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

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   Old Trade Issues Page BEFORE July 8, 2004   July 9 - Dec 31, 2004

  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: dmollway@hawaiiethics.org

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

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

China Legal Issues

December 29, 2004

China to Abolish Import License for All General Goods in 2005

China will further liberalise its market and revoke import license requirements for cars, key auto parts and compact disc manufacturing equipment in accordance with its commitments to the WTO from 1 January 2005. This means that except for three special commodities, all goods will be allowed to enter the China market without import license.

According to the PRC Foreign Trade Law and Regulations on the Administration of the Import and Export of Commodities, as well as the 2005 Catalogue of Commodities Requiring Import License recently published by the Ministry of Commerce and the General Administration of Customs, China will only require import licence for controlled chemical products, precursor chemicals and ozone-depleting substances, totalling 83 eight-digit HS codes.

This is the fourth time China has relaxed import license requirements since its accession to the WTO at the end of 2001. Effective 1 January 2001, China lifted import requirements on 14 products, including terylene fibres, tobacco and tobacco products, colour TV sets and kinescopes, and colour-sensitive materials, as well as certain types of automobiles, auto parts and tires. This reduced the types of commodities subject to import licensing from 26 to 12. Goods subject to import restrictions were further reduced to eight beginning 1 January 2003 and to two in 2004. All restrictions will be lifted in 2005.

Xian's greater concern with leisure and health

As living standards improve, rich and variegated leisure has become an increasing part of life in Xian. People are looking for a comfortable and healthy way of life that suits their personal temperament and after-work hours.

In the first 10 months of 2004, per-capita travelling expenses of Xian households amounted to Rmb58.7 (HK$55), up 92.8% from the same period a year ago. Travelling and tourism have become important aspects of leisure.

Going to the park and to the movies were the only ways to spend one's leisure in the past. Now people go to pubs, cafes or teahouses to relax, or become interested in sports of all kinds. In the first 10 months of 2004, per-capita spending on fitness exercise (equipment and classes) was 1.2 times than in the same period last year. Expenses on other cultural and entertainment activities were also up by 12.6% year-on-year.

Beauty treatments, hairdressing, foot baths, saunas and massages have become an important sector of leisure activities in Xian.

In the first 10 months of 2004, per-capita consumption of tonics and health foods was Rmb32.3 (HK$30.4), up 72.7% year-on-year; per-capita beauty treatment expenses amounted to Rmb13.02 (HK$12.2), up 51.7%; and per-capita hairdressing and bathing expenses amounted to Rmb33.58 (HK$31.6), up 15%.

Adding value to oneself in one's spare time has become the top trend and household expenses on adult education are steadily on the rise. In the first 10 months of 2004, per-capita expenses on adult education in Xian amounted to Rmb36.8 (HK$34), an increase of 140% over the same period of last year.

Information products are on the rise: there were 85.4 residential telephones, 30.9 computers and 100 mobile phones to every 100 households in Xian by the end of October 2004, with the number of mobile phones up by 36.8% and the number of computers up by 30.8% from the same period of last year. Per-capita consumption on telecom service was Rmb364.4 (HK$343) in the first 10 months, up 3.7%.

Yuzhou Mart: cradle of Chinese herbal medicines

Yuzhou's Chinese Medicine Mart (also known as the China Medicine City) is located on Yaocheng Road at the intersection of the provincial highways 01 and 31, positioned to feed a large constituency. It is 70 km from Zhengzhou, the capital of Henan, 37 km from Xuchang Station on Beijing-Guangzhou Railway, and less than 50 km from Zhengzhou Airport. It is easily reached from Zhengzhou, Kaifeng, Luoyang, Xuchang and Pingdingshan.

The remedies are numerous, only to be expected from one of the birthplaces of traditional Chinese medicine (TCM). Yuzhou has long enjoyed a fine reputation for its Chinese herbal preparations.

There are over 100 different kinds of wild medicinal herbs, including Yuzhou arisaematis rhizoma, Yuzhou typhonium rhizoma and scorpion. Chinese herbal medicines from Yuzhou are renowned for meticulous processing according to ancient methods.

Eminent doctors in Chinese history, such as Bian Que, Zhang Zhongjing and Sun Simiao all practised medicine, collected herbs and compiled prominent works here.

Yuzhou's medical background in trading dates back to the Tang Dynasty and the city became one of the four distribution centres for Chinese herbal medicines during the Ming and Qing dynasties.

In the course of time, 18 trading groups were formed in Yuzhou, including the drug store group, licorice and codonopsis groups. These were classified according to business types, and the Jiangxi group, Shanxi, Shaanxi, Qizhou, Shangcheng, Bozhou and Jinling groups were named relative to where they came from.

In ancient times, there were over 2,000 drug stores of various sizes in the city, selling more than 2,600 variations of medical herbs and employing over 5,000 workers. The city became a "medicine capital".

Historical traditions have made the medicine business a distinguishing feature of Yuzhou. To carry on its historic relationship with medicine, the local government invested Rmb200 million (HK$188 million) to build the Henan Yuzhou Chinese Medicine Mart (or China Medicine City) in 2001.

Today, the mart is one of China's 17 standardised Chinese medicine centres at national level. It is also uniquely one of a kind in Henan. The medicine city covers an area of about 27 hectares and includes a trading hall with a floor area of 23,000 sqm, capable of accommodating 2,500 stalls, and over 2,000 business premises with three or more storeys each.

Complete with storage and banking facilities, restaurants, car parks and entertainment venues, this is a large and modern market for Chinese herbal medicine with logistics, information, financial and other functions in situ.

Over 1,000 varieties of medicinal herbs are being traded at the market, which has more than 10,000 permanent employees and grosses Rmb1 billion (HK$943 million) annually.

The two-level trading hall at the centre of China Medicine City is wholly funded by Henan Songji Investment Co. Managed by the Yuzhou Pharmacy Management Committee, it provides the central space for the two-hectare mart.

Goods are mostly displayed in showcases. The sale price of a 3 sqm stall is about Rmb15,000 (HK$14,150), and display counters are given away free for lump-sum payments.

For leasing, the annual rent for each stall is about Rmb2,000. Buyers of stalls are issued with certificates by appropriate government departments and have rights of transfer, leasing, inheritance and mortgage.

The main trading hall of the China Medicine City is currently undergoing restructuring and re-positioning to meet the needs of new market development. After restructuring, it will be the only state-authorised trading venue for prepared herbal medicine in Henan and will be run according to formal medical standards.

The Yuzhou Chinese medicine mart is home to over 600 drug manufacturers from different parts of the country. Famous Chinese patent drug manufacturers, such as Beijing Tongrentang, Changsha Jiuzhitang, Guangzhou Baiyunshan, Harbin Pharmaceutical Group and Henan Wanxi Group have set up production facilities near the mart.

The mart deals in over 1,000 varieties of herbal medicine. Primarily a wholesale market, it also does retail business on the side. Business is mainly in the form of cash. Some shops deal in all sorts of medicines while others are exclusive to dealers.

A full range of medicinal herbs are available, including common herbs like honeysuckle flower, chrysanthemum and platycodon, as well as expensive tonic medicines such as pilose antler, ginseng, codycep and polygoni multiflori.

China Medicine City is able to supply herbal medicine of good quality at a cheap price thanks to a Chinese medicine cultivation base with a total area of over 200,000 hectares in the surrounding township. It has developed its market share in China and is already well received by people in the industry.

There are branches of the Industrial and Commercial Bank of China, Agricultural Bank of China and other banks as well as restaurants, carparks and entertainment facilities around the mart, providing quality services to domestic and foreign medicine dealers.

The mart has a modern logistics distribution centre to provide customers with storage, transportation, packaging, circulation, processing and distribution services.

The mart is managed by a pharmacy management committee, which shares the same office building with departments of industrial and commercial administration, taxation and quality inspection.

Occupants may start doing business after completing their entry procedures and obtaining their business licence from the office of industrial and commercial administration at the mart. The pharmacy management committee and the drug administration also jointly conduct random checks of the medicines on sale, to ensure that they are safe and reliable.

There are two national medical information service agencies at the mart providing traders with up-to-date information on the supply/demand and price trends of medicine in China and the world everyday.

The mart also hosts the China Yuzhou Chinese Medicine Fair every year for product exhibition, trade talks, academic exchange and project cooperation. The International Chinese Medicine Development and Cooperation Forum is held in conjunction with the medicine trade fair.

At the fair concluded at the end of October 2004, visitors attended came from Germany, South Korea, Malaysia and various parts of China.

December 28, 2004

China announced a first round of export duties on textiles, in a move analysts said is as much an attempt to spur large-scale production of high-quality products as to head off a trade spat with the West. According to the International Business Daily , which is published by the Ministry of Commerce, China will impose export duties of between 0.2 yuan and 0.3 yuan per unit on 146 items from Saturday. Those items fall into six categories of clothing, including dresses, trousers, knitted and non-knitted blouses, sleepwear and underwear. For accessories such as hooks for knitted and non-knitted clothing, a duty of 0.5 yuan will be charged per kilogram.

December 22, 2004

Hong Kong and Macau Residents Can Establish Individually-Owned Businesses in China Next Year

Hong Kong and Macau residents will be allowed to set up individually-owned businesses for retailing, catering and general services in the mainland after 1 January 2005. However, each business may not employ more than eight staff. The State Administration for Industry and Commerce recently published a document on opinions concerning the registration and administration of applications by Hong Kong and Macau residents to operate individually-owned businesses. According to this document, under relevant provisions of the supplementary agreements to the Mainland and Hong Kong Closer Economic Partnership Arrangement and the Mainland and Macau Closer Economic Partnership Arrangement, starting from 1 January 2005 permanent residents of Hong Kong and Macau with Chinese citizenship will be allowed to establish individually-owned businesses in all provinces, autonomous regions and municipalities in accordance with mainland laws, regulations and administrative rules without having to go through approval procedures applicable to foreign investment.

The document defines clearly the scope of business for these operations. It covers retailing (except tobacco), catering, as well as services such as hairdressing, beauty and fitness, bathing, and repair of home electrical appliances and other goods for daily use, but excludes franchising. It is stressed that individually-owned businesses must be operated by individuals and should have a staff of no more than eight persons and a business area of no more than 300 sqm.

Wankelai Food City: the hypermarket for hypermarkets, and more

Wankelai Food City occupies both sides of Zhengzhou's South Third Ring Road near the Southern Gate to the west of Jingguang Road South: it can hardly be missed. While the food city is seen as a local brand name by local people, it is also the largest of its kind in central China and has provided wholesale non-staple food to that region since it opened for business in June 1998.

The wholesale market was established by Henan Wankelai Holdings, with an investment of Rmb98 million (HK$92 million). As an integral part of the Zhengzhou Agricultural By-Products Storage and Transportation Centre, the project was on the drawing board in 1996 and opened for business in 1998. It covers an area of 17.8 hectares and has a floor area of 80,000 sqm, accommodating 1,500 shops.

Wholesaling of non-staple foods - in other words, groceries - used to be a small-scale, low-end and scattered business in Zhengzhou. Wankelai Food City was built to change this state of affairs.

Great care was taken in determining the location, scale of operation, layout and range of commodities and services provided, when the project was planned. The food city offers preferential terms to tenants. Rental is fixed at Rmb20/sqm (HK$18/sqm), payable once every three months, six months or 12 months.

A 10% discount is offered on a one-off payment for six months and a 20% discount is offered for 12 months. All 3,000-plus shops available in the food city were signed up within seven days of its opening, and now, 80% of traders in Zhengzhou go there to do business.

Many brand-name products from large-scale and reputable enterprises have outlets at this food city, which is visited by over 20,000 people daily and grosses Rmb2 billion (HK$1 billion) a year in business turnover.

Serving not only neighbouring Shandong, Anhui, Shanxi, Shaanxi, Hebei and Hubei but also distant places like Inner Mongolia, Xinjiang, Qinghai and Gansu, it has become the largest wholesale base for non-staple food in central China. According to one of the tenants, the food city is so busy that a pay toilet can gross Rmb300,000 (HK$279,000) a year.

Small-scale non-staple food wholesale marts have mushroomed in Zhengzhou, as the market has flourished. There are more than 10 such small marts in the southern suburbs where Wankelai is located.

Large wholesale marts such as Central China Food City, Zhengzhou Food City, Hanghai Road Food City have also emerged.

Foreign companies have started ventures in Zhengzhou. Hypermarkets targeting the mid-to-lower-end market have sprung up all over Zhengzhou. Wankelai finds itself under tremendous pressure to undergo transformation.

Although the wholesale business has fared quite well in Zhengzhou, it cannot simply rely on trade to maintain its sound development. It must upgrade and transform itself and take a path that combines industry with trade.

Hou Shian, general manager of Wankelai, came up with the idea of building a processing base to turn the food city into a large logistics base with processing functions.

In October 2004, Wankelai Holdings and Hong Kong's Gangren Group signed a cooperative agreement to develop the Zhonghua Logistics Plaza. Under the agreement, Wankelai Food City will be transformed into a general merchandise logistics park.

This project is funded by an Asian consortium associated with the US Federal Foundation, through the Gangren Group. An initial investment of US$20 million (Rmb165 million or HK$156 million) is already in place. The logistics park will be the bright spot of the Southern Zhengzhou Economic Zone when it opens in 2006.

The park will be built at the Wankelai site and will have a total floor area of 500,000 sqm. Initial estimates put total investment at Rmb760 million (HK$716 million).

There will, in fact, be eight marts for trades of automobiles, furniture, information network equipment, clothing and general merchandise, as well as non-staple foods and other commodities. When completed, it will be the largest modern logistics centre in China embracing processing and manufacturing, general merchandise retailing, logistics and storage services, and information monitoring, all under one roof.

Wankelai Food City is complete with basic trading, accommodation, office and storage facilities. Its wide roads and several entrances allow heavy-duty trucks with trailers to move around freely, and its 40,000 sqm car park can accommodate over 1,000 trucks.

The City features 1,000 programme-controlled telephone lines, through which tenants can arrange financial, postal, medical, informational, transportation and licensing matters without leaving the food city at all.

There are different sections to facilitate management and consumers - for wines and spirits, non-staple food, dry condiments, tea leaves, detergents and food additives. Commodities of all grades are available.

The food city practices closed management and open trading, with both wholesale and retail transactions accepted.

Small furnished flats are hot properties in Shanghai

Prices of residential units on the mainland, and particularly in Shanghai, have skyrocketed in recent years. The average price this year is said to be at least 11% higher nationally than a year ago. The situation is particularly striking in Shanghai and Hangzhou.

High property prices have become an inhibiting factor for many, and shrewd investors are turning their eyes to smaller, furnished flats in city centers.

The Shanghai Real Estate Association and Shanghai Dongfang Real Estate Institute recently jointly organised a seminar to study the white hot sales of Zhongxing Fortune International Apartments, looking at the way these were bought up as a phenomenon for people returning to live in the city centre.

According to those who attended this seminar, the value of small furnished flats will continue to increase, as the city keeps expanding and land in the city centre becomes more scarce.

In Jingan district, flats with an area of between 40 and 50 sqm are priced between Rmb400,000 and Rmb500,000 (HK$377,358 and HK$471,000). Residential cum commercial apartments are the most sought after.

There is an increasing number of young home-buyers in Shanghai today. The lowering of the average age of home-buyers is becoming all too evident.

According to statistics, young people under 35 years of age account for more than one-third of home-buyers in Shanghai.

Young people who are busy at work and eager to try out new things go for small and tastefully-decorated homes and personal services. They have suddenly become an important consumer group for this type of property. "Wired homes" could well be the next "must get" feature on the list, creating great demand for broadband and wireless Internet services.

The inflow and exchange of personnel will become increasingly frequent as Shanghai matures and progresses as an international metropolis. This will also further boost the sale of small furnished flats.

Previously, there was a time when fully-furnished flats were selling better than unfurnished apartments in Shanghai. Indeed, the way things are going, and based on historical data, they should constitute a great market segment for the future too.

December 20, 2004

Key issues in China-US trade in 2004

Trade between China and the United States maintained a strong momentum of development in 2004. The later maintained one of China's top three trade partners with both cooperation as well as disputes. Key issues in Sino-US trade are as follows:

MARKET ECONOMY STATUS

China was cataloged as a non-full market economy when it joint the World Trade Organization in 2001 though it has established a market-oriented economic structure, which caused disadvantages for China in trade conflicts such as anti-dumping cases.

On the 15th session of the China-US Joint Commission on Commerce and Trade (JCCT) in April, China and the United States agreed to set up working group within the framework of the JCCT, a mechanism established in 1983, to deal with China's market economy status.

INTELLECTUAL PROPERTY RIGHTS

William H. Lash, US Assistant Secretary of Commerce for Market Access and Compliance, warned China to enhance protection on intellectual property rights before ending his tour to China in August, waving pirate DVD discs and golf club.

China, troubled by local governments' weak enforcement on IPRs protection, then reorganized 500,000 civil servants, directed by Vice-Premier Wu Yi, to safeguard IPRs of both foreign and domesticowners.

EXCHANGE RATES OF RMB

The US congress and industry representatives accused China "manipulates" the exchange rates of Renminbi (RMB), Chinese currency, in a bid to twist trade, saying it caused US great trade deficits and high unemployment in manufacture industries.

In a report to the Congress by the US Department of the Treasury, it confirmed that China did not manipulate the RMB exchange rates in a bid to twist trade with the United States.

The Office of the US Trade Representative also rejected appeals on suing China in the World Trade Organization.

TEXTILE PRODUCTS

Chinese Ministry of Commerce warned the US side to "cautiously" handle cases on textile imports when the US government accepted industrial appeals which will lead to import quota on Chinese fabric products, such as yarns, shirts and trousers in October.

Before that, the US government has re-imposed import quotas on bathgowns, bras, socks and certain textiles.

China holds that some US industrial organizations required restrictions on Chinese textile products based on an assumption, saying it will damage the free trade of textile products and will extend imports quota in another way.

TOURISM

China signed an agreement with the United States to promote bilateral travel and tourism cooperation in earlier December.

He Guangwei, visiting Chairman of China National Tourism Administration said that the United States is China's largest resource of long-journey tourists, as well as Chinese tourists' favor.

ANTI-DUMPING ON FURNITURE, SHRIMP

China expressed "strong dissatisfaction" in Dec. 13 with the US decision to impose punitive duties on wooden bedroom furniture imported from China on the accusation that the furniture was being dumped in the United States.

The decision leaves in place duties set by the US Department of Commerce of up to 198 percent on more than 110 Chinese furniture producers.

Chinese Ministry of Commerce criticized in Dec. 2 a recent arbitration ruling on Chinese shrimp imports made by the US Department of Commerce, calling it unfair for Chinese companies.

According to the arbitration, 35 Chinese exporters will pay an average of 55.23 percent anti-dumping tax, while other Chinese firms will have to pay 112.81 percent for their shrimp exports.

The two cases were regarded as the top two anti-dumping cases between the two countries this year.

CIVIL AVIATION

China and the United States signed an agreement on civil aviation cooperation on July in Beijing, which allows the pointed companies to flight to the other's any cities. Before that, Chinese airlines can only flight to 12 US cities and US companies,five Chinese cities.

CHIP

The US administration accused China's tax policy on semiconductors "discriminatory" to US chip manufacturers, and requested consultation with China at the WTO in March.

Four months later, China and the United States sign a Memorandum of Understanding (MOU) on the value-added tax of semiconductors.

TRADE DEFICIT

The United States has been complaining its great trade deficit with China this year.

However, Chinese Vice Premier Wu Yi told the 15th session of the China-US Joint Commission on Commerce and Trade that key to the problem is on the US side.

She urged the United States to enlarge exports, especially high-tech products with more value added, to China, rather than put restriction on imports from China.

According to Chinese official figures, China's trade with the United States recorded 152.7 billion US dollars in the first 11 months, up 34.3 percent year on year.

December 18, 2004

China, US sign agreement on tourism cooperation

    He Guangwei (R1), director of the Chinese State Tourism Administration, meets with Grant D. Aldonas (L1), under secretary of international trade administration of the United States Commerce Department, in Washington Dec. 6, 2004. China signed an agreement with the United States Monday in Washington to promote bilateral travel and tourism cooperation.

The agreement was signed by He Guangwei, visiting Chairman of China National Tourism Administration, and Grant D. Aldonas, Under Secretary of International Trade Administration of US Commerce Department.

Under the agreement, the two countries will support the development and the establishment of an environment that facilitates two-way travel, both individual and group travel, that is free of unnecessary restrictions and violations relating to each country's immigration concerns, regulations and laws.

Both countries will seek to ensure that governmental and/or non-profit travel and tourism related entities are able to establish offices or locate representatives to promote travel and tourism in the other country's territory.

Meanwhile, visits and the promotional activities of tourism organizations, tourism enterprises and groups to the countries in compliance with their immigration laws and policies will be facilitated.

The agreement will enter into force on the date of signature and remain valid for a period of five years.

December 15, 2004

China advised not to make big change in currency exchange in short

A senior World Bank trade official said in Beijing Monday it is not in China's interest to make a very big,sudden change in its currency exchange rate in the short term.

Uri Dadush, director of the bank's International Trade Department & Development Prospects Group, said any change should be made gradually.

The short-term issue for China is the question of the appreciation of the yuan in way that it does not adversely affect the country's banking system and domestic situation, said the official during a lecture in Beijing on global economic prospects.

But in the long term, "China needs to recognize that, as any large economy, the main concern of its monetary concern and fiscal policy issue should be on domestic balance," not on targeting the exchange rate.

He said most countries only have one good counter-cyclical instrument. In the case of the United States, it is monetary policy, and it needs to deal with both inflation and growth.

What lies behind the United States' benignly neglected dollar exchange rate, he said, is the fact that the United States does not worry about the dollar exchange rate very much.

"I think you will find that the European Union will also move in this direction, a direction where monetary policy cares much more about domestic inflation and growth than about the Euro exchange rate," he said.

This makes sense for a big economy whose exports are only 10-15 percent of the GDP (gross domestic product), said Dadush.

But China is in a special situation today, as its economy is growing very fast its exports account for a bigger share of its GDP, he said.

"But I have little doubt that the long term policy for China is to move to a flexible exchange rate to be determined largely by the market, even though it may take many years," he said.

China has adopted a gradual approach to the reform of the exchange rate of its currency despite pressures from outside China that the country should appreciate its currency.

December 10, 2004

Latest News 5:23pm HST Friday  Direct Link  PDF Format  Mayor Jeremy Harris Support Letter in PDF Format

Mayor writes on behalf of North American's Hawaii-China flight bid

Honolulu Mayor Jeremy Harris has written to Transportation Secretary Norman Mineta in support of direct flights between Honolulu and Shanghai, and a local leader in forging business ties with China urges others to do the same.

"The direct airlink is very critical to business executives who are in Hawaii," said Johnson Choi, executive director of the China-Hawaii Chamber of Commerce.

Flight slots between the United States and China are scarce, and most major mainland carriers are actively lobbying to fly to China from places like Newark, Chicago and Atlanta.

North American Airlines, a relatively new carrier that flies to Honolulu from Oakland, Calif., is requesting permission to fly from Oakland to Shanghai and Guangzhou through Honolulu.

"The service proposed by North American represents a truly unique opportunity for businessmen and women such as me, and one that will benefit travelers from the entire U.S.," Mayor Harris wrote.

Harris notes that North American is a discount carrier with connections to other mainland discount carriers. Most of the other applicants are big legacy carriers.

"If they become successful, we will see direct airlink between Hawaii and Shanghai is just a few months," Choi said. Otherwise, he said, it could take years.

December 10, 2004

Textile export licenses to be cancelled

As learned form the Ministry of Commerce of China, in line with the relevant articles in the WTO's Agreement On Textiles and Clothing and China's WTO Accession Protocol, importing countries which impose limits on Chinese textiles will remove the quotas as of January 1, 2005. Correspondingly, China will annul the quota licenses on textile products involved.

The Ministry of Commerce and the General Administration of the Customs have jointly released the list of textiles which will be freed from systems of importing countries. The release announced that textile export license are not needed either in the customs declaration procedure in China or in the check-up process in the customs of the country of destination. But the license is still necessary before January 1 next year.

An official from the Foreign Trade Department of the Ministry of Commerce said the global textile trade had long been immune from the world free trade system. The efforts of the less developed members of WTO have finally paid off by the Agreement on Textiles and Clothing after prolonged difficult negotiations on multilateral trade talks in Uruguay rounds.

WTO members agree in this protocol on the gradual integration of the textile sector into the global free trade system after a 10-year transitional period. However, major importers such as Europe and US have made very slow progress on pushing the integration forward in the 10 years. They keep 70 percent of their quotas, most of which are sensitive products in tight supply, intact until the last minute.

December 8, 2004

Shanghai and Shenzhen Stock Exchanges Revise Listing Rules

Effective 10 December 2004, listed companies may apply to the stock exchange for suspension of disclosure if certain requirements are met and if the information to be disclosed involves uncertainties, commercial secrets or other conditions specified by the exchange such that its disclosure may harm the company’s interests or mislead investors. The Shanghai and Shenzhen stock exchanges have recently released the Listing Rules (2004 revised), making a number of improvements in enhancing the mechanism of information disclosure and in reforming and streamlining the delisting system.

Compared to the old version, the revised Listing Rules, which have expanded from 14 chapters and 223 articles to 18 chapters and 295 articles, have greatly enhanced the mechanism of information disclosure in the following ways:

Further specifying the conditions for suspension and exemption of disclosure of key information. Under the new rules, listed companies may apply to the stock exchange for exemption of disclosure or performing pertinent obligations if the information to be disclosed involves state or commercial secrets or other conditions specified by the exchange such that its disclosure or the performance of pertinent obligations may lead to possible violation of state laws regarding confidentiality or cause damage to the company’s interests.

Establishing the timing for first-time disclosure of major events while refining the requirement for continued disclosure. Chapter 7 of the new rules stipulates that listed companies should disclose in a timely manner major events that may significantly impact the transaction price of their stocks and derivatives when any one of the following occurs: (1) the board of directors or regulators has reached a resolution regarding that major event; (2) all parties concerned have signed a letter of intent or an agreement regarding that major event; and (3) any director, regulator or senior executive knows or is supposed to know about that major event. The new rules also provide that listed companies should continue to disclose the progress of major events as stipulated.

Unifying the disclosure standards for 11 types of transaction including major acquisition and sale of assets, external investment, provision of guarantee, and entrusting of assets and business management; while adding the indicator of absolute transaction amount on the basis of relative transaction amount.

Adjusting the disclosure standards and review procedures for associated trade.

The business of nostalgia in Shanghai

Barbie and Yue-Sai Wa Wa dolls have taken the mainland by storm - and opened new doors to entrepreneurship for doll lovers.

In Shanghai's Hongqiao district, there is a unique, small store selling all kinds of Western-style collectible dolls. Customers from Hong Kong, Macau, Taiwan, Japan and Europe keep returning to the store, which is always busy.

The proprietress of the shop is a woman in her fifties, but her love for dolls as a child still gives her a childlike innocence. "I am running this shop as a small kindergarten and I give my dolls different outfits. I opened this shop initially because of my love for dolls. I have been to all large shopping malls in Shanghai, but nowhere could I find this kind of store.

"So, I decided to set up my own business selling Western-style collectible dolls," says this woman. "I mainly deal in dolls in casual apparel that appears slightly antiquated. Collectible items are always a bit old anyway," she observes.

The dolls are very popular among people from different strata of society. "People who are eager to know more about foreign lands but have no chance to do so can also get a taste of different cultures here," she added.

Today, DIY shops have become one of the most popular forms of business. In these shops, people can see their creative talent come to fruit, creating everything from small, hand-made ornaments to garments, shoes and socks.

DIY toy kits, becoming popular overseas, have also found their way into Shanghai. In one of these shops on Nanjing Road, children can put stuffing in semi-finished toys, make their own recordings, give their toys names, choose clothing for them and even obtain "birth certificates" for them.

Every plush toy is unique. "The production process gives children some basic ideas about the making of plush toys and prevents them from tearing their toys apart out of curiosity. They will cherish these toys much more than ready-made ones," says one shop attendant. "This also gives parents and children a valuable opportunity of working as a team, as children are making the toys."

According to Xu Quanning, secretary general of the Shanghai Toy Association, this form of DIY toy workshop is new to Shanghai. Demonstrating some of the ways of making plush toys is a good way to attract customers.

Parents feel at ease seeing toys stuffed with cotton. Choosing clothes for their toys is also a way of training children's aesthetic appreciation and the ability to mix and match.

People in the industry see great prospects in this type of shop.

Miss Ge, who works for a foreign company, has joined a flower tea franchise as a sideline job to target the office requirement for specialty teas.

A tasteful style is very important for this type of tea outlet, which is a kind of bar.

The initial franchise fee is about Rmb50,000 (HK$47,000), and most of the shops are set up at the shopping arcade in upmarket office buildings. According to Miss Ge, white-collar workers are under pressure most of the time and what they want most during their lunch breaks is to take a rest in a place with a comfortable setting.

The tea bar satisfies that need. Flower tea has a beautiful colour and attractive aroma, while apparently being good for health and beauty. So, together with the attractive tea sets and the ambience, tea drinking becomes an enjoyment and a social event.

Daily, around noon, young executives gather in small groups to have a chat while sipping tea or simply relax. The pressure of work appears less daunting. This explains why the tea bar is becoming increasingly popular also among women executives, and business is doing well.

Many small businesses choose the busiest sections of Shanghai to set up shop. For example, Xiangyang Road near Huaihai Road is synonymous with trendiness and fashion for young people, especially young women. It is a fascinating labyrinth where one can spend hours just browsing.

Xiangyang Road Market mainly sells garments and fashionable small items. Besides the chic urban folk, foreigners in Shanghai also visit the market regularly in search of good deals.

There are more than 600 shops in Xiangyang Road Market with sizes ranging from three and four sqm to over 10 sqm.

New shops keep emerging, such as lingerie shops, nail art painting shops, scent and essence shops.

A small shop specialising in Nepalese ornaments is packed with young people who come looking for exotic items.

The proprietor has come all the way from Xian because of the shop's reputation. The place has also attracted business people from Guangzhou and Beijing.

Xiangyang Road Market grosses Rmb1.5 million (HK$1.4 million) a day and is visited by 50,000 people daily and 120,000 people on holidays. There are nearly 1,000 foreign tourists each day.

A team of 30 officers from the administration for industry and commerce posted at the market keep order and crack down on fake and shoddy items.

