Category Investing in China

South Africa to invest more in China

South Africa will increase its investment in China this year to strengthen the economic ties between the two fast-growing emerging markets, said a South African minister.

“We would like to increase our investment in several sectors such as automotive and energy,” Rob Davies, deputy minister of South Africa’s department of trade & industry, told China Daily.
South Africa’s investment in China hovered around $700 million in 2006. The figure for 2007 is not yet available.

These investments mainly went to breweries, hotels and the energy sector. The biggest investments have been made by South African giants such as MIH, SAB Miller and Sasol, who are striving to expand their presence in China.

Multinational media giant MIH, which already has stakes in several newspapers in China, including the Beijing Youth Daily, Titan Weekly and Anhui Daily, is eyeing the mobile TV market in China as the country is poised to launch the facility before the Olympic Games.

Energy tycoons Sasol and Anglo-American are also accelerating their billion-dollar projects in China, one in coal-to-petroleum and another in coal chemicals. SAB Miller, one of the world’s largest breweries, is looking for more opportunities after its joint venture in China acquired five local brands in the 2006 fiscal year ended March 31.

Sources said major South African banks such as ABSA and Investec are initiating a China fund aimed at investment opportunities in the world’s fastest growing economy.

“The scale of the fund will be larger than any investment South African companies have ever made in China,” a source said.

China has invested thrice as much in South Africa as the latter in China, Davies said. Most of the rapid increase in Chinese investment has come through China’s largest lender ICBC’s takeover of a 20 percent stake in South Africa’s Standard Bank. The $5.46 billion deal was completed on March 4.

“Trade and economic cooperation is a major strategic area in the cooperation framework of South Africa and China,” said Davies.

This year will mark the 10th anniversary of the establishment of the two countries’ diplomatic relations.

Bilateral trade has developed over the past decade from a negligible figure to $9.86 billion in 2006, according to statistics of the Ministry of Commerce. China is now South Africa’s second largest source of imports after Germany and its sixth largest export market.

“The trade imbalance between two countries has been largely improved,” said Davies, adding South Africa’s exports to China grew much faster than imports from China last year.

While boosting investments in China, South Africa is also urgently looking for more Chinese investment, particularly in the infrastructure and raw material processing sectors.

“We would like to have more value added to our mining products before exporting them,” Davies said.

Talks have been on with some Chinese companies including Sinopec and Sinosteel for cooperation toward that end.

Alibaba.com gives UK route to China

For years, the glut of cheap imports flowing from the huge manufacturing zones of southern China on to shop shelves across the world has resembled an irreversible tide.

The result? An escalating trade deficit which has come to underline China’s role as the West’s factory floor.

Now, the largest internet company in China is attempting to help swing the pendulum back in the other direction.

Alibaba.com, the e-commerce firm headed by Jack Ma, the man dubbed China’s “internet godfather”, is to launch an online platform which will encourage the owners of British small and medium-sized enterprises (SMEs) to export their products to the world’s most populous country.

Called Export to China, Export to the World, the new service, which will be launched in the second half of this year, will target the 268,000 Britons who are already members of Alibaba.com.

The website is currently recruiting new members in this country at a rate of 2,000 every week.

David Wei, chief executive of Alibaba.com and a former executive at B&Q in China, said that the new platform would appeal to British SMEs operating in industries in which Britain retained a prominent international role.

“In high-technology engineering products, where the UK is still very competitive, and in areas such as patents and intellectual property, there is a major opportunity for UK SMEs to export to China,” said Wei.

Alibaba.com is the Hong Kong-listed unit of Alibaba Group, which also includes one of China’s biggest consumer websites and a substantial online auction business.

Wei said the company continued to keep an open mind about stock market listings for other divisions of the group.

“We are keeping all options on the table,” said Wei.

Last week, Alibaba.com reported its maiden results as a public company, unveiling a 200 per cent rise in operating profit to RMB804m.

The Chinese company may play a significant role in the ongoing takeover battle between Microsoft and Yahoo!, which owns a 39 per cent stake in Alibaba Group.

Ma is understood to have appointed Deutsche Bank to advise him on the situation and is in talks with potential investors who may be interested in co-funding a buyout of the Yahoo! stake.

On Friday, Ma was one of a number of senior Chinese businessmen who attended a discussion in London with government ministers about the future of the internet.

Common staffing mistakes in China, and how to avoid them

It’s a slow news day – besides that whole one-year-to-go thing – and while we were tempted to run with this story from the Shanghai Daily, the better angels of our nature prevailed and instead, we decided to republish an excerpt from our popular “Common mistakes and misperceptions when investing in China – and how to avoid them” China Briefing issue from July of last year.

