Archives 2014

Technology becoming new economic engine of Chengdu

Wang Fengde (second from right), vice-director of China Bluestar Chengrand Chemical Co Ltd, tests products together with researchers.

Transformed over two decades from China’s biggest base for heavy industry in the western region, Chengdu is now thriving with a modern economy built on high-technology industries that are driving its growth and providing a window on its innovative strength.

Many of these opportunities come from China’s national strategy of building the Silk Road economic belt, as well as soaring consumption power and the application of various advanced technologies.

Eager to gain higher profits from exports, Chengdu has moved toward a low-carbon, high-tech economy by curbing overcapacity and reducing the scale of heavy and energy-intensive industries on the one hand, while on the other encouraging high-tech industries to accelerate the speed of innovation and talent recruitment.

He Li, director of Chengdu’s development and reform commission, said that an increasing number of domestic and international companies are building new manufacturing facilities for high-tech products, research centers and logistics hubs in Chengdu. Thus, the city is preparing to scale up efforts to improve services for strategic emerging industries and productive service sectors over the next five years.

“High-end industries, including next-generation information technology, biotechnology, precision machinery manufacturing, energy conservation and environmental protection, plus financial and business services, will further upgrade the competitiveness and innovative capacity of Chengdu and Sichuan province as a whole,” He said.

The Chengdu government in February announced an overall strategy of reform, innovation, transformation and upgrading, and optimized its five strategies to push forward the city’s industrial transformation and optimize the structure of high-tech industries, environmental investment, and urban and rural planning.

“We are also providing high-tech companies in incubators with access to public research facilities, helping them explore the market and offering them help in human resources as well as financing. Office space, dormitories and apartments for their employees can also be arranged,” said He.

To build an efficient public service platform for more than 20,000 high-tech companies in the city, different government divisions such as the finance bureau and science and technology bureau have formulated subsidies and stimulus policies to encourage innovative activities.

Sun Ming, chairwoman of the Chengdu Federation of Industry and Commerce, said another component driving development is the central government’s intention to promote urbanization and narrow the gap between the more industrial coastal cities and the underdeveloped interior and western frontier regions.

“Because the future of Chengdu’s economy will be decided by innovative breakthroughs in high-tech industries, local universities and vocational colleges have been quick to adjust their curricula to follow trends in the city’s changing job market and produce talented people with practical skills to fit into the teams in various small and medium-sized companies,” said Sun.

“This new economic shift has already made an impressive change, helping Chengdu’s high-tech companies reach more new marketplaces. They have managed well to ship their products to international and domestic destinations through well-developed international rail freight systems and air routes, as well as highways, in recent years,” Sun said.

China Bluestar Chengrand Chemical Co Ltd, which makes chemical materials for civilian and military use, is one of many Chengdu companies that reflect this trend. It expects to raise production capacity of para-aramid fiber by 10,000 metric tons next year.

The company now produces 1,000 tons of the strong, heat-resistant fiber annually. It is widely used in the aerospace industry – particularly to produce ballistic-rated body armor – bicycle tires, asbestos substitutes and disaster rescue equipment.

Supported by favorable policies such as tax cuts and new land use rights offered by the Chengdu government, as well as qualified local university graduates, Bluestar Chengrand has begun research on the project’s second phase. It plans to invest about 3 billion yuan ($486 million) in Chengdu to establish a production line for para-aramid and equipment to manufacture composite materials.

The expansion, with operations expected to start in 2015, will make the company the third-largest producer of para-aramid in the world after Wilmington, Delaware-based E. I. du Pont de Nemours & Co and Japan’s Teijin Ltd, Wang Fengde, vice-director of Bluestar Chengrand, said.

“Para-aramid fiber is used in the production of components for automobiles, airplanes and high-speed trains, of which western China produces a lot,” Wang said. “We will keep investing 10-15 percent of our annual sales into research and development every year, and we’ll also consider adding several new research labs and a department in Chengdu.”

