Category Investing in China

China Ranks Among In Top Ten For Reforming Business Practices

Jacob Cherian – All Headline News Staff Writer
Beijing, China (AHN) – The Doing Business Report 2007 created by the World Bank and International Finance Corporation (IFC) reveals that China is now one of the ten top business reformers among 175 nations following speedy reforms in the country during the past year.

The report confirms that China has executed reforms to make it easier to set up business registrations and also make deals. It has also made efforts in making credit more accessible as well as protecting investors. The rate of reforms in China is now marked first in East Asia and Pacific region, not to mention a fourth-ranking in the world.

The Corporation Law in the country is now upgraded and the time for business registration has been modified from 48 to 35 days. The minimum confirms starting a business has been altered from 947 percent of per capita income to 213 percent. Furthermore, China has also strengthened deals made within the country and increased security measures for investors.

China now has a consumer credit information system. Banks are able to consult the records of the nations’ 340 million before handing out loans.

Also, the new customs application procedures over the Internet has decreased the time it takes for imports and exports to get through customs by two days.

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 Guanxi (relationship)

In China, Guanxi (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 Guanxi (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.

China is Nasdaq’s fastest source of growth in new listings, executive says

SHANGHAI, China Chinese companies are the Nasdaq’s biggest source of new listings and don’t appear to be discouraged by stricter legal requirements, the U.S. exchange’s international president said Wednesday.

Mainland Chinese companies now account for 29 of about 3,300 companies listed on Nasdaq, said the president of Nasdaq International, Charlotte Crosswell, in an interview in Shanghai.

The exchange also lists around 50 firms from Hong Kong, a Chinese special autonomous region, putting China third behind first-place Israel and second-place Canada in having the most non-U.S. listings on the Nasdaq, Crosswell said.

“Obviously the growth is coming from China, and that’s where we’re really seeing the pipeline expand, in terms of numbers of companies coming to market,” said Crosswell, who was in China’s commercial hub to encourage the parade of new Chinese firms marching toward listings on America’s largest electronic stock market.

The growth comes despite the potential disadvantage American exchanges face from the relatively strict rules on reporting and corporate governance required by the U.S. government.

Nasdaq President and CEO Robert Greifeld earlier this month said efforts to attract international listings have been hampered by the Sarbanes-Oxley Act, which took effect in 2002 in response to several U.S. corporate scandals.

However, Crosswell said Chinese companies tell her the regulatory hassles are offset by the added trust from investors. Chinese firms also have comparatively little difficulty implementing the requirements because they are often too young to have developed rigid corporate structures, she said.

“They believe it’s a good thing to have,” Crosswell said. “They’re actually very happy they can prove they can comply with it because they think that’s a good story for investors.”

As part of its expanded presence in China, Crosswell said Nasdaq was now advising firms that were still two to three years away from listing. It formerly worked mainly with companies that were much closer — usually six months to a year — from listing on the exchange.

While Nasdaq listings from China have traditionally come from the high-tech sector, they are now hailing from increasingly diverse industries, including services, manufacturing, health care and media, she said.

Business has also been boosted by agreements with the governments of Zhejiang and Jiangsu, two of China’s most economically dynamic provinces, to steer local companies toward Nasdaq listings.

Crosswell declined to give a figure on numbers of upcoming new listings or any other specific business plans in China, but she said growth was accelerating.

“It’s really starting to pickup,” she said. “It’s certainly our fastest growing market.”

Crosswell said the Nasdaq doesn’t seek to compete with local stock markets and prefers to encourage firms to launch dual listings at home and in the United States.

Internationally the exchange continues to view the New York Stock Exchange as its chief rival, she said.

Along with competing to draw foreign listings, the Nasdaq and NYSE have become rivals in expanding overseas in a first wave of consolidation in global stock markets.

Nasdaq amassed a 25 percent ownership stake in the London Stock Exchange, Europe’s biggest market, after the LSE rejected Nasdaq’s initial US$4.2 billion takeover offer in March.

SHANGHAI, China Chinese companies are the Nasdaq’s biggest source of new listings and don’t appear to be discouraged by stricter legal requirements, the U.S. exchange’s international president said Wednesday.