Common mistakes when using Chinese staff to set up or run your company

Putting them in control of everything

Yes, it may be very useful to have that ever-so-nice-and-efficient local Chinese person help you with all aspects of setting up your China operations, including all business licenses, offices, bank accounts, handling all documentation and so on. The language and bureaucracy are almost unintelligible and you’re a busy corporate executive. But wait; is it normal business practice anywhere to have one person in control of all aspects of your country operations? No, it isn’t, and with very good reason.

Their abilities may not stretch as far as international competencies

Although they may in fact be honest and helpful, the way in which foreign companies have to be administered in China, and the reporting structures they have to go through, are very different from those that Chinese companies have to adhere too. In reality, foreign businesses in China face far more scrutiny than Chinese companies do. If your employee, good as they are, is not familiar with the regulatory aspects concerning operating and maintaining an international office or business in China, chances are there will be issues your company will immediately be out of compliance with. That can and does get expensive. Additionally, there are circumstances where the employee may deliberately keep the company out of compliance – to obtain benefits or other leeway later if any argument arises against their favor later on.

Having one person in control of all your corporate documents and/or banking

Very common. The risks are obvious. You can lose all your abilities to operate the company overnight if he/she decides to walk out of the door. Plus all your money.

Insertion of family and friends into your supply chain
This is very common. You need to audit your purchasing and sales departments regularly to ensure employees are not placing orders with companies owned by friends or relatives that are then charging your business at rates well over the market odds.

Setting up of parallel businesses

In one particularly nasty case we were called in to investigate, two Canadian-Chinese were hired, having worked for the parent company overseas for several years, to establish a China manufacturing entity. This they did, however the China business never was able to attain anywhere like the projected sales, and had to be continuously funded from the parent to tide it over. A variety of “market conditions,” “competitor pricing” and so on were given as excuses. When, just before a new US$1 million investment was to be injected into the China entity, the parent decided just have a quick look-see internal audit – things started to become clear. The two trusted employees had established a mirror company, with similar sounding Chinese name to the international brand, and had been diverting all orders to that business instead. “Local competitive pricing” indeed. From a business the staff themselves had established to compete with their employers.

Common mistakes when hiring expatriate employees to set up and run your China entity

There are problems with expatriate staff as well. Especially, (and unfortunately) often with personnel in professional services.

Hiring lawyers with no China experience

Expensive, and not really much point, especially if their Chinese language capabilities are minimal. However, many look good, and although their firms may have a China presence, what about their individual presence in China? International lawyers are great at international work – cross border structuring and so on – but far too many of them profess expertise in areas of China practice they are neither qualified or experienced to be dealing with. Are you looking for a salesman selling his firm, or proper advice? Really, if you need to hire a lawyer with China experience – go to a firm that has the real thing. That’s what they are there for, and China has had private lawyers now for 15 years – Google their names to see how well known they are.

Hiring personnel On their language skills alone

Well, everyone has to start somewhere. But a new kid just out of language school is still a new kid out of language school, and will have no experience dealing with the “China issues.” Don’t expect miracles. And two years in China does not an expert make. Young graduates do have skills of course, but don’t weigh them down too much with managerial responsibilities before they have had time to adjust them to a commercial business environment and have found their feet around your business. A management development program designed to maximize on their language skills yet introduce them to your business will reap greater rewards both for you and for them if you treat them with continuing educational attention.

The China guys

Expats of note are those who really know their way around, and can steer you away from all the problems. They will have a good grasp of the language, and may well have settled down with family here. You cannot survive in China without knowing how to get on, and this is a matter of experience as well as possessing inherent patience, tenacity and people and communications skills. They are available – interestingly at this time, many of the established multinationals are localizing and expatriate engineering and other talent is perhaps more available in China than ever before.

For more on the common mistakes and misperceptions when investing in China, check out the 2006 July/August issue of China Briefing.

Microsoft Unveils Windows Embedded R&D Center in China

Microsoft Corp has launched its first Windows Embedded regional development center in Asia. This new facility, the Microsoft Embedded Systems Development Center (MESDC), will support global product development and drive smart, connected, service-oriented device development.

Located within the Microsoft Advanced Technology Center (ATC), part of the Microsoft China Research & Development Group (CRD) in Beijing, China, the MESDC is a significant part of the US$75 million global investment in R&D that the Windows Embedded business is making this fiscal year.