The Chengdu-based company has received a high volume of orders and inquiries for the use of various new materials from traditional domestic factories in recent years, Wang said. They are interested in upgrading the technical content of their products. Interest has come from shipyards, garment factories, shoe manufacturers and tire producers in the Pearl River Delta, Yangtze River Delta and the Bohai Bay region.

Bluestar Chengrand’s revenue rose to 530 million yuan in 2013, up 20 percent from the previous year. It has over 500 employees, including 200 scientists and researchers in different departments. It has sold para-aramid to countries including Germany, France, Turkey, Spain and Italy last year, at relatively competitive prices.

Yahoo! to recruit new blood after student protest

Yahoo! will recruit 100 local employees after witnessing the younger generation’s potential amid the Sunflower Movement, Yahoo! Inc. Asia-Pacific region Senior Vice President Rose Tsou said yesterday.

This has been the second positive response from the business world following conclusion of the Sunflower Movement, the protest led by students who occupied the Legislative Yuan to show their disapproval of the Cross-Strait Trade in Services Agreement.

Tsou said that the Sunflower Movement provided a lot inspiration for her firm, especially after seeing how local students successfully used the Internet to generate tremendous energy.

That is an ability previous generations didn’t have, Tsou said.

When all industries are facing the impact of Internet development, this could prove to be either the best or most challenging era for young people, she added.

Tsou said that Yahoo! Inc. will be looking for talents from different fields, including advertisement, engineering and product planning.

According to the company, a summer internship will be launched to recruit roughly 20 people in order to form an elite team.

The company added that the interns will receive salary and benefits enjoyed by fulltime employees, but their project will also be evaluated based on standards for fulltime employees as well.

Tsou said that the Internet industry needs to keep improving in order to avoid being eliminated, and that Yahoo Inc. aims to become the largest company in the world.

According to Tsou, the company currently has over 1,000 employees in Taiwan, which makes it the largest Internet company on the island, and over half of its employees are between the ages of 25 and 34.

Tsou said that Yahoo Inc. has always been looking for people who can communicate and work well with others, adding that the company hopes to find young people who can think independently and perform well.

Huang An-chieh, chairman of the Accton Technology Corporation, recently said that the Sunflower Movement gave him the courage to reflect upon himself, prompting him to resign in order to allow others to take over.

Women on Boards in Taiwan

Taipei Financial Center Corp. Chairwoman Christina Sung became the first head of the newly established Women on Boards, aiming to push for new laws that will increase the number of female chief executives.

According to Sung, only 14 percent of chief executives in publicly traded companies are women.

Nine officials, scholars and business leaders also joined the organization, including Tsou, Pacific Sogo Chairwoman Huang Ching-wen and L’Oreal Taiwan Chairwoman Amy Chen.

Bank rules eased in Shanghai FTZ

China’s banking regulator has simplified administrative approvals and lifted the loan-to-deposit requirement for banks in the Shanghai free trade zone, allowing them to have greater flexibility in supporting business and testing the water for further financial reform, according to a report by Xinhua News Agency on Wednesday.

According to the new rules issued by the China Banking Regulatory Commission through its Shanghai branch on Wednesday, banks do not have to get approval from local banking authorities before setting up branches or appointing executives in the China (Shanghai) Pilot Free Trade Zone (FTZ), Xinhua reported.

Instead, they will be able to file with the authorities afterwards.

Furthermore, banks’ branches in the FTZ will not have to meet the normal loan-to-deposit requirement. Banks have also been advised to set up independent liquidity risk management systems and give necessary funding support for their lending business in the FTZ.

“The new regulations give banks more freedom to conduct business in the FTZ,” a Beijing-based banker told the Global Times Wednesday on condition of anonymity.

Normally, the establishment of new bank branches and appointment of executives requires approval from the regulator, and it can take a month for the executives to be officially appointed, he said.

