EMBASSY OF SWITZERLAND


CHINA BUSINESS
BRIEFING (*)

08 April - 14 April 2002

No 91


Olympic bond issue proposal rejected
The central Government has vetoed an application by Beijing city to issue bonds to finance projects for the 2008 Olympic Games, the first sign of trouble in funding the world's biggest sporting event. (SCMP, 8 April)

Sony sets pace with first music venture
Sony Music has become the first foreign record company to forge a joint venture in China, defying rampant piracy in the country. Under its WTO commitments, China has agreed to open up the country's distribution network for audio and video products. Critics said pirated recordings accounted for more than 95% of the China market, making music companies reluctant to enter the market. (SCMP, 8 April)

Inadequacies of China banks showing as big client defects
The Chinese financial press has been gripped by the news that Ericsson had paid back nearly RMB 2 billion in loans to three Chinese banks and transferred most of its business to foreign banks. China joined the WTO four months ago and foreign banks will have full access to the domestic market only five years after accession - but the loss of premium customers has already begun. (SCMP, 8 April)

Domestic carmakers see profits crash
Profits from the car industry in China, the hardest hit manufacturing sector after the nation's entry into the WTO, are predicted to be further squeezed by an expected increase in vehicle imports during the remaining period of this year. Profits of 15 key automakers totaled RMB 960 million during the first two months of this year, a 21.8% decrease from the year before. A SETC report attributed the profit drop largely to price cuts. (People's Daily, 8 April)

New treasury bonds to finance frontier development campaign
The central government decided to issue RMB 150 billion in treasury bonds for construction this year. Almost 40% of the tremendous investment will be directed to the western region. (China Daily, 8 April)

Siemens pouring capital into R&D
Siemens AG will shift its focus from investment in manufacturing facilities to research and development and aims to transfer advanced technology and expertise to China in the coming years. Siemens has established more than 40 joint ventures and 26 regional offices in China, creating more than 21'000 jobs. They decided to pour USD 250 million into establishing three R&D centres in Asia by 2003 and two of them will be in Beijing and Shanghai respectively, with the other in Singapore. (China Daily, 8 April)

Middle East instability triggers reserves move
Nervous about how the conflict in the Palestinian territories will end and of a possible United States attack on Iraq, China has started to build up strategic oil reserves for the first time. China last year imported 60.26 million tonnes of oil, down from 70.27 million in 2000. At least half of the imports came from the Middle East. (SCMP, 9 April)

A flavour of Switzerland for the far east
The Financial Times looks at Nestlé's operations in Japan and China:
Japan is still a far bigger market than China for Nestle but that may soon change. Nestle went to China in 1908. It was expelled by the Communists in 1948 and returned in 1990. The company worked closely with the local farmers, following its traditional strategy of absorbing the local culture and language, while rigorously analyzing the local markets and educating local consumers in the use of Nestle products. Ten years later, Nestle has17 factories in China and is stepping up its growth through acquisitions. The company believes that by 2010 China will have overtaken France to become Nestle's second largest market after the US. (FT, 8 April)

Japanese firms head for China
Most of the larger Japanese manufacturers look at China as the most important place for their future investments. The companies also try to tap into the large consumer market, but the majority sees China rather as a production base. (www.cbiz.cn, 7 April)

ADB Report: China '02 GDP seen up 7%, '03 up 7.4%
The lingering effects of last year's global slowdown are expected to weigh on China's economic growth this year, with Asian Development Bank forecasting GDP growth slowing to 7.0% in 2002. However, describing China's macroeconomic outlook as bright, the report predicts a pick up in the pace of growth to 7.4% in 2003 due to resurgent local demand and as the benefits of WTO membership kick in. (Dow Jones Newswires, 8 April)

Unrest in China as fired factory workers protest no pay
Hundreds of workers occupied a Chinese toy factory in the province of Guangdong after they were fired without pay, then fought with security guards sent to eject them, China Labor Watch said. (Dow Jones Newswires, 8 April)