The MESDC will support global product R&D, drive development of innovative features of Microsoft’s embedded operating systems, and accelerate collaboration between the US-based Microsoft product groups and their counterparts in the ATC. In addition, the MESDC will support the needs of the active windows embedded partner ecosystem in China by engaging with OEMs in embedded systems to showcase high visibility embedded systems projects that accelerate the development of connected consumer devices.

Microsoft has started recruiting embedded systems engineers for the MESDC. By the end of 2008, the MESDC will have up to 15 engineers working closely with the Windows Embedded product development team in Redmond, Washington.

China: Still at the ‘top of the head’

by Steven Halpern
Filed under: International markets, China, Newsletters, Stocks to Buy

“Is China’s rip-roaring bull market over?” asks Larry Edelson. The editor of Real Wealth says, “No. No. And no!” Here, he looks at two favorite funds for investors seeking exposure to China.

“China’s economy continues to fire on all eight cylinders. The country’s fourth-quarter 2007 gross domestic product rose an amazingly robust 11.2%. That’s down a tad from third-quarter growth of 11.5%, but who’s kidding who? China is still at the top of the heap as the fastest-growing major economy on the planet!

“Meanwhile, Beijing’s fiscal revenues are soaring. According to the National Statistics Bureau, the government’s fiscal revenue hit $691 billion (almost $2 billion per day) last year, up from $261 billion in 2002.

“And don’t forget, that’s just tax revenues. China’s mountain of foreign reserves has climbed to an astounding $1.53 trillion – and is growing at a rate of more than $1 billion per day.

“Add it all up, and China has almost $2.3 trillion stashed in the bank. Plus more than $3 billion a day of positive cash flow. In contrast, the U.S. has negative cash flow of more than $2.7 billion per day.

“I find it incredible that just a few years ago almost every analyst I talked to told me China’s banking system was going to implode. Now , China’s banking system is now one of the strongest in the world, with 15% of their deposits held as reserves at the People’s Bank of China, the country’s central bank.

“Contrast that with U.S. banks, which hold on average about 8% of their capital, including stock and earnings, as reserve capital to meet so-called Tier 1 requirements for bank safety. That’s less than half of what China’s banks hold.

“My suggestion: Buy the heck out of China’s stock market. The pullback you’ve seen there is nothing more than a sharp technically-based sell-off. Here are investments you can use:

1. iShares FTSE/Xinhua China 25 Index (ASE: FXI). One of the most liquid ETFs that tracks China’s top 25 companies, the FXI is a great way to play China. The ETF is down more than 32% from its highs and is now bouncing off of long-term chart support. I consider it a great buy!

2. U.S. Global Investors China Regional Opportunity Fund (USCOX). This mutual fund invests at least 80% of its money in the China region, from Mainland China to Hong Kong, Taiwan and more. Manager Frank Holmes’ worldview and analyses are similar to mine. The fund is now trading at just $11, back to 2003 levels. Another great buy, in my opinion.”

Each day, Steven Halpern’s TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation’s leading financial newsletter advisors.

Nation top draw for FDI in 2007

China received $74.7 billion in foreign direct investment in non-financial sectors last year, ahead of all developing countries for the 15th successive year.

The figure reflects a year-on-year increase of 13.59 percent, the Ministry of Commerce said yesterday.
Total foreign direct investment, including capital flows to the financial sector, hit $82.7 billion in 2007, up 13.8 percent from a year earlier.

“The growth is higher than my expectation,” said Wang Zhile, director of the Multinational Enterprise Research Center affiliated to the Ministry of Commerce. “It shows China’s role as a crucial link for multinationals’ global manufacturing, purchases and research.”

There could be some adverse influences on foreign investment in China this year.

Income tax rates for domestic and foreign companies have been unified at 25 percent from the beginning of 2008. Before this, domestic companies paid a 33 percent income tax while foreign companies, which benefited from tax waivers and incentives, would pay an average of 15 percent.

But foreign enterprises registered before the date of implementation will benefit from the favorable tax rates for another five years.

Foreign investors also have to pay more for labor and material costs, such as oil, plastics and steel, as well as face tighter policies on polluting and resource-intensive industries.

But experts believe China will continue to be a magnet for FDI as Beijing’s policies on foreign investment and opening up will not falter.

FDI in non-financial sectors is expected to increase four to six percent year-on-year in 2008 to hit $69 to $72 billion, according to a report released by the center of forecasting science under the Chinese Academy of Sciences.

The report said FDI in the service sectors, including banking, insurance and retail, is expected to accelerate this year as China opens up these sectors to foreign investors further.