Currently, banks are required to have a loan-to-deposit ratio of 75 percent, which means that they are only allowed to lend up to 75 percent of the deposits they have.

The ratio may vary among different branches, so long as the bank’s overall loan-to-deposit ratio meets the requirement.

Bank branches in first-tier cities like Beijing, Shanghai and Guangzhou have tighter limits, with loan-to-deposit ratios as low as 50 percent.

Under the new rules, bank branches in the FTZ may lend freely without the loan restriction, which will help free up more capital to support the local economy, the banker noted.

However, “the new practice could make it more difficult for the bank headquarters to balance the internal interests among branches within and outside the FTZ,” he said.

Scrapping the loan-to-deposit requirement could even help rein in shadow banking activities, he said, adding that a lot of off-balance-sheet lending or shadow banking activities are motivated by restrictions on bank lending.

The banking industry has long been calling for the elimination of the loan-to-deposit requirement, given the increasing pressure on attracting bank deposits amid interest rate liberalization and fierce competition from high-yield wealth management products offered by online financial service providers.

The loan-to-deposit requirement will be gradually phased out, and the pilot program in the FTZ will serve as a test ground for a nationwide rollout later, Guo Tianyong, a finance professor at the Central University of Finance and Economics, told the Global Times on Wednesday.

A total of 31 financial institutions including 20 foreign banks have registered with the FTZ, with total lending of 65.35 billion yuan ($10.6 billion) by the end of the first quarter, according to media reports citing the Shanghai banking regulator.

“The new rules are welcome,” Standard Chartered Bank told the Global Times in an e-mail on Wednesday. Standard Chartered has a sub-branch registered in the FTZ.

Clients want more transparent and efficient financial services, the bank said, adding that it hoped for further improvements in the FTZ.

The FTZ is developing a free trade account system to facilitate financial investment, Zhu Min, deputy director of the Shanghai FTZ administrative committee, said at the Boao Forum for Asia on April 11.

Key programs for the FTZ include easing the cross-border use of the yuan, liberalizing interest rates for loans, and facilitating offshore financing and outbound investment.

E-commerce driving demand for warehouses

An automatic distribution center, the largest in terms of daily handling capacities in Asia, will be in operation in July in Shanghai. To cope with the e-commerce surge, as much as $2.5 trillion may need to be invested in land and warehouses over the next decade and a half, one builder said.

Alibaba Group Holding Ltd’s plans for a giant initial public offering in New York highlight the vast potential for e-commerce in China – and the weak link the logistics industry must fix if those explosive growth projections are to be reached.

The aging warehouses that supply goods to customers across the world’s second-largest economy are already creaking under the strain, lacking the state-of-the-art technology that has fueled the rise of Amazon.com Inc.

By 2020, China’s e-commerce sector will be larger than those of the United States, Britain, Japan, Germany and France combined, KPMG reported. To cope with this surge, as much as $2.5 trillion may need to be invested in land and warehouses over the next decade and a half, one builder said.

That’s drawing the attention of global private equity firms like Blackstone Group LP and Carlyle Group LP.

“The real cost of building warehouses is going to be staggering,” said Jeff Schwarz, cofounder of Global Logistic Properties Ltd (GLP), the biggest foreign builder of logistics facilities in China. That translates to about 2.4 billion square meters of new warehouses – or two-thirds of the land mass of Taiwan.

Alibaba controls 80 percent of all online retail in China, and its logistics partners delivered 5 billion packages last year. While transport has kept pace with Alibaba’s rise, warehousing is in serious need of a makeover. Fewer than 20 percent of China’s warehouses are categorized as modern, with fully computerized tracking systems and the latest in retail technology, according to GLP.

And many facilities serving Alibaba and its peers are in areas that are tough for trucks to access. They often lack raised loading bays to let packages roll off conveyor belts: Instead, the vehicles are loaded by hand.

