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A Turbulent Year Ahead in 2004
for China-US Trade Relations?
Special
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Hawaii Ethic Commission
- To preserve public
confidence in government by administering and enforcing State of Hawaii
governmental ethics laws to ensure the highest standards of ethical conduct
among state officials and employees.
Daniel J Mollway,
Executive Director, Hawaii State Ethics Commission,
Pacific Tower, Suite 970,
1001 Bishop Street, Honolulu, Hawaii 96813, USA, Phone: (808) 587-0460, Fax:
(808) 587-0470, Email:
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The ICAC
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available for collection by business organizations. Contents of the Guide include:
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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 |
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China Legal
Issues
China Central TV - English
Channel 24 hours live webcast
October 4, 2007
New Rule Exempts Use By Dates From Four
Types of Food
The Administrative Provisions on Food Labeling recently promulgated by the
General Administration of Quality Supervision, Inspection and Quarantine will
come into force on 1 September 2008. Under the new rule, use by dates will not
be required for four types of food with an ethanol content of 10% or over.
The new provisions govern the content and format of labels for food products and
include a number of additional requirements, such as place of manufacture, name
of repacker, warning message and minimum units for sale. Chinese explanations
must be given if the food has been clinically proven to be harmful to special
groups, has been treated with ionizing radiation or energy, is genetically
modified (GM) or contains legal GM raw materials, and is required by law,
regulations and national standards to show other explanations in Chinese. Food
that uses words like "nourishing" and "strengthening" in their name or
explanation must indicate the vitamin content and calories in its labeling.
The new rule requires that food labels clearly indicate the date of production
and use by date. If the use by date has to do with storage, the special storage
conditions should also be indicated. Alcoholic beverages, edible vinegar, edible
salt and sugar in solid form that have an ethanol content of 10% or over, are
exempted from use by dates. The dates should be indicated in a manner that
complies with national standards or in the "year/month/date" format.
Seven types of content are prohibited from use on food labels, including
expressed or implied claims that the product may be used for the prevention or
treatment of diseases; expressed or implied claims that the product has health
care functions when it is not a health care product; fraudulent or misleading
ways of describing or introducing a type of food; and additional product notes
that cannot be justified. Quality inspection departments will order violators to
make rectification before a stipulated date. Those who fail to make
rectifications after the due date will be fined up to Rmb10,000. Those who
violate laws and regulations will be dealt with accordingly.
Aug 9, 2007
China spends $1b improving
food, drug safety
China will spend more than $1 billion improving food and drug safety by 2010 and
the regulator will be given stronger oversight powers, an official said on
Wednesday.
State Food and Drug Administration spokeswoman Yan Jiangying said the government
had earmarked 8.8 billion yuan (US$1.16 billion) for food and drug safety over
the current Five Year Plan, which runs to 2010.
Part of this would be spent on a large, new laboratory, she said, adding this
was the first time the spending figure had been made public. Yan did not provide
a comparison for previous years.
"Once the Five Year Plan has been completed, the abilities and the base of the
regulator will be substantially raised," Yan said. "There will be an enormous
improvement in the system for guaranteeing food and drug safety for the public."
New rules would give the watchdog the power to seal factories and seize whatever
materials they need when probing sub-standard goods, she added.
Yan said her department would also take the safety message nationwide, starting
out in the enormous countryside, home to 60 percent of the 1.3 billion
population.
"We will focus on rural food safety," Yan said.
A deputy agriculture minister admitted recently that the backward state of
Chinese farming was a major obstacle to raising food safety.
State media said on Wednesday, the beginning of the one-year year countdown to
the Beijing Olympics, the government would launch a campaign to crack down on
the use of highly potent and poisonous pesticides which are banned but still in
use.
Five pesticides were banned earlier this year, and the Agriculture Ministry was
compiling a blacklist of companies still making them. As part of the
government's food safety strategy, it will educate farmers how to properly use
pesticides.
Aug 8, 2007
China New Health Food
Policy Soon to Come Out
The State Administration of Industry and Commerce is currently drawing up a new
set of standards for the examination of health food advertisements for
promulgation in the second half of the year. Over 40 industry standards are also
expected to come out before the end of the year.
The Measures on the Administration of Health Food Registration have been in
force for two years since their promulgation on 1 July 2005. During these two
years, the measures have been amended from time to time and the industry's entry
threshold has been raised. The Standards for the Examination of Health Food
Advertisements being drawn up will subject health food advertisements to strict
examination. Exaggerated advertisements will be banned while brand
advertisements and public service advertisements will be encouraged.
The Regulations Governing the Naming of Health Food (Trial Implementation),
promulgated on 14 June this year as a supplement to the Measures on the
Administration of Health Food Registration, require that health food cannot be
named after physical functions. Under this new regulation, the majority of
health products need to change their names. The industry sees this as the
beginning of the government's firm grip on the health food market.
As a matter of fact, the Measures on the Administration of Health Food
Registration set higher market entry thresholds for the health food industry.
These measures clearly point out that health food refers to "food that is good
for a particular group of people with the function of improving physical
condition, but is not meant for curing diseases and does not cause any acute,
sub-acute or chronic harm to the human body." They also set higher technical
requirements for the registration of health food.
As a result of the raising of entry thresholds, the percentage of health food
passing examination dropped last year. In 2006, China approved 1,231 health food
items and withheld approval for 182 items. The failure rate was 12.7%, an
increase of 53% over the previous year.
Aug 6, 2007
Protectionism - the real threat to growth, stability -
By John Rutledge (The author Dr John Rutledge is a leading
economist who has advised several presidents, including the current
administration, as well as multinational corporations and financial
institutions)
At Nobelist Robert Mundell's recent Santa Columbia Conference, the assembled
group of specialists in international finance agreed on two points: 1) the
global economy is growing faster than at any time in history, and 2) the number
one risk to sustained global growth is rising protectionism in the United
States.
This week in Washington, short-term politics won over long-term economics and
basic humanity when the Senate Banking Committee voted in favor of a
protectionist bill, joining a long list of bills aimed at China.
There is a race to the bottom among American politicians to determine who will
get the honor of leading the lynch mob that blames China for every real or
imagined economic ill. These political leaders are competing for short-term
political gain at the risk of the global growth that is lifting billions of
people out of poverty around the world. Worse still, they know exactly what they
are doing.
On Wednesday of this week, 1,028 economists signed a petition to members of
Congress, advising them of the immense benefits of free and open trade in goods,
services, and capital, and warning them of the grave risk to growth and
stability, both in and outside the US, from escalating protectionist measures
that could lead to a global trade war.
As one of the signers of the petition, I spoke on the issue at a press
conference on Capitol Hill organized by the Club for Growth, who ran the signed
petition as a full-page display in the Wall Street Journal. Let's hope we had
some effect on the policy makers.
Not coincidentally, 77 years ago, in May, 1930, 1,028 economists signed a
similar petition, which ran as a full page in the New York Times. They were
trying to convince Congress not to pass the Smoot-Hawley tariff legislation.
They failed. I am convinced the tariffs then were a major contributor to the
length and severity of the Great Depression that followed.
Today's global economy is in great shape. Global economic growth in 2006 was an
incredible 5.4 percent, compared with 2.9 percent during 1950-73, when Europe
and Japan were rebuilding their economies after the war, and 1.3 percent during
the 1870-1913 industrial revolution. The IMF predicts 5 percent growth for both
2007 and 2008, which would mark the sixth straight year of growth in excess of 4
percent. Developing Asia - the epicenter of the world's economic growth
explosion - will grow at nearly twice that rate, led by the spectacular growth
of China.
The US economy is in good shape too, with growth in excess of 3 percent,
contained inflation, profit growth of over 14 percent in the most recent
quarter, and long-term interest rates below 5 percent.
If things are so good, then why are voters demanding protectionism?
I am convinced that today's chorus of protectionist actions represents more than
the profit-seeking actions of a few special interest groups. Today, when a
political leader announces a new protectionist measure, crowds cheer. I believe
that rising protectionism, nationalism, and social instability are rooted in the
turbulence caused by rapid economic change. Rapid economic change raises average
incomes but it creates new industries and destroys others, creating uncertainty
in the lives of many people. Those, whose fortunes have been temporarily or
permanently reduced, as well as those who are simply afraid of change, appeal to
political leaders for relief; political leaders who promise to stop or reverse
change will gain power over leaders who counsel openness.
Left unchecked, this process can lead to global trade war as country after
country erects non-market barriers to the smooth flow of trade. Ultimately,
these mounting frictions can produce system failure, akin to the blackouts
caused by failures of an electricity network, in which the global economy stops
growing, as it did in the 1970's.
Rampant protectionism could also breed social and political instability and,
ultimately, bring nations into conflict. Political instability would put all the
gains of the past quarter century at risk. The unintended consequences of
protectionism would be harmful for people living in developed countries; they
would be a tragedy for the world's three billion poor people.
We can choose a better course. Although we cannot entirely eliminate calls for
protectionism, there are things we can do to retard its growth and mitigate its
harmful effects. Here are a few ideas:
Policies to reduce frictions include training, education and relocation
assistance for people experiencing change due to rapid global growth.
An education system that gives people the tools to adapt to change by
emphasizing problem solving over rote learning will reduce turbulence.
Labor market policies that make it easy for companies and workers to change the
nature of the work they do will reduce turbulence.
Policies that increase people's overall sense of security, such as reducing
corruption, predictable rule of law, and a healthy environment with clean air
and water, will reduce friction and turbulence.
A stable monetary environment with a predictable price level and a moderate,
predictable tax system will reduce turbulence. I strongly urge China's leaders
to resist pressure from the American government to revalue the RMB. A stable RMB
will keep China's prices stable, deter speculation, promote increased FDI and
sustainable growth.
