Category Investing in China

China to encourage investment from green companies

The Chinese government is to encourage more foreign investment in energy-saving and environmentally-friendly industries, Vice Minister of Commerce Ma Xiuhong has said.

The government would also make more efforts to optimize the industrial structure of foreign investment, said Ma.

Foreign investors have invested 665 billion US dollars in China in the past 27 years, Ma said. By the end of last September, China had recorded capital from over 200 countries and regions and more than 800 research centers have been established by foreign companies.

Foreign investment played an important role in China’s economy, with taxes from foreign firms contributing 634.9 billion yuan (80.36 billion US dollars) last year, 21 percent of the country’s total tax revenue.

By the end of last year, foreign-invested companies were employing more than 25 million people, accounting for 11 percent of China’s total jobs.

Foreign companies are also encouraged to set up regional headquarters as well as purchase, logistics and training centers in China.

Hollywood to conquer Chinese home video market

Chinanews, Beijing, November 3 ¨C After its huge success in hitting box offices in China, Hollywood is ready to take Chinese home video market too.

Now Hollywood is working hard to release more DVDs in China. Currently at least 8,000 DVD shops have been set up in the country, and the number is likely to grow to 10,000 before 2007.

China¡¯s successful campaign against piracy has drawn Hollywood¡¯s attention and put its confidence back. Furthermore, the huge market needs for movies must be met after the eradication of pirated ones, thus it is a golden opportunity for copyrighted works to take their shares at reasonable prices.

Fortunately, Hollywood is determined to sell their DVDs at prices based on the consumption level in China, from 15 to 25 yuan.

Recruitment firms boost investment in China

Recruitment companies have increased their investments in China, according to a new study by the1, merger and acquisition (M&A) specialists for the human capital sector. The study identified a cumulative total of 156 investments in China by 106 foreign recruitment or human-capital groups over a 20-year period.

China as a whole – including deals made in Hong Kong – has seen a steady rise in the number of investments over the years. It saw a 70% boost in investments, from 40 transactions in the 1995-99 period to 68 in the post-2000 period.

However, the growth was faster (132%) for investments in mainland China (58 post-2000 versus 25 in the prior period), the first empirical evidence that foreign human-capital companies have stepped up their investment on the mainland.

“China is the human-capital sector’s number [one] opportunity long-term,” said Mark Dixon, a director of the1. “With a population of 1.3 billion, you don’t have to be a rocket scientist to do the math. It’s a numbers game, with some very big numbers.”

Explaining this shift in investor attitude, Dixon said, “People have been aware of the potential of the Chinese job market but most viewed ‘M&A for people businesses’ as too theoretical – the country, the culture and the prospect of profits all being too far off.
“But now we now seem to have passed a tipping point. Although the Chinese recruitment industry is nascent and impeded by red tape, profits are already being made. This has negated the old excuse in the industry that China should be left as a challenge for the next generation.”

Commenting on the maturity of the investment flow, Dixon said, “We haven’t entered a land-grab phase yet. In coming years, investors will move on from toe-hold investments to building national brands and large office networks across China. We’ll see them pour in real capital.

“Larger recruitment groups are starting to feel pressure from clients, institutional investors and boardrooms,” he said. “The result is clear. The attitude to China is moving from opportunity to obligation. Obsession may not be far away.”

Hong Kong

Hong Kong, which saw most of the early investment, has been receiving less attention. It attracted 10 transactions post-2000, compared with the 58 on the mainland during the same period. Hong Kong now is viewed more as a market in its own right rather than as the gateway to China. Companies wanting to capitalize on “the China opportunity” are discovering they need to be in China proper.

Cumulatively, Hong Kong has received 51 deals, compared with 105 on the mainland. Before Britain handed Hong Kong back to China in July 1997, the small territory attracted more human-capital-sector investments (53%) than the entire mainland. It is no longer where the action is. After the handover, a period that coincided with an investment flow into China from many countries and industries, the balance has switched – mainland China has attracted 82% of all deals.

This move inland is even seen among the pre-handover investors in Hong Kong themselves, who made 35 deals. Some 77% of these groups have subsequently expanded into mainland China.

Commenting on this trend, Dixon said, “Hong Kong used to be King Kong – the 800-pound gorilla on the Chinese human-capital stage, a sort of bouncer standing outside the stage door of China. Kong has now gone, at least in that capacity.”

Legal structures used

A range of different legal structures is being used by investors to operate in China, some on a solo basis and some with partners.

More than half (55%) of the investments involve the foreign company setting up a new subsidiary in China. This compares with 28% of investments in the form of representative offices. Just 17% are new joint ventures with a local partner or the partial acquisition of an existing local company (which results in effect in a joint venture after the transaction).

