51job Stake Sold to Japan’s Recruit
NEW YORK — 51job Inc., which publishes a leading employment paper in mainland China, said Wednesday certain shareholders have agreed to sell a 15 percent stake to Recruit Co. Ltd., a privately held Japanese human resource services company, as part of a wider strategic alliance between the two companies.
Under terms of the agreement, Recruit has agreed to buy 8.5 million 51job shares at a price of $13 per share, or $26 per American depository share. The deal also gives Recruit the option to buy another 25 percent of 51job over a three-year period.
Shares of 51Job rose $2.29, or 12.9 percent, to $20.00 before the bell. The Shanghai, China-based company also lists job online and provides executive search services.
The two companies said they will set up a planning group within 51job to assess human resources opportunities and other new businesses in China. Recruit will also be involved in 51job’s business development activities and cooperate in certain new business areas, 51job said.
http://www.chron.com/disp/story.mpl/ap/fn/3772545.html
Recruiting, developing, and retaining staff in China
As multinational corporations compete for a share of China’s burgeoning economy, they face various human resource issues, including how to recruit, develop and retain local staff. Paula Santonocito reports on these challenges.
When Google recently hired Kai-Fu Lee from Microsoft to head up its China operations, the story of a giant corporation vying for rights to an employee based on a non-compete agreement made headlines. Corporations will no doubt focus on the outcome of the legal wrangling, but the story raises another issue as well.
“When a company hires a new president, China and its bigger rival launches a US lawsuit citing ‘predatory hiring,’ then you know that China is hot,” says Mike Goldstone, founder and managing partner of Goldstone & Co., a Hong Kong-based firm specialising in executive search, board advisory, and human resource advisory.
In sharing his perceptions with Expatica, Goldstone points to what may be lesser known facts: Lee is not even a Mainland Chinese (he is Taiwanese), he is US-educated, and he has spent most of his career in the United States.
According to Goldstone, who has 12 years’ experience hiring heads of China for Western multinationals, Lee’s background illustrates that the profile of a high-level executive, even one in demand, isn’t necessarily obvious.
The competition for Lee also raises the question: Why is hiring senior executives in China so difficult?
Skills gap
With a population of 1.3 billion, it seems China would have an abundance of in-country talent. But Goldstone indicates this isn’t the case.
“China suffers from a ‘demographic Black Hole’,” he tells Expatica. “Because of the closure of the Chinese universities during the Cultural Revolution, China did not produce any academically trained graduates between 1982 and 1996, and then only in small numbers for several years. So even today, statistically speaking, there are very few Mainland Chinese university graduates with more than 15 years work experience and almost none with more than 20.”
Goldstone cites how 20 years from now this shouldn’t be as problematic because Chinese universities have been pumping out large numbers of talented, self-motivated people.
But there is another factor, one that may not be so easily resolved.
“The Chinese economy is growing at such a rate that Mainland Chinese executives need to be able to manage an operation somewhere between 10 to 30 percent bigger and more complex every year just to stay on top of their existing jobs,” Goldstone says.
These demands take a toll. “There is a lot of road-kill caused by this steamroller economy: executives, both local and foreign, who just can’t raise their game quickly enough,” Goldstone explains.
Communication and culture
Growth has also created another area of concern for executives struggling to keep up in China: demands of the corporation’s home country.
Goldstone points out that the China operations of many foreign companies have become large enough and strategic enough so that they now report directly to corporate headquarters, or at least have more direct communication with headquarters.
“This puts an added strain on Mainland Chinese executives to bridge the communication and culture gap, most of whom have no overseas experience and who lack the cultural understanding to manage, say, a boss in Seattle effectively,” Goldstone says.
Choosing leaders
It’s Goldstone’s observation that in lieu of hiring local Mainland Chinese executives to oversee operations in China, a lot of US companies are hiring Mainland Chinese returnees. “The benefits are that many returnees have been in the U.S. long enough to understand the workings of typical US corporate culture and how to work it. The downsides are that many have been out of China too long to have effective informal networks or to understand modern day buying behaviours, employee motivators, etc.,” he says.
Local staff are often sceptical about returnee leaders, Goldstone tells Expatica, noting there can also be resentment for the higher compensation returnees typically receive.
When seeking leadership, companies sometimes look within the organisation, turning to emerging market expatriates. The can-do attitude of trusted, results-oriented executives made them leaders of choice in the early to mid 1990s, Goldstone explains, indicating there is still a place for these individuals. However, attitude isn’t everything. “In my view, an executive running China can’t really be more than 30 percent effective unless they can at least speak Mandarin, and preferably read and write it as well,” he says.