Ten design teams vie for World Expo planning contract

At an international forum, World Expo and Intelligent Transport Standardisation, held in mid-November, an official from the Shanghai World Expo Bureau disclosed changes to a plan for the Shanghai World Expo in 2010, and the result has been the choice of three finalists, which will each contribute to the master design for the Expo.

A plan was originally submitted at the time of bidding, but during another planning and design forum in April, the feasibility of the flower bridge, canal and other landmark architecture was questioned by many international experts.

For this reason, a new round of bidding for the master plan was launched in May, and 10 renowned design firms from around the world were invited to put forward their proposals.

At the end of July, leading Chinese and foreign experts on planning, transport and other areas were invited to form a panel of judges to review the new proposals in the light of eight criteria including feasibility, functions, future utilisation, and protection of historic relics.

After six rounds of votes, the panel confirmed Ove Arup and Richard Rogers Partnership, Perkins Eastman Architects, and Shanghai Tongji University as the three finalists.

The design proposed by Arup and Richard Rogers has an imposing main architecture and a breathtaking landmark.

Master Plan for 2010 Shanghai World Expo

The concept from Perkins Eastman "embraces the Pujiang River" as its theme, featuring seven river-facing architectural structures with good economic and operational prospects after the Expo.

Tongji University's proposal is amply backed up by theoretical research.

It is understood that the final blueprint will draw on the quintessence of all three proposals, with emphasis on future utilisation and transportation.

It has been disclosed that the revised optimised design will have 70 hectares of green belts along the river.

The permanent venues will be relatively centralised and will include a China pavilion, a convention centre, a centre for performing arts, as well as a number of theme halls.

The plan is expected to instill new life into the historic relics and old industrial premises which are part of the expo site. The infrastructure will be merged with the existing system of urban transport, with "zero scrapping" as far as possible.

Five rail transport routes will pass through or come near the Expo park, and different modes of river crossing will be available.

December 3, 2004

CITA Continues to Advance China Textile Safeguard Petition

The US Department of Commerce-chaired inter-agency Committee for the Implementation of Textile Agreements (CITA) has accepted another threat-based China textile safeguard petition, which targets combed cotton yarn (Category 301). Comments must be submitted no later than 23 December 2004. Interested persons may submit ten copies of such comments to the Chairman, Committee for the Implementation of Textile Agreements, Room 3001A, U.S. Department of Commerce, 14th and Constitution Avenue NW, Washington, DC 20230, United States.

To date, CITA has accepted seven of the nine threat-based China textile safeguard petitions that have been submitted. Comments on the safeguard request on cotton trousers (Category 347/348) must be submitted by 3 December 2004, while comments on the petitions targeting man-made fibre trousers (Category 647/648), cotton knit shirts (Category 338/339), man-made fibre knit shirts (Category 638/639), non-knit cotton and man-made fibre shirts (Category 340/640) and cotton and man-made fibre underwear (Category 352/652) are due no later than 9 December. In addition, the US textile industry has filed two petitions calling on CITA to "reapply" the China textile safeguard on knit fabric (Category 222) and robes and dressing gowns (Category 350/650), which should expire on 23 December 2004.

The textile and apparel safeguard provision in China's World Trade Organisation (WTO) accession agreement provides for the US and other WTO members that believe imports of Chinese textile and apparel products are disrupting the market and threatening to impede the orderly development of trade in these products to request consultations with China with a view to easing or avoiding the disruption. Under the procedures announced by CITA for invoking the safeguards, within 60 calendar days of the close of the comment period, CITA must decide whether to seek consultations with China. The 60-day period may be extended, but if the decision is delayed CITA must publish a notice in the Federal Register indicating the date by which it will make a determination.

Pursuant to the safeguard provision in China's WTO accession agreement, if the US requests consultations with China, it must, at the time of the request, provide China with a detailed factual statement showing "(1) the existence or threat of market disruption; and (2) the role of products of Chinese origin in that disruption". Beginning on the date that it receives such a request, China must restrict its shipments to the

US to a level no greater than 7.5% (6% for wool product categories) above the amount entered during the first 12 months of the most recent 14 months period preceding the request. If exports from China exceed that amount, the US may enforce the restriction. Consultations must be held within 30 days of China's receipt of the consultation request.

In addition, as was widely expected because China refuses to issue visas for goods subject to a safeguard, CITA has announced that it will not require visas for man-made fibre and wool socks (Categories 432 and 632 Part), which are the subject of a textile safeguard measure implemented on 29 October 2004. However, cotton socks (Category 332) imported from China will continue to be subject to a visa requirement through 31 December 2004 when the WTO Agreement on Textiles and Clothing (ATC) expires.

US Government Pushes RFID Technology for Various Security Applications

The US Food and Drug Administration (FDA) has announced that it will use radio frequency identification (RFID) technology to protect the US drug supply against counterfeit pharmaceuticals. Electronic tags on product packaging will allow manufacturers and distributors to keep track of products as they move through the supply chain. However, RFID has a wide variety of uses beyond tracking goods in the supply chain to reduce counterfeiting and streamlining business practices. For example, homeland security applications, many of which have been pioneered by the US Department of Defence (DOD), also utilise RFID technology. From this vantage point, the FDA's announcement sends an unequivocal signal that the US government intends to promote this technology.

On 17 November 2004 the FDA published a Compliance Policy Guide (CPG) in the Federal Register, which describes how to implement RFID studies and pilot programmes. The FDA believes that the CPG will clear the way for more pilot programmes that involve RFID tagging of all packages of certain products, especially those that are targeted by counterfeiters.

On 15 November, Lester Crawford, the acting FDA commissioner, stressed that the US government intends "to increase the safety of medications consumers receive by creating the capacity to track a drug from the manufacturer all the way to the pharmacy". He added, "We hope that other manufacturers, wholesalers, and retailers will follow this example by also becoming early adopters of RFID". The FDA applauded the pharmaceutical companies Pfizer, GlaxoSmithKline and Purdue Pharma for their plans to start utilising RFID tags on some products as early as next year, including on bottles of Viagra and OxyContin.

To encourage additional studies on the feasibility of using RFID for various business purposes, including inventory control and tracking and tracing of drugs, the FDA intends to exercise enforcement discretion until 31 December 2007 concerning certain regulatory requirements. These developments have been brought about by the publication on 18 February 2004 of an FDA a report, entitled Combating Counterfeit Drugs, which identified RFID technology as the cornerstone in the fight against counterfeit pharmaceutical products.

The FDA is also creating an internal "RFID workgroup" that will be charged with monitoring the adoption of RFID in the pharmaceutical supply chain, proactively identifying regulatory issues and developing straightforward processes for handling those issues.

The value of using this technology to ensure the safety of the pharmaceutical products in the US market is readily apparent, but it may not be an overstatement to say that before long virtually every company on earth will be required to use RFID technology in one way or another to remain competitive in the global market.

After all, potentially all companies that buy, sell or handle goods in the supply chain will have to become RFID-compliant. In this regard the world's largest retailer, Wal-Mart, is a trendsetter. Wal-Mart has made it mandatory for all of its suppliers to become RFID-compliant in 2005. According to some calculations, Wal-Mart imports goods worth US$15 billion from China. Speaking at the Fall 2004 CIO Summit in Boca Raton, Florida, on 15 November, Wal-Mart's chief information officer, Linda Dillman, said that Wal-Mart encourages its suppliers to "overdesign" their RFID projects.

A survey conducted in September and October 2004 by BearingPoint, the Information Technology Association of America (ITAA) and Federal Computer Week magazine documented that many US government technology executives view RFID technologies as a key element of achieving their organisational strategy, but have yet to deploy the technology.

Nick Evans of BearingPoint's Emerging Technology practice stressed, "At this stage in adoption, we were not surprised to see that most respondents indicated they would spend less than US$250,000 on RFID projects in fiscal year 2005 and less than US$1 million in each of fiscal years 2006 through 2008, which is consistent with what we are hearing through our work chairing ITAA's RFID Standards Task Group".

ITAA President Harris Miller added, "Near term obstacles aside, RFID will clearly become the heart of inventory and supply chain management technology for large enterprises of all kinds, including government agencies". He also noted, "Early adopters such as the DOD, to say nothing of major private sector retailers, have already sounded a resounding endorsement of the technology's benefits".

However, earlier in November, DOD announced that it has decided to push back the deadline for compliance with its RFID mandate. Originally set for 1 January 2005, compliance will now not be required until February, at the earliest, as no firm new date has been established. DOD's RFID implementation mandate plan seeks to give suppliers 90 days to comply from the release date of the specification. The delay that DOD has experienced has led experts to wonder whether Wal-Mart and other retailers can be far behind in announcing delays in their RFID programmes. Nevertheless, even if there are further delays, none of these problems will delay full implementation for long.

Homeland security applications also utilise RFID technology, particularly in the context of the cargo security programmes championed by the US Department of Homeland Security's Bureau of Customs and Border Protection (CBP), including the Container Security Initiative (CSI) and the Customs Trade Partnership Against Terrorism (C-TPAT).

RFID technology has been identified by many US security experts as an important element in the overall effort to secure the busiest US ports against potential future terrorist attacks, particularly because the new generation of active tags has significantly reduced the cost of securing containers in transit. There are a number of areas in which RFID technology can be used to improve cargo security efforts such as in facilitating container identification and in activity tracking.

For example, smart container seals are active RFID tags, which notify authorities and operators that a container has been opened without authorisation. Such smart seals may also be equipped with sensors that monitor conditions in the container and some tags, including those used by DOD on high-security containers, also contain global positioning system (GPS), sensor and satellite telephone capabilities to constantly report the location of the container and the conditions in it.

While there is no mandate for RFID tags in any of the current regulations governing cargo security in the US, US government cargo security initiatives and the FDA's recent moves to ensure the security of drugs in the US market via RFID technology mean that this technology is here to stay. This is all the more true when viewed in the context of concurrent private-sector initiatives to further streamline business processes, such as Wal-Mart's efforts to require all of its suppliers to tag products with RFID technology. That is to say, within a few years' time, RFID technology will be used by manufacturers, exporters, shipping companies, importers and governments to track products throughout the global supply chain.

USTR Rejects Congressional Section 301 Petition on Chinese Currency

On 12 November the Office of the US Trade Representative (USTR) rejected the most recent petition filed under Section 301 of the Trade Act of 1974 against Chinese currency practices. China's President Hu Jintao reportedly thanked President George W. Bush for this action when the two men met on the sidelines of the Asia-Pacific Economic Co-operation (APEC) summit in Santiago, Chile. However, the Bush administration's rejection of this effort did not come as a surprise, as it was primarily a Democratic initiative, with Senator Lindsey Graham (South Carolina) being the only Republican lawmaker among the 30 supporters.

In a statement, USTR spokeswoman Neena Moorjani explained, "As we have previously made clear, the administration believes China must move faster to adopt a flexible, market-based exchange rate and we have acted aggressively to persuade the Chinese government to undertake the complex transition toward that goal". She added, "A Section 301 action would not assist in these efforts, and indeed could be more damaging than helpful at this time".

At issue was once again China's policy of pegging its currency to the US dollar at 8.28 yuan to US$1, which an ever-growing chorus of US critics contends artificially undervalues China's currency and contributes to the ballooning US trade deficit. On 30 September a group of twenty-two House members and eight senators, the Congressional China Currency Action Coalition, launched a Section 301 initiative seeking the immediate elimination of the undervaluation of China's currency.

The lawmakers called on USTR to act quickly arguing that China's currency peg acts as an export subsidy that is prohibited by Article 3.1(a) of the World Trade Organisation (WTO) Agreement on Subsidies and Countervailing Measures (SCM). However, unlike previous Section 301 petitions targeting China's alleged "currency manipulation", this congressional initiative did not call for punitive across-the-board tariffs. Instead, it called on the Bush administration to launch a dispute settlement proceeding against China at the WTO.

Beyond the political nature of the Chinese currency issue in the just passed American election season, the expanding US trade deficits - on course to top US$600 billion this year, with China alone accounting for approximately 25% of that total - poses a risk to the US economy. The US current account deficit reached an all-time record of US$166.2 billion in the second quarter of 2004. Making matters worse, the Bush administration and the Republican-dominated US Congress continue to pursue policies that do nothing to rein in the growing budget deficit.

Federal Reserve Chairman Alan Greenspan issued a stern warning in this regard on 19 November in Frankfurt am Main, Germany, noting that continuing US current account and budget deficits could destabilise the US economy. In his remarks, Greenspan underlined, "Over the past ten years, a large current account deficit has emerged in the United States matched by current account surpluses in other countries". He added, "Current account imbalances, per se, need not be a problem, but cumulative deficits, which result in a marked decline of a country's net international investment position - as is occurring in the US - raise more complex issues. The US current account deficit has risen to more than 5% of GDP [gross domestic product]".

Greenspan pointed out that so far, foreigners, primarily China and Japan though he did not name them, are willing to lend the US money to finance the current account imbalance. However, particularly as the US dollar continues to fall, the worry continues to grow that foreigners might suddenly lose interest in holding dollar-denominated investments.

December 2, 2004

China shouldn't appreciate RMB

If China revaluates its currency it could damage the economy and create an economic "bubble" like Japan.

Morgan Stanley's chief Asia economist Andy Xie warned, if the Reminbi appreciates under international pressure, it will trap China, with low growth, low interest rates and low inflation but a strong currency, China Radio International reported Wednesday.

He pointed out that the macro economic situation in today's China resembles that of Japan when its currency was pressed to revalue during its fast growth period.

At present, at least 1.2 billion US dollars of hot money has entered the Chinese mainland and Hong Kong, as speculators gamble on a revaluation of the RMB.

The Japanese yen revaluated in 1985, causing domestic enterprises to move out of Japan and invest in South-East Asian nations. The low interest policy that followed created an economic "bubble", with over-investment in stock market and real estate, that Japan is yet to recover from.

December 1, 2004

China Allows Transfer of Personal Property Abroad

To meet individuals' legitimate needs of transferring personal property out of the mainland and to facilitate and standardise the conduct of such transfer, the People's Bank of China has recently issued the Provisional Measures for the Administration of the Sale and Payment of Foreign Exchange in the Transfer of Personal Property Abroad.

Taking effect on 1 December 2004, the measures clearly spell out China's foreign exchange administration policy on the personal property transfer by individuals emigrating abroad or inheriting property on the mainland. The move marks a significant step in protecting individuals' lawful property rights as well as pushing forward the convertibility of renminbi under the capital account.

The measures govern two types of personal property transfer by individuals. First, the outward remittance of foreign currency obtained from the sale of property in the mainland by natural persons emigrating to a foreign country or relocating from the mainland to Hong Kong or Macau. The property concerned should be lawfully owned by the individual in the mainland prior to acquisition of immigrant status. Second, the transfer of inheritance property. Foreign nationals and Hong Kong or Macau residents inheriting property legally in the mainland may convert the property into foreign currency and remit the proceeds out of the mainland. The measures also apply to personal property transfer involving residents of Taiwan. However, the measures do not govern other forms of personal property transfer.

The measures stipulate that the personal property to be transferred abroad by an applicant must be his or her lawful property which is not the subject of rights dispute with other parties. Foreign exchange administration authorities will not process applications involving the transfer of personal property under the restraint of judicial or supervisory authorities in accordance with law. Other property that cannot be transferred abroad includes property that is prohibited from transfer by law, property without proof of legal source, and property involved in ongoing criminal or civil litigation cases.

Applications for personal property transfer should be submitted to the local branch of the State Administration of Foreign Exchange (SAFE) at the place of domicile registration of the would-be emigrant or the original place of domicile registration of the benefactor. The applicant may apply in person or appoint an agent. Applications involving the equivalent of less than Rmb500,000 will be examined and approved by the local foreign exchange administration sub-bureau. Applications involving the equivalent of Rmb500,000 or more will be examined by the local foreign exchange administration sub-bureau first before seeking SAFE approval.

The measures also stipulate that applicants wishing to transfer property worth Rmb200,000 or more because of emigration should submit a single application and remit the funds out of China by installment within two years upon approval. Applicant wishing to transfer property inherited from the same benefactor should submit a single application, and the funds may be remitted as a lump sum or by installment. Applications involving the property of different benefactors should be lodged separately and the funds remitted separately too.

Rugao is China's flower world

Rugao Flower World in Jiangsu's Nantong, is China's foremost garden for growing and distributing flowers and plants of all kinds. The centre was developed in 2002 as a key project of government industrial restructuring, and with an investment of Rmb60 million (HK$56 million) from private investors.

The market combines production and distribution with information exchange, technical training, scientific and technological development, landscaping, tourism, and supporting commercial services.

Within two short years, Flower World has developed into a mega market of intensive trading for flowers and plants in eastern China, indeed throughout the whole of China.

Rugao Flower World is 64,000 sqm in area, with 1,024 stalls in five functional sections, including those for commercial services, potted flowers, seedlings, mature trees and short-term tenants.

There is a root carving hall, a kaffir lily garden, a southern flowers street, a Rugao-style bonsai garden, as well as a flower seedling and separate landscape bonsai garden. The centre is an attraction to those who want to view a mature poinsettia garden, a big tree garden and take part in leisure and entertainment.

All these elements combine to present an agriculture-tourism chain for tourism, trade, production, scientific research and training, landscape design, vacation and plant rental.

About 70% of the stalls are manned by local people, with the remaining 30% operated by people from Fujian, Zhejiang and Anhui.

The market is visited by 5,000 people daily.

Plants are mostly sold wholesale, and both spot transaction and orders are welcome.

Rugao is an important export base for bonsai, an art dating back to the Song dynasty that has won its share of international gold awards.

The city has a large area under the cultivation of flowers and plants and has bred over 1,300 varieties. It now has the capacity to produce 200 million tree saplings, 3 million pots of bonsai and 4 million pots of flowers each year.

Over 2,000 varieties of flowers and plants are available at Rugao Flower World. They are not only sold throughout China (such as in Hong Kong, Beijing, Shanghai, Guangdong, Jiangsu, Anhui, Shandong and Jiangxi), but are exported to more than 20 countries and regions, including Italy, Singapore, France and Japan. Annual sales exceed Rmb1 billion (HK$943 million).

There are green plants and flowers throughout the market. A huge variety of flowers and plants can be found, including not only gingko, Chinese rose and osmanthus but also rare and precious species, like one-leaf orchid, Chinese cymbidium and "tortoise shell" ilex.

This flower market is well served by roads, water and electricity supply, telephone, cable TV and Internet services.

Its electronic burglar alarm system provides all-weather monitoring round the clock.

An office embracing the five functional departments of industrial and commercial administration, taxation, public security, forestry and communications provides one-stop service at the flower world.

There are branches of the Bank of China, Construction Bank of China, Industrial and Commercial Bank of China, Agricultural Cooperative and People's Bank of China nearby to provide financial services to clients. There are also forwarding companies in the market to provide packaging and delivery services.

The market has its own horticulture training centre which provides full-time training for gardeners, bonsai makers, lawn builders and other specialists. It also boasts its own botanical information exchange centre.

The Flower World portal links up all operators in the market and functions as an electronic trading platform for domestic and overseas buyers. There are touch screen terminals to let clients know about the market situation.

The annual bonsai festival hosted by the Flower World is visited by many domestic and foreign buyers.

Rugao Flower World is situated at the heart of the Rugao Flower and Nursery Base next to National Highway 204, with the Nanjing-Nantong Expressway, coastal expressway, Xinyi-Changxin Railway and Nantong Airport providing it with convenient sea, land and air transport.

November 28, 2004

A forum for Hawaii's business community to discuss current events and issues Sunday, November 28, 2004 - Direct Link  PDF Format

THE ROUTE TO CHINA - North American Airlines’ bid for China route deserves isle support The airline promises routes that stop in Honolulu if it wins the flights next year By Johnson W. K. Choi

When Singapore Airlines stopped its direct flight service from Hong Kong to Hawaii in 1989, it created great inconveniences for both business and leisure travelers to come to Hawaii.

You can see a drop of Hong Kong visitors, including business executives, visiting Hawaii.

During the past 10 years, trade between United States and China has substantially increased.

Many businesses doing business with China preferred to set up their offices in California, which has the comfort of many choices of daily direct flights to and from all major cities in Asia.

During the past few years, we have had discussions with many accounting firms and found that more Chinese businesses left Hawaii, especially after 9/11, due to the difficulties traveling to and from Asia (except Japan).

The required stopovers at one or more connection points is a common complaint by business travelers.

I have received a solicitation for support from North American Airlines to fly directly to Shanghai and Guangzhou. I do not know too much about the airline.

But I've heard about direct flights from Hawaii to China for more than 10 years with almost annual discussion with foreign carriers planning to start direct flights from China/Hong Kong to Hawaii.

It has become old news.

We believe an American airline willing to fly to Shanghai and Guangzhou direct from Hawaii makes more economic sense as domestic carriers are allowed to pick up and drop off passenger between U.S. cities (foreign carriers are not allowed to do so).

It is great news that Hawaiian Airlines intends to fly direct to China from Hawaii in 2006 -- but it is two years away. It is not as desirable since it planning to do the direct flights four times per week.

If North American Airlines is able to fly daily directly to Shanghai in 2005 and Guangzhou in 2006 it should be good news for Hawaii. It will also give business travelers better choices and cut down their travel time to/from Hawaii.

I am asking you to take a look at it and see if you can support their efforts.

Johnson Choi is president and executive director of the China.Hawaii Chamber of Commerce.

China.Hawaii Chamber of Commerce http://www.hkchcc.org/president's_corner.htm

November 25, 2004

Convenience food in a hurry in Shanghai

Lianhua Express, All Days, Kedics, Liangyou, C-Store and Meiya 21st Century are all stores, now all over Shanghai.

Besides retail outlets, these stores also provide services to customers any time and anywhere.

For example, they sell convenience food, accept payments of public utility charges, deliver milk or flowers, as well as accept requests to reserve train or bus tickets, and sell public transport or telephone store-value cards.

One of the major characteristics of convenience stores is that they stock large varieties of convenience food to satisfy the needs of students and office workers instantly.

For people who crave something to eat in the middle of the night when all restaurants are closed, these outlets are the answer to their prayers.

Years ago, instant food was mostly in the form of simple Japanese snacks, like sushi.

Now, microwave-friendly Chinese foods such as shashlick, cakes, rice soup and congee are readily available. They are very popular because they are nutritious, convenient and hygienic.

In order to attract customers and fight for a winning edge in competition, convenience stores in Shanghai are striving to bring in new instant food products through diverse channels.

Lianhua Express recently teamed up with Nagatanien, Japan's largest instant food manufacturer and dealer, to develop and import Japanese-style convenience food in a bid to meet consumer demand in a modern city and give people an easy way to taste what authentic Japanese food is like.

Consumers stand to benefit, as convenience stores import more and richer varieties of convenience food in their effort to diversify their merchandise and provide more personalised service.

Workers Get Compensation for Wage Arrears Under New Regulation

Under the Regulations on Labor and Social Security Supervision promulgated by the State Council, employers have to pay workers compensation for wage arrears.

Article 26 of the new regulations stipulates that employment units that withhold or delay wage payment for no reason, pay workers below the local minimum wage, or fail to pay workers financial compensation for termination of labor contract in accordance with law, would be ordered by the labour and social security administrative departments to pay within a prescribed period remuneration to the workers, the difference between the workers’ wage and the local minimum wage, or financial compensation for termination of labor contract. Those that fail to make payments within the time limit would be ordered to make extra compensation to the workers at more than 50% but less than 100% of the amount due.

The regulations also stipulate that employment units that extend workers' working hours in violation of labor and social security laws and regulations would be warned by labor and social security administrative departments and ordered to make rectifications within a specified time. They may also be fined Rmb100 to Rmb500 per worker whose rights have been encroached upon.

November 24, 2004

Tourists bringing wealth to China

China's tourism industry enjoyed robust growth in the first 10 months this year, Beijing-based English newspaper China Daily reported Tuesday.

According to statistics from the National Tourism Administration, China received 89.79 million tourists in the mainland areas in the first 10 months this year, up 20.34 percent year-on-year, an 11.09 percent increase over the same period in 2002.

Among tourists, 13.84 million were from overseas countries, up 52.66 percent year-on-year; 55.03 million were from Hong Kong, up 14.68 percent; 17.83 million from Macao, up 15.63 percent; and 3.08 million from Taiwan, up 39.41 percent.

The top five countries on a list of those that witnessed the fastest growth in tourists entering China in the same 10-month period included India, Russia, the Republic of Korea, Australia and Singapore with growth rates of 45.32, 40.96, 31.93, 27.28 and 27.16 per cent, respectively.

The administration said foreign currency income from the tourism sector in the surveyed time period was estimated at 19.26 billion US dollars, which rose 37.45 percent and represented 14.08 percent in additional income over the same period in 2002.

And 49.79 percent of the tourism exchange revenue came from overseas tourists, 26.89 percent from Hong Kong, 9.81 percent from Macao and 14.01 percent from Taiwan.

China's inbound tourist arrivals set a record in 2002, when China ranked fifth in the world in terms of both overnight tourist arrivals and tourism income in foreign exchange.

In 2003, however, Chinese tourism suffered a heavy blow due to the outbreak of SARS (severe acute respiratory syndrome), which resulted in a sharp reduction in visitors.

In 2003, the tourist arrivals totaled 91.66 million, a decrease of 6 percent from the previous year.

After SARS, the Chinese government adopted a series of measures to reinvigorate the sector.

China sees new record of foreign investment

China's speed of attracting investment and the bulk of investment have attracted world attentions in recent years. Some scholars think the basis for attracting foreign capital has changed already, so the theories guiding foreign investment attraction need modification. Hu Jingyan, Director of Foreign Capital Department of Ministry of Commerce points out that China will adhere to the policy of active, reasonable and effective application of foreign capitals, the Guangming Daily reports.

The argument focuses on two issues: too much foreign capitals will threaten safety of China's economy; some competition will do harm to domestic enterprises, according to Jin Bosheng, a researcher with the Research Institute of Ministry of Commerce.

Jin says these worries are unnecessary. The FDI will not control or monopolize important industries that are connected with national economy and people's livelihood. In the Directory for Foreign Investment 2002, all industries are divided into four categories, according to which foreign capitals are encouraged to enter, allowed to enter, restricted to enter and forbidden to enter respectively. Not all industries are open to foreign capitals. The practice in more than 20 years has proved that the superiors survive the competition and the inferiors are eliminated at market.

China is the No. 1 destination of foreign investment in 2003, says World Investment Report issued by the United Nations Conference on Trade and Development in September. At present, China is still the most attractive destinations for foreign capitals in the world. By the end of August 2004, China has applied foreign investment of US$ 545.029 bln. Experts forecast the gross foreign investment will exceed US$ 60 bln in the whole year, hence the year that receives most foreign capitals.

Simple figures or proportions are not criterion for evaluating the bulk of foreign capitals. The true standard is if the foreign capital play the role it is supposed to play and if it is beneficial to healthy growth of national economy. Foreign investment has made contribution to China's economic development since China's opening. The advanced technology, management experience outweighs the capital itself. More importantly, it makes positive contribution in alleviating the employment pressures.

November 20, 2004

Brazil, Argentina, Chile approved as Chinese group travelers destinations

Brazil, Argentina and Chile have been approved by the Chinese government as Chinese group travelers destinations, according to the latest news from China National Tourism Administration (CNTA). Cuba was approved as a Chinese travelers destination last year.

With no direct flights between China and South America, package prices to the three nations will be quite high. The current price to Cuba within seven days cost more than 20,000 yuan (2000 US dollars) in local travel agencies.

Brazil's rainforest and Samba dance, Chile's volcanoes and Easter island and Argentina's Moreno Glacier are expected to attract Chinese travelers.

Chinese travel agencies will organize groups only after CNTA reaches a consensus with those three nations in visa procedure and local guide issues. Travelers can fly there via Europe or North America.

According to the World Tourism Organization (WTO), China is among the top ten overseas tourist consumption markets. Last year, more than 20 million Chinese travelers went abroad, passing Japan to rank first in Asia for the first time. The WTO has predicted China will become the world's fourth biggest tourism source nation by 2020.

November 17, 2004

Sino-American Trade Relations in A Second Term for President Bush: An Outlook

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Threat-Based China Textile Safeguard Petitions Move Forward

The Committee for the Implementation of Textile Agreements (CITA), an inter-agency group chaired by the US Department of Commerce (DOC), has accepted six threat-based China textile safeguard petitions from US textile industry. In accordance with the stipulated procedures, CITA has started a 30-day period public comment period. Comments on the requested safeguard action targeting cotton trousers (Category 347/348) must be submitted by 3 December 2004. Public comments on the petitions targeting man-made fibre trousers (Category 647/648), cotton knit shirts (Category 338/339), man-made fibre shirts (Category 638/639), non-knit cotton and man-made fibre shirts (Category 340/640) and man-made fibre underwear (Category 352/652) must be submitted no later than 9 December. Interested persons may submit ten copies of such comments to the Chairman, Committee for the Implementation of Textile Agreements, Room 3001A, U.S. Department of Commerce, 14th and Constitution Avenue NW, Washington, DC 20230, United States.

The latest development means that six of the nine petitions submitted thus far have been accepted by CITA. Currently, CITA is reviewing the petitions on combed cotton yarn (Category 301), synthetic filament fabrics (Category 620) and wool trousers (Category 447).

The basis for these threat-based safeguard petitions is that the US textile industry contends that China will capture 70-75% of the US market when textile and apparel import quotas are removed on 1 January 2005 pursuant to the World Trade Organisation (WTO) Agreement on Textiles and Clothing. According to the US textile industry, approximately 33.5% of all US textile and apparel manufacturing jobs, or 350,500, have been lost since January 2001. As of October 2004, 695,800 US textile and apparel manufacturing jobs still remain.

As part of its safeguard petition drive, the US textile industry also has accused Chinese firms of illegally exporting to the US millions of pairs of cotton and man-made fibre trousers by misclassifying the subject merchandise as linen, silk or other vegetable fibre trousers. The accusation is included in two of the recent petitions.

In a statement, Cass Johnson, the president of the National Council of Textile Organisations, greeted CITA's decisions enthusiastically, saying, "The six petitions now accepted are where the rubber meets the road in determining whether the textile industries in the US, the Western Hemisphere and the rest of the developing world will be given a fair chance to compete once quotas are removed. As the quota phase-out ticks down, these petitions are the only things that can now stop a Chinese takeover of the US market. Hundreds of thousands of jobs are at stake as well as the principle of fair play in textile trade".

The acceptance of the petitions means that CITA deemed that they contained sufficient information for further consideration. Nevertheless, these threat-based petitions are under close scrutiny. For its part, China has threatened to challenge the legality of threat-based safeguards at the WTO, but US government officials do not believe that such a Chinese complaint would be successful.