Regulations have allowed 100% foreign ownership of some categories of human-capital investment, notably human-resources consulting, rather than headhunting or recruitment, which have found it difficult to get licenses at any level of ownership.

Since October 2000, rules have been loosened, allowing 49% foreign participation of all categories. Joint ventures are thus becoming more popular. Just 17% of the total investment count for all periods, joint ventures accounted for 35% of investments since 2002 compared with a negligible 9% prior.

China not to witness qualitative change in economy in 2007, expert

Chinanews, Beijing, Nov. 1 – An economist from the Chinese Academy of Social Sciences said recently that China would not witness an qualitative economic change in 2007. Next year, the economic growth rate in China would be kept at around 10%, less than the 10.5% growth rate in 2006. Such economic slowdown was normal as the Chinese government tried to take some measures to control the macro economy. It would not indicate that Chinese economy would have some qualitative change next year.

The statement was made by Wang Tongsan, director of the Quantitative Economics and Techeconomics Research Institute under the Chinese Academy of Social Sciences, in an interview given to a reporter of the People¡¯s Daily Overseas Edition.

Wang said that normally, three situations might lead to a qualitative change in the economy: the eruption of wars, the occurrence of natural disasters, or some external influences such as the Asian financial crisis or oil crisis. So far, none of these situations has occurred in China.

Apart from the eruption of wars, China has taken some protective measures to prevent other negative factors from happening. As Chinese national strength has increased, China is more able to prevent natural disasters, Wang said.

He said that Chinese government had tried to control the economy so that it wouldn¡¯t fluctuate too severely. With twenty years of experiences, Chinese government is now more capable of controlling the macro economy. In theoretical field, China has gained plenty of knowledge about macro economic control, therefore, it has become more and more mature in exercising its macro control policies in practice. When one looks back on China’s economic changing trend in history, one will notice that the degree of economic fluctuation now becomes much smaller, unlike those in the 1980s or the 1990s when economic fluctuations could reach as large as five percentage points.

China to enhance beneficial co-op with ASEAN

NANNING, China, Oct. 31 – China is fully prepared to enhance mutually beneficial cooperation with the Association of Southeast Asian Nations (ASEAN), and will strive to become ASEAN members’ permanent good neighbor, good friend and good partner, the Chinese Premier Wen Jiabao said on Monday.

On the sidelines of the commemorative summit marking the 15th anniversary of China-ASEAN Dialogue Relations, Wen met separately with leaders from the Philippines, Singapore, Indonesia, Malaysia and Cambodia. The leaders recalled the development of China-ASEAN relations in such fields as politics, economy and trade, culture, and security, and pledged to enhance their friendly relations to a higher level.

China and the Philippines have selected agriculture, infrastructure construction and mineral resources exploitation as the top priorities for bilateral cooperation. China hopes that all the cooperation agreements in these fields will be fully implemented at an early date, Wen said while meeting with Philippine President Gloria Arroyo.

Singapore is China’s biggest trading partner among the 10 ASEAN members, and the two countries have carried out fruitful cooperation in recent years, Wen told Singapore’s Prime Minister Lee Hsien Loong.

Wen hoped that the China-Singapore cooperation project in the Suzhou Industrial Park would be further pushed forward, and that Singapore would take an active part in the economic cooperation in China’s coastal and inland areas.

Meeting with Malaysian Prime Minister Abdullah Ahmad Badawi, Wen proposed four priority areas to strengthen the friendly bilateral relationship.

The four areas include: to improve exchanges of high-level visits and increase political mutual trust, to launch a feasibility study on a closer economic partnership aimed at pushing forward the bilateral economic and trade cooperation comprehensively, to strengthen energy cooperation, and to reinforce joint efforts to combat transnational crimes.

Describing economic and trade cooperation the pillar for the development of China-Indonesia relations, Wen agreed with Indonesian President Susilo Bambang Yudhoyono that the two sides should work together to expand the two-way trade and mutual investment, and make more efforts to facilitate cooperation in the tourism industry.

Wen also told Cambodia’s Prime Minister Hun Sen that China would take more measures to contribute to Cambodia’s sustainable growth and to achieve win-win outcomes.

With closer economic and trade bonds, China will continue to help with ASEAN countries in their infrastructure construction, encourage Chinese enterprises to invest in the ASEAN market, and join ASEAN countries’ local economic development efforts, the Chinese premier told ASEAN leaders.

On the joint exploitation between China, the Philippines and Vietnam in the South China Sea, Wen said that the cooperation had yielded some results. He stressed that the three countries should strive to push for substantial progress in the future.

The joint exploitation is conducive to maintaining peace and stability in the South China Sea, and significant to enhancing mutual trust and cooperation between the three countries, Wen said, urging the three sides to hold consultations over the joint exploitation for the next phase so as to achieve substantial outcomes.