The fourth, and perhaps most desirable option, is hiring ethnic Chinese executives who originate from Hong Kong, Taiwan or Southeast Asia. Goldstone tells Expatica it’s an approach that foreign companies have taken for the last 10 to 15 years. In general, these leaders have necessary advantages—including local language capability, familiarity with both local and Western cultures, an understanding of how to get the job done, and a global view. However, there simply aren’t enough leaders to meet demand. In fact, Goldstone indicates that informed observers generally cite the finite supply of these executives as the key constraint on China’s ability to continue to increase manufacturing market share.
Managerial challenges
Going forward, Goldstone says there will be challenges for executives overseeing operations in China, regardless of their country of origin. “Without doubt, the biggest challenges are faced by those companies which are trying to build a large market within China rather than just to use a China as low-cost production base,” he tells Expatica.
This is due in part to managerial challenges related to culture. Goldstone gives the area of sales as an example.
“Basically, Mainland Chinese like to buy on their own terms from their own country people. Companies that I have worked with find out very fast that the only effective sales force in China is a 100 percent local sales force—but the problem then becomes how to manage that sales force to corporate headquarters standards. That’s where the talent is required,” he explains.
The situation is further compounded by the fact that sales people are in demand, and they’re aware of their market value. Retention, therefore, becomes a key issue.
Coaching and developing local staff
One tool for retention is staff development. Kevin Ng, a partner with Deloitte in Tianjin, tells Expatica that even though executives overseeing operations in China may not have time, it’s important to coach the local staff.
Recruiting in China isn’t an issue for the global consulting and financial advisory firm, but retention is. After one or two years, employees in China tend to leave Deloitte for further study or to work for a competitor, Ng says.
The market keeps growing and there is a lot of temptation for employees, Ng explains, indicating that nowadays job hopping can lead to a paycheque increase of 50 percent.
“Companies need to know how to recruit and develop Chinese workers—and how to retain them,” he says. Ng recommends that companies provide training, show concern for employees, and arrange for overseas assignments to increase international exposure and perspective.
Goldstone concurs with Ng that retention tools are paramount. He says China really is the land of opportunity for the current generation of university graduates aged 21 to 45. However, Goldstone notes that people are willing to stay put if they feel their current employer is actively investing in developing their skills and offering them the opportunity to test their newly developed skills in positions of increased responsibility.
“From a headhunter’s point of view, the worst challenge in China is trying to hire talented mid-level general managers or functional people to new enterprises from well-respected multinationals which manage their HR well. In such cases, candidates tend to adopt a ‘three strikes and you’re out’ approach with their current employer before they will accept even a patently better career step with another employer. That’s retention in any country,” he says.
Going forward
As companies evaluate operations in China, human resource issues are getting closer scrutiny. Indeed, in the first of a series of webcasts focused on China, US-based manufacturing magazine IndustryWeek cites human capital as the single most important factor in achieving growth in China.
The web presentation, hosted by John Brandt, CEO of the Manufacturing Performance Institute and columnist for IndustryWeek, highlights the importance of hiring well, and then training and cross-training well. Skills to train for include technical, teaming, financial, and creativity, Brandt says.
Training and development is also the focus of a new initiative by Manpower, a world leader in the employment services industry. The firm recently launched the first in a series of international public-private partnerships in China. From its office in Shanghai, Manpower will develop human resource strategies and infrastructure to support China’s rapidly growing labour requirements. Projects include quantifying future vocational skills and training required in Shanghai, the installation of Internet-based assessment systems in local employment offices, and the design and provision of training and development programs, among other efforts.
Manpower’s initiative illustrates a growing awareness of the importance of managing human resources in China. But the firm’s latest move is also indicative of a larger trend: aggressive expansion in China. Although Manpower entered the Chinese market in 1964 with an office in Hong Kong, today the firm and its subsidiaries have a network of 38 offices in China, including 17 in Mainland China.
There is no question that China is the global hot spot. Nevertheless, experts caution that operational challenges in China are unlike those in other locations, and that expansion will not necessarily lead to greater market share, a fact some companies are already discovering.
The most successful organisations will be those that understand the challenges specific to China and adapt accordingly, experts tell Expatica. At the top of the list is how to effectively recruit, develop, and retain local employees in order to create a solid base from which to grow and prosper.
www.expatica.com
SKorea’s Hynix to invest new 230 million dollars in China
SEOUL (AFP) – South Korean chipmaker Hynix Semiconductor said its board of directors approved a plan to invest 230 million dollars in expanding operations in China this year.
A new Hynix-owned business entity will be launched to boost chip production at a joint venture plant under construction in Wuxi in China’s eastern province of Jiangsu, Hynix officials said.
Hynix, the world’s second largest memory chipmaker, and European giant STMicroelectronics, are to open the two billion dollar plant, Hynix-ST Semiconductor, in Wuxi this year.
“The new investment is to be used to launch a new unit, Hynix Semiconductor Wuxi, to increase production more than planned by the joint venture at the plant in China,” Hynix spokesman Kim Ah-Young told AFP.
She made the comment to clarify an earlier statement that said Hynix would build a new plant.
