annual licence fee will be levied and have to be paid in the first quarter of a year. Those who fail to pay within the specified period will be subject to a daily penalty of 0.3% of the licence fee starting from the overdue date. If the licence fee (including the penalties) is overdue for three months, it will be deemed as a breach of contract and the franchise (including the Internet Culture Operation Licence and the Contract for the Operation Right of Cyber Cafe in Dongguan) will be recovered from the operator without compensation by the issuing authority.

Market access requirement 3:

Cyber cafes must be housed on the first to third floors of a building, and must not be located in the vicinity of primary and secondary schools.

Cyber cafes will not be allowed within a distance of 200 metres from primary and secondary schools or within a residential district. They (including both individual and chain stores) should be spaced out at least 300 metres from each other when they are located on the same street and at least 150 metres in radius if they are located on different streets. Besides, they must be housed on the first to third floors of a building, facing a street at least 6 metres wide.

Under the measures, cyber cafes must have an operation licence and deal only with Internet service providers who have signed the Agreement on Internet Connection for Cyber cafes with the Municipal Cultural, Radio, Film and Television Bureau. Computers in cyber cafes must be connected to the Internet through LANs and not through any direct means, and non-online or illegal online games are forbidden. Cyber cafes must install and use monitoring and management computer software endorsed by the Ministry of Culture. Their operation hours will be restricted to 8 am to 12 midnight. Besides, cyber cafes will be required to check and record customers' identity and keep their web surfing records. Such records should be retained for at least 60 days and must not be altered or deleted within this period.

China's employees in accommodation, catering industry total 13.85 million

China's employees in the accommodation and catering industry totaled 13.85 million by the end of 2004, the country's first national economic census has found. Among the total, 4.29 million people work in 93,000 corporate bodies in the accommodation and catering industry, according to the economic survey bulletin released by the National Bureau of Statistics (NBS).

Another 505,000 people work for 178,000 private runners in the accommodation industry, and the remaining 9.05 million work for 2.76 million private runners in the catering industry, said the survey. The survey showed that among all corporate bodies in the accommodation and catering industry, 14.7 percent are state-owned, 18.3 percent collective entities, 50.5 percent private ones, 1.6 percent Hong Kong, Macau and Taiwan-funded entities and 2.1 percent foreign-invested entities.

Among all employees in the accommodation and catering industry, 20.5 percent are state-owned, 9.9 percent collective, 38.1 percent private, 5.5 percent Hong Kong, Macao and Taiwan-funded entities and 7.4 percent foreign-invested entities.

In 2004, the staple service income of corporate bodies in the accommodation and catering industry reached 164.96 billion yuan (20.6 billion US dollars), and the business income of private runners in the accommodation industry and catering industry totaled 24.34 billion yuan and 534.44 billion yuan, respectively.

The result of the survey was jointly published by the Leading Group of the First National Economic Census of the State Council and the NBS. The first-ever national economic survey, which formally began on Dec. 31, 2004, was designed to draw an economic panorama of the country's fast-expanding secondary and tertiary industries and complete a database covering all economic sectors.

The survey was also expected to help policy-makers and experts have a better understanding of the overall situation of the two sectors so as to help policy-makers draft the country's economic and social development program during 2006-2010 and formulate macro-regulation policies and industrial readjustment and restructuring.

China's catering industry to create 880 billion yuan (US$110 Billion) revenue in 2005. Some 4 million catering businesses are in service now and are expected to report a total revenue of 880 billion yuan this year. The People's Daily learned in Beijing from the 42nd Annual Congress of the International Hotel & Restaurant Association (IH&RA) that internationally known top brands in the hotel and catering have all made presence in China.

About 500 representatives from the industry from across the world attend the meeting which is held by the international non-profit membership trade organization representing 300, 000 hotels and 8 million restaurants and is officially recognized by the United Nations.

December 24, 2005

Economic rise no threat to anyone, Beijing insists

China yesterday tried to allay fears it was a threat to its neighbors or the US by repeating in a State Council white paper it would remain peaceful. The paper was released by the State Council Information Office against a backdrop of mounting pressure from the US and Japan over the mainland's enormous economy and rising military power, and two days after the mainland revised last year's GDP figures upwards by 16.8 per cent.

The document, "White Paper of China's Peaceful Development Road", did not mention military development but went to lengths to argue that China's rapid economic rise benefited the world, especially its neighbours.

Beijing started a propaganda campaign for its "peaceful emergence" in late 2003, but changed the phrase to "peaceful development" after criticism the slogan could be seen as provocative.

"China's development will never pose a threat to anyone," the white paper said. "Instead, it can bring more development opportunities and bigger markets for the rest of the world.

"Facts prove that China's economic development is becoming an important impetus for economic growth in the Asia-Pacific region and even the world as a whole. It has become China's national determination to safeguard world peace and promote common development."

In terms of trade, the paper said China's huge imports had created about 10 million jobs for its trading partners, and forecast imports would reach US$1 trillion by 2010. The paper did not mention the rising tensions caused by its enormous trade surplus, which China estimates will reach US$100 billion this year.

It also did not directly address calls to raise the value of the yuan, but sought to assure trading partners it would consider the rate's effect on them before the next adjustment. "Based on its reform and development, China is serious in judging the effects its exchange rate reform may have on surrounding countries and regions, and the global economy and finance.

"It has thus advanced the reform in a steady way, adopted a managed floating exchange rate regime based on market supply and demand, and linked and adjusted it according to a basket of currencies, so that the renminbi exchange rate will remain stable at a reasonable and balanced level."

The paper reiterated Beijing's pledge to avoid becoming a major competitor for energy resources, despite its huge appetite for fuel. Instead, it would meet demands through better efficiency and developing domestic supplies. "Since the 1990s, China has obtained 90 per cent or more of its energy from domestic sources. The potential of its domestic energy supply is still great."

It also said China would not become expansionist, because it was a victim of other countries' aggression for nearly a century.

It was also too busy with its own domestic problems.

"By the end of 2004, 26.1 million rural Chinese still lived under the poverty line, more than 100 million farmers have to be provided with jobs elsewhere, and the government is obliged to create jobs for nearly 24 million urban and rural residents every year," it said.

December 21, 2005

YRD Customs Clearance Reform Kicks Off in Zhejiang

The YRD customs clearance reform has recently made a substantive step forward with the switch to single declaration, single inspection and single release for Zhejiang enterprises requiring inter-customs territory clearance within the YRD.

This represents the first phase of the YRD customs clearance reform which involves regulating and simplifying customs transit control at pilot points. Basically, export cargoes in transit can now be declared at the local customs office but inspected and released at the exit customs office against customs declaration form stamped by the local customs and other necessary documents.

The new method enhances customs clearance efficiency and reduces customs clearance costs for Zhejiang enterprises. On 6 December, Huahong Optoelectronic Group Co Ltd became the first company to benefit from the YRD customs clearance reform programme when its goods worth US$32,000 were inspected and released at the Wusong customs after they were declared at the Hangzhou customs. The whole process only took three hours.

The practice of making declaration to the local customs and going through inspection and release in a different customs territory not only helps reduce documentation but saves enterprises the trouble of travelling back and forth between two customs offices. Even if problems occur, they can be dealt with at one end, thus saving both time and energy.

No Thresholds for Comprehensive Insurance for SMEs

The China Export Credit Insurance Co (CECIC) started providing comprehensive insurance for SMEs since the end of November. The new product is designed in accordance with the government's relevant policies to meet the needs of SMEs with annual export volumes under US$2 million, especially small enterprises that have just entered the international market.

The new service offers SMEs complete protection for forex payment collection and covers buyer's arrears of payment or refusal to pay, as well as other risks such as forex control, trade embargo, restriction or cancellation of import licence, and outbreak of war in the buyer country or region that render the normal execution of contracts impossible.

Compared with traditional CECIC products, the new service targeting SMEs has three major characteristics. It does away with insurance threshold by offering insurance protection to SMEs with annual export volumes under US$2 million. It simplifies insurance procedures for the convenience of SMEs and makes it possible to fully utilise "intermediary platforms" including insurance agents and enterprise associations in arranging collective insurance. It also has financing functions and can mitigate the funding shortage of SMEs.

In terms of underwriting, new forms are introduced by CECIC through "intermediary platforms" and "agents" for the first time. For claims settlement, methods that make it easier for SMEs to make claims are adopted. These new products were launched in Zhejiang, Jiangsu, Fujian, Shandong, Shanghai and other places in November 2005 for a trial period of two years.

December 8, 2005

First Allocation of Quantity of Textile Exports to US in 2006

The Ministry of Commerce (MOFCOM) has just issued a circular to the local departments of commerce announcing the first allocation of quantity for the export of textiles to the US in 2006.

According to the circular, the quantity of textiles exports allocated in 2006 to enterprises meeting specific export requirements account for 70% of the agreed quantity of exports for the year 2006, and the total amount available for the current allocation will be 50% of this quantity. The circular calls on the commerce departments to notify local business operators as soon as possible to submit their applications together with their application letters and electronic data to MOFCOM before 10 December. MOFCOM will then formally announce the allocation plan.

For details in Chinese regarding the first allocation of quantity of textile exports to the US in 2006 allowed for application, please visit the website of MOFCOM at:

November 30, 2005

First Bidding for 2006 Textile Quotas for Export to the US

The Textile Quota Bidding Committee of the Ministry of Commerce (MOFCOM) issued a Notice on the First Bidding for 2006 Textile Quotas for Export to the US on 25 November 2005. The total amount available for bidding in 2006 will be 30% of the agreed export volume. The first bidding will cover 60% of this total.

The first bidding will take place between 08:00 on 6 December and 24:00 on 8 December 2005. Closing time for submitting bids is 24:00 on 8 December and the time for opening the bids is 10:00 on 9 December.

The bidding will be conducted electronically at and no written applications are accepted. Please refer to MOFCOM's notice for arrangements regarding online bidding.

Any enterprise meeting the qualifications for conducting export under the Implementing Rules for the Bidding of Textile Export Quotas, registered with the industrial and commercial administration departments, and with global export performance in relevant categories between January and September 2005, is eligible for submitting bids.

For details of the bidding process and the list of enterprises passing the preliminary examination, please visit MOFCOM's website in Chinese at:

For details of the Implementing Rules for the Bidding of Textile Export Quotas, please visit MOFCOM's website in Chinese at:

November 24, 2005

China Invests Rmb1,500 Billion to Develop Renewable Energies

According to the Medium and Long-Term Plan for the Development of Renewable Energies drafted by the National Development and Reform Commission, renewable energies will account for over 30% of the total installed capacity of China's power generation by 2020. Of this, hydropower generation will reach 290 million kw, with exploitation rate at around 70%; wind power generation will reach 30 million kw; while solar energy generation will reach 2 million kw. This is achievable by raising the proportion of renewable energy in power supply from 7% to 15%. China needs to invest Rmb1,500 billion over the next 15 years to attain this goal.

Renewable sources of energy, including solar energy, wind power, hydropower, biomass energy, geothermal energy and ocean energy, are natural resources that are renewable and sustainable. The development of renewable energies can reduce people's over-dependence on coal, petroleum and other fossil energy and mitigate pressure on the environment. China will accelerate the development and promote the use of renewable energies, turning them into competitive and commercially viable energy sources.

China is the world's leader in the use of solar water heaters. It is planned that the total heat collection area of all solar water heaters in the country will reach 300 million sqm by 2020, replacing fossil energy equivalent to 40 million tones of standard coal annually. Efforts will also be made to continue to promote the use of methane in the rural areas. By 2020, the use of methane will reach 24 billion cubic metres a year. Meanwhile, biomass liquid fuel will also be developed actively using plants as the principal raw material. This is expected to replace 10 million tonnes of petroleum a year by 2020.

The use of renewable energies is growing at an annual rate of 25% in China. According to the latest statistics, China's hydropower installed capacity has reached 108 million kw, a quarter of the national total. The heat collection area of solar water heaters has reached 65 million sqm. Annual use of methane has reached 5 billion cubic metres, basically improving everyday energy supply for 14 million farmers. Photovoltaic power generation has reached 650,000 kw, providing electricity for 3 million people living in over 700 remote counties and towns.

New SAFE Measures to Better Manage Foreign Debts

The State Administration of Foreign Exchange (SAFE) has recently issued a Notice on Improving the Management of Foreign Debts, which will take effect on 1 December 2005.

The main points of the notice are: 1) delayed import payments of an amount equivalent to or exceeding US$200,000 with an agreed payment period of 180 days or more will be subject to foreign debt registration management and quota control; 2) management of the foreign debts of the following types of foreign-invested enterprises (FIEs) will be standardized: FIEs with less than 25% foreign equity ratio, FIEs with a foreign investment amount equal to their registered capital or an unclear foreign investment amount, foreign-controlled investment companies, foreign-invested leasing companies and other special categories of FIEs; 3) funds absorbed by China-incorporated multinational companies from offshore associated companies for centralized use will be subject to foreign debt management; 4) adjustments are made to regulations governing the management of offshore guarantees of domestic loans. The notice also calls on banks to cautiously handle the capital fund and foreign debt settlement of FIEs.

The notice puts China's foreign debt management regulations into practice by placing delayed import payments exceeding a certain time limit and amount under foreign debt management. In standardizing foreign debt management, the need to facilitate banks and enterprises in their normal operations has been fully taken into consideration and handling procedures have been simplified. In addition, the consistency of the policy is maintained by referring to the management principles of the departments concerned and aligning with relevant rules and regulations.

There has been a sharp rise in foreign debts, particularly short-term debts, in China in recent years. Increases in the foreign borrowings and trade credit of FIEs in the mainland are major factors affecting China's foreign debt position. The notice is issued to guide companies in the mainland to utilize foreign capital in a rational and orderly manner, curb the excessive growth of short-term foreign debts and further standardize foreign debt management.

November 18, 2005

California Governor Arnold Schwarzenegger came to Hong Kong at the end of a six-day trade mission to the mainland and praised the SAR for joining the fight against intellectual piracy.

At a luncheon co-hosted by the Hong Kong and American Chambers of Commerce, Schwarzenegger, joined by Jackie Chan, Friday launched a TV campaign to promote intellectual property rights. The two action heroes are co-starring in a TV advertisement which is a public service announcement initiated by Hong Kong's Intellectual Property Department with the cooperation of the California Commission for Jobs and Economic Growth.

"The fact that Hong Kong is willing to put this PSA on TV shows Hong Kong is serious about fighting piracy," Schwarzenegger said.

Both Hong Kong and California are powerhouses of film and music industry production, said Stephen Selby, Hong Kong's director of intellectual property. He said they are natural allies. "The job opportunities that flourish around the creative industries both here and in California will wither away unless we make an extra effort to protect copyright," he said.

Chan said piracy is killing the local film industry, which once produced up to 500 films a year but in the first six months of 2005 made less than 40. "Sooner or later, the Hong Kong film industry will be gone," he said.

The 30-second spot shows the two actors clad in black and hit local TV screens Friday evening. "If this were a movie, we could take on the bad guys ourselves," Chan says as they ride motorcycles side-by-side and dodge exploding cars. He and Schwarzenegger ask the public to help stop piracy.

It is expected to be seen by millions of viewers in Hong Kong, Macau and Taiwan. Schwarzenegger said there has been discussion about broadcasting in other parts of China.

Selby said Schwarzenegger and Chan worked for free and his department put US$60,000 (HK$468,000) towards the commercial's production and another HK$330,000 toward post- production costs. The department spends HK$7 million annually on public education, he said.

On November 7, a Hong Kong man was the first person in the world jailed for uploading copyrighted movies to the Internet. Chan Nai-ming was sentenced to three months in prison for using BitTorrent, a peer-to-peer filesharing program, to upload films onto the Web. "If we don't use him as an example, then more people will do it," Chan said but admitted he felt for the man.

Later, however, Chan called for more stringent measures. "Sometimes human rights are good," he said. "Sometimes they are not good. We need a strong government." Schwarzenegger estimated that the United States is losing US$250 billion (HK$1.95 billion) a year due to piracy.

Earlier Friday, the European Commissioner for Taxation and Customs Laszlo Kovacs said piracy not only threatens the entertainment industry but can put people in direct danger. "There are fake pharmaceuticals, fake foodstuff, fake children's toys. It is not a joke," Kovacs said, adding fighting such piracy is even more important than protecting intellectual property rights because fake food and drugs directly threaten people's health.

Fake pills are hard to identify, he said, adding he hopes China and Hong Kong will cooperate with the European Union and run a pilot project on the security of the consumer supply chain.

Sixty percent of counterfeit articles seized in 2003 in the EU came from the mainland, he said. Kovacs added that he thinks the majority of fake goods from China came through Hong Kong, but he could not provide a percentage.

In response, a Customs and Excise Department spokesman insisted Hong Kong takes stringent enforcement actions at all control points to combat counterfeiting activities.

November 11, 2005

Don't blame trade for US job losses - A new look at US trade and employment data shows why it’s wrong to believe that foreign competition accounts for weak job growth since 2000.

Martin Neil Baily and Robert Z. Lawrence of McKinsey

The US recession officially ended in late 2001, and ever since, despite recent gains, aggregate job creation has been extremely weak—weaker even than during the "jobless recovery" that followed the 1990–91 recession. Contributing most to the overall number of US jobs lost since 2000 has been the manufacturing sector, which shed 2.85 million of them from 2000 to 2003, notwithstanding the relatively mild nature of the recent downturn in the economy as a whole.

Many people in the United States have looked at the enormous US trade deficit and concluded that a flood of imported goods from China and the offshoring of services to India are to blame for the loss of US jobs. CNN's Lou Dobbs has called the problem "a clear call to our business and political leaders that our trade policies simply are not working."1 The issue isn't the concern solely of US policy makers: the same fears about trade are rampant throughout Europe and Japan, while protectionist sentiment is rising around the world.

But trade, particularly rising imports of goods and services, didn't destroy the vast majority of the jobs lost in the United States since 2000. We analyzed detailed trade and industry data to estimate the extent of job dislocation due to offshoring in the manufacturing and service sectors from 2000 to 2003. This work was the first complete analysis of how the economic downturn, imports, exports, and global competition interact—directly and indirectly—to affect employment.2

Our research shows that, in fact, only about 314,000 jobs (11 percent of the manufacturing jobs lost) were lost as a result of trade and that falling exports, not rising imports, were responsible. Service sector offshoring destroyed even fewer jobs. These figures are tiny relative to the millions of positions lost and created every year in the United States by normal market forces.

The real causes of job losses were weak domestic demand, rapid productivity growth, and the dollar's strength, which dampened US exports. It is vital that policy makers understand the forces at work, for otherwise there will be a temptation to apply quick fixes, such as protectionism, that won't restore employment, because they do not address the underlying problems. The real solutions—stimulating domestic demand, cutting the budget deficit, and pushing countries with artificially cheap currencies to let them appreciate against the dollar—are harder to implement but more likely to boost employment.

The decline of manufacturing jobs - Manufacturing's share of total US employment has been falling for at least half a century—a trend that is typical not only of developed economies but also of many developing ones. In the 1990s, manufacturing employment was fairly stable. From 2000 to 2003, however, payroll employment in manufacturing fell by 16.2 percent, the largest decline since the end of World War II3 and steeper than the declines experienced by other sectors.

While the job losses were concentrated among producers of capital goods and apparel, every major manufacturing sector saw payrolls fall. The bursting of the high-tech bubble resulted in the loss of half a million jobs in computer and electronics production. Other large declines occurred in machinery, fabricated metal products, and textiles.

For many observers, trade was the obvious culprit. Since 1992 the United States has run an increasingly large trade deficit, which reached $403 billion in 2003. The size of this deficit and its pervasiveness across economic sectors make it tempting to believe that trade played a major role in the manufacturing recession. What these observers have missed is the subtle relationship among productivity growth, domestic demand, exports, and imports. It is this interplay that leads us to the counterintuitive conclusion that the influence of trade has been minor.

The role of trade - During the late 1990s, trade wasn't a significant cause of job losses, because the United States enjoyed full employment. A shortage of labor, not unemployment, was the problem of the day. The trade deficit in part reflected the fact that the country was producing less than it was consuming.

After 2000, as the economy fell into recession, US exports fell. We estimate that more than 3.4 million manufacturing workers were producing goods for export in 2000; by 2003, this number had fallen below 2.7 million. All told, the export slump destroyed 742,000 US manufacturing jobs.

On the import side, though, the picture was very different. It isn't true that manufactured goods flooded into the United States after 2000. In fact, growth in manufactured imports was quite sluggish from 2000 to 2003. And as we will explain, this weakness in imports actually boosted manufacturing employment in 2003 by some 428,000 jobs.

Overall, then, trade accounted for a net loss of no more than 314,000 jobs (a reduction of 742,000 because of weak exports and an increase of 428,000 owing to weak imports), representing only 11 percent of the total manufacturing job loss of 2.85 million. The other 2.54 million jobs disappeared because of the economy's cyclical downturn, which dampened domestic demand for manufactured goods.

The effect of productivity growth - How did imports boost US employment from 2000 to 2003? The answer lies in the rapid growth of productivity in the United States. To understand how this dynamic played out, we will first explore the more intuitive link between productivity and the jobs generated by domestic demand and by exports and then turn to the relationship between productivity and imports. Some economic mechanisms can allow productivity increases to boost output and employment—for example, by making companies and industries more competitive. But from a purely arithmetical standpoint, if productivity (output per employee) is rising, output must increase at least as fast to keep employment from falling. After 2000, domestic US demand grew much less than productivity, so companies needed fewer workers to fill their domestic orders. It was a similar story with exports. They fell sharply in 2001, declined again in 2002, and rose only slightly in 2003. With rising productivity and reduced orders, exporters could meet demand using far fewer employees.

From 2000 to 2003, the number of jobs displaced by imports to the United States actually declined - In the case of imports, the impact of productivity is actually reversed because imports displace US jobs rather than create them. The higher the productivity of US industries that compete with imports, the smaller the number of jobs displaced by a given volume of imports. We estimated the number by figuring out how many US workers would have been employed had the same products been made in the United States. When we examined statistics on the productivity of industries that compete with imports, we found that it increased so rapidly from 2000 to 2003 that the number of jobs displaced by imports actually declined.4

Although it might seem surprising that net trade played only a small role in the loss of manufacturing jobs after 2000, it actually isn't. Economists often say that international trade acts as an automatic stabilizer in an economy. During a downturn, consumption and investment fall, which mostly affects domestic production and employment; imports, however, are dampened too, and this softens the impact on the domestic economy. International trade might actually have had a positive effect on US employment over this period if not for the fact that US exports were so weak.

Why did exports fall? - Trade's small role in the loss of manufacturing jobs from 2000 to 2003 is a powerful rebuttal to critics of free trade, but that is not the end of our inquiry. Knowing why exports fell is important, since this was the reason for all the job losses associated with trade—albeit only 28 percent of the total decline in manufacturing employment.

Dogs that don't bark - The global growth recession after 2000 and the outright recession in leading markets such as Continental Europe would appear to be the obvious candidates to explain declining US exports. If a slowdown in the global economy were matched by a slowdown in global trade, US exports would weaken even if the United States maintained its share of that trade. To test this hypothesis, consider what actually happened.

According to UN commodity trade data, US exports fell by $46.2 billion, or about 7.2 percent, from 2000 to 2003. Meanwhile, non-US world trade in merchandise grew by 23.5 percent. If the ratio between US and non-US trade had remained constant, US exports too would have risen by the same amount. But they didn't, and the question is, why not?

One possible explanation is that US exports might have been concentrated in commodities for which demand was growing relatively slowly. US exports of high-tech goods rose rapidly in the 1990s, for example, but then dropped sharply when the technology sector slumped. Our research shows, however, that this "commodity" effect was quite small—in fact, it helped the United States slightly, boosting its exports by 0.6 percent (about $4 billion). Yes, the United States sells products (such as high-tech gear) that didn't keep pace with the overall rise in world trade. But it also sells goods, such as aircraft (including military aircraft and helicopters), auto parts, automobiles, and medical products, in which world trade grew rapidly. Overall, this commodity effect was nearly a wash.

Another possibility is that demand was weak in countries to which the United States exports—perhaps it was competing in the "wrong" markets. It is indeed true that demand in important US export markets, such as Brazil, Canada, and Europe, was soft. Yet trade with China and Mexico was positive for US exporters. On balance, US export markets grew somewhat more slowly than did total world trade, so this "country" effect does explain a little of the weakness of US exports, but only a little.

Competitiveness and the dollar - Or perhaps US companies simply became less competitive compared with producers in other countries. Loss of competitiveness is a vague term that can reflect a number of factors, including the entry of new competitors such as China and India, an improvement in the quality of foreign goods, or a change in the sourcing patterns of US multinationals away from US goods. Such structural factors, though, have been at work for some time. They therefore seem unlikely to be the main reasons for the rather abrupt shift from rapid export growth in the 1990s to falling exports in 2001 and 2002.

Much the most important reason US exports became less competitive was the high value of the dollar, which rose from the late 1990s through early 2002, boosted by private capital inflows in the 1990s. Even though the US economy later weakened, these inflows continued after 2000, since foreign investors still hoped to find higher returns in the United States than elsewhere. As time went on, the dollar was propped up more by capital inflows from foreign governments purchasing US Treasuries and other dollar assets. (Prime examples of this trend were Asian countries with currencies pegged to the dollar and countries that bought dollars in an attempt to limit the appreciation of their own currencies as the dollar started to weaken in 2002.) The dollar has now fallen sharply against the euro, but the damage has been done. Experience shows that there is a long lag (about three years) before changes in exchange rates have their full effect on export volumes.

We estimate that if the dollar hadn't increased in value after 2000, exports would have risen by $29.3 billion over the next three years rather than falling by $50.7 billion. Productivity was growing so fast that this export growth wouldn't have halted the loss of manufacturing jobs, but the number lost as a result of the country's export performance would have been 447,000 instead of the 742,000 actually recorded. After adding back the 428,000 jobs related to changes in imports, trade's impact on manufacturing employment would have been practically zero.

In short, the appreciation of the dollar accounts for most of the erosion in the US share of world markets. It is by far the most compelling explanation for the weakness of US exports and, hence, for the number of manufacturing jobs lost to trade.

What role did offshoring play? - The development of India's business-process-outsourcing sector, which is heavily geared toward exports to the United States, has added a new layer of concern about US jobs, particularly good ones. With large numbers of college-educated, English-speaking, highly motivated workers in India, even white-collar workers in the United States feel threatened.5 But the figures so far suggest that the number of jobs transferred to India is tiny relative to employment in the US service sector. One powerful indicator of this reality is the relative health of employment in computer services during recent years, given the weakness of domestic US demand for technology services.

A drop in the bucket - Adding software and business-process jobs together, about 274,000 jobs,6 at most, moved to India from 2000 to 2003—equivalent to an annual average change of about 91,500 positions. Although the costs were substantial for the displaced employees, a job shift of this size is small compared with the 2.1 million service jobs created every year during the 1990s and minor compared even with the net annual job increase of about 327,000 from 2000 to 2003.

Employment in IT and IT-enabled occupations has actually been surprisingly strong in the past few years. A look at employment patterns in the IT occupations that offshoring might have affected (Exhibit 3) reveals that total employment in computer-related service occupations dropped only modestly from 1999 to 2003.7 Moreover, the job decline after 2000 followed a huge technology boom in the late 1990s, culminating in the surge of employment and investment needed to resolve the Y2K problem. The employment levels reached in 2000 were unsustainable regardless of what happened to US trade in services with India.

Winners and losers - While the overall change was small, important shifts did take place in the mix of employment within computer occupations. The biggest losers were computer programmers and computer support personnel. For the latter group, employment surged from 1999 to 2000, strongly suggesting a Y2K effect; employment in 2003 was still above the 1999 level.

For computer programmers, however, the decline of 99,090 jobs probably was the result of offshoring to India. We estimate that as many as 134,000 software-related jobs were created in India to serve the United States—roughly equivalent to the number of US software sector jobs lost. As trade in services with India became cheaper and easier, the computer-programming sector followed the laws of comparative advantage, with basic programming jobs moving to low-wage countries. At the higherend of the spectrum, though, jobs continued to proliferate in the United States. From 2000 to 2003, the number of US computer software engineers and computer and network systems analysts, who work on higher-end applications and systems, actually increased, thereby offsetting the loss of computer-programming and computer support jobs over the same period.

