Category Investing in China

Bayer agrees Topsun purchase

German industrial giant Bayer said yesterday that its healthcare group had agreed to acquire Topsun Science and Technology’s over-the-counter cough and cold medicine business for 1.072 billion yuan (US$135.69 million).
Bayer said it would pay another 192 million yuan (US$24.30 million), subject to the fulfilment of certain performance criteria.

Topsun is one of the largest privately owned pharmaceutical firms in China. Its brands include White and Black, one of the leading cough and cold medicines on the Chinese market.

The transaction, which is now subject to the regulatory approval, will include the transfer of the Gaitianli manufacturing facility in Qidong, a city in East China’s Jiangsu Province, as well as the sales force and distribution network associated with the brands.

The transferred employees and assets will become part of Bayer Healthcare China Ltd and operate within its consumer care division.

“With this transaction Bayer HealthCare follows its global strategy to strengthen our over-the-counter business, as well as our presence in China, one of the fastest-growing over-the-counter markets,” said Bayer Healthcare Chairman Arthur Higgins.

Bayer Healthcare acquired Roche Consumer Health last year, making it one of the world’s top three over-the-counter businesses.
“The Topsun deal provides us with an entry into the very important cough and cold category in China. The transaction, which is expected to close within 2007, will double the size of our consumer health business in China and puts us within the top 10 over-the-counter companies in this important market,” said Gary Balkema, president of the Bayer Worldwide Consumer Care Division.
The over-the-counter medicine business is believed to have huge potential in China.

According to a study of China’s pharmaceutical industry issued in March by global consulting firm PricewaterhouseCoopers, sales of over-the-counter medicines accounted for less than one-fifth of the country’s pharmaceutical market. But it grew 11.2 per cent last year to US$4.2 billion, making it the fourth-largest over-the-counter medicine market in the world, as well as the fastest growing of all major economies.

Bayer Healthcare, with an annual growth rate of 30 per cent, is the fastest growing global pharmaceutical firm in China, according to US-based market consultancy firm IMS Health.

Commenting on the deal, Topsun Chairman Guo Jiaxue said the firms “intends to develop its modern Chinese medicine as its core business.”

Heirs of family enterprises start their own careers

Zhejiang University set up a special class to help 29 heirs of the family enterprises to build confidence and to gain experiences in management; however, none of them chose to go back to inherit the family heritage, but to start their own careers from scratch instead.

All the 29 graduates have started their own career. One started a game company, and all the other 28 found jobs in property, cars and Internet industries.

Wang Weixiao, an heir of a big hardware factory, now works in a car factory in Zhejiang. ¡°I don¡¯t want my career to be based on the achievement of my father,¡± said Wang. In fact, his father really wants Wang to help him, and the post of ¡°vice general manager¡± is left vacant for Wang.

The other reason for Wang to refuse his father¡¯s offer is that he doesn¡¯t like the atmosphere in the family enterprise, where all the important posts are taken by family members, and every decision must be based on an emotional basis. ¡°The ineffective organization of my father¡¯s enterprise really chokes me, ¡±concluded Wang.

EU paper puts China at centre of world affairs

Oct. 24 – The European Union (EU) has drafted a new strategy for its relationship with China, with the nation being described by senior EU officials as “having returned to the centre” of world affairs.

The EU’s executive Commission will release the new policy paper today.

In it China-EU relations are described as positive but there are also calls for a closer partnership, to deal with global challenges such as energy supply and sustainable development as well as smoother economic and trade co-operation.

“We both have a huge stake in effective multilateralism, and in international peace and stability across the globe,” said EU Trade Commissioner Peter Mandelson and External Relations Commissioner Benita Ferrero-Walder in a joint article for the International Herald Tribune newspaper.

“We have a shared responsibility to address climate change, sustainable development and energy security. We have a shared responsibility to work more closely on issues such as development assistance in Africa.”

They said that China’s economic success in the past two decades had “lifted more people out of poverty more quickly than ever in human history” and China had become “an increasingly active international player.”

The two EU officials will jointly present the policy document to the European Parliament today in Strasbourg, according to European Commission (EC) spokesman Stephen Adams.