More important than China's complaints, many US importers and retailers have protested against them. For example, the American Apparel and Footwear Association (AAFA) said in a statement that the DOC's legal basis for accepting threat-based petitions is unclear, particularly because to date CITA has failed to issue a promised procedure for accepting such petitions. Kevin Burke, the AAFA's president and CEO, stressed, "We believe the safeguard mechanism can be effective when decisions are reached through a clear and transparent process and only when there is a clear linkage between imports from China and market disruption in the US. To act otherwise, only raises false expectations that the safeguards will benefit the US textile industry".

Nevertheless, the process is moving forward, with the following, approximate timeline. After the end of the comment period, CITA will have 60 days - until early February in the case of the petitions thus far accepted - to determine whether imports of these products are threatening to disrupt the US market. Although it is difficult to predict whether CITA will follow the US textile industry's call for help, many observers feel that the domestic industry will be successful in the majority of these cases.

Should CITA, as most observers expect, make affirmative market disruption determinations, the US will request consultations with China with a view toward resolving the issue. The new quotas will take effect on the day when the US government requests bilateral consultations with China. Bilateral consultations must be held within 30 days of the US government's request and a mutually satisfactory agreement with China must be reached within 90 days of the Chinese government's receipt of the US request. In the event that a mutually satisfactory agreement cannot be reached by that time, the quota will remain in place for one year after the date on which consultations were originally requested.

Finally, in its announcement of 29 October of a new 12-month quota on imports of cotton, wool and man-made fibre socks from China, CITA stated that it would require such imports to be accompanied by an export visa and Electronic Visa Information System (ELVIS) transmission issued by the Chinese government.

However, this requirement may not be implemented. CITA had also intended to require visa and ELVIS transmissions in conjunction with the quotas it imposed on Chinese knit fabric, dressing gowns and brassieres on 24 December 2003, but this requirement was cancelled before taking effect due to objections from the Chinese government. In the latter case, China has used an alternative procedure under which qualified enterprises must apply for a "Registration Certificate" from the Bureau of Visa Affairs of the Ministry of Commerce or the Provincial Office for Trade and Commerce, to export these items to the US.

DOC Makes Affirmative Final AD Determination on Wooden Bedroom Furniture From China

On 9 November 2004, the US Department of Commerce (DOC) made its final determination in anti-dumping duty (AD) investigation A-570-890 that imports of wooden bedroom furniture from China are being dumped on the US market. The subject merchandise is classified under subheadings 9403.50.9080, 9403.50.9040 and 7009.92.5000 of the Harmonised Tariff Schedule of the US (HTSUS). The DOC's final determination calculated dumping margins ranging from 0.79% (de minimis) to the China-wide rate of 198.08%, which has remained unchanged from the preliminary determination.

The US imported wooden bedroom furniture from China worth US$1.2 billion in 2003. Imports from China accounted for 48% share of total US bedroom furniture imports in 2003, up from US$817.3 million in 2002, which translated into a 40% market share. In light of its limited resources, the DOC selected the top seven Chinese furniture exporters to the US as mandatory respondents. These seven companies represent roughly 34% of the total value of US imports of the subject merchandise from China. The DOC has determined that dumping margins, ranging from 0.79% to 198.08% exist for these mandatory respondents.

The DOC also found that 115 additional Chinese companies have demonstrated that their export activities are not controlled by the Chinese government, which entitle them to a separate rate of 8.64%. This separate rate is based on the weighted-average of five of the seven mandatory respondents' rates. These Section A respondents account for 65% of Chinese wooden bedroom furniture imports.

However, the imposition of an AD order also requires an affirmative injury determination from the US International Trade Commission (USITC). The USITC's final determination in this AD investigation is expected no later than 23 December 2004. If the USITC makes an affirmative injury determination, the DOC will issue an AD order.

November 16, 2004

China Publishes List of Prohibited Imports for Processing Trade

The Catalogue of Prohibited Commodities in Processing Trade jointly published by the Ministry of Commerce (MOFCOM), General Administration of Customs and State Environmental Protection Administration came into effect on 1 November 2004. Certain low-end, toxic, harmful and low value-added items such as scrap mechanical and electrical products, wastes and used mechanical and electrical products are included in the list of prohibited imports.

According to an official from MOFCOM’s Mechanical and Electrical Products Import/Export Division, the government has been publishing annual catalogues of commodities prohibited from the processing trade in recent years to restrict processing trade using low-end, toxic, harmful and low value-added products. At the same time, it encourages processing trade to use products with high technology content and value-added.

Under processing trade, a major form of import/export trade in China, domestic manufacturers import bonded raw materials and parts from abroad for production and assembling in China and re-export the finished products.

In the early stage of development of processing trade, some foreign enterprises transferred the production of toxic and harmful products to China. Objectively speaking, these activities contributed positively to China’s trade, especially export earnings, in the early days. However, in the long run, they will not only pollute the local environment but will harm the health of workers working in toxic and harmful conditions.

As China has come to realise this problem, it is now publishing lists of prohibited commodities every year to restrict processing trade using low-end, toxic, harmful and low value-added products. The scrap wires, scrap mechanical and electrical products such as scrap car steel, wastes and used mechanical and electrical products such as air-conditioners and TV sets announced this time are all low-end products.

Chongqing's red hot thermal underwear competition

Thermal underwear has already made an appearance in Chongqing's huge market, even though winter has yet to really make its mark. As usual, price continues to be the weapon for boosting sales.

Unlike previous years, when discounts were offered on old stock alone, new arrivals - many of which are brand-name items - are also currently being discounted. Manufacturers are eager to join this highly competitive sector because thermal underwear can make good returns.

New thermal brands are popping up alongside household names such as Gracewell, Nanjiren, Beijirong, Docare and Catman. Makers of ordinary underwear, such as Lovegod, Three Guns and Meilaoda, have joined the race, and even manufacturers of woollen products like Hengyuanxiang and Erdos are also now producing thermal underwear.

Companies are rushing into this lucrative business, where trade standards have yet to be established and competition is unregulated.

Understandably, the most cost-effective way to fight for market share is through pricing.

Top brands are also being dragged into the price competition, and are compelled to offer outright discounts or resort to disguised forms of discounting, such as "buy one, get one free".

At the underwear section of Wangfujing Department Store, there are discount tags all over the place.

Modal is offering a 35% discount for products of the new season. Its rival, Clockwise, counters the challenge by offering free underwear worth Rmb200 (HK$188.6) for the purchase of an undergarment priced at Rmb300 (HK$283).

Another retailer, Docare, did quite well last year, but still offers a 50% discount for some of its items this year.

Competition is, in fact, becoming white hot, even before the peak season.

Besides the price war, new concepts are also used to promote sales. Manufacturers have come up with all kinds of fascinating "concept" fabrics this year, such as lycra, natak, nano and corn fibre. Competition looks set to intensify with the advent of winter.

New industry standards were introduced on 1st November 2004 to regulate the market. The new standards require fibre and formaldehyde content labeling as heat insulation and environmental protection indicators, so consumers have a clear idea of what they are buying.

These strict requirements could well bring pressure to bear on the smaller and weaker enterprises, which have all along resorted to lower pricing to secure a place in the market. They are making a last ditch effort to stay in the game before the market is comprehensively regulated, which may well explain why competition in the thermal underwear market is particularly fierce at the moment.

November 15, 2004

Chongqing Opens Senior Positions to Hong Kong and Macau Residents

The government of Chongqing recently published a set of opinions on the policy of strengthening personnel exchange and cooperation with Hong Kong. According to this document, Hong Kong and Macau personnel may be recruited as senior civil servants in Chongqing or as senior executives of enterprises and public organisations in the city at salary levels commensurate with those in Hong Kong.

Full Opening of Enterprises and Organisations - Hong Kong and Macau residents may join the government and functional departments of Chongqing as advisers. They may become senior civil servants through open recruitment or take up employment with functional departments.

Hong Kong and Macau professionals and technical personnel may also be employed by schools, research institutions, medical institutions and other establishments, and may be employed as special (visiting) professors, researchers or economic, technical and management consultants. The salary level, which is commensurate with the pay scale for similar posts in Hong Kong and Macau, will be negotiated between the employing units and the Hong Kong and Macau personnel. Hong Kong and Macau managers, professionals, technical personnel and high-tech experts may also work for enterprises in Chongqing.

Hong Kong and Macau personnel with professional qualifications obtained in Hong Kong and Macau or vocational qualifications obtained through training in Hong Kong and Macau will be treated in the same way as their Chongqing counterparts and permitted to practise or take up employment in the city.

Permitted to Set Up Intermediaries - Unless otherwise prohibited by the laws of China, Hong Kong and Macau personnel will be allowed to set up intermediary service agencies in Chongqing and to take up equity in enterprises or establish new enterprises with patents, special technologies and research achievement for commercialisation purposes. The government will provide them with speedy and good quality service in business registration, land use, taxation and other matters.

Human resources development companies in Chongqing, Hong Kong and Macau are encouraged to join hands in setting up job recruitment agencies and unfold cooperation in job market information, forecast and planning, quality assessment, performance evaluation, salary structure design, management consultancy and headhunting services.

Tax Concessions - Hong Kong and Macau companies registered in Chongqing that meet the relevant requirements are eligible for tax concessions offered to foreign-invested enterprises and to the development of the western region. Legitimate individual income derived from Chongqing is eligible for individual income tax concessions offered to foreign employees. The after-tax income may be converted into foreign currency and remitted out of the country.

National Treatment - Hong Kong and Macau personnel working in Chongqing may apply for a foreign resident permit, which gives them national treatment in their children's schooling and in applying for driving licence and buying real estate.

Hong Kong and Macau personnel (including their spouses and minor children) who need to travel regularly to Chongqing will be issued resident permits for two to five years and a corresponding multiple entry "Z" visa. Those who do not need to travel regularly will be issued a multiple entry "F" visa valid for two to five years with unlimited renewal options.

November 9, 2004

  Posted on: Monday, November 8, 2004

EDITORIAL - Diplomacy a must for Taiwan mission

If they haven't done so already, we urge state officials to consult very carefully with the State Department about their plans for a major trade mission to Taiwan next month.

There's no question that Taiwan investment in Hawai'i is welcome, and there's certainly room for more. The danger is in large official delegations visiting Taipei under the careful eyes of Beijing.

State officials, of course, are aware of China's strident claim that Taiwan is nothing more than a wayward province that will be returned to the fold by invasion if it dares to declare independence. And Beijing has placed enormous pressure on other countries that have had bilateral relations with Taiwan. Only a handful have not buckled.

With the right care, a state delegation should be able to navigate China's diplomatic radar to visit Taipei.

We're not sure, however, that the Lingle administration is worried about being ultra-careful. It has gone out of its way to give less-than-careful welcomes during visits to Hawai'i by Taiwan's president and vice president.

In years past, these officials have sat in their airplanes on the airport tarmac to receive visitors, denied even the chance to set foot in the United States. We like and admire Taiwan's president, Chen Shui-bian, and the business interests that the state hopes to woo.

We wish the circumstances between Taiwan and China were otherwise.

But they're not, and it's imperative that the state ensure that a diplomatic upheaval doesn't result from this rather modest — and on its surface, desirable — trade initiative

Guangdong Raises Minimum Wage for Workers

The people's government of Guangdong recently announced its revised minimum wage standards. In the light of the economic and employment situation in 2003, the new standards are on average 8.61% higher. The revised standards for minimum wage are as follows: Category 1, Rmb684/month; category 2, Rmb574/month; category 3, Rmb494/month; category 4, Rmb446/month; category 5, Rmb410/month; category 6, Rmb377/month; and category 7, Rmb352/month. The new standards will take effect on 1 December 2004.

The new minimum wage standards are the result of adjustments made in accordance with the new Minimum Wage Regulations promulgated by the Ministry of Labour and Social Security in the light of the socioeconomic situation in Guangdong in 2003 and 2004. Socioeconomic growth was taken into consideration in this restructuring exercise.

The minimum wage currently implemented in Guangdong was set in the spirit of the Regulations Governing Minimum Wage for Enterprises promulgated by the former Ministry of Labour and the Regulations Governing Minimum Wage for Enterprise Workers in Guangdong issued by the provincial government. The minimum wage does not include the minimum social insurance fee and housing provident fund payable by workers. In the present wage restructuring, minimum social insurance fees for workers originally paid by enterprises are included into the minimum wage of workers. Housing provident fund was not taken into consideration because the majority of enterprises in Guangdong have not yet implemented the system of housing provident fund.

    Joinbuy City Plaza becomes Shanghai's new retail landmark

For many years, Shanghai with its huge consumer market has been seen by leading international retailers, such as Chia Tai from Thailand, New World from Hong Kong, Pacific of Taiwan and Parkson of Malaysia, as the bridgehead for mainland ventures. Against this background, Joinbuy City Plaza, jointly owned by Sogo (Hong Kong) Co Ltd and Shanghai's Joinbuy Group, opened for business in Shanghai in late September.

The 100,000 sqm Joinbuy City Plaza, which is also managed by Sogo, is located at Jingan Temple district on Nanking Road West. The plaza is connected to a nearby underground station and is therefore very easily accessible.

Consisting of a department store and a shopping centre, the plaza targets high-end consumers and is the fourth upmarket shopping centre in Shanghai after Meilongzhen, Hang Lung and CITIC Pacific, three of Shanghai's trend-setting shopping venues. It is also the fourth Japanese-style department store in Shanghai after Jusco, Isetan and Meilongzhen.

Classy Joinbuy brings together leading names in the clothing and jewellery world. It is home to more than 200 international brands, including 10 that have entered China for the first time, and over 40 that have come to Shanghai for the fist time.

The occupancy rate is approaching 100% for the department store and over 80% for the shopping centre. The plaza also has a supermarket specialising in Japanese food and a separate food hall to cater for the needs of its increasingly diverse consumers.

China will fully open its retail sector this year to foreign investors from 11th December under its WTO commitment. Foreign retailers will no longer be subject to restrictions in terms of scale and geographical location. More international retail giants are expected to be joining the fray for a slice of the China market in the weeks ahead and competition is also expected to intensify.

November 4, 2004

What Firms Can Do When Faced with US Anti-Dumping Actions

An anti-dumping duty (AD) order is arguably the most effective way to close the US market to foreign exporters. When it comes to dumping proceedings involving non-market-economy (NME) countries like China, the US Department of Commerce (DOC) presumes that all companies are under governmental control. As a result, all Chinese exporters are assigned a single countrywide AD rate, which is often on the high side and affects normal exports to the US.1 Yet there are certain things that individual Chinese firms can do to protect themselves, and one such means is to "apply" for a separate rate.

Should a certain product become subject to an AD order, US importers are likely to look towards those Chinese suppliers that have been excluded from the case, or have secured lower dumping margins than the countrywide rate. Chinese firms that are not selected to be investigated by the DOC - those that will not be mandatory respondents - may be able to minimise the impact of an AD order by "applying" for a separate rate, which means that the dumping margin will be a weighted-average of the rates of the fully investigated mandatory respondents, excluding the lowest rates, such as 0% and de minimis, and the highest rates, ie, "total adverse facts available", which is typically the countrywide rate.

Receiving separate rate treatment requires a proactive approach. For a Chinese firm to receive a separate rate, it must request Section A of the DOC's questionnaire, which is essentially a generic document, but is adapted slightly for every specific case. A copy of the Section A questionnaire should also be obtainable from China's Ministry of Commerce, as the DOC serves the ministry with a copy of it.

In theory, a company could represent itself and deal directly with the DOC, but in practice this is not an advisable strategy for any number of reasons. For example, the questionnaire is difficult to understand, particularly without prior experience. There are also various technical format and procedural requirements associated with a Section A response that must be met, otherwise it is likely to be rejected.

Just as important, the Section A response must be filed in a timely manner. The deadline for separate rate respondents is the same as the deadline for mandatory respondents, which is stated in the questionnaire but not made public.

The technical intricacies of the process, its logistics and the tight timeline in essence require a Chinese exporter to retain trade counsel in the US, and to do so quickly. Any delay might mean that the deadline could slip by and the opportunity to receive a separate rate will be lost. The latter is not an unusual occurrence, particularly in cases targeting China. Thomas Vakerics of the Washington law firm of Sandler, Travis & Rosenberg, observed, "In cases involving China, I see companies that attempt to obtain a separate rate come in late all the time, and DOC routinely rejects their late responses".

The DOC's separate rates test focuses on both de jure and de facto governmental control over a firm's export activities. The DOC's Section A questionnaire currently requires Chinese exporters to provide detailed information on their ownership, management and on how the company's management is selected. The information submitted in response to the Section A questionnaire must also address the company's relationship with other producers or exporters of the subject merchandise. Furthermore, exporters must explain their relationship with the central government as well as with provincial and local governments, including details on any laws or other formal governmental measures that centralise or decentralise control of export activities.

Exporters must also describe how their prices are set and how sales to the US are negotiated; whether they are expected to achieve government-set foreign exchange targets and whether there are any restrictions on the use of their export revenues. As a corollary to this information, the submission must explain how export profits are calculated and who decides how the profits will be used. Finally, Chinese exporters must provide information on whether they have had losses on export sales in the past two years, and how such losses were financed.

Under the current practice, the DOC assigns exporter-specific rates rather than exporter/producer combination rates. However, it appears that the DOC intends to change that practice. There are a number of reasons for this, but a central one is that the DOC has received increasing numbers of requests for separate rate treatment in investigations involving Chinese companies, particularly the wooden bedroom furniture and the frozen canned warm water shrimp cases.

Another concern is the potential evasion of dumping duties. Currently, separate rates are assigned only to exporters, and the assigned rate applies regardless of which entity produces the subject merchandise. As a result, in cases in which the AD rates vary widely, there is a strong incentive for exporters that have either the countrywide or a high individual rate to ship their merchandise through an exporter assigned a lower rate.

Of course, such evasion undermines the purpose and effect of an AD order. To remedy this problem, the DOC has proposed a separate rate "application", which would require all exporters, including those that are 100% foreign owned, to certify their eligibility for receiving a separate rate. Toward this end, the DOC would specify the documentation required to substantiate these certifications and require that the applicant provide original and translated copies of all those documents with the application.

The DOC also may extend the practice of assigning exporter/producer combination rates to NME exporters that receive a separate rate. In this manner, only a specific exporter/producer combination, which existed during the period of investigation or review, receives the separate rate. In other words, if an exporter that originally qualified for a separate rate started to source from a new supplier, the exports would fall outside the separate rate, and the countrywide rate would apply.

Finally, the DOC is considering changing this practice with regard to third-country resellers. Currently, if there is no evidence that a producer/exporter is aware of the ultimate destination, the DOC considers the third-country reseller to be the exporter. However, recent dumping investigations indicate that it is difficult to assess the relationship between producers/exporters and resellers in a third country. Consequently, the DOC is considering instituting a rebuttable presumption that NME producers shipping subject merchandise through third countries know that their goods are bound for the US. In other words, the DOC would assume that NME producers shipping through third countries set the export price to the US and assign to them, rather than the reseller, AD rates, unless evidence to the contrary is presented.

The DOC currently is analysing the public comments it has received on the proposed rules changes. In the interim, however, the DOC has imposed a very stringent review standard on Section A responses. According to Sandler, Travis & Rosenberg's Thomas Vakerics, who has represented a large number of Section A/separate rate respondents, "There has been a significant shift at the DOC, which has imposed increasingly stringent technical standards and rejected a growing number of Section A responses that would have been accepted in the past".

In the past, as a general rule Section A respondents have not been subject to DOC verification, but that policy has changed of late. In fact, Section A respondents from China were verified by the DOC in both the shrimp and wooden bedroom furniture cases. In both of those cases there were a large number of Section A respondents, but the DOC selected only one or two for verification. Nonetheless, every Section A respondent should prepare the company's responses based on the assumption that it will be verified.

In short, the separate rate practice affords Chinese firms some protection against the most pernicious outcomes of an AD investigation, but it is important to recognise that the process is complicated, requires total commitment and excellent legal advice. Moreover, time is of essence because the schedule is tight and the DOC only states the deadline for submitting Section A responses in the questionnaire itself.

CITA Imposes Sock Safeguard

On 22 October 2004, CITA determined that the US market for socks (Categories 332/432 and 632 Part) is being disrupted by imports from China, and that this situation threatens to impede the orderly development of trade in these products. The petition that requested this safeguard action was filed by the Domestic Manufacturers Committee (DMC) of the Hosiery Association, the American Manufacturing Trade Action Coalition, the National Council of Textile Organisations and the National Textile Association.

The new quotas took effect on 29 October 2004 when the US government requested bilateral consultations with China. The quantitative limit will be the sum of imports of Chinese origin cotton and man-made fibre socks (Category 332 and 632 Part) plus 7.5%, and imports of Chinese origin wool socks (Category 432) plus 6%, which entered into the US during the first 12 months of the most recent 14 months preceding the month in which the request for consultations is made. As a result, CITA has established a twelve-month limit on socks from China through 28 October 2005 at a level of 42,433,990 dozen pairs.

The bilateral consultations are designed ease the existing market disruption and must be held within 30 days of the US government's request. A mutually satisfactory agreement with China must be reached within 90 days of the Chinese government's receipt of the US request. In the event a mutually satisfactory agreement cannot be reached by the conclusion of the consultations period, the quota will remain in place for one year after the date on which consultations are requested.

CITA Accepts the Request for Investigation of Cotton Trouser Imports from China, Based on Threat of Market Disruption

On 29 October 2004, the Committee for the Implementation of Textile Agreements (CITA), agreed to consider a request by a coalition of US textile companies, apparel companies and a union representing textile and apparel workers for safeguard action limiting imports of cotton trousers (Category 347/348) from China. CITA will now consider whether imports of cotton trousers from China "threaten the US with market disruption and whether imports of the subject products from China will play a role in that increase and in the threat of market disruption".

CITA will publish a Federal Register notice seeking public comments regarding the request, launching a 30-day period during which interested parties and stakeholders may submit comments on the request. CITA will make a determination within 60 calendar days of the close of the public comment period on whether to request consultations with China. If CITA is unable to make a determination within 60 calendar days, a notice will be published in the Federal Register, including the date by which it will make a determination.

If CITA makes a negative determination, this determination and the reasons therefore will be published in the Federal Register. If CITA makes an affirmative determination that imports of Chinese textiles and apparel products threaten to disrupt the US market, CITA will request consultations with China. As of the date consultations are requested by the US, a quota will be put in place to limit US imports of cotton trousers from China.

November 3, 2004

China's rail development on the line

The degree of urbanization on the Chinese mainland will grow from 30% currently to 40% in 2020 and large Chinese cities are set to double their populations.

Urban transport has become a major element in national development and logistical planning.

There is ample room for the development of rail transport in many cities, which are giving priority to rail to alleviate worsening traffic congestion.

China has earmarked over Rmb200 billion (HK$188.6 billion) for the construction of underground railways and 450 km of traditional rail transport lines during the 10th five-year plan period from 2001 to 2005.

China is estimated to have over 550 km of underground rail lines by 2005.

The huge market should prove attractive to domestic and international enterprises.

According to analysis of investment in the rail transport network nationally, urban underground railways involve a low of between Rmb200 million and Rmb300 million (HK$188.6 million and HK$283 million) and a high of between Rmb500 million and Rmb600 million (HK$471.6 million and HK$566 million) per km for infrastructure alone.

Where control systems are concerned, these require specialised services of multinational companies and are not easily manufactured locally.

At present, input into control systems cost Rmb10 million (HK$9.4 million) for every one kilometre of rail line built, or Rmb20 billion (HK$18.8 billion) for 2,000 km.

Projects such as manufacturing train carriages generate another sizeable market.

China is believed to need to increase the number of underground and urban rail carriages from 3,500 to 17,000 over the next 20 years.

A German company has contracted with Changchun Passenger Carriage Works to set up a production plant in a bid to tap this huge market.

Alcatel, the largest telecom supplier globally, also plans to venture into the China rail transport market.

Hong Kong, with its developed rail transport system, may have a leading edge in capital funds, information, management and cultural affinity to gain access to the Chinese mainland transport market.

China to be world's biggest consumer of machine tools

China has been the biggest importer and consumer of machine tools in the world for two consecutive years. But now the market capacity for locally-made and foreign-produced tools is set to grow with the muscular national economy.

According to statistics compiled by the China Machine Tool and Tool Builders' Association (CMTBA), China has somewhere over 2,000 machine tool enterprises. Of these, 56% are state-owned, 30% are private firms and 14% are foreign-invested (including a small number of wholly foreign-owned enterprises).

Employing over 500,000 people, these organisations have total assets worth a huge Rmb117.3 billion (HK$110.6 billion) and produce some 5,000 types of products with a total output value of Rmb91.3 billion.

China's machine tool consumption has increased sharply year after year since 1999 and continues to be the world's biggest consumer in 2003 after being so in 2002. Consumption in 2003 was US$1.4 billion more than in 2002, up 27%.
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In the past three years, consumption has soared at an annual rate of over 20%. Numerically-controlled machine tools form the bulk of China's machine tool consumption, which has more than doubled in the past three years, exceeding that of ordinary machine tools by more than 20%.

China is, of course, also a big importer as well as producer of machine tools. It imported metal processing machine tools worth US$4.13 billion in 2003 and was the largest importer of machine tools in the world in 2002 and 2003.

It also produced metal processing machine tools with a sales value of US$2.98 billion, ranking fourth in the world.

However, China's export of machine tools only amounted to US$380 million, accounting for a tenth of its import and ranking 12th in the world.

Machine tool consumption to exceed US$7 billion in 2004

China likely to lead in the consumption of machine tools.
The machine tool industry maintains rapid growth in 2004, increasing its total output value by 32% and its sales revenue by 38% year-on-year in the first half of the year. During the period, machine tool imports amounted to US$3.8 billion, up 46.76% year-on-year, and exports amounted to US$950 million, up 50%.

China's consumption, output value, imports and exports of machine tools all showed significant increases year-on-year in the first half of 2004.

China is likely to be the world's biggest consumer of machine tools again this year.

Figures in the first half of 2004 suggest that the production and sales of machine tools have not been affected by the government's macro-control measures. The impact of macro-control will not be felt for about six months.

However, some signs have already started to appear. For example, sales of the four major types of general machine tools, including general lathes, milling machines, grinding machines and punching machines, have started to slip during the January-through-June period this year.

Although sales of these products by leading enterprises have not shown an obvious decline, several enterprises have indicated that the growth of contracts for the production of medium- and low-end numerically-controlled machine tools has started to slow down.

According to people in the industry, macro-control will have both positive and negative impact on the machine tool market.

For example, the decline in the rate of increase in investment in fixed assets month-on-month is expected to affect growth in market demand.

However, treasury bond-funded technological renovation projects aimed at rejuvenating the old industrial bases in Northeastern China, which involve a total investment of Rmb61 billion (HK$57.5 billion), will give the market a shot in the arm.

Users of machine tools are engaged in a wide spectrum of industries. The auto industry, the biggest user of machine tools, will see a change from explosive growth two years ago to only relatively rapid growth in 2004. The decline in the growth rate will inhibit investment in the auto industry to some extent, thus slowing down demand for machine tools.

On the other hand, demand for medium-to-high end numerically-controlled machine tools from such high-tech industries as electronic information, aviation and aerospace will continue to be high.

Based on these considerations, experts believe that increases in the production and sales of machine tools in the second half of the year will drop, but not significantly, from the first half.

Production and sales are expected to grow by more than 20% for the whole year, but sharp fluctuations are unlikely. Some Chinese experts predict that the industry will embark on a period of flatter growth in the second half of this year after successive years of rapid growth.

Perhaps most significantly, consumption is expected to break the US$7 billion mark in 2004.

Demand for general machine tools is expected to remain stable, but demand for numerically-controlled tools should soar. For the latter, demand is expected to approach 100,000 units in 2004, including 75,000 numerically-controlled metal cutting machine tools (60,013 in 2003).

With regard to consumption, numerically-controlled machine tools will account for 60% (about 57% in 2003), and numerically-controlled metal cutting machine tools will account for more than 65% (about 64% in 2003) of all metal cutting machine tools.

The machine tool industry's growth, among other factors, has been predicated by considerable fixed asset investment by the state and private economies.

Additionally, fixed asset and cost inputs have risen as a result of the policy reshuffling of assets under different ownership systems and strategic inputs, as well as state policy towards technology and industrialisation.

It is also the case that there has been wholesale replacement of machine tools by growing enterprises.

Eagerly seeking international partners.
Universal numerically-controlled machines are mainstream products in China's machine tool market. They are also much sought after by domestic and foreign manufacturers.

Brand-name products now dominate the market and end-users in China are familiar with leading international brands - making these their first choice when they make purchases.

As there are no dominant Chinese brands in the market, creating them for numerically-controlled machine tools is not only necessary for the development of China's machine tool industry but is essential for its survival.

China is lagging considerably behind developed countries in its production of numerically-controlled products. Against this backdrop, CMBTA has been urging enterprises in the industry to strengthen international cooperation and strive to narrow this gap within a shorter time and at a faster rate and lower cost.

China's machine tool industry has stepped up its international cooperation in recent year, and foreign companies are playing an increasingly important role. More and more foreign manufacturers are setting up plants or offices in China, partly due to the attraction of China's huge market and partly as a result of the transfer of manufacturing industries with a high technology content to China. Today, foreign-invested enterprises account for 14% of China's 2,238 machine tool enterprises.

Joint ventures are typically equity-based and contractual undertakings. An example is that between Beijing First Machine Tools Plant and Japan's Okuma Co. Another was inherent in the reorganisation of Hefei Forging and Pressing Tools Co Ltd by Hong Kong's Mantu Holdings Ltd.

Again, Yawei Machine Tool Co Ltd formed such a venture with SMS from Switzerland and Selema from Italy, while Shanghai Mechanical Press Plant set up with Canada's Acupress for the production of numerically-controlled shearing and bending machines.

Another venture saw the signing of a letter of intent between Shanghai Tools Plant Co Ltd and Italy's Samputensili to produce gear wheel cutters, while the joint venture between Shanghai Third Machine Tool Factory and ZPS of the Czech Republic was for the production of processing centres.

The government encourages Chinese companies to open up international markets by taking over foreign companies.

For example, Dalian Machine Tools Group acquired the machine tool business of Ingersoll International, Qinchuan Machine Tool Co Ltd took up a stake in US-based UAI, while Shanghai Mingjing Machine Tool Co Ltd successfully acquired a Germany company called Wohlenberg.

China's huge market is becoming increasingly attractive to foreign machine tool companies in the new era. Foreign players have flocked to China to set up wholly foreign-owned operations.