How to get back on track - Our research focused on understanding the causes of job losses rather than identifying prescriptions to improve the situation. Nevertheless, this work holds a powerful implication for government leaders. Since trade and offshoring weren't the primary reasons for the weak post-2000 US employment performance, they shouldn't be the focus of policies to create or restore jobs. In particular, imports didn't cause the job losses, so there is no case for trade restrictions. Instead, policy makers should attack the real roots of declining employment: weak domestic demand and a dollar-driven decline in exports.

One task should be to stimulate domestic demand, whose weakness helped account for 89 percent of lost manufacturing jobs. Recent expansionary fiscal and monetary policies have been moving the economy in the right direction; now it is a matter of letting them aid the economy's natural recovery. Once it is well established, a sustained effort to reduce the federal budget deficit would help to lower interest rates and reduce the overvaluation of the dollar—and would be good economic policy in any case.

Since the strong dollar was in large part responsible for the falling level of exports and thus for some of the loss of manufacturing jobs, US policy makers should continue to promote exchange rate flexibility on the part of other countries. Asian governments that have been intervening in foreign-exchange markets to prevent their currencies from appreciating against a declining dollar (and therefore from damaging exports to the United States) should be encouraged to let dollar depreciation run its course. The dollar might need to decline further against other currencies, including the euro.

Although stimulating demand and encouraging exchange rate flexibility will address the root causes of US job losses, we recognize that these policies will not restore every lost job or help every displaced worker. The best strategies for dealing with the adverse effects of trade-related job dislocation are trade-adjustment-assistance programs that give workers opportunities to improve their skills.8 Such initiatives should have the added benefit of helping to defuse protectionist pressures. Defusing them is critical because protectionism isn't merely the wrong answer to US job losses; it is a response to the wrong question.

About the Authors
Martin Baily, a senior fellow at the Institute for International Economics and chair of the President's Council of Economic Advisers under President Clinton, is a senior adviser to the McKinsey Global Institute; Robert Lawrence is Albert L. Williams professor of trade and investment in the John F. Kennedy School of Government, Harvard University, and a senior fellow at the Institute for International Economics. This article is based on the authors' What Happened to the Great US Job Machine? The Role of Trade and Offshoring, a Brookings Paper on Economic Activity to be published in April 2005.

The authors wish to thank Jacob Kirkegaard and Katharina Plück, of the Institute for International Economics, and Magali Junowicz for their assistance in the preparation of the underlying paper.

1 Lou Dobbs, "A home advantage for US corporations," CNN, August 27, 2004.

2 For the full details of our analysis, see Martin Neil Baily and Robert Z. Lawrence, What Happened to the Great US Job Machine? The Role of Trade and Offshoring, a Brookings Paper on Economic Activity to be published in April 2005.

3 Prior to 2000, the largest decline, from 1979 to 1983, was to 17 million, from 19.4 million—about 12 percent.

4 US manufactured imports rose much more slowly than productivity over these three years. Hence fewer US jobs were displaced by imports in 2003 than in 2000.

5 The literature on the impact of offshoring is extensive. See, for example, Charles L. Schultze, Offshoring, Import Competition, and the Jobless Recovery, Brookings Institution Policy Brief Number 136, August 2004; Lael Brainard and Robert E. Litan, "Offshoring" Service Jobs: Bane or Boon—and What to Do? Brookings Institution Policy Brief Number 132, April 2004; Jagdish Bhagwati, Arvind Panagariya, and T. N. Srinivasan, The Muddles over Outsourcing, Washington University at St. Louis Economics Working Paper, International Trade Series, Number 0408004, August 2004; Martin N. Baily and Diana Farrell, Exploding the Myths about Offshoring, McKinsey Global Institute, April 2004; and Robert D. Atkinson, Meeting the Offshoring Challenge, Progressive Policy Institute, New Economy Policy Brief, July 2004.

6 This estimate is an upper bound. Roughly 134,000 of the jobs were in software and 140,000 in other business processes.

7 Note that this estimate doesn't include production workers in the IT hardware industry. Manufacturing employment in the computer and semiconductor industries fell very sharply after 2000.

8 Lori Kletzer and Robert E. Litan, "A prescription to relieve worker anxiety," Policy Brief 01–02, Institute for International Economics, Washington, DC, February 2001.

November 9, 2005

New SAFE Measures to Better Manage Foreign Debts

The State Administration of Foreign Exchange (SAFE) has recently issued a Notice on Improving the Management of Foreign Debts, which will take effect on 1 December 2005.

The main points of the notice are: 1) delayed import payments of an amount equivalent to or exceeding US$200,000 with an agreed payment period of 180 days or more will be subject to foreign debt registration management and quota control; 2) management of the foreign debts of the following types of foreign-invested enterprises (FIEs) will be standardized: FIEs with less than 25% foreign equity ratio, FIEs with a foreign investment amount equal to their registered capital or an unclear foreign investment amount, foreign-controlled investment companies, foreign-invested leasing companies and other special categories of FIEs; 3) funds absorbed by China-incorporated multinational companies from offshore associated companies for centralized use will be subject to foreign debt management; 4) adjustments are made to regulations governing the management of offshore guarantees of domestic loans. The notice also calls on banks to cautiously handle the capital fund and foreign debt settlement of FIEs.

The notice puts China's foreign debt management regulations into practice by placing delayed import payments exceeding a certain time limit and amount under foreign debt management. In standardizing foreign debt management, the need to facilitate banks and enterprises in their normal operations has been fully taken into consideration and handling procedures have been simplified. In addition, the consistency of the policy is maintained by referring to the management principles of the departments concerned and aligning with relevant rules and regulations.

There has been a sharp rise in foreign debts, particularly short-term debts, in China in recent years. Increases in the foreign borrowings and trade credit of FIEs in the mainland are major factors affecting China's foreign debt position. The notice is issued to guide companies in the mainland to utilize foreign capital in a rational and orderly manner, curb the excessive growth of short-term foreign debts and further standardize foreign debt management.

Current Competition in Pan-PRD Retail Sector and Entry Strategy

With the lifting of geographic and quantitative restrictions on foreign participation in China's retail sector on 11 December 2004, foreign investors can now make a full foray into all mainland cities, including those in the Pan-PRD region. Under the circumstances, the advantages enjoyed by Hong Kong under CEPA have become less obvious. As more multinational giants enter the mainland retail sector, competition is set to become even more intense. Hong Kong companies should watch out for the future competition landscape of the Pan-PRD retail sector and seek ways to consolidate their market position and expand to other market segments.

Huge Market, Fierce Competition

The nine Pan-PRD provinces and regions make up one-fifth of the total land area of China. Their combined population of 453 million accounts for one-third of the national total and is larger than that of the EU (450 million) and three times that of Russia (150 million). In 2003, their GDP stood at US$652.6 billion, representing one-third of the country's total, and is higher than that of India (US$512 billion) and close to that of Canada (US$762.1 billion).?/font>

With rapid economic growth and rising income in recent years, the nine provinces and regions have reached a relatively well-off stage of economic development, with total retail sales increasing steadily. Over the past few years, sales revenue generated by the core business of retailers in the region has posted an average annual increase of 20%. According to projections of the State Information Center, China's total retail sales will increase steadily at an annual rate of 8-10% between 2005 and 2010 to exceed Rmb20 trillion by 2020. Although the absolute difference in market size between the eastern and western regions looks set to stay in the short term, the growth momentum of the consumer market in the central and western region will go at a similar rate as that of the eastern region. Continued growth in consumption demand will prolong the upward trend of the retail sector.?

At the same time, the people’s consumption mix is moving up-market. Urban residents are increasingly shifting from purchases of basic items such as food and clothing to a full range of goods and services including housing, automobile, electronic information products, high-end consumer durables, and education, tourism and cultural and entertainment services.

Despite continued growth in the consumer market, competition is set to intensify in Pan-PRD over the next few years as foreign retailers are free to enter any mainland city following the lifting of geographic and quantitative restrictions in 2005. According to statistics compiled by ACNielsen, 70% of the world's top 500 multinational retail giants have entered the China market. In 27 key mainland cities, foreign players account for over 23% of the total business floor area of large retail facilities (i.e. those occupying 8,000 sqm or more). Competition between domestic and foreign players is especially keen in first-tier cities. Some of the foreign retail giants which entered the China market early are now planning to expand to second- and third-tier cities. In other words, they are adjusting their shop expansion strategy in China in preparation for large-scale business expansion following the full liberalisation of its retail market.

At present, three of the world's leading retail giants ?Wal-Mart, Carrefour and Makro ?have established footholds in Pan-PRD. Their entry has further escalated competition in the Pan-PRD retail market. For instance, Wal-Mart has so far opened three outlets in Fuzhou. Between 1999 and 2004, it opened shops in Kunming, Guiyang, Changsha, Nanchang and Nanning. It also plans to venture into Sichuan by establishing a base in Chengdu in 2005. Carrefour currently has outlets in Xiamen, Changsha, Chengdu and Kunming. Among these, the group's second outlet in Kunming was opened in just 28 days from preparation to store opening ?a record in Carrefour's history. Meanwhile, Makro has chosen Fuzhou to locate its first China store outside of the Yangtze River. The group has expanded into Changsha, Nanchang and Chengdu. According to reports, Makro will open its second store in Chengdu in 2005, with a third one now in the pipeline.

Growing market competition is cutting into profit margins and forcing the less competent players out of the market. Hong Kong companies wishing to expand in the Pan-PRD market should critically evaluate their strengths against the fiercely competitive backdrop, especially in fist-tier cities characterised by cut-throat competition.

Rural Market Largely Untapped

As the rural economy and people's income continue to grow, the purchasing power of rural residents is rising steadily. The consumer market in rural China now promises great development potential. Currently, large retailers including foreign players hardly have established a presence in the rural distribution network. Individually-owned businesses and private enterprises command a 90% share of the markets at county level and below. The single ownership structure of retailers can no longer meet the needs of rural consumers. This augurs well for the development potential of China’s retail sector in the rural areas.

Lower cost is an advantage in exploring the rural retail market. In large mainland cities, rental at prime shopping districts costs almost Rmb10,000 per sqm, hence building a distribution network there requires tens of millions of yuan. By comparison, the rural areas are less developed than urban areas and land cost is lower. Opening a supermarket of the same size in rural areas probably costs less than half of that in urban areas. Besides, labour costs in rural areas are only one-third or half of those in large and medium cities.

The central government also encourages the development of the rural consumer market. The State Council has earlier released a set of opinions?on promoting the development of the distribution sector. The government encourages distribution enterprises to expand into the rural areas and improve the distribution networks there through chain operation. The Ministry of Commerce also plans to open 250,000 chain operated supermarkets in rural areas on a pilot basis over the next three years, forming a network of modern rural consumption spots covering more than half of all villages and over 70% of all townships in China.

Opportunities in Hainan Retail Market

At present, foreign retail giants are not interested in the Hainan market due to its relatively small size. With a population of 8.1 million, the province posted per capita retail sales of Rmb2,367 in 2003, which was Rmb1,180 lower than the national average and just one-fifth of that of Beijing. In terms of per capita retail sales, Hainan ranked 19th among all mainland provinces during the same year.

More importantly, the province's total retail sales of Rmb20 billion a year are the lowest among the nine Pan-PRD provinces and trailed only by Qinghai and Tibet among all 31 mainland provinces, autonomous regions and municipalities. The annual sales of Hainan's largest retail group are about Rmb400 million. Hence, the province is hardly attractive to multinational giants some of which are already posting billions of yuan in annual sales in the mainland.

On the other hand, market saturation is another deterrent factor for foreign investors. The province currently has 120,000 retail outlets, translating into a ratio of 15 outlets per 1,000 persons. The national average is 12 outlets per 1,000 persons. The majority of the outlets are found in the city of Haikou. The high concentration means per capita retail space in Haikou has far exceeded the international standard. Prior to the administrative rezoning of Haikou in 2003, the per capita commercial space was over 1.3 sqm in the city, which was much higher than the national average. As the city's population almost doubled after the rezoning, the per capita commercial space dropped to a more reasonable level of 0.5 sqm. Market saturation has made operation difficult and cut into profit margins.

Despite their large number, retail outlets in Haikou tend to be relatively small and scattered. In particular, there are only a very small number of large retailers and modern department stores. The city does not even have a full-size pedestrian shopping street. Almost 10 million tourists visit Sanya via Haikou every year. If Haikou can offer more one-stop shopping malls featuring tourist attractions, leisure and shopping facilities, some of these tourists may stay in Haikou instead of flying straight out of the city after visiting Sanya. From this perspective, Hainan's retail market offers excellent development potential.

Under government plans, the province will give priority to the construction of consumer goods market and development of new retail channels; expedite the development of large supermarkets in Haikou and Sanya, as well as large specialised supermarkets with emphasis on home electrical appliances, food, building materials and houseware; and speed up the establishment of convenience stores and community stores in the form of chain operation for the convenience of local residents.

Entering Pan-PRD Market as Brand Agent

Hong Kong companies may not be able to compete head-on with multinational giants in running large retail outlets. However, other options are open for entering the Pan-PRD market. Operating branded chain stores and specialty stores is a major strength of Hong Kong companies, many of which have accumulated years of brand agency experience and are well versed in running chain stores in a creative way. At present, branded chain stores operated by Hong Kong investors make up a significant portion of the shops on Dongmen Street and Huaqiangbei in Shenzhen. These stores are quite successful.

The branded chain store market is now at a growing stage in Pan-PRD, offering excellent development potential. Hong Kong companies can capitalize on CEPA and introduce world brands to this market by serving as their agents. The best bets are quality, second-line international brands that are fashionable and reasonably priced because they can meet the needs of the middle class in the mainland. In particular, cities with higher per capita GDP levels tend to offer greater growth potential for distributors and agents of mid- to high-range international brands. Cities in PRD are ready markets at this stage. Hong Kong companies must conduct thorough studies of their target market before making a foray into the Pan-PRD market. They should also hire experienced local people to help develop the mainland market.

Government Contacts Essential

Over the years, Hong Kong companies have been accustomed to the established rules of the business world and would reckon that normal business operations could be ensured as long as they abide by the relevant laws, rules and regulations of the government and relevant departments. In their experience, excessive contacts with government authorities are not necessary. Many Hong Kong companies therefore take for granted the same applies to the mainland and tend to shy away from making government contacts. However, as the market economy has yet to be established in the mainland, immature systems and regulations will inevitably create hurdles and unexpected costs for Hong Kong investors. For example, changes in policy may undermine the interests of Hong Kong companies; different provinces and cities may have different administrative standards that result in higher costs for Hong Kong companies. Mainland enterprises including private enterprises and individually-run businesses, on the other hand, are very familiar with the local conditions and recognize the importance of maintaining close contacts with government authorities which in return benefits their business operations.

The tendency of Hong Kong companies to stay away from government authorities also explains why they find it difficult to trade with government departments and state-owned enterprises. Compared to their mainland counterparts, Hong Kong companies are seldom awarded large government procurement orders.

November 2, 2005

David Lampton: American "China expert"

White-haired and a man of decent language, David M. Lampton is one of the authoritative "China experts" in the United States who has been engaged in China studies for more than 30 years and is the author of numerous books and articles with new theories. He has repeatedly made his own policy suggestions. As the president of the National Committee on United States-China Relations for 10 years, he has frequently got in touch with Chinese people from all walks of life and improved the exchanges between the two governments and that between the two peoples, reports the overseas edition of People's Daily on November 1.

"US-China relations are focused on cooperation"

"This year marks the very important year for US-China relations. The frequent mutual visits between the top-level officials of the two countries are the ripe hallmark for the ties between the two countries, which plays a very active role", said Lampton in his recent interview with the reporter in Beijing's Palace Hotel when he paid a visit to China in late September this year.

The hot summer weather in Beijing brought no impact to many US heavyweight officials' visits to China, and among them, there included twice shot-term visits by US Secretary of State Condoleeza Rice and the visit by US Deputy Secretary of State Bob Zoellick. In October, US Defense Secretary Donald Rumsfeld paid his visit to China, which drew the world's attention.

Lampton used two words to describe the US-China relations: complicated and cooperative.

He said that with the end of Cold War and the economic globalization, the complicated financial relations between the two countries of the United States and China have been established. Apart from Japan, China has the most US treasury bonds in the world while the United States is the largest export market for China. There are 60,000 Chinese students and visiting scholars in the United States this year while 6,000 students from the US study in China. There are strategically geopolitical relations between the two nations.

They wish to control the Korean Peninsular nuclear proliferation and attempt to develop cooperation on the issue of Iranian nuclear proliferation.

The two countries are managing to make the international energy market stable. They will cooperate in the area of health since it is easier for new viruses to spread out in the world due to developed transportation.

"I named these as multi-layer, complicated and important cooperation", stressed Mr. Lampton, "Certainly, in the cooperation of different layers, it is impossible for both sides to reach mutual recognition on every point. So, there involve many areas of cooperation and also exist many frictions in the relations between the two countries. The United States and China should cooperate to settle various complicated problems".

On the way to China studies

As a heavyweight China expert, there are two titles for Lampton: dean of the Johns Hopkins School of Advanced International Studies (SAIS) and director of China Studies, and director of Chinese Studies at The Nixon Center and research fellow.

"I was born nine months after my father returned from France in 1946. Before that, he took part in World War II. I have grown up in California where live many Chinese that I am very fond of", Lampton recalled his own growing experiences.

When in high school, he was lucky to meet a good teacher, he said, "She taught us the Far East history and most part of which was about the history of China and I was obsessed with it. I believed at that time it was unlucky that the United States could not have good relations with China".

The Vietnam War broke out in 1960s. At that time, he was sharply aware of that the United States got stuck deeply in the Vietnam War. Its main reason is the US' ignorance of the history of Asia. When Mc Carthyism was prevailing in 1950s, many people, who had understanding of Chinese, were driven out of the US government or afraid of telling the truth so that the government followed a wrong line.

"I decided to understand more of China to reduce future mistakes". Lampton was determined to make researches on China and has finally been on the way to China studies. When studying in Stanford University under the tutorship of famous China expert Michel Oksenberg, he held that the United States should have "exchanges" with China. In 1960s and ¡®70s, there offered the best research program in Stanford University. I studied there learning Chinese history, politics and international relations.

Upon leaving the school, the present US Secretary of State Condoleeza Rice became the dean of the university. It is interesting that several officials in chare of diplomatic and international affairs in the US government graduated from the university.

Thirty years have passed and the then young and handsome young man has grown up to become an authoritative expert on China studies. His political suggestions have drawn attention from US decision-makers for a long time. "Training young Americans to understand more about China" is regarded as his own responsibility and many more American youth come to the Johns Hopkins School of SAIS), following his suit to make researches on China.

Improving US-China friendly exchanges

During the 10 years between 1988 and 1997, he was president of the National Committee on United States-China Relations, devoting himself to the friendly exchanges between the two countries. Established in 1966, the National Committee on United States-China Relations is a non-profitable institution, in which, there are many experts engaging in long-term China studies and some of them were even born in China. Before his secret visit to China, US Ex-Secretary of State Henry Kissinger asked the committee for briefing about China. In 1972, the committee invited Chinese Ping Pong Team to visit the US and carry out the well-known Ping Pong Diplomacy.

Lampton excitedly spoke of his personal experiences in the history of establishing US-China diplomatic relations: "Professor Michel Oksenberg, who worked in the US National Security Council, is my good friend. One day in November 1978, Oksenberg came to the Ohio state from Washington to watch a rugby match. While visiting my home, he got a call from the White House. At that time, Leonard Woodcock, US representative to China, was holding talks with Deng Xiaoping in Beijing while Director of China's Liaison Office to the Unites States Chai Zemin was negotiating with US Former National Security Assistant Zhigniew Brzezinski. Oksenberg was in charge of coordinating the talks. And Zhigniew Brzezinski made the call. I came to know later that they were discussing how to invite Deng Xiaoping to visit the United States during the call."

"I did not expect that my telephone played an important role in the history of US-China relations," added Lampton humorously. "While Oksenberg was answering the call, my family and I went outside. It was very cold that day, however, our family had to wait outside".

Wishing to have followers on China studies

It has been 33 years since Lampton started research on China in 1972. He is the author of many academic books and political reports. "I will learn to master how to look upon Chinese domestic and foreign policies and consider China issues from the perspective of China", He said. Stating China's stand in the logic "I believe the Chinese is thinking this way" is disadvantageous to US readers to obtain objective conclusions.

Soon after the New Year's Day of 2001, he became the author of Same Bed, Different Dreams: Managing US-China Relations, 1989-2000. The book quotes a great part of Chinese viewpoints in it and let Chinese state their own stand from their own perspective. The Chinese edition of the book was published in Hong Kong in 2002.

"I am now writing a new book on how Chinese look upon power, discussing how to develop China's comprehensive national power and the stronger China's significance to the world. The book is scheduled to be published in September 2006."

Lampton is still making on-the-spot surveys in Chinese mainland, Hong Kong and Taiwan. Frequent visits to China and holding lectures enable him to have more understanding of the development in the relations of US-China relations in the past more than 30 years.

Lampton wishes to continue the "affair with China" in his family and gave his grandson a Chinese name "Zhuyi". He said, "My grandson is three years old. I wish him to grow like bamboo, being strong and flexible, which are two very good peculiarities to behave as a man. I will bring him to China and let him become a more excellent expert on China studies."

November 1, 2005

China makes drastic modifications on corporate law

On Oct. 27,2005, the amendment of the Corporate Law of China was adopted in majority by the Standing Committee of the 10th National People's Congress at its 18th session.

The existing Corporate Law of China was enacted on Dec. 29, 1993 and experienced minor revisions in 1999 and 2004. It has played a crucial role in building modern corporate governance and improving the socialist market economic system for the 11 years.

However, the current situation calls for more adaptations of the law to address issues such as the too high incorporation requirements, and loopholes in corporate governance, the protection of legitimate interests and rights of shareholders (especially those of small and medium shareholders), and definition of obligations of chairmen, councilors and top executives of companies.

Business startups encouraged

The introduction of one-person company has aroused broad attention of the whole society in the new amendment. Huang Jianchu, an official for the economic law with the Standing Committee of the National People's Congress, explained that the amendment is designed to encourage investment and improve the efficiency of the economic operation to boost the social wealth accumulation. There are also adjustments on corporate system.

Concerns were raised in the reviewing process that the time for one-person company was not ripe, or it was difficult to monitor the assets of a one-person company.

The revised article of the law provides that a person is allowed to incorporate one limited company with a minimum registered capital of 100,000 yuan which is collected at a one-off payment.

The shareholder of a one-person company is supposed to shoulder the joint liability for the company's debts if he/she fails to prove that the company's assets is independent from his/her private assets.

The revised law also lower the minimum registered capital of the other limited companies to 30,000 yuan and cut the threshold of joint stock companies down to 5 million yuan from 10 million yuan.

The law makes more financing options possible and specifies the way of funding, as well as raises the ratio of intangible assets.

Better corporate governance

The revised law perfects the corporate governance and further improves the internal mechanism. The amendment defines a company as a corporate legal entity which has independent corporate assets, enjoys legitimate property rights and is liable for debts.

Shareholders' meeting is the power organ of a company and performs its duties in line with the law which gives it a specific role in the company. The law also states clearly the responsibility of the shareholders' meeting, the board of directors, management, and the supervisory councils, as well as how they function.

Either a board chairman, an executive board director or a manager can be appointed as legal representative of a company by shareholders or shareholders' meeting. Dividends distribution among shareholders can be included into corporate charters for limited companies. If the corporate charter is inconsistent with the law on these issues, the charter prevail.

Independent board directors are required for listed companies. Board directors, supervisory councilors and senior executives have a bigger role to play than before, which also means they are held responsible for any harm they cause to the company.

Protecting small and mid-sized shareholders and employees

Practically, accounting books are in hands of very few shareholders who are directly involved in business operation and it is difficult for other shareholders to get an accurate understanding of the company. To protect the legitimate interests and rights of small and mid-sized shareholders who do not run the business, the revised law entitles shareholders to check books. Shareholders can resort to the court in case the company refuses the checking application.

Shareholders who cause any losses to the company or other shareholders as a result of rights abuses have to pay for what they have done. In the mean time, shareholders can seek buying stakes if they do not receive dividends for five consecutive years.

Labor unions should be in place and function in compliance with the law. A labor union, on behalf of employees, signs collective contracts with a company on salaries, welfare, insurance and working safety issues. There are also regulations on employment contracts between the employer and the employed.

October 26, 2005

Tsang stresses importance of HK to Canadian firms expanding into China

Canadian businesses should take advantage of Hong Kong’s financial and professional services when they invest in China, Chief Executive Donald Tsang Yam-kuen said overnight (HK time). Mr Tsang is on a seven-day visit to North America — his first foreign trip since becoming Chief Executive.

He was speaking overnight to the Hong Kong-Guangdong Business Forum in Vancouver. Hong Kong and Canada enjoy a close relationship. In recent years many Hong Kong people have emigrated to Vancouver and other parts of Canada.

The event was attended by Canada’s Federal Minister for Industry, David Emerson. British Columbia’s Premier Gordon Campbell, Guangdong Governor Huang Huahua and China’s Ambassador to Canada Lu Shumin were also in the audience.

Mr Tsang explained how Hong Kong, Guangdong and Canada could enjoy a mutually-beneficial relationship.

"Hong Kong supplies capital; accounting, insurance, legal and trade services; expertise, connections and international experience,” he said.

“Guangdong province supplies land, infrastructure, manpower, entrepreneurial drive, ambition and spirit; Canadian companies bring their investments, innovations and marketing skills,” he added.

The Chief Executive noted that Hong Kong and Guangdong had a potential market of 460 million people.

Mr Tsang said the SAR had a good legal system and intellectual property rights. He cited the world’s first conviction of a man distributing copyright computer files on the internet in a Hong Kong court as an example.

"This highlights the Hong Kong SAR’s determination to deal with intellectual property rights infringements and to protect intellectual property rights to the highest possible standard," he stressed.

Mr Tsang will leave Vancouver (overnight Wednesday HK time) for New York.

In New York, Mr Tsang is scheduled to meet with the Federal Reserve Bank of New York and deliver a speech at a business lunch. He is also expected to meet former US president Bill Clinton, before flying to Washington for a three-day visit.

October 25, 2005

China clears individual offshore forays - New rule allows nationals to set up overseas vehicles for buying mainland assets and raising funds by Bei Hu

China's foreign exchange regulator yesterday issued a new rule allowing mainland individuals to set up offshore vehicles to acquire domestic assets and raise funds abroad.
The regulation, which comes into effect next month, is likely to set red-chip listings back in motion after they were stalled by rules introduced in January and April.

Mainland firms and individuals will be permitted to use assets and equities in domestic companies as capital contributions to offshore special purpose vehicles that are in turn employed as a platform for international fund raising, according to a Xinhua report last night.

Those special vehicles can engage in asset purchases and equity swaps to control mainland assets and raise capital offshore by selling shares and convertible bonds.

"The new rule is aimed at implementing the State Council's directive to support and guide non-state sector development," Xinhua quoted the State Administration of Foreign Exchange (SAFE) as saying.

"[It was designed] to foster the growth of domestic high-technology companies and venture capital industry and facilitate efforts by such firms to raise funds in the international capital markets to sustain their operations and expansion."

For years, mainland firms have been using offshore vehicles to buy domestic assets and raise funds while taking advantage of preferential tax treatments for foreigners to promote investments.

Overseas incorporation also spares the so-called red chips, or "private chips", from onerous approval procedures for stock and bond sales offshore faced by mainland-registered firms. These activities have proliferated in a mainland regulatory vacuum.

Concerns about thefts of state assets and illegal capital outflows and hot money inflows through such vehicles have led the regulator to issue two circulars restricting mainlanders from setting up and holding shares in offshore firms.

The January and April circulars have been criticised as too draconian, leading to a 5 per cent drop in the value of China-related merger and acquisition deals in the first half of this year to US$26.2 billion.

Yesterday's regulation was widely expected after the SAFE, bowing to market pressure, sent out a consultation paper proposing the scrapping of the January and April guidelines.

