Category News of China

Pfizer cutbacks may set trend

PFIZER Inc’s plan to eliminate 10,000 jobs, or 10 percent of its workforce, may ripple through the pharmaceutical industry and prompt similar cuts from rivals such as GlaxoSmithKline Plc and Sanofi-Aventis SA.

Pfizer, the world’s biggest drug maker, said yesterday it would close two US factories, consider selling one in Germany, shut down five research centers in the US, Japan and France, and reduce its European sales force by 20 percent, according to Bloomberg News. The plan will slash annual spending by US$500 million to US$1 billion.

Chief Executive Officer Jeffrey Kindler is deepening cuts after Pfizer reported a 43 percent drop in fourth-quarter profit and generic copies of top-selling drugs began eating into revenue. Glaxo, Sanofi and other drug makers facing competition from cheaper copies would benefit by following New York-based Pfizer’s staff reductions and site closings.

“In the face of stalling sales with limited new-product flow and significant generic competition for a lot of the big brands, it does make sense that the industry unilaterally disarms” after a 15-year expansion, said Deutsche Bank analyst Barbara Ryan yesterday in an interview. “Pfizer is the 800-pound gorilla.”

Drugs generating a combined US$23 billion in annual sales, or almost 10 percent of the US market, lost patent protection last year, according to health research firm IMS Health Inc. Cheaper copies can drive prices down as much as 80 percent.

Alice Hunt, a spokeswoman for London-based Glaxo, and Steve Brown, a spokesman for London-based AstraZeneca Plc, declined to comment on how Pfizer’s plan would affect their need for sales staff. Jean-Marc Podvin, spokesman for Paris-based Sanofi, declined to comment before the company’s February 13 earnings release and press conference.

At Pfizer, fourth-quarter revenue rose less than a percent to US$12.6 billion as generic competition weighed on sales of the antidepressant Zoloft, Pfizer’s third-biggest drug. The company repeated a forecast that revenue won’t grow this year and next year above last year’s US$48.4 billion.

Pfizer’s sales will plummet after 2011 when it loses patent protection for its Lipitor cholesterol pill, which accounts for almost half of profit, analysts predicted. In the fourth quarter, revenue from the drug declined to US$3.34 billion from US$3.36 billion a year earlier. The product’s sales for 2006 rose six percent to US$12.9 billion, missing the company’s goal of US$13 billion.

Pfizer shares gained nine percent in the New York Stock Exchange in the past 12 months, underperforming a 13 percent rise in the 14-member Standard & Poor’s 500 Pharmaceutical Index.

China Mobile moves abroad

CHINA Mobile will buy a majority stake in a Pakistani carrier for US$284 million in an arrangement that’s expected to be sealed next month, the companies said yesterday.

The venture will be the world’s biggest mobile phone carrier’s first international deal and is seen as a symbolic start for its global expansion strategy, industry insiders said.

Beijing-based China Mobile will pay cash for an 88.86 percent stake in Paktel Ltd, a unit of Luxembourg-based Millicom International Cellular SA, which operates networks in developing countries.

Paktel, ranking fifth in Pakistan with 1.5 million users, is valued at US$460 million, according to a statement from Millicom.

China Mobile confirmed the deal yesterday but declined further comment.

The arrangement still needs regulatory approval.

“Chinese telecommunications carriers are making strategic moves to focus on international markets as the domestic market is now growing slowly after several years of rapid expansion,” said Yi Mingyu, an analyst at Beijing-based CCID consulting, a research firm under the Ministry of Information Industry.

Among all Chinese carriers, China Mobile’s growth is still considerable, Yi said.

Hong Kong-listed China Mobile earned 96.8 billion yuan (US$12.1 billion) last year, up 23 percent from 2005. The company’s total user base hit 318 million, a 20 percent increase from the previous year, the company said in a statement last week.

China Mobile’s development strategy is to invest overseas, especially to explore emerging markets, company Chairman Wang Jianzhou said in September.

China Mobile wants to export to emerging countries the marketing tactics and technology it developed in the rural areas of China, the world’s largest market by users.

The company also can’t afford the high cost of expansion in Western countries, where mobile penetration rate is already around 100 percent, Yi said.

China Mobile failed last July to acquire Millicom, which operates networks in 16 emerging markets including Latin America and Africa.

“The sale of Paktel allows Millicom to focus on the 16 markets where we have already established strong market positions,” Marc Beuls, Millicom president and chief executive, said in a statement.

Wage growth, spending lift HK job rolls

HONG Kong’s jobless rate held at the lowest point in almost six years, fueling wage growth and consumer spending among the city’s seven million inhabitants.

Seasonally adjusted unemployment for the three months ending on December 31 was unchanged at 4.4 percent, the government said yesterday on its Website. That’s the lowest since January 2001 and matched the median estimate of 15 economists surveyed by Bloomberg News. The average jobless rate for last year fell to 4.8 percent from 5.6 percent in 2005.

