24 March - 30 March 2003

No 134

War in Iraq

China uncensors the war. Why? Ratings, of course
Viewers tuning in to CCTV in recent days have been treated to a remarkable sight: largely nonideological coverage of the war on what has long been the government's most carefully controlled news outlet. The seemingly sudden transformation reflects a deliberate government strategy to turn China's news media into more commercially minded organizations. Officialdom has gradually begun to realize that the government's alternation between wooden and strident responses to news events has damaged the country's image abroad and turned off viewers at home, who increasingly turn to Hong Kong broadcasts and the Internet. (WSJ, 27 Mar)

China Airlines permitted to fly over mainland
Starting March 26th, Taiwan's China Airlines daily flight to Amsterdam is allowed "in principal" to fly over the mainland but cannot land at any mainland airport. China announced earlier that it would open airspace to Taiwan commercial flights on their way to Europe to avoid the warring Gulf region. This is the first time that Taiwan commercial aircraft has been allowed to fly over the mainland onto other destinations. (ChinaOnline, 26 Mar)

China Central Bank appears to quietly stabilize markets
Chinese financial markets have mostly shrugged off the continuing conflict in Iraq as too distant to matter, but there is evidence Beijing may be helping to engineer the blase attitude. The People's Bank of China recently switched tack by sharply scaling back money market operations in a way that has allowed funds to build up in the financial system. The additional liquidity means banks, insurers and other institutional investors have had extra money on hand, making them less prone to sell amid uncertainties, such as the war. (Dow Jones, 25 Mar)

Profiting from the war news in China
Sina and other Chinese Internet companies are profiting from the war in Iraq, by offering China's 216 million mobile-phone users instant message updates on the latest war news. Traffic on Sina's short-message service was 10 times the average level on the day the attack began. Sales at Sina, Netease.com and Sohu.com have risen by more than 90% in the past year as Chinese people increasingly turn to the companies to supply them with news, sports scores and dating prospects, highlighting the decreasing influence of state-controlled media. (Bloomberg, 24 Mar)


European firms air grievances on trade barriers
The E.U. Chamber of Commerce in China highlighted the problems raised by investors in a new report. The report contains a laundry list of non-tariff barriers in various fields such as accounting, the auto industry, banking and cosmetics. (SCMP, 28 Mar)

China not 'World Factory', but one of its workshops
According to Wang Mengkui, director of the Development Research Center under the Chinese State Council China, is not "the world factory" as overstated by some overseas economists, but rather one of the workshops in this global manufacturing system. He quoted 1999 figures showing China's share in world manufacturing output as 5%, while the U.S. accounted for 20%, and Japan, 15%. He also disclosed that 70% of the exports of China's top 200 exporting enterprises are processed goods. (People's Daily, 25 Mar)

CNY130 billion projects to advance western regions
The central government has decided to start another 14 key projects involving a total investment of more than CNY130 billion to improve western China's infrastructure and environment. The projects included the construction of roads, railways, power stations and urban infrastructure in 12 western provinces and autonomous regions. Construction has been taking place on 36 key projects in the western region over the past three years and about CNY270 billion has already been invested. (China Daily, 25 Mar)

China props up world economy
According to Stephen Roach, chief economist with Morgan Stanley, China currently accounts for about 4% of a world economy valued at USD32 trillion, but was responsible for 17.5% of the growth in world GDP last year - second only to the growth contribution of the U.S. China is also a promising market for other economies, as it is expected to be Asia's largest importer by 2005. China ran a USD13 billion deficit with South Korea, a USD5 billion deficit with Japan and a USD8 billion deficit with Southeast Asian economies last year. (People's Daily, 24 Mar)


Hopes fade of a new bailout
The central bank played down the prospects of a second round of bad-loan transfers this year to help clean up the banking industry. The 1999 transfer of CNY1.4 trillion in bad loans to four new asset-management companies had been described as a "last supper" for China's banks. But slow progress in reducing banks' bad loans fuelled speculation of a second transfer to the asset-management companies. However, an official at the central bank's Monetary Policy Department has indicated that such a strategy isn't likely this year. (FEER, 3 Apr)

China plans housing credit risk-prevention mechanism
China's real estate industry has maintained an average annual growth rate of 25% in recent years. In July 2002, a total of 120 million square meters of commercial apartment floor space lay vacant, trapping a large amount of investment. Due to large over-supply, the real estate and with it the mortgage value is being reduced. This could incur tremendous losses for banks as they can not make up for defaulted debts. The establishment of an efficient nationwide individual credit evaluation system is therefore crucial to minimize banks' risks arising from credit loans. (China Daily, 28 Mar) Non performing mortgages: Another crisis in the making...