The document, which will review China-EU relations over the past 10 years and map out a new strategic initiative for the 25-member bloc’s interaction with China, is accompanied by a policy paper on trade and investment, the EU’s first ever strategic paper solely focusing on trade and investment with China, said Adams.

On bilateral economic and trade ties, the joint article said “Europe has benefited from China’s market for advanced technology, high-value goods and complex services, and European consumers and businesses have benefited from competitively priced Chinese imports.”

“Europe should continue to offer open and fair access to China’s exports and to adjust to the competitive challenge,” they said, urging China to strengthen its commitment to economic openness and market reform.

“It (China) should improve legal protection for foreign companies and reject anticompetitive trading practices and policies,” they said.

China becoming a strong nation in developing biomedicine

Chinanews, Beijing, Oct. 23 ¨C According to information from the Ministry of Science and Technology, nearly 30 kinds of biomedicines developed by China have been put to clinical use. About 170 kinds of biomedicines are at the stage of clinical research. China can produce eight of the ten major biomedicines in the world. China¡¯s SARS and bird flu vaccines are among the best in the world. All this shows that China is becoming a strong nation in developing biomedicines.

Wang Hongguang, director of the China Biotechnology Development Center, says that China has already finished technology accumulation in biotechnological field. At present, China is able to develop and industrialize biotechnology at the same time. This is shown in the following aspects:

First, China is the world¡¯s largest producer and user of vaccines. By applying human vaccines, China has eradicated or curbed the spread of major contagious diseases such as malaria, plague and poliomyelitis, making great contributions in increasing people¡¯s life expectancy. In China, people¡¯s average life expectancy has increased from 37 in 1949 to the present 73, and the use of vaccines has played a very important role in this aspect.

Secondly, the use of hepatitis B vaccine has prevented 20 million new-born babies from contracting the disease, and saved 700 billion yuan of medical cost for the country. The research of hepatitis B vaccine, an effectual remedy for the disease, has entered into the second stage for clinical use. Animal tests show that the vaccine can kill the virus inside animal body, and it might help change the virus condition of humans from positive to negative.

Research of the AIDS virus will soon enter the second stage of trial clinical use. Research of the AIDS vaccine which has a curable effect on the disease is also being conducted, and will be put to trial use.

China is also the world¡¯s largest antibiotics and vitamins producer. The use of antibiotics such as penicillin has played an important role in preventing infectious diseases, and the use of vitamins in improving the health of its people.

The bird flu vaccine will soon enter the second stage of trial research.

China Gaining Ground in Global ‘Head and Brains Race’

COLUMBUS, Ohio, Sept. 29 /PRNewswire-FirstCall/ — Global competition, once defined by the Cold War arms race, has evolved into a “head and brains race” where nations measure success through the development and application of technology.

That was one of the conclusions from a Battelle-R&D Magazine report on international research and development trends. The report frames international competition as evolving from the arms race to a “hands race” based on lower-cost manual labor and now to the head and brains race driving the current escalation of R&D spending.

“It is tempting, and certainly reasonable, to acknowledge the fact that each of these races has involved a reliable adversary,” says Dr. Jules Duga, senior research scientist at Battelle and co-author of the report. “These adversaries continue to present challenges to the United States that can be met and conquered or accommodated only by long-term strategic investment and will.”

While the U.S. remains the standard-bearer in terms of worldwide R&D, China is emerging as an R&D giant. That trend will continue, the report projects.

The U.S. is responsible for 32.4 percent of global R&D this year, compared to 13.4 percent for China. Those numbers were first and second, respectively, worldwide but represent a decline for the U.S. and an increase for China. The same trend will continue in 2007, according to the report, when the U.S. will be responsible for 31.9 percent of global R&D and China 14.8 percent.

“There still is a considerable gap,” says Duga, “but it’s closing.”

With China leading the way, Asia continues to seize more and more of the international R&D market. Asia’s share of global R&D grew from 34.9 percent in 2005 to 35.6 percent this year and should continue to grow to a projected 36.5 percent in 2007, according to the report. The U.S., over the same period, has declined from 32.7 percent to 32.4 percent this year and is projected to dip to 31.9 percent next year.