Gildemeister from Germany has set up its production plant in Shanghai and plans to sell 250 machine tools in 2004, gradually increasing the number to 500.

South Korea's Daewoo Machinery Co has also set up a factory in Yantai. It went into production in April this year and plans to produce 1,000 processing centres annually.

Makino from Japan and Riello from Italy have also set up wholly foreign-owned operations in China and South Korea's TGI has set up its own factory at the Qingdao Bonded Zone with a registered capital of US$12 million for the production of drills and milling tools. It plans to export machine tools worth US$10 million in 2004.

November 1, 2004

Hong Kong Companies Advised to Register Trademarks in Both Mainland and Hong Kong

In recent years, the mainland government has placed much emphasis on trademark protection and has tightened relevant law enforcement procedures. In this connection, when Hong Kong companies try to lease counters at major department stores in the mainland, they are often asked to produce trademark registration documents to prove that they really own the trademarks in the mainland. For products labeled as "Hong Kong brand", the department store may further request the tenant to produce documents proving that the trademarks concerned have been registered in Hong Kong in order to avoid possible trademark infringement disputes. Hong Kong companies are therefore advised to register their trademarks in both the mainland and Hong Kong in a bid to protect their rights and interests.

As a matter of fact, in recent years the vast market potential of the mainland has attracted many Hong Kong companies to sell their goods in the domestic market. These Hong Kong companies often use the branding strategy and label their goods as Hong Kong brands. As some of them concentrate their sales in the mainland and their products are not sold in the Hong Kong market, their trademarks are often only registered in the mainland but not in Hong Kong. As such, when they try to lease counters at major department stores in the mainland, they are often rejected since they cannot produce valid Hong Kong trademark registration documents, thus hampering their marketing plans. Worse still, when some of these Hong Kong companies try to register their trademarks back in Hong Kong, they find that their trademarks have already been registered by some other people. Hence, they can only register a new trademark in Hong Kong, resulting in inconsistency in the trademarks used in Hong Kong and the mainland. In other cases, Hong Kong companies which fail to produce proof of trademark registration in Hong Kong may not label their products on sale in the mainland as Hong Kong brands.

October 22, 2004

US Industry Files First Threat-Based Textile Safeguard Petitions Against China

On 8 October 2004, a coalition comprised of six US apparel, textile and fibre producing trade associations and a labour union1 filed the first threat-based special textile China safeguard petition targeting Category 347/348. The coalition also announced its intention to file nine additional petitions covering fourteen more categories. On 13 and 15 October 2004, the coalition filed five of the nine petitions covering Category 338/339, Category 340/640, Category 352/652, Category 638/639, and Category 647/648. In total, the ten threat-based China textile safeguard petitions cover sixteen of the 91 product categories on which US quotas will expire on 1 January 2005 under the World Trade Organisation (WTO) Agreement on Textiles and Clothing.
The ten petitions cover the following textile product categories:

Category - Product Description

347/348 - Men's and boys' and womens and girls' cotton trousers
647/648 - Men's and boys' and women's and girls' man-made fibre trousers
447 - Wool trousers
338/339 - Men's and boys' and women's and girls' cotton knit shirts
638/639 - Men's and boys' and women's and girls' man-made fibre knit shirts
340/640 - Non-knit cotton and man-made fibre shirts
352/652 - Cotton and man-made fibre underwear
361 - Cotton sheets
620 - Synthetic filament fabric
301 - Cotton yarn

The Bush administration is on record saying that it will consider market disruption threat-based requests to limit textile and apparel imports from China. For its part, Beijing has threatened that it will launch a WTO complaint should the US government accept such threat-based petitions. Washington, however, believes that the "threat of market disruption" is supported by the WTO Working Party Report on China's accession, which specifically references "the existence or threat of market disruption" as the basis for imposing safeguards. China textile safeguard petitions are submitted to the Committee for the Implementation of Textile Agreements (CITA), a five-member inter-agency group comprised of representatives from the US Departments of Commerce, State, Labour and Treasury and the Office of the US Trade Representative. At least three agencies must approve any safeguard petition, but the final decision rests with the US president. If the Bush administration were to decide to impose the requested threat-based safeguards, the quotas would likely take effect by mid-January 2005.

Once a safeguard petition is filed, CITA has fifteen working days to accept or reject the petition on its technical merits. If CITA accepts the petition, a 30-day public comment period commences. It would be in this phase of the investigation that interested parties could submit their arguments in opposition to the proposed safeguards. After the comment period, CITA has up to 60 days to weigh the submitted comments and decide whether to impose safeguards and request consultations with China.

Should CITA decide to request bilateral consultations, it will announce this decision in the Federal Register. The new quota will come into force on the date on which the consultation request is presented to the Mainland Government. The 30-day consultation period with China, which could be extended to 90 days, starts at this time. China immediately would have to hold its shipments in the categories at issue to a level of 7.5% (6% for wool products) above the imports entered over the past twelve-month period ending two months before the consultation request was made.

The ten petitions cover roughly US$1.96 billion in US textile and clothing imports, accounting for 13.8% of the US$14.21 billion in Chinese imports and 2.5% of the US$77 billion in imports from the entire world in 2003. The coalition pointed out in its press release that in terms of the total of US$151 billion of US goods imports from China in 2003, these petitions would affect about 1.3% of total US imports.

The US textile industry has warned that US imports from China in the textile and apparel categories that were released from quota in January 2002 exploded from a market share of less than 10% in 2001 to more than 70% as of June 2004. The US industry contends that without the imposition of safeguards, China will capture similar market share in the remaining categories, in the process destroying what is left of the US textile and apparel manufacturing industries. The US industry claims that up to 650,000 of the remaining 700,000 textile and apparel jobs could be lost if the US government does not now act to protect the domestic textile and apparel manufacturers.

The coalition also stated that three additional petitions will be filed requesting an extension of the safeguards put in place on 24 December 2003 on cotton and man-made fibre dressing gowns and robes (Category 350/650), cotton and man-made fibre brassieres (Category 349/649) and knit fabric (Category 222). Finally, according to its own press release, the coalition "is actively examining the possibility of filing additional threat-based petitions covering other categories as the merits of the facts allow".

Moreover, there is the sock petition, which targets cotton, wool and man-made fibre socks (merged Category 332/432 and 632 part). This petition claims that socks from China are causing severe market disruption in the US, as US sock imports from China have soared from less than 1 million dozen pairs in 2001 to 22 million dozen pairs in 2003.

In addition, the petition claims that the US industry has experienced severe downward pricing pressures as the wholesale price of Chinese sock imports has dropped precipitously from an average of US$9.00 in 2001 to US$4.15 in 2003. Moreover, the domestic industry's market share has dropped significantly. The US industry maintains a market share of 40%, but as recently as 1999 it still was 76%. CITA will make its decision on whether to impose quotas on socks before the end of October. Industry insiders believe that it is too difficult to predict which way the sock safeguard decision will go.

With regard to the ten other petitions, it is generally taken as an article of faith among experts that CITA will accept all of these ten petitions. Many industry sources also believe that it is very likely that the US will impose quotas on a number of these categories. How many? Different experts have different views on the matter of how many of the petitions will be successful, with estimates ranging from 50% to 100%.

The likelihood of success has little to do with the fact that currently US imports from China in these categories do not present a particularly menacing threat. For example, total US imports in Category 347/348, led by Mexico and the Dominican Republic, were 146,203,361 dozen for the twelve-month period ending in July 2004. By contrast, China's exports to the US in that category totalled only 1,758,757 dozen.

As one industry insider, who asked not to be named, quipped, "The US imports more trouser from Mexico and Central America in a day than it does from China in a year". Moreover, at present China is not even price competitive in trousers. In other categories, such as sheets, China is not viewed as a long-term threat under any circumstances, whereas India and Pakistan are.

Still none of these objective facts really matter, as current import data cannot be used to justify safeguards in any of the ten categories. That is why the US textile industry has resorted to the threat-based approach, using past experience with categories that were integrated in January 2002.

Moreover, the filing of threat-based safeguard petitions in the US has to be seen in the context of developments in the multilateral sphere. On 1 October the chairman of the WTO Council on Trade in Goods agreed to hold informal consultations with WTO members on the impact of the elimination of all remaining textile and apparel quotas. The announcement followed a council session in which more than 30 countries supported a call by Mauritius, Bangladesh, the Dominican Republic, Fiji, Madagascar, Sri Lanka and Uganda for the WTO to study how the dismantling of the quota system will affect developing countries and to form a work programme to consider possible responses.

Washington has indicated that it will participate in these WTO talks, and expressed the wish that Beijing should move unilaterally to ease the situation. And that stance is as clear an indication as possible that US quotas on textile and apparel products on some imports from China will remain in place for some time to come.

US Says Verifying Technology Exports to China Is Improving, DOC Contemplates Various Export Control Reforms

In remarks on 4 October 2004, Under Secretary of Commerce Kenneth Juster, who heads the Bureau of Industry and Security (BIS) at the Department of Commerce (DOC), reported that China is at last allowing US post-shipment inspections that are designed to confirm that US technology exports have not been diverted to military end-users. Addressing the Update 2004 Conference on Export Controls and Policy, Juster said that such end-use confirmation visits have become more routine since the two countries reached an agreement at the April meeting of the Joint Commission on Commerce and Trade (JCCT).

Juster noted that before the agreement was reached in April, the Chinese authorities had for years frustrated DOC teams attempting to make sure that US computer and other technology exports for non-military use had not been diverted to military end-users or uses. Juster stressed that the DOC teams have yet to encounter "any resistance" and have found no diversions from intended use.

In related news, a DOC-led inter-agency effort to reform export controls for high-performance computers (HPCs) will shortly propose new rules. The BNA's daily on-line publication has reported that the new rules, which are to be published in the Federal Register by the end of October, will raise the licence-exception threshold for so-called "deemed exports" to the roughly 50 Tier 3 countries, which include China, Egypt, India, Pakistan and Russia. Specifically, the licence exception for "deemed exports" will be raised to 75,000 million theoretical operations per second (MTOPS), up from 28,000 MTOPS, and to 190,000 MTOPS from 33,000 MTOPS for all other countries. In addition, the threshold for license-exception for exports of microprocessor technology will be raised from 530 MTOPS to 40,000 MTOPS.

Apparently, another US government effort is underway to come up with an alternative to the MTOPS performance measurement standard for HPCs. The new system would use the weighted teraflop (WT) formula for measuring HPC performance. However, a decision on this issue is not imminent.

Moreover, even if the involved executive branch departments and agencies were to come up with an agreement, congressional action would still be required, because the MTOPS standard was established by Section 1211 of Title XII of the National Defence Authorisation Act of 1998 (NDAA). The high-tech industry and its trade associations, such as the Computer Coalition for Responsible Exports (CCRE), which represents manufacturers such as Apple, Dell, Intel, and Sun, has lobbied for years to replace MTOPS. Yet its efforts have been frustrated in the Congress by the allies of the US national security and intelligence establishment. In other words, the last word on whether MTOPS will be replaced any time soon belongs to Congress, and there the outcome is anything but assured.

Finally, the DOC seeks public comments for its review of whether the foreign policy-based export controls in the Export Administration Regulations (EAR) should be modified, rescinded or extended for another year. The DOC is particularly interested in the experience of individual exporters in complying with the proliferation controls, with emphasis on economic impact and specific instances of business lost to foreign competitors. Among other things, the public comments should address the US government's ability to enforce the existing controls effectively and propose revisions to bring them into line with multilateral practice. The comments must be submitted no later than 19 November 2004.

US Launches IPR Initiative, China Remains Principal Target

On 4 October 2004 the Bush administration announced a new initiative to enhance intellectual property rights (IPR) protection and enforcement globally. The Strategy Targeting Organised Piracy (STOP!) initiative was announced jointly by US Commerce Secretary Donald Evans, Attorney General John Ashcroft, US Trade Representative Robert Zoellick and Deputy Homeland Security Secretary Asa Hutchinson. This US government-wide effort is designed to improve the US government's ability to stop the illegal import of pirated or counterfeit products at the US border.
Since 2001, annual seizures of counterfeit goods at US ports have increased 81%, while the value of the seized assets rose 64%, to US$90 million in 2003. Since the beginning of 2004, there has been a 60% increase in criminal IPR-related arrests. In a statement, Zoellick stressed, "We will stop [counterfeit and pirated] products at our border; we will name and shame your company; we will ratchet up the penalties; and we will co-ordinate with our trading partners to prevent third-country trafficking." Specifically, the Office of the US Trade Representatives (USTR) intends to publish the names of foreign firms that produce or trade in counterfeit products in its annual "Special 301" report.

With regard to international co-operation, both in the multilateral and bilateral context Washington seeks to block trade in pirated and counterfeit goods, conduct joint enforcement actions and actively share information on the movement of suspected counterfeit products. This plan entails the introduction of IPR initiatives at multilateral organisations such as the Group of Eight (G-8), the Organisation for Economic Co-operation and Development (OECD) and the Asia-Pacific Economic Co-operation (APEC) forum.

Other central elements of the STOP! initiative include implementing new procedures to allow the US Department of Homeland Security's Bureau of Customs and Border Protection (CBP) to better identify firms that routinely traffic in counterfeit goods. One way to accomplish this would be via post-entry audits to verify that an importer is authorised to use trademarks and copyrights. CBP will apply techniques and technologies developed in fighting the "global war on terrorism", such as the advance manifest rules. This approach should be fully operational nationwide by the end of 2004. The US government will also seek new legislation to empower US district courts to issue injunctions against pirated and counterfeit goods entering any US port, not just those in a particular court's jurisdiction.

In addition, the US government will establish a partnership with industry to develop a "no trade in fakes" programme, under which participating companies would take steps to ensure that their supply chains are free of counterfeit or pirated goods. As part of this effort, the US government will encourage companies to exercise their rights under the Lanham Act, which allows them to conduct private seizures of counterfeit goods when accompanied by federal marshals with seizure orders and injunction notices. US manufacturers may also utilise a toll-free telephone number, 1-866-999-HALT, to file complaints or learn how to protect their IPR overseas.

While the initiative targets a number of countries, the Asia-Pacific region remains a critical problem area for global IPR protection efforts. For example, according to the most recent report from Business Software Alliance (BSA), the international association of the world's leading software manufacturers, the Asia-Pacific region accounts for the fourth highest software piracy rate and the second highest revenue losses in the world. The study, which was conducted by the technology research firm International Data Corporation (IDC) and released in July, found that 53% of the software installed on computers in the Asia-Pacific region was pirated in 2003, representing a loss of over US$7.5 billion. According to the study, the piracy rates in the Asia Pacific region range from a high of 92% in Vietnam and China to a low of 23% in New Zealand.

In particular, China is pivotal for global IPR enforcement efforts, as the country remains the largest source of counterfeit and pirated goods seized by CBP. Over the course of the last year, the Bush administration has increased pressure on Beijing to crack down on massive counterfeiting operations, but so far with only limited success. Almost 58% of the value of all IPR-infringing US imports come from China. A US State Department press release explains, "Due to China's large domestic market and large export capability, illegal Chinese products threaten entire legitimate industries". In 2002 alone, US copyright industries estimated their losses caused by piracy in China to be almost US$2 billion.

The US government notes that China has made progress in revising its IPR laws and developing co-operation and co-ordination among the government departments and agencies involved in IPR enforcement activities. The State Department's release also concludes that "the involvement of Vice Minister Wu Yi indicates a new, serious commitment to combat IPR crime", and adds that funding for this project will enable US officials, jointly with their colleagues from Hong Kong, to train Chinese judges, legislators, prosecutors and police to more effectively combat IPR, with a particular focus on on-line and optical media piracy.

In addition, a US Department of Justice (DOJ) task-force has recommended a more aggressive strategy to combat piracy, counterfeiting and other IPR violations both domestically and abroad. In a 96-page report, which was released in Los Angeles on 12 October by Attorney General Ashcroft, the task-force calls for greater global co-operation against IPR crimes and stationing FBI agents and federal prosecutors at US embassies in Hong Kong and Budapest, Hungary, to co-ordinate IPR enforcement in Asia and Eastern Europe.

The DOJ report also stresses that IPR crimes threaten consumers as well as business interests, citing World Health Organisation (WHO) estimates that counterfeits account for 8-10% of pharmaceuticals worldwide. It also cites reports that counterfeit batteries for cellular telephones had caused fires and injuries. To improve IPR protection globally, the report urges DOJ to enhance IPR training programmes for foreign law enforcement officials, to emphasise IPR enforcement during intergovernmental discussions and to ensure that IPR crimes are included in all extradition treaties. It also directs prosecutors and agents to increase the use of alternative channels of communication, such as "law enforcement-to-law enforcement" contacts.

As part of the STOP! initiative, CBP has solicited public comments on a proposed rule that would allow it to be more responsive to claims of IPR piracy, to facilitate the recordation process with CBP and to strengthen the enforcement procedures to protect those rights. Specifically, this proposed rule would allow sound recordings and motion pictures or similar audio-visual works to be recorded with CBP while registration with the US Copyright Office is still pending. CBP would also make certain changes to its enforcement procedures, including enhanced disclosure provisions, protection for live musical performances and provisions to enforce the Digital Millennium Copyright Act. The public comments must be submitted by 4 November 2004.

October 21, 2004

CEPA I & II: Excellent Opportunities doing business with China through Hong Kong

The Mainland-Hong Kong Closer Economic Partnership Arrangement (CEPA) concluded last year was implemented from 1 January 2004, providing enhanced access for Hong Kong products, service providers and professionals to the mainland market. On the heels of this, Hong Kong and the Chinese mainland agreed under the CEPA framework on 27 August 2004 a second phase of liberalisation measures (CEPA II) to further relax the access to the mainland market. Adding 713 types of products to the zero-tariff list of 374, essentially all Hong Kong-produced products can be exported tariff-free to the mainland. Also, CEPA II opens up 8 new areas for Hong Kong service providers, while further relaxing the business scope for some of the 18 service sectors already open under CEPA I. As a living agreement that can be further expanded in respect of the market access conditions for different sectors, CEPA provides ample opportunities for Hong Kong companies and people to establish business or work on the mainland.


CEPA - A Special Arrangement Abiding by International Practices

CEPA is the first bilateral Free Trade Agreement (FTA) for both the Chinese mainland and Hong Kong. It abides fully by the WTO's requirements on FTAs. While CEPA eliminates substantial trade and investment barriers between Hong Kong and the mainland, it does not raise any obstacles for other economies' access to the two markets. Consistent with the provision of the General Agreement of Trade in Services (GATS), companies in Hong Kong with substantive activity are qualified as Hong Kong companies for the entitlement of the benefits under CEPA.

Opportunities in Trade in Goods

Starting from 1 January 2005, when the second phase of CEPA becomes effective, 1,087 types of products made in Hong Kong can be exported to the Chinese mainland free of tariff. Since the implementation of the first phase of CEPA at the beginning of this year, products with approved Hong Kong origin and a total worth of HK$662 million as at the end of August were exported to the mainland tariff-free, and actual tariff savings were RMB36 million.

While virtually all products that are existing production in Hong Kong will enjoy zero tariffs when exporting to the mainland, the mainland has undertaken to apply zero tariffs upon applications by Hong Kong manufacturers for products that are not yet produced in Hong Kong, but are only being planned to be produced in Hong Kong. For example, among the 713 products allowed zero tariffs in phase two, 184 are not existing production in Hong Kong.

A product is qualified as "made in Hong Kong" if it fulfills the rules of origin under CEPA. For 70% of the 374 types of products covered in the initial phase for tariff-free importation, Hong Kong's existing origin rules using the "specific manufacturing process" criterion is adopted as the CEPA origin rules. For the rest, either the "change in tariff heading" approach or the "30% value-added" requirement is used. The 30% value-added rule of CEPA compares favourably with other free trade areas' thresholds, which range from 40% to 60%.

Apart from zero tariffs enjoyed by products made in Hong Kong, products made by Hong Kong and/or traded by Hong Kong will also benefit from CEPA in other ways. Upon China's WTO accession, many Hong Kong manufacturers with production on the mainland would like to develop China as their domestic market. However, their market penetration efforts have been somewhat hindered by the underdeveloped distribution system on the mainland. Many hazards in developing the China market such as payment problems and intellectual property rights protection now facing Hong Kong manufacturers can hopefully be alleviated as more Hong Kong players will be allowed to engage in distribution business on the mainland under CEPA and as a result of the mainland's liberalisation in the wholesale and retail sectors.

The immediate benefit of the trade in goods is the saving in tariffs, thus increasing the price competitiveness of Hong Kong's domestic exports of consumer products to the mainland. Industries that are more likely to benefit include designer clothes, fashion accessories, pharmaceutical products and proceeded food. A longer-term effect of the zero-tariff agreement is the potential for attracting more high value-added manufacturing activities to be located in Hong Kong, and promoting development of brand products made in Hong Kong to emerging middle-class consumers on the mainland.

Capitalising on the advantage of Hong Kong in intellectual property rights protection, free trade and investment environment, and reputation in cosmopolitan design, Hong Kong is in a good position to develop high intellectual property (IP) value industries that target the mainland market.

For high-end products such as designers' clothing and fashion accessories, and industries that involve proprietary technology (since the IP input accounts for a much larger share than labour and other inputs in the total cost structure), production in Hong Kong may still be justifiable. However, since the high IP value industries are knowledge-based and would not be massive in scale, the effect of job creation in Hong Kong, especially for unskilled workers, would only be moderate.

Opportunities in Trade in Services

The CEPA agreement reached between the Central and Hong Kong SAR governments in 2003 (CEPA I) pertains to market access to 18 service industries.1 On 27 August 2004, the two sides agreed, under CEPA II, to further relax the market access conditions for Hong Kong services and service suppliers in the following areas, namely: legal, accounting, medical, audiovisual, construction, distribution, banking, securities, transport, freight forwarding agency and individually owned stores.

Under CEPA II, it is agreed that eight more areas will be opened up for preferential access to Hong Kong service suppliers. They include: airport services, cultural entertainment, information technology, job referral agency, job intermediary, patent agency, trade mark agency and professional qualification examinations. In other words, the Chinese mainland is committed to opening a total of 26 sectors to Hong Kong services and Hong Kong services providers with CEPA II and I combined.
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To be entitled to the benefits of CEPA, a service company, regardless of the nationality of its investors or shareholders, must have substantive business activity in Hong Kong by fulfilling the following criteria:

(1) the company must be incorporated under the laws of Hong Kong;
(2) the company must be liable to pay profits tax in Hong Kong;
(3) the company must employ in Hong Kong 50% or more of its total staff.

In addition, companies in different service industries have to meet different extra criteria to ensure that they have been engaging in substantive business operations in such an industry for a minimum period (usually three to five years) in Hong Kong. Although the exact requirements for a company to be qualified vary by industries, the assessment will be on a non-discriminatory and objective basis. Foreign companies can be regarded as a "Hong Kong company" one year after acquiring majority shares in a Hong Kong company through merger or acquisition.

Although the liberalisation measures vary from industry to industry, the Chinese mainland has taken into account the special niche of Hong Kong, with CEPA commitments going beyond the country's WTO accession commitments in many sectors, for example, the audiovisual and medical sectors covered under CEPA II.

The Hong Kong government has recently placed greater emphasis on promoting and developing Hong Kong's creative industries. The audio-visual industry, as the centrepiece of Hong Kong's creative industries, is well recognised for its dynamism, artistic allure and creativity. Against this backdrop, the gradual rebound of Hong Kong's film industry since late 2003 has been fuelled by the signing of CEPA. Optimism has been rekindled on the back of CEPA I provisions, which permit quota free access to the mainland of Chinese language films produced in Hong Kong and relax the co-production requirements.

Under CEPA II, the audio-visual industry will receive another boon in the form of enhanced participation in the mainland's film and television markets. Wholly-owned companies can be set up in pilot areas of the mainland to distribute mainland-produced motion pictures (including co-productions) upon approval by the State Administration of Radio, Film and Television (SARFT). Co-produced motion pictures can be processed outside the Chinese mainland upon approval by the SARFT.

Besides, television programmes co-produced by Hong Kong and the mainland can be broadcast and distributed as mainland-produced television programmes after being examined by the relevant mainland authorities. On the other hand, Hong Kong companies can construct or renovate movie theatres for screening business on a wholly-owned basis under CEPA II, an improvement from CEPA I which allows a majority ownership of up to 75%.

Additionally, Hong Kong service providers can establish performing venues, art shops and art exhibition centres on a wholly-owned basis, while setting up performance agencies in joint ventures. These liberalisation measures go beyond the mainland's WTO commitments, as these sectors lie outside the agreed framework.

For the medical sector, Hong Kong permanent residents who are legally eligible to practise in Hong Kong and have practised for 5 years can open clinics on the mainland under CEPA II, upon obtaining the practicing certificate of the mainland's qualification examinations.

Clearly, the framework of CEPA is intentionally designed to help smaller companies, whether they be indigenous or foreign-owned, in Hong Kong. Under China's WTO protocol, the thresholds of entry to the mainland's service sector are too high for Hong Kong companies in most service industries. CEPA lowers the thresholds for Hong Kong companies, allowing them an "effective" market access to the mainland's service industry.

Not only Hong Kong products or Hong Kong companies but also Hong Kong professionals and residents will benefit from CEPA. For example, in addition to allowing Hong Kong legal and medical practitioners to sit the mainland's qualification examination as provided under CEPA I, eligible Hong Kong residents will be allowed to sit a total of 30 professional and technician qualification examinations under CEPA II, most of which are in the engineering and accounting professions.

Thanks to CEPA, Hong Kong residents are likely to identify greater employment and business opportunities on the Chinese mainland. In the case of Hong Kong lawyers, they may find additional business opportunities by offering professional assistance requested by mainland law firms in respect of individual cases, as they will not be subject to the requirement of a Hong Kong legal consultant permit.

Hong Kong permanent residents with Chinese citizenship are formally permitted under CEPA I to set up individually retail stores in Guangdong. Under CEPA II, the geographical span will be extended to the rest of the country. Further, the business scope of individually owned stores is expanded from retail services to include food and beverage services, hair dressing and other specified services.

Overall Impact on Hong Kong

As the first FTA for both Hong Kong and the Chinese mainland, CEPA leverages the institutional strengths of the SAR and the enormous market potential of the mainland under the principle of "one country, two systems". CEPA has contributed not only to the revitalization of the Hong Kong economy by providing it with new impetus and an added economic driver, but also accelerating the pace of economic modernisation of the Chinese mainland.

With CEPA, the integration of the Hong Kong and Pearl River Delta (PRD) economies is also expected to expand. Hong Kong excels in offering superb financial, transportation, professional, sourcing and other trade-related services, while the PRD is increasingly a dynamic manufacturing powerhouse globally. Under CEPA, the economic synergy between the two places looks set to expand for the benefit of companies using the Hong Kong business platform.

CEPA indeed creates the "environment" for Hong Kong products, Hong Kong companies (particularly medium-sized companies), Hong Kong professionals and residents, providing them with an "effective" access to the mainland. It does not provide them with "privileges" to enjoy exclusive rights in the mainland market, as they have to face intensifying competition in this large market from both local suppliers as well as multinational players.

Undoubtedly, as the Chinese mainland continues to open up on schedule in accordance with its WTO commitments, the first mover advantage for Hong Kong players in some sectors can be diluted or weakened over time. Nevertheless, CEPA is an ongoing process with a built-in mechanism to allow continued pursuit of sector-by-sector liberalisation. In effect, CEPA is a living agreement under which the scope of market access can be progressively expanded upon discussion of the Hong Kong and Central governments. The conclusion of CEPA II in late August of 2004, after CEPA was implemented in January 2004, is a demonstration of this living agreement.

Reflecting the progressive nature of CEPA, for instance, 8 new service sectors are opened under CEPA II in addition to 18 sectors under CEPA I, with further liberalisation measures promised to many sectors already open under CEPA I. Similarly, the addition of 713 types of products under CEPA II to the initial zero-tariff list of 374 would allow essentially all Hong Kong-produced products to be exported tariff-free to the mainland. Evidently, CEPA is also forward looking. For example, the zero-tariff list includes product types with no concurrent local production but are being planned to be produced in Hong Kong.

CEPA clearly harnesses the Hong Kong advantages in exploring the mainland market. Given the eased market access to the mainland and the rigorous protection of intellectual property rights in Hong Kong, the city will be the first choice to supply products and services with "high content of intellectual property" for the mainland market. Indeed, creativity will be a key determinant for Hong Kong companies and people to succeed on the mainland.

As Asia's business hub with all sorts of business and professional talents, Hong Kong is capable in meeting the most stringent service demand of companies using Hong Kong as the springboard to the mainland market. The advantage of Hong Kong as a knowledge-based economy is also buttressed by CEPA, which has put in place a mechanism for discussing mutual recognition of professional qualifications, as well as allowing Hong Kong professionals to sit the mainland's qualifying qualifications. Arrangements as such will facilitate further exchanges of talents and human capital between Hong Kong and the mainland, which will be conducive to developing Hong Kong into a "knowledge-intensive" service hub over the longer-term.

Hong Kong is renowned internationally as a free and open economy, as well as the most advantageous business platform in the region. More regional headquarters and offices of multinational firms are located in the SAR than in any other city in the Asia-Pacific. Concomitantly, Hong Kong also offers an unrivalled business environment with superb and immediate access to the Chinese mainland. With CEPA, access to the mainland market has been considerably enhanced.

For overseas companies based in Hong Kong, like other Hong Kong companies, they are already drawing immense benefits from using Hong Kong as a base for the China and Asia operations. With the CEPA-reinforced Hong Kong advantage, Hong Kong-based overseas companies, as well as those overseas companies interested in developing their Chinese business strategies through Hong Kong, can further benefit from the Hong Kong platform enhanced by CEPA.

Under CEPA, overseas companies targeting the Chinese mainland with high value-added products can capitalise on the advantage of Hong Kong in intellectual property rights protection, product design and tariff-free treatment of products qualified as "made in Hong Kong" under the CEPA origin rules. They can also partner with or outsource to Hong Kong manufacturers, leveraging the expanding economic synergy that Hong Kong and the PRD combine to offer.

In addition, overseas service companies planning to enter the burgeoning mainland service market can consider partnering with, investing in or acquiring a CEPA-qualified Hong Kong service provider, drawing on the latter's understanding of and experience in the mainland market.

Eight months after its implementation, CEPA has somewhat contributed to industrial employment in Hong Kong. While this employment creation effect may only be moderate, more employment opportunities will be created in the service sector in future, many of which will be found across the boundary. Services, accounting for only 34% of China's GDP, have become a constraint on the country's economic development. In comparison, services are well developed in Hong Kong, as they contribute to 87% of the domestic economy and will be able to contribute more to the modernisation of the mainland under CEPA. This also explains why the impact of CEPA on the service sector is likely to be greater than that on the manufacturing sector, and the overall effect on total employment could be significant over the longer term.