Banks, transport companies and retailers are benefiting from proximity to the Chinese mainland and hiring workers to expand. A labor shortage has forced employers to raise salaries, helping to spur retail sales and increasing inflation.

“It’s a very good number,” said Vincent Kwan, chief economist at Hang Seng Bank Ltd in Hong Kong, predicting further declines. “With the jobless rate falling, salaries will rise and that should strengthen consumer spending.”

Employment jumped by 9,100 to a record 3.52 million, while the number of people unemployed fell by 4,500 to a five and a half year low of 157,100, the government said.

The Brunswick Purchasing Managers’ Index, a measure of economic activity, rose to 57.4 in December, the highest in more than six years, as companies received more orders and production increased.

Hong Kong’s “buoyant” financial markets and economy helped to produce “very strong job growth,” and unemployment is likely to fall to four percent by the end of the 2007, Kwan said.

Salary surge expected to continue this year in china

Salaries in China surged last year and are expected to increase further this year, according to a survey conducted by global human resources firm Mercer Human Resources Consulting.

The survey showed wages in China rose an average 7.94 percent year-on-year in 2006. And Mercer estimated salaries would continue to increase by 7.7 percent in 2007.

Wages in China’s oil and IT industries saw a substantial increase of 8.3 percent last year.

The survey covered 1,800 domestic and foreign enter-prises in industries including high-tech, IT, pharmaceuticals, manufacturing, retail, auto, oil and finance.

Shanghai saw the strongest pay surge, with average wages increasing 7.7 percent. Guangzhou and Beijing followed at 7.6 percent and 7.2 percent respectively.

For the high-tech industry, salaries increased in Shanghai, Guangzhou and Beijing 7.3 percent, 6.9 percent and 6.5 percent respectively.

Car industry wages climbed 8.3 percent, 7.9 percent and 7.8 percent respectively in Shanghai, Guangzhou and Beijing.

Mercer’s survey was carried out in 13 Chinese cities including Beijing, Shanghai and Guangzhou, and second-tier cities such as North China’s Tianjin Municipality, Nanjing and Suzhou in East China’s Jiangsu Province, as well as Dalian in Northeast China’s Liaoning Province.

The survey also showed that salaries of mid-level managerial staff climbed 8.5 percent, much higher than the average of all employees interviewed.

Middle managers’ pay increased 8.7 percent, 8.6 percent and 8.4 percent in Shanghai, Guangzhou and Beijing respectively last year.

But despite higher pay, middle managers preferred to job hop according to the survey, indicating they were the most sought-after employees in the job market.

Salary and remuneration packages have become a key factor for employees, said Brenda Wilson, managing director of Mercer China.

“Employers are faced with two great pressures the drain of excellent employees and increasing salary costs,” said Wilson.

Analysts said that given the competitive employment climate, employers needed to find more efficient tools to retain high-caliber staff. A decent salary and attractive remuneration package were considered the most common measures.

“Employers realize they should adopt a new talent introduction and retaining mechanism,” said Wilson. She said this would involve recognizing outstanding employees by widening the salary gap, formulating a quick-response pay adjusting system, and providing good conditions such as flexible working hours.

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Lack of risk management awareness

CHINA’S chief executive officers are more concerned over finding qualified managers but they lack awareness about risk management compared with their global counterparts, an industry report said.

About 46 percent of CEOs who took part in the survey put “finding qualified managerial talents” and “acquiring and developing the right talent” as issues of greatest concern, the Conference Board and Ernst & Young said in a recent report.

In Europe and the United States where the talent market is more matured, CEOs there do not need to put “finding talents” as a major challenge.

In comparison, the pool of talent available in China is growing and evolving, making it one big headache for the bosses.

But a similarity exists in all top management globally, namely a focus for sustained and steady top-line growth and profit expansion.

“CEOs in China place the need for sustained and steady top-line growth and seizing opportunities for expansion and growth in China at the top of their list of challenges,” said the survey.

The top concern for CEOs worldwide is sustained and steady top-line growth, with 37.5 percent of those surveyed naming it their top challenge. In China, 53.8 percent put it as their top challenge, tied with seizing opportunities for growth in China.

Meanwhile, despite risk management being an increasingly predominant global business issue, it is still not regarded generally as one of the top challenges by CEOs in China.

“CEOs in China are now only beginning to examine, understand and implement risk management as a business tool,” said Eric Chia, an Ernst & Young partner. “This lack of focus on risk management can present challenges for many Chinese companies and we strongly advise CEOs to better prepare themselves.”

The China study is an extension of a survey of 658 global CEOs from 40 countries. The number of managers in China who took part was not given.