Mainland Chinese companies now account for 29 of about 3,300 companies listed on Nasdaq, said the president of Nasdaq International, Charlotte Crosswell, in an interview in Shanghai.

The exchange also lists around 50 firms from Hong Kong, a Chinese special autonomous region, putting China third behind first-place Israel and second-place Canada in having the most non-U.S. listings on the Nasdaq, Crosswell said.

“Obviously the growth is coming from China, and that’s where we’re really seeing the pipeline expand, in terms of numbers of companies coming to market,” said Crosswell, who was in China’s commercial hub to encourage the parade of new Chinese firms marching toward listings on America’s largest electronic stock market.

The growth comes despite the potential disadvantage American exchanges face from the relatively strict rules on reporting and corporate governance required by the U.S. government.

Nasdaq President and CEO Robert Greifeld earlier this month said efforts to attract international listings have been hampered by the Sarbanes-Oxley Act, which took effect in 2002 in response to several U.S. corporate scandals.

However, Crosswell said Chinese companies tell her the regulatory hassles are offset by the added trust from investors. Chinese firms also have comparatively little difficulty implementing the requirements because they are often too young to have developed rigid corporate structures, she said.

“They believe it’s a good thing to have,” Crosswell said. “They’re actually very happy they can prove they can comply with it because they think that’s a good story for investors.”

As part of its expanded presence in China, Crosswell said Nasdaq was now advising firms that were still two to three years away from listing. It formerly worked mainly with companies that were much closer — usually six months to a year — from listing on the exchange.

While Nasdaq listings from China have traditionally come from the high-tech sector, they are now hailing from increasingly diverse industries, including services, manufacturing, health care and media, she said.

Business has also been boosted by agreements with the governments of Zhejiang and Jiangsu, two of China’s most economically dynamic provinces, to steer local companies toward Nasdaq listings.

Crosswell declined to give a figure on numbers of upcoming new listings or any other specific business plans in China, but she said growth was accelerating.

“It’s really starting to pickup,” she said. “It’s certainly our fastest growing market.”

Crosswell said the Nasdaq doesn’t seek to compete with local stock markets and prefers to encourage firms to launch dual listings at home and in the United States.

Internationally the exchange continues to view the New York Stock Exchange as its chief rival, she said.

Along with competing to draw foreign listings, the Nasdaq and NYSE have become rivals in expanding overseas in a first wave of consolidation in global stock markets.

Nasdaq amassed a 25 percent ownership stake in the London Stock Exchange, Europe’s biggest market, after the LSE rejected Nasdaq’s initial US$4.2 billion takeover offer in March.

SHANGHAI, China Chinese companies are the Nasdaq’s biggest source of new listings and don’t appear to be discouraged by stricter legal requirements, the U.S. exchange’s international president said Wednesday.

Mainland Chinese companies now account for 29 of about 3,300 companies listed on Nasdaq, said the president of Nasdaq International, Charlotte Crosswell, in an interview in Shanghai.

The exchange also lists around 50 firms from Hong Kong, a Chinese special autonomous region, putting China third behind first-place Israel and second-place Canada in having the most non-U.S. listings on the Nasdaq, Crosswell said.

“Obviously the growth is coming from China, and that’s where we’re really seeing the pipeline expand, in terms of numbers of companies coming to market,” said Crosswell, who was in China’s commercial hub to encourage the parade of new Chinese firms marching toward listings on America’s largest electronic stock market.

The growth comes despite the potential disadvantage American exchanges face from the relatively strict rules on reporting and corporate governance required by the U.S. government.

Nasdaq President and CEO Robert Greifeld earlier this month said efforts to attract international listings have been hampered by the Sarbanes-Oxley Act, which took effect in 2002 in response to several U.S. corporate scandals.

However, Crosswell said Chinese companies tell her the regulatory hassles are offset by the added trust from investors. Chinese firms also have comparatively little difficulty implementing the requirements because they are often too young to have developed rigid corporate structures, she said.

“They believe it’s a good thing to have,” Crosswell said. “They’re actually very happy they can prove they can comply with it because they think that’s a good story for investors.”

As part of its expanded presence in China, Crosswell said Nasdaq was now advising firms that were still two to three years away from listing. It formerly worked mainly with companies that were much closer — usually six months to a year — from listing on the exchange.

