Category Investing in China

Cramer’s ‘Stop Trading!’: China’s Red Hot

“China is red hot and staying hot,” said Jim Cramer on CNBC’s “Stop Trading!” segment on Tuesday.

Vehicle sales are up in China, led by General Motors(GM Quote – Cramer on GM – Stock Picks). “People have to understand that the Chinese stimulus plan is really rooted in people’s spending,” Cramer said. It’s “enough to be able to change spending habits, buy more, drive more cars.”

He called China “the best market in the world” and predicted that it still has “far to go.”

But there’s a tradeoff, Cramer said, because China’s stimulus plan isn’t regulated by the rules of a democracy. “A democracy has a lot of different considerations to make it more difficult,” he said. “I’ll take the freedom over what they’ve got.”

Cramer said that Verizon(VZ Quote – Cramer on VZ – Stock Picks) is going higher, and he recommended ag stocks such as Terra Nitrogen(TNH Quote – Cramer on TNH – Stock Picks) and Monsanto(MON Quote – Cramer on MON – Stock Picks).

“Monsanto’s back,” he said, adding that it had a “good” quarter, unlike Deere(DE Quote – Cramer on DE – Stock Picks).

He likes Terra Nitrogen for its dividend. “TNH is a great fertilizer play,” he said.

Coca-Cola to Invest $2 Billion in China Over 3 Years

March 6 (Bloomberg) — Coca-Cola Co., the world’s largest soft-drink maker, plans to invest $2 billion in China over the next three years as part of its attempt to win more of the nation’s 1.3 billion consumers.

The investment plan includes a $90 million technology center that opened in Shanghai today, the Atlanta-based company said in an e-mailed statement. Coca-Cola’s proposed investment is 25 percent more than the $1.6 billion it had already spent in China since returning in 1979.

Beverage companies including Coca-Cola and PepsiCo Inc. are expanding in China, betting demand will continue to grow as the recession erodes consumer spending in the U.S. Coca-Cola’s planned spending may also aid its $2.4 billion acquisition of China Huiyuan Juice Group Ltd., which was announced in September and is now awaiting government approval.

“Coca-Cola’s investment is a positive for the Huiyuan acquisition,” said Kevin Luo, a consumer goods analyst with Guotai Junan Securities HK Ltd. in Shenzhen, southern China. “This investment will help create jobs, which would obviously be welcomed by the government, so even though it won’t have a direct impact on the acquisition’s approval, it can’t hurt.”

Pepsi said on Nov. 3 it plans to invest $1 billion in China in the next four years. Japan’s Asahi Breweries Ltd. in January paid $667 million for a 19.9 percent stake in Tsingtao Brewery Co., China’s biggest beer company.

Market Leader

Coca-Cola controls 54 percent of the Chinese soda market and Pepsi 31 percent, according to research company Euromonitor International.

Retail spending in China may rise 14 percent this year, the National Development and Reform Commission, the nation’s top economic planning agency, said in a report distributed yesterday to the country’s legislature. China has also cut taxes and increased welfare spending in a bid to boost consumer spending amid the worst financial crisis since the Great Depression.

“It’s wise for international companies to invest in China, especially at a time when China is trying to boost domestic consumption,” said Kenny Tang, executive director of Redford Securities Co. in Hong Kong. “There’s still room for growth.”

Coca-Cola’s sales by volume rose 19 percent last year in China and declined by 1 percent in North America, according to the company’s annual report.

“Our commitment and confidence in China never wavers,” Coca-Cola Chief Executive Officer Muhtar Kent said in today’s statement. The company will invest in new plants, distribution and sales and marketing, Kent said.

Coca-Cola and Huiyuan, which applied for approval from China’s Ministry of Commerce in September, said then that they expected a government decision by March 23.

“We are in very regular contact with the Ministry of Commerce, and we try to be as helpful as possible in answering questions and providing supplementary information,” Kenth Kaerhoeg, a spokesman for Coca-Cola Asia, said by e-mail today.

LEO Pharma Establishes Strategic Company in China

LEO Pharma Establishes Strategic Company in China

SHANGHAI, China–(BUSINESS WIRE)–LEO Pharma is taking a giant leap into the Chinese market by establishing an affiliate with the ambition of eventually becoming the leading dermatological company in China.