The reason we care about protectionism is its impact on the lives of families
trying to feed, educate, and care for their children to give them a better
future. Protectionism attempts to stop change. But change is inevitable. It is a
better use of resources to prepare people for change by giving them a stable
society with a growing economy and by forward-looking education that gives
people the skills and flexibility they will need for the jobs of tomorrow's
global economy.
PETITION: Concerning protectionism against China
We, the undersigned, have serious concerns about the recent protectionist
sentiments coming from Congress, especially with regards to China.
By the end of this year, China will most likely be the United States' second
largest trading partner. Over the past six years, total trade between the two
countries has soared, growing from $116 billion in 2000 to almost $343 billion
in 2006. That's an average growth rate of almost 20 percent a year. This
marvelous growth has led to more affordable goods, higher productivity, strong
job growth, and a higher standard of living for both countries. These economic
benefits were made possible in large part because both China and the United
States embraced freer trade.
As economists, we understand the vital and beneficial role that free trade plays
in the world economy. Conversely, we believe that barriers to free trade destroy
wealth and benefit no one in the long run. Because of these fundamental economic
principles, we sign this letter to advise Congress against imposing retaliatory
trade measures against China. There is no foundation in economics that supports
punitive tariffs. China currently supplies American consumers with inexpensive
goods and low-interest rate loans.
Retaliatory tariffs on China are tantamount to taxing ourselves as a punishment.
Worse, such a move will likely encourage China to impose its own tariffs,
increasing the possibility of a futile and harmful trade war. American consumers
and businesses would pay the price for this senseless war through higher prices,
worse jobs, and reduced economic growth.
We urge Congress to discard any plans for increased protectionism, and instead
urge lawmakers to work towards fostering stronger global economic ties through
free trade.
The petition, signed by 1,028 economists, was published in Wall Street Journal
on Wednesday
Aug 4, 2007
China blacklists 400 exporters
China has established a blacklist of companies that have violated rules on the
quality of exports, the Ministry of Commerce said Saturday amid growing global
concern about the safety of China-made goods.
"We have set up a blacklist system for companies in the exporting sector and
punished some companies that have violated laws and regulations," Vice Commerce
Minister Gao Hucheng said in remarks posted on the ministry's website. "Already
429 companies have been punished."
Gao said the recent examples of companies that had been targeted included two
firms that illegally added a deadly chemical to food products blamed for killing
thousands of US pets.
The two companies, Xuzhou Anying Biologic Technology Development Co Ltd. and
Binzhou Futian Biology Technology Co Ltd., had their export foreign trade
licences revoked, Gao said.
Gao stressed the government line that Chinese products were overwhelmingly safe
and of high quality, and called on foreign media not to hype the problems of a
small minority of goods or companies. "China will strengthen international
cooperation on the safety of products," Gao was quoted as saying.
A delegation of US officials in Beijing hammered out "basic frameworks" for two
agreements seeking to reassure US consumers that Chinese-made goods met safety
standards, Secretary of Health and Human Services Mike Leavitt said on Friday.
China, where the former drug and food safety watchdog chief was executed last
month for corruption, has also cancelled the licences of six medicine
manufacturers.
Aug 3, 2007
1,028 US economists urge no
protectionist against China
More than 1,000 top American economists have signed a petition to urge Congress
not to impose protectionist measures against China, saying such a move would
hurt the US. The petition, sponsored by the Club for Growth, was signed by a
total of 1,028 economists from all 50 states and top universities. In addition
to many other prominent and well-respected economists, signatories include Nobel
laureates Finn Kydland, Edward Prescott, Thomas Schelling and Vernon Smith.
The economists said in the petition that China currently supplies American
consumers with inexpensive goods and low-interest rate loans and retaliatory
tariffs on China "are tantamount to taxing ourselves as a punishment."
"Worse, such a move will likely encourage China to impose its own tariffs,
increasing the possibility of a futile and harmful trade war. American consumers
and businesses would pay the price for this senseless war through higher prices,
worse jobs, and reduced economic growth," they warned.
"As economists, we understand the vital and beneficial role that free trade
plays in the world economy. Conversely, we believethat barriers to free trade
destroy wealth and benefit no one in the long run," they said. "Because of these
fundamental economic principles, we sign this letter to advise Congress against
imposing retaliatory trade measures against China."
The economists said trade between the US and China is mutually beneficial.
Government data shows that total trade between the two countries has soared from
US$116 billion in 2000 to almost US$343 billion in 2006. That's an average
growth rate of almost 20 percent a year.
"This marvelous growth has led to more affordable goods, higher productivity,
strong job growth, and a higher standard of living for both countries," said the
signatories. "These economic benefits were made possible in large part because
both China and the United States embraced freer trade." "We urge Congress to
discard any plans for increased protectionism, and instead urge lawmakers to
work towards fostering stronger global economic ties through free trade," they
concluded.
The economists expressed serious concerns about the recent protectionist
sentiments expressed in Congress, which on Wednesday passed a bill in the Senate
banking committee that would make it harder for the Treasury to avoid a finding
that China and other countries have "misaligned currencies."
Last week, the Senate Financial Committee passed another bill that would allow
the US government to push other nations to adopt more market-based currency
policies or face sanctions. Pat Toomey, president of the Club for Growth,
criticized the fact that Congress is suffering from a bad case of amnesia. On
May 4, 1930, 1,028 economists signed a petition urging Congress and President
Herbert Hoover to reject a similar protectionist bill. Neither Congress nor the
president listened and the stock market plunged dramatically, he recalled.
"Over the past several months, protectionism has reached a fever pitch with
lawmakers in both Houses clamoring to attach their names to as many as 50
anti-trade bills," he said.
"Congress hasn't changed much over the past 77 years. Thankfully, economics
hasn't changed much either: 77 years after 1,028 economists stood to thwart
protectionism yelling 'stop!'" he added.
China Pledge over exports
safety By Audra Ang
China said it will work with the United States to improve product safety amid a
massive US recall yesterday of plastic preschool toys made by a mainland vendor.
"We want to cooperate with other countries including the United States to
strengthen cooperation and communication," Wei Chuanzhong, an official with the
General Administration for Quality Supervision, Inspection and Quarantine, one
of China's product safety watchdogs, said on the administration's website.
"We shouldn't use problems found in one product to block all products," Wei
said, in a nod to concerns in the mainland that scattered safety violations are
threatening the reputation of Chinese exports as a whole.
Beijing has acknowledged safety problems, but says other countries are grappling
with similar issues and insists its products should not be unfairly singled out.
The remarks came just ahead of toymaker Fisher-Price's announcement that it was
recalling almost one million toys, the latest in a string of mainland product
safety scandals. Wei's comments came in a meeting Wednesday with a visiting team
of American health officials led by US Health and Human Services official Rich
McKeown. The delegation's five- day visit is centered around developing systems
for ensuring the safety of food, feed, drugs and medical devices exported from
the mainland. Talks have also touched on a US block on Chinese catfish, basa,
dace, shrimp and eel after repeated testing turned up contamination by drugs
that have not been approved in the United States for farmed seafood. Fears were
triggered earlier this year after a mainland-made ingredient in pet food was
linked to the deaths of cats and dogs in North America.
Since then, juice, toothpaste and seafood have joined an expanding list of
Chinese goods that have been banned or recalled around the world because they
contain chemicals and toxins.
Also yesterday, state media said quarantine officials have seized two tons of
dried banana chips imported from the Philippines because they contained levels
of the preservative sulfur dioxide that were 25 times the maximum allowed by
Chinese regulations.
China's latest moves - both conciliatory and defensive - illustrate how the
country has been dealing with a growing international backlash against its
exports because of health and safety concerns.
Xinhua News Agency also said that two people have been arrested in the
southwestern province of Sichuan for selling fake rabies vaccines. The vaccines,
made in Heilongjiang province thousands of kilometers away, have been
administered to 29 people in Sichuan and another 198 in Heilongjiang, Xinhua
said. No side effects have been reported but the people are under close
observation, the agency reported.
Like China's food industry, the pharmaceutical field is poorly regulated, with
companies trying to cash in by substituting fake or substandard ingredients.
July 31, 2007
Xenophobia at heart of
product panic in USA By Debasish Roy Chowdhury -
senior editor with China Daily
 A new
bout of food scare has gripped the United States, with the US Food and Drug
Administration urging people to throw away more than 90 different products, made
at a Castleberry's Food Co plant, from chili sauce to corned beef hash to dog
food, for fears that they are causing botulism, a muscle-paralyzing disease.
Seven cases of botulism have so far been reported. Most victims consumed a hot
dog chili sauce made at the company's plant in Georgia that has been temporarily
closed. The recall has been expanded to Canada as well. Castleberry is owned by
Bumble Bee Foods, the largest branded seafood company in North America. Not
China, the land from where many of the "toxic food and lethal products" in the
world supposedly emanate.
The list of product recalls in the US in recent months is almost inexhaustible:
in March, Ford Motor Company recalled new 2008 Super Duty trucks made in a
Kentucky plant after reports of tailpipe fires in the diesel version of the
vehicles; in June, California-based United Food Group recalled 75,000 pounds of
ground beef products as they were suspected to have been contaminated with E.
coli; and in July, Sara Lee Corp began to recall dozens of its whole-wheat bread
brands made at a Mississippi bakery for fears that they may contain pieces of
metal.
 But the product scares and recalls
the US media seems fixated on are the ones from China. It is the faulty tires,
toothpaste, pet food, seafood and toys with a China connection that are making
all the news, with cover stories, editorials and television programs harping on
how China's "substandard" manufacturing methods are putting American consumers
at risk, how the factory to the world is actually one big sham, and proffering
ways to keep off products with any trace of China.
China's economic stardom is beginning to unravel - there had to be a catch, it
is all falling into place now. Scare sells. As a bonus, the China horror story
even has a feel-good subtext - nothing can match American quality; if China
makes goods cheaper than America, now you know how, by cutting corners.