Yuan's trading range to expand
Guo Shuqing, head of the State Administration of Foreign Exchange, has made it clear China will widen the yuan's trading band this year, while ruling out possibilities of revaluing the country's currency in the near term. China had made the renminbi convertible on the current account, which covers trade. It is relaxing controls on capital account transactions, which cover investment and borrowings, but will not rush to make its currency fully convertible for fear of creating risks. (Business Weekly, 26 Mar)

Allianz gets greenlight for new biz
German-based Allianz announced it had been given the final approval to launch its first property and accident insurance operation in China. Allianz is the first foreign company to be permitted to establish a non-life insurance service since China's WTO accession. It is also the first European insurer to offer both property and accident and life insurance in China. (China Daily, 27 Mar)

Two foreign firms confirm QFII applications
China's flagging plan to allow big foreign investors to tap the country's USD500 billion domestic stock market got a boost as two top financial firms confirmed they had applied to trade yuan-denominated shares. Nomura Securities and Morgan Stanley had filed with Chinese regulators to trade domestically listed A shares under a qualified foreign institutional investor (QFII) scheme. They were the first foreign firms to confirm their QFII applications. (Reuters, 26 Mar)

SAFE upgrades rules to increase foreign cash flow
The State Administration of Foreign Exchange announced measures, which will boost the flow of foreign direct investment into China. They contain a broader array of funding sources that foreign investors can use as their stakes in Sino-foreign joint ventures, and clarify procedural matters regarding FDI-related forex administration. (China Daily, 25 Mar)

Allianz, Guotai Junan get operating license for China JV
Guotai Junan Allianz Fund Management Co. was approved by the CSRC in October last year, but had to wait until now for the operating license to actually begin business activities in China. This marks the second operating license granted by the CSRC to a Sino-foreign joint venture fund management company. The first was that of ING Investment Management and China Merchants Securities. (Yahoo, 25 Mar) The well informed recall that the Sino-Swiss Venture Capital Management Company Ltd. (SSVC) was the very first Sino-foreign fund management JV.


China's Premier calls for more anti-corruption efforts
Wen Jiabao, China's newly-elected Premier, vowed to fight against corruption with greater resolution and to build a clean government. He made the remarks at a working conference of the State Council. He said, in addition to more severe punishment for corrupt officials, the supervision of administrative power should be strengthened. (People's Daily, 28 Mar)

Scepticism greets new premier's attack on graft
Regional economists and businesspeople were sceptical that Premier Wen Jiabao's warning to corrupt government officials would lead to a cleaner government. Corruption is so rampant that a mainland economist estimated last year that roughly 15% of the nation's GDP was corruption-related income. According to a recent study of mainland bank deposits, 0.16% of the population controls 65% of the nation's USD 1.5 trillion liquid assets. Compared to the rest of Asia, China has the highest concentration of wealth in the fewest hands, an indication that a small group of mainlanders - 2.4 million - were able to get rich quickly. (SCMP, 28 Mar)

Insurance regulator gains full ministerial ranking
The China Insurance Regulatory Commission has gained full ministerial ranking, placing it on the same footing as the China Securities Regulatory Commission and the newly established China Banking Regulatory Commission. CIRC's elevation puts the final touches to a three-pillared regulatory framework, reflecting the need for more focused governance of China's fast-growing financial sector. (SCMP, 26 Mar)