The new company, LEO Pharma China, will market LEO Pharma’s comprehensive portfolio of high-profile and patent protected drugs for the treatment of the chronic skin disease psoriasis and other dermatological products (pharmaceuticals for the treatment of skin diseases).

LEO Pharma’s leading psoriasis brand, Daivobet®, has just been approved by the Chinese authorities and can now be marketed in China.

LEO Pharma’s new company in China underpins LEO Pharma’s long-term global strategy of providing patients that suffer from psoriasis with the best topical treatments possible.

“This is an interesting opportunity for LEO Pharma. We will be bringing our global knowledge of dermatology and comprehensive portfolio within high-profile, topical psoriasis drugs and other dermatological products into the new LEO company and out to the Chinese market for the benefit of the Chinese patients,” says Poul Rasmussen, Chairman of the Board of LEO Pharma and of the sole shareholder, the LEO Foundation.

The setting-up of LEO Pharma China must be regarded as a long term investment for the LEO Group, says Gitte Aabo, CEO and President of LEO Pharma:

“The project in China can lead to significant investments for LEO Pharma, but the earnings potential in one of the fastest growing markets for pharmaceuticals can also be huge in the long term.”

About psoriasis

Psoriasis often appears as raised red patches with silvery scales – known as plaques – in various anatomical sites.

It is primarily located on the elbows, knees and scalp, but can also appear elsewhere on the body. Severity can vary greatly.

Psoriasis affects 0.1 – 1 % of the population of China and is equally common in men and women. It can start at any age, but most patients develop psoriasis in their twenties. There is a peak of incidence in the late teens to early twenties and a second peak in the fifties.

The duration of an outbreak may vary, but in most patients, the cycle of remissions and exacerbations goes on for many years or even over an entire lifetime. If treated correctly many people with psoriasis can live regular lives with the condition.

Daivobet® is LEO Pharma’s main product family for the treatment of psoriasis vulgaris. Daivobet® is a fast, efficacious, once-daily dosage product for the topical treatment of psoriasis. Daivobet® has been used by thousands of people with psoriasis, and the product is very well documented in clinical trials. Furthermore, a 52-week randomized safety study shows that Daivobet® can be used for long-term treatment of psoriasis.

About LEO Pharma

LEO Pharma is an independent research-based pharmaceutical company with headquarters in Ballerup, Denmark. LEO Pharma is wholly owned by the LEO Foundation and is a leader within the strategic focus areas of Dermatology and Critical Care. LEO Pharma maintains a strong focus on developing, manufacturing and marketing safe and efficacious drugs for treating psoriasis and other skin diseases as well as thromboembolic disorders. 96% of the turnover, which in 2007 was DKK 5.2 billion, was generated outside Denmark. LEO Pharma is represented in more than 90 countries and has nearly 3,000 employees around the world, 1,200 of whom are based in Ballerup, Denmark.

Read more about LEO Pharma at www.leo-pharma.com. Read more about psoriasis at www.psorinfo.com – www.daivobet.com.

MNCs turn to China, India to combat recession

By Swati Prasad, ZDNet Asia

As developed markets reel deeper into recession, global companies are sharpening their focus on emerging markets and launching new products and services tailor-made for these regions..

K.P. Unnikrishnan, Sun Microsystems’ regional marketing director of emerging markets region, said in an e-mail interview: “Emerging economies are changing the global business landscape, providing incredible opportunities for companies like Sun.”

Concurred Manish Bahl, research manager at Springboard Research: “Looking at the current global situation, we believe the strategy to focus on China and India is considered to be a safe and viable option for multinational companies (MNCs) that want to expand operations and even for those who plan to enter these markets.”

In July 2008, Sun made a strategic business decision to strengthen its presence in fast-growth markets such as China and India. To closely align sales with key growth areas, Unnikrishnan said it created a business division focusing on emerging markets sales region, which includes Latin America, Greater China, India and SEE (Russia, Balkins, Africa, the Middle East, Turkey and Greece).

Manufacturers of consumer durables, car, telecom and infrastructure companies are also focusing more on emerging market in these tough times. For instance, LG Electronics India expects 15 percent growth in 2009 and believes India is not as badly affected by recession.