That can cut into profits. Despite China’s wages being much lower than those in the US, it can cost over twice as much to transport goods in China, GLP said.

Improving the logistics of China’s warehouses has been prioritized by none other than Alibaba cofounder Jack Ma. Last year, Alibaba announced plans to lead a consortium to invest $16 billion in the first phase of building a national logistics business, a unit of Alibaba to be chaired by Ma. Alibaba declined to comment for this article.

Alibaba’s efforts haven’t gone unnoticed. US e-commerce company ShopRunner, a rival to Amazon, will use Alibaba’s domestic logistics network when it launches in China later this year.

JD.com Inc, ranked second in China e-commerce, is also investing. In a filing for its own US listing worth up to $1.7 billion, it said it plans to spend up to $1.2 billion over the next three years to buy land and vehicles and to build warehouses.

Meanwhile, real estate developers such as China Vanke Co Ltd are diversifying into warehousing as a hedge against a faltering residential property market.

“China’s warehouse and logistics providers are trading at favorable valuations. In China, logistics space per capita is only 1/12th of that in the US, and providers stand to benefit as e-commerce expands,” said Tony Hsu, a portfolio manager at Dalton Investments.

So far this year, GLP has built 280 warehouses in China, creating about 2 million square meters of floorspace at a cost of $1.2 billion.

Blackstone, Asia’s largest private equity real estate investor, said it is in talks with several China real estate developers as it eyes the warehouse sector.

China to boost employment for college grads

Preferential policies will be granted to encourage college graduates to work at grassroots or start businesses in a move to boost employment, the State Council, China’s cabinet, announced on Tuesday.

Graduates that decide to work at grassroots will be provided with tuition compensation or a reduction in their student loan, the State Council said in a statement.

Small-sum guaranteed loans or subsidies will be given to new graduates to open online shops, it said. Small and micro businesses in technology will benefit from similar policies once they recruit a certain amount of college graduates.

According to the statement, state-owned enterprises are required to publish employment information on the Internet to safeguard a level playing field in recruitment.

The authority urged governments at all levels to give top priority to boosting employment among college graduates.

Figures from the Ministry of Education show 7.27 million university students will enter the job market this year, mostly in June and July. The number is 280,000 more than last year.

China has been confronted with a tough employment situation due to slowing economic growth, with an increasing number of jobless people, including college graduates and employees from sectors plagued by overcapacity.

Foreign developers seek partners, clients in China

Visitors to a property exhibition in Beijing last month inquire about an overseas project. Wealthy Chinese people are increasingly looking into foreign real estate investment opportunities.

Wealthy Chinese are increasingly looking for overseas real estate investment opportunities-so foreign developers are coming to China in search of clients and business partners, especially in the luxury-residential sector.

Chinese real estate companies’ overseas expansion affords individual investors a path to interests abroad, especially in developed countries with stable profit returns and a good natural environment.

“In past years, Chinese investors have not been very enthusiastic when I introduced real estate projects in Canada,” Neil Labatte, president and CEO of Talon International Development Inc, said. In the past six months, though, he’s taken many calls about buying into the Canadian housing market. It’s a “good sign of growing passion” from rich Chinese looking to spend dollars there as their focus shifts away from home, he said.

Shanghai-based international investor Greenland Group announced in March a 67,000 sq m project in Toronto, Canada’s largest city, as its latest overseas real estate acquisition. In the past year, Greenland announced deals in Australia, Malaysia, South Korea, Spain, Thailand, the UK and US.

Labatte said Chinese companies and individuals have accumulated enough wealth over past decades that many are now seeking out real estate services as part of their plans to establish businesses abroad. Individual investors who relocate outside China to settle or for work need to make a residential investment.

“There is a clear change of Chinese investors’ strategy in the Canadian real estate market,” said Labatte. “Families have been the majority of Chinese buyers of Canadian housing; usually for their kids’ education. They tended to buy large villas or luxurious apartments in high-end communities in the suburbs.” Now the purchases are of high-end downtown projects for both living and investment, he said.