Hynix has been looking at China as a new production base to help the company defuse a trade row over its chip exports and boost earnings.
The South Korean company has been hit by punitive tariffs in the European Union and United States over allegations it has been supported by government subsidies.
Hynix was rescued in December 2002 by a multi-billion-dollar bailout arranged by South Korean creditors, some of whom were state-controlled.
Hynix officials told AFP Thursday that the Hynix-STSemiconductor plant would begin mass production as early as July in 2006. Hynix owns 67 percent of the joint venture while STMicro controls 33 percent.
Hynix and STMicroelectronics agreed to invest 500 million dollars each in the joint venture, with the local Chinese government and financial institutions to put up one billion dollars.
“We expect to start mass-producing new products on the eight-inch (200 millimetre) wafer line in July and on the advanced 12-inch (300 millimetre) wafer line in December,” a Hynix official told AFP.
Hynix posted a net profit of 1.85 trillion won (1.9 billion dollars) in 2005, up seven percent from a year earlier, on 5.9 trillion won in sales.
http://news.yahoo.com/s/afp/20060406/tc_afp/skoreaitchinahynixinvestment_060406101625
Asia Times: AmCham bullish on China
BEIJING – Intellectual property rights and power shortages are problems in both Shanghai and Beijing but the outlook for business in both cities remains overwhelmingly positive, says the “White Paper 2005 American Business in China” released September 1.
The white paper, the seventh annual report of its kind, was jointly prepared by the American Chamber of Commerce in China (AmCham) and the American Chamber of Commerce in Shanghai, and outlined the current state of business for a number of industries, ranging from manufacturing, trade and distribution to services. Released annually, the paper is the result of surveys and consultation among nearly 2000 member businesses of both chambers.
City-specific challenges for Beijing, Shanghai
It also points out a number of city-specific challenges faced by Beijing and Shanghai as they develop a more international business environment. Despite growing government attention, intellectual property rights protection remains a prominent problem in both cities. While progress has been made, AmCham says the lack of protection is forcing business to reconsider plans in both Shanghai and Beijing. A lack of enforcement by local governments was cited as a major issue.
Energy supply is also a concern. Both cities faced shortages this summer and had to “borrow” power from neighboring areas. The stop-gap measure kept both cities operating, but long-term solutions are needed, says AmCham.
Still, said James Green, AmCham Shanghai’s director of government relations, the biggest challenge is human resources. “Finding, training and keeping management,” Green said. “It’s a hot, hot labor market and people are in high demand.”
In Beijing, said AmCham, there has been progress in reducing red tape for businesses and transparency is better. There is, however, an acute lack of water and growing traffic woes that may hamper the city’s ability to meet long-term goals. Air quality in the city is also a problem. The number of airborne particles rose last year and, the report points out, the Chinese Academy of Social Sciences ranked Beijing 14th among China’s cities on that count.
Shanghai businesses tended to focus on the practical side of business and lifestyle. A stable supply of electricity was a concern alongside slow Internet connections, which make it difficult to do business online. One concern, which affects Beijing as well, is a lack of regulations for distribution companies: “… lack of progress on distribution rights is especially noteworthy in Shanghai.”
As in Beijing, intellectual property rights are a concern but they may have a more direct impact in a city looking to attract high technology businesses to its 140 foreign-invested research and development centers. Many companies don’t expand beyond a representative office “for fear of losing proprietary information and technology.”
Other concerns for Shanghai businesses included daily-life issues. Health care was a top concern, as was traffic safety. Education for expatriates also posed a challenge: businesses said their employees had trouble finding spots in accredited foreign schools at reasonable fees. Ultimately, however, the outlook is positive, said AmCham Shanghai chairman Jeffrey Bernstein.
US firms upbeat
A huge majority of US businesses operating in China reported increases in annual revenues last year, according to the white paper. About 86% of respondents said they posted higher revenues in 2004 compared to the previous year; and 68% were “profitable” or “very profitable” last year.
The nationwide survey also showed that US companies had great confidence in China’s business environment. “The vast majority of survey respondents, 93%, report that China’s economic reforms have improved the climate for US businesses, and 92% said their five-year business outlook in China is ‘optimistic’ or ‘cautiously optimistic’,” the white paper said.
At the same time, US businesses are facing increasing competition from both local companies and foreign rivals. Profitability in 2004 was slightly lower that in the previous two years, indicating more challenges. “We attribute the leveling margin to both improved markets elsewhere and to US firms’ financial performance in China more closely tracking their global performance as China revenues grow,” the white paper said.
It explained that factors such as price pressure from major customers, as well as changes in market and commodity prices, and salaries, are driving down margins. But the white paper added this was minor compared to the continuity of higher profitability since China joined the World Trade Organization. Despite increasing challenges, most US companies said they would increase business activities in China.