This month, IT security company Trend Micro set up three technology support labs in India as part of its Affinity Partner program. Amit Nath, the company’s country manager for India and SAARC, said Trend Micro will continue to develop in India and work with its customers and partners in order to provide “the best-of-breed secure content management solutions”.

Nath told ZDNet Asia in an e-mail interview: “There are not too many economies in the world that will grow at 7 percent.”

Booming markets

The optimism over China and India is manifested in foreign direct investment (FDI) inflows. While China registered a total FDI inflow of US$92.4 billion in 2008, up 23.6 percent from 2007, India’s FDI inflows rose from US$19.1 billion in 2007 to US$32.4 billion in 2008.

China and India had attracted the attention of MNCs way before the onset of the economic crisis. However, with the recession having a relatively lesser impact in these countries, it made sense to focus more on these booming markets.

Bahl said: “Favorable economic indicators such as rising per capita income, increasing domestic demand for goods and services, change in spending pattern of consumers as well as factors like well-controlled inflation, only go on to prove that a sharper focus on these economies can bring better growth for MNCs.”

The results are already visible. For instance, Sun’s emerging markets sales region reported revenues of US$1.969 billion in its financial year 2008, an increase of 13.8 percent over 2007. Total revenue for the emerging markets region in the second quarter of 2009 was US$558 million, up 20.5 percent from US$463 million in the first quarter of 2009.

Unnikrishnan said: “The emerging markets sales region opens more opportunities for Sun [to work] with governments, businesses and developers. This allows Sun to serve the unique needs of customers in these markets where infrastructure growth demands are very strong.”

The flurry of new product launches and initiatives for emerging markets only goes on to reinforce this trend. For instance, Microsoft India recently showcased a host of custom-made offerings for the Indian market. These include initiatives such as language interface packs (LIPs) in 12 Indian languages, and Windows Live, which includes e-mail, instant messenger, online storage, photo gallery and social networking, in seven Indian languages.

Consumer durables company Philips, too, has created an emerging markets model.

Gerard Kleisterlee, president and CEO of Royal Philips Electronics, said at a press conference last year: “Executing on our strategic decision to scale up our presence in emerging markets has been an important element of Philips’ transformation into a focused, less-cyclical company in recent years.”

Last year, it acquired two companies in India in the healthcare domain–Meditronics and Alpha X-Ray Technologies–in order to step up its focus on emerging markets. Philips chose to focus on healthcare since it is a recession-proof industry. The Dutch global major hopes to generate maximum revenues from this sector over time.

Anjan Bose, Philips Healthcare India’s senior director and business head, said: “In 2007, almost 40 percent of our revenues came from emerging markets. Going forward, emerging markets, especially India, will play a significant role for Philips.”

Similarly, in December 2008, Sun rolled out a telecoverage model in the emerging markets. The model is aimed to help Sun reach out to high growth small and midsize businesses (SMBs), startups and Web 2.0 companies in these economies, thus optimizing its drive to success and profitability.

Ensuring faster recovery

China and India, however, are not completely free from recession.

Bahl said: “High domestic demand, coupled with the governments’ spend on infrastructure, is largely helping companies to resist the recession.”

Unnikrishnan added: “People need innovation in crisis. As companies face challenges, they need new ideas to overcome difficulties. IT companies could possibly survive the crisis if they innovate in the emerging markets.”

In 2009, Sun sees businesses and governments in emerging markets increasingly using the latest open source technology to innovate at minimal cost.

Vivek Wadhwa, executive in residence at Duke University’s Pratt School of Engineering, said: “I see China being in more trouble in the short-term because of its dependence on manufacturing. But, since they have such deep pockets, China may be able to spend their way out of the downturn.

“The Indian industry is taking a hit in the short term, but is likely to benefit as the economy recovers because it offers lower R&D (research and development) costs,” Wadhwa told ZDNet Asia in an e-mail interview.

Bahl said emerging economies are expected to recover faster from the ongoing global recession. Of all the major economies, only China and India are projected to have a healthy GDP (Gross Domestic Product) growth rate of 7 percent and 8 percent, respectively.