Xu Dingmu, a businessman with a company headquartered in Beijing and employing 30 people, said his firm is opening a branch in Canada and he would like to purchase a floor in Toronto for office use.

“In the past, I would have preferred to rent a place, like we do in Beijing,” Xu said. “However, I plan to buy a floor because it will give me a stable profit return even if I close down the company there someday.”

He said the big time for China’s real estate market has passed and it’s not a bad idea to put some money into Canada if someone isn’t expecting huge returns from it.

Data from Jones Lang LaSalle Inc, an investment management firm offering specialized real estate services, show China’s outbound commercial real estate investments reached $7.6 billion last year, up 124 percent year-on-year. It estimated Chinese investors will spend more than $10 billion in 2014 in overseas commercial real estate markets.

Against that background, foreign developers are looking for Chinese partners to jointly seek out potential clients in China. Talon is the developer behind the Trump International Hotel & Tower Toronto, in the heart of Canada’s financial district.

Labatte is optimistic about the future of those projects, saying that the new rich generation in China has better taste and higher requirements for their housing.

“They want to be closer to vibrant city life with convenient facilities,” he said. “They want to have a luxurious lifestyle that a high-end project can provide – waiters, concierge, dining and party services included.”

He said Chinese investors are at the starting line of commercial real estate investment in Canada and the potential is huge.

At present, US and European investors lead commercial real estate investment in Canada. Chinese investors will follow rapidly, Labatte said.

“We are not here to only sell a project,” he said. “We are seeking Chinese developers to partner up” with.

He said many raw materials are imported from China for real estate construction, so Chinese companies’ strong network of contacts will benefit cooperation.

Jaguar’s joint venture integrates services

With their sights set on long-term development in China, Jaguar Land Rover and its local joint venture Chery Jaguar Land Rover Automotive Co Ltd announced the establishment of their integrated marketing sales and service organization on Friday.

The sales organization is jointly managed by both sides’ sales and marketing divisions. It will be responsible for the development and distribution of the Jaguar brand, Land Rover brand and Chery Jaguar Land Rover’s local brand in China.

Lu Yi, chief of staff at Jaguar Land Rover China, was appointed president of the sales organization, and will report directly to Bob Grace, president of Jaguar Land Rover China, Chery Jaguar Land Rover President Chris Bryant and Deputy President Zhu Guohua.

The organization consists of five functional structures: operations, after-sales, Jaguar brand, Land Rover brand and joint venture brand.

Lu was also designated as marketing, sales and service executive vice-president of Chery Jaguar Land Rover.

The sales organization proved both parties’ commitment to enhancing and expanding their operation in China, with the ultimate aim to satisfy the demands of Chinese consumers with high-quality products and services.

In the first quarter, Jaguar Land Rover China’s sales surged 36 percent year-on-year to 29,500 units. This stabilized its fourth position in the country’s luxury vehicle segment. The locally produced vehicles by Chery Jaguar Land Rover are expected to help the British brand grow further in the sector.

Jaguar Land Rover China and Chery Jaguar Land Rover will continue to implement far-reaching strategies for the China market. Both companies are firmly devoted to long-term development of the China market.

Ctrip’s quarterly profit drops 25 pct amid fierce competition

Ctrip.com International, which runs one of China’s major travel booking websites, Wednesday (US time) reported a 25 percent drop year-on-year in the net profit for the quarter through March amid domestic fierce competition in the country’s booming online tourism market.

In the first quarter, the company’s net profit was 115 million yuan ($19 million), falling for three consecutive quarters, according to a financial report posted on the NASDAQ. Its revenue jumped 36 percent year-on-year to 1.6 billion yuan.

Analysts attributed the profit slide to huge spending on promotion and acquisition over the period.