The ASEAN leaders agreed that their countries’ relations with China had gained momentum, and were willing to cooperate closely with China to achieve substantial development.

They said the China-ASEAN commemorative summit was an important event that would surely usher a new era in the development of the relationship between the two sides.

Renewed focus of trade

The adjustment of customs duties that is to take effect tomorrow marks a significant change in the way China prioritizes its trade sector.

As a fast-developing economy, China has benefited tremendously from its export-led growth during most of the past quarter of a century. However, no longer will the country put trade growth before everything.

The Ministry of Finance recently announced that the country decided to impose temporary tariffs on 110 exported goods and cut tariffs on 58 imported products since the beginning of November.

Clearly, this move shows that the Chinese authorities now attach more importance to external trade balance and domestic industrial restructuring than merely double-digit trade growth.

On the one hand, the hike of export taxes and the cut in import duties will definitely put a drag on the country’s soaring trade surplus.

Along with China’s rise as a global manufacturing power in recent years, value-added processing trade fueled by an accelerated inflow of foreign direct investment has hugely inflated the country’s trade surplus.

In the first nine months of this year, the country’s imports and exports increased by nearly one-fourth to hit US$1.27 trillion, generating a trade surplus of US$109.85 billion. This three-quarter net export exceeded that record-high annual trade surplus of US$102 billion in 2005, which had already more than tripled the US$32 billion in the previous year.

Given intensifying trade tensions with major trade partners like the United States and the European Union, which suffer a huge trade deficit with China, it is fairly reasonable for the Chinese Government to rein in the rapid growth of the trade surplus.

Such efforts will both help reduce imbalances in global trade and ease pressure a soaring trade surplus and inflow of foreign investment exert on the country’s monetary policy. The Chinese central bank has been trying to squeeze the credit supply to cool down economic growth, but a ballooning foreign exchange reserve has kept pumping liquidity into the domestic market.

On the other hand, by controlling the export of goods, the production of which involves the mass consumption of energy and resources as well as heavy pollution, the Chinese Government is sending a clear-cut signal to domestic industries that they must bid farewell to the extensive growth pattern for now.

In the past, as long as the trade sector could serve as a growth engine by creating jobs and a trade surplus, local governments did not pay much attention to the environment and resource costs of extensive trade growth.

Nonetheless, as the country is shifting away from a growth strategy that stresses speed towards a new one that focuses on sustainability, the country’s trade pattern also needs to undergo a fundamental change.

A customs duty that discourages energy-and-resource-intensive export is a needed step to push domestic enterprises to raise their energy efficiency and environmental awareness.

China Daily

IBM, Lehman create 180-million-dollar fund for investments in China

BEIJING (AFP) – Computing giant IBM and investment bank Lehman Brothers, both of the United States, said they had tied up to create a 180-million-dollar fund earmarked for investments in China.

The China Investment Fund will target mid-stage to mature public and private companies across several industries, the companies said at a joint briefing in Beijing.

Christopher Manning, managing director of Lehman Brothers Private Equity, said the two companies had capabilities that were “highly complementary.”

The partnership, which marks the first cooperation between the two, will bring together 90 million dollars and three support staff from each side to manage the fund.

Beyond funding, IBM and Lehman will also provide management and technology support to the companies in which they invest.

Manning said that Lehman Brothers currently has an investment group focused on China’s real estate market, a sector excluded from the China Investment Fund’s scope.

China’s auto market in fierce competition: ACNeilsen

SHANGHAI, Oct. 29 (Xinhua) — As automobile consumption soars, China’s auto market will see fierce competition among both domestic and foreign brands in the next few years, said a latest ACNeilsen report.

The fierce competition primarily lies between some traditional auto giants, who have been losing some of their market shares in China in the past two years, said the report by the world most authoritative market research company.

According to ACNeilsen’s report based on surveys in Beijing, Shanghai and Guangzhou, known as China’s three commercial hubs from north to south, the market share of Volkswagen suffered the sharpest decline.

The market share of the German brand has dropped from 35 percent in 2004 to 23 percent in the three cities.

The report said the market share of Shanghai General Motors increased by one percentage point to 7 percent during the past two years.

ACNeilsen said the largest winners in China’s auto market are Japanese cars, because they are designed and developed closely catering to market needs and their marketing strategies are also successful.

From 2004 to this year, the market share of Toyota in the three cities rose from 1 percent to 7 percent. Honda also managed to seized 6 percent of the market, but its market share was less than1 percent in 2004.

Chinese home-made cars are also acquiring larger market shares in China, said the report.

In Beijing, Shanghai and Guangzhou, China-made Chery cars accounted for 5 percent in the auto market.