“Therefore, China and India have much higher chances of emerging as stronger markets, post the recession,” Bahl added.

8 Must-Knows about Business Set-up in China

More and more Australian companies are setting up their own presence in China in order to source products/services directly from China or enter the Chinese market. However, given the alien nature of local regulations and business environment in China, it is critical to be proactive and fully prepared before you take the strategic move to set up your own presence in China.

Here are some “must-knows” before you set up the business in China:

1.You have more than one option for a local presence in China. Your China presence may be in the form of a wholly owned foreign enterprise, a contractual joint venture, an equity joint venture, a representative office or a local representation by a third party (local secretary/representation service companies).

2.Carefully define your business scope for the China presence. China National Development and Reform Commission may prohibit, restrict, permit or encourage your business set-up based on your business categorization and scope. Hence it is critical to carefully define your business scope so as to be permitted or encouraged to set up the presence.

3.Select the right location for your China operation. China abandoned its preferential tax rate for investments of foreign companies from January 1st 2008. However, some areas still offer local preferential policies for foreign investors in terms of land leasing/procurement, staff recruitment and management, local tax etc.

4.Confirm the minimum registered capital for your China operation. The Chinese government requires certain minimum registered capital for various types of businesses. However, local Industry and Commerce Administrations may decide on your minimum registered capital based on their judgement of your business scope and operation scale. You need to confirm with local government agencies the minimum registered capital through local contacts before taking any other actions in case they require an amount far above your financial resources available for the China operation.

5.Integrate commercial clauses in the Articles of Association to maximise profit repatriation into Australia. You may have commercial arrangements between your Head Office in Australia and the subsidiary in China in order to guarantee maximum profit repatriation. However, some arrangements must be included as part of the Articles of Association to be valid. The Articles of Association is to be submitted to local government agencies for approval and filing during business license registration. Hence, you must incorporate necessary clauses in the Articles of Association in the first instance.

6.Fully understand employers’ responsibilities and liabilities in China. China issued the new Law of Labour in 2007 which specified issues on employment contract, redundancy, etc. Without preliminary knowledge of this law, you may end up spending a huge amount of time and money terminating the contract with under performing employees, as the structure of the contract was wrong. You also need to be aware of the mandatory employee welfare and benefits so as to include such cost in the budget.

7.Conduct thorough due diligence and credit check on your joint venture partners. Your partners may not be what they claim to be. China has the business culture to show their wealth and status by driving luxurious cars, wearing prestigious watches and owning an impressive factory. Hence your Chinese business partners may look financially viable and well connected but, as a matter of fact, live on bank loans and personal debts.

8.Develop a comprehensive local employee management system. It is a hard job to recruit the right staff in a foreign country. It is even harder to effectively manage the local staff in a foreign country. A sound and robust employee management system will encourage the engagement and commitment of local staff and avoid potential risks. You may include reporting and communication policies, staff training, performance assessment, remuneration, career management and employee management manual in the system.

Business set-up in China is a big project by itself, which requires financial and time commitments, business management knowledge and China expertise. Identifying a competent agent to manage the complex process will be a cost and time effective way to avoid potential pitfalls.

Information above is provided by Sara Cheng, Manager for Greater China, Australian Business International Trade Services.

Survival 101 for SMEs in 2009

By Chupsie Medina
INQUIRER.net

Filed Under: Marketing, Economy and Business and Finance
“What’s in store for me in 2009?”

With the current global economic downturn, “not a day passes without me receiving a call or two from owners of small and medium-scale businesses asking the question,” says marketing consultant Herbert Sancianco.

In the midst of all the talk about the Philippine economy likely to be hit next year by the recession bug that has already whipped the First World, and lately, even such big emerging economies like China, owners of small and medium-scale enterprises (SMEs) have not been having fitful sleep these past weeks.

For many of them, the threat of closing shop is all the more real.

As president of Market Bridges Philippines Inc., a medium-sized marketing services company that also gives advice mainly to SMEs and startup businesses, Sancianco knows only too well how any turbulence in the local economy could affect next month’s payroll.

“I have had to face the question of whether my business needed to be shuttered up twice,” he says.