According to the financial report, total operating costs hit 1.06 billion yuan, a surge of 52 percent year-on-year. And expenses on sales and marketing activities in the first quarter increased by 61 percent to 430 million yuan from last year.

“Being confronted with increasingly heated rivalries in China’s online tourism market, Ctrip poured lots of money and effort into marketing so as to maintain its current leading position,” Wei Changren, general manager with Beijing-based Jinlü Consulting, told the Global Times Thursday.

Major Chinese online travel booking websites such as Ctrip, eLong and Qunar started a price war with each other last year, in an attempt to capture a leading position in the promising online tourism market, which is expected to reach 465.01 billion yuan in 2017, more than twice the figure of 220.46 billion yuan in 2013, read a report by Beijing-based market research company iResearch.

In July 2013, Qunar, backed by Baidu, one of China’s leading Internet companies, reportedly announced a promotion for hotel reservations during the summer vacation, offering clients 25 percent discounts on hotel room fees.

In December, Ctrip kicked off a similar activity for the whole month with up to 30 percent discount on room charges.

Ctrip also spent 200 million yuan on promotional efforts for its resort ticket purchase business in the first quarter of 2014, according to media reports.

Despite huge costs in marketing, the company still made a series of investments in its peers recently, indicating that its cash flow is in fairly good condition, Yang Yang, an industry analyst with iResearch, told the Global Times Thursday.

Ctrip is now ly.com’s second largest shareholder with the acquisition of a 30 percent stake in this Suzhou-based attraction ticket service provider for $200 million in late April.

It is also one of the anchor investors for Nanjing-based travel website tuniu.com in connection with its proposed IPO, eyeing tuniu.com’s edge in leisure package tour business.

According to financial reports, Ctrip has never suffered losses after getting listed in the US market, while its major rival Qunar has yet to turn into profitability. The NASDAQ-listed Qunar recorded a loss of 187 million yuan in 2013.

But Yang said that Qunar will threaten Ctrip’s predominant position in the OTA (online tourism agent) segment in the near future, as the former is starting to tap the market and has a stronger ability to bargain with off-line hotels and airlines due to support from Baidu.

Baidu is Qunar’s major shareholder, owning 61.05 percent of the company.

The OTA market, where online tourism websites run businesses like off-line traditional tourism agents, is promising, which was led by Ctrip in the first quarter with 51.9 percent, according to iResearch.

ELong came in second with 9.3 percent, ly.com ranked third with 6.2 percent.

Both Yang and Wei noted that Ctrip’s investment in peers could help it gain access to their user bases and even tap their competitive resources.

But the latter integration and cooperation may not go through smoothly, as its rivals may just want the capital injection and be unwilling to share core resources and technology with Ctrip, Yang said.

China has world’s 3 largest companies: Forbes

China became home for the first time to the world’s three biggest public companies and five of the top 10, according to the Forbes Global 2000 List released on Thursday.

Industrial and Commercial Bank of China (ICBC) held onto its No.1 spot for a second year, followed by China Construction Bank and Agricultural Bank of China.

The other two were Bank of China — another of the “Big Four” Chinese banks — and PetroChina, ranking ninth and tenth, respectively.

Chinese mainland and Hong Kong added 25 to the 2014 list, more than any other country, for a total of 207.

The United States accounted for the other half of the top 10 spots, and held onto its crown with 564 companies on the list. Japan trailed the U.S. with 225 companies in aggregate, despite losing 26 members this year.

The magazine said its Global 2000 is a comprehensive list of the world’s largest and most powerful public companies in terms of revenues, profits, assets and market value.

The 2014 list hailed companies from 62 countries, up from 46 in its inaugural 2003 ranking. In total, these companies raked in revenues of 38 trillion U.S. dollars and profits of three trillion with a market value of 44 trillion.

“The list presents an annual snapshot of the ever-changing global business landscape,” the magazine wrote.