Changes in government attitudes, direct government investments, liberalization of their economies, and an increased emphasis on developing a highly educated, technology-oriented population are some of the factors leading to the R&D growth in Asia. These also are reasons why industry from all over the world is changing the way it develops relationships with the R&D communities from these burgeoning countries. The first steps could be characterized as casual, “testing-the-waters” interactions that included preliminary contract research arrangements. These quickly have evolved into major investments in institution-building, the creation of subsidiary operations, and the development of a wide range of joint ventures.

“It is apparent that the modifications in the internal policies of East and South Asia, in particular, have had and will continue to have an influence on the amounts and patterns of R&D performance in the U.S. and other nations,” says Tim Studt, editor of R&D Magazine and Duga’s co-author on the report.

Outsourcing of R&D has been a growing trend and will continue to grow as long as the cost of doing business makes sense for U.S. companies, concludes the report. The lower costs in most areas, especially China and India, enhance the competitive position as compared to other (usually domestic) resources and lead to measures of higher productivity. When other advantages, such as enhanced global R&D infrastructure and improved support for other global operations, are considered, the value of outsourcing becomes apparent, says Duga.

“Host countries like China and India have come well down the road in terms of providing a technology-friendly environment,” Duga says.

Battelle has prepared a report on U.S. R&D funding annually for more than 40 years, including the last 12 in partnership with R&D Magazine. Duga has co-authored that forecast for 27 years. This is Battelle’s second comprehensive report on international R&D spending.

The full report is included in the September issue of R&D Magazine. Reprints are available by contacting Battelle’s Jean Hayward at (614) 424-7039 or at haywardj@battelle.org.

Battelle is a global leader in science and technology. Headquartered in Columbus, Ohio, it develops and commercializes technology and manages laboratories for customers. Battelle, with the national labs it manages or co- manages, oversees 20,000 staff members and conducts $3.4 billion in annual research and development. Battelle innovations have included the development of the office copier machine (Xerox); pioneering work on compact disc technology; fiber optics for telecommunications; development of new medical products to fight diabetes, cancer and heart disease; breakthroughs in environmental waste treatment; homeland security technologies; and advancements in transportation safety and security.

IBM to move procurement HQ to China

IBM said on Thursday it would move its global procurement headquarters from New York to China in an endorsement of the country’s ever-growing role as a supplier to the global economy.

The company said John Paterson, its chief procurement officer, had relocated to Shenzhen, the Chinese special economic zone that borders Hong Kong.

It is the first time the company has moved the headquarters office of a global unit outside the US.

The company said the move would not affect staffing levels in the US, where it employs about 2,500 people in its procurement operations.

IBM has operated a China procurement centre in Shenzhen for more than 10 years, and also established a PC manufacturing joint venture there in the early 1990s.

The company sold its PC business to Chinese rival Lenovo two years ago and has also hived off its hard-drive business to Hitachi, but it still maintains a large sourcing operation in Asia.

IBM says it spends about 30 per cent of its $40bn annual procurement budget in Asia, and also employs more than 1,850 procurement and logistics staff in the region.

Shenzhen has successfully attracted investment from a large number of multi-national IT companies, as it seeks to upgrade its industrial base.

The government has actively encouraged low-tech industries to move out of the zone, to cheaper locations inland.

Shenzhen raised its mandatory minimum wage rates by up to a quarter earlier this year in a bid to accelerate the flight of labour-intensive businesses.

While rising labour and other costs in Shenzhen are also a concern for high-tech investors such as IBM, these are mitigated by a dense network of component suppliers that have taken root in the Pearl River Delta, as well as the region’s first-rate infrastructure.

Shanghai aims to be China’s Detroit

By Brian Schwarz

SHANGHAI – In its quest to make this city China’s auto-manufacturing capital, the municipal government is increasing investment in the Shanghai International Automobile City, according to local media reports.

Analysts say Shanghai has a competitive edge over rival Chinese cities in automobile manufacturing. However, they also caution that Shanghai’s ambition to become China’s Detroit could be hampered by worsening overproduction at home and growing trade tensions with potential importers of Chinese-made cars.