While Nasdaq listings from China have traditionally come from the high-tech sector, they are now hailing from increasingly diverse industries, including services, manufacturing, health care and media, she said.

Business has also been boosted by agreements with the governments of Zhejiang and Jiangsu, two of China’s most economically dynamic provinces, to steer local companies toward Nasdaq listings.

Crosswell declined to give a figure on numbers of upcoming new listings or any other specific business plans in China, but she said growth was accelerating.

“It’s really starting to pickup,” she said. “It’s certainly our fastest growing market.”

Crosswell said the Nasdaq doesn’t seek to compete with local stock markets and prefers to encourage firms to launch dual listings at home and in the United States.

Internationally the exchange continues to view the New York Stock Exchange as its chief rival, she said.

Along with competing to draw foreign listings, the Nasdaq and NYSE have become rivals in expanding overseas in a first wave of consolidation in global stock markets.

Nasdaq amassed a 25 percent ownership stake in the London Stock Exchange, Europe’s biggest market, after the LSE rejected Nasdaq’s initial US$4.2 billion takeover offer in March.

Case study: Smiths Group – doing business in China

Clint Witchalls, Computing Business 21 Sep 2006

John Lytle the chief technology officer (CTO) of Smiths Group, a global engineering company, needed to expand his networking capabilities into China after the company entered the region.

China represents an increasingly important area of business both as a manufacturing location and a sales hub, according to Lytle.

‘We have made a strategic decision to go into China, driven by the size of the opportunity in that market as it emerges as a global consumer,’ says Lytle. ‘China represents a huge opportunity for most multinational corporations. We just can’t ignore it.’

As China opened its markets, Smiths moved in to explore where China stood from a business and consumer standpoint. ‘Historically, we’ve had a few small operations there,’ says Lytle. ‘Mostly they were joint ventures, low-cost manufacturing centres, but we are now opening our Asia-Pacific corporate headquarters in Shanghai. The purpose of that office is to grow our presence there as a producer, as a consumer, as a supplier.’

But doing business in China is not always plain sailing. The Chinese have a concept called guanxi (pronounced gwon-shee), which roughly translates as ‘relationships.’ To get things done in China, personal connections matter a great deal, but developing them takes time. In China, they cannot be hurried.

‘From a networking standpoint, you have to work with someone who has done it before,’ says Lytle. ‘You cannot assume that you can walk in there and get things done as quickly as you can in other markets. You need to work with people who know how to get things done in China.’ These people are often referred to as old China hands.

Patience is a key virtue if you want to succeed. Not only because of guanxi, but also because the country is still suffering growing pains. ‘There are some place we can’t go, not because the Chinese government won’t let us, but because the infrastructure cannot support the levels of rapid expansion,’ says Lytle. ‘So we have to move somewhat slowly as the government builds their infrastructure.’

Another challenge Lytle faced was IT security – one of China’s key weaknesses. ‘We do a lot of defence aerospace work with a number of different governments, so we have concerns around security of intellectual property,’ says Lytle. ‘Security concerns are being pressed on us by our other government customers, so we have to isolate our Chinese business from the rest of the organisation.

‘We have to set up a firewall between China and the rest of our organisation, just to assure other governments that Chinese nationals will not have open play into our virtual private network. So far, it’s been successful, but we are constantly monitoring traffic to know what is going on and to ensure the firewall is not being breached.’

Lytle’s recipe for working successfully in China is to move very slowly and do a lot of due diligence. ‘It does not hurt to get your feet on the ground and look around,’ says Lytle. ‘You cannot assume that from a couple of conversations or a few written articles, you can understand what goes on there.’

Record number of large enterprises in China

With an increase of 81, the number of large enterprises in China last year reached 2,845. These companies have combined assets of more than 20 trillion yuan, and grew 18.5 from 2004. These enterprises have also witnessed a 23 and 25.3 percent growth in operating income and gross profit from the same period last year.

These statistics, released at the 1st and 6th Sessions of the Press Conference on China’s Top 500 Competitive Large Enterprises, show that China’s large businesses have taken shape and are growing in strength.

It is reported that the assets of these enterprises are worth more than 23,076 billion yuan, up 4.1 percent from last year. There are currently 19 enterprises with an operating income of over 100 billion yuan, four more than that in the previous year. Sinopec, China Petroleum and Chemical Corporation, with a gross income of 857.2 billion yuan, ranked highest.