Laura Cha rules out change in CSRC policies
China Securities Regulatory Commission vice-chairman Laura Cha stressed there will be no policy change despite recent changes to the government's top hierarchy. Capital market reforms would continue and the CSRC would continue to adopt a "very proactive attitude" towards market regulation. This is despite criticism of over-regulation led by Mrs. Cha and market speculation that new low-key chief Shang Fulin might adopt a less aggressive approach than his reform-minded predecessor Zhou Xiaochuan. (SCMP, 26 Mar)

Liu Mingkang to head China Banking Regulatory Commission
Beijing officially announced the appointment of former Bank of China chief Liu Mingkang as chairman of the CBRC. (SCMP, 26 Mar)

Xiang to head CNY124 billion China fund
China has named Xiang Huaicheng, the former finance minister, chairman of China's National Security Fund Council. The fund, which currently manages CNY124 billion, is expected to focus on strengthening donations from the sales of state-owned company assets and diversifying its portfolio to international stock investments. Asset sales are expected to pick up once the new State Asset Management Commission gets running. Mr. Xiang main task is to tackle China's huge pensions shortfall estimated at more than 50% of GDP. (FT, 25 Mar)

PBOC Governor: Banking reform to be at micro level
China will not only modify its banking system by macro management, but also promote banking reform at the micro level, said Zhou Xiaochuan, newly elected governor of the People's Bank of China. He noted that the priority of the micro reform was to reduce the proportion of the policy administration upon China's banking business. The market pricing system needs to be fully established within the banking system, he urged. Zhou also announced decisive and effective policies to solve the problem of the non-performing assets that face Chinese banks. The NPA rate of China's four state commercial banks has amounted to about 25%. In order to meet the PBOC's requirement of a NPA rate below 15% before 2005, the four banks must reduce their NPA rate by 3 to 5% annually. (People's Daily, 24 Mar)

Central banker to be new Bank of China president
Xiao Gang, Vice Governor of the People's Bank of China, has been named to replace Liu Mingkang as president of Bank of China. Liu has been named as chairman of the new China Banking Regulatory Commission. (Dow Jones, 24 Mar)

Lofty goals for new commerce ministry
China's new commerce Minister Lu Fuyuan says he will unify the domestic market and crack down on forgery in a bid to try and improve the nation's market conditions. The minister, while recognizing anti-dumping measures as a reasonable and reliable mechanism, said China hopes to make the measures fairer during ongoing trade liberalization talks. China will also take an active role in regional and sub-regional economic co-operation, especially with ASEAN members. "A major aim of establishing the Ministry of Commerce is to unify domestic and foreign trade, and to tutor enterprises on giving up regional protectionism and standing up to a larger global market," the minister said. Lu noted the unification of the domestic market depends heavily on a complete legal system and said he hopes laws against regional protectionism will be introduced soon. He is also proposing to set up more company credit evaluation centers across the country. (China Daily, 24 Mar)


Green light given to indirect flights
The General Administration of Civil Aviation of China has approved the application by Singapore Cargo Airline for authority to exercise "fifth freedom rights" between Singapore and Chicago via Xiamen in Fujian Province and Nanjing in Jiangsu Province. This will be the first time the Chinese mainland has granted fifth freedom rights to a foreign air carrier. (China Daily, 25 Mar)


BMW, Brilliance China sign JV agreement
BMW Group and Brilliance China Automotive signed an agreement to establish a joint venture in Shenyang. The venture will be engaged in production, sales and after-sale services of BMW cars. The combined annual output of the 3 and 5 series sedans is expected to reach 30'000 units in the medium term. The 50/50 venture will have total investment of EUR450 million by 2005. (ChinaOnline, 27 Mar)

Daimler plans EUR250 million China export plant
Daimler-Chrysler is seeking approval to establish an EUR250 million joint venture in Fuzhou that will manufacture commercial vehicles for export to Southeast Asia. The intended investment signals growing interest among international carmakers in China as an export production base. The venture would appear to contravene a state policy that foreign carmakers can have only two equity ventures in China. (SCMP, 27 Mar)