Private business rising as impetus to Chinese economy
According to official statistics, private business in China accounts for 13% of GDP. Asian Development Bank says that taking holding companies, foreign-funded companies, township-owned business and private business in rural area into account, private business accounted for 60% of the country's GDP. ADB said over half of China's 200 million employees in urban areas open up their own business or work for private businesses. (People's Daily, 10 April)

Green food market outlook rosy
China's "green" food industry is enjoying a rosy market outlook as its annual production of 15 million tons, or 3% of the food market, is far from enough to meet the growing demand of the Chinese people. The rapid growth of China's national economy and per capita income have triggered changes in market demand. More people care about their nutrition and health and prefer green food for its production free of pollutants. (People's Daily, 10 April)

Galaxy, Citibank sign securities pact
Citibank and China's Galaxy Securities have signed a co-operative agreement in the first such pact between a foreign bank and a mainland securities firm. China bars banks from directly participating in the securities business but has allowed alliances with brokerages to make its banks more competitive following entry to the WTO. (SCMP, 10 April)

Star TV records first profit on progress in China
In an important turning point in the nascent commercial-television market in China and Asia, Rupert Murdoch's Hong Kong satellite broadcaster Star TV made its first-ever profit during the quarter ended March 31. (WSJ, 10 April)

China's telecom infrastructure spending up 15.3% in '01
Spending by China's telecommunications operators on infrastructure and equipment rose 15.3% to RMB 264.8 billion last year despite vendor complaints that policy debates within the industry caused projects to be delayed. China's government, looking for ways to increase competition in the telecom market, at the end of last year decided to split up China Telecom. (Dow Jones Newswires, 10 April)

China's 1st quarter industrial output up 10.9%
China's value added industrial output rose 10.9% year on year to RMB 649.4 billion in the first quarter, signaling a return to steady growth after the distortions caused by the Lunar New Year holiday. (Dow Jones Newswires, 10 April)

China launches new state-run book publishing, trade group
China launched a state-owned publishing group that merges 13 book publishers and trading companies. Government officials said they are committed to creating a group of Chinese media companies that are large enough to compete with international media giants such as AOL Time Warner. Despite its commercial ambitions, the group will continue to be directly supervised by the Communist Party's Propaganda Department. (AWSJ, 9 April)

Retail sales of consumer products total USD 121.5 billion in 1st quarter
China's consumer-goods market continued to enjoy steady growth in the first quarter. A preliminary estimate indicates that from January to March, the retail of consumer products reached RMB 1 trillion, up 8.7% over the same quarter last year. Actual growth exceeded 10% if declining prices are taken into account. (ChinaOnline, 10 April)

China 2002 retail sales expected up 9.8%, CPI up 0.5%
The State Economic and Trade Commission expects China's retail sales in 2002 to grow by 9.8% from a year earlier. The consumer price index is expected to grow by 0.5%, while the retail price index will drop by 1.2%. (AFX News, 11 April)

Multinational retailer gets foothold in China
German-based Metro Group, the world's third largest retail chain, signed a contract with the Tianjin municipal government to invest USD 15 million to set up chain stores. The purchasing volume of the foreign retailers in China totaled RMB 249 billion last year, accounting for 12% of the national volume of commodity exports. (China Daily, 11 April)

Individuals buy 50% of cars in 1st quarter
China's auto sales saw substantial growth in the first quarter. With individuals purchasing more than 50% of the cars. Sedan sales increased over 20%. Compact and economy models replaced medium and high-end ones to be the major engine for market growth. Experts expect overall sales to grow more than 10% this year. (ChinaOnline, 11 April)

Is there any point in manufacturing cars in China?
The Economist looks at car manufacturing in China. Their findings are revealing but hardly surprising: Car making is more capital-intensive than labor-intensive. The logic that is driving other manufacturing industries to move production to China-skilled but very cheap labor-therefore does not apply. In the car industry, indeed, China has one of the worst cost structures anywhere. (Economist, 11 April)
http://www.economist.com/