Under the latest rule, offshore vehicles can repatriate funds raised abroad to finance operations in line with share offering prospectuses.

Mainland citizens must remit dividends and profits earned from the special vehicles back to China within 180 days. They can either keep the funds in foreign currency current accounts or sell these for yuan.

October 19, 2005

China New Food Labeling Standards Take Effect on 1 October

The General Provisions for the Labeling of Pre-Packaged Food and the General Provisions for the Labeling of Pre-Packaged Food for Special Dietary Use took effect on 1 October.

Under the provisions, ordinary food must indicate the following information in their label: name, ingredients (with quantities), net content, name and address of manufacturer, manufacturing date, best before date, product standard code, storage conditions, and information on irradiation or genetic modification (for irradiated or genetically modified food).

The general provisions stipulate that "new names", "unusual names", "transliterated names", "shop names", "local names" or "trademark names" may be used in food labeling provided that the name specified in national or industry standards is shown adjacent to the name so indicated. For food products whose names are not specified in national or industry standards, the true attributes of the food must be indicated. Common or generic names that may mislead or confuse consumers may not be used.

Baby formulas must indicate their nutrients, calories, directions of use and target age group in addition to ordinary labeling requirements. Imported baby formulas must also indicate the country of origin and the name and address of their registered agent, importer or dealer in China.

China Strengthens Administration of Certification Consultancies and Training

The State Administration of Quality Supervision, Inspection and Quarantine adopted the Measures for the Administration of Certification Consultancies and Measures for the Administration of Certification Training Institutes, which will go into force on 1 November 2005. The new measures will be applicable to Hong Kong, Macau and Taiwan players wishing to set up certification consultancies, certification training institutes or resident representative offices on the mainland.

Certification consultancies will require a minimum registered capital of Rmb100,000 and at least four registered certification consultants, including one senior consultant. Certification training institutes will require a minimum registered capital of Rmb200,000 and at least four full-time teachers with professional training qualifications. They must have at least two full-time teachers for each course and must be able to offer their own training courses on intellectual property rights or similar courses authorised by relevant organisations.

Those engaged in certification consultancy or training activities without approval will be ordered to stop such activities and fined Rmb30,000. Their names will also be made public.

China to Establish Individual Income Tax Files

Starting from 1 October 2005, China will introduce income files for each taxpayer. Under the Measures for the Administration of Individual Income Tax promulgated by the State Administration of Taxation (SAT), a personal income information system will be set up. The measures also stipulate that the income information of all taxpayers will gradually come under unified management. High income earners will be closely monitored, and tax dodgers will be prohibited from leaving the country.

At present, individual income tax is mostly collected through employers which serve as the withholding agency. In the vast majority of cases, the withholding agency only files a lump sum with the tax authorities without providing a breakdown by individual taxpayer.

Under the new measures, instead of reporting a lump sum, the withholding agency must provide detailed information of their individual employees such as their basic personal particulars, amount of income, amount of withholding tax, as well as other relevant data.

Using the identity card number of the taxpayer as reference, the tax authorities will build a separate file for each taxpayer based on the detailed information received from the withholding agency and the data submitted by the individual taxpayer. The new system will enable more detailed management of individual income in terms of data categorisation, sorting, collation, comparison and analysis.

The measures embrace the concept of managing the total income of all taxpayers. After building a comprehensive information system on all individual income tax payers, the tax authorities will then identify "key" and "problem" cases to monitor as well as certain targets to investigate whether they have made full payment of the tax amount due. The objective of the new system is to curb tax dodging and ensure the collection of the tax amount due through data collection and analysis, and tax assessment. The ultimate target is to shift the management focus from high income earners to all individual income tax payers.

The measures also provide detailed operational guidelines for managing high income earners. High-pay professionals, individual investors, TV/movie celebrities, singers and sports stars, as well as visiting foreigners giving performances in the mainland are among the key targets for monitoring by tax authorities.

Tax authorities at the local level will also identify a certain number of individuals as key targets to carry out detailed management on an on-going basis. The target groups include freelance workers who are high income earners, well recognised, and have access to various income sources without a fixed employer. Also included are individuals who have a large impact on tax collection.

Tax authorities will monitor the income received and tax payment made by these targets on a regular basis. Prompt action will be taken to plug management loopholes once irregularities are found during the data mining and analysis process. Moreover, provincial tax authorities will compile half-year and yearly reports on the basic data of the targeted taxpayers, such as income and tax paid, for submission to SAT before end of July of the current year and end of January of the following year respectively.

Professor An Tifu of Renmin University’s School of Finance pointed out that the unified tax information system and monitoring of high income earners are effective measures by the central government to strengthen individual income tax collection. However, he suggested four vital measures to be taken to boost tax collection efficiency and quality.

First, the system of permanent, unique taxpayer numbers should be introduced on a gradual basis. The taxpayer number can be the same as a person’s identity card number and social security number which a withholding agency has to obtain before making withholding tax payment. This system will give a full picture of a person’s tax payment and social security status.

Second, income should be monetarized. At present, some employers pay their employees in cash, others pay in kind or in the form of overseas travel allowance. This makes it difficult to ascertain the actual amount and nature of remuneration received by individuals.

Third, cash management should be strengthened and the use of credit card popularised. Large payments must be settled by banks and not in cash. In fact, cash transactions are often under strict control in foreign countries.

Fourth, banks and tax authorities should be linked up. If banks and tax authorities are connected by computer networks, the bank can alert the tax authorities whenever a large transaction takes place. This will also help combat corruption and promote clean government.

The measures also state that tax authorities will check the tax payment made by taxpayers in connection with their purchase of cars and property.

To access more information related to taxpayer income, tax authorities will strengthen ties with various government departments such as public security, procuratorate, law courts, industry and commerce administration, banks, cultural and sports, finance, labour, property management, transport, audit and foreign exchange control.

Through contact with pubic security departments, tax authorities can obtain entry-exit data of individuals without domicile in the mainland and information about their stay in the mainland. Individuals with outstanding tax payment will be prohibited from leaving the country.

Through contact with industry and commerce administrations, tax authorities can access the latest alterations filed by taxpayers concerning business registration details, and shareholding and share capital of joint stock companies.

Also through working with cultural and sports departments, tax authorities can obtain the latest information about performances and tournaments. They can then monitor the event organizers to see if they have duly performed their duties as withholding agencies.

Sept 28, 2005

First Allocation of Quantity of Textile Exports to EU in 2006

The Ministry of Commerce (MOFCOM) has just issued a circular to the local departments of commerce announcing the first allocation of quantity for the export of 10 categories of textiles to the EU available for application in 2006.

According to the circular, the first allocation will make up 75% of the annual quota. The circular asks the local commerce departments to notify traders as soon as possible to submit their applications for textile exports together with their application letters and summaries of electronic data to MOFCOM before 20 October. MOFCOM will then formally announce the allocation plan.

For details in Chinese regarding the first allocation of quantity of textile exports to the EU in 2006 allowed for application, please visit the website of MOFCOM

MOFCOM has also announced the Interim Measures for the Administration of Textile Exports to replace the measures for trial implementation issued in June. In the calculation of the quantity allowed for application, the requirement that the trader's export value to the EU after 1 January 2005 must not be equal to zero is dropped.

For details in Chinese regarding the Interim Measures for the Administration of Textile Exports, please visit the website of MOFCOM

Sept 21, 2005

First Bidding for 2006 Textile Export Quotas

The Textile Export Quota Bidding Committee of the Ministry of Commerce (MOFCOM) issued a Notice on the First Bidding for 2006 Textile Export Quotas on 20 September 2005. The total amount available for bidding in 2006 will be 30% of the agreed export volume, and the first bidding will cover 60% of this total.

The first bidding will take place between 08:00 on 27 September and 02:00 on 30 September 2005. Closing time for submitting bids is 02:00 on 30 September, and the time for opening the bids is 10:00 on 30 September.

The bidding will be conducted electronically at and no written applications are accepted. Please refer to MOFCOM's notice for arrangements regarding online bidding.

Any enterprise meeting the qualifications for conducting export under the Implementing Rules for the Bidding of Textile Export Quotas, registered with the industrial and commercial administration departments, and with global export performance in relevant categories between January and July 2005 (i.e. with global export volume greater than zero according to Chinese Customs statistics), is eligible to submit bids.

For details of the bidding process, please visit the Chinese website of MOFCOM

For details of the Implementing Rules for the Bidding of Textile Export Quotas, please visit the Chinese website of MOFCOM

For details of the Notice on the Preliminary Examination of Qualifications for the Open Bidding of 2006 Textile Export Quotas, please visit the Chinese website of MOFCOM

Sept 6, 2005

The Fourth China (Changchun) International Auto Expo

held at the Changchun International Convention and Exhibition Centre closed on 14th August 2005 after 10 days, with over 1,000 auto manufacturers and auto parts makers from 27 countries and regions showing their products. The exhibition covered an area of 120,000 sqm.

A total of 650 vehicles, representing 120 marks were on display. Of these, 90% were the latest models. The exhibition covered all kinds of vehicles, including concept and sports cars, sedans, jeeps, MPVs, SUVs, SRVs, CRVs, trucks, coaches, pickup trucks and special-purpose vehicles. Among them were eight concept cars, 10 sports cars and four limousines with price tags of over Rmb5 million (HK$4.8 million).

Taking part in this year's expo were domestic cars priced at tens of thousands of yuan, and Rolls Royce limousines worth millions. The major attraction this year was the limited edition Bentley Arnage 728 with a price tag of over Rmb10 million (HK$9.6 million).

Cars priced below Rmb200,000 (HK$192,307) were very popular among working people and many young couples clearly had the urge to buy a car at the show. Preferential terms were offered to users who made purchases during the car show. The offers, including reduction in road transport fees and new vehicle inspection fees, varied from model to model. The maximum discount could amount to thousands of yuan. A total of 3,597 cars were sold during the car show. These included 3,339 passenger vehicles (of which 2,460 were economy models), or 1,397 more than last year, up 63.5%. Among these, 96% were made in China.

Total transactions amounted to Rmb487 million (HK$468 million), Rmb3.2 million (HK$3.07 million) more than last year. Sales of auto parts amounted to Rmb5.8 million (HK$5.5 million). In addition, contracts worth Rmb2.2 billion (HK$2.1 billion) were signed, Rmb336 million (HK$323 million) more than at the previous expo. In this year's event, FAW-Volkswagen topped sales, selling 259 cars with a total price tag of Rmb57.1 million (HK$54.9 million), followed by FAW with 254 cars worth Rmb35.1 million (HK$33.7 million), Beijing Hyundai with 222 cars, Changchun Auto Refitting Company with 220 cars, and Chang'an Auto with 163 cars. More than one million people visited the expo. Among them, 850,000 were buyers in the trade. This huge turnout inevitably pushed up sales considerably.

August 16, 2005

Olympic effort for Beijing's western cuisine

Beijing children love western fast food.

Du Lei, secretary general of the Beijing Western Cuisine Association, is busy preparing for the Third Beijing International Western Cuisine Cultural Festival to be held in September 2005. According to Du, Beijing has about 1,300 western restaurants (referring to restaurants serving non-Chinese cuisine), including formal and casual dining places, fast food outlets, cake shops, cafés, bars and Hong Kong-style cafés.

Restaurants serving foreign cuisine in Beijing are characterised by their "global" nature, with eateries serving Korean, Spanish, Malaysian, Italian, Japanese, Thai, Mexican, American, French and Vietnamese food, along with Indian, Arabian, Turkish, Russian, Swiss, Canadian, Dutch, Brazilian and German cuisines. The list is not exhaustive.

However, even this seemingly varied selection of foods is still relatively inadequate in number and small in scale to meet Olympic and future market developments.

Beijing boasts cuisines from over 20 countries.

As Du Lei notes, western restaurants in Beijing are trailing behind coastal cities in number. There are 3,000 western restaurants in Guangzhou and 1,600 in Shanghai, while Beijing's existing 1,300 western restaurants are disproportionate to its restaurant-going community.

Lu Shengdi, deputy general manager of TGI Friday's Restaurants Co Ltd (which opened its first restaurant in Beijing 10 years ago) says Beijing's western restaurant sector has yet to reach maturity.

This contrasts with the wide variety of Chinese food available. Specialised local cuisines from different parts of China can be found in Beijing, and the city's residents take pride in their national food culture.

To be sure, Beijingers are more traditional in their food preferences and have a special fondness for specific Beijing, Northeastern, Shandong and Sichuan cuisines. The price factor is another reason why ordinary people in Beijing do not quite accept western cuisine.

TGI Friday's restaurant is informal.

According to Yang Guohua, TGI Friday's marketing manager, the restaurant is a casual dining place, not a fast food venue or formal dining restaurant. Set up with an investment of US$5 million, it has all its decorations, ingredients and even seasoning imported from the US and offers American style service.

Per-capita spending at TGI Friday is Rmb80 (HK$76.9), which comes within the lower price range of western restaurants in Beijing. It costs about Rmb400 (HK$384.6) per person to have a proper French meal at Beijing Maxim's, which is not affordable to most Beijing people.

Du Lei admits: "prices at western restaurants double those of comparable Chinese restaurants".

Returning overseas students eat western, increase demand

The industry is still optimistic about future prospects for western cuisine in Beijing and even in the country as a whole.

According to a survey by the Western Cuisine Committee of the China Cookery Association, annual turnover in the catering business hit Rmb748 billion (HK$719 billion) in 2004, and the increasing popularity of western cuisines contributed significantly to this growth.

Western food has developed into a fast-growing industry in recent years. There are over 20,000 western food establishments on the mainland, including 3,200 formal dining restaurants, 4,000 fast food restaurants, 3,840 bars, 3,500 cafés, 3,000 Hong Kong-style cafés, and 2,500 restaurants serving Japanese, Korean and Southeast Asian cuisines.

China's western food sector employs 240,000 people.

Over 60% of these are privately owned and less than 5% are state owned. The sector employs 240,000 people.

Cities influenced by foreign culture and ways of life in the past, such as Shanghai, Dalian, Tianjin and Qingdao are further up the "food chain" where it comes to distribution and sophistication. Then there are affluent coastal cities with influence from abroad, such as Guangzhou, Shenzhen and Xiamen - especially Guangzhou and Shenzhen.

Also, that are economically well-developed sectors in cities and towns with a long history of opening up, such as Jiangsu and Zhejiang, and finally there are places with a well-developed tourism industry, such as Yunnan, Guangxi, Hainan and Tibet.

Du Lei points out that although Beijing is lagging behind the coastal areas in its western restaurant business, as the capital of China and a tourist city, its western-style restaurants have seen rapid growth in recent years.

One of the reasons is that Beijing has many foreign embassies, enterprises, companies and foreign students. There are also large numbers of overseas business visitors as well as tourists who have come to tour the Chinese capital. These are the main patrons of western restaurants.

A second reason is that overseas Chinese students are returning to their country in significant number. A lot of these "returned overseas students" are working in Beijing, are familiar with western culture and accept western food. They also have spending power. They are without doubt the main force promoting western food culture.

Appeal of cleanliness in Western restaurants

Luxury hotels in Beijing serve buffet-style meals.

An increasing number of young office workers and university and secondary school students are beginning to spend more on western-style food. They find western-style restaurants more refined and hygienic.

To them, it is more fashionable to eat western food. "Going Dutch" is also becoming a common practice among young people and students in cities. This makes it easier for them to eat in western-style restaurants, which tend to be more expensive. Most of them go to McDonald's, KFC and Pizza Hut. Young families of three also form an important customer base for western-style fast food restaurants.

According to Lu Shengdi, TGI Friday's has witnessed steady growth as a whole and gained its name in the industry and in the minds of consumers during its 10-year presence in Beijing. It has achieved a faster increase in profits in recent years and has opened four branches in Beijing and one in Tianjin. Its main branch at Baijiazhuang, Chaoyang district, has achieved 80% seat utilisation and is patronised by 3,000 to 4,000 people each month. Among its patrons, 70% are local people and 30% are foreigners.

Yang Guohua, who has been in the western restaurant business for 10 years has great faith in the market potential in Beijing, notes increasing cultural exchanges between east and west, rising incomes and the coming of age of a new generation of consumers.

The hosting of the Olympic Games in Beijing will also boost the development of western restaurants.

As a marketing professional, Yang Guohua says that young people born after the 1980s are more receptive to western fast food. Many have grown up in the company of McDonald's and KFC.

Korean BBQ is becoming popular in northern cities.

Young people enjoy a warm and elegant ambience.

When this segment is old enough to have spending power, they will become the principal patrons of western restaurants, and their number will far exceed the existing number. The western fast food business is actually grooming patrons for formal western dining.

In Yang's opinion, this phenomenon will materialise within the next 10 years.

Although the western restaurant sector in Beijing is quite small, it is beginning to segmentise. The majority of people eating at TGI Friday's in Beijing are office workers in their 30s. With their exposure and means, they not only have higher demands for the quality of food, but have higher expectations for the dining environment and mood. They enjoy the whole process of western dining.

These people were still enjoying buffet-style western fast food five or six years ago.

Yang believes that now is the best time to invest in mid-range casual dining establishments.

Food festivals promote Hong Kong, Macau and Taiwan fare

Beijing to host Third International Western Cuisine Cultural Festival.

The Third Beijing International Western Cuisine Cultural Festival is to be hosted by the China Cookery Association and is organized by the Beijing Western Cuisine Association and the Western Cuisine Committee of the China Cookery Association. It will take place between 16th and 20th September 2005.

Xu Bin, chief operating officer of the organizing committee, said the festival will mainly address the needs of the future development of Beijing's western food sector and the upcoming Olympic Games.

The festival will provide an exchange platform for the western cuisine industry, both Chinese and foreign, introduce the appeal of the western food culture, and provide service providers with an opportunity to cooperate in their development.

The organisers will invite foreign diplomatic and trade missions, trade representatives from six EU nations, famous chefs from five countries, officials of relevant Chinese ministries and commissions, officials of Beijing, officials of the China Cookery Association and officials in charge of the industry in various provinces and municipalities, as well as Chinese chefs of western cuisines to this grand occasion.

An estimated 500,000 people will take part in this event.

China has over 20,000 western restaurants.

According to Xu Bin, the cultural festival will put its emphasis on exchanges and the culture of western cuisines. The China Western Cuisine Expo will feature the finest of several hundred Chinese and foreign western cuisine restaurants and relevant enterprises and will demonstrate to visitors the unique appeal of western cuisines.

A China International Western Cuisine Development Forum and Project Launch Meeting will take place during the cultural festival. It will look into ways of improving the overall quality of the western cuisine sector from different angles, based on the present state and trends of development, so as to satisfy people's growing demand for western food and make the Chinese food and catering industry more diversified.

Xu Bin says people servicing the western cuisine industry in Hong Kong, Macau and Taiwan tell her of their wish to venture into the mainland market, but are worried about policy restrictions and complicated formalities. Her answer is that the government not only allows but actually supports such ventures.

The Western Cuisine Association is exploring with the government the possibility of opening a "green passage" for Hong Kong, Macau and Taiwan businessmen.

The organizers will hold a special briefing for delegations from Hong Kong, Macau and Taiwan on ways to access to Beijing's western cuisine market and arrange for experts to answer queries during the festival.

US Welcomes China's Adoption of Managed Floating Exchange Rate System

After enduring mounting pressure and increased scrutiny from both Congress and the Administration over the past several months, the Chinese government finally heeded the repeated calls for currency reform and announced the demise of its longstanding currency fix to the dollar in favour of a managed floating exchange rate regime. Essentially, the People's Bank of China (PBC) re-valued the yuan by 2.1% with respect to the dollar (from 8.28 yuan/US$ to 8.11 yuan/US$) and announced that it would tie the new value of the yuan to a basket of currencies. In addition, the value of the yuan will be able to fluctuate within a narrow 0.3% band on a daily basis.

It is still far too early to determine the economic impact of what is believed to be a highly calculated move on the part of Chinese officials. The evolution of the yuan's value will depend on a variety of unknowns, including the severity of the PBC's market intervention over the next several months and the weights that are assigned to each currency in the basket. For example, the yuan could appreciate more quickly vis-à-vis the dollar if the euro plays a substantial role in the basket, but would not if the European currency is assigned a relatively minor role or if its weight is adjusted depending on its behaviour in currency markets. While the yuan could theoretically appreciate steadily as the year progresses and may conceivably gain significant value vis-à-vis the dollar, a PBC spokesman recently emphasised that the new exchange rate system will proceed in a "proactive, controllable and gradual way," three terms which appear to delineate a policy of active intervention designed to achieve predictability and restraint. The spokesman added that the 2.1% appreciation level was based on a "rational equilibrium" and insisted that the yuan's reform will be conducted "step by step."

The political ramifications of China's exchange rate reform are perhaps more important at this point than any economic considerations. In general, China's action should help alleviate some of the anti-China rhetoric on Capitol Hill, at least for the time being. The move was welcomed warmly by the Administration and a broad range of legislators and industry associations, although many insisted that the 2.1% appreciation should be viewed as a first step on the long road towards a fully-fledged floating exchange regime. Treasury Secretary John Snow stated that the decision to adopt a managed float is important for China, the international financial system, and global stability, and vowed to monitor the system as the yuan's exchange rate "moves to alignment with underlying market conditions."

Senator Chuck Schumer (Democrat-New York), who had pushed for the imposition of a punitive 27.5% duty on all Chinese goods unless Beijing took concrete steps to re-value the yuan, noted that China's exchange rate reform is "a good first step, albeit a baby step." Schumer noted that the revaluation was smaller than he had hoped, although he conceded that "a trip of a thousand miles can well begin with the first baby step." The most significant thing about this move, he added, is that "the Chinese in effect have conceded that pegging their currency is bad for China, for the world economy, and for the U.S., and we are glad they have come to that understanding." House Small Business Committee Chairman Don Manzullo (Republican-Illinois) echoed Schumer's comments, stressing that China will need to implement further reforms to allow the yuan to float freely and thus end "the currency manipulation that has given Chinese companies an unfair competitive edge over U.S. manufacturers."

This very sentiment was shared by Senator Elizabeth Dole (Republican-North Carolina) and Representative Phil English (Republican-Pennsylvania), among others. Several Democrats, including House Ways and Means Trade Subcommittee Ranking Member Benjamin Cardin (Maryland) and Rep. Tim Ryan (Ohio), were openly critical of China's decision, calling it "inadequate." For his part, Senate Finance Committee Chairman Charles Grassley (Republican-Iowa) expressed his satisfaction upon hearing the news of the revaluation, although he promised to "closely monitor these developments and continue my efforts to persuade, and pressure if need be, the Chinese government to abide by the international rule of law in trade and economics."

The reaction to the revaluation was also generally positive among major US industry associations. US Chamber of Commerce President and Chief Executive Officer Thomas Donahue stated that "continued movement toward a fully flexible exchange rate will also remove a major barrier to stronger U.S.-China commercial and economic relations," while National Association of Manufacturers (NAM) President John Engler remarked that "China's new currency system offers the possibility for continued upward movement of the yuan in the coming weeks and months, and that is what we will be looking for." The National Retail Federation (NRF) expressed its hope that the revaluation will serve to ease anti-China sentiment in Congress, so that the bi-lateral economic relationship can be driven "less by emotion and move by sensible discourse." NRF Vice President Erik Autor underscored the need for a predictable and stable economic environment and observed that a number of major retailers have limited their orders from China because of the unpredictability brought by textile safeguard actions, punitive legislation, and other initiatives to restrict trade with China.

Tax Credit on Purchase of Domestic Equipment by Foreign Enterprises

The Ministry of Finance and State Administration of Taxation recently issued a circular announcing policies governing corporate income tax credits on purchases of domestically-made equipment and investments by foreign-invested enterprises (FIEs) and foreign enterprises, and tax rebates on the re-investment of profits.

The circular stipulates that according to the Income Tax Law of the People's Republic of China for Foreign-funded Enterprises and Foreign Enterprises, corporate income tax exemption and reduction on purchases of domestic equipment and investments by FIEs and foreign enterprises should be calculated according to the actual corporate income tax and local income tax payable.

Under the circular, when the Chinese investor of an FIE re-invests his profits in the mainland and the FIE has already claimed the permitted income tax credit on the purchase of domestic equipment, the tax rebate on his re-investment will be determined according to the actual tax burden of the enterprise. In other words, the "original applicable corporate income tax rate" and "local income tax rate" will be computed using the following formulas:

Original applicable corporate income tax rate = corporate income tax actually paid by an FIE on after-tax profits in the current year/income tax payable by the FIE in the current year. Original applicable local income tax rate = local income tax actually paid by an FIE on after-tax profits in the current year/income tax payable by the FIE in the current year.

August 10, 2005

Chinese consumers want more American products - UPS Press Release

A public opinion poll of China’s emerging urban middle class found that high-quality personal care toiletries and consumer electronics lead the list of most desired American products.

Apparel and fashion accessories and music and videos are close behind. The items drawing the least interest – American cigarettes and liquor.

“These findings show the urban consumer market in China has a great potential for foreign, and especially American, exporters,” said Fei-Ling Wang, International Affairs professor at the Georgia Institute of Technology. “It confirms there is a sizeable group of urban residents in China with considerable disposable income who are developing brand-name consciousness, becoming savvy consumers and acquiring a taste for foreign goods.”

The survey, sponsored by UPS and conducted by Research International, involved 1,140 Chinese consumers between the ages of 20 and 59 in six cities. UPS commissioned the research to better understand the Chinese marketplace – to help its customers learn which U.S. products are most in demand, and to stay abreast of consumer trends within China as the company develops its service offerings.

“According to the State Department, U.S. exports to China have grown 80 percent since 2001, but this survey shows the Chinese would like even more quality American items,” said Kurt Kuehn, UPS senior vice president, worldwide sales and marketing. “The spending power of this middle class is exploding. Many American companies view China as a threat rather than an opportunity; they run the risk of missing the China potential and being left behind.”

Highlights from the survey on the products most in demand include:

American Toiletries: 53 percent of all respondents would like to see a broader selection of U.S. products, such as shampoo, shower gel and dental care products.

American Consumer Electronics: 53 percent of those polled want a broader selection of American electronics. The most likely purchases this year are digital cameras, laptop computers and video/digital recording devices.

Apparel/Fashion Accessories: 52 percent said they want more American fashion, especially athletic shoes, sandals, t-shirts with American logos, sportswear and blue jeans.

American Books, Music and Videos: 50 percent would like to see a broader product selection of American entertainment. This year’s most likely purchases are American videos/DVDs and music compact discs.

Home Appliances: 45 percent would like to see more U.S. durable products including refrigerators, washers/dryers and microwaves.

There has been much written about the Westernization of young urban Chinese consumers, or “Chuppies,” and the UPS study offers additional insights. For example, consumers under 40 are more interested in America’s books, music and videos; the younger demographic in the 20-to-29-year-old bracket is most attracted by consumer electronics and American apparel and fashion accessories.

When making purchasing decisions, 60 percent of respondents cited quality as the most important purchase decision factor. That was followed by price/value at 18 percent, which was more important to older respondents than to younger ones. The country of origin and manufacturing location both fell far below quality in importance at 4 percent and 3 percent, respectively.

“The survey indicates that Chinese consumers are more selective and more sophisticated than formerly thought, and I believe that American business needs to be ‘smarter’ than it has been,” said Kevin O’Connell, senior partner of the law firm O’Connell and Co. O’Connell divides his time between the firm’s Hong Kong, Washington, D.C., and Annapolis, Md., offices and is involved primarily in foreign direct investment and general business matters in China.

UPS offers a range of services to help U.S. businesses deliver to China, including 18 weekly direct flights between the two nations, and is the first global package delivery company to establish large-scale, wholly-owned operations within China. UPS’s logistics arm, UPS Supply Chain Solutions, already operates more than 40 distribution facilities in China and is planning to open another 20 over the next two years. In July, UPS announced plans to offer domestic express service, initially linking 23 major metropolitan areas, and China announced the selection of UPS as the Official Logistics and Express Delivery Sponsor of the Beijing 2008 Olympic Games.