Emory Williams, chairman of AmCham China, said the annual white paper made suggestions not only to the Chinese government but also to the US administration. For example, he said, the US government should relax restrictions on issuing visas to Chinese. According to the chamber’s survey, visas issued to Chinese nationals were up 23% compared to the previous year, but still lower that the level before September 11, 2001.
China suffering shortage of civil aviation specialists
BEIJING (AFX) – China will need to employ at least 240,000 civil aviation specialists over the next two decades, the official Xinhua news agency reported, citing an industry expert.
‘China’s civil aviation business will suffer a shortage in specialists for quite a long time in the future,’ said Du Yefu, an expert from the Civil Aviation University of China, according to Xinhua.
China aims by 2020 to have a civil aviation market that is on a par with that of the US now, but there is currently a large gap between the two nations, the news agency said, citing Du.
Less than 200,000 people work for aviation companies in China compared with over 700,000 in the US, Xinhua said.
The average ratio between staff members and aircraft in international air companies is 100 to one, whereas in China it is 200 to one, the news agency added.
http://www.forbes.com/business/feeds/afx/2006/03/27/afx2625840.html
Volvo to sell China-made luxury cars
MONDAY, MARCH 20, 2006
BEIJING The Swedish carmaker Volvo said Monday that it would start selling locally made S40 luxury sedans in China.
Ford Motor’s joint venture in China will produce 10,000 units of the S40 sedans a year from Changan Ford’s plant in the western city of Chongqing, said Frederik Arp, president and chief executive of Volvo Cars.
Volvo will start selling the S40 sedan this summer, which is from June to August in China.
“Local production is the key to remain competitive in China,” Arp said at a press conference. The company is facing a situation where its “main competitors are already producing their volume models locally.”
Rising incomes in China have generated an increasing number of buyers for premium cars. Car sales in China rose 21 percent in 2005 to 3.97 million units and could grow 17 percent this year, according to the China Association of Automobile Manufacturers.
So far, Volvo has imported cars into China. Last year, it sold 4,786 units, an 84 percent increase over 2004. Sales of the S40 accounted for nearly a third of the total.
Bayerische Motoren Werke said sales of cars made in China rose 77 percent to 15,300 units last year, compared with a 9.9 percent sales gain worldwide. BMW, which set up its China venture in 2003, makes five models at its venture in the northeastern city of Shenyang.
DaimlerChrysler’s venture in China, which started to sell locally made Benz sedans in December, increased sales of imported Benz cars by 39 percent to 16,128 units last year. The company is making two E-class models at its venture in Beijing. Chrysler Group plans to start making 300C sedans this year.
The decision to start local manufacturing was made because of “the significant growth of the overall market combined with the fact that the lion’s share of the growth is happening from local manufacturers,” Arp said. “So being an importer only is not necessarily a long term success situation.”
Depending on the demand, the output for the S40 from the Chongqing plant may rise, Arp said, without giving details. The sedan accounted for nearly a fifth of Volvo’s global sales last year.
“It’s a great advantage not to have to invest in all the facilities in a joint venture,” Per Norinder, Volvo Cars’ general manager in China said. “Changan Ford already has a factory up and running.”
A locally made Honda Civic
Honda Motor plans to sell locally made Civic compact cars in China.
The company, which produces the Civic in 12 countries, said it planned to sell 50,000 Civic units in China this year.
“Civic is more important for Honda in China than its other models like Accord, as the popular compact car model is more attractive to consumers with its cheaper price and fuel efficiency,” said Yale Zhang, an analyst with CSM Asia in Shanghai.
BEIJING The Swedish carmaker Volvo said Monday that it would start selling locally made S40 luxury sedans in China.
Ford Motor’s joint venture in China will produce 10,000 units of the S40 sedans a year from Changan Ford’s plant in the western city of Chongqing, said Frederik Arp, president and chief executive of Volvo Cars.
Volvo will start selling the S40 sedan this summer, which is from June to August in China.
“Local production is the key to remain competitive in China,” Arp said at a press conference. The company is facing a situation where its “main competitors are already producing their volume models locally.”
Rising incomes in China have generated an increasing number of buyers for premium cars. Car sales in China rose 21 percent in 2005 to 3.97 million units and could grow 17 percent this year, according to the China Association of Automobile Manufacturers.
So far, Volvo has imported cars into China. Last year, it sold 4,786 units, an 84 percent increase over 2004. Sales of the S40 accounted for nearly a third of the total.
Bayerische Motoren Werke said sales of cars made in China rose 77 percent to 15,300 units last year, compared with a 9.9 percent sales gain worldwide. BMW, which set up its China venture in 2003, makes five models at its venture in the northeastern city of Shenyang.
DaimlerChrysler’s venture in China, which started to sell locally made Benz sedans in December, increased sales of imported Benz cars by 39 percent to 16,128 units last year. The company is making two E-class models at its venture in Beijing. Chrysler Group plans to start making 300C sedans this year.