This fear of Chinese products is reinforced by administrative measures. At the
height of the product scare, the US government quickly formed a Cabinet-level
panel to recommend how to guarantee the safety of imported food and other
products. In this self-delusional world of policymaking, the Castleberrys and
the United Food Groups do not exist, it is only the products coming from outside
the US that pose a threat.
Though it was denied that the move was aimed at China, the announcement came the
same day senators heard testimony from quality regulators about problems caused
by the extremely rapid growth of imports from China. That is really what this is
all about - rising imports from China. It is not the Chinese product scare, what
is actually being played out is the China scare - the antiquated, mercantilist
fear of imports that China's growing economic might evokes.
Chinese exports to the United States last year were nearly triple that of just
five years ago. Chinese exports to US totaled $288 billion while US exports to
China totaled $55 billion.
But according to Cato Institute, Americans have never earned or spent a higher
share of their income in the global economy than they do today. In 2006, what
the US earned through exports and income from foreign investments abroad reached
a record 15.6 percent of gross domestic product. Since China's entry into the
World Trade Organization in 2001, US exports to China have grown from $19
billion to $55 billion, an annual average growth of 24 percent.
Despite the din about how China is getting ahead with its undervalued yuan, real
output of US factories has increased by 50 percent since China fixed its
currency in 1994.
Despite the rhetoric of how ("substandard") Chinese products are stealing jobs
from Americans rendered powerless by this unforeseen consequence of
globalization, trade with China accounts for a mere 1 percent of annual job
displacement in the US.
By Cato's estimates, at the most 150,000 jobs are lost in the US every year
because of imports from China, compared with 15 million jobs that disappear
annually in the US economy primarily as a result of technological changes and
the consequent increase in productivity.
Productivity gains have actually taken a bigger toll on employment in China than
the US. A study by Alliance Capital Management LP in New York finds that while
the number of manufacturing workers in the US dropped by 11 percent from 1995
through 2002, in China it dropped by 15 percent.
And in any case, Chinese imports in the US are mostly replacing imports from
other Asian countries, not American products themselves. And manufacturing is no
longer the foundation of the American economy as it begins to deindustrialize as
part of a global economic shift.
But then again, while there is no market for reason, there is a big one for
fear. That is why a Utah-based health food company has launched a new label and
ad blitz promoting its products as "China-Free". This despite the fact that FDA
records show China is not even the leading source of contaminated imports to the
US, as a Washington Post columnist points out. India and Mexico have surpassed
China in "refused food shipments" over the past year, while the leader in
rejected candy imports happens to be Denmark.
Then why pick on China? In a way China is paying the price for its success.
It is difficult to ignore the xenophobic, and even racist, overtones in the
attacks against China. When the products are made in the US, it is just the
company that is in focus. When they are found to have a China connection, even
if it is an American company getting its products made in China, it is the
country that takes the lashes. As if the company has no obligation toward
quality control.
Protectionism needs a popular idiom. Xenophobia needs a whipping boy. China
scare is the product of this marriage of convenience. As the poster boy of
economic success and the visions it inspires of trumping the almighty US
economy, China is the obvious target when it comes to manufactures. Quite in the
same way as India is, when it comes to services, with outsourcing fears often
vented by Western callers in torrents of racist abuses on Indian call center
workers.
This xenophobia is what lies at the heart of the current product panic in US. If
unchecked, and recklessly fanned, this has the potential of derailing the very
process of globalization that developing countries are betting on for a better
future. That is scarier than the China scare.
July 31, 2007 Honolulu Hawaii USA
There is a Star Bulletin Newspaper article
this morning, I would also add a footnote to the article.
We have to realize that Asian Culture (i.e. Japanese, Chinese & etc)....
1) talking about down turn in business in public may consider as losing face.
Most of these Chinatown Merchants are FIRST Generation Immigrants. Their Asian
Culture of not saying things to lose face is very important to them.
2) They may not want to look weak or not doing well to their competitors in
Chinatown in public media - therefore in public, they will say "things are fine"
"not as bad as it look"...but in reality, could be a very different story...a
public tour in Chinatown will NOT get the real story.
3) No one is offering the Chinatown merchant something tangible - telling the
media that they are not doing well result in nothing, except, may be losing
face!
4) Chinatown merchant has been down this road before. They knew when something
bad happened, a tour of the Chinatown by people in public offices is a standard
procedure for news media consumption - most of the time, that is end of the
story.
Johnson Choi
Isle officials tout safety
of imports from Asia
By Kristen Consillio /
kconsillio@starbulletin.com
State officials visited a handful of
Chinatown merchants yesterday to highlight the safety of Asian imports in the
wake of China's tainted-food scare.
One of five merchants attributed a decline in sales of at least 20 percent to
public fears over the safety of Chinese imports, while others blamed the soft
economy and a seasonal slowdown for the downturn in business.
The state Department of Health released a warning this month to Hawaii consumers
to avoid buying toothpaste labeled as made in China, and the U.S. Food and Drug
Administration has issued other public warnings about tainted Chinese food
products.
"It's a real issue, but I think you have to keep it in perspective," said Gov.
Linda Lingle, who led the group of officials, which included Department of
Health Director Chiyome Fukino and Ted Liu of the Department of Business,
Economic Development and Tourism. "Generally, merchants feel the impact is
small."
Tighter scrutiny of imports also may be a major factor affecting sales as
products are held up in longer inspections by the U.S. Department of
Agriculture, said Ted Li, president-elect of the Chinese Chamber of Commerce of
Hawaii.
"Because containers are retained longer maybe they have less products to sell,"
he said. "The general economic trend is that retail is slowing."
However, Johnson Choi, president of the Hong Kong China Hawaii Chamber of
Commerce, maintains that at least a dozen merchants surveyed this month had
previously indicated that Chinese food-safety concerns were to blame for an up
to 40 percent drop in sales among some downtown business, most of whom were
reluctant to publicly address the issue.
Hawaii Chinese News Coverage
(click on the picture for full view)
July 26, 2007 Honolulu Hawaii USA
Food scandal also claims
Chinatown merchants - China's food-safety ills afflict local (Honolulu Hawaii)
merchants - By CINDY ELLEN RUSSELL /
CRUSSELL@STARBULLETIN.COM &
Kristen Consillio /
kconsillio@starbulletin.com
 Danny Au
reviewed paperwork yesterday at his family-run grocery store, Bo Wah Trading
Co., in Chinatown. Business is down for some Chinatown stores because of tainted
Chinese products that have been imported to America.
Some Chinatown businesses are seeing a
downturn in sales in the wake of food-safety concerns in China. The state Health
Department released a warning this month to Hawaii consumers to avoid buying
toothpaste labeled as made in China, and the U.S. Food and Drug Administration
has issued other public warnings about tainted Chinese food products.
The issue has put doubt in the minds of some patrons of longtime Chinatown
businesses, some of which have seen sales decrease up to 40 percent, according
to the president of the Hong Kong China Hawaii Chamber of Commerce.
Local business leaders are in the process of determining the extent of the
reported downturn and what should be done to help.
Some Chinatown businesses say public fears
over the safety of Chinese products are cutting into their profits. Retail sales
at Bo Wah Trading Co., which sells Chinese dry goods and porcelain, have fallen
30 percent over last year, said owner Danny Au, who attributes the decrease to
consumer fears of products imported from the country.
"A lot of people come to my store and ask me, 'Are these stuff made in China? If
they're made in China, I'm not going to buy,'" he said, adding that his
wholesale business on Maunakea Street is down another 20 percent. "They see in
the newspapers all the negative talk about Chinese products. It causes the
people not to buy Chinese stuff."
The state Health Department released a warning this month to Hawaii consumers to
avoid buying toothpaste labeled as made in China, and the U.S. Food and Drug
Administration has issued other warnings about Chinese food products. "There's a
reason why consumers are maybe hesitating, but that's the public's choice," said
Janice Okubo, state Health Department spokeswoman. The issue is drawing concern
from Chinese business leaders, who are attempting to counter the negative
publicity and downturn in local business.
 Sammy Au
and his father, Tin Yeu Au, helped customers yesterday at the family's Bo Wah
Trading Co. in Chinatown. An estimated 90 percent of the store's goods are from
China.
Johnson Choi, president of the Hong
Kong China Hawaii Chamber of Commerce, said he surveyed at least a dozen
Chinatown merchants in the past week, who said the issue has resulted in a 30 to
40 percent drop in sales. He sent an e-mail yesterday to local business leaders
urging them to unite to help local Chinese businesses and is trying to get the
message out to his 250 chamber members.
"What we're trying to explain to the local community in Hawaii is that
there are actions that have been taken by the Chinese government and that all
exports from now on (do) meet international standards," he said.
Jim Tollefson, president and CEO of the Chamber of Commerce of Hawaii, and
Edward Pei, president of the Chinese Chamber of Commerce, both said the e-mail
was the first time they had heard of a reported downturn among Chinatown
businesses.
"We're not sure how we can help at this stage, but certainly we are concerned if
there has been a slippage in their sales," Pei said. "We're kind of in the
fact-finding mode seeing if this is in fact a sales pattern that is of concern
to merchants in Chinatown."
A representative from the Chinatown Merchants Association wanted to do more
research on the issue before publicly commenting.
 Most
of Bo Wah Trading Co.'s goods, such as the imported foods shown here, come from
China.
Meanwhile, some other businesses say the
negative publicity surrounding Chinese products has had little to no effect on
sales. "We have lots of customers always saying they're scared of Chinese
products ... but they're still buying," said C.K. Wong, owner of Kwong Tong
Chong Co., which has sold Chinese dry goods on Maunakea Street for more than 30
years.