How to do business in China

It is not surprising at all when many foreign investors complained when they do business in China. Many wondered why their years of experience in the business world could not be applied in China immediately. Doing business is about building mutual trust and benefit amidst establishing relationship with people. If you do not understand your counterpart well, it will be quite difficult to establish good cooperation with him/her. An old Chinese saying goes: know yourself and your enemy well and you can fight a hundred battles without any fear of defeat. This greatly emphasized the importance of knowing and understanding your counterpart.

Modern economic model differ greatly from the traditional one, whereby people in the past ‘fight’ till the last man standing. Today, people seek to achieve a “win-win” situation, and pursue long-term trade cooperation under a fair and healthy competition environment. Understanding factors such as China’s history, humanity and culture will be the key to investors’ success in China. As Western thinking and China’s traditional values do differ, encountering the culture differences is therefore inevitable, thus a better understanding of the cultural differences is necessary when doing business in China:

1. Learn how to handle Guangxi (relationship)

In China, Guangxi (relationship) is a complicated field. Establishing relationship with others does not mainly deal with achieving own self-interests or personal goals. A special feature of doing business in China will be that Guangxi (relationship) in China will have to include relationship with the government body, investors, partners and even relationship with your own staff. China government plays a large role in administrating the investment in China. This is because China is a socialist state; the economy is still largely controlled and managed by the government, so when doing business in China, it is important for foreign investors to learn to coordinate with the China government. At the same time, seeking a suitable local partner may be a shortcut and helping hand in developing your business in China market.

2. How to prevail over competition

China, at the moment, can be said to be a big, open market, and the ability to prevail over competition is a very important issue today. Investors should fully realize and maximize one’s advantages. Some investors are afraid that the China’s imitation products will hurt the sale of their products. Even though this symptom is worrying, however in a free and competitive market, it will always be one that has the superior quality that will not be afraid of competition and will prevail eventually. China market is constantly undergoing standardization, and the China government has vowed to protect the quality of the market.

The Vice-Minister of the Ministry of Foreign Trade and Economic Cooperation had previously stated in his speech that being a member of the World Trade Organization, China government will continuously rectify and standardize the economic structure of the market, and will persistently crack down illegal acts of producing counterfeit products. Technology level in China is still relatively lagging behind, thus foreign investors should fully make use of their advantages in technology and expertise to produce high-quality products and services. One should not be over worried about the negative impact brought about by new counterfeited products. Continuous development of one’s technology and emphasizing on innovation will be the key to success.

3. Route for Investment

There are three options to take when make investments in China, mainly: wholly foreign-owned enterprise, Chinese-foreign cooperative enterprise and Sino-foreign joint venture. Which option to take will have to depend on factors such as the investors’ investment direction, investment environment, and the amount of investment to be undertaken. Generally speaking, wholly foreign-owned enterprise require examination and approval from many government bodies and this process can be quite hassle and time-consuming. Government procedures for establishing Chinese-foreign joint venture and contractual joint ventures will be even more and the process will require even more from more government bodies. Thus Sino-foreign joint venture appears to be the ideal investment option as less governmental procedures and authorization time will be required. Possibility of encountering hiccups will be smaller.

Do you konw what kind of companies can be setted up in China?

There are three different business incorporation vehicles which can be utilised to do business in China. These are:
1. The utilisation of a representative office
2. Seeking a Chinese joint venture partner
3. Establishing a Wholly Foreign Owned Enterprise (WFOE)

Representative Office (RO):
A representative office is just a subsidiary of a foreign company in China. If your are looking for a company, which needs a local presence to manage services or coordinate outsourcing business activities or research developing Chinese market, then a representative office is useful and inexpensive vehicles for establishing a presence in China. Main purposes of a representative office are conducting market research, monitoring purchasing activities, marketing and sales administration for sales conducted between China and your parent company etc. Representative offices cannot write bill for service or sales to their clients in China. However, you can act like a liaison in matter of ordering, shipping, collecting money and so on.

Joint Venture:
Joint venture is business where a foreign firm goes into businesses with local Chinese partners. Joint venture is usually established to exploit the market knowledge, preferential market treatment, and manufacturing capability of the Chinese side along with the technology, manufacturing know-how and marketing experience of the foreign partner.

Wholly Foreign Owned Enterprise (WFOE):
These are 100% foreign owned companies, originally developed for the specific purpose of encouraging foreign investment in manufacturing for export in Special Economic Zones (SEZs) in China, and they were prohibited from selling to the Chinese domestic market. Since a recent change in regulations, from 1 December 2004, WFOE’s can now trade within China, and can sell wholly foreign manufactured goods in China. The capital requirements for such companies have also been dramatically reduced.