Baidu gains partner as EMI chases ad revenue

EMI Group Plc, which lost a copyright lawsuit against Baidu.com, has agreed to work with the Chinese search engine to distribute streaming samples of its music online and share advertising revenue from the service under a “strategic partnership.”

The two companies will also explore advertising-supported music download services that will be free of charge for all users of Baidu, the world’s fourth most visited site and whose MP3 search function already contributes to 14 percent of its online traffic.

“It’s a landmark revenue-sharing arrangement between an Internet search engine and an international music company in China,” said a joint statement by the two companies yesterday.

Beijing-based Baidu will set up a special EMI Music Zone in its music search channel that will stream all of EMI Music’s Chinese language music. While users listen to the music for free, they will be exposed to online ads.

“It provides an efficient digital distribution platform to reach Chinese consumers, allowing fans to listen to EMI’s latest quality music immediately on the Internet,” said Norman Cheng, chairman of EMI Music Asia in the statement.

Sales of search engines in China last year rose by nearly 50 percent from a year ago to 157 million yuan (US$20 million), at a much greater growth pace than Web portals.

Based on ratings of the commercial users that paid for advertising on the search engines, Baidu.com topped the market with a 39 percent share of the China market, followed by Google Inc’s 20 percent and Yahoo’s 12.6 percent.

Meanwhile, sales of online advertising excluding ads revenue by search engines in the past year in China also soared by 51 percent to nearly five billion yuan.

EMI was one of seven record companies that filed an infringement lawsuit against Baidu in September 2005, claiming the Website violated copyright by providing links to illegal music on non-affiliated sites. A Beijing court ruled in Baidu’s favor.

China, ASEAN sign trade agreement

CEBU, The Philippines: China and the Association of Southeast Asia Nations (ASEAN) signed an agreement on trade in services here yesterday – a major step toward establishing a free trade area (FTA) in the region by 2010.

The deal, which was inked in the presence of Premier Wen Jiabao and 10 ASEAN leaders, will help firms from the Southeast Asian economic bloc gain improved market access to multi-billion dollar service sectors including banking, information technology and tourism.

The agreement “marks a key step forward in building the China-ASEAN Free Trade Area and lays the foundation for its full and scheduled completion,” Wen said in a keynote speech yesterday at the 10th ASEAN-China Summit.

Trade between China and the ASEAN states has been booming in the past 15 years it grew more than 20 per cent a year, reaching $160 billion last year. The two sides are each other’s fourth-largest trading partners.

Trade volume will continue to grow by about 20 per cent this year although the possible outbreak of bird flu, natural disasters, regional security and global financial risks could slow the increase, Lu Jianren, a researcher at the Chinese Academy of Social Sciences, predicted.

An agreement on merchandise trade took effect in July, 2005, following an early harvest scheme of initial tariff cuts on meat, fish, dairy products, vegetables, fruits and nuts. The services agreement was one of the remaining key items to be finalized in addition to an investment agreement.

Speaking at the summit, Wen called for the acceleration of talks on the investment agreement so as to complete setting up of the FTA by 2010 as planned.

When completed, the China-ASEAN FTA will be the world’s largest, encompassing around 1.7 billion consumers and with total trade estimated at $1.2 trillion. Related comment: ASEAN comes of age
Southeast Asia is moving, though very slowly, towards economic integration. Once established, the region will be the largest trading bloc in the world.

To promote the building of the FTA, China is ready to speed up discussions and sign a memorandum of understanding on establishing the China-ASEAN Trade, Investment and Tourism Promotion Center, Wen said.

China also proposes ASEAN transport collaboration be strengthened in the next 10 to 15 years to facilitate development of regional transportation and communication.

Wen noted China would enhance cooperation in combating transnational crime, maritime security, disaster reduction and relief, prevention and control of communicable diseases and environmental protection.

Wen was in Cebu to attend a series of East Asian summits that include the 10th ASEAN-China Summit, the 10th ASEAN Plus China, Japan and Republic of Korea (ROK) Summit (“10+3” Summit) and the 2nd East Asia Summit. He also chaired the 7th Chinese, Japanese and ROK Leaders’ Meeting yesterday.

SOHO China said to list in Hong Kong

SOHO China Ltd, a Beijing-based property developer, hired Goldman Sachs Group Inc and HSBC Holdings Plc to revive a Hong Kong initial public offering, people with direct knowledge of the transaction said.

SOHO China may raise US$400 million by June to finance new projects, Bloomberg quoted the people, who declined to be identified before a public announcement. Company spokeswoman Wang Chunlei declined to comment.

Mainland developers are tapping the Hong Kong stock market to fund new properties as the government tries to limit bank lending to the industry. China has restricted land supply, curbed loans to real estate companies and imposed new taxes to slow a surge in property prices and investment.

“Traditionally, developers have relied on bank loans,” said Jason Yang, a senior manager at the professional services department of property agency Colliers International in Beijing.