About the survey:
Conducted by Research International, the survey was a quantitative study of 1,140 Chinese consumers in six Chinese cities: Beijing, Shanghai, Guangzhou, Shenyang, Chengdu and Wuhan. Respondents were all between the ages of 20 and 59 and have high household income levels in China (monthly income of RMB 3,000 or above in Beijing, Shanghai and Guangzhou, and RMB 2,000 or above in Shenyang, Chengdu and Wuhan). The survey was conducted as computer-aided telephone interviews between June 2 and 16, 2005.

August 8, 2005

EU to initiate anti-dumping investigation against Hong Kong's CD-R disks in addition to DVD+/-R discs

On 6 August 2005, the EU initiated an anti-dumping (AD) proceeding against imports of recordable compact disks (CD-R) originating in Hong Kong, the Chinese mainland and Malaysia. On the same date, the EU issued again a notice of initiation of an AD proceeding against imports of recordable digital versatile discs (DVD+/-R) originating in Hong Kong, the Chinese mainland and Taiwan, which is to replace its notice issued on 5 August 20051.

Hong Kong companies which engage in exports of the concerned products to the EU are advised to act quickly and to fully participate in the investigations at earliest stage, as some may be able to apply for lower AD duty rates on individual basis. But failure to cooperate with the EU, including failure to meet the stipulated deadlines of the proceedings, may result in their products being subject to the highest AD duty rates, should the EU decides to impose AD duties on the products at a later date.

Notably, the time limits given in the two notifications are similar to each other. The European Commission will send questionnaires to, among others, sampled exporters/producers in Hong Kong, which must reply to the questionnaires within 37 days from the date of the notification of their inclusion in the sample.

On the other hand, all other interested parties should, within 10 days from 6 August 2005, make themselves known to the Commission and request a questionnaire or other claim forms (e.g. claim for individual treatment) from the Commission. All questionnaire replies must be submitted to the Commission within 40 days from 6 August 2005, unless otherwise specified by the Commission.

All correspondence with the EU must be made in writing (not in electronic format, unless otherwise specified by the Commission) indicating the name, address, e-mail address, telephone and fax, and/or telex numbers of the interested party, and should be sent to the following address :

European Commission
Directorate General for Trade
Directorate B
Office : J-79 5/16
B-1049 Brussels
Fax : (32-2) 295 65 05

August 3, 2005

Shanghai stores develop customer loyalty

Department stores in Shanghai's downtown areas have a customer loyalty factor of 34.9%, much lower than the 95% for community stores, according to a Shanghai Department Store Association survey.

The survey was carried out at 10 large and medium-sized departments stores in Shanghai, including stores in centers at municipal, district and community levels.

The stores are located in Huangpu, Luwan, Changning, Xuhui, Putuo, Baoshan and Pudong.

The survey showed that contrary to stores in municipal-level commercial centers, community stores have a customer loyalty factor of 95.9%.

Wang Liuhe, secretary general of the Association, attributed the difference of perception between community stores and stores in municipal-level commercial centers to the great disparity in the mobility of target consumers.

According to Wang, the positioning of the two is completely different in focus.

Community stores mainly target local residents and their customer base is relatively reliable.

However, community stores are less professional, with most of their stock being low-end mass merchandise.

Stores in city centers are trendier, with fewer mass goods. The stocks are more finely classified and are of medium-to-high grade.

With the rapid growth of community commerce and the completion of various types of large supermarkets and hypermarkets, daily consumer goods and low-to-medium grade durable goods have been diverted away from city centers.

Department stores in Shanghai can be classified in widely different categories.

High-end stores as represented by those at Hang Lung Plaza, while trendy stores are in the category typified by Pacific and Parkson. General merchandise stores are represented by the likes of New World City while theme, community and specialised stores are usually within shopping malls.

US to Further Extend Safeguard Decisions on Six Textile and Clothing Items from China

On 1 August 2005, the US inter-agency Committee for the Implementation of Textile Agreements (CITA) announced its decision to extend until 31 August 2005 the deadlines for making determinations on the pending safeguard decisions on six textile and clothing items from China.

The products affected by this deadline extension are knit fabric (category 222), other synthetic filament fabric (category 620), cotton and man-made fibre brassieres (category 349/649), cotton and man-made fibre robes and dressing gowns (category 350/650), cotton and man-made fibre sweaters (category 345/645/646), and men's and boys' wool trousers (category 447). Hong Kong's re-exports of these six categories originated from the mainland to the US amounted to about US$700 million in 2004, which accounted for 16% of Hong Kong's re-exports of China-origin textiles and clothing to the US.

Additionally, CITA decided to accept for consideration the safeguard petitions submitted by the domestic textile industry on women's and girls' cotton and man-made fibre woven shirts (category 341/641), cotton and man-made fibre skirts (category 342/642), cotton and man-made fibre nightwear (category 351/651), and cotton and man-made fibre swimwear (category 359-s/650-s), as well as the petition to re-apply the safeguard quota on cotton, wool, and man-made fibre socks (category 332/432/632-pt). CITA will publish a Federal Register notice shortly formally announcing its decision to consider these petitions and initiating a 30-day period for interested parties to submit comments. Hong Kong's re-exports of these five categories originated from the mainland to the US amounted to about US$300 million in 2004, which accounted for 7% of Hong Kong's re-exports of China-origin textiles and clothing to the US.

July 26, 2005

China to Further Remove Export Duties on 17 Clothing Items

According to the Ministry of Finance, China will further remove export duties on 17 clothing items starting 1 August 2005. The current duty rates of these 17 items range from RMB 0.2 per piece to RMB 3.0 per piece.

After this adjustment, a total of 51 textile and clothing items are still subject to China's export duty.

List of Clothing Items Free from Export Duties as from 1 August 2005


HS Code

Commodities Description



Woman's or girls' overcoats, etc, of wool, knitted or crocheted



Woman's or girls' overcoats, etc, of cotton, knitted or crocheted



Woman's or girls' overcoats, etc, of man-made fibres, knitted/ crocheted



Dresses of wool or fine animal hair, knitted or crocheted



Dresses of cotton, knitted or crocheted



Dresses of synthetic fibres, knitted or crocheted



Dresses of artificial fibres, knitted or crocheted



Jerseys, pullovers, etc, of wool, knitted or crocheted



Men's or boys' trousers, breeches, etc, of wool or fine animal hair



Dresses of wool or fine animal hair



Dresses of cotton



Dresses of synthetic fibres



Dresses of artificial fibres



Women's or girls' trousers/breeches, etc, of wool/fine animal hair



Women's or girls' blouses, shirts, etc, of wool or fine animal hair



Women's or girls' blouses, shirts, etc, of cotton



Women's or girls' blouses, shirts, etc, of man-made fibres

Shanghai's "freebie" opportunities

Inducements and free promotions seem to be popping up all the time in Shanghai, and no more high profile than the wide range of free ad magazines currently waiting to be picked up. Many publications are professionally produced and have a distinctive style.

To name a few such magazines that have appeared on the city's newsstands: Living in Shang-High, Next Stop, Metro Life Ads, Metrozine, Quo and That's Shanghai. Attractively presented and accentuating original, eye-catching designs, such magazines market trendy items through sometimes sensual and light-hearted stories. While preserving the visual impact of images, they also focus on the persuasive power of engaging content and make use of these to promote fresh ideas for living in a modern metropolis like Shanghai.

This concept of modern life breaks through rather more severe traditional values, while encouraging such items as social and spiritual awareness - seeking to bring greater color and vibrancy to the lives of readers. Inevitably, that impresses youthful subscribers to spend their money in pursuit of such goods as are publicized. For those who regularly visit pubs, restaurants and other trendy entertainment outlets, the ubiquitous Post Kard is a novel concept that is almost impossible to miss. There are many distribution points in Shanghai and these cards are given out at carefully selected hot spots.

A Post Kard is in fact a free information card, a simple but effective medium and cheaper to produce than a leaflet. What makes it so special is that readers have a choice. It would be possible to act on the information on offer on the card - such as buying a cheap product - or the card can be collected into sets and even set on a desk as a small ornament. In Shanghai, another clever idea that is making an appearance is the "free haircut". Obviously, it costs hundreds of yuan to get a haircut at some of the top beauty salons, or over Rmb1,000 (HK$943) if the job is done by a top stylist.

But now a chic hairdressing academy has just been opened at the downtown Xintiandi Plaza, and has already become a hot spot for creativity and fashion. Here, fashion-conscious women who do not mind acting as models can get haircuts and colour treatments free. They don't have to worry about getting freaky or outlandish hair-dos, because all students of the academy are experienced stylists recruited from all over the world.

July 21, 2005

Public Announcement of the People's Bank of China on Reforming the RMB Exchange Rate Regime

With a view to establish and improve the socialist market economic system in China, enable the market to fully play its role in resource allocation as well as to put in place and further strengthen the managed floating exchange rate regime based on market supply and demand, the People's Bank of China, with authorization of the State Council, is hereby making the following announcements regarding reforming the RMB exchange rate regime:

1. Starting from July 21, 2005, China will reform the exchange rate regime by moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. RMB will no longer be pegged to the US dollar and the RMB exchange rate regime will be improved with greater flexibility.

2. The People's Bank of China will announce the closing price of a foreign currency such as the US dollar traded against the RMB in the inter-bank foreign exchange market after the closing of the market on each working day, and will make it the central parity for the trading against the RMB on the following working day.

3. The exchange rate of the US dollar against the RMB will be adjusted to 8.11 yuan per US dollar at the time of 19:00 hours of July 21, 2005. The foreign exchange designated banks may since adjust quotations of foreign currencies to their customers.

4. The daily trading price of the US dollar against the RMB in the inter-bank foreign exchange market will continue to be allowed to float within a band of >0.3 percent around the central parity published by the People's Bank of China, while the trading prices of the non-US dollar currencies against the RMB will be allowed to move within a certain band announced by the People's Bank of China.

The People's Bank of China will make adjustment of the RMB exchange rate band when necessary according to market development as well as the economic and financial situation. The RMB exchange rate will be more flexible based on market condition with reference to a basket of currencies. The People's Bank of China is responsible for maintaining the RMB exchange rate basically stable at an adaptive and equilibrium level, so as to promote the basic equilibrium of the balance of payments and safeguard macroeconomic and financial stability.

July 12, 2005

US Textile Industry Filed 4 New Safeguard Petitions, Made a Refiling and Requested Extension of Sock Quota

On 11 July 2005, a coalition of US textile industry filed four new safeguard petitions with the Committee for the Implementation of Textile Agreements (CITA) covering the following categories: cotton/man-made fibre non-knit shirts (cat. 341/641), cotton/man-made fibre skirts (cat. 342/642), cotton/man-made fibre pajamas and nightwear (cat. 351/651), and cotton/man-made fibre swimwear (cat. 359-S/659-S).

Earlier on 22 June 2005, the group refiled a petition against cotton/man-made fibre curtains and draperies (cat. 369(part)/666(part)) that had been rejected earlier by the CITA.

Separately, on 8 July 2005, another petition group requested an extension of the safeguard quota on imports of cotton, wool and man-made fibre socks (cat. 332/432 and 632(part)), which will expire on 28 October 2005.

CITA will within 15 working days decide whether each of these petitions meets all the necessary specifications for consideration. If CITA accepts the petition, it will publish a notice in the Federal Register initiating the statutorily-required 30-day comment period for interested parties. CITA will then make a final decision on whether or not to invoke safeguard measure within 60 days.

Schumer, Graham Agree to Postpone Vote on Currency Bill; Thomas Working on Compromise China Trade Bill

After reaching a compromise with Treasury Secretary John Snow and Federal Reserve Chairman Alan Greenspan, Senators Chuck Schumer (Democrat-New York) and Lindsey Graham (Republican-South Carolina) agreed on 30 June to postpone until October a vote on a bill that would levy an extra 27.5% duty on all imports from China unless Beijing moves to revalue the yuan. The legislation garnered unexpected support in the Senate earlier this year, prompting Senator Chuck Hagel (Republican-Nebraska), an unyielding opponent of the measure, to admit recently that the bill would be approved by the Senate if a vote were held at the present time. Schumer justified his decision to put off the vote by arguing that the US government is making progress on this matter and needs some additional flexibility to finish the job.

Snow and Greenspan had warned against the imposition of punitive duties on China at a recent Senate Finance Committee hearing on US-China economic relations. Greenspan's insightful and persuasive testimony, reinforced by his unquestioned reputation as an economic savant and long-time steward of the US economy, probably changed a few minds in the Senate. Greenspan sought to dispel a common misconception by arguing that there is no credible evidence that a revaluation of the yuan would significantly increase manufacturing activity or jobs in the US. At most, such a revaluation would likely redirect trade within Asia. The Chairman also contended that a punitive tariff would result in an increase in imports from other low-cost suppliers at the expense of China, but "few, if any, American jobs would be protected." A return to protectionism, in his view, would "threaten the continuation of much of the extraordinary growth in living standards worldwide, but especially in the United States." In a more general sense, Greenspan stated that policy should "aim to bolster the well-being of job losers through retraining and unemployment insurance, not to stave off job loss through counterproductive efforts to impede the process of income-enhancing international trade and globalization." Greenspan did admit, however, that a more flexible yuan would be helpful to China's economic stability, and thus to US and global economic growth.

If anything, Snow's speech confirmed that the Administration has adopted a much firmer tone vis-a-vis China over the past two months. While recognizing some of the efforts made by China to lay the groundwork for change, the Secretary urged Chinese officials to move immediately towards a more flexible exchange rate regime because the current system "poses a risk to China's economy, its trading partners, and global economic growth." Snow once again suggested that "if current trends continue without substantial alteration, China's policies will likely meet the technical requirements of the statute for designation [as a currency manipulator]." In any event, he expressed his strong belief that resorting to isolationist trade policies like the punitive 27.5% tariff would be ineffective, disruptive to markets, and damaging to the US reputation.

The decision to delay consideration of the Schumer/Graham bill was welcomed warmly by several industry groups, including the National Association of Manufacturers (NAM) and the National Retail Federation (NRF). The NAM commended all the parties involved in this compromise "for working in the national interest at a crucial time on the China currency problem." Although NAM favours a revaluation of the yuan, it only intends to support trade policies that are consistent with WTO rules. For its part, the NRF reiterated that if the legislation were to pass, "it would have a devastating impact on the cost of goods and U.S. jobs as well as undermine U.S. relations with China for years to come."

Separately, House Ways and Means Committee Chairman Bill Thomas (Republican-California) is currently working on a broad legislative package designed to address increasing Congressional concerns with China. Thomas recently expressed his belief that the House will take up the legislation before it considers the DR-CAFTA. Although Thomas downplayed the connection, Senate Finance Committee Chairman Charles Grassley (Republican-Iowa) has asserted that much of the opposition to the DR-CAFTA among lawmakers is because they see it as one of the few ways they can express their concerns on other trade issues, particularly those relevant to China. Moving to resolve China-related concerns could sway some House members ahead of what is expected to be a very close vote on the DR-CAFTA.

In addition to improving the odds of DR-CAFTA passage, it is possible that Thomas' legislation is implicitly designed to buy some additional time for the Administration, so that it can achieve further progress on such pressing issues as intellectual property rights (IPR) and the yuan's valuation in currency markets. Although it is far too early to tell, Thomas' efforts could ultimately neutralise or further mitigate the retaliatory appetites of Schumer, Graham, and other members of Congress.

Thomas has not revealed any of the specifics of the China bill he is drafting, saying that he is still evaluating various options. However, press reports mention several provisions that could be included:

(1) Additional funding for enforcement -- This funding would likely be particularly targeted at counterfeiting and piracy in China, which US companies say cost them billions of dollars a year.

(2) Tightening rules on anti-dumping (AD) duty collection -- CBP has failed to collect hundreds of millions of dollars in AD duties on imports from China, primarily food and agricultural products, over the past several years. Many observers say allowing bonds to be posted to cover estimated AD duties is the primary culprit, and that the law should be changed to only allow cash deposits.

(3) Defining currency manipulation -- Lawmakers have sharply criticised the Treasury Department for not naming China a currency manipulator in its semi-annual foreign exchange reports, although Treasury has threatened to do so this fall. Thomas' bill may seek to make it tougher for Treasury to avoid such action by requiring the department to define currency manipulation and establish what actions by a foreign government would fall under that definition.

In related news, four House Republicans introduced legislation (HR 3004) on 21 June that provides for the automatic imposition of additional tariffs on all imported goods from China if the Treasury Department determines that China's exchange rate policy meets the WTO definition of currency manipulation. The Currency Harmonization Initiative through Neutralizing Action (CHINA) Act of 2005 would require Treasury, within 60 days of the bill's enactment, to report to Congress on whether China's exchange rate policy deviates from the intent of General Agreement on Tariffs and Trade (GATT) 1994 or relevant International Monetary Fund (IMF) agreements. If Treasury makes an affirmative determination, it would be required within 30 days of submitting the report to levy additional tariffs at a rate equal to the percentage of manipulation found. These increased tariff rates would be adjusted each year based on Treasury's subsequent reports on China's exchange rate policies.

This bill is unlikely to be considered by the House if Thomas is finally able to garner enough support for his China trade bill.

July 11, 2005

MOFCOM Announces Quantity of Textile Exports to EU Available for Application

The Ministry of Commerce (MOFCOM) has just issued a circular to the local departments of commerce announcing the first allocation of quantity for the export of 10 categories of textiles to the EU available for application in 2005.

According to the circular, the actual export performance of traders will be measured based on the figures under the 10-digit commodity code of the Chinese Customs between 1 June 2004 and 31 May 2005. The circular asks the local commerce department to notify traders as soon as possible to submit their applications for textile exports together with their application reports and summaries of electronic data to MOFCOM before 13 July. MOFCOM will then formally announce the allocation plan.

For details in Chinese regarding the first allocated quantity of textile exports to the EU allowed for application, please visit the website of MOFCOM at:

For details in Chinese regarding the names of issuing organs for the provisional textile export licence, please visit the website of MOFCOM at:

July 4, 2005

FedEx, the United States courier and logistics company, will sign an agreement early next month to make Guangzhou's Baiyun Airport its second Asia-Pacific hub, according to a source close to the negotiations.

Under the agreement, the Guangzhou Baiyun Airport Authority would spend up to 1.5 billion yuan (HK$1.4 billion) to build a warehouse and a cargo runway for FedEx's use.

Provided the deal is approved by the State Council and the General Administration of Civil Aviation, construction of the FedEx hub would start in August next year.

The target date for completion is October 2008.

FedEx would only say it is considering how best to expand its hub operations in Asia and exploring a number of ways to ensure flexibility in future.

Last year, FedEx signed a framework agreement with Guangzhou's new airport with the intention of making it its sole Asia-Pacific hub.

But the company decided to adopt a dual-hub policy after the Philippines made concessions to keep FedEx in the country. Among the privileges granted FedEx were ''seventh freedom'' rights, allowing it to serve foreign destinations out of the Philippines without first passing through the United States. FedEx's agreement to operate a hub at the Subic Bay Freeport Zone was extended until 2010.

The company also signed an option, good until 2008, on land for possible expansion at the former Clark air force base nearby, but the agreement with Baiyun is believed to make the exercise of the option unlikely.

July 1, 2005

US Government urged to stay out of CNOOC bid

That's what corporate America is doing, and that's what some outspoken executives are advising the US Government to do about Chinese oil firm CNOOC's US$18.5 billion bid for California-based Unocal Corp.

Executives say the government should let the market decide whether CNOOC Ltd's offer or a rival bid from Chevron Corp comes out on top for the ninth-largest US oil and gas producer.

A US government panel will likely consider whether national security would be threatened if China gains control of Unocal's oil and gas reserves as well as proprietary drilling technology and mining assets.

General Electric Co, often considered a bellwether for corporate America due to its range of businesses from industry to finance to media, said China stepping out into the world is a natural evolution of the country's growing economic power.

However, GE executives carefully avoided a question at an analyst meeting on Tuesday about whether deals like CNOOC's posed a threat to its business.

A few companies' executives stepped out from the shadows following the CNOOC bid, saying that blocking the deal would send the wrong message after US officials and multinational corporations have encouraged China in recent years to adopt more open policies regarding foreign investment.

"I would be very concerned because I think it's an indication of a government stepping into the free market system, where they generally don't make good long-term decisions," Illinois Tool Works Inc President David Speer said.

Illinois Tool Works, a manufacturer of products ranging from construction tools to industrial plastics, was not alone.

Even an oil industry rival urged the US Government not to get involved. Exxon Mobil Corp Chief Executive Lee Raymond said last week it would be a "big mistake" if the US Congress interfered with the transaction, because it would come back to haunt American companies looking to do business abroad.

"If you start to put inefficiencies in the system (through government involvement), then all of us pay for that," Raymond said.

Officials in China said a review of the CNOOC deal should not be made political.

US concerns about a growing trade surplus with China continue to gain momentum as Chinese companies dip into burgeoning cash reserves to scoop up iconic US brands.

This year, top Chinese computer maker Lenovo Group bought IBM's PC business and China's largest home appliances maker, Haier Group, teamed up with two private equity companies to bid for Maytag Corp earlier this month.

If the United States wants to encourage free global trade, analysts said, it would be hard for the government to block CNOOC's bid, which was richer than a US$16 billion cash and stock offer that Unocal accepted from US rival Chevron Corp.

"For the US... to suddenly jump in and say we don't like this deal for some reason would get a lot of push back in the global community," said Eric Spiegel, who runs the global energy practice for Booz Allen Hamilton.

China is most favored by foreign investors: survey

When it comes to find the best place to lay an investment, China is most likely to be the top choice for most foreign investors, according to a survey released in Paris on Wednesday.

More than half, or 52 percent, of international investors questioned named China as the most attractive country for international investment in 2005. The figure was 37 percent in 2004.

Through the survey, the French offices of auditors Ernst and Young found that China has a better chance than the United States, which scored 39 percent, of becoming foreigners' ideal destination for investment.

India, with 18 percent, and Poland, 17 percent, currently rank as more likely than Germany, 16 percent, and Britain, 13 percent, to receive foreign investment.

In terms of regional choices, China stood third in the list after western Europe, 63 percent, and central and eastern Europe, 55 percent, but before the United States/Canada, which stood at 45 percent.

Investors said they were drawn to central and eastern Europe and China by low labor costs and better competitive and productivity rates.

June 28, 2005

Crystal clear for better sales

Crystal, silicon dioxide by chemical composition, is also known as liquid jade. It symbolizes agglomeration, the quintessence of all things. That is perhaps the secret as to why many shoppers for jewellery in Beijing are turning to this coolest of materials for their new pieces during the hottest months of the year.

Natural crystal is divided into amethyst, citrine, smoky quartz, rose quartz, black quartz, rutilated quartz, brown quartz, asterized topaz, cat's eyes and sand crystal, according to the color and properties of the stone.

For people in Beijing, crystal of different colors has different properties, often based on folklore. Amethyst, for example, represents mystery and wealth; citrine symbolizes fortune; black quartz is the iron fist in a velvet glove; and rose quartz stands for feminine charm. People indeed often buy crystal pieces for what they symbolize.

Natural crystal is also supposed to be good for one's health, according to tradition. With its electromagnetic property, crystal is said to have its effect in regulating the wearer's physiological function and can strengthen his or her immune system, apparently.

Natural crystal items can cost anything between Rmb200 and Rmb40,000 (HK$188.6 and HK$37,700) on the market. The most expensive crystal is the amethyst. However, the color of amethysts is unstable and is liable to fade in high temperatures or prolonged exposure to the sun.

Natural crystals are cheaper than diamonds, which means they are more flexibly deployed in jewellery and are more often used in the upper market costume jewellery market .

The crystal is easy to process and is rich in colors and shapes, going well with all kinds of outfits, occasions and age groups. With the right kind of marketing strategy, natural crystal adornments are fine gifts for summer.

June 26, 2005

US plans clampdown on exports that boost military

The Bush administration plans to clamp down on previously uncontrolled US exports that could be used to boost China's military clout, a top Commerce Department official said.

The Commerce Department will propose a ''catch-all regulation'' in coming months after an inter-agency review group determines its precise scope, said Peter Lichtenbaum, the department's acting undersecretary for industry and security.

The new rule would require a license for previously uncontrolled exports ''that could materially assist the Chinese military,'' Lichtenbaum told a commission set up by Congress to keep tabs on economic and security implications of US-Chinese trade.

June 24, 2005

Greenspan says China currency revamp not to help US manufacturers

US Federal Reserve (Fed) Chairman Alan Greenspan said on Thursday that there is "no credible evidence" US manufacturing activity or US factory jobs would be helped by China revamping its currency system.

In a prepared testimony to the Finance Committee of the US Senate, Greenspan said some people "mistakenly believe" that a marked increase in the value of the Chinese currency relative to the US dollar "would significantly increase manufacturing activity and jobs in the United States." "I am aware of no credible evidence that supports such a conclusion," he said.

Greenspan issued a fresh warning to the US Congress not to turn to protectionist measures to deal with global trade tensions and said that the US soaring trade deficits would not be helped by a change in China's currency system.

"US imports of textiles ... assembled computers, toys and similar products would in part shift from China as the final assembler to other merging-market economies in Asia and perhaps in Latin America, as well," Greenspan said. "Few, if any, American jobs would be protected."

Some US congressmen have proposed to impose a hefty 27.5 percent tariffs on Chinese goods flowing into the United States if China does not move to a more flexible currency system.

Greenspan said such tariffs, if implemented, would lower imports from China but would also raise imports from other "low-cost" sources of supply in other countries.

The US government, supported by some lawmakers in the US Congress and some people in the manufacturing sector, has been pressing China to raise the exchange rate of its currency and believe the it would reduce the US trade deficit between the two countries and create more jobs in the United States.

Blame on China for US textile job losses unfair: US business leader

It is unfair to blame China for job losses in the US textile and apparel industry and the two countries should work together to find a solution, head of a leading US textile importers' association has said.

Chinese products represent only 17 percent of the US textile and apparel market. Therefore, it is unfair to blame China for job losses there, Laura Jones, executive director of the US Association of Importers of Textiles and Apparel (USA-ITA), told Xinhua in a recent interview.

Only an estimated 600,000 to 700,000 workers remain in the US textile and apparel industry, and most work in the textile rather than apparel sector, which has almost disappeared.

Most American importers still view China as the best source for textiles and apparels not only because Chinese products are of low prices, but also of good quality, she said. Generally, American businessmen like to do business with their Chinese partners, she said.

Jones made the comments in reference to the limits the US government threatens to slap on Chinese textile and apparel products. She deplored the measures, warning they could force US importers to reconsider their buying strategy and even postpone some buying schedules until 2008.

Jones suggested that China bring the issue to the World Trade Organization (WTO).

China could be the final winner because Washington has never won in a quota-related dispute with other countries, said Jones.

Meanwhile, she noted the recently concluded agreement between China and the European Union (EU) on textiles and apparels has set an example for China-US trade, although the US government is tougher than the EU.

She was critical of an existing anti-China political sentiment which she said was not from the public, but from Congress, and was overshadowing the Sino-US trade issue. In her opinion, such a sentiment is common as the United States also held a strong anti-Japan sentiment during the 1980s.

The business leader urged China and the US to work together to seek a solution. They shouldn't create an environment in which they see each other as enemies, she said.

June 23, 2005

Utilization of US Safeguard Quotas

In May 2005, the US government invoked safeguard relief by imposing quotas on seven categories of textiles and clothing products from China, including cotton yarn (category 301); cotton knitted shirts and blouses (category 338/339); cotton woven shirts and blouses (category 340/640); cotton trousers (category 347/348); cotton and man-made fibre underwear (category 352/652); man-made fibre shirts and blouses (category 638/639); and man-made fibre trousers (category 647/648). The quota limits will last until 31 December 2005.

According to the latest announcement of the US Customs and Border Protection (CBP), well over 40% of the quotas on cotton knitted shirts and blouses (category 338/339), cotton trousers (category 347/348) and cotton and man-made fibre underwear (category 352/652) have already been filled. Up to 20 June 2005, the quota utilization of these seven types of textile and clothing products from China in the US was as follows:



Quota Limit

% Filled


Cotton yarn

1,450,777 kg



Cotton knitted shirts and blouses

4,704,115 doz



Cotton woven shirts and blouses

2,213,126 doz



Cotton trousers

4,340,638 doz



Cotton and man-made fibre underwear

5,062,892 doz



Man-made fibre shirts and blouses

2,844,383 doz



Man-made fibre trousers

2,660,678 doz


According to US regulations, any merchandise shipped in excess of the applicable quota (i.e., over-shipments) will not be allowed entry until 1 February 2006. On that date, CBP will allow entry to 5% of the base limit. If that amount oversubscribes at re-opening, an additional 5% will be allowed entry each month thereafter until all entries have been cleared.