The first time was during the Asian crisis when Market Bridges was barely four years old; and the second was in 2004 when there was too much political noise negatively affecting business, Sancianco says.

“The word now is survival,” he says. “And the key to surviving these days is how well you are able to review and reinvent your business,” Sancianco says. He should know, having actually been through the wringer twice, and seeing others hurdle such challenges.

“Understand your problem,” he says. “Then figure out what could be the right solution.”

Every SME owner must be able to get a good grasp of what his customer is up against in the coming months, the 52-year-old marketing consultant says. If the business can afford to get professional help, a good solid survey would immensely help.

Otherwise, simple and inexpensive backyard surveys that can extract unbiased views as well as suggestions would be very helpful. “Just don’t ask your friends for their opinion,” Sancianco warns. “Talk to your customers — know what they’re looking for and what they’re not looking for,” he adds.

There are also some basic tenets that need to be re-remembered. For example, if you’re in the retail business, customer service is key. Presentation is also very important, says Sancianco. Many businessmen, with the passing of time, tend to relax their watch on these important marketing principles.

On the housekeeping side, a review of how lean and mean your operations is, and acting accordingly either by slashing operating costs or downsizing human resources, is a very real option. Reviewing the central management system is also important if the business is bent on getting that second wind.

The other important key to survival is being able to reinvent the business. A change in the business’ operating environment resulting from the economic slowdown should challenge businessmen to find new opportunities or products to replace otherwise compromised sources of income.

Using the basic information derived from your survey, decide on which new direction the business would pursue. Again, Sancianco says, it makes sense to consult a professional who would be able to validate and even financially quantify the feasibility of any new venture.

“A third party will always have the vantage view of someone looking in and assessing the situation with open eyes,” he says.

At this point, creativity is highly valued. An example, says Sancianco, is the birth of the beverage C2, a product that the Gokongwei business empire introduced some years ago that successfully ate into the market of carbonated drinks.

“Many businesses are also not using the Internet as much as they should,” Sancianco says. It does not cost much to sign up with Yahoo Small Business, and yet the rewards can be so much more.

Some new entrepreneurs who find they do not have the right skills to run a business should set aside time for a diploma or even a certificate course from any reputable business school.

For many family-owned businesses, on the other hand, now is the time to give really serious thought to professionalizing their management.

“Many owners find that their children have grown up and away from the family business, and there is no one with the youthful energy to follow through on expansion plans,” Sancianco says.

Hiring competent people who can do the job would free the owner precious time that could be used to study how to bring the business to a higher level, thereby avoiding stagnation.

Lastly, Sancianco says, it does not help to put in more prayers and hope that this global crisis will be kinder to Filipinos.

In parting, Sancianco reminds us that hard times will only happen to people who lose their vision. Even before times get tough, it is best to be prepared.

Shell likely to keep hiring

By Yang Huiwen

WHILE retrenchments are occurring across many sectors, the lubricants business of oil major Shell is expected to keep hiring here as it continues to expand its regional operations.

No details were given on Monday on numbers but extra manpower is needed to expand its grease plant, where an upgrading is in process that will allow production capacity to be doubled. The work will be completed sometime next year.

The grease-making facility forms part of Shell’s larger lubricant oil blending plant at a 5.5 hectate site in Woodlands North. The plant employs 170 people.

It produces greases and lubricating oils for the local and export markets.

About 90 per cent of its products are sold in 52 markets worldwide, including Australia, Indonesia, China and Kuwait.

Lubricant oils, or lube oils, are high-value products used to improve the efficiency of machinery by reducing wear and tear.

The plant also manufactures marine lubricants, which are supplied to ships that stop in Singapore through bunker vessels.

‘Although not very big in land area, this plant has one of the highest production capacity in the Shell network globally, and is the primary source of Shell Lubricants’ supply network in Asia,’ said Shell Lubricants Asia-Pacific vice president Tim Ford.

‘The growth in our Shell Woodlands North operations in the current economic climate is a testament to our proven track record and leadership in fuels innovation.’

Shell’s regional expansion is driven by strong demand for lubricants in industrialising countries such as China.

Last year, Asia overtook North America as Shell’s largest lubricant consuming region in the world, accounting for 38 per cent of sales compared with a 28 per cent share in the US.