The decision to start local manufacturing was made because of “the significant growth of the overall market combined with the fact that the lion’s share of the growth is happening from local manufacturers,” Arp said. “So being an importer only is not necessarily a long term success situation.”
Depending on the demand, the output for the S40 from the Chongqing plant may rise, Arp said, without giving details. The sedan accounted for nearly a fifth of Volvo’s global sales last year.
“It’s a great advantage not to have to invest in all the facilities in a joint venture,” Per Norinder, Volvo Cars’ general manager in China said. “Changan Ford already has a factory up and running.”
A locally made Honda Civic
Honda Motor plans to sell locally made Civic compact cars in China.
The company, which produces the Civic in 12 countries, said it planned to sell 50,000 Civic units in China this year.
“Civic is more important for Honda in China than its other models like Accord, as the popular compact car model is more attractive to consumers with its cheaper price and fuel efficiency,” said Yale Zhang, an analyst with CSM Asia in Shanghai.
BEIJING The Swedish carmaker Volvo said Monday that it would start selling locally made S40 luxury sedans in China.
Ford Motor’s joint venture in China will produce 10,000 units of the S40 sedans a year from Changan Ford’s plant in the western city of Chongqing, said Frederik Arp, president and chief executive of Volvo Cars.
Volvo will start selling the S40 sedan this summer, which is from June to August in China.
“Local production is the key to remain competitive in China,” Arp said at a press conference. The company is facing a situation where its “main competitors are already producing their volume models locally.”
Rising incomes in China have generated an increasing number of buyers for premium cars. Car sales in China rose 21 percent in 2005 to 3.97 million units and could grow 17 percent this year, according to the China Association of Automobile Manufacturers.
So far, Volvo has imported cars into China. Last year, it sold 4,786 units, an 84 percent increase over 2004. Sales of the S40 accounted for nearly a third of the total.
Bayerische Motoren Werke said sales of cars made in China rose 77 percent to 15,300 units last year, compared with a 9.9 percent sales gain worldwide. BMW, which set up its China venture in 2003, makes five models at its venture in the northeastern city of Shenyang.
DaimlerChrysler’s venture in China, which started to sell locally made Benz sedans in December, increased sales of imported Benz cars by 39 percent to 16,128 units last year. The company is making two E-class models at its venture in Beijing. Chrysler Group plans to start making 300C sedans this year.
The decision to start local manufacturing was made because of “the significant growth of the overall market combined with the fact that the lion’s share of the growth is happening from local manufacturers,” Arp said. “So being an importer only is not necessarily a long term success situation.”
Depending on the demand, the output for the S40 from the Chongqing plant may rise, Arp said, without giving details. The sedan accounted for nearly a fifth of Volvo’s global sales last year.
“It’s a great advantage not to have to invest in all the facilities in a joint venture,” Per Norinder, Volvo Cars’ general manager in China said. “Changan Ford already has a factory up and running.”
A locally made Honda Civic
Honda Motor plans to sell locally made Civic compact cars in China.
The company, which produces the Civic in 12 countries, said it planned to sell 50,000 Civic units in China this year.
“Civic is more important for Honda in China than its other models like Accord, as the popular compact car model is more attractive to consumers with its cheaper price and fuel efficiency,” said Yale Zhang, an analyst with CSM Asia in Shanghai.
BEIJING The Swedish carmaker Volvo said Monday that it would start selling locally made S40 luxury sedans in China.
Ford Motor’s joint venture in China will produce 10,000 units of the S40 sedans a year from Changan Ford’s plant in the western city of Chongqing, said Frederik Arp, president and chief executive of Volvo Cars.
Volvo will start selling the S40 sedan this summer, which is from June to August in China.
“Local production is the key to remain competitive in China,” Arp said at a press conference. The company is facing a situation where its “main competitors are already producing their volume models locally.”
Rising incomes in China have generated an increasing number of buyers for premium cars. Car sales in China rose 21 percent in 2005 to 3.97 million units and could grow 17 percent this year, according to the China Association of Automobile Manufacturers.
So far, Volvo has imported cars into China. Last year, it sold 4,786 units, an 84 percent increase over 2004. Sales of the S40 accounted for nearly a third of the total.
Bayerische Motoren Werke said sales of cars made in China rose 77 percent to 15,300 units last year, compared with a 9.9 percent sales gain worldwide. BMW, which set up its China venture in 2003, makes five models at its venture in the northeastern city of Shenyang.
DaimlerChrysler’s venture in China, which started to sell locally made Benz sedans in December, increased sales of imported Benz cars by 39 percent to 16,128 units last year. The company is making two E-class models at its venture in Beijing. Chrysler Group plans to start making 300C sedans this year.
The decision to start local manufacturing was made because of “the significant growth of the overall market combined with the fact that the lion’s share of the growth is happening from local manufacturers,” Arp said. “So being an importer only is not necessarily a long term success situation.”