Exporters are advised to keep track of the utilization of US textile quotas and make necessary arrangements. In this connection, CBP provides updated information through its website: The information is also available in TDC's website ( under "Textile Quota: US Utilization Status".

June 22, 2005

USTR Rejects Another Section 301 Petition on China's Currency Regime

On 27 May, USTR spokesman Richard Mills announced that the USTR has again decided to reject a petition filed by the Congressional China Currency Action Coalition (CCCAC) under Section 301 of the Trade Act of 1974 against China's currency regime. The petition, filed by the CCCAC on 20 April, was essentially the same as the two petitions submitted in September 2004 by labor unions and several members of Congress, which the USTR also declined to pursue.

Despite this rejection, it appears increasingly evident that the Administration has hardened its stance with respect to China's currency regime over the past two months, and now believes that efforts on the part of Chinese officials to expedite a transition to a more flexible system are falling short. Treasury Secretary John Snow recently urged China to move without delay on this matter and warned that "if current trends continue without substantial alteration, China's policies will likely meet the technical requirements of the statute for designation" as a currency manipulator later this year. Mills expressed the Administration's commitment to use "all available tools to ensure a level playing field in international trade, including important trade remedy laws like Section 301," but admitted that a Section 301 action is not "an appropriate or a productive way" to bring about a flexible, market-based exchange rate system in China.

Mills added that the currency issue is not the only issue of concern in the US-Sino economic relationship. Other key issues include IPR enforcement, trade in textiles and apparel, market access for US goods and services, and concerns over various unfair Chinese trading practices.

Wuhan develops taste for success

Wuhan's catering trade grossed close to Rmb13 billion (HK$12.2 billion) in 2004, with the city's catering sector ranking sixth in the country. However, its annual per-capita spending ranks less than 15th in nationwide ratings and the price of dishes are 30% lower than in similar cities.

The low price of restaurant food in Wuhan is a unique phenomenon in central China.

Little Blue Whale Food Plaza opened a new era for the catering trade in Wuhan in 1999, with six of its restaurants making it to the list of China's top 100 restaurants within a matter of years.

Small and medium-sized restaurants are even now opening one after another all over the city.

Hubu Alley and Qiaokou are two of the more famous food streets. These have been joined by dozens of western and hot pot restaurants and Chinese and western fast food shops, which have been springing up since last year.

There are over 28,000 restaurants in Wuhan, averaging one for every 300 people.

Studies show that fierce competition has resulted in 18% of the restaurants having to close down every year. At the same time, many new ones pop up to fill their place.

The proprietors of more than 50% of the new restaurants come from other provinces, with restaurants serving Sichuan, Hunan, Guangdong and other local cuisines competing for business.

Low prices and relatively small profit margins have forced local operations to diversify. For instance, Little Blue Whale is going into commercial catering, Hujin into entertainment catering and Zuijiangyue into resort catering.

Against this background, big restaurants are developing their own styles and smaller restaurants are forming chain operation.

A survey by the Wuhan Catering Association shows that the catering industry employs 300,000 people.

Wuhan catering enterprises have expanded to 12 provinces, municipalities and autonomous regions, opening hundreds of restaurants. The percentage of Wuhan restaurants making it to the list of China's top 100 restaurants is the highest in the country.

Private sector operations dominate the market and the structure of the trade is becoming increasingly rationalized, as weaker operations merge with stronger ones.

The city attracts investments totalling hundreds of millions of yuan from outside sources each year. The sector has been growing at a faster pace than total retail growth, demonstrating its stamina for development into better offerings since 1998.

Rapid growth of the sector, the further opening of the market, the abundance of local produce and the variety and strength of Hubei cuisine give the catering trade tremendous potential for development as an upcoming industry.

According to people in the trade, it is necessary to strengthen business planning and implement brand strategies, as well as draw up trade standards to improve the reputation and quality of extant brands, as well as promote chain operations to achieve brand expansion.

At the same time, experts say more effort should be made by restaurateurs to integrate tourism, commerce and other tertiary industry resources.

June 21, 2005

China Announces Textile Export Interim Control Measures

The Ministry of Commerce (MOFCOM) announced the Interim Measures for the Administration of Textile Exports (Trial Implementation) on 19 June 2005, which will take effect on 20 July.

In accordance with the new measures, MOFCOM will compile a Catalogue of Commodities Subject to Textile Export Interim Control. Commodities under the following categories will be included into the catalogue:

(1) Textile products subject to restrictions imposed against China by the countries or regions concerned.

(2) Textile products subject to temporary quantitative control under bilateral agreements.

The quantity allowed to be exported under provisional export quotas will be based on the export value of the relevant products and will be calculated according to the following formula:

S = T x [a1 x (70% x Q1/M1 + 30% x Q2/M2) + a2 x Q3/M3]

(1) S is the quantity allowed for application;
(2) T is the total volume of provisional export quotas for the whole country;
(3) Q1 is the trader's export value to the country or region imposing the quota after 1 January 2005, Q2 is the trader's global export value to countries/regions other than the country/region imposing the quota (Q1 not equal to 0) after 1 January 2005, and Q3 is the trader's global export value for the period before 1 January 2005 within the time coverage of statistics (time coverage of statistics is 12 months prior to the implementation of export quota);
(4) M1 is the export value of all traders to the country or region imposing the quota after 1 January 2005, M2 is the global export value of all (Q1 not equal to 0) traders to countries/regions other than the country/region imposing the quota after 1 January 2005, and M3 is the global export value of all traders in the country during the time coverage of statistics before 1 January 2005.
(5) a1 is export weight after 1 January 2005 and a2 is export weight before 1 January 2005, with a1 = 0.7 and a2 = 0.3.

For commodities subject to control for over one year, MOFCOM will, starting from the second year, allocate 5% of the total quotas each year to support new traders who have not been granted the amounts they applied for.

One provisional export licence is issued for each batch of goods and each customs declaration and is valid for six months within each calendar year, after which it will no longer be valid. The licence is non-transferable, not for sale and may not be forged or altered.

MOFCOM determines the categories and quantities of commodities open for application by traders on the principle of distribution and will notify the local departments of commerce in written or electronic format within 30 days of the publication of the catalogue. Such information will also be posted on MOFCOM's website. Traders granted an amount for export may submit their application to the local department of commerce within the scope of the categories and quantities specified by MOFCOM.

For details of the new measures, please visit the website of MOFCOM at:

June 19, 2005

EU Likely to Launch Anti-dumping Investigations on Chinese Shoes

Following the demonstration in Brussels by European footwear industries on 15 June 2005, a European Commission spokeswoman said that the Trade Commissioner of the EU has decided to recommend the launching of anti-dumping investigations against certain footwear originating from the Chinese mainland. If approved, investigations would open at the end of June 2005.

The products subject to complaints by the European industries include leather footwear and safety shoes. The complaints coincide with the release of import figures by the European Commission earlier this month that there were substantial increases in imports by almost 700% on average from the mainland for six categories of footwear1 during January-April 2005. But the exact products to be investigated may not be known until latter this month.

Hong Kong's re-exports of mainland-origin footwear to the EU amounted to US$838 million in 2004 (US$382 million during January-April 2005), accounting for 15% (21%) of Hong Kong's re-exports of mainland-origin footwear in the period.

Hong Kong companies which engage in exports of mainland-origin footwear to the EU should monitor the development closely, as the anti-dumping measures, if any, will affect their business directly. Should there be initiation of the anti-dumping investigations by the EU, Hong Kong companies are advised to fully participate in the investigations at earliest stage, as some may be able to apply for a lower or even zero anti-dumping duty rate when compared with other affected companies.

1 The six categories of footwear include textile shoes (HS 640299), leather shoes (HS 640351, 640359, 640391 and 640399) and textile slippers (HS 64041910).June 7, 2005

Provisions on Health Food Regulation Become Effective on 1 July

The Measures on the Administration of Health Food Registration have recently been promulgated and will take effect on 1 July 2005. The new measures are intended to encourage the research and development of new health food.

It is understood that the new legislation includes the following provisions:

Citizens, legal persons and other organisations are allowed to develop health food and apply for their registration in a bid to extensively mobilize social entities to engage in product research and development and technological innovations. Before this, only enterprises or research institutions were allowed to develop health products.

New functions of health food may be developed. Before, only 27 functions of health food were approved, products with functions other than these might not apply for registration, otherwise they would be violating the regulations. This system had been in use for more than 10 years.

New materials may be used. This provision is meant to encourage the research and development of new resources, promote the rational utilisation of existing resources, and minimize the duplication of low grade health food.

Health food produced with technology transfer may be registered. Under the new measures, only the health food certificate will be examined and approved, not the technology transfer involved.

June 5, 2005

Beijing to Stem Exaggerated and Fraudulent Ads

Beijing's industrial and commercial administration and departments of public health, radio and television, press and publication, public security, and communications will join hands to clean up the advertising market in the Chinese capital. In a move to stem unscrupulous advertisements, measures will be taken to crack down on commercial frauds using advertisements to mislead consumers.

At a recent conference on the regulation and clean-up of the advertising market in Beijing, it was disclosed that Beijing will take action targeting the following six types of fraudulent and illegal advertisements this year:

1) Advertisements released in the form of news reports.
2) Advertisements on health supplements, drugs, cosmetics and medical services using consumers, patients or experts to give testimony; especially those using public figures to recommend these products or services or endorse their advantages, characteristics, functions and effects as consumers, patients or experts.
3) Advertisements on health supplements that publicise their therapeutic effects or exaggerate their functions.
4) Advertisements on drugs that exaggerate their functions and guarantee their therapeutic effects.
5) Advertisements on medical services that exaggerate their functions and guarantee their therapeutic effects.
6) Advertisements on cosmetics and beauty services that exaggerate their functions and make false claims.

According to Beijing’s industrial and commercial administration, Beijing has the largest media market in the country but the market has always been plagued by the problem of illegal advertisements. In 2004, the administration took action against 2,056 illegal advertisements and collected over Rmb17 million in fines. Among the illegal advertisements, those on medical services, drugs and health supplements are the most rampant.

Opportunities for Hong Kong in Pan-PRD Tourism Market

Speaking at the first Pan-PRD Regional Cooperation and Development Forum, government leaders of the nine mainland provinces and regions in Pan-PRD pointed out that they are going to give priority to cooperation projects between mainland and Hong Kong tourism industry players by offering Hong Kong companies easier and more preferential market access. This should unleash a host of opportunities for Hong Kong's tourism industry.

The nine Pan-PRD provinces and regions have abundant tourism resources and are home to famous tourist attractions as well as cultural and natural heritage. However, not all of these resources have been utilized in an effective and rational manner due to constraints such as lack of capital, management know-how and talent. As a result, the economic benefits have yet to be fully realised. By comparison, Hong Kong is a world-famous tourist destination. With its experience, know-how and market network, Hong Kong's tourism sector is well placed to facilitate the development of tourism in Pan-PRD on all fronts. Capitalizing on this opportunity, Hong Kong tourism industry players can participate actively in the development of the tourism resources in Pan-PRD, and get a piece of the action in the Pan-PRD tourism market.

Characteristics of Pan-PRD Tourism Market

Generally speaking, the tourism market in Pan-PRD has the following characteristics.

Development level above national average level. Thanks to the abundance of tourism resources, the tourist industry makes up a significant part of the Pan-PRD regional economy. In terms of leading indicators such as total tourism revenue, foreign exchange earnings and number of foreign visitors staying overnight, the nine Pan-PRD provinces and regions account for nearly 40% of the national total. Among these, Guangdong, Hainan and Yunnan are the leading tourist destinations, with Guangdong ranking as the country's top earner of tourism income and foreign exchange receipts for years.

Abundance and complementarity of tourist resources. At present, the nine Pan-PRD provinces and regions are home to 79 national key scenic spots, 92 national nature preservation zones and 293 national cultural relic protection units, accounting for 44%, 40% and 23% of the national total respectively. Among these, 15 national key scenic spots are found in Sichuan, ranking second among all mainland provinces. Hong Kong, Macau, and the nine Pan-PRD provinces and regions complement each other in terms of tourism resources and customer base. While the eastern coastal cities focus on tourism related to city attractions, conventions and exhibitions, and business travel, the western region gives priority to the development of tourism with an ecological, ethnic, historical or cultural touch, and has developed a tourism industry chain combining man-made structures with natural scenery. Hong Kong, on the other hand, places emphasis on its urban attractions. As an international business, aviation and information hub, Hong Kong has extensive experience in tourism management, services and promotion. These advantages of Hong Kong complement those of the Pan-PRD provinces and regions whose strength lies in ecological tourism. Together, the Pan-PRD region becomes a more attractive destination in the international tourism market. Furthermore, as most of the relatively well-off residents in the coastal cities have visited Hong Kong already, the Pan-PRD provinces and regions, in particular those in the western region, represent new sources of visitors for Hong Kong as a result of their rapid economic growth and rising income levels in recent years. Some of the better-off residents are shifting their preferred travel destinations from the mainland to Hong Kong and Macau.

Launch of "9+2" cooperation in tourism. Under the Pan-PRD Regional Cooperation Framework Agreement signed on 3 June 2004, the contracting parties agree to give full support to promoting regional cooperation in tourism and jointly formulating development and marketing strategies, so as to build a strong branding for tourism in the region. In fact, the mechanism for cooperation in tourism among Guangdong, Hong Kong and Macau was first launched in 1988. Today, the three places adopt a coordinated development approach by sharing customer base and industry information, and jointly organising promotional activities. The rich experience accumulated to date forms the foundation for Pan-PRD tourism cooperation. On 16 July 2004, Hong Kong and 14 key mainland tourist cities in Pan-PRD signed a cooperation agreement at the 16th national meeting of tourism bureau chiefs of selected tourist cities. The agreement aims to bring about concerted efforts in building an international tourist belt in Pan-PRD and turning it into the first "barrier-free" tourist zone in China. The measures adopted by the member cities include: opening up the tourism market to one another, allowing the travel agencies in other cities to open branch operations, and encouraging reputable travel agencies in Pan-PRD to launch inter-city operation; joining hands to enforce market order, establishing an inter-regional tourist integrity system, and joining forces to combat unfair competition practices such as "zero tour fee" and "negative tour fee", as well as other unscrupulous practices undermining consumer rights; eliminating low-end overlapping construction projects, enhancing communication and coordination in the process of developing key tourism projects to avoid overlapping construction and vicious competition. Under the agreement, "barrier-free" tourist zones will first be established in the nine mainland provinces and regions in Pan-PRD on a pilot basis before gradually extending to Hong Kong and Macau. So far, Guangdong and Guangxi have already implemented the relevant measures. Under an agreement signed between Guangdong and Guangxi on tourism exchange and cooperation, travel agencies from Guangdong can open branches in Guangxi starting from 1 January 2005. For instance, people from Guangdong who join a tour to Guangxi can now enjoy the full service of the Guangdong travel agency concerned without being "transferred" to a local agency in Guangxi. Thirteen cities in Fujian, Guangdong and Jiangxi have also set up "barrier-free" tourist zones since 1 January 2005 to further open up the tourism market, eliminating tourism barriers gradually and jointly organising promotions to attract more domestic and foreign tourists.

Measures to Promote Pan-PRD Tourism

Following the signing of the Pan-PRD Regional Cooperation Framework Agreement, the various mainland provinces and regions concerned have introduced concrete measures to promote tourism development and step up cooperation among members.

Fujian: To promote tourism as a priority sector for attracting foreign investment, the province has already introduced preferential policies on two occasions and will step up cooperation with tourism industry players from Taiwan. Targeting tourists from Taiwan, Fujian will focus on Fuzhou and Xiamen as the core attractions, supported by tourist spots such as Meizhou Island, Dongshan Island, Pingtan Island, Chongwu Ancient City, Xiapu Sansha and Wuyi Mountain. The strategy is to nurture a tourism brand with a folk culture flavour to appeal to Taiwanese tourists, thereby promoting cultural exchanges between the people of Fujian and Taiwan. Big-budget, up-market tourism investment projects targeting Taiwan will be launched to attract Taiwanese investment to expedite the development of tourist resorts in Xiamen, Wuyi Mountain and Meizhou Island. There are also plans to offer tours to Jinmen and Mazu for Fujian residents.

As Fujian and Taiwan strengthen their cooperation in tourism, the role of Hong Kong as a transit point in cross-strait tourism will gradually diminish. To make up for the loss of transiting Taiwanese tourists, Hong Kong's tourism industry players should consider strengthening cooperation with their counterparts in Fujian on the basis of Pan-PRD regional cooperation. Efforts can be devoted to integrating and packaging the tourism resources of Hong Kong and Fujian, organizing joint promotions targeted at Taiwanese tourists, and attracting these tourists to visit Hong Kong as a side trip.

Guangdong: Action will be taken to encourage domestic and foreign players to invest in tourism projects across the province, develop tourism resources, and promote tourism. The principle of "whoever invests will get reward and protection" will be adopted. Tourism authorities in Guangdong will readjust tour routes in the nine Pan-PRD provinces and regions and organize activities promoting tourism within the region. A total of nearly 100 new tour routes in the Pan-PRD region have been introduced by travel agencies.

Guangxi: Investors of tourism projects are entitled to the same preferential polices offered by the state under the "Go West" strategy as well as others offered by Guangxi in terms of market access, taxation, land use, pricing, business registration, and import related taxes.

Jiangxi: The province aims to develop into the back garden of coastal regions such as Shanghai, Jiangsu, Zhejiang, Fujian and Guangdong. Leisure tours and short and medium haul tours will be the primary positioning of its tourism industry.

Hunan: Continued efforts will be made to promote the three major tourist spots in the province including the natural scenic spot at Zhangjiajie, the red communist base at Shaoshan, and the Tomb of Emperor Yandi. Great emphasis will be placed on developing agricultural sightseeing tours and leisure tours in city suburbs.

Guizhou: The province has proposed to introduce direct financing for tourism projects in selected scenic spots through transfer of operating right, franchising, joint venture and leasing. Tourism projects meeting specific criteria will be granted preferential treatment in land use, taxation, qualifications assessment and project approval. For Guizhou enterprises forming joint venture tourism operations with renowned companies from other provinces and abroad, majority stake is not mandatory provided that it is not expressly prohibited by state policies.

Yunnan: In addition to organizing the annual China Kunming International Tourism Festival, the province introduced a series of measures including preferential tax policies to expedite the development of the tourist industry in August 2004. For instance, newly established tourism enterprises are eligible for corporate income tax reduction or exemption during the first year of operation. Newly established tourism enterprises engaged primarily in e-commerce applications are eligible for corporate income tax reduction or exemption during the first two years of operation.

Hainan: Investment in tourism projects on the tropical island is encouraged. In addition to preferential policies granted under relevant state laws and regulations, and rules of the Hainan Special Economic Zone, tourism projects are also entitled to incentives offered by the various local authorities.

Sichuan: The province has proposed to introduce the development of whole plots of land through leasing and authorized development under centralized, scientific planning. In certain remote parts of the province, transfer of land use right without compensation for development purpose for specified periods has also been proposed. Multiple channels and multiple formats will be used for raising funds for developing tourism resources.

Entry Options for Hong Kong Players

Prior to CEPA, the participation of Hong Kong tourism industry players in the mainland market had been limited to the organisation of mainland-bound package tours. The signing of CEPA has offered a broader scope of cooperation in the tourism sector to Hong Kong players, who can now participate directly in Pan-PRD tourist projects. For instance, Hong Kong travel agencies can form minority-owned joint ventures with their mainland counterparts which can operate across the country without any geographic restriction. Hong Kong companies can also establish wholly-owned operations to engage in the construction, renovation and operation of hotels, apartments and restaurants in the mainland. Furthermore, Hong Kong companies are allowed to set up wholly-owned engineering consulting companies in the mainland to provide architectural design services, engineering services, town planning and landscape design services. As a world-famous tourist destination, Hong Kong is well placed to facilitate the development of tourism in Pan-PRD thanks to its extensive experience, know-how and market network.

Hong Kong industry players can participate in the development of the Pan-PRD tourist industry in the following ways.

Tourism infrastructure projects. Despite the wealth of natural resources at many scenic spots, infrastructure facilities in the Pan-PRD provinces and regions are inadequate in many respects. Infrastructure facilities such as electricity supply, water supply and drainage, and sewage and garbage treatment can hardly cope with the increase in tourist numbers. The level of service offered by hotels at tourist spots fails to satisfy the needs of tourists. This has diluted the attractiveness of these tourist spots to tourists. For instance, some of the famous natural scenic spots with a long history have suffered due to inadequate provision of tourist facilities. As for some of the newly constructed tourist spots, the lack of coordination with neighboring cities that tend to lag behind by comparison in development has somehow dampened their overall appeal to tourists. For example, the Huangguoshu Falls, the leading tourist attraction of Guizhou, is located in Anshun city which only has a dozen two- to three-star hotels. The hotels are always fully booked for meetings and by individual visitors leaving hardly any capacity to accommodate tour groups.

Hong Kong can leverage on its financial and technical strengths in the infrastructure sector to break into the Pan-PRD tourism market. Priority can be given to the planning and development of the following tourism-related projects: scenic spots, tourist resorts, nature preservation zones, theme parks, forest parks, geology parks, amusement parks and botanical gardens. Hong Kong companies with expertise in constructing tourist infrastructure facilities can provide world-class entertainment facilities and participate in hotel project design, management and equipment supply. Equipment vendors and infrastructure developers can jointly set up project teams to participate in the development and construction of tourism projects and staff training.

Hong Kong companies can also capitalize on their edge in fund raising to enter the market by using the BOT (build-operate-transfer) model. They can help meet the financing needs of the Pan-PRD tourism market by offering financing solutions and channels.

For companies wishing to break into the Pan-PRD tourism market by way of participation in operation, they can collaborate with their mainland or Hong Kong counterparts to develop tour routes for newly completed projects. They can make use of Hong Kong's advantage as an international tourist city and its marketing strengths to organize activities promoting new tourist attractions, such as staging roadshows in overseas markets.

Participation in restructuring tourism enterprises. Travel agencies in the mainland are mostly relatively small in scale and weak in financial strength, with their assets mainly concentrated in tangible property such as hotels. Most of them experience cash flow problems and are heavily in debt and weak in risk management. As the mainland tourism market opens up further, many provinces are encouraging private and foreign companies to participate in the restructuring of state-owned tourism enterprises by M&A and share acquisition. Hong Kong companies can capitalize on this opportunity to acquire the operating right of Pan-PRD tourism enterprises through various means such as M&A, share transfer, acquisition and majority shareholding. They can also help qualified mainland tourism enterprises to seek listing in order to raise funds.

Provision of training and consulting services. Compared to Hong Kong, tourism training in the Pan-PRD provinces and regions is lagging behind. As Hong Kong companies have a wealth of experience in this area, they can step up exchange and cooperation with their mainland counterparts at various levels. The personnel qualification certification and industry administration systems in both places can be merged to improve overall industry service standard.

As China gradually opens up its out-bound tourism market, the number of Chinese tourists visiting various parts of the world has been increasing every year. However, there are not enough qualified local tour guides to meet growing market demand. Hong Kong can participate in out-bound tourism projects by providing qualified tour guides. This would create a win-win situation for both Hong Kong and mainland industry players.

The development status of tourism consulting services varies tremendously among the nine Pan-PRD provinces and regions. For instance, Guangdong had an early start because of Hong Kong's participation and is now the leading province in the provision of tourism consulting service in the mainland. Under CEPA, Hong Kong has even easier access to the mainland market. Hong Kong companies will find enormous opportunities as agents, market research and consulting service providers in Pan-PRD.

Benefiting from individual travel scheme. Since 28 July 2003, residents in Guangdong, Beijing, Shanghai, the urban areas of Fuzhou, Xiamen, Quanzhou, and selected cities in Jiangsu and Zhejiang have been allowed to visit Hong Kong and Macau as individual travellers. In 2004, the individual travel scheme generated an estimated HK$30 billion in tourism revenue for Hong Kong. According to the National Tourism Administration, liberalization of the scheme in the Pan-PRD region will be expedited. The several "golden week" holidays in the mainland, coupled with the opening of the Hong Kong Disneyland in September, will give further impetus to the scheme and bring even more economic benefits to Hong Kong's tourism and related sectors. Efforts should be made by Hong Kong's tourism sector to streamline procedures for mainlanders to visit the SAR. Meanwhile, it can coordinate with related sectors to further improve the quality of tourist service and shopping environment in order to attract even more mainland tourists to visit and shop in Hong Kong.

June 3, 2005

ADB: RMB revaluation would have little impact on US trade deficit

An Asian Development Bank (ADB) research paper published on Thursday said a revaluation of the renminbi of China would have little impact on US trade deficit. ADB made the statement on the basis of a research paper done by ADB economist Cyn-Young Park, "Coping with Global Imbalances and Asian Currencies."

The paper is part of the Policy Brief Series produced by ADB's Economics and Research Department, designed to provide concise non-technical accounts of major policy issues.

Macroeconomic simulations conducted by Park show that a projected 10 percent revaluation of the renminbi would only improve the US trade balance by 3.6 billion US dollars, a mere 0.02 percent change in the current account as a percent of gross domestic product (GDP).

Even with a 20 percent revaluation, the situation changes little, contributing only to a 0.05 percent reduction in the current account deficit, she said.

Park argues that despite China's significant trade surplus with the US, imports from China account for a relatively small share of total US imports, and exports to China constitute an even smaller share of total US exports.

Also, for the US trade balance, reduced imports from China would likely be offset by increased imports from other Asian countries, she said.

Moreover, the negative income effect of a revaluation on the Chinese currency would curb its import demand, thus making it unlikely that US exports dramatically increase following a renminbi revaluation, said the paper.

May 31, 2005

Father of Euro urges China to keep its currency exchange rate stable

Nobel Prize Laureate Robert A. Mundell, also known as the father of the Euro, reaffirmed on Monday his position that China should maintain its currency exchange policy despite pressure from Western countries for China to appreciate the yuan. Maintaining China's currency stable is important not only to China, but also to other parts of the world, Professor Mundell told the Nobel Laureates Beijing Forum 2005.

The three-day forum, which concludes Wednesday, drew the participation of Edward Prescott, John F. Nash, Robert W. Fogel, James A. Mirrlees, Vermon L. Smith and Clive W. J. Granger, and other noted overseas economists. A possible move to appreciate or float the Chinese currency would bring disastrous consequences to China, including delaying the convertibility of the Chinese currency, or the Chinese yuan, cutting down on the inflow of foreign direct investment, slowing down its economic growth, worsening unemployment and the fiscal situation, and destabilizing Southeast Asian countries, said Mundell.

It would also affect China's capability of honoring the commitment it made upon its entry into the World Trade Organization and be bad for Hong Kong, he said. He said China possesses increasing comparative advantages in the manufacturing sector, which require the redistribution of world production, resulting in what he described as China's competitive shock to the world economy.

"It is not a monetary issue and cannot be addressed by monetary measures," he said.

He said the claim made by a Japanese deputy finance minister three years ago that China exports deflation to the world is groundless. He quoted Alan Greenspan, chairman of the US Federal Reserve, as saying earlier this month that the reevaluation of Chinese currency will not improve the US trade deficit.

Mundell also said it did not go along with the usual practice of the International Monetary Fund (IMF) to apply pressure to appreciate a currency, as the yuan is currently not convertible. "Never before, in the whole history of the IMF, has a country with inconvertible currency appreciated its currency," he said.

Mundell, who was awarded the Nobel Prize in economics in 1999, said a fixed Chinese currency exchange rate in the past decade brought China rapid economic growth and stable price levels. He dismissed the claim that his position on the Chinese currency rate has been influenced by his love of China. He has been given a permanent residence permit in Beijing.