Demand for lubricants in the Asia-Pacific is expected to grow at about 5.1 per cent a year until 2017, according to industry figures, while demand in the US and Europe is expected to decline.

Shell, the largest international lubricants supplier in Asia by sales volume, is also the leader in the lubricants business. It captured 13 per cent of the world market last year, two percentage points in front of Exxon Mobil, according to consultants Kline & Company.

Shell also has lubricant blending plants in Thailand, Malaysia, the Philippines, Indonesia and China.

It is building its sixth blending plant in China – in Zhuhai in Guangdong Province. This will start operating next year.

Shell’s lubricants business employs about 10 per cent of the oil major’s total workforce worldwide.

China’s visa rule to make hiring expats tough

China has begun tightening its work visa application process for foreigners to keep out people with a criminal record, but critics say the implementation of the provision is “ill-conceived” and will impede even Fortune 500 companies’ ability to hire expatriate talent.

Under the amended rules, foreigners applying for – or renewing – work visas (Z visas) must additionally submit a certificate from a police station in their home country – and authenticated by the Chinese embassy in that country – declaring that the applicant does not have a criminal record.

Initially, the additional paperwork requirement will apply only for foreign workers in Guangdong, the booming province in southern China that’s better known as the “world’s factory floor”. But given that Guangdong has always been a “laboratory” for China’s economic and administrative reforms, the provision is certain to be implemented nationwide, reckon immigration lawyers and business consultants.

The new regulation may have been inspired by some recent instances of Chinese businesses being defrauded by foreign-national employees who (it was later revealed) had previous criminal records in their home countries, say lawyers.

In itself, the ‘no criminal record’ certification isn’t an unreasonable requirement. “The motive (for the introduction of the new provision) is to put in place reasonable criteria for people to obtain a work permit,” says Chris Devonshire-Ellis, senior partner at Dezan Shira & Associates, a professional services firm providing FDI, legal, tax, accounting and due diligence services for multinational corporations.

But there are “serious shortcomings” in the manner in which it has been implemented, he adds. “It will have a negative impact on the ability of foreign-invested enterprises in China to be properly managed, and a negative impact in the way foreign business people view China as being a reasonable place to work.”

As a result of this provision, “it’s going to be very frustrating for well-meaning businessmen and employers to get the right quality of senior executives and expatriate personnel into position in China,” says Devonshire-Ellis.

Indians face ‘discrimination’. In particular, notes Devonshire-Ellis, “certain nationalities, among them Indians, face discrimination in obtaining China visas purely on the basis of their passport.”

Although this appears to be a haphazard situation, implemented differently across the country, China’s administrative infrastructure appears unable to determine whether an individual is “undesirable” or a senior executive in a multinational. “This is becoming an area of concern and is damaging China’s foreign direct investment environment,” he adds.

There appears to have been “little or no dialogue” between Chinese immigration authorities and the international community about the implications of putting in place the ‘no criminal record’ regulation, says Devonshire-Ellis.

In some countries, like New Zealand, there is no such certification process in the first place. In others, such as the US, “there is no formal or well-defined procedure to obtain such a document.”

In effect, China has invoked its domestic administrative system, which is based on the restrictive hukou (household registry) system, and imposed it on foreign nationals who apply for a work visa. Under the hukou system, a Chinese national’s personal records are stored in their hometown, which is their place of birth. All requests to relocate in China or to engage in business are serviced by the local police station in the hometown, notes Devonshire-Ellis. “But such a procedure simply cannot be assumed to be in place in other countries, and in fact it largely isn’t,” he observes.

Complying with the new regulation is also fraught with logistical nightmares for those who are already working in China and need to renew their visas. “The request for a certificate from a police station in the applicant’s country of origin ignores the fact many expats have worked overseas for years and may not have any contacts with their local police station in their home country,” points out Devonshire-Ellis. “Second, it requires an expensive trip back home to secure such documentation.”

In any case, in many countries, the administrative procedure to supply such a document does not exist. Even if it does, it’s unlikely to be issued by “the local police station” in countries such as the United Kingdom, most European nations, and the US and Canada, where the registry of criminal offenders is maintained at a national, not local, level.