Depending on the demand, the output for the S40 from the Chongqing plant may rise, Arp said, without giving details. The sedan accounted for nearly a fifth of Volvo’s global sales last year.
“It’s a great advantage not to have to invest in all the facilities in a joint venture,” Per Norinder, Volvo Cars’ general manager in China said. “Changan Ford already has a factory up and running.”
A locally made Honda Civic
Honda Motor plans to sell locally made Civic compact cars in China.
The company, which produces the Civic in 12 countries, said it planned to sell 50,000 Civic units in China this year.
“Civic is more important for Honda in China than its other models like Accord, as the popular compact car model is more attractive to consumers with its cheaper price and fuel efficiency,” said Yale Zhang, an analyst with CSM Asia in Shanghai.
http://www.iht.com/articles/2006/03/20/bloomberg/sxford.php
China’s Reserves Top Japan’s as World’s Largest
March 31 (Bloomberg) — China overtook Japan as the world’s largest holder of foreign-currency reserves last month, the latest evidence of China’s rising influence as an international financial power.
The Chinese government’s currency assets excluding gold rose to $853.7 billion as of Feb. 28, surpassing Japan’s $831.6 billion, according to Bloomberg News calculations using government data. China’s reserves, which now account for 20.1 percent of the world’s total of $4.3 trillion, climbed a third during the past year. Japan’s reserves account for 19.5 percent of the total.
A record trade surplus and a flood of foreign investment has pushed China’s currency holdings higher, increasing pressure on the yuan to rise in value and prompting the government to encourage investment overseas and purchases of imports. The U.S., led by Treasury Secretary John Snow, is pressing China to let its currency move with market forces.
“One can think of the phrase `be careful what you wish for’ if China revalues,” said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. A strengthening of China’s currency could affect “import prices, inflation pressures in the U.S., and could make the Fed’s job more difficult,” Sinche said.
U.S. lawmakers are considering more than a dozen pieces of legislation that would place punitive tariffs on Chinese imports unless the yuan is allowed to strengthen. Lawmakers including Senator Charles Schumer, a New York Democrat, say China’s undervalued currency hurts U.S. exports.
Yuan’s Gains
Since the yuan, a unit of the renminbi, was revalued by 2.1 percent against the dollar on July 21, it has only gained about 1 percent. The yuan rose to the highest today since July’s revaluation on speculation the market will have more influence on exchange rates after the foreign ministry yesterday said currency participants determine the value.
The yuan rose as high as 8.0173 against the dollar and was 8.0175 at the 3:30 p.m. close in Shanghai from 8.0264 yesterday, taking gains on the week to 0.16 percent, according to data compiled by Bloomberg.
Canada’s central bank governor, David Dodge, said yesterday in Princeton, New Jersey, that China shouldn’t be allowed to “frustrate market forces” by blocking movements in exchange rates.
$1 Trillion
Both China’s government and central bank have said they will make the country’s exchange rate system more flexible, while ruling out another revaluation. China’s reserves may rise to $1 trillion by the end of this year, marking the first time any nation’s reserves have reached that level, according to Stephen Green and Tai Hui, China economists for Standard Chartered Plc China economists.
China’s trade surplus tripled to $102 billion last year, helping to drive economic growth of 9.9 percent, the fastest among the world’s major economies. Schumer and South Carolina Republican Senator Lindsey Graham, after visiting China last week, postponed a vote on their China sanctions bill to give the country more time to change its currency system.
People’s Bank of China Governor Zhou Xiaochuan said in a speech March 20 that adjusting the yuan’s value won’t reduce the trade surplus. He said China will need two to three years to achieve balanced trade by increasing domestic consumption.
“The Chinese government has started expanding domestic market demand, lowered deposit rates, liberalized markets, allowed for exchange-rate fluctuations as part of our policy of improving the balance of international payments,” Zhou said. “The U.S. side must lower its fiscal deficit and boost savings.”
Direct Investment
China’s reserves of foreign currency, which economists say are between 70 percent and 80 percent in dollars, rose by an average $17 billion a month in 2004 and 2005. That was also fueled by about $120 billion of foreign direct investment and billions of dollars of capital inflows betting on a rising yuan.
“We have to be somewhat careful about a radical revaluation” of China’s currency, said Mickey Kantor, a former U.S. trade representative under President Bill Clinton and now a partner at the law firm of Mayer, Brown, Rowe & Maw LLP. “It could lead to more non-performing loans, which could make the banking system weaker. This is something we do not want to do.”
Kantor said U.S. should still be “strong advocates” for a revaluation of China’s currency.
Treasury Holdings
China’s holdings of foreign currency assets are now so large the country is shifting more of the added reserves into euros and yen to reduce its exposure to dollar-denominated assets.