The ministry last year approved 37,888 foreign-invested enterprises in China, including in financial sectors, down 8.69 percent from a year ago.

Although the ministry did not give a breakdown of the countries from where the FDI originated, FDI from both the US and the 15 original members of the EU dropped in the first 11 months of last year.

German businesses upbeat in China despite barriers

The German business community is optimistic about operations in China, despite the obstacles, according to a recent survey.

The survey was conducted by German Industry and Commerce (GIC) China and Euro Asia Consulting Part, which focuses on China and other Asian growth markets.

It questioned 273 businesses, including wholly owned German companies, Sino-German joint ventures and German firms with representative offices in China.

Topics included the characteristics of German operations, investment motives, operational models, market potential and barriers.

About 200 new German-backed operations are set up in China every year. The survey found most German companies are optimistic about the Chinese economy.

The vast majority, or 80 percent, of respondents said they had achieved or exceeded targets. Production, trade and service firms tend to break even within an average of four years, according to the survey.

There’s few complaints about sales momentum in China, with 86 percent of the German companies surveyed saying they were satisfied or very satisfied with sales. Many said their businesses were focused locally rather than export-oriented.

Low operating costs and sourcing are still favorable to foreign-backed firms, according to the survey, despite price rises in some areas.

The manufacturing industry still dominates German operations based in China, but trade and service are developing very quickly.

German small- and medium-sized enterprises (SMEs) are increasingly seeing China as a good option, the survey said.

Of the German operations with more than 10 years of market presence in China, 12 percent are backed by SME parent companies. But 57 percent of German firms in China for four years or less are backed by SMEs. Most German SMEs follow their key customers to China, the survey said.

The expansion of the tertiary industry and the boom of SMEs is expected to add diversity and vitality to the market.

German firms prefer to set up wholly owned operations in China rather than joint ventures because of their strategic advantages – such as direct control over Chinese subsidiaries, the survey said.

Of the wholly owned German companies in the survey, 86 percent said they wouldn’t change their approach to the Chinese market. But only 24 percent of the joint ventures said they would repeat their business strategy, while 44 percent would maybe choose a joint venture again.

Representative offices are no longer as useful to German firms operating in China, with only 27 percent of respondents wanting to open them, due to their limited functions. In 2002, that figure was 50 percent.

“As China has eliminated market entry barriers and upgraded its economic structure, the German business community has become an integrated and indispensable part of the Chinese economy,” said Richard Hausmann, chairman of the German Chamber of Commerce in China.

He said GIC applauds efforts to liberalize legal restrictions to allow foreign companies more freedom to choose the most suitable operating model.

Recruiting and retaining qualified employees is also a difficulty for German firms in China, with 27 percent of respondents saying it was a major obstacle and 47 percent considering it a problem.

Non-tariff trade barriers have improved, the survey said. But 41 percent of respondents said they still have problems in this area, especially in terms of time and capital needed for licenses in China.

“German operations in general are cautiously optimistic for all areas of existing barriers to doing business in China,” said Hausmann.

Most survey respondents are positive about market potential in China, and nearly all plan to expand business activities here.

The survey also acknowledged the contribution of German companies to China’s economic and technological progress since the late 1970s.

The report urged policymakers to improve the investment environment, reform the legal system and strengthen IPR protection. It also called for better education and vocational training.

Headhunter sets sights on growth

SHANGHAI: Randstad Group, a human resource solution provider based in the Netherlands, is seeking to expand its foothold in China through its new headhunting channel.

The company, which acquired a controlling stake in Shanghai Talent Co last May, also has a Beijing office with more than 20 consultants tackling the North China market.

“We are seriously considering opening an office in Hong Kong and expanding into second-tier cities in the foreseeable future,” Randstad’s Managing Director Paul van de Kerkhof said.

Unlike conventional recruitment companies and headhunters, which usually find candidates through job fairs or telephone interviews on a random basis, Randstad offers a sector-based recruiting mechanism to meet clients’ specific needs. The company assigns two of its consultants to form a unit focusing on a specific market segment – engineering, automotive, finance, sales and marketing – and to work for clients with vacancies in these sectors. Each unit would manage an active database for both clients and candidates.

“When a client comes to us with a vacancy, we can screen in our databases to find out whether there are such candidates matching their requirements,” van de Kerkhof said. “Such upfront databases and working units will greatly shorten the time cycle of recruiting, which usually costs three to four weeks.”

Van de Kerkhof, an HR specialist with more than 20 years’ experience, explained that jobseekers in China often consider higher pay their first priority, and some ignore factors such as career development and employer competency.