Immediate trade and employment creation is, of course, important to Hong Kong, but the long-term effect of CEPA is much more substantial. Indeed, the pace of Hong Kong's economic restructuring, along with integration with the PRD, will accelerate under CEPA. While the impact will be emerging over time, it is likely to be reflected more in Hong Kong's GNP than in its GDP. The opportunities arising from CEPA are not limited to activities within the SAR but go much farther on the mainland.

1 These 18 service sectors are: management consulting, convention and exhibition, advertising, accounting, construction and real estate, medical and dental, distribution, logistics, freight forwarding, storage and warehousing, transport, tourism, audio-visual, legal, banking, securities, insurance, and value-added telecommunications services.

October 20, 2004

Utilization of US Quota on Dressing Gowns Up to the Brim

In December 2003, the US government revoked safeguard relief by imposing quotas on three types of textiles and clothing products from China, including cotton and man-made fibre dressing gowns (Category 350/650), knit fabric (Categories 222), and cotton and man-made fibre brassieres (349/649). With effect from 24 December 2003, exports of these products from China to the US are subject to import quotas, which last for 12 months.

According to the latest announcement of the US Customs and Border Protection (CBP), 98.3% of the quotas on dressing gowns (Category 350/650) from China have already been filled. In this connection, China's Ministry of Commerce has advised mainland exporters not to ship out such category of goods to the US until the lapse of current quota restraint on 23 December 2004.

Up to 17 October 2004, the quota utilization of these three types of textile and clothing products from China in the US is as follows:

Category

Description

Quota Limit

Released

% Filled

350/650

Cotton and man-made fibre dressing gowns

4,094,382 doz

4,024,575 doz

98.3

222

Knit fabric

9,664,477 kg

8,464,868 kg

87.6

349/649

Cotton and man-made fibre brassiere

16,828,971 doz

13,526,353 doz

80.4

To keep track of the utilization of US textile quotas, please go to CBP's website: http://www.customs.gov/quotas/files/cntxtrpt.htm

China to Decentralize Offshore Investment Approval Right

To encourage Chinese enterprises to invest abroad, the Ministry of Commerce (MOFCOM) has recently decentralised to local provincial departments of commerce the right to examine and approve applications by local enterprises to invest in setting up companies in 135 countries. At the same time, the number of documents required to be submitted by applicants for examination has been reduced from 10 to five.
The principle of equality among enterprises of different forms of ownership is further realised in the Provisions for Approving Enterprises to Establish Companies Abroad promulgated lately by MOFCOM. The regulations stipulate that “the state supports and encourages enterprises of various forms of ownership with comparative advantages to go abroad and invest in setting up companies”. There are no detailed provisions in the regulations specifying different rules for enterprises with different ownership, thereby ensuring them equal treatment in setting up companies outside the country.

In accordance with the principle of “he who invests will make decisions, he who reap benefits will bear risks”, the regulations also set out that the onus is on the mainland company which invests in setting up companies abroad to decide if the venture is economically and technically viable.

MOFCOM and provincial departments of commerce will no longer screen feasibility study reports when examining and approving mainland enterprises’ applications for establishing companies in other countries (regions). Instead, they will approve applications based on the following:

(1) the investment environment of the country (region);
(2) the security status of the country (region);
(3) the political and economic relations of the country (region) with China;
(4) the guiding policy on offshore investment at home;
(5) the rational distribution of the country (region);
(6) any obligations to fulfil relevant international agreements;
(7) protection of the lawful rights of the enterprise.

Guangzhou used car market gears up to better sales

The mainland's used car market is lagging behind its new car sector in sales growth. Many potential car buyers are held back by the absence of after-sales service, complicated formalities and inadequate access to information in respect of used cars.

Statistics show that used cars account for 75% of all car sales every year in the US, hitting more than 43 million cars in 2002, roughly 3.5 times the number of new car transactions in the same year.

In China, used cars take up just 30% of total car sales, with auctions playing only a small part in the trade.

According to Shenzhen Pengqi Vehicle Auction Centre, the largest of its kind in the city for used cars, only some 100 of the 300 or so used cars that change hands through the centre every year are sold by auction.

Following the implementation of the new policy on development of the automotive industry by the National Development and Reform Commission on 1 June, the Policy on Trade in Automotives is in the pipeline.

Meanwhile, the long-awaited Measures for the Administration of the Used Car Market were released at the end of September to canvass public opinion. The official version may be introduced by the year-end. All these measures are believed to be set to invigorate the used car market.

Recently, 12 distributors were awarded licences by the Shanghai Economic Commission to deal in used cars. They launched a promotion, Shanghai Volkswagen Select Used Cars, in September.

One of the distributors, Shenyin Volkswagen, offered to sign a quality warranty covering the first six months, or alternatively 10,000 km in mileage with every car buyer, partially solving the problem of after-sales service for secondhand cars.

Attracted by the considerable potential of China's used car market, foreign auto makers are trying to enter the market through partnering with local players.

Some foreign auto companies specializing in the used car business have embarked on detailed research on the mainland market.

Hong Kong companies should be ready to tap the market by introducing to the mainland proper trading formats for used cars that are practicing in the international arena.

These services include offering technical talks, test driving, business consultation and free evaluation and acquisition of used cars.

Shilihe lights up Beijing

           

Located along Dayang Road east of Shilihe Bridge on the eastern third ring road in Beijing's Chaoyang district, Shilihe Lighting City was established in 1999 and started business in the second half of 2000. Though not the oldest among the capital's specialised lighting marts, the facility has firmly established itself as the largest in terms of business area in less than five years, covering 23,000 sqm.

In 2003, Shilihe was rated by the industry as one of the top 10 lighting cities in the country, the only one in Beijing.

Today, Shilihe Lighting City has not only been shaped into a major distribution centre specialising in the wholesaling and retailing of lighting products to the whole country, but is also the market leader in Beijing.

Either for personal consumption or construction projects, users who need to source lighting products will first check out Shilihe before visiting other marts in the city.

Space at Shilihe Lighting City is rented out to lighting manufacturers and companies to set up shops, which range from 100 sqm to several hundred sqm in business area.

Rentals vary according to location, and averages Rmb150 (HK$141) per sqm monthly, which is at medium rental in Beijing.

Thanks to the increasingly heavy visitor traffic, Shilihe Lighting City is currently fully occupied, with a total of 166 tenants, 80% of which are from Guangdong, Fujian and Zhejiang.

According to market sources, for want of space, some lighting companies that intend to open shops can only do so by buying existing tenants' occupation rights. It is understood that there have been successful cases of transfer of such rights at Rmb380,000 (HK$358,490) per transaction.

Hu Chunming, deputy general manager of Shilihe Lighting City, said expansion works of the mart are underway, which will hopefully increase its business area by 3,000 sqm in 2004, in a bid to satisfy tenants' demands. There are plans to take in some 40 more tenants, bringing the total to above 200.

According to the home market division of Beijing Marketing Association, the trend for home decoration first emerged in Beijing a few years ago, leading to a mushrooming of building material and lighting marts able to do good business.

Even two to three years ago, new entrants to Beijing's lighting market were still making a profit, according to the association.

From 2002 onwards, however, there has been an over-supply. As at the end of 2002, there were more than 40 large and small lighting marts and shops in the capital, of which over 10 were of a considerable scale.

The figure further increased at an annual rate of 300,000 sqm in business area in 2003. While demand is growing, consumers are also increasingly conscious about branding and require closer attention to be paid to shop image and scale.

Last year's SARS outbreak catalysed the fall of lighting marts with weak foundations while this year has further witnessed the transformation of many larger ones.

In the face of such fierce competition, Shilihe Lighting City has been able to maintain a busy visitor flow. Its annual sales turnover is conservatively estimated at up to Rmb700 million (HK$660 million), with an average of over 2,000 visitors daily.

The success of Shilihe Lighting City could be attributed to its geographical advantage. Dayang Road, which houses the lighting city, is also home to a number of building and decorative materials marts.

Led by Baojia Building Materials Mart which first set up there several years ago, over 10 other large home centres have subsequently moved in, forming a 1,500 m-long building materials street along Dayang Road. They include Dongfanghuimei Home Furnishings Plaza, Jiahejiamei Home Furnishings Mart, Juranzhijia Shilihe Branch, Shilihe Lighting Wholesale City, Shilihe Caihong Fabrics City, Minlong Ceramics Wholesale Mart, Caixuan Hardware World, Minle Building Materials Mart and Dayang Road Building Materials Wholesale Mart.

Today, more than 5,000 building materials shops cluster there with business area totalling some 300,000 sqm. Such a heavy concentration naturally makes it the first choice for consumers looking to source building materials and lighting products.

The geographical advantage of Shilihe Lighting City is also manifested in its ease of access. Located in the southeastern part of Beijing between two major thoroughfares - the third and the fourth ring roads, 500 m from the former and 800 m from the latter, the lighting city is in the inner part of Beijing's ever-expanding metropolis, just 25 minutes' drive from the city centre.

Furthermore, the mart is easily accessible by means of public transport, such as bus routes number 28, 300, 368, 378 and 907 as well as minibus routes number 10 and 35, making it convenient for consumers to go there to make purchases.

In order to attract car owners, there is also a 10,000-sqm parking lot offering free parking to visitors. In addition, the Beijing-Tianjin Highway just 1 km away, along with the Beijing-Shenyang and Beijing-Kaifeng Highways which are just 10 km away, provide an unparalleled advantage in extending the sales reach of Shilihe Lighting City to neighbouring provinces and cities. According to Hu, aside from Beijing residents and local engineering purchasing teams, people who patronise Shilihe Lighting City are mostly merchandisers from the northern and northeastern regions while Russian traders form the bulk of foreign buyers.

Wide variety, low prices - Another major advantage of Shilihe Lighting City lies in its economies of scale, comprehensive product variety and low prices.

The mart is divided into two zones, namely household lighting zone and construction lighting zone, covering both international and domestic lighting fixtures, products and materials of differing brands and for different purposes.

The household lighting zone mainly sells various kinds of hanging lamps, wall lamps, ceiling lights and standing lamps for home decoration use as well as special-purpose lighting such as cabinet lights, range hood lights, mirror lights and night lights. The construction lighting zone primarily offers professional lights, light source equipment and lighting accessories.

Due to the busy visitor traffic and massive turnover, new products are offered in the mart at an amazing speed, reflecting the styles in vogue in the country. Development of the logistics sector has made it possible for the latest products designed and made by manufacturers at the country's major lighting production bases such as Guangdong's Guzhen and Zhejiang's Yuyao to be presented to customers at Shilihe Lighting City in five to seven days.

Hu pointed out that the huge trading volume of the mart enables high-quality goods to be sold with small profit margins at low prices, thereby enhancing their appeal to consumers. It is understood that lighting products are priced at 5%-10% lower at Shilihe Lighting City than its peers in Beijing. Many consumers, after having visited other lighting marts in the capital city and decided on their preferred brands and styles, would eventually make their purchases at Shilihe. A business operator at Shilihe said the brand he carries sells three times more there than at supermarkets.

Enhancing facilities to provide comprehensive services - Investment has been made in enhancing both the hardware and software of Shilihe Lighting City for its long-term development.

In respect of hardware, the mart is equipped with central air-conditioning, an automatic smoke-detecting alarm and sprinkling system and an 800-kVA electricity distribution capacity.

The lighting city is installed with automatic teller machines and operates a car fleet in a bid to provide consumers with financial and transportation convenience.

October 12, 2004

China to Regulate Alcohol Wholesalers and Retailers

Following the guidelines of the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) and the Standardization Administration of China (SAC), the Ministry of Commerce (MOFCOM) is drafting two sets of standards for the regulation of alcohol wholesalers and retailers in a move to establish a mechanism for the management of alcohol distribution. As disclosed by a MOFCOM official, opinions are now solicited for the draft regulations, which are expected to be introduced before the end of the year.
According to the MOFCOM official, the following measures will be taken to establish an effective mechanism for managing the distribution of alcohol.

Accelerate the establishment of legal standards for the management of alcohol. Two sets of industry standards for the regulation of alcohol wholesalers and retailers will be launched before the end of this year. At the same time, MOFCOM will, in association with other departments concerned, accelerate the drafting of regulations on the distribution of alcohol in line with international practice.

Implement a system of market access control. Commerce departments at all levels will strictly control access to the alcohol market in accordance with the requirements of the State Council’s decision on further strengthening food safety work. A screening system for alcohol business operators will be implemented. To operate in the alcohol market, a company must have good credit standing and financial strength. It must also have the necessary permit and business licence and carry out strict management. A system of market inspection will be introduced, whereby substandard goods will be rejected, recalled, destroyed and publicised to ensure that all alcohol products on sale are safe.

Establish credit records on the distribution of alcohol products. Making use of the e-government system and information technology, MOFCOM has already established a system of credit records on the safety of alcohols, meats and vegetables in distribution in the country. This will become the honour roll for outstanding enterprises, blacklist for discredited enterprises, and safety guide for consumers. Meanwhile, efforts will be made to modernise the distribution of alcohols, develop modern forms of distribution such as chain operation and modern logistics, and publicise scientific concepts of alcohol consumption and the importance of lawful operation.

The world's largest city of stone shaped in Fujian Province

           

Nanan is the most populous provincial city in Fujian and has earned itself a reputation as the country's home for building materials. It has a nationally renowned market for stone products, Minnan First Building Materials Market, or more colloquially, China Stone City.

The market has drawn the attention of the construction and engineering industries since it opened for business in May 1999. Mining, processing and trading companies, as well as dealers from other provinces and from Hong Kong, Macau, Taiwan or abroad have flocked in. The working area is in great demand, despite the constant expansion.

The market has a business area of 300,000 sqm and is divided into different specialty sections that include the stone slab city, Minnan raw stone market, the stone and ceramics area and the stone processing zone.

The stone slab city and the stone and ceramics area have a total floor area of over 50,000 sqm, with 800 shops of various sizes. More than 500 businesses are operating, selling all the 625 varieties of registered Chinese stones and over 100 types of imported ones.

Granites, marbles, large slabs, stripes, cut-to-size and thin slabs, ultra-thin laminated slabs, stone carvings and various types of stone sculptures are all on sale, as are cultural stones and stone processing machinery, as well as tools.

Minnan raw stone market is the largest of its kind in the country and handles over 1,000 tonnes of stones a day. Its imported raw stones account for 80% of national demand. Meanwhile, the stone and ceramics area brings together prominent brands of foreign and domestic architectural ceramics, aesthetic stones and sanitary products.

The entire facility handles Rmb3 billion (HK$2.8 billion) in direct transactions, Rmb5 billion (HK$4.7 billion) in indirect transactions, and Rmb1.5 billion (HK$1.4 billion) in exports, accounting for 80% of China's stone exports.

Business is carried out both in shops and in the open. Rent is Rmb35 (HK$33) per/sqm/month for shops and between Rmb15 and Rmb25 (HK$14.1 and HK$23) for raw space.

All 900 shops are rented out. It is understood that one company actually paid Rmb100,000 (HK$94,339) for every shop, to buy the leasing rights for four of them in prime location. This shows just how sought after shop space has become.

The market has various supporting facilities, including an e-commerce platform, legal services, foreign trade and financial services, post and telecommunications, forwarding facilities, guesthouses, restaurants, supermarkets and entertainment outlets.

In fact, China's Stone City exemplifies the smooth interaction of market and industry.

The market itself has developed into the largest distribution centre for stone products in China, and more than 500 stone enterprises, including more than 50 large and medium-sized domestic enterprises - each with a capital of over Rmb10 million (HK$9.4 million) - have built up around the market, creating an economic zone for the stone industry.

Some large, backbone enterprises have invested millions of yuan to import advanced technology and equipment from abroad and set up modernised stone processing factories.

The city hosts the Nanan Building Materials Fair and Shuitou International Stone Materials Expo on 18th May each year.

The fair and expo are now in their fifth year and have become crucial business negotiating platforms, as well as being important for information and technology exchange for the building materials industries. The fair and expo attract a large crowd of domestic and foreign traders.

The stone market is still expanding. The large slab market, which sits on a 13.3 hectare site and involves an investment of Rmb30 million (HK$28 million), is now taking shape. When completed, annual transactions will top Rmb3 billion (HK$2.8 billion) from the sale of large stone slabs alone.

A centre devoted to stone sculptures and stone art is currently under construction. The project includes an Rmb60 million (HK$56.6 million) multifunctional exhibition and trading centre, with an area of 3.335 hectares for display, business negotiations, international conventions and exhibitions, and e-commerce.

When all projects are completed, the stone market will have a total area of over 66.7 hectares and is expected to become a modern stone materials logistics centre for all categories and varieties of stones in a global context, with facilities for regular exhibitions, traditional trading, processing, warehousing and e-commerce. It is shaping to become the largest stone works of its kind in the world, with the aim of being run with the aid of advanced management expertise.

The market is at the midway point and intersection between Quanzhou and Xiamen, and easily accessible. In addition to the national highway, the Quanzhou-Xiamen Expressway also has an exit and the market is only 58 km from Xiamen International Airport, or 15 km from Jinjiang Airport.

Nearby Shuitou also boasts five piers for 100-tonne class vessels and is only eight km from Nanan, where ocean-going 5,000-tonne class vessels can berth. This network of air, land and sea transport is a great asset to the market.

Kunming's property boom begets agency upturn

Kunming's steady secondary property market has suddenly seen rapid growth this year, with turnover increasing by 150%. The secondary market now overwhelmingly dominates the real estate sector in the city.

Some 21,000 second-hand properties, with a total area of 2.5 million sqm, exchanged hands in Kunming between January and June this year, with total turnover amounting to Rmb3.5 billion (HK$3.3 billion), up 20% year-on-year.

About 4,800 units are classified as public housing, up 83% year-on-year in numbers on the market and involving a total floor area of 340,000 sqm. Overall in this subsector, there has been an increase of available space up 113%, with gross turnover of Rmb600 million (HK$566 million) up 150% over the January to June period.

There are many reasons for the huge growth in real estate transactions. Apart from rapid economic growth and greater purchasing power, the city owes its secondary market property boom to the efforts made by the Yunnan provincial government and Kunming city government to expedite the drafting and implementation of liberalization measures.

The introduction of regulations for purchasing public housing and housing reform scheme units, more freely-given provident fund housing loans and lower taxes and fees on deeds and transactions have each helped to free up the sector, as has the waiver of market access approval and consent required from original owners.

Property prices have also been traditionally quite high in downtown Kunming and these are going up fast as demand increases.

Many salaried city workers, even with limited incomes, are also turning their eyes to secondary housing in areas with lower property prices.

Moreover, secondary properties, with their economic sizes and prices, as well as better facilities and locations, are more affordable than homes in the suburbs.

Inevitably, Kunming's fast growing secondary market is making a lot of property agents very happy. At present, agents charge both buyers and sellers between 1% and 3% of the transaction price, as commission. Normally a 3% commission is charged on a two-bedroom flat, for example.

There are about 1,000 real estate agents in Kunming, but only 30% are registered and have legal status, while the remaining 70% have only opened for business this year. The demand for professional agencies and instructors is already definitely appearing.

October 7, 2004

US Chamber Criticizes China for Inadequate IPR Protection

On 22 September 2004 the US Chamber of Commerce released its third annual report on Beijing's efforts to meet China's World Trade Organization (WTO) accession obligations. The report is highly critical of Beijing's implementation efforts. In particular, the US Chamber finds fault with China's lack of effective intellectual property rights (IPR) enforcement.

In a statement, Myron Brilliant, the US Chamber's vice president for East Asia, stressed that "China needs to do more to protect intellectual property rights and we are urging Chinese authorities to take action in this area this year". He added, "We want to see prosecutions". The report underlines that rampant piracy of copyrighted products, including music, movies and software, as well as counterfeiting of patented and trademarked goods has long been and remains one of the greatest irritants to Sino-American trade relations.

The US Chamber's report bluntly observes that China's IPR enforcement efforts are "inadequate". It adds the following prescription, "The US business community is seeking immediate and demonstrable evidence from Chinese authorities that the IPR climate in China is improving. Short of that evidence emerging quickly, the US business community will be fully justified in working with the US government to explore other courses of action to address China's failure to comply with its IPR commitments under its Trade-Related Aspects of Intellectual Property Rights (TRIPS) obligations".

For the time being, however, the US Chamber would prefer the US government to continue to pursue a policy of constructive engagement with China. Nonetheless, its patience is beginning to wear thin. Brilliant went as far as to indicate that the US Chamber may at some point in the future request a Section 301 investigation into China's IPR enforcement if the situation does not improve. Presumably, that point may come in the not all-too-distant future.

Earlier in September, C. Fred Bergsten's renowned Washington-based Institute for International Economics (IIE) issued a new 53-page policy brief, entitled China Bashing 2004. The report, authored by Gary Hufbauer and Yee Wong, presents an overall optimistic assessment of Sino-American trade relations. And as its title suggests, the IIE's report attributes much of the current China-bashing to the political season, presenting extensive evidence refuting some of claims that by sheer repetition have come to be regarded as gospel by China bashers and those who are receptive to the arguments of the latter. That said, the IIE also underlines, "Despite considerable progress, China remains the principal exporter of counterfeit and pirated goods, both to the United States and the world. Counterfeiting and piracy pay, and some Chinese firms take advantage of their technical skills and marketing opportunities to pursue these activities".

The IIE report also cites International Intellectual Property Alliance (IIPA) estimates, which claim that Chinese piracy cost US firms US$2.6 billion in lost sales in 2003. Echoing corporate America's assessment, the IIE report notes, "Poor enforcement of IPR is partly rooted in a weak legal system. It also emphasises, "Fines for retail piracy are reportedly as low as between US$6 and US$25. Another problem is the high monetary threshold (about US$6,000 in the Supreme People's Court) before a criminal investigation for IPR theft can be initiated".

Chinese IPR piracy has also incurred the wrath of some very important members of Congress. At a hearing of the House Government Reform Committee on 23 September, Thomas Davis (Republican-Virginia), the committee's chairman, stated that counterfeiting and piracy of US intellectual property in several countries, but most notably in China, costs US businesses US$200-250 billion annually in lost revenue. In 2003, the US Department of Homeland Security (DHS) seized counterfeit products at the US border worth US$90 million, with Chinese-made goods accounting for some two-thirds of the total value.

Also at the House panel's hearing, Congressman Robert Simmons (Republican-Connecticut) complained that counterfeiting of American products hurts small and medium-size US businesses as much as large American corporations. To illustrate his point, Simmons explained how counterfeit gauges made in China, knock-offs of gauges made for vehicles and boats by a small Connecticut company, had a devastating ripple effect. Not only was Faria Corp, the company in his Connecticut district, deprived of millions of dollars in revenue, in an attempt to defend its reputation it lost yet more money replacing for free the defective Chinese-made gauges that were returned to the company.

The Office of the US Trade Representative already announced on 16 September that it will conduct a widespread survey of US businesses regarding China's IPR enforcement efforts. USTR has sent a letter to companies and trade associations requesting IPR-related information, such as market surveys and statistical data on enforcement actions by Chinese authorities. USTR will conduct this survey as part of an out-of-cycle review of China's IPR enforcement efforts, part of the annual "Special 301" process that USTR will complete early next year. USTR has acknowledged that the requested information would be necessary if the US government decided to bring an IPR complaint against China at the WTO.

Specifically, USTR's letter requests detailed reports on (1) particular geographic areas or sectors where China's enforcement of IPR is either positively or negatively notable; (2) whether infringing products are made by individuals, companies, state-supported corporations or organized criminal organizations; and (3) estimates showing the effect of IPR-infringing goods on trade.

Beyond the IPR protection issue, not all is gloom and doom in Sino-American trade relations. There is some significant praise in the report from the US Chamber of Commerce as well. For example, the report notes, "The process by which the business community in both China and the US and their governments are working together to fully implement China's WTO commitments is fostering positive changes in China's trade and investment regimes".

Among the positive achievements cited are China's early phase-in of trading rights for wholly-owned companies, the reduction in "burdensome" capitalization requirements for foreign investment in the insurance and trading sectors and growing transparency in the way China's Ministry of Commerce drafts new regulations. The US Chamber also states that China has made some progress in addressing such longstanding problems as the implementation of its tariff-rate quota (TRQ) system.

Yet, in its overall tone, the US Chamber of Commerce's report this year is far more critical than its two predecessors. It stresses unequivocally that Beijing needs to fully open its market in such critical areas as agriculture, automotive, construction and engineering, express delivery, insurance and telecoms. Moreover, China's record on standards and granting trading rights and distribution services to foreign companies is an issue that needs to be clarified in the coming year as well.

It should be noted that there are significant differences in the overall assessment between different sectors and even within industries, depending on the aptitude of individual US firms to come to terms with the opportunities and challenges posed by China. While the report notes concerns about continued confusion in the regulatory environment for foreign companies, Richard Holwill, Alticor, Inc's vice president for public policy and the co-chair of the US Chamber's East Asia Task Force, noted that his company has seen significant progress with regard to regulations governing sales away from a fixed location. Holwill stressed, "We praise Chinese officials for their efforts to consult with us on regulations that govern the direct selling industry".

In other words, while the criticism of Beijing actions in this year's US Chamber report is a bit more strident than was the case in the last two years, the US business community continues to have a positive attitude toward evolving commercial relations between the two countries. Nevertheless, it is clear that the IPR protection issue threatens to seriously disrupt bilateral relations if China does not redouble its enforcement efforts.

DOC Seeks Comments on Changes to NME Practice in AD Proceedings, Targets China

The US Department of Commerce (DOC) has solicited public comments, which are to be submitted no later than 15 October 2004, on its "separate rate" practice in anti-dumping duty (AD) proceedings that deal with non-market-economy (NME) countries. In response to its previous request for comments, of 3 May 2004, the DOC had received twenty-three submissions. Taking into account these submissions, the current notice outlines revised options for such changes and gives the public the opportunity to comment on whether those changes would be consistent with the statute and would redress problems that have been identified concerning separate rates appropriately. The DOC intends to consider additional modifications to its NME practice and may solicit additional public comment in the future.

NME practice stipulates that producers in countries like China or Vietnam are subject to government control and thus should all be assigned a single, countrywide rate unless they can demonstrate an absence, both de jure and de facto, of governmental control over their export activities. AD orders are assigned only to exporters, regardless of which entity produces the subject merchandise. The DOC's "separate rate" test is not concerned, in general, with macro-economic or border-type controls, such as export licenses, quotas and minimum export prices. Instead, the test focuses on controls over the investment, pricing and output decision-making processes at the individual firm's level.

To establish whether a firm is sufficiently independent from government control of its export activities to be entitled to "separate rate" treatment, the DOC analyses each entity that exports the subject merchandise. If a company can prove that it is not subject to governmental control, then the DOC assigns the respondent its own, individually calculated rate. In the case of a non-investigated or non-reviewed firm, the DOC assigns a weighted-average of the rates of the fully analysed companies, excluding any rates that were zero, de minimis or based entirely on facts available.

Currently, DOC considers all submitted requests to review their eligibility and may ask for further proof in separate communications. However, the increasing number of requests for "separate rate" treatment in recent years as well as the increasing need to issue supplemental questionnaires have created a significant administrative burden for the US government.

Moreover, the situation has been complicated by foreign trade practices. For example, in cases where the rates vary from exporter to exporter, there exists an incentive for exporters assigned with a higher rate to ship the merchandise through an exporter assigned a lower rate. If NME producers sell subject merchandise through exporters located outside the NME country, the DOC applies a rate to the NME producer only where there is evidence that the NME producer knows that the ultimate destination of the merchandise is the US. In particular, the DOC has noted that recent AD actions have revealed that the relationship between Chinese producers and resellers outside the Chinese mainland can be complex and difficult to assess.

In an effort to remedy these shortcomings, the DOC has proposed to process only those "separate rate" requests from respondents that submit completed applications with all the required documentary proof certifying their eligibility for separate rates. In addition, the DOC will require respondents to complete and submit the application forms electronically on the Import Administration's website. Moreover, to prevent the potential evasion of dumping duties by NME producers that ship through exporters enjoying lower AD rates, the DOC has proposed to assign exporter-producer combination rates, instead of exporter-specific rates, as is currently the case.

Finally, to prevent the evasion of AD orders, the DOC has proposed to institute a rebuttable presumption that NME producers are aware that their goods will be destined for the US market, and that they set the export price of the goods. The DOC will assign AD rates to these producers, not the resellers

APHIS Issues Rule on Importation of Wood Packaging Material

The Animal and Plant Health Inspection Service (APHIS), US Department of Agriculture (USDA), has issued a final rule amending the regulations for the importation of un-manufactured wood articles to adopt an international standard. The standard, entitled "Guidelines for Regulating Wood Packaging Material in International Trade" (ISPM guidelines) was approved by the Interim Commission on Phytosanitary Measures of the International Plant Protection Convention on 15 March 2002.

The final rule, which will take effect on 16 September 2005, calls for "regulated wood packaging material" - a term which replaces the previously used term "solid wood packing materials" - to be either heat treated or fumigated with methyl bromide, and marked with an approved international mark certifying that the treatment has occurred. The US may demand immediate re-export of regulated wood packaging material without the required mark. The modification will affect all persons using wood packaging material in connection with exporting goods to the US. The final rule also exempts from the rule wood pieces that are less than 6 mm (0.24 inches) thick in any dimension.

October 6, 2004

Congestion at the Ports of the West Coast, USA

Due to the peak season for shipping holiday merchandise to the US, a congestion has built up recently at the ports of Los Angeles and Long Beach in California. It is now taking about six to eight days to unload the cargoes from a vessel, twice as long as the normal time.

To relieve the congestion, the port authorities are hiring an additional 3,000 to 4,000 workers and extending terminal gate hours. But the congestion may not be solved in a short period of time. As such, exporters should take into consideration a possible delay of their delivery. They are advised to try to make earlier shipments, and to check with their shipping companies for the latest developments.

HK officials to attend PPRD forum

Chief Secretary for Administration Donald Tsang will attend the opening ceremony of the "Pan-Pearl River Delta Provincial Capital City Mayors' Forum" in Guangzhou on Thursday.

Secretary for Commerce, Industry and Technology Mr John Tsang will speak at the forum, which is jointly organised by the nine PRD provincial capital cities: Fuzhou, Nanchang, Changsha, Guangzhou, Nanning, Haikou, Chengdu, Guiyang and Kunming.