China has been investing its reserves in U.S. bonds and assets. China held $262.6 billion in U.S. government Treasury bonds at the end of January, making it the largest investor after Japan. China’s purchases of Treasuries have helped hold down market interest rates in the world’s largest economy.
On March 5, Zhou said China won’t reduce the size of its dollar holdings, though the central bank will “adjust” total reserves based on international market conditions.
In a separate report, the International Monetary Fund said today central banks cut their U.S. dollar reserves for the fifth straight year in 2005 and also pared their holdings of the euro and yen.
Central banks held 44.8 percent of their total foreign- exchange reserves in the U.S. currency at the end of the fourth quarter, compared with 46.8 percent in the same period of 2004, the Washington-based IMF said.
As recently as 2001 the world’s central banks held over half of their reserves in dollars. The new figures validate speculation among investors that central banks are reducing holdings of dollars in favor of other currencies.
Detroit’s Loss Is China, Slovakia’s Gain as Auto Jobs Move East
March 3 (Bloomberg) — General Motors Corp. pays Qiu Mingyuan $18 a day to build engines in Shanghai. Thousands of miles away in Oklahoma City, Adana Spain last week lost a job paying about 10 times more when GM closed a factory there.
Qiu and Spain are the face of an eastward shift in car production after automakers including DaimlerChrysler AG and Ford Motor Co. announced plans to cut 192,000 jobs in North America and western Europe over the past five years. As the companies display new models this week at the Geneva Motor Show, they are shifting jobs to countries such as Russia, China and Slovakia in pursuit of cheaper labor and sales in growing markets.
Last year, for the first time, automakers built more cars outside North America and western Europe than inside, according to PriceWaterhouseCoopers. The migration of jobs may not end for eight to 10 years, says Chris Benko, a car industry analyst for the consulting firm.
“They’ve been outsourcing our jobs for a very long time and it isn’t just GM,” says Spain, 59, who moved to Oklahoma in the early 1980s after GM closed the plant in Southgate, California, where her late husband worked. “The American plants, as far as General Motors and them go, it’s going to continue to buckle, and the foreign plants are going to grow and take over.”
While global auto sales will rise almost 19 percent in the next seven years, most of the increase will come from outside North America and western Europe, says Nigel Griffiths, a London-based analyst for Global Insight Inc. His firm projects sales will grow 5.5 percent in the two regions, compared with 36 percent in the rest of the world, including 20 percent in eastern Europe and 44 percent in Asia.
`Horrendously Painful’
“The dislocation is going to be horrendously painful,” says Benko, who is based in Detroit. “This industry has lived on borrowed time a long time and it needs to go through this readjustment.”
Factories in North America and western Europe produced 48.9 percent of the world’s cars last year, down from 50.5 percent in 2004, Benko estimates. That share will drop to 44.7 percent in 2013, he forecasts.
Detroit-based GM plans to close nine factories and eliminate 30,000 hourly jobs in North America by 2008. Last week, it shut the plant in Oklahoma City where Spain and her colleagues built Chevy TrailBlazers and other sport-utility vehicles.
The company sold 26.2 percent of all new cars in the U.S. last year, down from 51 percent in 1962. That loss in market share has left GM with too many U.S. plants and too many workers.
Spain, whose husband died in 1999, says she didn’t work for GM long enough to be eligible for full retirement benefits and will look for another job.
Toyota’s Rise
Toyota Motor Corp., on pace to unseat GM as the world’s largest automaker in the next few years, is increasing its market share in both the U.S. and Europe. Asian automakers captured a record 36.5 percent of the U.S. market last year. Their share of western Europe rose to 17.4 percent from 14.8 percent in 2000.
The stock of Toyota, based in central Japan’s Toyota City, has risen 53 percent in the past 12 months, compared with a 16 percent gain in the 19-member Bloomberg World Auto Manufacturers Index. GM shares have dropped 44 percent in the same period.
Like GM, Dearborn, Michigan-based Ford is shedding workers in North America. Chief Executive Officer William Clay Ford Jr., 48, in January said the automaker would close 14 plants and eliminate as many as 30,000 jobs during the next six years. DaimlerChrysler’s Chrysler unit cut 40,000 jobs in North America from 2000 to 2004 to end losses at that division.
In western Europe, carmakers such as Paris-based PSA Peugeot Citroen and Wolfsburg, Germany-based Volkswagen AG are offering early retirement and buyouts while opening factories further east.
Volkswagen, DaimlerChrysler
Volkswagen may eliminate as many as 20,000 positions in Germany in the next three years. Auto sales in western Europe declined 0.2 percent to 14.5 million vehicles last year and have yet to get back to the peak of 14.63 million sold in 1999.
DaimlerChrysler CEO Dieter Zetsche, 52, is spending about 3 billion euros to cut 14,500 jobs at corporate headquarters and the company’s Mercedes division, mainly in Germany. At the same time, he plans to invest about 1.5 billion euros in China to make Mercedes and Chrysler models there.