The Shanghai Daily reported that the municipal government has set the goal of turning Auto City, in the Anting area of the city’s western district of Jiading, into a multi-functional regional hub with an additional investment of 38 billion yuan (US$4.75 billion) or more in the run-up to 2010 and bolstering its research and development capacity.

The additional investment in the manufacturing park could encourage car makers such as Shanghai Automotive Industrial Corp (SAIC) and Shanghai Volkswagen to increase production to 500,000 vehicles per year. Zhou Bin, manager of the planning department of Shanghai International Autocity Development Co Ltd, expects Auto City to generate 300 billion yuan worth of automobile trade revenue annually.

With the introduction of a new Formula One racetrack, Auto City has made significant progress. During the past five years, 184 industrial projects have commenced, with investment from 100 auto-part makers. A few weeks ago, for example, SAIC, China’s second-biggest auto maker, began construction on a new automobile research institute, which is intended to help the firm develop self-branded models and new-fuel vehicles. Tongji University, which helped develop China’s first fuel-cell sedan, has also moved its automobile research department to Anting.

And it’s not just domestic producers using the auto park to their advantage. Auto City also hosts foreign parts suppliers such as Delphi and Visteon, both of which work in close cooperation with DaimlerChrysler AG and General Motors Corp in China.

Shanghai’s competitive edge

With overcapacity looming in the domestic market and trade tensions simmering with Western trading partners, some may question Shanghai’s ambitions. While it enjoys a superior location, the metropolis has comparatively high labor costs and high real-estate prices.

And other Chinese cities are racing ahead in search of greater auto investment. How do Shanghai’s capabilities compare with those of other cities such as neighboring Nanjing and the southern manufacturing center of Guangzhou?

Jeff Lin, a principal at Booz Allen in Greater China, says Shanghai has many hidden factors that make it an attractive location. With its international outlook and competitive energy, there is an emphasis on quality among Shanghai residents. Compared with inland Chinese cities, it enjoys superior infrastructure, such as the new Yangshan deep-water port, and a location to serve export markets in the region.

Shanghai is also home to many key suppliers, such Baoshan Iron and Steel, and is close to the fast-growing Yangtze Delta region. Baosteel is considered one of the most competitive steel producers in the world and has expanded its cooperation with FAW-Volkswagen.

Lin says Shanghai also holds an advantage in developing new engineering and management talent. With many industries suffering from a lack of experienced auto professionals, Shanghai universities, on average, have a better pool of young talent than Nanjing and Guangzhou.

“We have attracted car manufacturers and auto-part makers to build plants here and have laid a solid foundation for the development of Shanghai’s auto industry,” Auto City’s Zhou Bin told the Shanghai Daily.

Overcapacity looms

China’s central government has identified the auto industry as a “pillar” of the nation’s economy and offers incentives and protections to domestic producers. And to encourage the growth of local brands, Beijing announced plans in late June to offer low-interest loans to domestic car makers and aims to lift the share of Chinese nameplates to 60% by 2008, from 20% today.

“Years of large investments in the market have made China a top global auto-manufacturing hub behind the United States, Europe and Japan. The manufacturing strength will be enhanced further,” said Wang Liangfeng, an analyst with Shanghai-based Autobeat Consulting firm.

By the end of this year, China is expected to become the world’s third-largest car maker, following the US and Japan, according to a report released by Polk Marketing Systems. Government policy will also play a role in the nation’s efforts to become a world-class auto exporter.

Sales of Chinese-made cars are climbing both at home and abroad. Despite higher consumption taxes on big-engine cars, rising gasoline prices and stricter bank lending policies, passenger-car sales soared 50% during the first six months of 2006 over the same period a year ago, with second-tier cities such as Chengdu and Chongqing in the southwest leading the way. At the same time, China’s exports of automobiles doubled in 2005 to $1.58 billion, according to government figures.

However, while China’s auto industry has made significant progress in recent years, serious production overcapacity and falling prices are bound to take their toll. The government warned this year that the country was on course to produce twice as many cars as it needs.