The forum will open on Thursday afternoon, to be followed by the formal session on Friday morning. The mayors will address the forum on how to make full use of the advantages and synergies of these cities, Hong Kong and Macau in promoting co-operation and development of the Pan-PRD region.

HK Gov't to showcase IT at Guangzhou Fair

Mr Tsang will also attend the opening ceremony of the Guangzhou Fair which will be held on Thursday morning.

Government Chief Information Officer Alan Wong's office will take part in a thematic exhibition on electronic government application and exchange to showcase the achievements of the Hong Kong government in e-government and information infrastructure.

Hong Kong Economic & Trade Affairs Director for Guangdong Peter Leung, Deputy Secretary for Constitutional Affairs Grace Lui and a few other related officers will also attend these events.

Green Light for Four Major Incentives to Revitalize Northeast

According to Zhang Guobao, deputy director of the National Development and Reform Commission and director of the State Council's Northeast Revitalization Office, the central government has given the green light to four major policies in support of revitalising the old industrial bases in the Northeast. These are:

The State Council has approved the overall policy for VAT pilot reforms, and the Ministry of Finance and State Administration of Taxation have issued the implementation details which went into effect on 1 July 2004.

The pilot reforms in social security have been extended from Liaoning to Heilongjiang and Jilin, and full-scale implementation is now under way. The 3.75% contribution by central coffers and 1.25% by the employer now make up the 5% personal account. This paves the way for further reforms of state-owned enterprises.

Pilot reforms have been launched to relieve enterprises from certain social duties in the Northeast. The authorities in the region and the four state-owned commercial banks have worked together and proposed policies and measures to resolve the issue of mounting non-performing loans. Also, the policy of extending pilot reforms in the economic restructuring of resource-type cities is under study.

Agricultural tax exemption and reduction have been introduced in Heilongjiang and Jilin to reduce the burden of farmers.

Zhang also revealed that the state is formulating policies to support the development of the key equipment industry in the Northeast. A total of 160 projects have been launched to renovate old industrial bases and industrialise new technologies in the region. Work has also begun on 15 subsided mine management projects.

Spain's air links with China grow, global cargo sales slow - report from Air Cargo Forum and Exposition 2004, Bilbao 5 Oct 2004

       

World air cargo is set to grow at only 5.3% between 2004 and 2006, according to data delivered by the International Air Transport Association (IATA) at the world's largest international air cargo show held this year in Bilbao, Spain.

The Air Cargo Forum and Exposition delegates heard that the estimated slower world traffic into the coming two years contrasts with a projected growth of 11.3% in 2004 over 2003, largely propelled by the massive leap of trade in and out of China.

The lower growth going forward will be due to expected large hikes in the price of aviation fuel, which will represent up to 16% of air cargo operators' costs, said IATA's director, Giovanni Bisignani.

But the uncertainty of the air cargo business was not the only issue in the minds of the 5,000 visitors, representing companies from 50 countries at the two-day event held in late September.

It emerged that Spain is beginning to take a more pro-active role in attracting Asian trade, with designs on becoming the major aviation passenger and cargo hub between the EU and China.

The leading Spanish tourism operator, Maresans-Spanair, reported that it plans to start direct flights between Barcelona and Beijing/Shanghai, with two or three departures per week. The company also intends to develop an aviation maintenance hub.

At Barcelona Airport, work is underway for a third runway (formally open on 29th September 2004), with a new passenger terminal - and officials expect passenger capacity to leap from 20 million a year currently, to over 50 million.

There are also moves by the Spanish Ministry of Industry to request that national carrier Iberia Airlines to establish regular routes between Madrid and Beijing, while no-frills Air Europa also plans to fly to China.

The dash for the faux eyelash is a wink in the right direction

Over 100 beauty parlours in Kunming are in the business of eyelash grafting. The polyethylene eyelashes used for the operation are made in China and come in black, dark brown, deep purple, dark blue, as well as in other colours.

Customers can choose their favourite lash colour or take the advice of professional beauticians, and there is even a choice of glue to be used for the graft.

Imported glue mainly comes from Germany and Japan, while local products are made in Guangdong.

Prices vary according to the type of glue to be used, with the grafting taking place using imported glues. The actual glue costs between Rmb160 and Rmb300 (between HK$150.9 and HK$283), while grafting with glue made in China is priced at between Rmb100 and Rmb200 (between HK$94.3 and HK$188.6).

There is usually a three-month warranty, with free replacement any time within three months of the date of graft being offered.

Unlike traditional false eyelashes, these nifty eyelashes are grafted one by one onto the natural eyelash, and therefore look fuller and more natural. They can be applied to suit different features and effects, and make sparse eyelashes look much fuller.

These polyethylene lashes also make it possible to change the shape and colour of one's eyelashes at any time.

The drawback for grafted eyelashes? They do not last long, but it is precisely for this reason that beauty parlours can look forward to a steady source of income.

One beautician who specialises in eyelash grafting says she mostly handles four clients a day, sometimes as many as eight, with each client taking between one and two hours of her time.

Many women who want to look more fetching in these more dashing lashes are willing to try grafting, despite the relatively high price.

For some, the temptation of looking more attractive is so great that they go back at least once every three months, suggesting that this is a feature which is due to make a big difference to the fortunes of the parlours that accommodate the new "dash for the lash" craze.

October 2, 2004

Jiangmen: Gateway to Western PRD Market

With the implementation of CEPA, proposed construction of the Hong Kong-Zhuhai-Macau bridge, and launch of the pan-PRD and Greater PRD strategies, Jiangmen's role as the gateway for Hong Kong, Macau and PRD to the markets in western Guangdong and China's southwestern region has been further enhanced.

The city of Jiangmen is administratively divided into three districts, namely Pengjiang, Jianghai and Xinhui, and four county-level cities, namely Taishan, Kaiping, Enping and Heshan. Jiangmen boasts a well-developed transport network, with the total length of highways ranking top among all prefectural cities in Guangdong province. Plans are afoot to build a so-called "90-minute economic circle" incorporating Hong Kong, Macau and Jiangmen. The city is developing itself into a leading energy base in Guangdong. Construction of the 9 million-kwh Taishan Power Plant -- the largest of its kind in Asia -- is gathering momentum, with the first two generator units of 1.2 million-kwh each being operational. Its excellent ecosystem and living environment have won the city several awards in recent years, including "China's Top Tourist Cities", "National Garden Cities", "National Hygienic Cities" and "Cities with Excellent Living Environment in China". This year, Jiangmen strives to achieve the status of "National Environmental Protection Model Cities". The municipal government is also introducing the ISO quality management system to help raise administrative efficiency and provide quality service to investors in the city.

Advantages for Development Highly Recognised

Jiangmen is a pilot city for both the informatisation initiative in China and the Regional Infrastructure for Sustainable Economies (RISE) plan of the Pacific Economic Cooperation Council (PECC). In the investment climate survey report compiled by the World Bank in 2003, Jiangmen was ranked fourth among 23 mainland cities after Shanghai, Hangzhou and Dalian. Jiangmen's ratings are the most outstanding in seven areas, namely infrastructure facilities, labour supply, ratio of joint venture enterprises, government informal charges, taxation, productivity and investment rate. Jiangmen is also the only city in Guangdong that has been rated as one of China's top 50 zones with favourable investment climate.

Sound Manufacturing Base

The economic development of Jiangmen had topped the provincial league during the early days of reform and opening up, with a sound manufacturing foundation being laid in the city. However, due to the lack of convenient transport links, relatively low degree of informatisation of the traditional industries, limited clustering effect, and inadequate innovative capability, the pace of development of Jiangmen has gradually lagged behind that of cities on the east bank of the Pearl River such as Dongguan and Shenzhen. At present, the economy of Jiangmen ranks fourth among all cities in Guangdong. In 2003, the city's GDP reached Rmb73.1 billion, with per capita GDP reaching Rmb19,200. Industrial output value stood at Rmb153.9 billion.

A comprehensive, outward-oriented industrial sector spanning from traditional processing activities to new- and high-tech industries has taken shape in Jiangmen. The city boasts the capability to design and manufacture more than 5,000 types of industrial products. Among these, Jiangmen is the largest producer of 20 types in terms of production scale in Guangdong or across China. Today, the city has grown into one of China's leading production bases for textiles and garment, chemical fibres, leather goods, food and paper products. Of these, Jiangmen's motorcycle output accounts for 10% of the national total and commands over 6% of market shares. Its outputs of chemical fibres and washing machines make up 80% and 43% of the Guangdong market respectively.

The pillar industries of Jiangmen are: electronic information products, electrical machinery and equipment with home appliances as the core products, textiles, chemical fibres and garment, food processing and production, and transport equipment such as motorcycles and parts and components thereof.

At present, several industry clusters have emerged in Jiangmen, including motorcycles and related parts and components in the city itself; glass, jewellery and hardware and sanitaryware in Pengjiang district; stainless steel products, containers and ship breaking in Xinhui; food, textiles and chemical fibres, and water heating and sanitaryware in Kaiping; microphone and audio equipment in Enping; and footwear and printing in Heshan.

Continuous Improvement in Infrastructure

The natural barrier of the Pearl River estuary and inefficient transport links have for a long time put the city of Jiangmen in a disadvantaged position as a destination for relocating manufacturing activities from overseas. In view of its lag behind cities on the east bank in terms of development, Jiangmen attaches great importance to the construction of transport and infrastructure facilities.

Over the past few years, Jiangmen has spent an average Rmb2 billion a year to improve its infrastructure with emphasis on highways. A modern road network comprising highways, first-, second- and third-class roads has been established in the city. Highways that are now fully operational include the Foshan-Kaiping, Jiangmen-Heshan, Kaiping-Yangjiang, coastal western Guangdong, and Taishan south-north highways. Highways that are under construction include Jiangmen-Zhuhai and Jiangmen-Zhongshan. Upon completion, the total length of highways in Jiangmen will increase to 310 km, the longest among all prefectural cities in the province.

Jiangmen is served by six wharves totalling 360 berths with a combined annual throughput of 20.32 million tonnes. In 2001, the State Council approved the port of Xinhui to operate freight forwarding service and open to foreign-registered vessels. The 65 sqm Yingzhou Lake area, a national first-grade open port, enjoys the status of an open zone. During the Tenth Five-year Plan period, the 5,000-tonne class waterway access to international waters at Yamen and the ones at Laolonghu and Tanjiang have begun dredging work. Meanwhile, the 3,000-tonne class waterway section between Xinhui and Zhaoqing is being dredged, and the port of Yutang in Taishan is being upgraded to an international freight distribution centre comparable to the ones in western PRD and in western Guangdong.

With improvements in the pipeline and growing economic integration of the areas along the Xijiang River, Xinhui is poised to become a leading port in western PRD while Yingzhou Lake will become an economic zone specially targeted at both domestic and foreign investors. In 2003, the container throughput of Jiangmen port ranked tenth in the country and fourth in Guangdong.

As for railways, the Jiangmen section of the Guangzhou-Zhuhai railway and the Jiangmen line of the Guangzhou-Zhuhai Inter-city Express Light Rail are both in the preparation stage. Upon completion, these lines will significantly boost the city's infrastructure.

All these are paving the way for Jiangmen to develop into a logistics hub in western PRD.

Changes under CEPA

In the 1990s, Jiangmen had lagged behind cities in the east bank of the Pearl River because of its less advantageous geographic location. This explains why Jiangmen has been so pro-active in leveraging the new opportunities under CEPA to propel its development to a new level. Since the signing of CEPA, the city has hosted a series of promotions including a seminar on Guangdong-Hong Kong-Macau economic cooperation and the development of Jiangmen, and a seminar on SMEs going global in conjunction with a presentation introducing the services of the Hong Kong Trade Development Council. These events explored the benefits of CEPA to Jiangmen's economy and explained the investment climate and related policies of Jiangmen to prospective Hong Kong investors.

The Jiangmen municipal bureau of foreign trade and economic cooperation has established a dedicated unit to provide advisory service to foreign investors on issues concerning investment environment, laws, regulations and policies, and administration and registration procedures. Special counters known as "green channel" have also been opened at the city's industry and commerce administration offices to serve investors from Hong Kong and Macau.

In August 2003, the 6th Hong Kong/Guangdong Cooperation Joint Conference decided to set up a coordination committee for the preparation of the Hong Kong-Zhuhai-Macau bridge and the project formally entered the implementation stage. When the bridge is completed, the role of Jiangmen in linking western Guangdong with the transport hub in the PRD will become more important. Hong Kong's logistics services are expected to penetrate the whole western PRD market with the completion of the bridge. The increases in sea and air freight volume for Hong Kong are projected at 30% and 35% respectively.

In April 2004, the foundation laying ceremony for the Xinhua Guanhui Car City in Heshan, a Hong Kong-invested project with a total investment of Rmb200 million, was held. Occupying an area of 700 mu, the car city will feature 100 exhibition halls offering cars of different famous brands both from overseas and within China. A full range of support and logistics services will also be available. It is the largest Hong Kong investment project in the city after the signing of CEPA.

Opportunities for Hong Kong

The greatest opportunities for Hong Kong companies in Jiangmen under CEPA lie in services. Jiangmen has a sound economic foundation and comprehensive manufacturing sector but a relatively backward services sector. It urgently needs to raise the efficiency of its services sector to facilitate the further development of its industries. There is enormous development potential in services such as management consultancy, convention and exhibition, construction, logistics, franchising, advertising and tourism. These are promising sectors for Hong Kong service providers.

Due to limited land resources and the environmental constraint in the east bank of Pearl River, the core region driving economic growth in Guangdong may shift from the east bank to the west in future. Growing industrialisation has taken its toll on rising operating cost and saturation in eastern PRD both in terms of land, industry type and talent. Industries are seen to be gradually shifting to the west.

By comparison, wages and other operating costs are lower in western PRD. Besides, as mentioned above, the western part has its share of advantages including a strong manufacturing base. Home electrical appliances, motorcycles, lighting and furniture produced in Jiangmen are very well received. What the city lacks is experience in product design, sales and overseas marketing. Hong Kong can play an important role in these areas by providing a full range of top quality producer services and professional services to help mainland enterprises increase competitiveness and speed up the convergence of western PRD with international practice in terms of production.

As a gateway for Hong Kong to enter the western PRD market, Jiangmen has a unique advantage over neighbouring Zhuhai, Zhongshan, Foshan and Zhaoqing, thanks to its abundant land resources (10 times the area of Hong Kong). Besides, upon completion of the Hong Kong-Zhuhai-Macau bridge, Jiangmen will become closer to Hong Kong.

Jiangmen has always been an investment hot spot for Hong Kong companies among other western PRD cities. Hong Kong is currently the largest source of foreign investment in the city, accounting for 70% of the total. There are over 2,100 Hong Kong-invested enterprises operating in Jiangmen, making up more than half of the total number of foreign-invested enterprises, with total investment close to US$7 billion. Among these, more than 1,700 are engaged in manufacturing, with total investment exceeding US$4.4 billion. Investments in the services sector are concentrated in real estate, hospitality, restaurants, construction and other public services. Among these, investment in real estate alone amounts to nearly US$900 million, or one-third of the total in the services sector.

At present, due to state policy restrictions in areas such as wholesale and retail, warehousing and business services, less than 100 foreign-invested enterprises have been established in the services sector in Jiangmen. None has been established in the management consultancy and finance sectors. With the lowering of market entry threshold and decentralization of approval right under CEPA, Hong Kong companies will find more opportunities to invest in the above-mentioned sectors.

Catalogue of Priority Industries for Foreign Investment in Central & Western Regions Revised

The State Council-approved Catalogue of Priority Industries for Foreign Investment in the Central and Western Regions (2004 Revision) was jointly released by the National Development and Reform Commission (NDRC) and the Ministry of Commerce on 23 July and went into force on 1 September 2004. The move signals the central government's support for expediting the development of the western region, fostering economic growth of the central region, and reviving old industrial bases in the northeast.
According to NDRC, it took two years to revise the catalogue which embodies four major principles:

Competitive advantage. Support will be given to priority industries and enterprises in the central and western regions with abundant supply of certain resources and niche products, and a good foundation in terms of foreign investment and cooperation.

Timeliness. Strong support will be given to key projects and enterprises which are in line with state industrial policy and attract the interest of foreign investors. Preferential policies will be offered.

Efficiency. Energy-saving, environmental protection, and avoidance of low-end, overlapping construction are encouraged.

Further liberalisation. All of the items listed in the catalogue belong to the permitted or restricted category under the Catalogue for the Guidance of Foreign Investment Industries, while the number of items under the encouraged category is significantly increased in the central and western regions. This further liberalisation is in line with China's WTO commitment and overall strategy of opening up.

The revised catalogue contains a total of 267 priority industries in 20 provinces and autonomous regions in the central and western regions, namely Shanxi, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei, Hunan, Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia, Xinjiang, Inner Mongolia and Guangxi. These industries come under the following sectors:

Exploration of certain mineral resources, such as the mining and processing of borax, szaibelyite ore and chrome ore, deep processing of tungsten and molybdenum, and exploration of nickel ore.

Reforestation of cultivated land and deep processing of special animal and plant resources, such as development of grains and oil seeds, deep processing of grease, comprehensive processing of tea leaves, planting and deep processing of lycium, processing of beet sugar, and comprehensive utilisation of by-products.

Development of priority industries at local level, such as the processing of auto parts and components, production and development of downstream chemical products of natural gas, production of chip solid tantalum capacitors, and other ethnic products.

Liberalisation of public utilities, such as the construction and operation of pipeline network for gas supply, heat supply and drainage in urban areas (originally under the restricted category), development of tourist scenic spots and construction and operation of supporting facilities, and development of grassland ecosystem, snowland tourist resources and forest tourist resources.
According to the Rules on the Guidance of Foreign Investment Industries promulgated by the State Council, this catalogue and the Catalogue for the Guidance of Foreign Investment Industries are the two sets of approval guidelines for foreign investment projects which form the basis of policies governing foreign-invested enterprises. Foreign investment projects covered by the revised catalogue are entitled to policies extended to "encouraged" projects under the Rules on the Guidance of Foreign Investment Industries and preferential policies listed in the Circular of the General Office of the State Council on the Views on Further Promoting Foreign Investment.

Compared to the Catalogue for the Guidance of Foreign Investment Industries, the revised catalogue features a new "encouraged" category of 267 projects and the number of projects subject to equity ratio restrictions has been reduced from 48 in the former to six. This reflects the policy support given to the further opening up of the central and western regions.

The revised catalogue replaced the 2000 version on the date of its implementation. Projects approved prior to the implementation date will continue to be subject to the relevant policies. Projects in the planning stage that come under the revised catalogue may follow the respective polices stipulated therein.

Details are available at NDRC's website at http://www.sdpc.gov.cn/

17 Retail Business Modes Clearly Defined

The new national standards on the Classification of Retail Business Modes, jointly promulgated by the Ministry of Commerce (MOFCOM), General Administration of Quality Supervision, Inspection and Quarantine, and Standardisation Administration of China and to be implemented on 1 October, give clear definitions on 17 retail business modes, their classification criteria and functions.
As stressed by MOFCOM, the standards should provide a basis for cities to map out their commercial layout and structure so that commercial, economic and social developments are in line with people's changing consumption trends and various business modes can develop in a complementary, coordinated way. Cities which have completed their commercial layout planning should further amend and refine it according to the new standards. During the planning process, attention should be given to combining the development of new business modes with the upgrading and reform of traditional ones, as well as coordinating mainstream and niche business modes. Development of convenience stores, discount stores and small- and medium-sized supermarkets will be encouraged while new business modes such as warehousing-style supermarkets, professional stores and specialty stores will be emphasised.

Under the new standards, retail outlets are classified by their structural characteristics, operation mode, product mix, functions, location, scale, in-store facilities, target customers and business premises into 17 business modes. The 17 are: grocery stores, convenience stores, discount stores, supermarkets, hyperrmarkets, membership warehouse-style supermarkets, department stores, professional stores, specialty stores, home centres, shopping malls, factory outlets, TV shopping, mail order, on-line shops, automatic vending machines and tele-shopping.

"Green Card" to Attract Foreign Talent

With State Council approval, the Ministry of Public Security and Ministry of Foreign Affairs promulgated on 15 August the Administrative Measures on the Examination and Approval of Permanent Residence of Aliens in China, a vital step towards instituting a standardised system regarding the granting of permanent residence to foreign nationals.
The move underlines the Chinese government's efforts to align with the rising trend of economic globalisation and to further reform and open up its domestic market, which have created an urgent need for attracting foreigners to China to invest, do business or engage in various technological and cultural endeavours. At the same time, a number of high-level foreign personnel have also requested permanent residence in the mainland.

In response to this need, the Chinese government has, in the past, announced a series of laws and regulations concerning foreigners' entry/exit and permanent residence. To date, over 3,000 foreigners have been granted the right to stay permanently in the country.

The new measures contain altogether 29 articles which stipulate clearly, in regard to foreigners' application for permanent residence in China, the eligibility criteria, examination and approval procedures, and legal validity of the Alien Permanent Residence Permit, offering legal protection to the granting of "green cards" in China.

Marked Prices for Property Management Services

In order to increase the transparency of charges of property management services and protect the legitimate rights and interests of property owners, the Ministry of Construction and the National Development and Reform Commission jointly promulgated the Regulations on Marked Prices for Property Management Services, which will take effect on 1 October 2004.
Under these regulations, property management enterprises must make use of notice boards, rate charts, fee lists, fee brochures or multimedia search terminals to implement marked prices. They must clearly indicate in prominent positions in their service area or fee collection points their name, the chargeable items, content and standard of services, charging method, charging period, items and standards of charges, forms of price management, basis of charges, and telephone number for fee-related complaints.

For government-guided property services, it is necessary to indicate the benchmark rates, floating rates and actual rates at the same time. Property management companies entrusted to collect charges for water, electricity, gas, heating, telecommunication, cable TV and other services should also clearly indicate the charging standards in accordance with regulations. For services outside the property service contract provided by property management companies to owners, the charging standards should also be clearly communicated to owners by appropriate means upon agreement between the two parties.

In case of changes in charging standards, property management companies must make the necessary adjustments one month before the new standards take effect and indicate the date the new standards become effective. Property management companies failing to implement marked prices or practising price frauds will be punished by the government's price department.

September 30, 2004

US companies urged to adjust to world changes - Bing Lan

United States' companies that are less competitive in global trade may need to make adjustments to cope with "structural changes of the world economy that follow China's development," said Robert Kapp, president of the US-China Business Council, the principal organization for US companies engaged in business with China.

Kapp said he believed it would be inevitable that there would be job losses in the US because of exports of inexpensive Chinese products.

Sometimes when he heard accusations that Chinese products were making Americans unemployed, he would remind them that Chinese workers had been laid off in the process of the country's reform and opening up to the world.

"It is all about modernization," said Kapp, a former Yale professor on Chinese history, in an interview with China Daily at the World Economic Forum's Beijing meeting earlier this month.

Still, Kapp said the United States is now delicately balanced between supporting free trade and supporting protectionism and that was a reality that people doing business in China-US trade have to face.

But by and large, China-US trade is on a more predictable course than it used to be, he said.

Kapp, who took up his present position in 1994, said the most stressful years for US' companies doing business in China were 1994 to 2000, when they had to lobby hard for Normal Trade Relations (NTR) with China.

During those six years, the US Congress would engage in with politically-charged debate on NTR with China every year. Without NTR, the China-US trade would have been subject to high trade barriers that would have hurt the commercial interests of both sides.

In 2000, the US decided to have Permanent Normal Trade Relations (PNTR) with China, which paved the way for the endorsement of bilateral negotiations for China's joining of the World Trade Organization.

Kapp declined to tell in detail how US' business circles lobbied for the NTR and PNTR with China, but he said they did put considerable efforts into mobilizing forces in their favor.

"Our efforts are quietly effective," he said.

Now life seems more easy than those days.

There is no coalition in the US that fights for strong US-China trade relations despite expanding business ties between the two.

According to statistics compiled by China's Ministry of Commerce, bilateral trade volume reached US$126 billion last year. So far, US companies have invested more than US$45 billion in China.

But Kapp said US' businesses in China trade did not have to worry about an immediate crisis such as the NTR debate.

He said that in some US' businesspeople's minds, China was still stereotyped as a mysterious oriental country.

But as China's market economy develops and US' companies' experiences grow, they are seeing more familiar phenomena in the market and it is more "comprehensible," Kapp said.

He said romantic imaginings about the enormous Chinese market were already over. "Nobody is talking about selling to everyone of 1 billion people. They are now more sophisticated in spotting which part of the Chinese population they should target.

"However, as ever, new challenges keep emerging."

As China integrates into the global economy, the challenge now is that "every company has to decide how China fits into its overall operations," he said.

Lots of US' companies have been in the Chinese market for years, but today they still have to work out a new answer to the question about what they should do to be able to succeed in China.

But they might need to do it again tomorrow because "China is not static... it is moving."

September 29, 2004

China-made furniture, European design, US market - European furniture - but made in Asia

With the US construction boom has come a major up-tick in opportunities for different styles of furniture - and China is accommodating European styles, but at much lower prices, for American consumers.

The rising market has contributed to the success of retail giants such as Pottery Barn, Z Gallery, as well as smaller players such as West Elm.

Although much of the furniture may appear to be expensively made, labels printed with "Made in China" (or alternatively India, Malaysia or the Philippines) adorn the bottoms of an estimated 50% or more of the products.

With the ever-rising currency valuation of the Euro against the US dollar, this was the best idea US importers could think of to keep the trade active and their margins at acceptable levels.

The trouble is that importers are facing a bigger challenge as major retailers seek lower wholesale prices - and the thinnest margins are often the ones that make the deals.

"With the rising cost of the Euro, we can't stay competitive," says Emilio Mila of Mila International Corp, the Miami-based importer of mid to high quality glass and crystal decorations.

Although the company has imported for over 35 years in Europe, there could be new leads out of Hong Kong. Mila International attended the Hong Kong Gifts, Houseware & Toys fair in search of new leads, and plans to communicate with companies encountered.

Mila said that the quality of China-made goods have increased from when he encountered them earlier in his career, a welcome surprise and an incentive for exploring quality and competitive pricing in Asia.

Shenzhen Sets Penalty for Wage Arrears

The Standing Committee of the Shenzhen City People's Congress recently passed the Regulations on the Payment of Wages to Employees. The draft regulations set standards for the payment of wages and make provisions for the prevention and tackling of wage arrears and of withholding workers’ wages, relief for affected workers, and other aspects. Hong Kong companies must take note in order not to commit offences.

It is understood that over 70% of labour disputes in Shenzhen this year are related to wage payment. The draft legislation stipulates that "an employment unit that withholds its employees' wages or delays wage payment for no reason must pay its employees the full amount due within a time limit set by the labour department in addition to a financial compensation equivalent to 25% of the unpaid wages." It also provides that “the labour department may impose a fine of Rmb10,000 to Rmb50,000 if an employment unit refuses to pay the withheld or arrears wages within a prescribed period of time."

Some units do not issue pay slips to their employees or pay no attention to the safekeeping of information on the payment of wages. Such negligence on the payment of wages can easily lead to labour disputes. The draft regulations clearly stipulate that an employment unit should maintain a detailed payroll sheet on the payment of wages, and that these payroll sheets should be kept for at least two years. The employment unit should also issue pay slips to individual employees, the content of which should be identical to the payroll sheet, to be signed by the employees. The draft also states that the labour and social security department may impose a fine of Rmb20,000 to Rmb50,000 on units that fail to maintain or keep payroll sheets, issue pay slips to their employees or ask their employees to sign their pay slips.

Some construction units subcontract jobs to unqualified subcontractors who do not sign any labour contracts with migrant workers, resulting in serious defaults of wage payment. In view of this, the draft specially stipulates that if a construction unit, general contractor or other unit subcontracts jobs illegally to organisations or individuals that are not registered, not qualified to employ workers or do not have the necessary qualifications in construction activities, and these organisations or individuals delay wage payment, the unit that subcontracts the jobs should pay for the arrears wages.

The new measures also make clear provisions for issues such as overtime pay, holiday pay, wage payment under special circumstances, wage deductions and minimum wage.

First pedestrian shopping area for Northwest China

The newly-completed Luomashi Pedestrian Shopping Area combines shops with leisure, catering, entertainment and tourism. Its completion will further expand the scope and influence of Xian's Bell Tower area and give a boost to commercial diversification of the area.

The project involves a total investment of Rmb1.5 billion (HK$1.4 billion), with a total construction area of 250,000 sqm.

The shopping centre is divided into three zones which comprise the central square, the northern district near Dongdajie and the southern district near Dongmutoushi.

The central square, with an area of 7,000 sqm, will include the Liyuan Cultural Square, a museum, a large performing arts centre and an artificial waterfall.

The 1,000 sqm theme museum is on the ground level, adjacent to which is a 27 m by 6 m waterfall cascading into a 700 sqm pool. The performing arts centre is on the first floor, with an area of 5,000 sqm and 800 seats.

The northern district has a total area of 78,000 sqm and comprises six levels. The first five levels are for shops and the sixth is taken up by key units: a cinema complex, an indoor ice skating ring, a large games parlor, and a food hall.

The southern district has a total area of 79,000 sqm and comprises seven levels, with a 1,300 sqm resting area. On the fifth to seventh levels is a 24,000 sqm complex which includes baths and spas, venues for performing arts and a star-class hotel.

The complex could well comprise the main form of night life in Xian, come 2005.

The northern and southern districts have an upper underground level with a combined area of 36,000 sqm.

There is an underground shopping street linking the two districts - which is lined with shops and supermarkets.

There is also an underground traffic lane 300 m long and 10 m wide to provide a waiting area for cars.

The lower underground level of the northern district has an area of 18,000 sqm encompassing streets of different styles. These include four western-style streets, named after European and American thoroughfares. They include Boulevard Champs-Elysee, Ancient Roman Boulevard, Las Vegas Boulevard and Hollywood Star Boulevard.

There is an auto exhibition hall in the northern district and a 20,000 sqm carpark for 800 cars in the southern district.

Luomashi Pedestrian Shopping Area includes five shopping streets above and below ground level, with each more than eight m wide and over 300 m long.

There are 140 escalators in the entire shopping area.

After the completion of the pedestrian shopping area, Luomashi Street will be widened from 20 m to 25 m, the North and South Liuxiang lanes will be widened to 15 m and Dongmutoushi will be widened to 25 m. Together with Dongdajie Street, Luomashi will be surrounded by thoroughfares on all four sides.

All transport stations are within 300 m of the shopping street.

Debenham Tie Leung, a leading property management company in Hong Kong, is said to have been appointed leasing manager of the project, which has Hong Kong brands and consumer goods as major targets.