GM and Ford have announced a combined 18,700 job cuts in Europe since 2003.
Volkswagen, Europe’s biggest automaker, plans to hire workers for a new assembly plant in Russia that will produce 300,000 Skoda Octavia sedans a year, Volkswagen CEO Bernd Pischetsrieder, 58, said Jan. 8 during an interview at the North American International Auto Show in Detroit.
Peugeot Chief Executive Jean-Martin Folz, 59, says the move to the east will continue.
`Center of Gravity’
“The center of gravity of our sales is moving east, while the center of gravity of our production was far in the west,” he said Feb. 8 in Paris, when the company released 2005 earnings.
Peugeot’s western European deliveries dropped 2.1 percent last year to 2.36 million vehicles. Sales in the rest of the world, mainly eastern Europe, the Middle East, South America and China, rose 8.4 percent to 1.03 million vehicles.
The company’s shift to the east is already changing the lives of its workers.
Barry Suddens, 59, took a buyout from Peugeot in May 2005 after working at its Ryton, England, plant for 20 years. He left with 55,000 pounds ($95,816) in hand and a pension of 917 pounds a month. Peugeot cut a total of 1,600 jobs at the Ryton plant in 2004 and 2005 through buyouts and early retirements, leaving about 2,000 workers at the factory.
Suddens says that since leaving Peugeot he has had 73 interviews for jobs ranging from stacking boxes at a warehouse to filling shelves at the local Tesco Plc supermarket, without an offer. He now volunteers to lead groups of schoolchildren on tours of his old factory.
“I planned to get another job,” he says. “I’ve totally given up now.”
Slovak Optimism
Peugeot spent 700 million euros to build its new factory in Trnava, Slovakia, which will employ 3,500 people. It plans to invest an additional 350 million euros to expand the plant’s capacity in 2010, adding 1,800 more jobs. The carmaker had 40,000 applications for the first 3,500 positions.
In 2005, gross monthly wages in the Slovak manufacturing industry averaged $574 (18,088 koruna), compared with $3,259 in the U.K., according to the national statistics offices of the two countries.
Marek Mikus, 24, is four weeks into a five-week training course before he starts his job at the new Peugeot plant.
“I’m very happy I got this job,” says Mikus, who previously worked as a security guard. “Peugeot is a big, stable company, and conditions for work are better here than with someone else.”
Qiu, 28, says he has been working in the engine department at GM’s factory in Shanghai for two years and earns about 3,500 yuan ($434) a month. The average hourly wage for a unionized assembly-line worker at GM plants in the U.S. was $26.35 at the end of last year, according to the United Auto Workers Web site. That’s about $4,200 a month.
No Complaints
Qiu says he’s satisfied with his pay. “There’s nothing to complain about,” he says.
It’s not just the low wages that make emerging markets attractive. Factory jobs follow sales growth, says Global Insight’s Griffiths.
“I don’t hate those people for those jobs moving over there,” says former GM employee Spain. “Those people are going to scramble for those jobs. I don’t blame them. But I walk through the plant, and it just about rips my heart out.”
Large auto-parts firms faring badly vs. China
By Bob Fernandez
Inquirer Staff Writer
Some auto-parts companies have it worse than Cardone Industries Inc.
Delphi Corp., the giant parts maker spun off from General Motors Corp., is in bankruptcy protection, and on Wednesday announced a massive employee buyout plan. Another big one, Dana Corp., filed for bankruptcy protection March 3.
Cardone’s biggest competitor, American Remanufacturers Inc. of Anaheim, Calif., was liquidated last November, putting its 1,650 employees out of work.
Cardone picked up some of its former competitor’s business, at least for now. George Zauflik, a Cardone Industries vice president, says his company has hired 225 workers in Philadelphia since November as former orders from American Remanufacturers, the nation’s No. 2 auto rebuilder, flowed to Cardone plants.
But automotive retail chains that used to buy rebuilt parts from the California company also started buying new parts from Chinese manufacturers, Zauflik says.
Cardone still has the advantage of quick delivery to U.S. retailers. But Zauflik said he fears that advantage could disappear if Chinese companies build and stock warehouses in the United States.
In bankruptcy court documents, American Remanufacturers cited debt, pricing pressures, raw material costs, and foreign competition for its woes. The company had plants in New Hampshire, Ohio, Arizona and California.
Herbert Ottman, 55, had a job in one of them. The machine operator showed up for his shift before dawn on Nov. 17 in Bedford, N.H., to find that security guards had locked the plant gates. Five-hundred-sixty workers in Bedford and in a sister plant in Merrimack, N.H., had no jobs. The two plants were operated as Car Component Technologies, a division of American Remanufacturers.
“I’m going to have to start a new career, for whatever time I have left,” Ottman said. He’s applied for 70 to 80 manufacturing positions in a widening circle around his home. “It hasn’t been an easy road the last couple of months.”