To address this dilemma, Randstad uses its own unique criteria, namely “5C” – CV, character, company click, competence and career plan – in selecting potential candidates from its database.

Randstad holds that soft skills, such as character and competencies, are as important as hard skills. “We often explain to our clients that they should be open to candidates with different backgrounds. If the criteria are only based on hard skills, the potential development will be limited,” van de Kerkhof said.

Headquartered in the Netherlands, the Randstad Group entered the Chinese market three years ago, becoming the only foreign recruitment firm to hold both staffing and recruitment licenses in Shanghai.

Upon buying into Shanghai Talent Co last May, the company obtained Shanghai Temporary Staffing Services, which focuses on HR outsourcing and payroll systems within and outside of Shanghai.

Van de Kerkhof agreed that working with local companies is of vital importance for foreign HR firms in China.

“Teaming up with Shanghai Talent first of all provided us with a broad knowledge of the local market,” he added.

Source:China Daily

Kaplan Establishes Financial Training Center In Chengdu

As part of an agreement with Southwest University of Finance and Economics, Kaplan, Inc., together with its affiliate Kaplan ACE, will establish a financial training center that will provide internationally-recognized financial qualifications and on-the-job training to students in western China.

Kaplan is one of the world’s leading providers of financial services education, with centers in the U.K., U.S., Australia, Hong Kong, and Singapore. Located on the campus of Southwest University of Finance and Economics, the new center will offer training programs for qualifications such as the Association of Chartered Certified Accountants, Chartered Financial Analyst, Certified Financial Planner, and Financial Risk Manager. It will also host forums that will cover current economic trends.

Professor Xiao Ma, vice principal of SWUFE said, “In order to achieve steady and rapid economic development, it is critical that China’s accounting and financial professionals meet international standards. This training center will help ensure that China’s most talented accounting and financial professionals are qualified in the global marketplace; it will also promote financial development in western China.”

In 2006, Kaplan provided approximately 600,000 licensing and continuing education courses to corporate clients and professionals around the world. Mark Coggins, president of Kaplan Asia Pacific, said, “We’re excited to be a part of Chengdu’s emergence as an important financial center in western China.”

Kaplan is a leading provider of educational services to individuals, schools and businesses, serving over one million students annually with operations in more than 30 countries around the world. Its international programs include higher education, test preparation, language instruction and professional training.

Foreign food firms keen to bite into huge market

FOREIGN food companies are making a beeline to China hoping to tap the huge potential in the imported food industry as they cash in on people’s rising disposable income and easing of import tariffs.

A record 800 companies from 35 countries and regions yesterday promoted their food specialities and beverages at FHC China 2007 in Shanghai for the first time.

One of the largest international food, wine and hospitality equipment and supply exhibitions, it opened yesterday and will end tomorrow at Shanghai New International Expo Center in Pudong New Area.

A wide variety of imported products will be displayed, from fresh and preserved foods, beverages, wine and spirits, bakery ingredients to confectionery, suggesting foreign companies are really eager to tap the emerging market.

Seven Austrian companies are showcasing food specialities like Julius Meinl Coffee, Darbo jams and Pfaffl wines at their pavilions.

“China’s entry to the World Trade Organization has lowered tariffs and brought economic liberalization that yielded gains for US food exports,” said Wayne Batwin, an official from the Agricultural Trade Office at the US Consulate Shanghai.

“Continued economic growth boosted the demand for high-quality foods and improvements in retail, distribution and transport system also increased competitiveness of imported food and beverages in the local market,” Batwin added.

Metro Cash & Carry China is one foreign food and beverage company which is benefiting from Chinese people’s interest in imported food.

Revenue of imported food now makes up 10 percent of Metro China’s total food sales and the retailer plans to set up an imported food area in all its 34 stores nationwide to meet consumers’ demand, Philippe Bacac, general manager of Metro Cash & Carry China East China Business unit, said.

Besides wine, snack foods such as ice creams and frozen foods are also becoming popular.

“The competition in the snack foods sector is quite demanding amid people’s growing disposable income and willingness to try new things,” said Zhong Wei, marketing manager of Gourmedis (China) Shanghai Office. He also added that sales were also boosted as consumers trusted imported food meets international safety standard.

Gourmedis, which added Alberto Pizza, Cellini Coffee and Maina cakes into its existing 1,000 items under 15 brands this year, has generated a revenue of 30 million yuan (US$4.1 million) since late last year.

“We are confident we will double our turnover next year,” Zhong said.