The statistics have also revealed that in 2005, most of China’s large enterprises are operating in the areas of manufacturing, wholesaling and retailing, construction, real estate, traffic and transportation, storage and postal services, mining, production and supply of power, gas as well as water, agriculture, forestry, animal husbandry, accommodation and catering. Of those, the manufacturing, production and supply of power, gas and water as well as mining industries are the largest.

China foundries offering more MPW programs for IC designers

Claire Sung, Taipei; Rodney Chan, DigiTimes.com [Friday 22 September 2006]

China’s foundries are offering more multi-project wafer (MPW) programs to lower costs for the country’s more than 400 IC designers, most of whom are small players.

CMMC Technologies, which currently offer MPW services at the 0.5 and 0.6 micron processes, have announced that it will add the 0.35 micron process to its MPW programs.

Shanghai Hua Hong NEC Electronics will also offer MPW services for the 0.15 and 0.18 micron processes, according to industry sources. Hua Hong NEC is already planning a MPW program for the 0.18 process, while its 0.15 micron MPW service is expected to be launched in 2007, the sources added.

Other China-based foundries, such as Semiconductor Manufacturing International Corporation (SMIC), Hejian Technology, also offer MPW services, the sources noted.

The sources pointed out that MPW programs enable multiple low-volume clients to put their designs onto a single wafer, cutting the clients’ costs by as much as two thirds compared to a single client occupying the entire wafer.

According to sources with China’s IC design sector, there are over 400 IC designers in China, most of whom are small players who use the mature 0.35-0.18 micron processes. Consumer electronics are their chief markets, the sources added

DaimlerChrysler opens new China factory

By JOE McDONALD, AP Business Writer 1 hour, 3 minutes ago

BEIJING – DaimlerChrysler AG on Friday formally opened its first factory to make Mercedes-Benz and Chrysler sedans in China, joining a rush of foreign automakers scrambling for a share of the booming Chinese car market.

The company plans to expand its financing business and is talking to potential Chinese partners about possibly producing a lower-cost model for the U.S. market, said chairman Dieter Zetsche.

Earlier, Zetsche and VIPs, including the Communist Party secretary of Beijing, attended a grand opening ceremony with fireworks and traditional Chinese drummers and dancers.

General Motors Corp., Volkswagen AG, Toyota Motor Corp. and other competitors already make cars in China.

A key challenge for foreign automakers in China is the government‘s insistence that at least 40 percent of their components come from Chinese suppliers, whose quality is still uneven. Zetsche said DaimlerChrysler intends to meet that target, though he acknowledged that it would not be able to do so immediately.

Zetsche declined to comment on U.S. and European complaints that China‘s tariffs on auto parts are too high. The governments are reportedly considering filing a World Trade Organization complaint against Beijing.

Zetsche said the company expected sales to meet those levels but would not say how long it would take. He said the factory is expected to be profitable when sales are well below its full capacity.

“We‘ve had a very slow ramp-up to make sure we get the quality right,” Hale said. “As we identify more suppliers that meet our standards, we bring them into the supply chain.”

The company has not disclosed prices for the models made in Beijing.

“With one partner, we have very much progressed (in talks), but still haven‘t come to a final decision,” he said.

The company‘s new Beijing factory is a joint venture with a Chinese partner, state-owned Beijing Automotive Industries Corp.

Beijing Automotive‘s chairman, An Qingheng, said the venture hopes eventually to produce 300,000 vehicles a year.

The joint venture‘s president, Guenter Butschek, said it plans to launch a new Chrysler advertising campaign in China shortly.

“This brand will for sure be far better known to the Chinese customer in a couple months,” he said.

Chrysler Corp. opened a joint-venture Jeep factory in Beijing in 1983, becoming the first Western company to produce vehicles in China since the 1949 communist revolution. Chrysler merged with Stuttgart, Germany-based Daimler Benz AG in 1998 to form DaimlerChrysler.

China aims to export US$70 bln worth of autos and auto components by 2010

China aims to increase exports of automobiles and automobile components to 70 billion U.S. dollars by the end of 2010, said an official with the Ministry of Commerce.