China’s annual auto-production capacity, now at 8 million units, has already exceeded anticipated sales of 5.5 million units this year. And the government estimates that motor-vehicle production will hit 20 million units in 2010, more than double the expected sales of 9 million units.

Booz Allen’s Lin predicts that this overproduction will lead to a shakeup in the industry, with many inefficient players either consolidating or going out of business.

Overproduction may not translate into a greater reliance on export markets, which could increase trade tensions, but it certainly will put downward pressure on global prices.

Growing trade tensions

In 2004, China’s vehicle exports exceeded imports for the first time, as 172,800 units went overseas. But in mid-September this year, China’s Chery Automobile was forced to delay its ambitious plan to export cars to the US. In cooperation with maverick entrepreneur Malcolm Bricklin, the firm now hopes to send cars to the very competitive US market beginning in 2009, two years behind its original target date.

According to a recent report in BusinessWeek, Detroit-based Chrysler has been in discussions with Chery about the possibility of jointly manufacturing a small car. Chery produces 400,000 vehicles a year and plans to increase production by 1 million vehicles per year.

With the top Chinese auto makers making plans to export more to the West, trade officials are starting to raise concerns. Although import duties have dropped significantly since China joined the World Trade Organization in 2001, foreign auto makers are limited to a 50% stake in Chinese producers for the domestic market, while there is no limit on ownership of export operations. Government support for local auto makers is raising the eyebrows of WTO officials and creating friction among trading partners.

Last month, trade officials from the US, the European Union and Canada formally petitioned the international trade body to prohibit Chinese duties on imported car parts, which they say are hampering foreign car makers in China. The complaint alleges that the government requires foreign car makers to buy at least 40% of their parts from local suppliers or pay almost double the import duty applied to assembled vehicles. Under Chinese rules, imported auto parts making up more than 60% of the value of a car are subject to a 28% tariff, which is the same duty imposed on complete new cars.

And while many other labor-intensive industries have done well by exploiting the country’s low labor costs to export at a rock-bottom prices, the auto industry does not lend itself to a so-called “China price”, at least not in the near future, according to Susan Helper, an economics professor at Case Western Reserve University’s Weatherhead School of Management in the US state of Ohio.

In a recent Warton University e-newsletter, Helper notes two differences between autos and many other labor-intensive industries, such as textiles, that China has come to dominate. Unlike clothing or electronics, shipping costs are significant when it comes to autos, which include more “dead airspace”. Hindering the Chinese auto industry’s efforts to become a low-cost producer are commodity prices and the costs of developing automotive technology and research capability.

All these pose big challenges to the Shanghai government’s ambition to turn the largest commercial metropolis of China into a new Detroit. The city in the US state of Michigan has ridden the auto industry’s boom-and-bust cycle for generations. Now, if local government planners get their way, Shanghai is poised to join the ride.

Brian Schwarz is an American freelance writer and corporate trainer based in Shanghai.

China: Investment curbs paying off

Updated: 2006-10-17 07:11

BEIJING — China’s efforts to curb runaway expansion in some industries are starting to pay off, but fixed-asset investment growth remains too rapid, the country’ top economic planning official said in remarks published on Monday.

Ma Kai, head of the National Development and Reform Commission, said curbing the launch of new investment projects remained the main focus of the broad array of macro-control measures that Beijing was deploying.

In a speech made on Friday and posted on the agency’s Web site, Ma said the economy was in good shape but the country faced some striking problems: fixed-asset investment and credit were still expanding too fast, while the trade surplus was too large.

“The government has taken a series of timely macro-economic measures and these measures have initially helped contain the momentum of blind expansion in some industries, but the problem of overcapacity has yet to be fundamentally resolved,” the top economic planner Ma said.

Excess capacity in sectors such as steel, alumina, coking and autos showed no let-up, while risks remained for overinvestment in other industries including coal, power and textiles, he said.

Fearful that overcapacity could wipe out profits and deluge banks with new bad loans, the government has taken a raft of measures to cool some fast-growing sectors.

Investment growth slowed in August, but Ma said the authorities needed to keep tight controls on bank credit and land supply while implementing tougher environmental and safety standards.