However, business has dropped between 5 and 7 percent for Shirley Ing, owner of
Sun Chong Co., another Chinese grocer on North Hotel Street, though July is
typically a slow month for the store.
"I don't hurt that much, maybe because my store is small," she said. "I've been
telling (customers) sometimes the news is not true, you don't have to believe
it."
While the Empress Restaurant on North Beretania Street has seen lower sales of
about 10 percent this summer compared with last year, it is likely due to more
competition in the neighborhood rather than the safety concerns of Chinese food
products, said owner Kenneth Lee.
"Something like that is not necessarily a bad thing -- at least it raises
people's awareness of food safety," he said. "I would not be surprised if it
affects (retailers) more because people are actually reading the label on the
shelf, whereas people who come to our restaurant don't see what kind of canned
goods we put in ingredients that goes into the preparation process."
China needs to improve the quality of
its exports to win a better international reputation, Premier Wen Jiabao said
during a meeting on Friday that set out punishments for food and drug firms that
violate standards. "Product quality relates to our people's interest, the
survival and development of our enterprises and the image of our nation," Wen
told the meeting on export quality. It was crucial to win over the international
market with good-quality exports, Wen added. Chinese exports of everything from
fish to toys, pet food to toothpaste, have been found in recent months to be
mislabeled, unsafe or dangerously contaminated, creating an international
backlash. Wen's remarks were reported on state radio and TV. "We will not avoid
problems, but we protest against untrue reports that tell only part of the
story, and trade protectionism and discrimination," Wen was quoted as saying.
Food safety scandals are a regular topic in the Chinese media, but the nation
lacks a basic food safety law and the ability to enforce its food and drug
safety regulations at home or for exports. Its imports are generally carefully
scrutinized. The head of the State Food and Drug Administration was executed
last month, after being found guilty of accepting bribes to approve drugs. "It
is a timely, urgent and important job and also a long-term and enduring task for
us to fully improve the quality of Chinese products," Wen said. China would
raise the threshold for products relating to human health and safety so as to
prevent problematic exports from leaving the country, he said. The authorities
would also check every stage of production, including raw materials, additives
and intermediate products, so as to make the "made in China" brand a symbol for
goods with great quality, Wen said. Producers of food, drugs and other
agricultural goods that violate the food safety rules would face fines of up to
100,000 yuan ($13,220), have operation certificates or export permits cancelled
or even risk arrest, according to regulations carried on the central government
Web site
Chinese Premier Wen Jiabao said on
Friday that China would strengthen exchanges and cooperation with other
countries to cope with the issue of food safety "in a responsible way" at a
national work meeting in Beijing. The following are measures the Chinese
government has taken since China's food quality was called into question both
locally and globally. (1) China and the United States will hold a
vice-ministerial-level talk on food security in August and the two sides will
sign a memorandum of understanding on food safety by the end of this year to
enable the two countries to resolve food safety issues more effectively. (2) The
U.S. Health and Human Services officials will visit China at the end of July to
exchange views with Chinese officials on the U.S. detention of four categories
of aquatic products (catfish, basa and dace, shrimp and eel) that were alleged
to contain banned substances. (3) China pledged on July 25 to provide regular
and detailed information about potentially dangerous exports from China based on
European complaints during the visit of Meglena Kuneva, the European
commissioner for consumer protection. (4) China has established bilateral
mechanisms and multi-lateral mechanisms on food safety with its trade partners
including the United States, the European Union, Japan and the Republic of
Korea.
May 20, 2007
 Former U.S. Trade Rep Discusses Managing
Challenges in Asia Trade
The United States Congress has had numerous hearing and introduced legislation
this year aimed at rectifying the “unfairness” underlying the U.S. trade deficit
with China. Many members of Congress have also questioned the benefits of trade
agreements negotiated by the Bush Administration, such as the U.S.-Korea Free
Trade Agreement (FTA).
Ambassador Carla A. Hills, who served as U.S. Trade Representative from 1989 to
1993, sat down recently for a wide-ranging discussion with the United States
Asia Pacific Council (USAPC) at East-West Center Washington. Amb. Hills
challenges trade critics on Capitol Hill. She offers new insights into the
imbalance in U.S.-China economic relations, touts the benefits of the U.S.-Korea
FTA, and underscores the need to better educate workers about the importance of
trade to their livelihoods.
USAPC: You co-chaired the Council on Foreign Relations’ China Task Force,
which issued a report on April 10 entitled, U.S.-China Relations: An Affirmative
Agenda, A Responsible Course. Among other points, the report maintains that
trade barriers are not a significant cause of the U.S.-China trade deficit.
Please elaborate.
Hills: The Task Force reviewed a great deal of economic data and
concluded that the U.S.-China trade deficit primarily reflects a broad
macroeconomic imbalance between the two countries rather than unfair trade
practices by China. Actually, China is one of the most open of the developing
countries.
The bilateral deficit results largely from the fact that China consumes so
little and saves so much. China’s consumption rate is about 38 percent, which is
extraordinarily low for a major economy. By comparison consumption in the United
States is about 70 percent of GDP. In India it is over 60 percent. China’s
savings rate nudges 50 percent—quite high for a developing country. By
comparison, the U.S. savings rate is in the negative range.
The Task Force believes the U.S. government could encourage China to stimulate
domestic consumption and reduce political tension here by, for example,
permitting the valuation of its currency to respond to market forces. We found
that China was unlikely to permit its currency to appreciate in response to
market forces if other East Asian governments, such as Japan and South Korea,
did not do so as well. Thus, the Task Force concluded that a broader discussion
regarding currency policy would be helpful.
Also, the Task Force concluded that increased Chinese government expenditures on
health care, pensions, welfare, and education would help to stimulate domestic
consumption and reduce savings, as would financial reforms aimed at opening the
mortgage market, providing car loans, and creating other forms of consumer
finance, like credit cards.
The Chinese people save so much because they are worried about their futures.
Their government spends very little on social welfare programs—less than four
percent of GDP. And for some time, China has had a one-child policy.
Consequently, most Chinese cannot look to their children to support them in
their old age—and they are aging very rapidly. So they feel they must save for
their health, their pensions, and the education of their children.
USAPC: How about on the U.S. side of the relationship? Did the Task Force
recommend actions the United States should take to help correct the
misalignment?
Hills: Yes. The Task Force emphasized that, first, the United States
should increase domestic savings by trimming the federal deficit and cutting
back on “pork-barrel” spending. Second, we should strive to improve our
competitiveness in the global economy by educating the U.S. population to be as
efficient and skilled as possible. And third, the U.S. should continue to pursue
market-opening trade negotiations so there are more markets for U.S. exports.
Getting the bilateral economic relationship in order will require both countries
to undertake reforms. The trade imbalance is not primarily a result of China’s
trade barriers.
USAPC: That point is a very hard sell on Capitol Hill these days. Many
lawmakers regard China’s trade barriers as the problem.
Hills: Yes, there are some trade barriers, the principal one being
China’s failure to adequately protect intellectual property. The Task Force was
quite harsh in its evaluation of China’s efforts to enforce the protection of
intellectual property rights (IPR). We argued that China’s poor enforcement
record and
nominal penalties for IPR infringement reflect a lack of political will as much
as they reflect a lack of capacity.
The Task Force urged the U.S. government to develop a system based on one
already used by the U.S. Chamber of Commerce, which rates how well provincial
governments enforce IPR. The system would help guide U.S. companies toward
provinces that do a better job of protecting intellectual property. But it is
important to bear in mind that even if China dramatically improved enforcement
of IPR rules, that, in and of itself would not rectify the trade imbalance.
USAPC: With respect to IPR, the U.S. Trade Representative (USTR)
announced April 9 that it had filed cases against China in the World Trade
Organization (WTO) over (1) deficiencies in China’s legal regime forprotecting
and enforcing copyrights and trademarks on a wide range of products and (2)
China’s barriers to trade in books, music, and films. Some Members of Congress
argued that USTR should have been more aggressive and taken China to the WTO
much sooner. Do you agree?
Hills: No. I think USTR has done quite well. I applaud the bringing of
IPR cases against China. It is much better to bring a case to the WTO where
there is a violation than it is to haggle bilaterally. The WTO provides a system
for resolving disputes. And if the complainant is correct, it is likely to
prevail. The process eliminates a lot of potential hostility.
Under the WTO dispute settlement rules, the parties to a dispute are required to
consult for 60 days, which USTR and its Chinese counterpart did. Unfortunately,
they did not resolve the dispute through consultation. USTR therefore was
correct to file the suits when it did.
USAPC: Concerning another important Asian economic relationship, on April
1 the United States and South Korea concluded a groundbreaking free trade
agreement (FTA). Leading members of the U.S. business community applauded the
accord, but key American lawmakers strongly opposed certain provisions. Some
observers worry that Congress may not approve the agreement. What effect would
Congress’ failure to approve the U.S.-Korea FTA have on American economic
leadership in Asia?
Hills: First let me say that I am very much in favor of the U.S.-Korea
Free Trade Agreement. It is a good agreement that will make 95 percent of
bilateral trade in consumer and industrial products duty free within three
years. Most of the remaining tariffs will be abolished within 10 years.
It also tackles sensitive sectors that Korea has protected for many years, like
agriculture. More than $1 billion worth of U.S. agricultural exports to South
Korea will become duty-free immediately, with most of the remaining tariffs and
quotas phased out over the first 10 years of the FTA. We also will realize
improved IPR protection and expanded opportunities for U.S. service industries,
including telecommunications and e-commerce.
In short, the U.S.-Korea FTA has few exemptions—unlike those that have been
negotiated by other WTO members. It is one of the few efforts worthy of the name
“free trade agreement.” And it goes much further than the most fervent
optimist’s aspiration for the current WTO round of multilateral trade
negotiations.