September 21, 2004

It's hard to imagine that this modest nine-storey building, sheathed in white tiles and jammed up against a residential compound for traffic police, is the headquarters of the world's largest TV manufacturer and one of China's first true multinationals.

Yet TCL, with 28.2 billion yuan (HK$26.59 billion) in sales last year, and an average annual growth rate of 40 per cent for the past 13 years, has been astonishing people for years. The Shenzhen-listed firm has mushroomed from a small-time maker of audio tapes to a 40,000-worker conglomerate producing everything from TVs and mobile phones to power plugs and batteries.

TCL got its start in low-tech manufacturing. Yet from its earliest days, there was something different about the company. Where other outfits focused on manufacturing, TCL was intent on building a brand name first and worrying later about where it was made.

September 16, 2004

China to Implement Energy Efficiency Label System Next March

The National Development and Reform Commission (NDRC) and the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) recently jointly promulgated a new set of Measures for the Management of Energy Efficiency Labels, which will become effective on 1 March 2005 and will apply first to refrigerators. This represents a move by China in implementing a system of energy efficiency labels.

NDRC, AQSIQ and the State Commission of Certification and Accreditation Administration are responsible for the establishment and implementation of an energy efficiency label system for products with great energy-saving potential and wide applications. Meanwhile, the Catalogue for Products Subject to Energy Efficiency Labels defines universally applicable energy efficiency standards, implementation rules, and samples and specifications of energy efficiency labels, and enforces a system of compulsory energy efficiency labelling in the light of the successful experience in other countries. Products included in the catalogue must bear a standardised energy efficiency label in a conspicuous position on the product or its packaging, with explanations given in the manual. The system is implemented by way of self-declaration and registration by producers or importers and strict supervision and management by the government departments concerned.

According to an NDRC official, energy efficiency labels are information labels on the product or its packaging. As indicators of the energy efficiency level and other performance indicators of products, they provide users and consumers with the necessary information for making purchase decisions, so that they can choose energy-efficient products.

Ministry of Information Industry Sets Up Examination Centre in Hong Kong

With the approval of the Ministry of Personnel and Ministry of Information Industry, an examination centre for the National Computer and Software Technology Qualifications Examination will be set up in Hong Kong. Starting from this year, Hong Kong IT professionals will be able to sit for this examination and obtain mainland qualifications locally. In light of the frequent exchanges between mainland and Hong Kong IT professionals in recent years, the establishment of the examination centre will further promote exchanges in information, personnel and technology between the two places.

The move also represents a step forward in the cooperation in trade in services under CEPA. It can be expected that following the certification of IT professional qualifications in Hong Kong, progress will be made in the mutual recognition of corporate qualifications.

The National Computer and Software Technology Qualifications Examination was first launched on the mainland in 1991. About 50,000 people take part in this examination each year. There are 20 examinations for senior, middle and junior positions, held twice a year, one in the first half of the year and the other in the second half.

The non-profit Beijing-Hong Kong Academic Exchange Centre in Hong Kong will be in charge of this new examination centre. The centre’s vice president Kwok Ming-wa said the fair and strict operation of this examination centre for mainland professional services, the first of its kind in Hong Kong, should effectively promote the entry of local IT professionals into the vast mainland market.

September 15, 2004

New tools to help US exporters

The US Commerce Department yesterday unveiled new tools in Beijing to help US companies expand exports to China's growing market, one of their fastest-growing export markets.

The tools include the China Business Information Centre, American Trade Centres and the Global Supply Chain Initiative.

According to US statistics, US exports to China were up 36 per cent in the first half of the year, making China one of the fastest-growing US export destinations and the sixth-largest US export market overall.

The US Under Secretary of Commerce for International Trade Grant Aldonas said one of the biggest hurdles US small and medium-sized companies (SMEs) face in trying to export to China is a lack of information.

Some 86 per cent of all US firms exporting to China are SMEs.

The China Business Information Centre is the first comprehensive US federal government resource aimed at helping US businesses take advantage of China's rapid integration into the global economy.

The centre consists of an 800 telephone number that the public can use to speak with a China specialist, a website with China-focused information and export tools, and a series of foreign-oriented events planned throughout the United States.

American Trade Centres are designed to increase the US Commerce Department's ability to help US companies tap export markets in second-tier but very large commercial centres in China.

The Global Supply Chain Initiative aims to help US small businesses identify global supply chains that will take US manufactured goods to China.

September 4, 2004

Pacific Business News September 10, 2004  

Foreign Retailers and Wholesalers have long realized that China's "opening" did not include them. But new regulations going into effect after December 2004 will allow fully foreign-owned enterprises to establish wholesale and retail operations anywhere in the country, and promise to dramatically change China's commercial landscape.

New Measures at a Glance

Rarely has a new set of regulations possessed the potential to expand the businesses opportunities of so many foreign enterprises in China. Below is a snapshot of the major changes introduced by the Administration of Foreign Investment in the Commercial Sector (a.k.a. Commercial Sector Measures) and the recently amended Foreign Trade Law.

What's new? Foreign investors will be able to set up wholly-foreign-owned wholesale and retail companies from December 11, 2004. This will allow them to engage in wholesale and retail, import/export, franchising (up to now this has been a gray area) and distribution.

Not on the Guest List

Just to make things interesting, foreign-invested commercial enterprises are still restricted from wholesaling or retailing certain categories of products.

They are as follow:

Restricted Temporarily

  • Wholesaling of pharmaceuticals, pesticides, and mulching films is restricted until December 11, 2004
  • Wholesaling of chemical fertilizers, processed oil, and crude oil is restricted until December 11, 2006
  • Retailing of pharmaceuticals, pesticides, mulching films and processed oil is restricted until December 11, 2004
  • Retailing of chemical fertilizers is restricted until December 11, 2006

Restricted Indefinitely

  • Tobacco cannot be wholesaled or retailed
  • Salt cannot be wholesaled

More Regulations Coming

Wholesaling and retailing of the following products are subject to additional (mostly as-of-yet-unwritten) legislation:

  • Book and periodicals
  • Processed oil (via gas stations)
  • Pharmaceuticals
  • automobiles
Type of Company Regulations Before Regulation After
Wholly Foreign-owned Enterprises (WFOEs) Not Permitted (only Joint Ventures (JVs) were allowed) As of December 11, 2004: Foreign investors receive national treatment. Minimum registered capital: RMB$500,000 (US$61,000)
Joint Venture (JV) Wholesale Company Minimum registered capital: RMB80 million (US$9.76 million). Asset, turnover requirements. As of June 1, 2004: No minimum asset value. No annual turnover requirement. Foreign investors receive national treatment. Minimum registered capital: RMB$500,000 (US$61,000)
WFOE Retail Company Not permitted As of December 11, 2004: Foreign investors received national treatment. Minimum registered capital: RMB$300,000 (US$37,000)
JV Retail Company Minimum registered capital: RMB$50 million (US$6.1 million). Asset turnover requirements. As of June 1, 2004: Foreign investor receive national treatment. No minimum asset, no annual turnover requirement. Minimum registered capital: RMB$300,000 (US$37,000).
Manufacturing Enterprises Can sell only products made by the company in China As of December 11, 2004: Can sell self-manufactured products, sourced in China and imported.

September 3, 2004

'Fortune' magazine publishes top 100 Chinese listed companies

US "Fortune" magazine, issue September 13, published ahead of time, has appraised and selected "top 100 Chinese listed companies 2003" in accordance with their annual business incomes, the first 10 companies ranked in order respectively are: Sinopec, Petro-China, China Mobile, China Telecom, China Life Insurance, China Unicom, the People's Property Insurance of China, Five Minerals Development, Baoshan Steel Group Co. Ltd. and the China National Offshore Oil Company.

The list of the "top 100 Chinese listed companies 2003" was completed jointly by "Fortune" (Chinese Edition) and HK-based Finet Group. The scope of selection through appraisal encompasses Chinese companies listed in the markets of China's inland, China's Hong Kong, New York, Singapore and London. The various companies are placed in order on the basis of the 2003 business volumes provided by these firms to related securities exchanges. It is reported that this year is the fourth time that "Fortune" (Chinese Edition) published the list of "top 100 Chinese listed companies".

The threshold for the inclusion of "top 100 Chinese listed companies" this year has again dramatically raised, with the business volume being raised from 4.45 billion yuan in 2002 to 5.99 billion yuan, a 35 percent rate of increase. On the ranking lists published in 2000 and 2001, the business income of the company placed the last one was 3 billion yuan and 3.3 billion yuan respectively, These figures reflect the rapid growth and change of the Chinese economy and its listed companies. According to the estimate of the "Fortune" magazine, in the next three years, the qualifications for being included into the "top 100 Chinese listed companies" will be raised to 10 billion yuan, equivalent to the scale of medium-sized enterprises in the world.

The year 2003 witnessed the continued growth of China's securities market. Under the background of sustained economic growth and the gradual standardization of markets, more listed firms were carrying out IPO (initial public offer) in internal and external markets, in the meantime, listed companies scored greater achievements. What's more, because large State-owned enterprises vie with one another for restructuring and listing, listed companies have augmented their strength. For example, the China Life Insurance Company and the People's Property Insurance Company of China were placed fifth and seventh respectively as they appeared on Hong Kong markets.

The enterprises chosen and included into the "top 100 Chinese listed companies" are distributed mainly in petroleum and natural gas, iron and steel, communication and auto-making industries. For instance, Sinopec, Petro-China and China Mobile, which were ranked the first three A for four straight years, the business incomes of the iron and steel industrial enterprises, such as Baoshan Steel (ranked 9th) the Shaoshan Steel Songshan (81st) and Guangzhou Iron and Steel (92nd) have surged dramatically, the incomes of auto-building enterprises represented by the Chang'an Automotive (ranked 33rd) and Beijing Auto Fukuda (38th) have grown by more than 50 percent, thus further raising their status on the list.

The gross incomes of communication enterprises in 2003 had a 70 percent increase year on year. . Besides the three telecommunication giants China Mobile, China Telecom and China Unicom which are placed among the top 10, the Zhongxing Communication (ranked 27th), Ningbo Bird (58th) and Amoi (88th) have continued to raise their position on the list.

September 2, 2004

Chinese Medicine Distributors Have New Legal Status in EU

The European Directive on the Registration Procedures of Traditional Herbal Medicines released by the EU formally entered into force on 30 April 2004, under which various member states are to incorporate the EU's traditional medicine laws into their national drug laws within 18 months after the latter takes effect and implement them in accordance with their local conditions. May 2004 to April 2011 is given as the transition period during which traditional medicines already on the market can enter and be sold in EU countries. In the wake of this directive, Guangdong-based Chinese medicine manufacturers are among the first to make a foray into the EU market.
Albeit being national treasures, traditional Chinese medicine (TCM) including medicinal herbs and patent Chinese drugs has yet to be legally recognized in most countries with a western medical background due to the lack of theoretical support and standardisation in the dosage, composition and efficacy of TCM. As a result, China's TCM exports can only be marketed internationally as health products, food or food supplements and are mainly sold to overseas Chinese. Market expansion has long been an onerous task.

The new EU directive, however, represents a significant stride in recognising the status of TCM. Marked impact is immediately seen in pertinent exports from Guangdong to the 25 EU member states. Patent Chinese drug exports, for instance, jumped 3.4 times in May 2004 just after the directive became effective. Although exports to the EU only make up a fraction of the total exports, many Guangdong-based TCM exporters are excited about such robust growth.

While the new directive has opened a door for the export of TCM to the EU, it also means that a series of laws and regulations concerning drug administration now apply to the production, import and wholesale of traditional medicines. The impact on TCM entering the EU market is far-reaching, with TCM exports now having to pass various certifications such as GMP and complying with quality standards in the EU Pharmacopoeia. Fulfiling these two requirements alone is no easy task for mainland TCM enterprises.

Faced with such unparalleled opportunities and challenges, people in the industry reckon that it is high time for the mainland TCM industry to step up publicity to the outside world while expediting the establishment of a system standardising the dosage, composition and efficacy of patent Chinese drugs. Such attempts at meeting major international pharmaceutical standards and passing clinical tests may one day enable TCM to be recognized globally as drugs.

Safety Requirements for Toys to Come into Force on 1 October

With the entry into force of the National Technical Safety Requirements for Toys on 1 October, China's toy industry will be subject to regulation. According to the Ministry of Commerce, most stipulations in the new requirements comply with ISO8124. Fulfiling them will bring the safety level of China-made toys to world standards and contribute to the growth of China¡¦s toy exports.
The new requirements, covering all toys on sale in the market including those for trial use and giveaway, contain more comprehensive stipulations and illustrations on safety labelling than before. For instance, toys unsuitable for children below the age of three due to their features, sizes or characteristics will carry safety labels as such together with illustrations on their potential risks. Signs of warning for certain small parts and toys containing such parts or beads or pellets must be shown on the toys or their packaging.

There are also detailed provisions on the criteria of classifying toys by age group. Consumers can choose the most suitable toys for their children of a certain age group based on their capabilities and interest and the safety level of the toys.

The new rules also contain explicit regulations on the testing of toys. Furthermore, the new requirements have lowered the heavy metals content of toys by half and widened the scope of inspection.

State Council to Deepen Investment Reform

The State Council recently promulgated its Decision on Reforming the Investment System. The reform aims to:
Fully bring into play the basic role of the market in resource allocation, separate government and enterprise functions, and reduce administrative intervention;

Establish the position of enterprises as investors whereby enterprises can make their own decisions on investment and be responsible for their own profits and losses, while banks can make their own decisions on loan approval and bear the risks;

Rationally define the functions of government investment and guide social investment through the formulation of development plans and industrial policies and the use of economic and legal means;

Improve the decision-making rules and procedures for government-funded projects, make investment decisions more scientific and democratic, and establish a strict system of accountability for investment decisions.
In implementing the reform, emphasis would be placed on the following:

Reform the investment management system and establish the position of enterprises as investors. Enterprises should have their own say in investment matters. Government approval will no longer be required for projects not funded by the government. Instead, the systems of authorization and record-filing will be implemented where appropriate. Large enterprises will be given greater power to make investment decisions, and companies will have more financing channels. The government encourages social investment and social capital will be allowed into sectors not prohibited by laws and regulations. Financial institutions must improve their system of fixed asset loans, continuously enhance their ability and level of loan approval, and effectively ward off financial risks.

Perfect the government investment system and improve the social benefits and efficiency of government investment. Government investment will mainly be used in economic and social fields related to national security and in which the market cannot make effective allocation of resources. A mechanism for government investment accountability should be established, and authority for examination and approval should be rationally determined. Approval procedures should be streamlined and the management of investment funds should be put under proper control. The contractor system should be put in place as soon as possible for non-profit government investment projects. Local governments at all levels should create conditions to attract social capital into public welfare undertakings and infrastructure projects.

Strengthen and improve the macro-control of investment to achieve an overall balance and an optimised structure. Investment in the whole society should be brought under indirect regulation and control through the comprehensive use of economic, legal and administrative means and economic levers such as investment approval, prices, interest rates and taxation. The government should guide social investment through planning and policy guidance, dissemination of information, and market access control.

Strengthen and improve the supervision and management of investment in order to regulate and protect market order in investment and construction. It is necessary to establish and perfect a system of supervision and control over corporate investment, government investment and investment intermediaries. Legislation on investment will be strengthened, stricter supervision will be exercised on law enforcement, and investors of all categories will be required to act within the legal framework.

NDRC Official: China to Actively and Steadily Promote Investment Reform

The State Council's Decision on Reforming the System of Investment was recently promulgated. An official in charge of the National Development and Reform Commission answered questions relating to the deepening of the investment reform in an interview.

Q. Why is it necessary to push ahead with the reform of the investment system?

A. A series of reforms has been carried out in the field of investment since the beginning of reform and opening up, as a result of which a new pattern of investment featuring pluralistic investors, multi-channel financing, diversified means of investment and marketisation of project construction has emerged. However, deep-structured conflicts and problems have not been thoroughly resolved. In particular, the power of enterprises to make their own decisions has not been fully put in place and the basic role of the market in resource allocation has not been fully brought into play. The decision-making process for government investment has to be made more scientific and democratic, and the efficiency of macro-control and supervision of investment needs to be enhanced.

The deepening of investment reform has great importance and far-reaching historical significance under the new situation. Promoting the investment reform is an important measure for establishing and perfecting the socialist market economy system and is of special importance in strengthening and improving macro-control.

First, establishing the position of enterprises as investors and reducing direct government intervention in the production and operation of enterprises will help the market better play its role in resource allocation, optimise the investment structure, improve investment returns, and promote the sustained, rapid, coordinated and sound development of the national economy and the all-round progress of society.

Second, promoting the reform of administrative management, state-owned enterprises, revenue and taxation, and finance and credit will help enterprises and banks establish mechanisms of self-motivation and self-restraint and promote the further perfection of the socialist market economy system.

Third, improving the management of foreign investment and offshore investment will help open the country wider to the outside world, utilise the international and domestic markets and resources in a better way, and expand the scope of economic development.

Fourth, accelerating the change of government functions will help the government shift the focus of its work to economic regulation, market supervision, social management and public service.

Fifth, deepening the investment reform will help eliminate blind investment and other problems and increase the internal vitality and drive for sound economic development.

Q. What is the relationship between the deepening of investment reform and the current policy of strengthening and improving macro-control?

A. Deepening investment reform is an important measure for strengthening and improving macro-control. Objectively speaking, poor systems, sluggish change of operating mechanisms, irrational economic structure and crude mode of growth are fundamental reasons why conflicts and problems have repeatedly occurred in China's economic development. In order to thoroughly implement macro-control measures for the elimination of problems of blind investment and expansion at a low level in some sectors, it is necessary to tackle both the root cause and deepen the reform of the economic system. In particular, it is necessary to further reform the investment system, establish and improve a mechanism of self-determination and self-restraint by investors, enhance the responsibility of banks in independent loan approvals, reduce administrative intervention, and improve the system of government macro-control on investment. This will help fundamentally eliminate rash impulses for blind investment, resolve deep-structured conflicts and problems in economic development, and achieve steady and rapid economic expansion. On the other hand, strengthening and improving macro-control will create favourable conditions for promoting the investment reform.

Q. What are the major objectives of the deepening of investment reform?

A. It is aimed to give greater scope to the basic role of the market in resource allocation in accordance with the requirements of perfecting the socialist market economy system, and to ultimately establish a new investment system with market-led investment, autonomy for enterprises, independent loan approval by banks, diversified financing means, regulated intermediary services and effective macro-control. Specifically speaking, efforts will be made to reform the management of government investment in enterprises and allow enterprises greater autonomy in investment. The government's functions in investment will be defined rationally, investment decisions will be more scientific and democratic, and an accountability mechanism for investment decisions will be established. Project financing channels will be further widened and diversified financing means will be developed. Regulated investment intermediaries will be nurtured, industry self-regulation will be strengthened and fair competition will be promoted. Macro-control on investment will be perfected and the ways and means of regulation and control will be improved. Steps will also be taken to speed up investment legislation, strengthen the supervision and management of investment, and regulate and protect market order in investment and construction.

Q. What are the major new measures of the State Council's Decision on Reforming the Investment System?

A. In general, major new measures cover four aspects:

First, replacing the system of examination and approval for enterprise investment projects with the systems of authorisation and record filing. From now on, enterprises will not have to seek approval for construction projects if government investment is not involved. Government authorization will be required for major projects and projects of restricted categories, and only record-filing will be required for other projects.

Second, rationally defining the functions of government investment. Government investment will mainly be used in economic and social fields related to national security and in which the market cannot make efficient allocation of resources, in improving public welfare undertakings and infrastructure projects, protecting and improving the ecological environment, promoting economic and social development in the less-developed regions, and advancing scientific and technological progress and the industrialisation of high technologies. Government investment funds will be rationally utilised by means of direct investment, capital injection, investment subsidies, on-lending, discounted loans etc. For non-operational government investment projects, implementation of the contractor system will be accelerated.

Third, perfecting the system of macro-control on investment and improving the means of regulation and control. Making comprehensive use of economic, legal and necessary administrative means, investment in the whole society will be effectively regulated and controlled by indirect means.

Fourth, a government investment accountability system will be established to perfect the supervision and management of government investment; a system of post evaluation and social supervision of government-funded projects will be established to strengthen checks and balances on government investment; a coordinated enterprise investment supervision system will be established and put on a sound footing to strengthen and improve the supervision and management of social investment; a system of fiduciary duty will be established to strengthen supervision on enterprise investment; and a system of qualifications will be implemented on consultancies, assessment agencies, tendering agencies and other intermediaries to strengthen supervision over investment intermediaries.

Q. What are the differences between the system of authorisation and the system of examination and approval?

A. First, the scope of applicability is different. The examination and approval system is only applicable to government investments and government-funded projects of enterprises, while the system of authorisation is applicable to major projects and projects of restricted categories not using government funds.

Second, the content of examination is different. Under the examination and approval system in the past, the government examined investment projects from the angles of managers of society as well as investors. Under the system of authorisation, the government will examine investment projects from the angle of public managers of society and economy. It will make sure that the projects safeguard economic security, make rational utilization of resources, protect the ecological environment, optimise the structure of the economy, protect public interests and prevent monopolies, and will not look into market prospects, economic benefits, sources of funds and product technologies, which should be the concerns of investors. Third, the procedures are different. Under the examination and approval system, the project proposal, feasibility study report and project commencement report have to be approved. For the authorisation system, only the project application report will be required.

Q. What is the meaning and importance of the record filing system?

A. The implementation of the system of record filing forms an important part of the deepening of investment reform. Examination and approval by the government will no longer be required for the majority of enterprise investment projects. Instead, enterprises can make their own decisions and file records with the department of the local government in charge of investment. Through the effective implementation of the record filing system, the government can fully grasp information on the propensity to invest, promptly and accurately monitor investment, publish timely information on investment, and guide the direction of investment in society. The government will strengthen guidance and supervision over the filing of records, making sure that the system is effectively implemented and not turned into examination and approval in disguise.

August 31, 2004

Mutual Recognition of Qualifications of Mainland Real Estate Appraisers and Hong Kong Surveyors

On 20 August the mainland and Hong Kong completed the mutual recognition of qualifications for the first batch of mainland real estate appraisers and Hong Kong surveyors under CEPA. A total of 97 surveyors from Hong Kong became chartered real estate appraisers on the mainland. This was the first instance of the mutual recognition of professional qualifications under CEPA.

According to an agreement reached between the Hong Kong Institute of Surveyors (HKIS) and the China Institute of Real Estate Appraisers (CIREA) in February this year, Hong Kong surveyors who have been professional members of HKIS for more than five years and have worked for at least one year (could be cumulative) in real estate appraisal, development, agency, research or consultancy on the mainland in the past three years may apply for the mutual recognition of qualifications. All applicants who meet the requirements and are recommended by HKIS will have to sit for a short training session and a test. Those who pass the test will become chartered members of CIREA and be allowed to practise on the mainland.

Vice Minister of Construction Liu Zhifeng said at the ceremony for the presentation of professional certificates that the mutual recognition of qualifications between mainland real estate appraisers and Hong Kong surveyors marked an important move in the implementation of CEPA, as it would help strengthen exchanges and cooperation between real estate professionals in the two places and improve their professional standards. Liu urged real estate appraisers and surveyors to conscientiously study the laws, regulations and appraisal standards in both places, observe professional ethics, and continuously improve their professional skills.

New Rules on Processing Trade Offcuts

The Measures of the General Administration of Customs for the Administration of Offcuts, Leftover Bits and Pieces, Sub-standard Products and By-Products from Processing Trade and Bonded Goods Damaged by Natural Adversities came into force in July 2004.
The measures, promulgated by the General Administration of Customs (GAC), represent the revised version of the Measures for the Administration of Offcuts, Saved Bits and Pieces, Sub-standard Products and By-Products from Processing Trade and Bonded Goods Damaged by Natural Adversities.

Article 2 of the measures sets out the revised definitions of "saved bits and pieces", "sub-standard products" and "by-products". "Leftover bits and pieces" are no longer differentiated. The stipulations concerning saved bits and pieces and leftover bits and pieces are now merged under leftover bits and pieces. The definition of sub-standard products and bonded goods damaged by natural adversities is revised to cover unfinished products. The scope of by-products has been extended and industry-specific restrictions on by-products have been lifted. The revisions are designed to make the definitions more comprehensive and accurate, as well as to clearly spell out the scope of the measures.

Articles 4, 12, 13 and 14 clearly set out the classification principle for offcuts, which is the classification as assigned by Customs based on their condition at the time of domestic sale.

Articles 8, 12, 13 and 14 clearly define the classification principle for by-products, which is the classification as assigned by Customs based on the condition declared by the enterprise at the time of domestic sale. And the corresponding tax rates will be applied. The revised measures cancelled the provision for depreciation of by-products under the previous version. The objectives are to simplify and speed up clearance procedures, giving greater convenience to enterprises.

Article 9 provides for different treatments of bonded goods damaged by different types of natural adversities. The major principle of differentiation is "lax treatment for force majeure and strict enforcement otherwise". In more concrete terms, it means that if the bonded goods are damaged by force majeure, the licence will be waived. If the goods concerned still have a value, the enterprise does not have to pay the tax that should have been due. If the bonded goods are damaged by factors other than force majeure, the enterprise has to pay the tax that should have been due and present the required licence to Customs. The reasons for these changes are to standardise enterprise management, increase the awareness of risk among enterprises, as well as their ability to avert risk.

Article 11 stipulates that: "Upon submission of application by an enterprise to surrender a certain shipment of bonded goods and presentation of proof that Customs is processing such a request, the verification and cancellation procedure will be processed after Customs has duly verified it." In the previous version, "proof of Customs having taken over and sold off the goods" was a prerequisite for verification and cancellation. The revision will help simplify the procedure and speed up the processing time of such cases. As for the workflow of goods confiscation and destruction, the previous requirement for "proof from authority supervising the destruction" and "supervision by Customs officers" have been cancelled. Under the revised stipulation, Customs will complete the verification and cancellation procedure upon presentation of proof pertaining to the confiscation and destruction.

Article 12 is a new provision concerning the administration of "offcuts, leftover bits and pieces, sub-standard products and by-products that are subject to import tariff and quota management and bonded goods damaged by natural adversities". Article 13 is a new provision concerning the administration of offcuts, leftover bits and pieces, sub-standard products and by-products that are subject to anti-dumping duty, anti-subsidy duty, safeguard measure duty or retaliatory duty (collectively known as special tariffs). Article 15 states that the measures do not apply to the administration of offcuts, leftover bits and pieces, sub-standard products and by-products that are produced with parts and materials imported by processing trade enterprises operating in bonded zones and export processing zones.

Unified Corporate Income Tax Likely by 2005

With the proposed unified corporate income tax regime taking shape, the existing system where the tax rate of domestic enterprises is double that of foreign-invested enterprises (FIEs) will soon come to an end. The revised legislation will likely be passed this year and unified corporate income tax could materialise in 2005 at the earliest.
With accounting giant Ernst & Young as facilitator, senior officials of the State Administration of Taxation (SAT) recently had a useful dialogue on the new tax regime with senior managers of the world's 30 leading multinational companies (MNCs).

The message that emerged from the meeting was that the unified rate would be set at 25-28%. Although the spokesperson reiterated that the figures are not official, industry sources reckon the range is very likely the compromised outcome of the meeting. Sun Ruibiao, director of SAT's income tax division, once remarked that the shortcomings of China's tax system pose severe challenges to the survival and development of indigenous and domestically-funded enterprises. In other words, the real objective of "unified tax rate" is to boost indigenous industries.

In keeping with the "principle of neutrality" under WTO, unified tax rate will inevitably become a fact of life for FIEs in China soon. However, speculation that existing preferential tax treatment will be scrapped is causing serious concern. Reportedly, the MNCs at the meeting have strongly urged for the existing preferential treatment to stay.

No Change in Individual Income Tax Over Next Two Years

Corporate income tax, individual income tax and value-added tax (VAT) are the key items of the current round of tax system reforms in China.

According to SAT deputy director Xu Shanda, the amendment of the Individual Income Tax Law is not scheduled for legislation over the next two years whereas "unified corporate income tax" may be submitted to the National People's Congress for approval in March 2005 at the earliest. Pilot VAT reform in the old industrial base in the Northeast is the only major tax reform at the present stage.

The pilot reform in the Northeast was launched on 1 July. However, as the reform will in theory stimulate investment, it goes against the current policy of investment curbs in certain overheated sectors and macro economic control. It is therefore questionable if VAT reform will proceed further before over-investment is considered to have been put under control.

Moreover, VAT reform is closely related to pension and old-age insurance. If the amount of tax payment is reduced due to VAT reform, the source of fund for such insurance could become an issue of concern. Liaoning is the only one out of the three northeastern provinces which has implemented pension and old-age insurance reform for four years and will be better off than Heilongjiang and Jilin when tax revenue drops. Besides, while the priority industry sectors vary in the three provinces, pilot VAT reform is designed to launch in eight sectors. Hence, the effectiveness of the trial and the exemplary function it serves to the nationwide implementation of VAT reform are both big question marks.

The prospect of tax revenue in the latter half of 2004 is also a cause for worry. If the tax revenue is not satisfactory, the commitment of senior government leaders to such reforms will understandably be dented.

Industry sources pointed out that major sectors contributing to tax revenue growth during the first half of the year have been raw materials such as building materials, steel, cement and oil, as well as tobacco products. The effect of macro-control measures implemented during the first half will be felt in the second half. Moreover, with the sale ban of high-tar tobacco products from 1 July, tax revenue from tobacco enterprises will likely decrease. The prospect of tax revenue growth in the second half will be less promising than the first. With the effect of macro-control becoming more apparent, economic growth in the second half of the year may slow down and impact on the pace of tax revenue growth.

Promising Outlook for Investment in YRD Power Sector

Despite continued rapid economic development, enterprises in the Yangtze River Delta (YRD) are plagued by power shortage which has become a major complaint of many foreign investors. According to experts, the power shortage situation is manageable in Shanghai, serious in Jiangsu and critical in Zhejiang. It is estimated that shortfall will exceed 19 million kw for the entire YRD this summer.

To minimise loss to companies under the current circumstances, different provinces and cities in the YRD have come up with different measures. Jiangsu province, for instance, has in place a power staggering policy whereby electricity supply to companies remains normal for five days a week and during non-peak hours (i.e. other than 8:30-22:30) on the remaining two days. On the other hand, the Shanghai municipal government has adopted five measures to cope with the power consumption peak season, namely industrial policy guidance, leveraging on electricity prices, strengthening power demand administration, arranging company breaks by turns and encouraging community-wide energy conservation. Furthermore, a power consumption restriction policy has been introduced, and companies using more electricity than planned during peak hours (13:00-15:00) will be charged double.