The latest work visa measure comes barely five months after China tightened the provision for securing business (F) visas and tourism (L) visas. In the run-up to the Olympics, and following the riots in Tibet in March, China introduced stringent provisions that still remain in place. Immigration lawyers in Shenzhen expect the F visa and L visa provisions to be relaxed a bit after the Paralympics in Beijing, but with greater monitoring to prevent their abuse.

China’s Urbanization Means Rich Rewards for Business

By 2030, 1 billion consumers will live in China’s cities. Chinese and global companies are well aware of the huge size and potential of this emerging urban market. But businesses should shift their sights from a panoramic view of the opportunity to a close-up of the dynamics of urbanization. To be successful, they need to keep pace with the rapidly changing managerial strategies that city leaders are employing as their cities expand.

China’s urbanization is largely a local phenomenon. City mayors are the most powerful movers and shapers of the process. Their effectiveness—or lack of it—should be a key component of companies’ strategic planning for the Chinese market. New research by the McKinsey Global Institute (MGI) argues that business has a chance to play a key role as cities mature. Companies can bring not only capital but also an infusion of knowledge and can help guarantee greater efficiency and productivity from major public projects.

The scale of the urbanization phenomenon is startling. MGI estimates that, between now and 2025, China’s cities could pave 5 billion square meters of roads and build up to 170 new mass-transit systems (twice the number that all of Europe has today). By 2025, cities will construct 40 billion square meters of floor space in 5 million buildings, of which up to 50,000 will be skyscrapers—the equivalent of building up to two Chicagos every year. The incremental growth alone in urban China’s consumption between 2008 and 2025 will be equivalent to the creation of a new market the size of Germany’s in 2007.

HUNGRY FOR ENERGY
On current trends, energy demand is set to more than double, requiring massive expansion in capacity—as much as 1,200 gigawatts of extra capacity between now and 2025, MGI estimates. China’s freight volumes—largely carried by road—will quadruple by 2025. Beijing has recently allowed the private sector to participate in infrastructure building (such as toll roads), mainly in joint ventures with local governments or state-owned enterprises.

China’s huge growth as a consumer market and its mega-sized infrastructure projects will doubtless offer rich rewards for business. Yet multinational corporations have tended not to look much beyond China’s fast-growing eastern seaboard. In the next decades, however, it is China’s midsize cities where most of the burgeoning middle class will live and where most residential construction growth will occur.

Some cities haven’t even touched the edges of business’ radar screens. During the course of MGI’s research in China, we “discovered” an additional 195 urban centers that China does not designate as cities, but which are cities in terms of size, population, and stage of development. They are also growing rapidly. These cities could have substantial future commercial potential, and they illustrate the importance of looking beyond China’s most high-profile economic powerhouses.

Pinpointing opportunities geographically is one aspect of any entry or market expansion strategy. Keeping pace with the evolution of urban development strategies is another. Cities that have spent the past 20 years or more maximizing their gross domestic product growth at virtually any cost—environmental and social—now face a heavy investment bill as they seek to mitigate the pressures that have mounted. Pollution and congestion are reaching critical proportions in many cities. This will provide openings for innovation in areas such as energy conservation, water recycling, and clean technology, not least in power generation and transportation.

MAXIMIZING EFFICIENCY
Beyond firefighting today’s intensifying urban stress, China’s city leaders know that they face a monumental managerial task as they seek to absorb an additional 350 million more urban dwellers by 2025, of whom 240 million will be migrants. Many cities are already thinking creatively about how to meet this challenge through policies that boost the efficiency or productivity of urban expansion—the efficiency of resources, of urban and transport planning, and of administration.

Business has an opening in helping mayors to fix not only the “hardware” but also the “software” of cities. Local governments have already shown themselves willing to enter into partnership with the private sector, including multinationals. Take training: A number of Chinese and multinational companies have instituted internship and training programs at the city level, aimed at raising graduate quality, in conjunction with provincial and city governments. Zhejiang province has encouraged private capital to invest in education, making funding more efficient and thereby producing improved results in terms of graduate employment rates for less money than richer provinces.