As a result, bilateral trade will expand and stimulate economic growth with
little diversion. That experience should help persuade Koreans, who have taken a
highly defensive position against agricultural liberalization in the WTO talks,
of the benefits of even broader liberalization.
The U.S.-Korea FTA also stands as a model for how other nations could open their
markets to goods, services, procurement, and protected IPR just as the North
American Free Trade Agreement (NAFTA) did when the so-called Uruguay Round of
multilateral trade negotiations faltered in 1992. The NAFTA not only stimulated
economic growth throughout North America, it also (1) encouraged the nations of
the Asia Pacific to agree to gradually open their economies, (2) persuaded the
34 democratically elected leaders of the Western Hemisphere to negotiate a FTA
for the hemisphere, and (3) breathed new life into the then-stalled global trade
talks.
Politically, the U.S.-Korea FTA is equally important. Congress complains that
the Asian nations have meetings that exclude the United States. An agreement
with a major Asian nation like South Korea effectively throws a rope across the
Pacific.
I remember when ex-Prime Minister of Malaysia Mahathir bin Mohamad said he
wanted to draw a line down the Pacific and create an Asian economic caucus. Then
Secretary of State James Baker said he did not want such a “line” because the
United States has major interests in East Asia.
We cannot stop the Asian nations from talking to each other. We certainly talk
to our friends in the Western Hemisphere. But I do think that if the Asian
nations form an economic bloc or caucus that includes the ASEAN nations plus
China, Japan, South Korea and possibly India, Australia, and New Zealand, the
United States definitely will want to participate in that group.
One way for the United States to gain access to an emerging regional economic
arrangement is to conclude a FTA with one or more of the major Asian economies.
I think the U.S.-Korea FTA is a particularly good way to start.
USAPC: As we speak, the outlook for the WTO round of multilateral trade
negotiations remains uncertain owing, in part, to strong domestic opposition in
South Korea and many WTO member countries to liberalizing agricultural trade. Do
you think we have gone as far as we can politically in liberalizing the global
trading system?
Hills: No, I do not. But we must make a greater effort to explain to the
public why open markets and economic interdependence benefit all countries.
Certainly, industrialized countries have enjoyed enormous benefits from
globalization. According to studies by the Peterson Institute for International
Economics, since
World War II the U.S. economy has gained an additional $1 trillion per year as a
result of globalization. That, in turn, has made every American household
roughly $9,000 per year richer.
Developing countries that have opened their markets also have gained. They have
grown five times faster than those that have kept their markets closed. This is
apparent if you compare China and India. In the 1980s, China began opening its
markets. In the subsequent 20-odd years, it has enjoyed 10 percent annual
growth, attracted a tremendous inflow of foreign investment, and raised 400
million people out of poverty.
India has been much slower in opening its markets. As a result, it has attracted
on average only about $7-8 billion worth of inward investment per year over the
past decade, whereas China has attracted nearly $65 billion during the same
period. That is quite a contrast. It shows how opening markets benefits rich
and poor countries alike.
USAPC: The United States and Brazil, which founded the so-called G-20
developing country coalition in the WTO,[1] recently agreed to cooperate in
bringing the WTO Round to a successful conclusion. Do you think that Brazil
ultimately can persuade India and other Asian members of the G-20 to support
ambitious agricultural reforms that would eliminate impediments to free trade?
Hills: I am a big believer that Brazil could make quite a difference in
helping to bring the WTO Round to a successful conclusion through its leadership
in the G-20. It has not yet done so. I find this curious because in the past
Brazil has been an aggressive member of the Cairns Group, which has historically
sought to open agricultural markets.[2]
The G-20 provides Brazil a good platform on which to talk to India about
liberalizing agricultural trade. It could use this platform to talk to China and
Russia as well. We must persuade developing countries about the benefits of
liberalization, particularly in agriculture.
Today, tariffs on agricultural goods are five times higher than tariffs on
industrial products. A multilateral agreement dealing with agricultural barriers
will maximize poverty alleviation for it will require commitments from all
nations. Developing countries as a group have higher tariffs than industrial
countries and trade disproportionately with other developing countries. A WTO
agreement will best integrate poorer nations into the global trading system by
maximizing opportunity for their people and stimulating their economic growth.
USAPC: Do you think it would be appropriate for American companies to
launch campaigns aimed at educating the man-on-the-street about the benefits of
trade and globalization?
Hills: Quite clearly, if American companies want to keep international markets
open, they must play a bigger role in educating the American public about the
benefits of trade. I often tell audiences of corporate executives that they must
educate their employees, whether they have five or 50,000 on their payroll. They
should do everything they can to educate their employee populations.
Corporate management must explain to employees how trade benefits the company,
what percentage of company revenues comes from the company’s international
activity, what percentage of employees’ paychecks can be attributed to trade,
and why, therefore, the company needs open markets.
Employees should be informed that companies with international connections pay
higher wages, offer more expansive benefits, and provide greater security than
businesses that are focused only on the domestic economy. In short, U.S. workers
should understand fully why it is in their interest to support open trade.
Also, the average American is not likely to know about—but likely would
oppose—the inequities created by certain U.S. trading practices. These practices
have the effect of robbing developing countries of a chance to participate in
the global marketplace.
For example, our subsidies to producers of cotton crops are higher than the cash
value of that crop. The subsidies serve to rob the poor sub-Saharan African
nations of potential export opportunities, even though they are more competitive
in cotton production.
Similarly, Americans should know that we do a great disservice to global
stability by our restrictions on the import of sugar. The U.S. system of quotas
greatly limits sugar imports, thereby enabling inefficient American producers to
block export opportunities of poor countries that produce this commodity far
more competitively. Not only do these quotas hurt nations that produce sugar—and
in some cases drive these producers to grow illegal crops—but they also hurt the
average American who must pay more for sugar.
If you examine the U.S. tariff schedule, you will see that tariffs are extremely
regressive. They are much higher on ordinary goods than on luxury items. Tariffs
on heavy glass are much higher than tariffs on Tiffany crystal. Tariffs on shoes
are much higher than tariffs on leather luxury goods. The United States should
be a leader in correcting these inequities.
USAPC: So the average American often must pay more at the check-out
counter because of protective trade practices. But some Americans are paying an
even steeper price in that they are losing their jobs because of trade. You have
said that we must find a way to use the money we have earned from trade
expansion to
rectify problems caused by trade-related job dislocation. Please elaborate.
Hills: Yes, there are some people who are displaced by reason of trade.
However, there are many more people who are displaced by reason of technology. I
would target assistance at both groups because it is impossible for those
affected to distinguish the cause of the displacement, and they are a
politically vocal group.
If business and political leaders want to keep markets open, we must deal with
those who are adversely affected as a result of trade-related displacement. The
U.S. government should provide more and better training to those who are
displaced. Our current assistance and training programs are inadequate.
For example, the Trade Adjustment Assistance (TAA) program does not cover
services workers. This group constitutes 80 percent of the U.S. workforce. In
addition, TAA only applies to people 50 years of age or older, so it does not
help younger, displaced workers. And it has a $10,000 limit. So if you are a
laid-off steelworker earning $80,000 a year and you immediately find a new,
entry-level job in the computer industry for $45,000, you suffer quite a
shortfall.
As I mentioned earlier, studies by the Peterson Institute for International
Economics (IIE) calculate that (1) the United States is richer by $1 trillion
per year as a result of the opening of global markets over the past half century
and (2) we could add another half trillion dollars per year to our economy by
further removing trade barriers.
Our nation currently spends about $2 billion annually to address directly the
costs connected to displacement. IIE calculates that expanding TAA to cover
displaced workers would cost between $3 billion to $12 billion per year
depending on the breadth of coverage and the amount of benefits. This is far
less than the $1 trillion yearly we currently derive from open markets.
I am persuaded that we need a government program that pays part of the loss a
worker may incur in having to change industries to secure employment,
particularly if the job is in a new sector that is more promising. Perhaps the
government would provide 90 percent of the pay differential the first year, 80
percent the second year and so forth until the worker gets his or her bearings
and no longer is at the entry-level salary. That money will upgrade our
workforce by providing the very best training a worker can get, which is
training on a real job.
I also favor programs encouraging business to do more to train workers. For
years, we have provided tax incentives to business to upgrade capital equipment.
But the United States is not as active in heavy industry as in earlier years.
The knowledge sector is where we are growing. I would like to see the U.S.
government provide tax incentives to encourage business to develop our human
capital.
USAPC: The President’s authority to negotiate trade agreements expires on
June 30. Congress must renew this authority. House Democrats, in particular,
appear unlikely to approve renewal of Trade Promotion Authority (TPA) unless the
Bush Administration agrees to include labor and environmental standards in all
trade agreements. Is this a reasonable demand? Will it make U.S. trade policy
more ethical, as some Democrats maintain?
Hills: We have to be careful about what we insist other countries do. I
have heard loose talk in Congress about including provisions in trade agreements
that would require the trading partner to enact laws that enforce the
International Labor Organization (ILO) standards.
The problem with that requirement is that the United States does not enforce
every ILO standard. We do not permit agricultural workers to organize, for
example. I do not know how the United States can insist that other countries
adhere to a code that we have not fully adopted.
I believe in labor standards in the sense that we certainly want countries to
upgrade their laws where they are deficient. But if we examine a trading
partner’s labor laws and they appear to be reasonable, what then becomes
important to us is that the nation enforces those laws. USTR used this approach
in FTAs it negotiated with the Andean nations, Colombia, Peru, and Panama.
It would be a mistake, in my view, to ask these Latin American nations to open
up the FTAs for the purpose of adding labor and environmental provisions. If
there are specific labor provisions that Congress would like included, perhaps
this could be done via side letters.
U.S. lawmakers should be very careful of what they demand, lest the same be
asked of our nation. If Congress insists on compliance with ILO standards, it
then should be prepared to change U.S. labor laws, some of which involve state
laws. But Congress always has harbored quite a lot of resentment toward
countries
that ask the United States to change its domestic laws.