Mundell said he has advocated a fixed exchange rate for the Chinese currency against the US dollar since 1994 as long as the US dollar is stable, although the appreciation of the US dollar in 1997 caused deflation in China. He lashed out at the bid by some countries to pressure China on its currency exchange issue, saying some Asian and European countries had called on China to devalue its currency after the Asian Financial Crisis in late 1990s, which China rejected. Subsequently, facts proved it right.

On measures needed to maintain a stable currency, he urged China to cut down its huge foreign exchange reserve, which has exceeded 600 billion US dollars, by encouraging Chinese firms to invest abroad and gradually raising the wages of its workers.

China should also explain its monetary policies to the international community, he said.

The issue of the Chinese currency exchange rate has attracted worldwide attention recently as some countries, including the United States and members of the European Union, have been claiming that the yuan is too low, giving Chinese exporters a trade advantage. Last week, the People's Bank of China, or the central bank, reiterated in a report that China will keep its currency " basically stable at a rational equilibrium" while improving the regime that determines the yuan's exchange rate. The report acknowledged that China's monetary policy is being challenged severely by the trade surplus and rapid growth of foreign currency reserves in the first quarter of the year.

As China still implements foreign exchange controls, a trade surplus will usually lead to the amassment of official foreign currency reserves, which added as much as 49.4 billion US dollars in the first three months, bringing the total to 659.1 billion dollars. The central bank report promised to further deepen the reform on foreign exchange management and promote the balance of international payments.

The central bank already put forward a series of policies aiming to facilitate the use of foreign currencies by domestic enterprises and individuals in the past year.

May 25, 2005

Pre-emptive Filing of Patented Product and Technology

The development of new- and hi-tech enterprises is invariably tied to the protection of their technologies. Currently, some foreign companies are keeping a close eye on their mainland counterparts and take advantage by applying for patents similar to the latter's in and outside China. However, some patent holders and departments concerned are often left helpless due to shortage of funds and insufficient attention given to the issue.

A case in point is Guangzhou Gaoqi Environmental Protection Technology Corporation. The company applied for patenting its precision electronics product -- a charged cleansing agent -- in 2001, and was granted the patent by the relevant state department in a public announcement issued on 14 May 2003. However, just on the 15th of the same month, a US mechanical engineering company applied to China for patenting its "non-inflammable three-way cleansing solvent", which is basically similar to Gaoqi's product in technological make-up.

This US company has also applied for many other patents in China, all bearing technological resemblance to the inventions of Chinese companies. In cases where its application in China fails, it can still apply overseas. Such pre-emptive patent applications overseas is no doubt jeopardizing the development of the industry concerned in China. Relevant departments should pay attention to these new problems that come up in the course of IPR protection.

Liu Lijin of Guangzhou Zhongyu Jiye Down Feather Textile Products Co Ltd, a company that holds more than 20 patents, also expressed concern about the IPR protection of new and high technologies. In his opinion, China should speed up the processing of IPR applications. At present, it takes two to six years to approve the patent application of an invention. The long waiting period not only creates loopholes but also provides enough time for the information related to the invention to be leaked out.

Beijing to Subsidize Overseas Returnees

Beijing will subsidize on pilot basis senior graduates returning from abroad to work in the mainland. Those who are especially preeminent will receive a subsidy of Rmb600,000 from the government.

According to the Beijing municipal personnel bureau, the pilot exercise aims at subsidising senior experts or management personnel needed urgently by the city's key industries, such as information science, bio science, new materials, new energy and modern manufacturing. Key targets for subsidy are scientific research institutes and colleges in the capital city. Relevant units should submit a list of nominees together with their relevant information to the Beijing municipal personnel bureau before 22 April 2005. The bureau will then draw up a short list for submission to the Ministry of Personnel. Upon the ministry's approval, each nominee will be granted a subsidy of Rmb600,000, to be contributed equally by the ministry and a special fund set up by Beijing.

Meanwhile, another programme aimed at subsidising selected scientific and technological undertakings of overseas returnees has also kicked off. People aged below 45 who have studied abroad for more than one year and have returned to work in Beijing are eligible to apply for the subsidy, provided that they have obtained a master's degree or above or are holding middle-to-high professional technical positions, and independently conduct research and development in the declared projects which fall under the advanced category.

To qualify for subsidy, a senior overseas returnee must be aged below 50, possess Chinese nationality, obtain his doctoral degree overseas, and have more than two years' working experience with foreign multinationals, international organisations, famous colleges or scientific research institutes in engineering technology, teaching, scientific research or management, in addition to assuming the office of senior company management or possessing a professional title equivalent to assistant professor or above. Those who have only returned from abroad for one year and can stay in Beijing for work for more than nine months a year are also eligible.

Children's Food Safety Credit System to Start in 2006

China will launch a children's food safety credit system beginning April 2006. By that time, consumers purchasing children's food can access the manufacturer's production and sales records simply by keying in its name into a database. They can then understand what they are buying through the company's credit index in the database. Meanwhile, the State Food and Drug Administration (SFDA) will also launch a food safety credit project on pilot basis on the meat and grains industries.

According to Wang Baiqin, secretary general of China Children's Food Society, there are only 66 approved baby milk powder production enterprises in China currently, compared to 1,500 dairy product companies eyeing the baby milk powder market. This has resulted in great unevenness in the product quality and lack of standardisation in the production management of some domestic companies.

In April 2004, SFDA piloted a children's food safety credit system, targeting in particular companies that produce dairy powder and rice powder for babies and infants. Wyeth and Yili are among the 20 milk powder production enterprises included in the first batch of the pilot. Two years after launching the pilot, the children's food safety credit system will officially be inaugurated in April 2006.

It is understood that under the pilot scheme, a production and operation database will be built to keep record of the companies' entire production process from raw materials to sales. Consumers may consult the "enterprise credit database" when selecting products. In case events such as the Fuyang inferior milk powder incident happen again, the problem can be traced back to the source and the cause identified.

The children's food enterprise safety credit database, currently under compilation, will be transparent to the public. Depending on the situation, a "red list" and a "black list" may be compiled to provide reference to consumers for their food purchases. The pilot scheme is open to voluntary application by children's food enterprises. Those that have passed the examination of China Children's Food Society and have no improper records may serve as pilots.

Call for Opinions on Draft Software Procurement Measures

The Measures on Government Procurement of Software which have long been a hot topic are due to come out soon. Draft implementation measures mapping out the country's software procurement and other related matters have recently been posted on the Ministry of Finance's government procurement website to solicit public opinion.

Under the new measures, "domestic software products" refer to those products produced in China with their copyright belonging to natural persons, legal persons or other organisations within the Chinese mainland and having at least 50% of their development costs incurred in China. Meanwhile, "domestic software services" refer to those services on computer information system integration and engineering supervision as well as other related professional technical services provided by natural persons, legal persons or other organisations within the Chinese mainland with services provided by foreign parties accounting for no more than 30% of the project amount.

According to Ni Guangnan of the Chinese Academy of Engineering, the biggest problem of the draft measures lies in its classification of software into three categories, namely domestic, non-domestic and preferred non-domestic. While the first two have already been prescribed by the Government Procurement Law, the last one is new and lacking in legal basis and is not in line with the principle of "giving priority to domestic software and services" in government procurement. Moreover, the definition of "preferred non-domestic software" in the new rule favours multinationals at the expense of small and medium-sized companies.

A domestic software company reckons that the new rule has not truly adopted the opinions of the industry and experts as it offers no real support to domestic software products but, on the contrary, justifies and legalises government procurement of foreign products.

Shanghai to Build Largest Petroleum Storage in China

The China National Petroleum Corp will team up with Shanghai to build the largest petroleum storage facility in China. The planned Yangshan port petroleum storage base is situated at the Yangtze estuary to the south of Shanghai and forms part of Shanghai's Yangshan port and terminal development project. It will have a total storage capacity of 1 million m3 when completed. Construction is due to commence in the middle of this year and is scheduled for completion in 2007. The first phase will have a storage capacity of 400,000 m3. The Yangshan port petroleum storage base is a 100% commercial operation and will mainly be used for the storage of fuel rather than crude oil. It can be expected that sources of the fuel to be stored will be diversified.

According to Hong Kong-based Titan Petrochemicals Group, one of the companies that initiated the project, the Yangshan International Oil Storage Co Ltd jointly formed by six companies will handle the investment and operation of the Yangshan petroleum storage base. The six companies are: Shanghai Sheng Gang Energy Sources Investment Co Ltd, Titan Petrochemicals, China Petroleum and Natural Gas Co Ltd, Zhejiang Haixin Petroleum Co Ltd, Shanghai PetroChina-Tong Sheng Co Ltd and an undisclosed independent party. The joint venture has a registered capital of US$19.35 million and total investment in the project will amount to US$48.37 million (nearly Rmb400 million).

Hangzhou Encourages Optimal Land Usage by Enterprises

Hangzhou has recently published a set of opinions on actively encouraging the liquidisation of land stock and promoting intensive land usage for trial implementation in a bid to promote the intensive use of land and encourage optimal land usage.

The opinions encourage enterprises to raise the level of intensive land usage by raising the floor-area ratio and building heights. Enterprises that fulfill optimal land usage requirements are eligible for the following concessions:

For industrial land plots already assigned or allocated that are put to optimal use before 31 December 2007 for new construction, reconstruction or extension projects with government approval, no additional land assignment fee will be required for additional construction area if their investment, floor-area ratio and other indicators comply with the relevant provincial or city regulations.

For lawfully obtained commercial land plots that have been given the go-ahead to increase their construction area (or raise the floor-area ratio), additional land assignment fee for the additional construction area in excess of the area stipulated in the Land Assignment Deed will be calculated according to the original evaluation price or market price if the approval is given within one year after the signing of the deed. If the approval is given more than one year after the signing of the deed, the land price will have to be re-evaluated and additional land assignment fee will have to be paid according to the re-evaluated price.

May 22, 2005

Stronger yuan is no answer for Greenspan - Revaluation could mean higher prices, dearer credit in America

Fed chief Alan Greenspan has spelled out what a revaluation of the yuan will mean for Americans: higher prices and no dent in the huge United States trade gap.
Answering questions after addressing the Economic Club of New York, Mr Greenspan said there was little doubt the Chinese government would let the yuan appreciate against the dollar since it was also under internal pressure to do so.

US manufacturers and lawmakers say Beijing's policy of pegging the value of the yuan at about 8.28 to the dollar has let it unfairly pile up trade surpluses by flooding US markets with cheap goods.

But Mr Greenspan poured cold water on the idea that a revaluation would shrink the record trade deficit. Instead, it will mean that suppliers will turn to other countries such as Malaysia or Thailand for cheap textiles and other goods that China now supplies, he said.

"So essentially what we will find is we are importing from a different area, but we'll be importing the same goods," Mr Greenspan said. "The effect will be a rise in domestic prices in the United States and, as a consequence of that, we will have other impacts."

Private-sector analysts have suggested that one possible impact is higher US interest rates if, as a result of a yuan revaluation, China buys fewer US Treasury securities than it now must do in order to keep the yuan pegged to the dollar.

The US Treasury, facing intense congressional pressure, last week told China that if it does not revalue within months it will be branded a manipulative trade partner - effectively threatening Beijing with retaliation. US lawmakers already want to impose hefty tariffs on Chinese imports.

Mr Greenspan acknowledged that China needed to amend its exchange-rate policies for its own good. However, in order to maintain the peg without sparking inflation, China must "sterilise" the large amount of reserves it amasses in the process of buying US dollars and issuing yuan-denominated debt.

"The trouble with the sterilisation issue is that they're only able to sterilise about half of what they are accumulating," Mr Greenspan said. This, he added, had the effect of leaving its financial system awash in cash that could fuel inflation.

The topic of Mr Greenspan's speech to the heavyweight Economic Club on Friday ostensibly was energy policy, but not a single question after his address dealt with energy. The Wall Street luminaries who led the questioning zeroed in on their preferred issues instead.

The US government on Friday took note of China's decision to raise export tariffs on 74 categories of textile products in a bid to soothe their trade row.
But a Commerce Department official said Washington would only comment definitively once it had studied the list of Chinese products facing higher tariffs from June 1.

In the meantime, the US Commerce Department is seeking consultations with China by the end of the month to review seven categories of Chinese textiles on which the US is slapping quotas.

If no deal is reached within 90 days after the consultations are requested, the quotas will be extended to the end of the year.

May 12, 2005

Wall Street Journal: RMB not undervalued

The US Wall Street Journal published an article Monday pointing out that RMB's exchange rate against the US dollar has not been undervalued and the America's trade deficit would not be reduced because of the adjustment of RMB exchange rate.

The article says that in the 1980s and early 1990s America blamed its increasing trade deficit on Japan and went out of its way to punish Japan. America said either Japan appreciated the yen or it would face sanction. Japan caved in eventually. However, America's trade deficit and Japan's trade surplus continued to grow. Meanwhile it created a monster in Japan - deflation and economic depression. Now America's trade deficit almost doubled over the last five years. This time China became the "defendant". To deal with China Washington again picked up the trick it used to criticize Japan, which has been shelved for years.

Whether or not China has manipulated the exchange rate is impossible to tell, said the article, because "manipulating currency" is not a workable concept for economic analysts. The US Treasury Department admitted this in March in a report attempting to clarify the legal definition of "manipulating currency". The article also believes that the RMB's exchange rate against the US dollar has not been undervalued. A recent IMF report also says it is hard to find convincing evidence that the RMB has been considerably undervalued.

The article says even if the RMB exchange rate were adjusted America's trade deficit would not thereby be reduced. America's import from overseas will only shift to other countries. If the RMB is forced to appreciate a direct result would probably be economic depression and deflation, which might constitute a threat to China even bigger than trade sanctions. If the RMB appreciate 25 percent then the deflation rate might at least be 15 percent.

It says to require the RMB to appreciate will infringe on China's sovereignty. According to the IMF agreement member states can freely choose their exchange rate system.

It points out that now it is time for America to stop making hasty conclusion under false assumption. To oppose a country with the most population in the world and to do so by illegitimate means is not only unwise but also dangerous.

May 11, 2005

US 'playing with fire' on yuan drive

Restive members of the US Congress are demanding China revalue the yuan or face trade sanctions. And Bush administration officials are joining the chorus, led by Treasury Secretary John Snow's insistence "the time has come'' for the mainland to move.

Some analysts said they should be careful what they wish for.

While a rise in the yuan may lead to an increase in the exports of some US-made products, it may also lead to higher interest rates, leaner stock portfolios, more expensive shopping trips, weaker hiring prospects and lower profits at companies such as General Motors, Wal-Mart Stores, Dell and Coca-Cola.

``Politicians are playing with fire,'' said Ronald McKinnon, an economics professor at Stanford University in California.

Nouriel Roubini, a former adviser to treasury secretary Robert Rubin, said the United States' reliance on China to plug record US budget deficits means lawmakers risk ``biting that hand that feeds'' the economy.

China has pegged the yuan at 8.3 to the dollar since 1995, buying and selling it to maintain that level. That means as the dollar dropped 14 percent against other currencies over the past three years, the yuan depreciated by the same amount. Deputy finance minister Li Yong said last week the government is ``working very hard'' to revise its exchange-rate system but no decision has been made on the format or timing of the revision. Roubini and other economists such as Nobel laureate Paul Samuelson said the peg gives mainland-made goods an unfair advantage that has led to distortions in global trade. Yet they warn a revaluation will also sting the US$11 trillion (HK$85.8 trillion) US economy, which for two years has experienced strong economic growth thanks to low interest rates and solid consumer spending.

US companies may find the costs of mainland-made clothes or components rising if the yuan appreciates. China ``offers Americans access to high-quality, low-cost goods,'' said Morgan Stanley chief economist Stephen Roach. Since the United States is going to have a trade deficit anyway, ``it makes eminent sense to trade most aggressively with the world's low-cost producer,'' he said. Inflation may accelerate if import costs rise, and that may lead to an increase in interest rates. The cost of mainland-made goods imported into the United States fell 0.6 percent in the year through March, according to the US Labor Department.

Borrowing costs may also rise if China cuts purchases of US Treasury securities that it buys to cap the yuan's value, bond traders said. Mainland holdings of US government securities rose 27 percent in a year, to a record US$196.5 billion in February. Both Federal Reserve chairman Alan Greenspan and economists at Goldman Sachs recently estimated that foreign purchases of Treasuries are keeping market rates as much as 50 basis points below where they otherwise would be. ``China's consumption of Treasuries means yields are lower than they otherwise would be,'' said Mohamed El-Erian, fund manager at Pacific Investment Management in Newport Beach, California. ``That's been good for the US consumer and also good for companies producing those goods who have been able to avoid a downturn.''

Low yields help restrain mortgage and other borrowing rates, which are set in relation to US government securities. US companies which have taken advantage of the yuan peg to invest in China may find it more expensive to do business there. That might pare their profits and ability to invest at home and hire more workers.

``If the yuan goes up in value, that will eat into the Chinese-generated profits of US companies,'' said Gary Hufbauer, a former US Treasury economist and now a senior fellow at the Institute for International Economics in Washington. To critics, the yuan peg helped produce a record US$665.9 billion US current account deficit last year and encouraged US companies to relocate production to the mainland, contributing to the loss of 1.3 million manufacturing jobs over the past three years.

``China's currency is undervalued and has such a significant impact on trading partners it needs to be adjusted,'' South Carolina Republican Senator Lindsey Graham said. He has proposed legislation that will impose duties on mainland imports if the peg is not changed. While Samuelson and Roubini agree a revaluation is necessary, they said that how and when is important.

Roubini said if China acts before the United States begins narrowing its US$412 billion budget deficit, yields on the benchmark 10-year Treasury note may surge 200 basis points. Samuelson, who won the Nobel Prize for economics in 1970, said the dollar may also suffer a ``run on it.'' And for the risk, the rewards to the overall US economy of a more flexible yuan may be minimal.

A January study by Stephen King, head of global economic research at HSBC Holdings in London, concludes even a 25 percent revaluation ``would scarcely make any difference'' because China accounts for less than 10 percent of total US trade.

The US Commerce Department said in a confidential report to Congress this year a revalued yuan will be more of a boon to other Asian nations than to the United States. Robert Mundell, winner of the 1999 Nobel Prize for economics, agrees that a yuan shift ``is not going to solve the US current-account deficit.'' Given the size of China's trade with the United States, ``it's just going to be a drop in the bucket,'' he said.

May 5, 2005

Hotel on 21 June to promote Olympics tourism.

At the presentation, the bureau will announce publicity activities of the Olympics Tourism Year as well as new tourism products, new routes and major activities in different districts and counties. The Beijing Olympics Organising Committee will announce publicity activities related to the Olympics while Beijing's development and reform committee will introduce major tourism projects and host district/county tourism project promotions and fairs.

In accordance with the Master Plan for the Beijing 2008 Olympics Culture Festival, the Beijing Olympics Organising Committee will host an Olympics Culture Festival between the end of June and mid-July each year from 2005 through 2008. The festival will be planned and designed as an integrated whole. Major activities will include the opening of an Olympics culture square, theatrical performances, exhibitions and forums, publication of literary works, movie and TV shows, mass sports activities, creative writing on the theme of the Olympics Games and international youth exchanges.

Announcements and negotiations on major tourism projects will cover the following: announcement on the importation of senior advisers for the management of historical tourist attractions; announcement and negotiations on joint venture projects and intent for cooperation in non-historical tourist attractions; briefings on the present state of supply and demand of accommodation in Beijing and supply and demand trends in 2008; invitation for foreign management in budget hotels and guest houses; announcement and negotiations on intent to form joint-venture travel agencies; invitation for bids for the building of a service centre for individual travellers; announcement on cooperative projects on city tour buses; announcement on the building of a distribution centre for individual travellers; and announcement and negotiations on investments in key district or county level tourist spots.

Minor Food Group goes major

Thailand's Minor Food Group has set an ambitious goal - to open at least 300 outlets in the Asian region over five years, many in China. The company's The Pizza Company branded unit is aiming to create leading regional recognition for its pizza retail, with revenues representing about 50% of total turnover inside five years, according to vice president Scott Wilson.

Minor Food Group set up a restaurant joint venture with AIG Insurance in China earlier this year called Le Jazz, which in turn operates the only The Pizza Company outlet in Beijing. Le Jazz plans to open another six joint venture outlets in the Chinese capital this year, with a further franchise operation in Chengdu.

Those will be joined in China by 70 other outlets over five years, says Wilson, with half wholly owned by Minor Food Group.

The company is also looking at setting up pizza outlets within a six-to-eight hour plane flight from Thailand, including in India and Russia, as well as setting new targets in southern Mediterranean countries such as Cyprus, Turkey and the Lebanon. In Thailand, The Pizza Company has 134 outlets, with a further 25 due to open this year, either wholly owned or under franchise.

The Minor Food Group, founded in 1981, operated the first Pizza Hut franchise restaurant in Thailand and in 1986 became the exclusive franchisee for Swensen's ice cream parlors. Ten years later it re-introduced Dairy Queen outlets to Thailand. After its franchise agreement with Pizza Hut broke down in 2000, the company launched its own pizza concept, resulting in the establishment of The Pizza Company brand.

April 27, 2005

MOFCOM Announces New Export Brand Strategy

According to Lu Jianhua, director of the department of foreign trade under the Ministry of Commerce (MOFCOM), MOFCOM has abolished the "lifelong system" in its export brand promotion strategy. In the list of key export brands to be fostered and developed in 2005 to 2006 announced earlier, the validity of the list is two years, to be adjusted upon expiry.

As pointed out by Lu, the current list has three characteristics. First, it covers a wider industry spectrum. While the export brands in the previous four lists were mainly from nine industries, this time the brands cover all major industries, effectively removing all industry restrictions. Second, the geographic structure is more rational. The brands on the latest list come from 28 provinces, autonomous regions and municipalities directly under the central government. The aim is to establish at least one role model for enterprises in every region so that they may be guided, motivated and have an example to follow. Third, the brands of production enterprises predominate. Of the brands announced this time, the vast majority belong to production enterprises while the few owned by foreign trade companies are designed and produced by their subsidiary production enterprises.

Lu added that MOFCOM¡¦s ultimate aim is to identify a batch of Chinese brands with good fundamentals and growth potential, and devote efforts to nurturing them into world-class brands as soon as possible. They can then serve as examples and play a guiding role in the country's brand-building initiative.

Learning from international experience, Chinese enterprises should pay attention to eight aspects in the course of building their own brands: 1) brand planning; 2) brand advertising input and planning; 3) scientific research and technological innovation to enhance the brand's technology content; 4) inheritance and development of traditional crafts; 5) quality assurance; 6) modernization of management; 7) strengthening after-sales service; and 8) adoption of diverse business strategies to cope with the characteristics of different target markets.

Shanghai stores go "convenience" mad

Convenience not what it seems - There is one convenience store for every 3,800 residents in Shanghai, which is approaching the average levels of Japan and the US. According to a survey conducted by the Shanghai Commercial Information Centre, there are eight convenience stores within a 1,000 sqm area to the west of People's Square in the city. Studies on the survival of convenience stores in this downtown area - with a high concentration of offices - reveals that the market has filled up fast and into an extremely challenging environment. That's the reason why casualties are frequent.

Stores have opened one after the other. Within a matter of a couple of years, as many as eight convenience stores have opened in the neighbourhood of Huangpo North Road to the west of People's Square. They include two Kedi stores, two Lawson stores, two Alldays stores, one Liangyou and one Quik store. With the exception of Alldays on Huangpo North Road and Liangyou on Dagu Road, which are stores that have been around for four years, all the others have a history of less than two years. Quik on Chongqing Road opened for business in November 2004.

In a commentary on the poverty of business planning by major groups, it is clear that convenience stores are hardly making any profit - but they still open anyway, apparently because everyone else is doing it. Stores have difficulty making a profit. The latest survey finds that the convenience stores near People's Square have a daily turnover of about Rmb3,000 (HK$2,830) and a monthly turnover of Rmb120,000 (HK$113,207). With the exception of Liangyou, which manages to gross between Rmb1,200 and Rmb1,500 (HK$1,132 and HK$1,415) after 10 pm each day, most other stores only make Rmb500 (HK$471) during these hours.

On top of wages and store furnishings, the biggest problem operating stores in the area is the high rent. Convenience stores are plugged into a vicious cycle of competition and are finding it hard to make a profit. Even old-timers are not doing well, compared to a year ago.

The weakest link: unattractive offerings - Hypermarkets attract customers with diverse offerings. The stocks in convenience stores are too similar to those in supermarkets. Convenience stores in Shanghai have still not developed a product mix suited to "convenience". They have not really decided what they are supposed to be selling, many often merely stocking food suitable for supermarkets. So, the failure to distinguish themselves results in many so-called convenience stores running into competition with medium-sized supermarkets, hence courting defeat as they fight overwhelming odds.

Convenience stores near People's Square should be catering to the requirements of the business district and consider the needs of office workers when they stock merchandise. Since People's Square lies in the prime section of downtown Shanghai, there are many people moving around. Convenience stores could more profitably be working out their product mix to meet the needs of different consumer strata, with instant and fast foods, stationery, gift boxes and small trendy gadgets forming their main merchandise.

Many convenience retailers could have synergies with manufacturers and suppliers to develop and promote items suited to their business. For example, they could talk to beverage manufacturers to develop low-cost drinks and with fast food manufacturers to develop Chinese and western food suitable for sale in convenience stores. Convenience stores in business districts are obviously different from those in other areas, but the survey shows that the eight convenience stores currently there do not have specific target customers. Quik performs best in this survey, probably because more people are living near Chongqing Road. The other stores are not doing so well.

According to the survey, convenience stores near People's Square have their business peaks in the morning, at noon and in the evening. In the morning rush hour, office workers are their major customers because there are many office blocks near People's Square. Selling best at this time of the day are food and drinks. At noon, most customers are students and white-collar workers, while the evening peak hour also sees a lot of customers of different demographics. Apart from these three periods, the main patrons are people passing through the area. For this reason, convenience stores do not cater to any particular customer group. This is a major hidden cause for poor business operations.

Convenience stores should re-position their stock planning and selection from the point of view of target customers, allowing them to organise their value-added commodities and regularize products. Although these convenience stores are all located near People's Square, they each should have some kind of focus. Some could directly target office workers, while stores such as Quik on Chongqing Road, which are adjacent to nearby residential areas, can more profitably target home purchases. Liangyou on Dagu Road is perfectly positioned to target students.

There is not much to choose between the services currently provided by convenience stores. Bill payments, microwave reheating and takeaways are regular services provided by these stores. Very few of them provide additional services not provided by others, such as rentals of umbrellas, temporary storage and special deliveries. Discount stores and groceries at the city centre can survive because they cater to residents' needs. For example, Dia Discount Store on Chongqing Road has been doing great business since it opened four months ago. Daily turnover is at Rmb15,000 (HK$14,150) and monthly turnover exceeds Rmb300,000 (HK$283,000). The majority of its customers are housewives.

According to Dia staff, the oil and vegetables they stock are very cheap. Dia does not have any geographical advantage, as it is sandwiched between Liangyou on the left and Quik on the right. Low prices are the reason for its prospering business. The fruit store and tobacconist beside Minsheng Bank Building are also both doing good business. It ought to be very tough trying to survive in the midst of all the convenience stores surrounding them, but the truth is the opposite, as they can offer what the convenience stores cannot.

The fruit store and tobacconist are stocking to suit the pedestrian flow. They only supply limited varieties of beverages, cold drinks, fruit, tobacco and confectionery but have a price advantage. As convenience stores do not sell fresh food and fruit, these two can survive precisely because they are different.

World Expo licensing gets started

Shanghai is launching its World Expo logo licensing program on a trial basis within months, setting up a trial period which will lead the program to be officially under way between 2006 and the end of 2010. Through the joint efforts of industry experts, designers and enterprises, a series of licensed products has been assembled. These are expected to be items of practical or collectible value that reflect the 2010 Shanghai World Expo theme. They will be on sale at special stores or counters throughout the country, as well as offered through retail chains overseas.

Zhou Hanmin, deputy director of the World Expo Coordination Bureau, went to the Aichi World Expo in Japan - and turned up with the 2010 Shanghai World Expo logo! Zhou said that Shanghai has started drawing up its overall marketing plan for the World Expo, which will cover four aspects. These areas are sponsorship, licensing, thematic activities and ticketing and efforts will be made to have the first draft completed by early May this year. A logo licensing program is being launched. World Expo logo licensing is mainly about granting qualified domestic and foreign enterprises the right to produce and sell merchandise bearing the logo and other intellectual property rights of the 2010 World Expo.