A nationwide program of “urban productivity,” replicating vanguard cities’ best practice and innovation across China, could save $220 billion in public spending by 2025, cut sulfur dioxide and nitrogen oxide emissions by upward of 35%, and halve water pollution. Business has the potential to play a partnering and enabling role in delivering these significant benefits—opening up new market opportunities for themselves in the process.

Wang Qishan: China to provide more opportunity for foreign investment

China announced it would provide more opportunity for foreign investment, Vice Premier Wang Qishan said on Monday at the opening of the 12th Xiamen International Trade and Investment Fair in the southeast Fujian Province.

China will insist on its opening-up policy continuing to perfect the policies for the utilization of foreign capital to provide more spaces for overseas enterprises in the country.

Chinese vice Premier Wang Qishan (C) attends the opening ceremony of the 12th China International Fair for Investment and Trade (CIFIT) in Xiamen, a coastal city in southwest China’s Fujian Province, Sept. 8, 2008. (Xinhua/Zhang Guojun)
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As one of the main forces for the country’s development, foreign investment had brought capital, technology and management experience, among others. As China was the developing country that had attracted the largest amount of foreign investment over the past 16 years, more fields covering agriculture, manufacturing and services, were being explored, Wang said. Many international companies viewed China as their first choice.

Wang announced five policies for future investment services, covering promotion of the investment environment, better utilization of foreign capital and encouraging Chinese enterprises to invest in foreign countries, among others.

China will raise the service qualities of governments and guarantee a fair investment environment with a transparent legal system.

The government is encouraging foreign capital to flow into high-tech, modern agriculture, energy conservation industries and modern services to enhance the independent innovation and harmonious development. It will also encourage foreign companies to invest domestically through founding local offices or participating in the reforms of domestic enterprises.

In the post-Olympic Games period China would insist on the opening-up policy and peaceful development, Commerce Minister Chen Deming said.

“I believe every friend here at the fair will receive the opportunity and benefit from the peaceful rise of China.”

The Xiamen fair has become an influencial platform for mutual investment that is welcomed by governments, intermediate agencies and enterprises.

“The country (China) is committed to meeting its World Trade Organization obligations, which should boost FDI (foreign direct investment) even more,” said Alessandro Teixeira, World Association of Investment Promotion Agencies president.

“Sectors such as domestic commerce, financial services, insurance and tourism are being gradually opened up. Geographic restrictions on where foreign companies are allowed to set up operations are expected to be relaxed in the coming years,” he said.

“China’s foreign investment policy has come to a turning point, and preferential treatment for foreign capital has been in principle abolished with the exception of certain sectors including high-technology,” said Shoichiro Toyoda, the third chairman of the Japan-China Investment Promotion Organization. Its1990 establishment by Chinese and Japanese leaders was to improve the investment climate and promote investment in China.

At almost the same time, the China-Japan Investment Promotion Committee was established as its Chinese counterpart. Currently, Minister Cheng serves as its chairman.

At the time, few Japanese companies had launched operations in China. During the 18 years since its establishment, the Japanese committee has provided support and information for Japanese firms intending to invest in China. It has helped companies deal with problems they encountered.

Currently, its member companies number more than 370. In addition, it has provided advice on more than 20,000 cases.

According to Chinese statistics, Japan’s investment in China was decreasing. Japanese statistics, however, indicated the amount of investment, including reinvestment by companies operating in China, had not decreased. It had remained relatively unchanged, Toyoda said.

“In my view, there are four key elements that we should focus on for further promoting new investment in China. They are energy-saving and green technology, smaller companies, the development of Central, Western and Northeast China, and special preferential treatment,” he said.

The four-day Xiamen fair features 2,500 exhibitors, 1,000 more than last year. It has attracted 74 nations, including America, Australia, Brazil, Italy and countries from Africa and the Pacific islands. In all, 445 organizations from 104 countries and regions attended. More than 50 countries and regions were holding seminars to introduce their investment environment.

New projects signed at the fair this year have been reported at more than 5,300, including 320 from overseas.

As China’s only annual fair for promoting mutual investment, the Xiamen fair has become the world’s largest expo of its kind.

More than 100,000 guests from 144 countries and regions and more than 3,000 international companies have attended the fair over the past 11 years. It has drawn 7.7 billion U.S. dollars in investment into China with more than 13,000 projects signed.