To ease the power shortage problem and to further improve the investment environment, Jiangsu, Zhejiang and Shanghai have stepped up efforts in related infrastructure development. While Shanghai will invest Rmb20 billion in building electricity grids, Zhejiang has decided to inject Rmb50 billion and streamline relevant local approval procedures in order to accelerate the construction of power plants and electricity grids. Presently, 77 local power plant projects have been approved with a total capacity of 1.283 million kw. Meanwhile, Jiangsu has expanded relevant investments from Rmb13.1 billion in 2003 to Rmb16.1 billion in 2004.

It is predicted that investment in power infrastructure will grow at around 40% annually from 2003 to 2005, and will focus on the construction of electricity grids starting from 2006. This has led to a substantial increase in related equipment imports. Statistics compiled by Shanghai customs show that 1,806 power generation units worth USD68.92 million were imported through Shanghai in the first five months of 2004, up 120% and 220% respectively year-on-year. Imports of power generators and power generation units by Jiangsu in the first four months of 2004 also registered increases of 77% and 140% respectively year-on-year, totalling 400 sets.

August 25, 2004

WEBCAST: Licensing Your Property in China - Rebecca Lo, Esquire (English / Putonghua)

August 24, 2004

Individuals Allowed to Open Foreign Trade Settlement Accounts

Hong Kong residents who have registered as individually-owned business operators and obtained foreign trade rights will be allowed to open foreign trade settlement accounts for forex receipts and payments starting from 10 September. This means that individual foreign trade operators can purchase hard currency for external forex payments and settle forex receipts directly with the bank through their foreign trade settlement accounts. However, they may not use their personal foreign currency savings accounts to make external forex payments. Also, the foreign trade settlement account may not be used together with other foreign currency savings accounts.

The State Administration of Foreign Exchange (SAFE) issued a circular on 10 August on forex administration over individual foreign trade operators. According to this circular, individual foreign trade operators should register with the “Directory of Import Units Permitted to Make Outward Remittances” or file for forex receipt verification at the local foreign exchange administration office where they registered for business after completing customs registration online at China e-Port. They may open individual foreign trade settlement accounts for forex receipts and payments only after completing these formalities.

Individual foreign trade operators refer to individuals who have been granted foreign trade rights to engage in foreign trade activities after completing their business registration and obtaining their individual business licence in accordance with law and filing for registration in accordance with the regulations of the department of commerce under the State Council (except where registration is not required). Details for the registration of foreign trade rights are given in the Foreign Trade Operators Registration Measures issued by the Ministry of Commerce on 25 June 2004.

August 16, 2004

 China Business Open Doors for American Firms

Hong Kong China Hawaii Chamber of Commerce (HKCHcc) is part of the International Business Delegation from Hawaii, California, Oklahoma, Hong Kong and Guangzhou visited Urumqi, Xinjiang China between Aug 10 - 15 to explore multi-million business opportunities in Real Estates, Wine, Meat Operation and Water Park worth RMB$400 millions. This successful business mission was lead by private sectors business leaders. There was no government official accompany the business delegation. During the 5 days visit, we have met with Honorable Wang Lequan - Full Politburo Members and Secretary of CCP Xinjiang Autonomous Region, Honorable Yang Gang - Secretary of CCP Wulumuqi City of Xinjiang Province, Honorable Shokrat Zakir - Mayor of Urumqi City of Xinjiang Province and Honorable Ms. Wang Jian Ling - Vice Major Urumqi City of Xinjiang Province. It was rare and exception for the top Officials from the Provincial and City level to receive the small but powerful business delegation to work on projects benefiting the City of Urumqi and the Province of Xinjiang.

When we first visited China to sign the Sister-City Agreement between the City of Honolulu and the Hainan Island in 1984. The entire visit must be handled by the 2 governments including all business meetings. Businesses in Hawaii were playing a minor role during the visit there. Increasingly the 1980 government/business model does not work for the modern China. More and more businesses in China want to engage Western businesses on the front line, prefer to have governments on both sides to play an important, but supportive role. China Government does not want to be in the way of business. In fact China has turned most of its State Owned Enterprises (SOE) into the hands of private business owners. They have further encouraged business enterprises to contact individual business directly.

Business Executives in China has been instrumental to set up meetings with Government Official when needed, rather than a requirement to do business there. Many preferred no Government Official to tag along with a business delegation as they must schedule meetings with local Governmental Officials even when there is no need to do so, thus taking away valuable time on serious business dealings and negotiations.

The Western Regions of China has presented exceptional opportunities for Hawaii and Smaller Companies. The impression by most Americans never visited Western China thought the area to be backward and difficult to do business there. But many upon their first visit were surprised on the ease to do business there without facing fierce competitions from the big Enterprises around the world. Most of the modern amenities are there. Internet and the tools of doing business are readily available at a very reasonable price. If the business delegation wish to schedule meetings with local government official, support letter from your own Federal, City and State Government Official is more than sufficient therefore saving the taxpayer 1,000s of dollars of travel expenses.

For a small State like Hawaii, Hong Kong China Hawaii Chamber of Commerce (HKCHcc) has been very successful working with businesses in Mainland USA and Asia to increase Hawaiian Companies' financial resources and diversities.

We are expecting to undertake more similar business mission and initiative in the future focusing on tangible and measurable results.

August 5, 2004

Construction Design Service in Enormous Demand

China's construction market is worth an estimated Rmb1,600 billion. Given that construction design accounts for 0.5-3% of the construction cost, it translates into a market of Rmb8 billion to Rmb48 billion. To improve the environment, many cities in the Pearl River Delta (PRD) are stepping up urban construction. Demand for construction design service is set to surge over the next few years. With the recent signing of the Mainland/Hong Kong Closer Economic Partnership Arrangement (CEPA), Hong Kong's construction design service companies can expect greater room for development in the mainland market.
Urban Construction Fuels Demand for Design Service

With rising living standard and gradual transformation from a relatively well-off society to a wealthy one, the PRD currently ranks among the top regions in the country in terms of per capita income and consumption. Both government authorities and the residents are increasingly demanding about the living environment. In 2002, investment in real property development topped Rmb111.525 billion in Guangdong, accounting for 28% of the total fixed asset investment in the province and ranking first among all mainland provinces.

A new wave of construction boom is in the making in the PRD. To achieve the urban development goal of "major transformation by 2010", Guangzhou has earmarked more than Rmb180 billion for urban redevelopment and construction over the next 10 years as it targets to become a modern metropolis in southern China. The city will continue to focus on the three key construction projects involving its airports, ports and information infrastructure. It will also promote urban landscaping with an emphasis on natural ecology, greenery and human architecture. Furthermore, urban planning will be upgraded and landmarks such as city squares, parks and statues will be built. In the next five years, a number of landmarks will be completed in Guangzhou, including a new airport, an international convention and exhibition centre, a new port, a new youth centre, the Guangzhou Opera House, Guangzhou Newspaper Plaza, Haizhu City Plaza, a sightseeing tower, the South Yue Palace Museum, and the Shamian Modern History Museum. Priority will also be given to develop the Nansha Development Zone, modern city clusters such as Zhujiang New City and Baiyun New City, as well as science city, university city, international biology island, and new and high-tech industrial parks such as the four major logistics centres.

During its tenth five-year plan period, Shenzhen plans to invest Rmb50.764 billion in building roads, water and energy supplies, public venues and facilities, and dedicated zones. Another Rmb25.219 billion will be spent on a series of infrastructure projects including phase one of its underground railway, the Shenzhen-Hong Kong western corridor (Shenzhen Bay highway bridge), Shenzhen Tonggu Channel, Huanggang/Lok Ma Chau pedestrian footbridge, section B of Yanba highway, phase two of the underground railway, and a transport intersection in Zhuzilin district.

As for Dongguan, the following infrastructure projects are included in its tenth five-year plan: a technology service centre, an international convention and exhibition centre, an opera house, a guesthouse, and phase three of the cultural plaza project. In a bid to raise the cultural level of the city, several squares and parks will be built in the urban area, as well as country parks in the suburbs of Dongguan.

Other cities in the PRD such as Foshan, Zhongshan and Shunde are also understood to be either planning or implementing their respective urban construction projects.

The rapid growth of urban construction in the PRD cities, coupled with the lowering of entry threshold for Hong Kong players in the mainland construction design service market, translates into enormous room for development for Hong Kong.

Entry Threshold of Construction Design Service Market

The Regulations on the Administration of Foreign-invested Construction Design Enterprises introduced on 1 December 2002 stipulate that foreign investors may establish construction design enterprises in the form of Sino-foreign equity or contractual joint venture. Under CEPA, Hong Kong construction design firms may set up wholly-owned enterprises in the mainland. In Sino-foreign equity or cooperative JVs, the foreign equity ratio must not exceed 75%.

The regulations also require that a certain percentage of the certified professionals and key technical personnel of a construction design enterprise must be architects and engineers certified in China. Where a wholly foreign-owned construction and engineering design enterprise applies for the construction and engineering design enterprise qualifications, its foreign service providers who have been qualified as certified architects or certified engineers in China must not be less than one quarter of the total certified professionals required under the qualification grading criteria, and the foreign service providers who have the relevant design experience must not be less than one quarter of the total key technical personnel required under the qualification grading criteria. Where a Sino-foreign equity or cooperative construction and engineering design joint venture applies for the construction and engineering design enterprise qualifications, its foreign service providers who have been qualified as certified architects or certified engineers in China must not be less than one-eighth of the total certified professionals required under the qualification grading criteria, and its foreign service providers who have the relevant design experience must not be less than one-eighth of the total key technical staff required under the qualification grading criteria. The foreign service providers of a wholly foreign-owned enterprise who have been qualified as certified architects, engineers or technical personnel in China must reside in the Chinese mainland for no less than six months a year.

In a bid to introduce standardization to the construction design market in Guangdong, the provincial authorities will implement the Regulations of Guangdong Province on the Administration of Construction Engineering Exploration and Design on 1 October 2003. According to the Guangdong Department of Construction's website, the consultation paper of the regulations covers the following aspects: the grading and approval system governing entities engaged in engineering exploration and design activities; registration system for qualified technical personnel; documentation approval system governing construction engineering exploration and construction drawings and designs; and approval system for the preliminary design of large- and medium-scale construction engineering projects. Entities engaged in engineering exploration and design should apply for the relevant qualification certificate, namely for engineering exploration, design and general contracting work based primarily on design.

Market Competition and Entry Options for Hong Kong Firms

With a growing cluster of architects and construction groups from around the world, the PRD has become the largest construction market in China. Different players are competing in the market much like in a "design contest".

According to market analysts, foreign construction design firms often target large-scale public construction projects and upmarket apartments as an entry point to the China market. However, hefty design cost means it is not always smooth sailing for these firms. As a property developer who has the experience of using the services of a foreign designer points out, the designs and architectural concepts of foreign designers are admittedly more advanced, but cost is an important consideration. For instance, construction design usually takes up about 0.5% of the total investment cost of a local property development project, but the fee charged by a foreign design firm can go up to as much as 3%.

There are currently 1,254 organizations engaged in exploration and design work in Guangdong province. Of these, 267 are Grade A, 335 are Grade B, 627 are Grade C, 10 are Grade D, and 15 are at township-level. Among the 46,744 employees, 2,731 are certified architects (of which 906 are Class 1), and 2,141 are certified structural engineers (of which 1,737 are Class 1). Overall, certified practitioners with different qualifications make up 10.8% of the total.

In terms of revenue, the construction industry grew by 14.2% year-on-year to reach Rmb7.938 billion in 2002, while profits totalled Rmb557 million. To date, the industry has achieved 45 patents, 78 specialised technologies and 150 science and technology achievements.

At present, two major types of construction design organisations are active in the market. First, wholly state-owned large- and medium-sized architectural design institutes which have a relatively long history and are the key players in the market. Second, the smaller design firms which sprang up in recent years and have different ownership structures.

To encourage the establishment of professional design firms, Guangdong is in the process of easing the qualifying criteria for professional construction design enterprises (firms), including professional construction design consulting firms. The province is also committed to supporting the reforms of large state-owned construction design institutes, as well as fostering the development of a number of "celebrity" designers and "star" design firms. In 2002, the Ministry of Construction approved 108 private architectural firms across the mainland of which eight were located in Guangdong. These partnership private firms were encouraged to use the names of individuals as their company name.

According to sources from the Guangdong Exploration and Design Association, provincial authorities are currently carrying out system reforms of construction design enterprises. The reform package, which has been approved by the Guangdong provincial government, encourages state-owned exploration and design organisations to transform into popular company types found in the international marketplace such as engineering firm, engineering consulting and design firm, specialised rock and soil project firm, project exploration firm and design firm. In terms of company structure, these organisations can be reorganised into limited liability company, limited company, joint stock company or partnership through various means such as restructuring, merger and acquisition, and sale. Hong Kong architects are well-versed in international concepts, trends and standards, and have a wide international exposure. They should capitalize on these advantages to seek cooperation with well-established mainland counterparts in the form of equity or contractual joint venture.

New Tax Rules for Foreign-Invested Venture Capital Companies

The State Administration of Taxation has recently issued a circular on new regulations relating to enterprise income tax payable by foreign-invested venture capital companies in China. Some of the existing tax concessions will be abolished under the new regulations.
Pursuant to the Income Tax Law of the PRC for Foreign-Invested Enterprises and Foreign Enterprises and its implementing rules:

Venture capital enterprises engaged in equity investment and transfer as well as those providing venture capital management and consulting services to enterprises according to relevant regulations, do not belong to production enterprises and are therefore not entitled to the preferential taxation treatment granted to foreign-invested production enterprises in China's tax law.

A venture capital enterprise established as a corporate entity should take the venture capital enterprise as the taxpayer and declare and pay enterprise income tax in a unified way according to the provisions of China's tax law.

For a venture capital enterprise established as a non-corporate entity, the enterprise income tax may be declared and paid separately by its investors, or declared and paid in a unified way according to tax laws upon application by the venture capital enterprise and approval by the local taxation authority. If investors of a non-corporate entity venture capital enterprise opt to declare and pay enterprise income tax separately, the foreign investors should compute and pay the tax as foreign companies with organizations or business venues in China. If the non-corporate entity venture capital enterprise does not have any venture capital management organization and does not directly engage in venture capital management or consulting services but merely operate as a normal investment enterprise, it may declare and pay enterprise income tax as a foreign enterprise without organization or business venue in China.

Venture capital enterprises mentioned in this circular refer to foreign-invested enterprises established in accordance with the requirements and conditions of the relevant administrative regulations and legal procedures to engage in venture capital business. Their names must bear the words "venture capital".

July 27, 2004

First Individually-Owned Foreign Trade Business in Shenzhen

The first individually-owned foreign trade business in Shenzhen was born 20 days after the Foreign Trade Law entered into force. The owner, Mr Fu, operates an individually-owned enterprise in Nanshan district for the production and marketing of hardware. He has never been involved in import-export business before and his products were mainly exported through other enterprises. His enterprise is the first individually-owned business to have completed registration as a foreign trader.

According to Fu, his overseas clients repeatedly asked him to handle his own exports, as this could lower costs for both sides and help him win more overseas orders. At the end of June this year, when he learned from the media that individually-owned enterprises were allowed to engage in foreign trade, he consulted his clients at once and decided to register. He registered online the day after the Foreign Trade Law went into force and submitted the registration form and other necessary documents on 16 July, completing the registration procedures the same day. Fu said foreign trade right is a big help to his business and gives individually-owned operations like his more room for expansion.

Many people are concerned about the provision in the Measures for the Registration of Foreign Trade Businesses on the submission of notarial certificate of property issued by public notaries. Fu said he went to a public notary on 15 July and received the notarial certificate the following day. In fact, public notaries are ready to issue notarial certificates upon presentation of proofs of credit standing issued by the bank.

Under the new Foreign Trade Law, foreign-invested enterprises, individually wholly-owned enterprises and foreign (regional) enterprises may apply for permission to engage in foreign trade by submitting the necessary documents. For details, please visit http://www.chinacourt.org/flwk/show1.php?file_id=94603.

As many as 92 Hong Kong and Macau individually-owned businesses have registered in Shenzhen between 1 January this year when CEPA went into effect and mid-May. They mainly engage in the retailing of jewellery, electronic products, health care products, garments, decorative materials and daily consumer goods.

July 14, 2004

Jiangsu Shoe City kicks in on fashion

           

Established in 1995, Jiangsu Shoe City has won a reputation among customers with its pledges: "money back guarantee" and "guaranteed return, replacement and repair". The Shoe City is known for its fine products, low prices, and positive business environment.

The market has six floors and nearly 200 shops, with some 5,000 visitors every day. About 30,000 pairs of shoes of different types are sold daily, so annual turnover exceeds Rmb100 million (HK$94.3 million).

There are standard shops on the first two levels, specialized boutiques on the third floor, and warehouses on the fourth to sixth floors.

About 10,000 types of shoes, including leather shoes for men and women, children's shoes, cloth shoes, slippers, cotton padded shoes, Wellington boots, sandals, students' shoes, baby shoes - as well as shoes for casual wear, the beach, sports, work and a host of specialist occupations or activities, are available.

Shoes come in all forms and quality, with medium and low-end products making up the bulk. The producing areas include Jiangsu, Guangzhou, Wenzhou, Fuzhou, Shanghai and Shenyang.

All goods are directly marketed by manufacturers without going through middlemen - the idea being to make small profits but on quick turnover. Prices here are the lowest in eastern China.

The market opens for business at six in the morning and is packed with visitors all day. Trading is brisk and cash transactions form the predominant medium of business. Most buyers are from large and small shopping centres in Jiangsu and Anhui, as well as from supermarkets and shoe shops in eastern China.

Jiangsu Shoe City has assigned great importance to the style of shoes since it was first established.

Every attempt is made to look for new styles and new sources of goods. Each year, the shoe city sends representatives to other markets to find out about the latest trends and information about the industry.

Today, all shoes sold at Jiangsu Shoe City reflect the latest styles at home and abroad and set consumption trends in the whole of eastern China.

The most recent designs can be found at Jiangsu Shoe City within three days of being presented on the market. At least 30 new designs are launched at the shoe city each day.

Footwear for women in the latest designs are prominently displayed, including the new open-toe styles, with their colourful designs and simple but elegant shapes.

At the same time, "cage-design" shoes, which were top sellers last year, continue to lead the trend. Currently, they are offered in colourful patent leather and with simple plaited leather straps.

With women's footwear designed to make legs look longer and slimmer, comfort and styling are at a premium.

Dancing shoes with slim or thick heels in silver, light sandy gold, rose gold, golden bronze and beige tend to be complementary, and with embellishments on the uppers and straps, they go very well with the graceful dancing dresses that are immensely popular this summer.

Two-tone shoes inspired by black-and-white dress shoes for men, look subtly refined when worn with long slacks and suits.

Round-toe shoes are making their appearance in the spotlight, as pointed toes decline in popularity. The new styles may have a fine strap across the instep or around the ankle and go very well with full pleated skirts, shorts or suits.

Wedge heels are back from the 1970s. With their thick soles, they are more easily manageable than stilettos. A major improvement of wedge heels this summer is their tapered soles, and colourful, light-weight products with cork or rope-textured heels are a match for hot pants, knee length skirts of ethnic designs and full-pleated skirts.

Clear-crystal shoes are very much in: their transparent sole, body and heel make the wearer look taller and more slender. The slightly raised sole adds a touch of elegance. They go best with tight, three-quarter-length slacks and vacation outfits.

Cage design shoes are sliding into the picture: the shallow, netted upper design gives a carefree touch to the otherwise extravagant style of ladies' wear this season. They go well with floral dresses, flared skirts, slip dresses and shirt dresses.

Open-toe high heel shoes are classic in style and are a cross between high-heel shoes and open-toe sandals. With open side and colourful patent leather uppers of various designs, they match well with full pleated skirts, flared dresses and three-quarter-length slacks.

Glamorous shoes in crocodile skin, satin, crystals, embroideries, silk and dye-printed fabrics are becoming popular, and pair well with short skirts and hot pants.

Jiangsu Shoe City brings together brands from home and abroad, including Camel, Julu, Hang Ten, Juri, Jinlaike, Crocodile, Bage, Xiaotuge, Huabin, Hongchen, Shanghai Danling, and Ouniaowang, along with Bolong, Caolong, Tilesi, Lanlier, Bingting, Daminghuang, Yaqili, Red Ant, and Qiaofeng.

Service facilities have been improved since the market was first established. Also, the shoe city has its own consumer council, individual workers association, product quality control office, security guards, cleaning brigade and other service and support units.

The Industrial and Commercial Bank, Communications Bank, Agricultural Bank, Construction Bank and Bank of China have branches close by. There are also industrial, commercial and taxation departments and freight forwarding centres in the vicinity.

The shoe city provides pre-, during- and after-sales services, while regularly evaluating the credibility and product quality of suppliers. Manufacturers reputed for products of good quality are invited to set up direct sales outlets there.

A special office has been set up to handle customers' complaints and a quality complains registration system has been put in place.

Jiangsu Shoe City is situated in a prime section of Nanjing near Shuiximen. Its location is characterized by heavy pedestrian flow and convenient transport.

Rents are cheap. A monthly rent per 100 sqm ranges between Rmb90 and Rmb180 (HK$84.9 and HK169.8), depending on location.

Qualified help at hand in Shenzhen

  Most families in Shenzhen employ part-time or stand-in nannies to look after their little ones. Some companies set up to develop childcare have so-called "child care workers" for babies aged up to three, but all of these people are untrained.

Under the National Professional Standards for Childcare Workers, published by the Ministry of Labor and Social Security, childcare workers are one of the eight new types of job announced by the ministry. According to the new regulations, child care workers must be able to "choose the right disinfectants for babies" and "correctly record a baby's growth curve and use growth monitoring charts", in addition to taking basic daily care of the child.

These better-trained nannies are also expected to work out personalized teaching plans according to the level of development of children, choose and design games, train the infants in sports, recognition, language, social skills and other abilities, as well as perform all kinds of educational tasks. These workouts could involve movement and skill training, intellectual development, social behavior and character training for children.

Among the various types of domestic service in Shenzhen, caring for old people accounts for 5%, housework for another 25% while looking after children represents a massive 70% of services.

The average age of the urban population in Shenzhen is 28.6 and the birth rate of registered residents is 10.63%. With about 70,000 new babies born each year, there is bound to be a concerted cry for professional childcare help from busy parents!

July 11, 2004

Policy and Law

Crackdown on VAT Violations

The State Administration of Taxation (SAT) issued two circulars on 30 April regarding its crackdown on tax-related violations, such as the issuance of fraudulent freight invoice and the production and sale of fake invoice, and the launch of special tax inspection work for 2004.

The key points of the circulars are as follows:

The deliberate issuance or acceptance of fake special VAT invoice, and issuance of other invoices for the purpose of cheating export rebate or tax deduction are violations of tax collection laws. Tax authorities at all levels have to take stringent measures to combat such tax-related violations and bring offenders to justice. They should carry out a thorough checking of general taxpayers in their respective jurisdictions, especially the smaller businesses with irregular tax records.

Tax authorities at all levels should strictly enforce the law and seriously punish those enterprises engaged in the issuance of fraudulent special VAT invoice or other tax deductible invoices in addition to imposing the tax originally due and the overdue surcharge. For offences punishable by law, tax authorities should promptly refer the case to public security departments.

For enterprises which deliberately accept fraudulent special VAT invoice or other tax deductible invoices for the purpose of tax evasion and cheating export rebate, tax authorities must thoroughly review their tax payment records for at least the preceding three years. Once an investigation confirms that the fraudulent invoice has been accepted deliberately, the party concerned will be punished in accordance with law.

Tax authorities at all levels should bear in mind the dual purpose of combat and publicise at the same time. Comprehensive plans should be formulated to combat illegal activities while positive results of the exercise should be publicised.

July 8, 2004

Guangdong Commences Credit Legislation

Guangdong has embarked on credit legislation and will establish a system of credit rating for individuals and enterprises. In future, people will be able to check the credit-worthiness of enterprises at any time.

Led by the government and with the participation of the People's Bank of China and the departments concerned taking part as members, a personal credit-worthiness and personal credit rating system will be established in Guangzhou, Shenzhen and Shantou. The government will authorize an intermediary to set up the system, which will operate according to the market mechanism and provide charged services. Initially the system will be available to members only. When the whole project is up and running, its service would be extended to institutions authorized by laws and regulations and to citizens and legal persons authorised by the parties concerned. A personal credit-worthiness and credit rating supervisory committee formed by the members will supervise the operation of companies.

At the end of the first half of 2004, an information network connecting 21 cities in Guangdong was built to provide online search service for the credit records of enterprises throughout the province. The network will be eventually extended to all cities in the province and will cover information from different departments on enterprises. When the project is completed, a corporate and personal credit worthiness system connecting all government departments, intermediaries, banks and securities markets will be established whereby individuals and enterprises will be able to check the credit records of all enterprises in the province at any time. Relevant information analysis, forecasting and early warning systems will also be established for the credit rating of enterprises and individuals.

Meanwhile, Guangdong is taking steps to legislate credit checking and disclosure. The provincial department of information industry is taking the lead to organize credit legislation for all enterprises in the province and has started the drafting of the Regulations for the Opening of Credit Information on Enterprises in Guangdong and the Regulations for the Opening of Administrative Affairs in Guangdong.

Hong Kong doctors, medical insurance in Shenzhen

As ties between Shenzhen and Hong Kong grow with the implementation of the individual travel scheme for mainlanders, more and more Shenzhen people arrive in Hong Kong to visit relatives, and as tourists. Conversely, the number of Hong Kong people living and working in the Pearl River Delta is also rising sharply.

How can adequate medical services for all these travelling people from one jurisdiction to another be provided, if not guaranteed?

Shenzhen's health department and labour and social security department indicated in meetings with the Hong Kong Association of Registered Medical Practitioners recently, that Shenzhen citizens with medical coverage can make claims from the mainland labour and social security department.

Mainland patients can present bills for detailed medical checkups and other medical expenses, medical reports and associated documents issued by Hong Kong hospitals in cases of emergencies such as sudden illness, a traffic accident or in childbirth while they are visiting Hong Kong.

The Hong Kong Association and Shenzhen authorities also agreed that Hong Kong people working and living across the Special Administrative Region boundary should be able to enjoy timely medical support and services provided by the Hong Kong government. The Association will designate one or two large hospitals in Shenzhen, where Hong Kong residents can enjoy medical protection and benefits as if they were in Hong Kong.

Both parties also discussed another way of addressing this issue. It was suggested that Hong Kong's Hospital Authority may invest in a large joint-venture general hospital in Shenzhen through arrangements between the two governments.

While providing medical services to Hong Kong residents in Shenzhen and the Pearl River Delta, the hospital will also gear itself to the local medical market and serve the residents of Shenzhen.

Under the specific commitments set out under the Closer Economic Partnership Arrangement, CEPA, the majority of medical personnel employed by joint-venture hospitals and clinics can be permanent Hong Kong residents. Hong Kong doctors may engage in long-term medical practice in Shenzhen.

Zhou Jun'an, director of Shenzhen's health department, explained how Hong Kong doctors can practice in the Special Economic Zone.

According to Ministry of Health policies, and given the actual situation in Shenzhen, there are basically two criteria under which Hong Kong doctors can practice in Shenzhen.

The first is for doctors to present themselves as specialists. Hong Kong doctors may practise in Shenzhen provided that they are employed by a legally licensed medical institution there, file their Hong Kong qualifications for medical practice and personal resume with the local health department, and obtain a provisional certificate for medical practice.

Such certificates have to be renewed once every three years.

To avoid this procedure, doctors may apply for a permanent certificate. To do this, they must first sit for the annual national examination for medical practitioners and may take the examination in Shenzhen.

"Pet economy" off the leash in Shanghai

Pet lovers are in Shanghai in greater numbers. The opportunity to offer a range of pet products on the market grows commensurate with that.

In some major retail outlets, over 200 varieties of products, including toys, ropes, travel carriers, health products, beds and kennels, bones and chews, are available and sell very well.

Specialty stores, tailors' shops, beauty saloons and hospitals for pets have mushroomed. In particular, pet clinics affiliated to universities and research institutions have attracted a large number of clients.

Pet hospitals provide more than medical services. These also include adoption and sale of pets, sale of pet goods and food, pet boarding and grooming.

Pet goods attract a high profit margin. For example, a dog jacket may cost as much as Rmb180 (HK$169.8).

Pet hospitals are doing great business in spite of their hefty charges. Nail and hair trimming and regular checkups cost nearly Rmb100 a month (HK$94.3). When a pet gets sick, drips may be needed and a visit to the vet costs Rmb300 (HK$283), on average.

For a medium-sized pet hospital, after making deductions for rent, costs of medicine, salaries for vets and depreciation for x-ray, ultra-sound, lab facilities and other equipment, it is reckoned that a net monthly income of between Rmb15,000 and Rmb60,000 (HK$13,760 and HK$$56,600) can be expected, with incomes higher for hospitals in better locations.

Compared with the mature and systematic pet-related industries in other countries, China's pet industry has had a late start. It is not yet a regular trade but a new, emerging business that is gradually taking shape.

The sector covers manufacturing (such as the production of pet food, medicines, supplies, toys and garments), as well as services such as pet hospitals, pet training, boarding and health care consultancy.

Business comes in to play in every aspect of a pet's life, from food, clothing, accommodation and transport to sickness, birth and death.

There are about 200 pet goods producers in China, most of which are private operations. Since the market was still immature just a few years ago, products have been mostly for export. Business has mainly been in export processing, according to buyer's samples - and products are mostly destined for affluent countries in the West. The majority of exports involve labour-intensive industry.

Overseas companies see growing prospects for making money in this market and all kinds of pet shows are staged in Shanghai.

In 2003, several pet shows were held in the city. Professionals from the US, Australia, the UK, Japan, South Korea, Taiwan, Hong Kong and other countries and regions came to familiarise themselves with China's pet goods market, and look for cooperative opportunities.

Pet lovers in Shanghai and neighbouring areas also visit shows with their pets. Some have made purchases of pets at the shows - meaning that the popularity of the events gave the exhibitors confidence in investing in Shanghai's pet goods market.

July 5, 2004

The US textile industry petitioned the Bush administration to curb the import of socks from China. The industry asked that a quota be imposed that would cap the growth in Chinese sock imports at 7.5 per cent over the next year.

(Information Source & Credit: Hong Kong Trade Development Council)

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