China World's No. 1 machine tool importer
China's dynamic economy and growing fixed asset investment were the driving forces behind last year's USD5.5 billion purchase of machine tools, making the country the world's largest machine tool consumer. In 2002, the country's tool imports approached USD3 billion, making China the world's largest tool importer. (People's Daily, 26 Mar)

Chinese dairy opens first overseas JV
Australian Sanyuan-Challenge Dairy Co., a 50/50 venture between Sanyuan and Challenge Cooperative Dairy Co., will have USD27 million of capital injection by 2004. Eventually it will sell half of its products in the Chinese market. China's milk output grows 8% annually, but the market demand expands as fast as 33%, which will eventually lead a shortage of fresh milk supply. (ChinaOnline, 26 Mar) Got milk?

Imported car prices rise
Imported car prices soared amid conflict between growing demand and short supply. 2003 import quotas will be distributed to dealers in April, but most have already sold out all the cars they were allowed to import with last year's permits. Last year, China imported more than 127'000 vehicles, up 77% year-on-year. The government is committed to lifting the quota restriction on imported autos by 2005. Analysts once estimated that the country would import 200'000 vehicles with USD8 billion quotas in 2002. But the government decided to devote most of the quota to auto parts rather than completed cars to protect its fledgling auto industry. (Shanghai Daily, 25 Mar)


Pipeline storm dies down; work remains
Prime Minister Mikhail Kasyanov announced Russia's compromise decision to build a main oil pipeline extending to its Pacific coast, aiming for the Japanese market, with a USD2.5 billion branch line piping its crude to China's city of Daqing. A move to please both Japan and China, which have been vying for Russia's massive crude deposits in eastern Siberia, Russia's decision bears more diplomatic meaning than an actual sign of intent. (Business Weekly, 26 Mar)

Power companies rushing to build new plants
The five newly established power conglomerates are scrambling to construct generating plants to expand their business operations. Guodian Power Group and China Huadian Power Group signed agreements with Sichuan Province to tap its rich hydropower resources. Datang Power Group and Huaneng Group have expanded into neighboring Yunnan and Fujian provinces. Each firm vows to invest tens of billions of yuan to develop hydropower resources. Companies rush in to the hydropower sector because cheap production costs leave the firms in favorable positions to sell electricity to power grids. (Business Weekly, 26 Mar)


Rolex to have biggest regional facility in Shanghai
With quotas on imported watches abolished at the start of this year, Swiss manufacturer Rolex is investing USD12.5 million in a trading company and a repair and service center in Shanghai. It will be the first such wholly owned foreign venture by a single foreign watchmaker. Industry sources said the center, with all equipment imported from Switzerland, would be Rolex's biggest repair and service center in Asia. (SCMP, 24 Mar)

Swiss firms rush into Shanghai
Swiss companies are pouring a growing amount of investment into Shanghai. Companies such as Roche, Nestle and Schindler have set up branches in this city. By the end of January, Shanghai had approved 109 Swiss investment projects worth USD1.26 billion in contracted investment. In 2001, Switzerland was the third-largest European investor in Shanghai, according to the Swiss Chinese Chamber of Commerce. Projects mostly cover sectors such as pharmaceuticals, electronics and machinery. In addition to the big names, more and more small and medium-sized Swiss companies are looking to tap the local market. (Shanghai Daily) None of the figures confirmed.


MTV launches China channel
MTV Networks will launch a 24-hour music cable channel in Guangdong province, where it would reach an estimated one million households. MTV, known in the U.S. for its sex-fuelled videos and controversial programs is taking a milder approach in China, where popular tastes - and official Communist sensibilities - frown on such fare. But executives insisted neither they nor Chinese officials censored MTV content. "We still give the heads up on the kinds of artists we intend to play, give examples of the videos that will be coming up in the coming weeks and months, but there is no minute-by-minute screening." (CNN.com, 26 Mar)

Weekly Market update  28 March 2003  21 March 2003
Shanghai A 1560.15 1541.88
Shanghai B 121.65 121.13
Shenzhen A 442.10 439.38
Shenzhen B 200.07 197.13
Hong Kong Red Chip  933.36 981.77
Hong Kong H 2232.03 2147.53
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.

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