Licensed enterprises will pay royalties and starting with the use of the Expo logo, the Expo theme and other intellectual property rights, products will also be used for licensing at the right time. According to Zhou, the second program to be launched this year is on sponsorship, which will first be tried out in the telecommunications and tourism sectors. Selected enterprises in these two sectors will be awarded the exclusive rights to use the logo and name of the World Expo.

The World Expo Coordination Bureau will still have the right to use the name while the enterprise granted the "exclusive right" will support preparations for the World Expo through the provision of funds and services. Starting from April, the Shanghai World Expo Coordination Bureau will hold a two-month design competition for licensed products in a bid to select the top designer and will announce the design styles of licensed products on a regular basis.

April 25, 2005

Strong yuan would provide little help to US economy, says report - BLOOMBERG in Washington

A rise in the value of the yuan would do little to cut the US trade deficit or boost job growth, and would in all likelihood be more of a boon to other Asian nations, a US Commerce Department report says.
The confidential report, provided to US lawmakers in February, said it would take a 25 per cent decline in the dollar against all foreign currencies to cut the trade gap, and even that would have a small impact on American employment. "Instead of significantly reducing US imports, a decline in the value of the dollar against the yuan alone would mostly benefit China's competitors," the 44-page report says.

"Many of the goods the United States imports from China would likely be purchased from manufacturers in other Asian countries." The Commerce Department study examined three changes in currency values, and none showed significant deviation from a benchmark forecast for US employment and growth.

The report - "The Trade and Economic Impacts of US Currency Valuation: A Global Modelling Analysis" - was prepared by the Interindustry Economic Research Forum. Peter Morici, a former chief economist at the International Trade Commission, said the report was another sign the administration had understated the impact on the US economy. "This is an attempt by the administration to dodge the issue of China's currency," said Professor Morici.

Three scenarios were examined by the study. Each was judged over an 11-year period against a baseline forecast for the global economy in which US economic growth hovered at about 3 per cent, inflation was moderate and the dollar depreciated 0.5 per cent per year.

In the first scenario, China would revalue its peg of the currency by 25 per cent, which would lead other Asian nations to step up their supply of toys, electronic goods and other items to the US, the report said. US factory employment, now 14.3 million, would increase by only 89,000 jobs.

In the second scenario, the change in the value of the yuan was accompanied by similar changes in the Hong Kong dollar, Japanese yen, Korean won, Malaysian ringgit, Singapore dollar, Taiwanese dollar and Thai baht.

The third case examined the impact of an across-the-board depreciation of the dollar against all currencies, which the economists estimated would lead to a 7.4 per cent increase in US exports by 2015 and a 6.3 percent drop in imports. That would cut US$180.8 billion from Washington's US$666 billion current account deficit.

April 22, 2005

It's a mistake to force revaluation of RMB: Interview

The US Senate recently passed an amendment, demanding that the exchange rate of the Renminbi (RMB, or People's Currency) must be revalued within six months. The amendment put forward by two senators calims if China disagrees to revaluation of the RMB, a 27.5 percent surcharge of punitive tariff will be imposed on all commodities China exports to the United States. Regarding this, PD correspondent Tang Yong had a telephone interview with some American economists. During which they expressed their views as follows:

Roach: America should not blame China on the issue of exchange rate.

Morgan Stanley Chief Economist Stephen Roach said that he was not surprised at the recent series of anti-China practices by US Senate. He revealed that as early as several weeks ago, some Washington politicians told him that this year will see the most strained US-China trading relations in the past 10 years. Roach who has always been concerned with China indicated that he "was worried" about the development of US-China economic ties.

In the opinion of Roach, the United States should not censure China on the issue of exchange rate, saying that it is a big mistake to regard China as a scapegoat of US trade deficit. He said diametrically contrary to the impression of Americans, the rapid increase of China's exports is not boosted by China's local companies, but is spurred mainly by the branches of transnational corporations in China as well as by Sino-foreign joint ventures. Roach worked out an account for the reporter. He said in the past 11 years, China's export volume surged 650 percent, shooting up from US$91.7 billion in 1993 to US$593.4 billion in 2004. Among increased volume, 62 percent came from foreign-invested enterprises, these transnational enterprises came respectively from the United States, Europe, Japan and some other Asian countries. This figure shows that China's strong export capability consists mainly of the energies of Western (including the United States) enterprises.

Roach said the main reason for the huge trade deficit and the current account deficit of the United States is that the savings level of the American nationals is too low. Statistics show that since the beginning of 2002, the net savings ratio (after deducting the factor of the devaluation of the US dollar) of the American nationals has dropped to a record low, accounting for only 1.5 percent of GDP. Due to insufficient domestic savings deposits, the US government cannot but attract foreign capital through huge current account deficit and trade deficit. If a country must have trade deficit, it is best for it to carry out trade with low labor cost countries. This is a most natural thing. China occupies the greatest share in US trade deficit, this actually is a good thing for the United States. It provides US consumers with an opportunity to buy cheap but excellent Chinese commodities.

In view of the above-mentioned reasons, Roach added, even if the RMB is revalued by 10 percent, it cannot fundamentally solve the problem related to US current account deficit and trade deficit. Although the politicians of Washington understand this logic, under the pressure of the voters, however, they cannot but pretend to be confused though they are clear-headed.

Famous US economist Lyndon La-Rouche: Calling for the establishment of a new Bretton Woods system

The famous US economist repeatedly and successfully foretold financial crises in various parts of the world, including Brazilian, Russian and Asian financial crises. In a recent telephone interview with the correspondent, this economist said bluntly: US Senate lost its reason in doing so! He said it should not impute the problem emerged in the US economy to the exchange rate of RMB. The Senate's unilateral antagonist conduct with the odor of imperialism is simply unhelpful to a solution of the problem.

He also said in the tone of a prophet: It is necessary to perform a major surgery to solve the problems emerged in the US economy. In his opinion, the financial and monetary systems of the world today has been rotten to an incurable state and so must be thoroughly reorganized, it cannot be remedied only by reform. The ultimate goal for its thorough reorganization is to set up a new Bretton Woods system.

Snow: "Financial diplomacy" is the best choice

Not only many American economists oppose an appreciation of the RMB, even many senior officials of the US government also express their dissatisfaction over the Senate's practice. It is reported that at a hearing held recently by the banking committee of the Senate, US Secretary of Finance John Snow indicated that he was in favor of solving the RMB problem by diplomatic means.

Snow said: It is a "serious mistake" for the Senate to attempt to force a revaluation of the RMB, because acting with undue haste would possibly damage China's financial system. Snow stressed: China continues to reiterate its intention to introduce a more flexible exchange rate and would allow an appreciation of the RMB, but "financial diplomacy" is the best way to solve this problem.

April 20, 2005

China Introduces New Measures on Electricity Prices

The National Development and Reform Commission has recently announced measures for the administration of electricity prices, including the price paid by power generation enterprises for connection to power grids, the price of electricity transmission and distribution, and the selling price of electricity. The new pricing mechanism links the price of power grid connection with that of fuel.

According to the new measures, the price paid by power generation companies for connection to power grids will be fixed by the government's pricing departments in line with the principles of reasonably covering the cost, ensuring a profit margin and taking tax payment into consideration; or the price can be fixed by means of open tender by the government. The same power grid connection price set by the government will apply to similar power generating units newly built in the same region and will be announced to the public in advance. As for existing power grid connection prices already paid by power generation companies, they will be unified gradually.

Meanwhile, the power grid connection price will be pegged to the price of fuel. After a power generation company is connected to the power grid by competition, the power capacity price will still be set by the government, but the power volume price will be formed by market forces. Power markets in different regions may allow power generation companies to connect to power grids at competitive pricing. They may also allow large-volume users and power distribution companies with independent accounting to make their own deals with the power generation companies.

The selling price of electricity will ultimately be simplified into three categories, namely electricity for agricultural use, electricity for residential use, and electricity for industrial, commercial and other uses. The government will adjust electricity charges for agricultural and residential uses on a regular basis, and hearings will be held before adjustments of electricity price for residential use can be made. Electricity price for industrial, commercial and other uses will be linked to the power grid connection price.

Furniture for the future: China's kids vote - Combination children's furniture saves space.

Zhao, who works for a foreign company in Beijing, has just bought a four-piece suite to celebrate the seventh birthday of his only daughter. After looking around, he was amazed to find that children's furniture is just as varied as pieces for grown-ups. Actually, the willingness of one-child families to splurge on their kids has given the furniture industry a shot in the arm in Chinese cities. Many children of the new urban wealthy now have their own rooms. Parents really treat their "little emperor" or "little princess" with greater care and are willing to dig deeper into their pockets to decorate kids' rooms.

Some furniture manufacturers are readjusting their focus in response to the thriving market for children's furniture. According to Liu, an expert with the China National Furniture Association, there are more than 50,000 furniture enterprises on the mainland, employing over five million people. In 2004, the industry grossed Rmb160 billion (HK$150.9 billion) and the market witnessed an unprecedented boom. Children's furniture has registered big increases in turnover in recent years and is expected to carry the ball in the years to come.

According to statistics published by the State Statistical Bureau, there are 200 million children under the age of 14 on the mainland, of whom about 30% live in cities. Even if each young couple bought only one piece of furniture for their children valued at Rmb100 (HK$94.3) every five years, the market potential is still huge. It is very common still for children to use adult furniture in mainland family homes. Some parents are reluctant to buy furniture especially made for children because, like clothing, it can get redundant fast and never used again.

Clever manufacturers are marketing children's furniture with adjustable heights and lengths to prolong the service life of the furniture. This way, parents are more willing to choose suitable furniture for their children. Profits for children's furniture are on a par with or even slightly higher than profits for adult furniture. Many parents would rather cut down on their own spending in order to satisfy their children's needs. Young parents are not too concerned about price but are very particular about quality and environmental requirements.

Sales attendants also play a significant part in buying decisions. Shop assistants should be patient with customers who ask a lot of questions, because they are the ones genuinely interested in buying the merchandise. Experts point out that it helps to foster children's sense of autonomy to have their own furniture.

Beds top the sale of children's furniture. On the whole, wooden beds and spring mattress beds that are not too soft are selling better. Children's cupboards, toy boxes, bookshelves, desks and chairs are also hot items. According to trade insiders, prices for children's furniture are basically the same as, or maybe slightly higher than, those for adult furniture. The special sales corner for children's furniture on the second floor of Beijing's Ikea City is always an attractive spot for customers. Here one often finds parents choosing furniture with their kids.

At Ikea, a single bed, with a comfortable mattress and attractive bed sheets, costs Rmb2,200 (HK$2,075), about the same price as a two-seater sofa of good quality. A brightly-painted desk and chair suite may have a price tag of Rmb1,000 (HK$943). A growing number of domestic and foreign brands are competing for the children's furniture market on the mainland. Shinkansen-Sonet provides a series of furniture products launched by Shenzhen's Welon furniture for youngsters and single yuppies.

Purple Moon, Qicai Nianhua and Colorlife are also popular domestic brands of children's furniture. Flexa from Denmark, the biggest and most up-market brand of European children's furniture, has also quietly made its entrance and attracted its following, in spite of its hefty prices.

Health and environmental protection are Flexa's secrets for winning parents' hearts. All its products are made of natural hard wood from Scandinavia, using the cutting-edge UV painting technology that meets environmental protection requirements. Children will not be harmed even if they bite or chew on the furniture. Flexa also offers parents the convenience of buying by installment. Parents can buy a Flexa bed when their children are small and then purchase "accessories" such as slides and tents as their kids reach an age when they play games. Families have the option of buying desks and computer tables as their children grow even bigger. Ingenious design makes it possible to assemble Flexa furniture together piece by piece, to maximize the limited bedroom space for study, play and rest.

China-made Ximengbao's children's furniture places a lot of emphasis on environmental protection. Its use of pinewood and its natural style have won recognition from consumers.

Jin Apple Furniture in Huiyang, Guangdong Province, specializes in the making of bedroom furniture for youngsters and children. It has a 10,000 sqm factory and is well-known for the diversity of its designs. In addition to bedroom furniture for youngsters, the company also produces children's furniture in bright colors and lively, comic designs.

Industry insiders point out that furniture makers must be sensitive to market changes and cater to the consumer. Safety and quality assurance are paramount. Children are "adventurers". So, safety should be the first consideration. Children's furniture should have smooth lines, fine finishing and sturdy structures to avoid accidents.

Material and technology are increasingly important. Materials used in the making of children's furniture on the mainland include wood, artificial boards, plastics and aluminum alloy. It is most important that furniture is odourless and non-toxic. The surface coating should be color-fast and not easily scratched. Furniture with plastic veneers or other supposedly harmless coatings have to ensure that environmentally friendly materials are used.

Hues and colors are also important. Children up to the age of seven are into creative development and the use of bright and colourful furniture can stimulate their curiosity, draw their attention and cultivate their sensitivity to colours. Flexible and varied designs add to price options. Children are eager to know and come into contact with nature. Furniture with cute animal drawings, colourful geometrical shapes, lively and simple designs as well as game functions are in line with the requirements of pre-school children.

Children's furniture should also be designed and made according to ergonomic principles and the sizes should correspond to the height of users. Chairs have to be adjustable according to children's height. Some furniture manufacturers have designed multi-function furniture, such as three-in-one bed-desk-drawer sets, to be economical on space - all are very popular with parents.

Guangzhou, Shenzhen mass transit path to riches

Underground railways don't just push people from point to point, they also push real estate and retail investment, promoting flats as well as commerce, encouraging underground shops on concourses, above and around metro stations. It is no wonder that prices of property above underground railway lines in New York, London, Hong Kong and Tokyo are so high. In China, Shanghai, Guangzhou and Beijing mass transit-related properties are at least 30% higher than prices of property of the same quality in the same area elsewhere. Commercial facilities along metro lines in Guangzhou and Hong Kong reportedly have a 100% leasing rate.

Shenzhen Metro opened to traffic at the end of last year and shrewd property developers seized the opportunity and created a business boom along the subway lines. Guangzhou Metro reported commercial revenues at Rmb12 million (HK$11.3 million) in 2001, increasing to Rmb17 million (HK$16 million) the following year. Revenues in the 2004 to 2005 financial year are expected to have grown at a rate of between 20% and 30% over the previous year.

Guangzhou's Metro Corporation plans to introduce convenience stores, laundry shops and photo processing chains to Metro Line 2. Property developers are also keen on developing sites above the metro stations, demonstrates the infinite business potential for property developments along metro lines - a phenomenon largely "invented" by the Hong Kong Mass Transit Railway Corporation in the 1980s and 1990s.

Tianhe City and Zhonghua Plaza obviously owe their sharp increase in people flow to the Guangzhou Metro. At present, 70% of the people visiting Tianhe City come from the Pearl River Delta. According to surveys, most of them take the Metro to Tianhe City. Guangzhou Metro Corporation pointed out in its annual report that Line 3 is expected to carry 400,000 people daily by 2010, by which time the daily passenger flow of rail-based transport networks in the city will reach 1.8 million.

The "revenue effect" brought by "people flow" can be seen from the opening of Guangzhou Metro Line 1. The concept of developing "large commercial developments" has been put on the agenda of Guangzhou Metro Corporation. The company plans to build a 10,000 sqm four-level underground shopping mall at People's Plaza in front of Gongyuanqian Station and an underground pedestrian street at Kecun Station at the junction of Lines 2 and 3, joining hands with a Hong Kong consortium to build a 32,000 sqm underground mall at Huangsha Station.

Commercial facilities in stations along Line 1 have a 100% leasing rate, and there are banks and chain stores for drugs, leather goods, newspapers, snacks, photo processing and dry-cleaning in all 16 stations along Line 1. Convenience stores and dry-cleaning shops have been opened at stations on Line 2.

The Shenzhen economy has mainly developed along land highways in the early days. Shennan Road is the most important transport artery in Shenzhen, and it was along this road that commerce started to flourish. The opening of the Metro will change the city's future commercial layout. Shenzhen Metro can carry 52,500 passengers per direction per hour when Phase I fully goes into operation. This will no doubt generate huge business opportunities. The vitality of commerce comes from people, and the commercial value of underground railways is that they can bring people together and translate people flow into effective purchasing power.

With the opening of Shenzhen Metro Line 1, large shopping centres will emerge along the railway line from east to west, such as Renmin South Road, Central District, Windows of the World and Baishizhou. Property developments along the Shenzhen Metro, such as hot-selling Wanpan Commercial Plaza, at the meeting point of Shenzhen Metro Lines 1 and 2, and commercial properties in Renmin South Road and Central District are also likely to multiply.

April 18, 2005

APHIS Suspends Importation Of Wooden Craft Items From China

Beginning 1 April 2005, the U.S. Department of Agriculture's Animal and Plant Health Inspection Service (APHIS) suspended the importation of craft items from China that contain wooden logs, limbs, branches or twigs greater than 1 centimeter in diameter and have intact bark. The import suspension would affect, but is not limited to, artificial Christmas trees with wooden trunks and trellises. This restriction will remain in place, pending the adoption of adequate mitigation measures by exporters in the Chinese mainland.

APHIS is increasingly concerned about the introduction of wood-boring quarantine pests into the US from China through decorative and craft items. The primary insects of concern are Callidiellum villosulum and Callidiellum rufipenne, also known as the brown fir longhorn beetle and the Japanese cedar longhorn beetle. These insects are related to the Asian longhorn beetle, which is currently being eradicated in Chicago and the metropolitan New York area.

In January 2005, APHIS conducted its fourth recall in six months of wooden decorative items imported from China after the Maryland Department of Agriculture intercepted multiple Callidiellum villosulum beetles that had emerged from artificial Christmas trees manufactured in China.

APHIS has posted further information of the suspension in his website:

DOC Implements Changes to NME Practice in AD Proceedings

After several rounds of public comments, the DOC issued a notice in the Federal Register on 5 April implementing a change in the way it evaluates separate rate requests in AD investigations involving non-market economy (NME) countries like China. The amendments are effective immediately and will therefore apply to any AD investigations on NME countries initiated from this time forward.

In AD proceedings involving NMEs, the DOC presumes that all companies are under governmental control. As a result, all exporters/producers are assigned a single country-wide AD margin, which is often so high that it makes continued exports to the US very difficult and, in some cases, virtually impossible. Yet, individual firms can steer clear of the single country-wide margin by applying for their own separate rate.

As was extensively discussed in Business Alert-US No. 1 2005, the DOC currently considers all separate rate requests submitted by Section A (non-mandatory) respondents to review their eligibility and may ask for further proof in supplemental questionnaires. However, the increasing number of requests for separate rate treatment in recent years, as well as the increasing need to issue supplemental questionnaires, have created a significant administrative burden for the US government. In addition to the drain on resources triggered by this growing administrative workload, various parties have raised concerns that the DOC separate rates test "may not offer the most effective means of determining whether exporters act independently of the government."

To address these and various other concerns, the DOC has adopted a new application process for evaluating separate rate requests by non-mandatory respondent companies. Currently, these companies are required to submit a Section A questionnaire response. Companies selected by the DOC as mandatory respondents in AD proceedings will continue to be required to respond to the entire dumping questionnaire, although Section A has been updated to conform to the new information included in the application.

According to the DOC, the new application process for non-investigated companies does not alter the standard for evaluating whether an applicant is subject to de jure or de facto government control. Rather, the DOC has focused on making the process more straightforward and complete in order to minimise the need for extensive supplemental questionnaires, saving time and resources for both respondents and DOC analysts. The DOC has advised that firms seeking separate rate status must adhere to the following conditions:

All applications must be submitted within 60 calendar days after publication of the initiation notice. The DOC will not consider applications that remain incomplete after this deadline.

The DOC will allow firms filing an application no later than 30 calendar days after publication of the initiation notice to resubmit an incomplete or otherwise deficient application.

Firms must submit the specific application that has been posted for each case.

Firms to whom the DOC sends a Quantity and Value (Q&V) questionnaire must respond to it to receive consideration for a separate rate. The Q&V questionnaire is used in certain investigations to select mandatory respondents.

All applicants must identify in the application any affiliates in the NME country that exported subject merchandise to the US during the period of investigation, as well as any affiliates located in the US and involved in the sale of the subject merchandise.

All shipments to the US declared to US Customs and Border Protection (CBP) must identify the exporter by its legal business name. This name must match the name that appears on the exporter's business license/registration documents. A copy of these documents must be provided to the DOC as part of the request for separate rate status.

All information in the application is subject to verification by the DOC. The DOC may issue supplemental questionnaires as needed.

Each applicant must submit a separate individual application regardless of any common ownership or affiliation between firms and regardless of foreign ownership.

NME exporters not wholly owned by entities located in market economy countries must fill out the application in its entirety. NME exporters wholly owned by market economy entities, which are in turn owned or controlled by entities located in an NME country, are also required to respond to the entire questionnaire.

NME exporters that are ultimately wholly owned by entities located in market economy countries must: (i) respond to the certifications requested in the application and provide supporting documentation for fields in the application marked with an asterisk; and (ii) report, in addition to any affiliates, any other affiliations with other firms in the NME country involved in the production or sale of the subject merchandise, including merchandise that is produced solely for domestic consumption.

The DOC has also decided to institute exporter-producer combination rates (also known as chain or channel rates) for all firms receiving a separate rate in AD cases involving NMEs. Simply put, one rate will be calculated for the exporter and all of the producers (as a group) that supplied subject merchandise to that exporter during the period of investigation. This practice applies both to mandatory respondents receiving an individually calculated rate as well as non-investigated firms receiving the weighted-average of the individually calculated rates. Exporters applying for a separate rate are now required to list all the suppliers whose merchandise they exported to the US during the period of investigation. Of particular note, the separate rates investigation would not in any way seek to establish absence of de jure and de facto governmental control for any of the producers included in the combination rate.

Safeguard Petitions Filed Against Wide Range of Textile and Apparel Products from China

On 4 April, the inter-agency Committee for the Implementation of Textile Agreements (CITA) announced its intention to self-initiate safeguard proceedings on three apparel products from China: cotton knitted shirts and blouses (category 338/339); cotton trousers (category 347/348); and cotton and man-made fibre underwear (category 352/652). According to the US Department of Commerce (DOC), the decision to self-initiate safeguard consideration was motivated by a "substantial increase" in imports of these products during the first quarter of the year, as compared to the first quarter of 2004. Indeed, preliminary data for the first quarter show increases of 1,257.9%, to 7,040,276 dozen, in imports of cotton knitted shirts and blouses from China; 1,521.0%, to 6,582,574 dozen, in cotton trouser imports; and 308.1%, to 5,124,896 dozen, in imports of cotton and man-made fibre underwear. During the same time, China's share of the US import market rose from 0.6% to 7.1% for cotton knitted shirts and blouses, from 1.0% to 13.8% for cotton trousers, and from 2.2% to 8.0% for cotton and man-made fibre underwear.

As a first step, CITA published three separate Federal Register notices on 8 April formally notifying the public of its decision to initiate safeguard consideration of these products and requesting comments from interested parties to determine whether safeguard action is appropriate. Comments may be submitted no later than 9 May. Once the comment period concludes, CITA will have up to 60 days, or until 8 July, to reach a final decision. However, most observers believe that CITA will reach a decision relatively quickly and may conceivably submit a consultation request to the Chinese government before the end of May. Should that occur, the resulting safeguard quotas would be based on year-ending February 2005 figures plus 7.5%. If the Administration submits the request for consultations in June, it would use year-ending March 2005 data, and so forth. Any quotas would run from the date consultations are requested through 31 December 2005, and the quotas themselves would be pro-rated.

Given China's outstanding export performance during the first quarter of 2005, any eventual safeguard quotas on categories 338/339, 347/349, and 352/652 would be exceedingly small compared to current trade patterns and would severely disrupt trade in these products during the summer and autumn months. If, as expected, consultations are requested on or before 31 May, CITA would establish the quota levels listed in the table below. As shown, these quotas would embargo very quickly unless China's exports are reduced dramatically.

Not surprisingly, China's Foreign Ministry spokesman Qin Gang sharply criticised the US government's decision to self-initiate the safeguard mechanism on cotton knitted shirts and blouses, cotton trousers, and cotton and man-made fibre underwear, arguing that "the major obstacles in the textile trade are that importing countries including the United States engage in over-protectionism and have irrational arrangements in their textile trade." Cao Xinyu, Vice Chairman of the China Chamber of Commerce for the Import and Export of Textiles, further added that the US government "should give the market more time to return to normal after the distorted trade." In fact, many experts agree that China's export surge is a natural occurrence after several decades where its shipments to the US and the European Union (EU) were kept at artificially low levels with little room to grow.

Additional Safeguard Petitions Filed. The domestic textile manufacturing industry, on the other hand, praised the Administration for taking the initiative in the textile safeguard process, asserting that this step "sends a clear message that the United States will not stand by and allow China to steal US textile and apparel jobs." Far from being content with this development, however, the usual coalition of textile industry and labour groups - led by the National Council of Textile Organisations (NCTO), the American Manufacturing Trade Action Coalition (AMTAC), the National Textile Association (NTA), and labour union UNITE HERE! - filed seven additional safeguard petitions on 6 April covering a total of 14 textile and apparel categories. The products targeted by those petitions are as follows: men's and boys' cotton and man-made fibre woven shirts (category 340/640); cotton and man-made fibre sweaters (category 345/645/646); cotton and man-made fibre brassieres (category 349/649); cotton and man-made fibre robes and dressing gowns (category 350/650); other synthetic filament fabric (category 620); man-made fibre knitted shirts and blouses (category 638/639); and man-made fibre trousers (category 647/648).

CITA is required to make an initial determination by 27 April as to whether all necessary information is included in each of these petitions. Should these petitions be accepted for consideration, CITA would initiate the statutorily required 30-day public comment period for interested parties and render a final decision within 60 days following the expiration of that comment period. The domestic textile industry is urging the Administration to approve these petitions before the end of May so that safeguard quotas could be applied based on year-ending February 2005 data. However, in this case, it appears much more likely that any quotas would be based on year-ending March or April 2005 data, which would provide additional room to grow China's trade.

NCTO President Cass Johnson contended that the import surge in the categories targeted for safeguard action "is directly attributable to the illegal and unfair subsidies given to [Chinese] producers in an effort to drive all other competitors out of the market. These subsidies include illegal currency manipulation, non-performing loans, state-owned enterprises, reduced or free utilities, shipping, and property taxes, free land and factories, and export tax rebates." Johnson further claimed that "no industry playing by free-market rules can compete with an industry allowed to sell into a free-market but not play by free-market rules."

Much to the dismay of US textile and apparel importers, AMTAC Executive Director Auggie Tantillo has advised that more safeguard petitions will be filed in the weeks ahead and warned that the industry "will keep filing petitions until the United States and China reach a comprehensive agreement to moderate the growth of Chinese textile and apparel imports to a reasonable level." According to the US Association of Importers of Textiles and Apparel (USA-ITA), such a comprehensive agreement "stands in direct conflict with the purpose of Paragraph 242 of China's WTO accession agreement, which created a textile safeguard to deal with specific instances of market disruption."

The decision by the Bush Administration and the domestic textile industry to file new safeguard petitions based on actual market disruption renders obsolete the petitions filed during the fourth quarter of 2004 based on the threat of market disruption. All of the litigation that ensued from the filing of those petitions, as well as the injunction by the US Court of International Trade, are also essentially meaningless at this point.

US Takes Harder Line Than EU. The hard-hitting approach of the US government with regard to the application of the textile safeguard mechanism contrasts noticeably with the more cautious and measured stance adopted by the EU. On 6 April, the European Commission (EC) published guidelines that establish clear standards and thresholds for the initiation of safeguards against textile and apparel imports from China. Specifically, the guidelines establish so-called "alert zones" that will act as a warning system for market disruption. If alert levels are exceeded, the EC can initiate an investigation into market disruption. The EC can also begin such an investigation at the behest of an EU member state or representatives from the domestic industry. The alert levels are shown in the table below.