[1] In 2003, Brazil led the creation of the G-20 in response
to an agreement between the United States and the European Union on text aimed
at liberalizing agricultural trade. Brazil and its developing country allies
evidently were concerned that the U.S.-EU language would end up marginalizing
their interests in the WTO Round. Brazil therefore formed the G-20 to enable the
WTO’s developing country members to bargain more effectively with Washington and
Brussels in the agricultural trade talks that are part of the current WTO Round.
[2] The Cairns Group is comprised of 18 agricultural exporting countries from
Latin America, Africa and the Asia-Pacific region. The Group is made up of both
developed and developing countries and has been an active force in agricultural
trade reform for 20 years. Cairns Group members include Argentina, Australia,
Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia,
Malaysia, New Zealand, Pakistan, Paraguay, Philippines, South Africa, Thailand
and Uruguay.
April 23, 2007
New Policies for Zhuhai-Macau
Cross-Boundary Industrial Zone
The Administrative Measures of the General Administration of Customs for the
Zhuhai Park of the Zhuhai-Macau Cross-Boundary Industrial Zone took effect on 8
April. Under the new measures, the Zhuhai Park will enjoy special policies as a
bonded area, an export processing zone and a special port. This is the first
customs-supervised special area in the whole of China and is the only industrial
zone with these three "special roles" approved by the State Council. Under the
new measures, enterprises operating in the park enjoy greater freedom and
flexibility than those outside in terms of customs declaration. Enterprises
within the park that deliver goods across customs boundaries and enterprises
crossing customs boundaries to pick up deliveries in the park may either make
customs declarations at the park or directly declare the goods to the local
customs where they are registered.
Export Rebates for Goods Entering Zhuhai Park - Enterprises in the park are
eligible for more preferential tax policies under the new measures. Customs will
create a virtually tax-free environment for these enterprises. Goods entering
the park will be considered as having been exported and will immediately be
eligible for export rebates (except for goods intended for daily or office use
in the park). Goods leaving the park will be taxed as they are, and no VAT will
be levied on goods processed in the park. Scraps, rejects, packaging materials,
defective and sub-standard goods leaving the park are taxed as they are, which
is more preferential than like goods outside the park. Equipment and office
supplies entering the park for own use are entitled to tax deduction and
exemption. Goods entering the rest of the country via the park in the form of
general trade are entitled to zero tariff if they have obtained CEPA
Certificates of Hong Kong or Macau Origin issued by the Hong Kong or Macau
issuing authorities.
Processing Trade Eligible for Preferential Policies - The customs offers five
preferential policies to processing trade in the cross-boundary industrial zone.
These include: implementation of electronic account management, whereby
paperless processing trade registration handbooks are used; customs duty deposit
is not required; the processing of bird's nest, shark, American gingseng and
antler, which is forbidden elsewhere in the country, is permitted; processing
trade is not subject to national or customs territory unit consumption standards
and enterprises are only required to make a truthful declaration to customs for
verification and cancellation purposes; consumables are entitled to bonded
treatment whether or not they are completely consumed in the production of
export products.
According to the Gongbei customs, the State Council approved the establishment
of the Zhuhai-Macau Cross-Boundary Industrial Zone on 5 December 2003, and the
zone officially went into operation as a bonded area on 8 December 2006. The
industrial zone is divided into two sections, the Zhuhai Park which comes under
the administration of the Zhuhai government and the Macau Park which comes under
the administration of the Macau SAR government. The two parks are separated by a
waterway and are connected by a special customs port channel. A total of 26
enterprises have moved into the Zhuhai Park during the past four months. Among
them, 14 foreign-invested enterprises have registered with the Chinese customs.
Total investment in the Zhuhai Park exceeds US$100 million.
March 3, 2007
China: New Rules for
Foreign M&A Coming Out Soon
As disclosed by officials of the Ministry of Commerce (MOFCOM), the departments
concerned are discussing the law governing the joint examination of mergers and
acquisitions (M&As) by foreign companies, which is expected to come out soon.
Also, the new edition of the Catalogue for the Guidance of Foreign Investment
Industries will be published in the first half of this year.
At the Foreign Investment Work Conference for departments under the National
Development and Reform Commission (NDRC) at the end of last year, NDRC vice
minister Zhang Xiaoqiang proposed establishing a special mechanism for the
examination of M&As, preparing a list of "strategic and sensitive" industries,
and taking measures to "control what should be controlled, liberalise what
should be liberalised, and safeguard national economic security and industrial
security".
A report compiled by NDRC's Institute of Investment also noted that China should
set up a permanent body made up of relevant personnel from MOFCOM, NDRC,
Ministry of Finance and other ministries and commissions for the examination of
M&As by foreign companies. According to the report, these people can discharge
their duties when project examination is needed and can work in their own
departments at other times.
There has been a growing call for better examination of M&As by foreign
companies since 2006. This is particularly true following the outbreak of
controversies over foreign M&As and industrial security triggered by Carlyle's
bid to acquire Xugong Construction Machinery, German-based Schaeffler's bid to
acquire Luoyang Bearing, and the acquisition of Supor.
MOFCOM and five other ministries and commissions jointly promulgated the
Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign
Investors in September 2006. Under these provisions, M&As of domestic
enterprises by foreign investors must be examined and approved by MOFCOM and
relevant departments as well as go through anti-monopoly verification when
necessary. MOFCOM is responsible for summoning the departments, institutions,
enterprises and stakeholders concerned for hearings. However, the provisions
have not specified whether or not a special organ for the examination of foreign
M&As will be established.
It is understood that the existing mechanism requires enterprises concerned to
submit documents relating to proposed M&As, which will be examined by the
foreign investment management department or bureau under relevant ministries or
commissions according to a set order. When necessary, the heads of relevant
departments or bureaus may form a joint committee to discuss whether it is
necessary to hold hearings.
Food Dealers Not Allowed to Name Food
After Drug
To put a halt to the unscrupulous act of some food producers and distributors
who name food items after drug, the Ministry of Health has recently issued a
notice urging the departments concerned to strictly exercise supervision and
inspection to stem such practices. Consumers are encouraged to report or lodge
complaints to their local health administrations once they discover such
practices.
According to an official from the Ministry of Health, illegal acts of producing
and selling food as drugs include: Naming food after drugs without
authorization, such as calling a product "Ban Lan Gen XX" or "Qing Kai Ling XX";
illegally adding medicinal ingredients; and making exaggerated claims with hints
of therapeutic effects. These illegal acts not only disrupt the order of the
food retailing market but may be hazardous to public health. The notice
stipulates that food producers are forbidden to use listed names of drugs as
trade names of their food, and food distributors (including retail drug stores
with food hygiene licence) may not purchase, stock, display or sell food bearing
the names of listed drugs.
The Ministry of Health stressed that health administrations at all levels may
not overstep their authority in the examination and approval of food or add
names of specific items of food other than health foods, food additives and new
foods to the list of "permitted items" on their Food Hygiene Licence without
authorization.
March 1, 2007
Clean-Energy Technologies Focus of Upcoming Trade Mission to India and China
In April, a Commerce Department trade mission to India and China will promote
U.S. clean-energy technologies to potential buyers in those expanding markets.
A trade mission to India and China to promote the sales of U.S. clean-energy
technology has been scheduled for April 18–25, 2007. Led by David Bohigian,
assistant secretary of commerce for market access and compliance, the mission
will visit New Delhi and Chennai in India from April 18 to 20 and Beijing and
Nanjing in China from April 23 to 25.
Clean-energy technologies have moved to the forefront of energy infrastructure
investments in India and China. Those two expanding economies are seeking to
diversify their energy sources and to reduce carbon emissions without hindering
economic development. The trade mission will highlight technologies that are at
the center of the Asia Pacific Partnership (APP) on Clean Development and
Climate, an innovative U.S.-led effort to accelerate the development and
deployment of clean energy technologies through a voluntary public-private
partnership among six major Asia-Pacific nations.
“We have seen amazing growth in the economies of both India and China that has
led to a great need for additional energy in these countries, and we expect this
trend to continue,” said Bohigian. “At the same time, U.S. companies have
developed innovative clean-energy products, and their deployment in India and
China will have dramatic effects on the environment not only in these countries,
but around the world.” During the trade mission, U.S. renewable energy,
energy-efficiency, clean-coal, and distributed generation companies will have
the chance to meet with national and local government officials and to
participate in networking opportunities, one-on-one business meetings, country
briefings by experts, and site visits.
Growing Economies, High Energy Demand - India, the world’s fastest-growing
free-market democracy, has a critical need for investments in clean energy.
Demand for energy in India far exceeds supply, and the development of renewable
energy resources is a high priority for the government. According to Commercial
Service estimates, the market for renewable energy business is about $500
million per year and is growing at an annual rate of 15 percent, creating strong
and diverse business prospects for U.S. companies. China, the world’s
fastest-growing major market, is targeting the development of clean-energy
technologies in its current Five Year Plan because of rapidly increasing energy
demand and the desire to expand the use of non–fossil fuels. The plan emphasizes
clean coal, wind power, solar power, and biomass technologies. It also calls for
developing large-scale, high-efficiency, and environmentally friendly power
generation.
Two Indian Cities at Forefront of Clean-Energy Usage - The first stop for the
mission will be New Delhi, the seat of India’s national government and the
country’s principal end-user of clean-energy technology. New Delhi is also one
of India’s largest metropolitan areas and is in acute need of power generation
and environmental quality improvements. The city’s size makes it a particularly
attractive market for large investments in clean energy generated by solid and
liquid wastes. Chennai, formerly known as Madras, is the capital of Tamil Nadu.
In addition to being one of the top five Indian states in terms of foreign
direct investment, Tamil Nadu is home to a number of renewable energy companies.