In the first half of 2006, China exported 34,500 units of sedans, surpassing the total export volume of 2005, and now exports to 207 countries and regions, China Automotive News reported.

From 2000 to 2005, China averaged 40 percent growth in auto and auto component export volume per year, with exports of complete vehicles growing at a rambunctious 70 percent per year.

Last year, the country’s car and auto parts exports hit 10.9 billion dollars, up 34 percent on the previous year.

However, to put this impressive growth into perspective, it needs to be remembered that China’s market share in world automobile and automobile component exports is less than 1 percent.

Source: Xinhua

China Auto Parts Scheme Challenged

US joined by EU and Canada on WTO dispute settlement action

WASHINGTON, DC – 09./16/06 – The US has joined with Canada and the European Union to request that the World Trade Organization (WTO) establish a dispute settlement panel regarding China’s overall treatment of US-made auto parts.

According to the Office of the US Trade Representative, Beijing is imposing charges that “unfairly discriminate” against imported auto parts and discourage automobile manufacturers in China from using imported auto parts in the assembly of vehicles.

Under China’s current regulations governing the importation of auto parts, all vehicle manufacturers in China that use imported parts must register with China’s Customs Administration and provide specific information about each vehicle it assembles, including a list of the imported and domestic parts to be used, and the value and supplier of each part.

If the number or value of imported parts in the assembled vehicle exceed specified thresholds, the regulations assess each of the imported parts a charge equal to the tariff rate of around 25% on complete automobiles, rather than the 10% tariff applicable to auto parts.

The regulations encourage auto manufacturers in China to use Chinese parts in the assembly process – at the expense of parts from the US and elsewhere.

The regulations also provide an incentive for auto parts producers to relocate manufacturing facilities to China.

China “appears to be acting inconsistently with several WTO provisions including Article III of the General Agreement on Tariffs and Trade 1994 and Article 2 of the Agreement on Trade-Related Investment Measures, as well as specific commitments made by China in its WTO accession agreement,” the statement said.

The US originally initiated the case on March 30, when it requested formal WTO consultations. The US, Canada, and the EU held joint consultations with China on the issue in Geneva in May.

Australia, Japan, and Mexico, which also export auto parts to China, participated in the consultations as third parties.

“While we remain open to settling this dispute, China’s current stance leaves us no choice but to proceed with our WTO case,” the statement said.

The US, it added, “is committed to providing a level playing field for US exporters to China and, as we have made clear, we will not hesitate to pursue dispute settlement if necessary.”

The US exported $681 million in auto parts to China in 2005, an increase of 6.5% over exports in 2004.

Over this same period, the market for automotive components in China increased by 16.8%, and the number of passenger vehicles sold in China increased by 27%.

US exports of auto parts to China accounted for 1.4% of total US auto parts exports in 2005, representing approximately 10% of China’s auto parts imports.

Honda opens new Accord factory in China

TOKYO, SEPT 19: Honda Motor Co, Japan’s third-largest automaker, opened a new factory in China, as it seeks to maintain its lead over Toyota Motor Corp and Nissan Motor Co in the world’s fastest growing major vehicle market.
The new factory, located in the southeastern city of Guangzhou, will have a capacity of 1,20,000 vehicles a year, the company said in a statement. Guangzhou Honda Automobile Co, Honda’s venture with Guangzhou Automobile Group Co, invested 2.2 billion yuan ($277 million) in the factory, which will make Accord models.

Honda, the first Japanese carmaker to set up a venture in China, is opening the plant after capacity shortages stunted its sales growth in the first half. The factory may enable Honda to maintain its lead over Toyota and Nissan, which are also investing in the world’s third-largest vehicle market.

‘‘Demand in China will continue to grow so Honda will likely add more capacity,’’ said Norihito Kanai, a senior research analyst at Meiji Dresdner Asset Management Co which manages $2.5 billion in equities in Tokyo. ‘‘If Honda can’t supply enough cars, customers will go elsewhere.’’

Honda set up its first venture in China in 1998, five years ahead of Toyota and Nissan. The company had about 5.7% of China’s passenger car sales in the first half, compared with Toyota’s 4.5% and Nissan’s 4.1%, according to the China Association of Automobile Manufacturers. Market leader Volkswagen had a share of 17.1%, the carmaker said.

—Bloomberg