VW, Shanghai Automotive to extend China joint venture
Volkswagen AG and China's Shanghai Automotive Industry Corp signed an amended joint venture contract extending their cooperation in China for another 20 years until 2029. (AFX News, 12 April)

State Council backs blueprint in sector reform
The State Council has approved a much-awaited reform for China's near-monopoly State Power to spur competition in the sector. According to the blueprint, State Power, which owns about half the country's 300'000 megawatts of installed capacity, will reorganize its assets into two arms - power generation and power distribution. After this, the power generation assets will be restructured and held through three or four national independent power producers. (SCMP, 12 April)

China confident and capable of doubling its 2000 GDP by 2010
President Jiang Zemin said that China is confident and capable of doubling its 2000 GDP by 2010. Jiang made the remarks at a banquet held by the Asia-Pacific Committee of German Business in Berlin. (People's Daily, 12 April)

Soft drinks a hard road for Pepsi
Pepsi has nearly 30 joint-venture or co-operation projects in China, with a total investment of nearly USD 500 million, and nearly 10'000 employees. Heavy spending on advertising, promotion and sponsorship and low profit margins mean Pepsi has lost money during the 20 years it has been in China, and it does not expect to turn a profit for at least two or three years. "All the multinationals lose money in China," a spokeswoman for the company in China said. "It is normal to lose money when you start something." (SCMP, 12 April) Call that a 20-start-up-period.

Munich Re receives insurance license in China
Munich Re has received a license to operate in China. With the license, Munich Re becomes the first foreign company allowed to operate in the Chinese reinsurance business. (Dow Jones Newswires, 12 April)

Unified tax rates on way in line with WTO pledge
The mainland will eventually unify its two-tier tax system for foreign and local enterprises, according to the head of the State Administration of Taxation. Under China's tax regime, foreign-invested enterprises operating in designated economic zones can qualify for a maximum tax rate of 15%, compared to 33% for most local companies. National treatment tax reform is one of the few WTO requirements China must implement that will negatively impact foreign investors. (SCMP, 13 April)

Premier insists on yuan stability
Premier Zhu Rongji reaffirmed that China has no plans to devalue the yuan or shift the currency from its virtual peg to the US dollar to a basket of currencies in the near term. Experts said China's top priority was to keep its currency as stable as possible during what promised to be a turbulent entry period to the WTO, and ahead of a leadership reshuffle expected later this year. (Reuters, 13 April)

Citibank fees subject of landmark suit
Wu Weiming went to the Citibank's Puxi Branch to open an account with a deposit of USD 800, but was told that any customer with a balance of less than USD 5'000 would be charged a monthly fee of RMB 50. He filed a lawsuit against Citibank, demanding an apology and RMB 34 compensation to cover his travelling expenses. Wu claimed, the fee discriminated against small depositors. The policy also restricted people's consumption, which was against the law. On March 21, Citibank became the first foreign solely owned lender on the mainland to be licensed to provide foreign currency banking services to domestic customers. But the bank's fees have been a source of controversy as mainland customers have not paid service charges before. (HK-iNews, 14 April)

Weekly Market update  12 April 2002  5 April 2002
Shanghai A 1731.49 1705.25
Shanghai B 150.39 151.74
Shenzhen A 508.40 501.38
Shenzhen B 231.50 232.89
Hong Kong Red Chip  1204.97 1230.47
Hong Kong H 2088.53 2094.54
Source: South China Morning Post

China Business Briefing is a random selection of business related news gathered from various media and news services covering China, edited by the Embassy of Switzerland in Beijing and distributed among Swiss Government Offices and other interested parties. The Embassy does not accept responsibility for accuracy of quotes or truthfulness of content. Upon request and depending on the resources available, the Embassy will provide further information on the subjects mentioned in the China Business Briefing.
vertretung@bei.rep.admin.ch 

15.4.2002

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