Chennai and Tamil Nadu are centers for national efforts in wind energy and solar
air–heating technology. Also, India’s first special economic zone for
manufacturing and testing of non-conventional energy equipment will open soon in
Chennai.
In China, Olympics Spur Development - Beijing is unique in China because it is a
city with provincial status, enabling its municipal government to approve
independent foreign investment projects up to $30 million. This ability has
positioned Beijing as an attractive location for foreign investment in China. As
the national capital, the city also offers unparalleled access to Chinese
policy-makers. The selection of Beijing as the host of the 2008 Summer Olympic
Games has also spurred substantial government investment in projects that
improve environmental quality. Nanjing, home to more than 5 million people, is
one of China’s most developed cities. Power and energy are among the city’s core
industries. Nanjing hosts one of China’s largest trade fairs on clean and
renewable energy and is beginning a prominent provincial-level project to create
an efficient power plant. This project is intended to achieve energy
conservation and efficiency by implementing new technologies, and it is rooted
in demand-side management familiar to U.S. companies. The use of clean,
renewable energy and energy efficiency are crucial components of the project.
February 17, 2007
Proven Track Record Needed
When Applying for Foreign-Invested Design Enterprise Qualifications
On 1 February, the Ministry of Construction and Ministry of Commerce jointly
issued the Implementing Rules for Regulations on the Administration of
Foreign-Invested Construction Engineering Design Enterprises. The new rules set
strict standards for the application and verification of qualifications of
foreign-invested construction engineering design enterprises.
Under the new rules, when applying for verification of qualifications,
foreign-invested construction engineering design enterprises must not only meet
the necessary professional requirements, but must also provide documents
supporting their track record as foreign service suppliers outside China as well
as qualification certificates of individual registered architects and engineers.
As required by the Ministry of Construction, foreign service suppliers should be
enterprises engaged in construction engineering design or natural persons who
have obtained relevant professional qualifications in their own countries or
regions. While foreign enterprises must have proven track record as construction
engineering design enterprises in their own countries or regions, natural
persons must be registered architects or engineers engaged in construction
engineering design in their own countries or regions.
When foreign-invested construction engineering design enterprises employing
foreign registered architects or engineers as principal professional personnel
apply for qualifications as a construction engineering design enterprise, the
professional titles of these personnel will not be verified. Verification will
only be conducted on their academic qualifications, number of years of service
in engineering design, as well as their registered qualifications, track record
and goodwill in engineering design abroad.
Foreign Brands Dominate Shanghai Market
According to statistics released by the Shanghai Municipal Business
Information Centre on 5 February, foreign brands accounted for 54.8% of
best-selling brands in 2006, up 2.2 percentage points from 2005. Meanwhile, the
market share of domestic brands dropped to 45.2%. The increased market
concentration of best-selling brands is mainly attributed to foreign brands,
while the gap between domestic and foreign brands is widening.
The statistics show an obvious increase in the market share of foreign brands of
ladies' underwear, leather goods, brown goods, white goods and garments.
However, foreign brands are lagging far behind local brands in the rate of brand
renewal. Although the share of domestic brands on the best-selling list is
basically commensurate with that of foreign brands, the gap between domestic and
foreign brands in competitiveness has widened further.
Although the market share of foreign brands has risen, Shanghai brands continue
to maintain a competitive edge in traditional products, such as gold and silver
jewellery, beddings, underwear, condiments, yellow wine, dairy products, and
staple and non-staple foodstuffs. Traditional well-known brands such as
Guangming, Three Gun, Wangbaohe and Sea Lion and new-generation brands such as
Shikumen, Only, Tayohya and Fuqin have firmly secured their market lead in their
respective areas.
February 7, 2007
Lower Registered Capital
for Hong Kong and Macau Air Freight Forwarders
After the China Air Transport Association (CATA) has decided to accept
applications from wholly-owned Hong Kong and Macau air freight companies for
entering the mainland market, it has issued a set of supplementary regulations
providing them with guidance on market access. The Measures for the
Accreditation of China Civil Aviation Transport Agencies were promulgated on 30
January 2007 and took effect immediately.
According to the measures, Hong Kong and Macau air freight enterprises that meet
the definition of Hong Kong and Macau service providers are allowed to set up
equity or contractual joint-venture or wholly-owned air transport agencies on
the mainland. The registered capital and other requirements for them will be the
same as those for mainland enterprises. According to Order No.37 of CAAC,
minimum registered capital for these agencies is Rmb500,000 (US$64,102).
Guarantee for Accreditation Not Yet Clearly Spelled Out
In order to simplify procedures, qualified Hong Kong and Macau air freight
enterprises seeking to set up equity or contractual joint-venture or
wholly-owned air transport agencies on the mainland may complete the application
form online at CATA's website. After the application form has been examined and
approved by CATA's regional representative, written materials may be directly
submitted to CATA's headquarters for accreditation.
However, the supplementary regulations do not give clear guidance on the
guarantee for Hong Kong and Macau enterprises entering the mainland air
forwarding market. According to earlier regulations, equity or contractual
joint-venture enterprises seeking entry into the market must be guaranteed by
their mainland partners. However, the supplementary regulations do not give
further clarifications regarding Hong Kong and Macau enterprises entering the
market as wholly-owned operations.
On this issue, CATA secretary-general Wei Zhenzhong said that CATA has reached a
consensus with CAAC under which Hong Kong and Macau enterprises still need
guarantee cover from China-funded enterprises when seeking entry into the
mainland air forwarding market. The guarantee is mainly for the qualifications
of the enterprise concerned, such as its legal person status, authenticity,
economic strength and business background, and is not a guarantee for the
economic contract.
As for those Hong Kong and Macau enterprises which have such a large registered
capital that ordinary China-funded enterprises cannot afford to provide
guarantee for them, CATA has signed a cooperation agreement with a guaranty
company under which Hong Kong and Macau enterprises may seek guarantee cover
from this company.
Shenzhen China - Five Years
After WTO
China became the 143rd member of the WTO at the Doha Ministerial Conference on
11 December five years ago. The five years since China's entry to the WTO are an
important period of economic and social transformation for Shenzhen. As the
five-year WTO entry transition period draws to an end, China will fully open its
market in accordance with its WTO commitments and Shenzhen will be facing a new
situation and new tasks. In light of this, the city has just held the Seminar on
the International Competitiveness of China's Industry and the 2006 Annual
Meeting of the Shenzhen WTO Affairs Centre to brace itself for the new
challenge. At these two meetings, experts and scholars gathered together and
exchanged views on the international competitiveness of China's industry and the
WTO Affairs Centre.
1. Seminar on the International Competitiveness of China's Industry
On 4 December 2006, the Seminar on the International Competitiveness of China's
Industry organized by the Ministry of Commerce (MOFCOM) was held in Shenzhen
after meeting in Xiamen twice. Xu Zongheng, mayor of Shenzhen, Ambassador Sun
Zhenyu, China's permanent representative to the WTO, and Wang Chao, assistant
minister of commerce, attended the meeting. Arancha Gonzalez Laya, director of
the Office of the WTO Director General, and other Chinese and foreign experts
and scholars delivered keynote speeches. The theme of the seminar was "Five
Years After WTO: Multilateral Rules, Multinational Operation and Independent
Innovation", under which discussions were held on ways to actively cope with
international competition and challenges brought by globalization and post-WTO
transition, promote the change in the mode of economic growth and the
optimization of industrial structure, further strengthen the competitiveness of
China's industries, and on how China and Shenzhen's industries could actively
make use of the rules of the WTO and other multilateral organizations to enhance
their competitiveness in an all-round way under the globalization trend.
Shenzhen's efforts in honoring its WTO commitments are obvious to all. It has
built up a working system in compliance with WTO practices, drawn up WTO
compliance guidelines, and revised existing laws and regulations in line with
WTO regulations. Over the past five years, it has amended or annulled 24 laws
and regulations that fail to comply with China's WTO commitments, thus hastening
China's WTO compliance.
Experts also put forth their suggestions for China in the post-transition
period. First, China must bring about a change in the mode of foreign trade
growth and effectively deal with problems of trade friction. Second, it must
prepare itself for yet another round of industrial transformation -- the
outsourcing of services -- in the wake of globalization. This is particularly
important for Shenzhen and crucial measures must be taken by Shenzhen to adapt
itself to globalization and optimize its industrial structure. As the vanguard
of reform and opening up, Shenzhen must accelerate its pace of independent
innovation and promote the transformation and upgrading of processing trade.
Shenzhen enjoys an obvious advantage in the development of trade in services. It
should make full use of the China High-Tech Fair, China Cultural Industry Fair
and other platforms to boost trade in services. It is hoped that the WTO Affairs
Centre would make greater efforts to study WTO rules, especially their actual
application in local administrative work. Meanwhile, steps should be taken to
set up a warning system for industry injury, to integrate resources in a bid to
render assistance to enterprises in trade friction, and to strengthen training
of WTO affairs personnel.
2. 2006 Annual Meeting of the Shenzhen WTO Affairs Centre
At the 2006 Annual Meeting of the Shenzhen WTO Affairs Centre held on 5
December, Chinese permanent ambassador to the WTO Sun Zhenyu, director of
MOFCOM's department of trade in services Hu Jingyan, director of MOFCOM's
department of electromechanical and high-tech Industries Wang Qinhua, and
officials of the Guangdong provincial foreign economic and trade cooperation
department delivered keynote speeches. The meeting discussed the implementation
of the scientific development concept and the 11th Five-Year Programme, the idea
of "putting industry first" and "attaching importance to enterprises" put
forward by Shenzhen, and the development strategies of "going out" and "building
a harmonious and efficient Shenzhen" in the light of the characteristics of
industrial restructuring and upgrading in Shenzhen and the Pan-PRD region in
order to promote Shenzhen's internationalization process. Shenzhen will find new
opportunities in the latest round of international industrial restructuring and
transfer, and the strategy of "putting industries first" will give Shenzhen
enterprises a boost in seizing international market opportunities.