“The top priority of macro-economic policy is to strictly control the launch of new projects,” Ma said.

Toward that end, the central government has dispatched six inspection teams to the provinces to spearhead a drive launched in early August to scrutinize new projects, he said.

Half of all new coking industry investments flouted government rules, Ma said. The figure for coal was 42 percent, for cement 35 percent, for electricity and steel 26 percent and for textiles 22 percent, he added.

Echoing Ma’s comments, Cheng Siwei, a top legislator, was quoted by the official Xinhua news agency as saying that overly rapid investment and credit growth and the swelling trade surplus were the biggest concerns for China’s economy.

The underlying source of those imbalances was the country’s overly high savings rate, which pushed interest rates down and fueled capital spending, said Cheng, who is vice-chairman of the standing committee of the National People’s Congress.

That, in turn, was largely the result of the social security system being relatively underdeveloped, he was quoted as saying.

Michael Moritz goes “oo” in China: Qihoo, Yahoo, Google

Sequoia and its lead venture capitalist Michael Moritz have got quite a tangle of interests over in China.

Yahoo China (operated by Alibaba.com) has filed a lawsuit against Sanjiwuxian, the owner of a Chinese search engine called Qihoo, on grounds of unfair competition. Qihoo is backed in part by Sequoia Capital.

Qihoo’s software has been telling users that Yahoo’s toolbar is malware and prompts deinstallation, according to the lawsuit, and has taken a cut of Yahoo toolbar’s market share. (Ironically, points out John Battelle, a search for “Qihoo” in Google produces the spelling correction “Did you mean: Yahoo?”.)

Sequoia Capital, an early backer of Google, where Moritz is on the board, helped pour $20 million into Qihoo, which we reported here. Google’s getting some indirect help here, if Qihoo is badgering Yahoo. Finally, remember that Moritz made his name by backing Yahoo. Eventually, he faced conflict while on the boards of both Google and Yahoo, and had to leave Yahoo’s board to resolve it.

Update: There’s an unconfirmed yet interesting comment below suggesting there may be more to this. And we forgot to mention Sequoia poached Fan Zhang, a former director of DFJ’s China operations, who’d helped invest in Baidu, the other big search player in China. So it is full circle.

Chinese property market still attractive to foreign investors

Chinanews, Beijing, Oct. 12 ¨C Foreign investment activities in Chinese property market reached a climax during the first half of this year. According to Daily Economic News, a report titled “Globalization Leads to Investment Boom” and released by Jones Lang LaSalle, a world real estate services and money management firm, shows that as a burgeoning market, China remains attractive to foreign investors. During the first half of this year, direct investment in Chinese real estate market reached 4.75 billion US dollars, doubling the figure of the corresponding period of last year. The first-tier cities such as Beijing and Shanghai have become foreign businesspeople¡¯s most favorable places for making investments.

Global funds management companies have placed a large amount of their money into the Shanghai property market. By September 2006, 15 buildings had been entirely sold to one company. Transaction volume of these buildings reached 1.8 billion US dollars, most of the buyers being foreign investing companies based in the United States, Europe and the Asia-Pacific region. Among these 15 buildings, seven are luxury hotel-style apartments or high-class residential houses later renovated into hotel-style apartments. Insiders say the best time has come for investors to buy luxury hotel-style apartments located in a good place in Shanghai, and their rents are climbing steadily.

Senior manager in Jones Lang LaSalle’s China office Deng Wenjie predicted that multinational companies would continue to expand their business in China. As China further opens its finance sector, more A-class offices will be in demand. As the number of foreign staff workers increases in China, it will stimulate the demand for luxury hotels and hotel-style apartments. Meanwhile, people¡¯s increasing disposable income and the ever-expanding middle class group will benefit domestic shopping malls greatly. As the market becomes more transparent, it will attract more foreign investment.

He also predicted that during the latter half of this year, more transaction deals would be clinched in China. Foreign investors who have a clear investment plan will further increase their investment in China. As competition becomes fierce in the first-tier cities, investors will shift to the second-tier cities to seek for gains.