“They are now either launching public share sales or real estate trust offerings to cope with the funding crunch as a result of the tightening measures.”

Chinese developers aren’t allowed to use bank loans to buy land sites, said Wayne Zane, a director of research at Colliers in Shanghai. The government in 2004 raised the amount of cash developers have to come up with on their own to 35 percent of total development costs from 20 percent.

SOHO China in 2002 delayed a US$250 million IPO in Hong Kong and the US because of disagreement between arranger Goldman Sachs and other advisers involved in the sale over its profit outlook, bankers involved said at the time.

The company in January 2003 scrapped the sale, citing unfavorable market conditions in a filing with the US Securities and Exchange Commission. SOHO’s Website contains no information on its earnings.

SOHO was co-founded by former oil ministry employee Pan Shiyi and his wife, former Goldman Sachs analyst Zhang Xin, in 1995. The couple ranked 237th on Forbes magazine’s list of Chinese mainland’s 400 richest people last year.

Beijing’s average real estate prices increased 16.7 percent to 8,792 yuan (US$1,128) per square meter last year, Xinhua news agency reported on Jan. 8, citing a report released during an industry conference.

As much as 200.1 billion yuan worth of apartments, houses, office buildings and shops were sold in the Chinese capital last year, Xinhua said without giving a comparative figure for 2005.

SOHO China has focused on buying sites in the Central Business District in eastern Beijing, where it built residential and office properties under the SOHO brand, catering to the city’s newly rich.

“It has shown a track record of acquiring prime sites,” Yang of Colliers said. “Its property sales have been brisk.”

The company has developed 1.58 million square meters of properties, about a fifth of the Central district’s total area, according to its Web site. Projects include Jianwai SOHO, a residential and commercial complex opposite the China World Hotel.

Some Chinese property stocks traded in Hong Kong have rallied in the past year, triggering a rush to raise more money selling stock. Hopson Development Holdings Ltd. which invests in Chinese properties, saw its shares jump 132 percent in 2006. The company raised US$126 million in a Hong Kong stock sale in November.

Guangzhou R&F Properties Co Ltd, which raised US$208 million selling shares in September, soared 149 percent last year.

Managed assets rise above US$60b at Man Group

MAN Group Plc, the world’s largest publicly traded hedge fund manager, said assets under management rose above US$60 billion as clients added more money in the final quarter of 2006 compared to a year earlier and investments gained.

Fund sales reached US$2.5 billion in the quarter, while redemptions stood at US$1.1 billion, London-based Man said in a Regulatory News Service statement yesterday, according to Bloomberg News. Fund performance added US$2 billion to assets. Man had US$56.8 billion under management at the end of September.

Chief Executive Officer Stanley Fink, who steps down in April, has increased Man Group’s assets under management more than tenfold during his five-year tenure. Net client inflows totaled US$1.4 billion in the three months through December, double the US$700 million during the same period a year earlier.

“The good news in the story is the low redemption rate and the sales to private investors,” said Bruce Hamilton, an analyst at Morgan Stanley in London who has an “overweight” rating on the stock.

Man Group said US$34.6 billion of its assets were overseen for individual investors, compared with US$23.5 billion for institutions. Companies benefit from individual investors because they tend to pay higher fees than institutions such as pension funds.

Replacement

During the first six months of the company’s fiscal year, which end in March, Man Group posted net inflows of US$7 billion.

Fink took over Man in 2000 when it had US$4.7 billion of assets. He will be replaced by Finance Director Peter Clarke.

The company took in money even as some of Man Group’s funds underperformed. Its flagship AHL Diversified fund last year gained about 6.4 percent to December 25, undershooting the 17 percent surge of the Morgan Stanley Capital International World Index and the 11 percent gain for the Standard & Poor’s 500 Index.

Hedge funds typically cater to clients with at least US$1 million to invest, and take larger bets than traditional funds. They usually charge a fee of about two percent for managing money as well as 20 percent of any investment gains.

Headhunting Is A $1Bn Industry Now

Outsourced hiring, or hiring through third party recruiters, will be an over $1 bn industry this year. It grew slowly initially, but in 2005-2006, the business saw exponential growth, posting a turnover of Rs 3,922.32 crore, against Rs 630.98 crore in the year before. The industry this year is seen to be growing at about 40 pct. So by the fiscal-end, it would go well past $1 bn, according to a study by the Executive Recruiters¡¯ Association (ERA). The ERA has culled out information on manpower recruitment in consultation with 93 different service tax collection points across the country, the major commissionerates being Mumbai, Delhi, Kolkata, Chennai, Ahmedabad, Bangalore, Pune and Hyderabad. Since recruitment firms pay service tax, the annual figures are arrived at on the basis of the tax paid. The study looked at performance of the recruitment industry for last nine years.