3. Some Figures About Shenzhen
Shenzhen has done extremely well in trade in goods and services, IPR protection,
investment and financing and has embarked on a new track of development in
economic and social undertakings these past five years. Shenzhen ranks third
among China's top 100 cities in terms of overall strength according to figures
published by the State Statistical Bureau at the end of 2005. Its GDP reached
Rmb495.091 billion in 2005 after successively breaking the Rmb300 billion and
Rmb400 billion marks. The 2005 figure was double the 2001 figure of Rmb248.249
billion when China joined the WTO. Per-capita GDP was 1.75 times that in 2001.
The WTO effect has been obvious in the past five years and Shenzhen's economic
and social undertakings have been developing on a healthy and stable track.
Where foreign trade is concerned, in 2001 Shenzhen's total imports and exports
reached US$68.611 billion, of which exports were worth US$37.480 billion and
imports US$31.131 billion. In 2005, its total imports and exports increased to
US$182.817 billion, up 24.1% year-on-year and 2.7 times the figure in the year
of WTO accession. Its total exports amounted to US$101.518 billion, up 30.4% and
accounting for 13.3% of the national total. It is the first mainland city to
break the US$100 billion mark in exports and has been China's top exporter for
13 years running.
In terms of foreign direct investment (FDI), Shenzhen has maintained a high rate
of growth in the absorption of FDI in the last five years, with an accumulated
total of US$14.7 billion. Today, 135 of the Fortune 500 companies have 214
investment projects in Shenzhen. In 2005, increases in contracted foreign
investment and utilized foreign capital both exceeded 25% on the high bases
achieved in 2004. Contracted foreign investment during the year reached US$5.251
billion, up 27.4%, while utilised FDI amounted to US$2.969 billion, up 26.3%. In
the same year, Shenzhen approved 61 new projects with investment of over US$30
million and 10 key projects with investment of over US$100 million. In the same
year, the value of contracts on increased capital amounted to US$2.598 billion,
up 63.6%.
In the development of "going out", Shenzhen enterprises have made a great
breakthrough since China's WTO accession five years ago. Among the 43
enterprises that made offshore investment in 2005, 47% were private enterprises
and 35% were recognized high-tech enterprises. Among them, offshore investment
by SMEs accounted for more than 50% of new investments. In 2005, approval was
granted to 64 foreign enterprises and institutions with a total agreed
investment of US$309.28 billion, up 22.4%. New contracts for foreign
construction projects and labor cooperation worth US$2.985 billion were signed,
up 109.5% year-on-year. The completed business amount reached US$2.14 billion,
up 64.1% year-on-year.
For the output value of high-tech products, during the five years since China's
WTO accession, Shenzhen has broken the US$100 billion mark four consecutive
times. In 2005, the value-added of its high-tech products amounted to Rmb140
billion, or 28.4% of the city's total output value. The output value of products
with proprietary intellectual property rights amounted to 58% of the total
output value of high-tech products. In 2005, Shenzhen applied for over 20,000
patents, ranking third in the country. It rose to the second place in 2006 and
applications for 700 PCT international patents were made, ranking first among
China's large and medium-sized cities. Today, Shenzhen has over 50,000 own
brands and is hailed as China's "brand name capital". In the national assessment
of Chinese brand-name products, 58 of its products have won the title of "Famous
Chinese Brands", ranking first in the country.
In trade in services, Shenzhen's total imports and exports, total exports and
total imports of services registered annual growths of 37.0%, 43.5% and 29.7%
respectively between 2001 and 2004, with increases in service exports exceeding
imports. In 2001, the total imports and exports in trade in services was US$1.91
billion. In 2004, it rose to US$6.05 billion, representing an annual growth rate
of 36% and more than three times the 2001 figure. As a result of the rapid
growth of service exports since WTO accession, Shenzhen's service trade balance
ended its long history of deficit and began showing a surplus in 2002. The
surplus continued its increase in the following two years to reach US$1.13
billion in 2004. Overall, Shenzhen's trade in services is still in its nascent
stage of development, and there is great potential for the import of services
from Hong Kong and other countries and regions to the city.
The private sector in Shenzhen also witnessed rapid growth in the last five
years. Private enterprises in the city applied for 2,020 national patents in
2005, accounting for 98% of the total number of national patent applications in
China. Their offshore investment also experienced fast growth. Private and
shareholding enterprises contributed to 70% of Shenzhen's offshore investment,
overtaking the long-time predominance of state-owned enterprises. Capitalizing
on CEPA, Shenzhen has taken a positive part in regional economic integration at
the three levels of Shenzhen-Hong Kong cooperation, Greater PRD cooperation and
Pan-PRD cooperation since WTO accession, thereby establishing an important
channel for opening the domestic market and linking it with Southeast Asia. It
has also become an important passage to the sea for the Pan-PRD economic circle
as well as a window for economic ties with foreign countries.
January 30, 2007
Taiwan, Hong Kong and Macau
Employees Allowed to Join Old Age Pension Scheme in Shenzhen
The Shenzhen labor and social security bureau announced at a press conference on
10 January 2007 that major changes will be introduced in three areas in
Shenzhen's social security system with the aim of relaxing the requirements for
joining the social security system.
The changes include allowing Taiwan, Hong Kong, Macau and foreign employees to
join the old age pension scheme in Shenzhen; abolishing the requirement for
laborers to pay insurance premiums for five consecutive years prior to their
retirement; and permitting Shenzhen residents retiring before the maturity of
their insurance policies to continue paying insurance premiums.
According to Yuan Jianyong, director of the Shenzhen Social Security Fund
Management Centre, this is the first time that clear policies have been drawn up
to allow Taiwan, Hong Kong, Macau and foreign employees to join the old age
pension scheme in the city. Under the regulations governing social insurance for
Taiwan, Hong Kong and Macau people working in Shenzhen, those who have obtained
employment certificates and signed employment contracts with their Shenzhen
employers can join the city's old age pension, medical insurance and industrial
injury insurance schemes as non-Shenzhen residents. Upon retirement, they will
be entitled to a monthly pension. This policy also applies to expatriate
employees working in the city.
January 25, 2007
Multinationals can learn
from Chinese companies
Multinational companies hoping to stay out front in China should start by
understanding the workings of the nation's economic growth engine.
Many Chinese companies have grown at such an astounding pace that observers have
wondered how so much change is possible in so little time.
It is the "Chinese Miracle" all right, but its roots lie in Japan and South
Korea.
The nation began its quantum economic leap by borrowing a three-phase strategy
first used in Japan and South Korea: They established local manufacturing, often
for low-cost sourcing to multinationals; they acquired know-how and technology
through licensing and joint ventures; and they bought assets and brands abroad
to secure global positions.
But unlike their regional counterparts, Chinese companies have mostly done away
with sequencing, instead condensing three phases into one. It took Japanese and
Korean firms on average 25 years to reach global leadership; Chinese companies
will achieve this in 10 to 15 years.
Such a shortcut taken by Shanghai Automotive Co Ltd. Started in 1984 as a
manufacturer of farm tractors, the company later built its auto manufacturing
arm, borrowing innovation through government-negotiated agreements, including
those with GM and VW.
It also purchased a stake in South Korea's Ssangyong Motor to blunt challenges
from regional rivals. And in 2000, the company bought two models from Britain's
Rover Group to sell under its own brand.
Last month the automaker announced it will acquire the joint-venture assets of
its parent company, Shanghai Automotive Industry Corp. The $2.4 billion deal
brings all of the company's partnerships under a single umbrella, making it the
largest publicly traded carmaker in China.
In addition to compressing their build, borrow and buy phases, companies like
Shanghai Automotive move ahead by harnessing the innovation and energy common to
most start-ups, combined with the centralized, coordinated planning of
nationwide turnaround projects.
We call this the "start-around" approach, one which has helped key players in
China quickly overcome weaknesses and adapt to market changes.
Another reason Chinese companies can advance so quicklyis that they typically
start off targeting the low-cost, lower-quality segment, where the high volumes
make up for small margins.
These volumes put companies on a fast learning curve, accelerating the growth
process and preparing them for the rapidly growing middle market. It's what we
call the "good enough" market, the segment of acceptable quality goods at
unbeatable prices, and it's a breeding ground for global competitors.
For foreign multinationals, the way to get ahead in China's fast lane is to take
advantage of what these companies are missing in their race to secure a global
presence. There are three important areas where Chinese companies get stalled.
The most significant is customer loyalty, in terms of both the end consumer and
intermediate distributors. Chinese companies historically dealt with fewer
distributors, relying instead on mega-retail channels. Customer insight takes
time to develop, and global firms have many more years of experience to draw
upon.
The battle for talent will also be critical, as firms seek out people with
global experience. Multinationals are experienced in developing strong
leadership, and will rely on their best-in-class programs for recruiting,
developing and deploying management.
Then there's innovation. Corporations today are unlikely to repeat this mistake.
Constant innovation and compressed product cycles will characterize Chinese and
multinational firms alike.
Not only development phases, but various industries and sectors will be
integrated: One day soon, R&D will converge across cosmetics, pharmaceuticals
and food industries.
Emulation will become progressively more difficult; Chinese companies may find
themselves continually playing catch-up.
In the end, however, it's important to remember that the race will be won by
those who endure the longest. Here, China has another advantage: The centuries
have taught its people to be patient. With their emphasis on quarterly earnings,
today's multinationals may have yet another lesson to learn from China's
companies: the idea of thinking forward in decades.
American view on China
changing quietly
A feature article in US-based Time magazine published on January 11 assessed the
rise of China, calling it the "dawn of a new dyna |