In addition, the EC has specified certain floor levels below which, in principle, the textile safeguard will not be invoked.

* Applies to products removed from quota on 1 January 2005.

The EC will evaluate import patterns averaged over a year or pro-rated on the basis of at least three months. If the EC decides to initiate a safeguard investigation, it will concurrently begin informal consultations with China. Interested parties would have 21 calendar days to submit comments and the investigation would have to be completed 60 days after the date of initiation. Among other things, safeguard investigations would consider the possible damage inflicted to textile exporters in vulnerable developing countries and producers in the Euro-Mediterranean region. The EU textile safeguard process also allows for emergency procedures in the case of a "rise in imports of such magnitude that serious material injury to EU industry is imminent." In this case, formal consultations with China could be sought without a preceding investigation.

China's Ministry of Commerce spokesman Chong Quang expressed his government's "strong objections" to the establishment of this alert system and maintained that "this departs from the spirit of free trade proposed by Europe and seriously violates the basic principles of the World Trade Organization."

April 13, 2005

Measures for Administration of Organic Products Introduced

Following the implementation of the Measures for the Administration of Certification for Organic Products on 1 April, practices of misleading consumers and raising the price of commodities by claiming that they are “100% natural” or “unpolluted” are banned. In future, the random use of words that may mislead consumers, such as “organic products”, “organically transformed products”, “unpolluted” and “100% natural”, on products which have not been duly certified as “organic products” will be subject to a maximum fine of Rmb30,000.

According to the measures, China will practice a unified system of labeling for organic food under which only those products that bear the words “organic products of China” in Chinese and the word “organic” in English comply with the Chinese standards for organic food. Processed food with organic ingredients equivalent to or exceeding 95% may use the word “organic” on the products or on their packaging and labels. Processed items with organic ingredients of less than 95% but equivalent to or exceeding 70% may use the words “produced with organic ingredients”. Processed food with less than 70% organic ingredients may only indicate in their composition that certain ingredients are “organic”.

An official of the Certification and Accreditation Administration of China noted that there were no national standards for organic food before the promulgation of these measures. According to the new measures, there are two types of certification labels for organic products, namely “certification label for organic products of China” and “certification label for organically transformed products of China”. The two labels have the same design and only differ in colors: one in green and the other yellowish brown.

In the production or processing of organic food, the use of insecticides, chemical fertilizers, hormones and other artificial or synthetic materials is strictly banned. Organic food includes grains, vegetables, dairy products, animal and poultry products, honey, aquatic products and condiments.

Shenzhen may be world's top franchisee

The franchising of both foreign and local brands have been spreading like wildfire in Shenzhen, covering a huge range of businesses that include food and beverage operations of all kinds, beauty services, clothing retail, automobile hire and laundry services. It is touch and go on whether Shenzhen is the biggest growth area for franchises in the world at the moment. Just for starters, franchisees have established the Taipei Ice House, Fanepeer Coffee and Accord Pharmacy - chain stores with outlets popping up all over Shenzhen.

The laundry business, for another, is typically a ubiquitous, franchised operation in Shenzhen, from the comments made by different business operatives, with laundry services making it into the big leagues of business after more than 20 years of development. There are 55 regular laundry enterprises in Shenzhen, owing their prosperity to booming tourism and hotel operations, plus the fact that Shenzhen natives are buying more upmarket clothing and expensive textile fittings for their homes (including woollen rugs and tapestries).

According to rough estimates from the relevant industry association, Shenzhen people spent over Rmb100 million (HK$94.3 million) on laundry annually. Today, there are laundry chain stores appearing in numerous residential and office districts all over Shenzhen. Zhengzhang Dry Cleaning Service alone has 105 outlets in the city. Other chains include Auntie Xueli and Little White Rabbit.

It costs between Rmb20,000 and Rmb100,000 (HK$18,800 and HK$94,300) to set up a franchised laundry store.

But nearly 60% of franchised stores in Shenzhen are in the food and beverage and service sectors, with coffee shops and ice cream parlours being among the most popular areas for franchising. Blenz Coffee from Canada requires an investment of between Rmb600,000 and Rmb750,000 (HK$566,000 and HK$707,000), while promising a monthly rate of return of 68%. There is little surprise: coffee consumption is growing at an annual rate of 10%, and the coffee market in Shenzhen is far from saturated.

Ice cream parlours, another hot spot for investment in the food and beverage business, requires a much smaller investment than for coffee shops. For example, the influential Taipei Ice House in Shenzhen requires a maximum investment of Rmb300,000 (HK$283,000). Other chains, such as Taipei Ice City, require an investment of less than Rmb200,000 (HK$188,679). According to the latest survey from the China Chain Store and Franchise Association, the success rate is under 20% for individual businesses and between 80% and 90% for franchised operations in the same sector. This explains why franchising chains are growing so fast on the mainland.

As many as 70% of investors are interested in franchised stores requiring an investment of less than Rmb400,000 (HK$377,358).

There are over 90,000 franchised stores of more than 50 business formats on the mainland, making China a country with the largest number of franchised operations in the world. Hong Kong has a leading edge in brand building and brand management, so the current franchising boom should give Hong Kong firms plenty of opportunity to strengthen their brand penetration in mainland centres.

Xian's aviation industry centre heading for takeoff

One of China's most ambitious aviation projects got going in March with construction starting on the Xian Yanliang State Aviation High-Tech Industry Base - which will be the country's only sophisticated aviation research and development, manufacturing, spare parts processing and services centre. Work began on 24th March, 2005 after official sanction from the National Development and Reform Commission.

The Commission approved the overall development plan in August 2004, due mainly to joint efforts over the previous four years of the Shaanxi provincial and Xian city governments, the First China Aviation Industry Corporation Group (AVIC1), the Commission of Science, Technology and Industry for National Defense and other departments.

The centre, with Yanliang as the core zone and Guanzhong as the zone of expansion, is set to boost the development of the aviation and other relating high-tech industries as a whole in Shaanxi. The core zone has a planned area of 40 sq km and will mainly be involved in aircraft manufacturing, with emphasis on the development of large- and medium-sized aircraft, aero-engine conversions, new materials and air travel services. The base will have four functional zones, including aircraft development and manufacturing, related industries, training, business and amenities.

Planning for the five sq km start-up zone has already been completed. Construction of the infrastructure and calls for investment are currently underway. As a province for major aircraft industrial undertakings, Shaanxi has developed a system of supporting key sectors over the past four decades.

In addition to the overall design, assembly, manufacturing and testing of aircraft, the main areas of research and development also cover aircraft engines, hydraulic and fuel parts, aviation electric machines and computers. Currently, Xian's Yanliang district has China's only aviation industry setup that combines aircraft designing and research, manufacturing, test flight evaluation and teaching facilities.

The project's backers are central to the development of the aviation industry in China. The Aircraft Design and Research Institute, AVIC1, is the leading research institution for small and medium-sized aircraft in China, while the Xian Aircraft Industry Corp is the largest manufacturer of medium-sized and large aircraft, while the latter's capability in technological research and processing rank among the best in the country.

April 11, 2005

Economists back yuan policy - Long Yongtu(R), secretary-general of the Boao Forum for Asia and Desmond Supple, head of Asia research at Barclays Capital, answer questions April 8, 2005. China is doing the right thing rejecting requests from trading partners to adjust its currency regime, according to financial officials and economists attending the Beijing Forex Conference 2005 on Friday.

"China does not operate a competitive currency policy and its foreign exchange policy is transparent and consistent," said Desmond Supple, head of Asia research at Barclays Capital, the investment banking division of UK-based Barclays Bank PLC.

He dismissed accusations that China has taken advantage of a cheap renminbi to become more competitive in trade.

He told the conference that the Chinese Government's refusal to change its forex regime can be viewed as simply wanting to maintain the consistency of its currency just as it did during the 1997 Asian financial crisis.

He added: "Any change of the renminbi regime has to go with the advancing process of China's financial reform." His words were echoed by Long Yongtu, secretary-general of the Boao Forum for Asia.

"China's banking system reform is the premise of any economic reform," said Long.

He said that foreign trade was not the only engine for China's economic growth. Economic reform, domestic consumption, and foreign trade and investment are the major driving forces of China's economic growth, he said. Long added that to liberalize the capital account, China must have a mature banking system, strong central bank supervision and a developed secondary financing market.

"It is unlikely China would change its forex regime in the foreseeable future," Long said. "The country has to strike a balance between a more flexible forex regime and a largely stable one."

Supple said the strong inflow of foreign speculative capital is also making it less possible for the Chinese Government to adjust its forex regime this year.

"We see no evidence of any slowdown (of speculative capital inflow) in the first quarter of this year," Supple said.

He added that China's forex reform requires the Chinese Government be confident that the country has achieved a soft landing from the 2002-04 investment boom and that the current problem of speculative capital inflow has been contained.

However, the US Senate on Wednesday threatened to impose a punitive tariff of 27.5 per cent on imports from China, if the government does not adjust its forex regime within six months. Advocates of the policy said the renminbi is undervalued, which has disadvantaged US manufacturers and caused the large US trade deficit with China.

April 9, 2005

Recent Moves of US Trade Measures

In the past few days, three trade events occurred in the US which would have bearing on Hong Kong's exports to the US. These events include the changes in anti-dumping practices involving non-market economy, the initiation of safeguard investigations on three groups of textile and clothing, and the filing of textile safeguard petitions.

1. Change in Anti-dumping (AD) Practices Involving Non-market Economy (NME)

On 5 April 2005, the US Department of Commerce (DOC) announced two major changes to AD practices involving NME, including China, as follows:

Application for separate AD rates:

Under the new practice, application for a separate AD rate will no longer be made by completing and returning the Section A of the questionnaire to the DOC. Instead, an applicant should complete an application form which will be posted for each investigation on DOC's website.

Combination rates:

Under the new practice, each exporter applying for a separate rate will be required to list all the suppliers whose merchandise they export to the US during the period of investigation or review. The dumping margin assigned by the DOC to an exporter will be a combined rate, which is calculated from the rate of the exporter and those of the producers which supplied merchandise to it for export to the US.

2. Self-initiated Textile Safeguards

On 4 April 2005, the US Committee for the Implementation of Textile Agreements (CITA) announced its decision to initiate safeguard proceedings to determine whether imports of certain Chinese origin T&C are contributing to the disruption of the
US market. This is the first attempt of CITA to initiate safeguard investigation by itself. The products subject to review are:

  • Cotton knit shirts and blouses (Category 338/339)
  • Cotton trousers (Category 347/348), and
  • Cotton and man-made fiber underwear (Category 352/652)

In accordance with the published procedures, CITA is required to seek public comments. The comment period will last for 30 days, after which CITA has up to 60 days to render a final determination.

Hong Kong's re-exports of the affected mainland-made items to the US are estimated to be US$1 billion in 2004.

3. US Textile Industry's Filing of Seven Textile Safeguard Petitions

On 6 April 2005, the US textile industry announced the filing of seven safeguard petitions covering 14 categories of T&C from China. The affected goods include:




cotton / man-made fiber non-knit shirts


cotton / man-made fiber sweaters


cotton / man-made brassieres


cotton / man-made dressing gowns


other synthetic filament fabric


man-made fiber knit shirts


man-made fiber trousers

According to the published procedures, CITA has 15 working days to decide whether or not to accept to consider these petitions. Should CITA accept them, it will go through the comment period before making a final decision.

Hong Kong's re-exports of the affected mainland-made items are estimated to be around US$2.8 billion in 2004.

April 7, 2005

Touch of the wand for "magic" sales

The first Chinese "magic" shop is believed to have opened in Beijing four years ago, and (as if by magic) new shops are opening for business in greater number today. They are also mushrooming in cities like Shanghai and Shenzhen. The Internet is another avenue for "magic" sales revenues, with forums, websites and weblogs. The China tours of world-renowned magicians like David Copperfield and Robert Gallup - essentially "magic" brands - have swept the country with unprecedented enthusiasm, fuelling online opportunities. Websites have registered soaring hit rates and magic shops have mushroomed. There are over 1,000 magic shops in different parts of the country and more than 100 magic toy "trick" products have been developed, targeting people of different age groups and both genders. According to an industry survey, over 90% of university and secondary school students want to learn a few magic tricks, while 95% of primary school students expect toys based on magic - or expect magic sets as presents.

Among young people, adolescents and white-collar people under 40, 80% have attended magic shows, says the survey from the toys industry. There is an interesting statistic: 70% hope to be given the chance to "perform" magic. In effect, magic has become an industry with huge market potential on the Chinese mainland. People love magic because sleight of hand fascinates them and because there is entertainment for inquisitive minds. A "magic house" in Zhengzhou stocks all kinds of fascinating magic toys. "These magic tricks are all very easy to learn. All our tricks come with a CD that teaches you how to play, and you should be able to master a trick in 30 minutes," said its shop assistant as he gave a demonstration.

The shop assistant put a lighted match to a card and the match slowly rose and hung in mid-air! The materials of this trick are very simple, consisting of three matches and three cards, and cost Rmb38 (HK$35.8). Basically, all tricks are sourced from domestic channels. Daily turnover for this shop ranges from between Rmb1,000 and Rmb2,000 (HK$943 and HK$1,886) and soars to between Rmb7,000 and Rmb8,000 (HK$6,603 and HK$7,547) on holidays. The shop's business also includes training and performances. The tuition fee for each course is Rmb300 (HK$283), during which would-be magicians learn 10 magic tricks.

A basic magic shop must stock at least 200 varieties of tricks. A small magic shop named Harry Potter in Zhengzhou is painted an appropriate black. The demonstration area is carefully decorated, with the Rules of Discipline for Magicians hanging from the roof to give a sense of professionalism. The cost of running a magic toy shop varies. For example, poker cards and ring sets cost a few yuan, or even a few cents, but can fetch tens of yuan in the market. It takes about Rmb10,000 to set up a business. Competition is not too intense but the profit margin can be attractive. It takes about Rmb20,000 (HK$18,867) to start a medium-sized magic shop. One proprietor figured out that 80% of his visitors would simply look, while 20% would become customers. Most of his customers are office workers and students.

Chain-operated magic shops have started to emerge. Taiwan Magic Co first ventured into the mainland market a year ago and now runs a chain of four stores. Its flagship store on the 5th floor of Scitech Shopping City in Xidan, Beijing, has a business area of 40 sqm. A company executive said the company runs all mainland stores at a profit and plans to venture into Shanghai. According to people in the industry, operators of magic shops do not have to be professional magicians. Anyone who has grasped the basic skills through training can handle the "art". In addition to magic goods, they may stock some comic gadgets and educational toys to give customers a wider choice.

Sales and teaching of "tricks" are not the only means of making a profit. Shops with the appropriate resources run magic training camps at local schools and cultural centres, present stage performances or provide services at shop opening ceremonies and other functions. The products on sale must be well-known (such as from Walt Disney or Harry Potter brands) as a means of opening the market.

People who have the "magic" to make sales say it is important to choose a location in a relatively busy commercial district with a heavy flow of people, as these are the major consumers. Then, add a "potion": choose shop assistants with a flare for performance. Finally, be ready with new ideas: magic shops pass their magic exams on magic tricks and promote the culture of magic performances.

April 6, 2005

Japanese companies are expecting great bearings from different car navigation systems in China, with one company envisaging a market of one million units in five years. It's helping to shift the manufacturing base to the mainland.

DOC to Implement Early Monitoring System for Textile Imports; Legislators Urge Safeguard Action Against China

On 21 March, US Commerce Secretary Carlos Gutierrez announced the implementation of a system that will allow the Bush Administration and domestic textile groups to monitor imports of textile and apparel products in a more timely fashion. The system will enable the Department of Commerce (DOC) to release preliminary textile and apparel import data for the first quarter of the year by the first week of April, approximately six weeks before the official release of the US trade statistics by the US Census Bureau. Additional data will be posted biweekly on the official website of the DOC´s Office of Textiles and Apparel,

The development and implementation of this early monitoring system is a clear response by the Administration to the repeated calls by domestic textile manufacturers for the more timely release of textile and apparel import data. Such data is needed by the industry to file safeguard petitions with sufficient evidence to make a solid case of market disruption. According to Gutierrez, the development of this import tracking system "demonstrates the commitment of this Administration to put in place the tools necessary to enforce our trade agreements and level the playing field to support our domestic textile and apparel industry." Gutierrez further stated that the Administration "will continue to work with our domestic manufacturers and workers to give them the tools they need to compete internationally."

While the Administration has the option to self-initiate any safeguard actions at its discretion, the creation of this early monitoring system strongly suggests that US officials would rather see the domestic textile industry analyse all the pertinent import data and draft any eventual petitions on its own. If, as expected, the industry files new petitions based on actual market disruption sometime during the month of April, the government may be able to issue a final decision as early as May. The timetable can vary widely, however, because the government has as many as 60 days to issue a final decision after the conclusion of the statutory 30-day comment period.

If the US government were to self-initiate safeguard actions, it would begin the 30-day comment period immediately and could theoretically invoke the safeguards shortly after its conclusion. Assuming the Administration notifies the Chinese government of its intention to invoke the safeguard mechanism in May, it would base the safeguard quota levels on year-ending February 2005 figures plus 7.5% (6% for wool categories). If the Administration submits the request for consultations in June, it would use year-ending March 2005 data, and so forth.

The industry has naturally welcomed the Administration's decision to implement the early monitoring system. Auggie Tantillo, Executive Director of the American Manufacturing Trade Action Coalition (AMTAC), expressed his confidence that "the data the U.S. government will be releasing will show dramatic increases in U.S. imports of textile and apparel products from China." According to Tantillo, the import data "will help to prove the industry's claim that China is disrupting the U.S. market. It will also make it clear that the U.S. government must act quickly to impose safeguards."

Separately, a group of legislators from textile producing states is reportedly gathering signatures to submit a letter to President Bush urging strong executive action to stem the flow of textile and apparel imports from China. The initiative could attract as many as 40 signatures and may be sent during the first week of April. Previous such letters have attracted vast support, not just from members of the House of Representatives' textile caucus, but also from Republican and Democratic lawmakers from a wide range of states.

According to Carolyn Hern, communications director for Representative Robin Hayes (Republican - North Carolina), the letter will likely be similar to one Hayes sent to Commerce Secretary Carlos Gutierrez on 15 March calling on the Administration to self-initiate the textile safeguard. Hayes has declared that this new letter will attempt to make "the strongest possible case."

This action underscores the political importance of the China safeguard issue. Congress will be considering a number of trade-related pieces of legislation this year, including the US-Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) and renewal of Trade Promotion Authority (TPA, previously known as fast track) - two items of high importance for the Administration. It is possible that trade-offs will be made amongst these and other issues. In reference to this matter, Representative Sue Myrick (Republican - North Carolina) recently stated that "all of this is in play right now" as she suggested that some legislators may be persuaded to cast their votes in favour of the DR-CAFTA in exchange for expeditious action against Chinese textiles and apparel.

The evolution of China's textile and apparel trade in a quota-free world is currently facing close scrutiny from governments on both sides of the Atlantic. In light of preliminary Chinese data showing a 46% jump in exports to European Union (EU) countries in January, the European Apparel and Textile Organisation (EURATEX) submitted a petition on 10 March requesting that safeguard restraints be imposed on 12 categories of Chinese textiles and apparel. The targeted categories are as follows: Category 5 (knitted jerseys and pullovers); Category 6 (wool, cotton, or man-made fibre (MMF) trousers and shorts); Category 7 (women's and girls' wool, cotton, or MMF blouses); Category 12 (pantyhose and tights, socks, etc.); Category 15 (women's and girls' woven overcoats, raincoats, etc.); Category 16 (men's and boys' wool, cotton, or MMF suits); Category 17 (men's and boys' jackets and blazers); Category 26 (dresses); Category 31 (brassieres); Category 78 (other garments); Category 83 (other overcoats, jackets, and blazers); and Category 117 (woven fabrics of flax or ramie).

EURATEX President Bill Lakin stated that "the time has now come to limit the seemingly voracious appetite of Chinese exporters for the European market." According to Lakin, the Chinese figures themselves demonstrate the existence of a "clear and present danger" to producers in the Pan Euro Mediterranean area and "amply justify immediate safeguard action by the EU."

At least one EU member country government is also seeking safeguard measures. However, EU officials indicated that they will wait for additional data before making a decision. "I am monitoring the statistics very closely," said EU Trade Commissioner Peter Mandelson, and "will take an appropriate action at the appropriate time."

President Bush Nominates Rob Portman as US Trade Representative

On 17 March, President Bush announced his nomination of Representative Rob Portman (Republican-Ohio) to succeed Robert Zoellick as US Trade Representative (USTR). The selection of Portman, a former trade attorney and a respected 12-year House veteran, is clearly designed to maximize the chances of pushing the President's trade agenda through Congress. Portman has served as a liaison between the White House and Capitol Hill in a number of capacities, including as director of the Office of Legislative Affairs during the term of President George H.W. Bush. As the primary contact between the current Bush Administration and the House Republican leadership, Portman has been responsible for shepherding various legislative initiatives through Congress, including the bill that created the Department of Homeland Security (DHS). President Bush said that Portman "has shown he can bring together people of differing views to get things done."

Portman is considered to be a "free trader" by most observers. In 2000, he cast his vote in favour of granting permanent normal trade relations (NTR) status to China and, in 2002, he sided with the majority in approving TPA for President Bush. During the 108th Congress, Portman supported the Australia, Chile, Morocco, and Singapore Free Trade Agreements (FTAs).

Bush stressed that Portman will have a "bold agenda" if he is confirmed by the Senate, which is expected to occur sometime in April. This agenda will include pursuing new bi-lateral FTAs, concluding the Doha Round and Free Trade Area of the Americas (FTAA) negotiations, and enforcing existing trade pacts. Bush did not mention China or the controversial DR-CAFTA, which is expected to be the first major trade issue taken up by Congress this year. Key lawmakers have said it will take a major lobbying effort by the White House to get the DR-CAFTA approved, and the selection of Portman to head that effort would seem to indicate that the Administration is serious about it.

In a certain way, the Administration is pitching the DR-CAFTA to Congress and the domestic textile industry by implying that a vote against the deal is, in reality, a vote for China. The Administration believes that closer economic integration within the western hemisphere will help the region compete with China and other emerging economies in the 21st century. In fact, the Administration has often highlighted the benefits of the DR-CAFTA for the US textile industry - e.g., increasing the viability of one of its major export markets - and has found the general lack of support for the agreement by textile manufacturers hard to understand.

Although it is far too early to tell, it does certainly appear that Portman's selection as USTR will not drastically change the approach of the US government with respect to its bi-lateral trade relationship with China. Quite to the contrary, Portman is expected to continue to pursue a cooperative relationship with Chinese officials on such issues as textile trade, intellectual property rights (IPR), and the yuan's exchange rate. In addition to Portman's leadership, former USTR Robert Zoellick is expected to continue to play a visible role in trade matters in general, and China-related issues in particular, from his new post as Deputy Secretary of State.

Portman's move will open a slot on the House Ways and Means Committee and its Trade Subcommittee. Representative Devin Nunes (Republican-California) issued a press release on 17 March indicating that he would assume Portman's seat on the committee, but it is unknown at this point who will replace Portman on the subcommittee.

CIT Declines to Dismiss Case Against Threat-Based Safeguards

On 18 March, the Court of International Trade (CIT) rejected a motion by the US government to dismiss a complaint challenging the Committee for the Implementation of Textile Agreements' (CITA) consideration of petitions seeking safeguard quotas against imports of Chinese apparel based on the threat of market disruption. The CIT issued a preliminary injunction in this case on 30 December 2004, which has effectively prohibited CITA from further consideration of or action on the threat-based petitions filed last fall against 12 apparel categories, including cotton and MMF knitted and woven shirts; cotton, wool, and MMF trousers; and cotton and MMF underwear.

The CIT ruled that it has jurisdiction to hear the case brought by the US Association of Importers of Textiles and Apparel (USA-ITA) under 28 USC 1581(i)(3). This provision grants the CIT exclusive jurisdiction over lawsuits against the US arising out of "embargoes or other quantitative restrictions on the importation of merchandise for reasons other than the protection of the public health or safety." Both the CIT and the Court of Appeals for the Federal Circuit (CAFC) have repeatedly held that challenges to CITA's actions may properly trigger this jurisdiction in certain circumstances.

The court rejected the government's argument that there is no final action against which a case can be brought because CITA has "merely agreed to consider, and to invite public comments upon," the threat-based safeguard petitions. The court noted that USA-ITA is challenging the jurisdictional and procedural propriety of CITA's acceptance of threat-based petitions, which is appropriate for judicial resolution. The court also determined that the "plaintiff will suffer more serious hardship if judicial relief is denied at this stage in CITA's proceedings than [the] defendant will experience if judicial relief is granted."

The CIT also dismissed as "wholly without merit" the government's assertion that before it can file a court case, USA-ITA must first exhaust its administrative remedies by fully participating in the 30-day comment period for each threat-based petition. This case challenges the existence of CITA's regulations and CITA's actions pursuant thereto, the court said, and the CAFC "has held that such regulatory challenges do not require the exhaustion of administrative remedies." Moreover, the CIT routinely asserts jurisdiction prior to exhaustion where delay would be prejudicial to the plaintiff. The US "cannot seriously argue that requiring full participation in CITA's administrative proceeding, the very legitimacy of which is at issue in this case, is an appropriate application of the exhaustion doctrine."

The court deferred judgment on the portion of the government's motion to dismiss asserting that USA-ITA has failed to state claims for which relief may be granted. This aspect of the case "would benefit from more fulsome development, by both parties, of the evidence and legal arguments." The court ordered the government to submit a response to USA-ITA's complaint by 15 April.

In a closely related development, the CAFC has deferred consideration of the US government's motion to stay the preliminary injunction until early May. A panel of judges will be formed on 28 April to review the appeal to overturn the injunction and oral arguments will be held on 5 May. A ruling on the government's motion could be rendered by the panel anytime after that date.

Not surprisingly, the domestic textile manufacturing industry has sharply criticized the court's decision to delay consideration of the government's motion. Cass Johnson, President of the National Council of Textile Organizations (NCTO), contended that this decision "severely imperils the chances for the threat cases to proceed in time for the U.S. textile industry to achieve meaningful relief from surging Chinese imports. It is a classic case of justice delayed is justice denied." According to National Textile Association (NTA) President Karl Spilhaus, "it is more imperative than ever that the U.S. government self-initiate safeguard cases in all sensitive categories immediately."

April 5, 2005

5-Year Transition Before Unified Tax for Domestic and Foreign Firms

According to Jia Kang, director of the Fiscal Study Institute of the Ministry of Finance, foreign-invested enterprises (FIEs) will be given a grace period of at least five years before a unified corporate income tax comes into force. Jia Kang said that China could hardly find a sound justification to continue offering "supernational treatment" to FIEs as the post-WTO transition period winds to an end. Enterprises cannot compete on an equal footing without a uniform tax rate for domestic and foreign firms. Thus, the unification of income tax rates is an inevitable trend. There are still obstacles to the unification of tax rates, primarily because different government departments have their own interests. If consensus could be achieved between different departments and the legislative process for the unification of corporate income tax rates could be initiated at the National People's Congress next year, the policy should be in place by 2007 at the earliest.

Jia Kang also commented on the joint petition submitted by more than 50 foreign enterprises not long ago. He said that FIEs, out of their own interests, would naturally wish to have a long transition period when they were eligible for tax concessions. Previously, China would arrange a five-year transition for all tax adjustments that affected FIEs. Thus, China would also consider offering FIEs a transition period in the future unification of income tax rates. The government is ready to guarantee a cushion period of at least five years and may even extend that to six or eight years. During this period, the government will gradually increase the income tax rates for FIEs instead of doing so in one step to minimize the impact of the tax reform on FIEs. Jia Kang pointed out that the decision-making process for the unification of income tax rates should be made more transparent so that the public could take part in the discussion and proceed from the fundamental interests of the state in grasping the policy.

Jia Kang also pointed out that the rates for property tax and fees are also not uniform for domestic and foreign firms. Foreign firms only need to pay property tax, but domestic firms are also required to pay land tax and other levies. The regulation and unification of tax rates should be stepped up in this regard, he said.

(Information Source & Credit: Hong Kong Trade Development Council)

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