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11. May 2010 by admin.
When we talking about doing business with China, a thing at top may be asking yourself that how do you prepare to deal with Chinese government? Chinese government is supposed the most complex state organization not only because it governs the largest country of the world, but also it is running under the most complicated social system that’s influenced by its splendid culture over 5000 years.
The ways of dealing with the Chinese government may vary the results entirely different by becoming an effective support or reverse, to a tough barrier for your business operation in China. It is never over emphasized to call your attention do not ignore to learn this skill that may be your most important experience doing business than it’s used in any marketplace around the world. Here is a article gives you some examples.
Steven Cheng, Your China Strategy Consulting Group
Staying Power
Rajesh Dalal & Neelima Mahajan-Bansal, 05.05.10, 06:00 PM EDT
Working with the government is a vital skill in doing business in China but not easy to acquire.There are only a few multinationals that can claim to have figured out China. Carrefour can stake a claim to be one of them. The French retailer, and the world’s second largest, started off in a small way in 1995. Today it runs a chain of 79 stores. Experts reckon Carrefour has found the right formula to win in China. But the successful run hasn’t come without its share of mistakes.
In February 2001, in the midst of a strong roll-out, Carrefour got a severe rap on its knuckles. It had opened stores without the central government’s permission, the State Trade and Economic Commission said. So over the next two years the company had to stop expansion and restructure its existing 27 stores to meet the central government’s requirements. That was a severe blow to Carrefour’s growth plans. Says Laurie Underwood, co-author of China CEO (with Juan A. Fernandez), “Through the late 1990s, retail joint ventures (like Carrefour’s) started sidestepping the slow central government approval process by working directly with local governments–who were eagerly welcoming the foreign players in. Carrefour was especially ambitious and fast in this process. Because of its expansion speed, [it] became a target of the central government. When that happened, [it was] forced to halt everything until [it] had appeased the central government.”
Carrefour’s experience, as Underwood puts it, has become a warning for all companies that have entered or expanded in China since then. In some cases the regulation changed overnight. In some other cases the government has chosen to interpret the existing rules differently across the country. And in quite a few cases the government has suddenly adopted a protectionist attitude in a bid to guard local companies from competition from multinational corporations (MNC).
Now, it isn’t as if foreign companies aren’t well-versed in government relations in other countries. Yet in China this invariably tends to be a steep learning curve for expert chief executive officers. For most companies the effort behind government relations in China is far more intense compared to the other countries they are present in. It is not uncommon for CEOs in China to spend 60%-65% of their time on cultivating government relations. A foreigner needs a new lens to understand the role of the Chinese government in business. The clues lie in the way locals perceive the mandarins. There is a widespread acceptance that the government will exercise its “will” and it is better to be on its right side. There are no discussions, no arguments–just plain acceptance.
MNCs come to China with baggage from their home country–assumptions that the government functions around a mandate from the people. Says Jonathan Story, emeritus professor of international political economy at INSEAD and author of ‘China Uncovered: What you need to know to do business in China’, “You have to be able to work the government very effectively. Since it is a party and a state in parallel, there are multiple veto points. If you alienate someone, you can find your project stopped or delayed.”
Experts say there is really no right versus wrong while dealing with government in China. The prevailing wisdom tends to be: The government knows best. And if you are on the right side of the government, solutions could be found to correct the wrongs and make them right. So is there a D-I-Y recipe for building government relations in China? Not really. However, some fundamental principles could be the guiding force.
Geographic Coverage
There are many levels of governance in China–central, state and local. This has huge implications for companies. Depending on size and scale, one can choose to start at one level and expand coverage to others progressively. “The government controls all the big key entities so developing government relations is absolutely critical. It’s important to do it in Beijing–that’s where a lot of big decisions are made. But it’s equally important to do it in the city levels and the provincial levels,” says General Electric China’s president and CEO, Mark Norbom. -
GE ( GE - news - people ), for instance, operates a couple of joint ventures in China. Take Shenyang Blower Works, a joint venture they operate in oil, gas and pipeline compression equipment in Shenyang in Liaoning Province in the north east of China. To get into a joint venture like this, of course, central government approval is required–but “you are not going to get that unless you are hand-in-hand with the government of Shenyang and Liaoning province and they are helping you,” adds Norbom.
The majority of Chinese companies graduate from building relationships with local government to finally interacting closely with the major cities like Shanghai and the central government. MNCs, on the other hand, start with higher levels and expand into state or local levels as they penetrate the Chinese market.
Most MNCs have specialist teams who handle government relations. GE, for example, has a highly evolved process of mapping out the government, agencies and identifying important officials in the bureaucratic machinery. “We match up the government levels with GE levels. When Jeff Immelt [chairman and executive director of GE] comes, we target to meet with a few people and match up with the seniority within the government. We then make sure that we are rigorous about our follow-ups,” says Norbom. This is a lot like diplomacy in government-to-government relationships; there is a hierarchy. Says Jonathan Story: “You need someone who calls himself the president of China for the company–even if he is not a president in the normal hierarchy of the company. If he was called a vice-president, doors will not open for him.”
Companies typically make the mistake of underestimating the rigor required in government relations. So while a lot of energy and effort goes into building the manufacturing facilities, government relations tends to get only two people. What they don’t realize is that government-relations people have a big role to play: They have to be, and they meet, decision makers.
Companies must also be consistent in what they communicate. Says Story, “The company must talk to the party [and] state with one message.”
Degrees of Engagement
The regulatory framework is still evolving in China. The country is trying its best to catch up. The government tried initially to implement regulation by “cherry picking” the best regulations of other governments. This resulted in making Chinese regulations among the most stringent in the world. The government quickly realized that it is one thing to have “best of the best” regulations and another to implement it overnight without severely hampering industry.
Smart corporations are evolving their own strategies based on the principle of engagement. It starts with collaborating with the government. The second degree calls for participating with the government in evolving the regulation. Finally, the third degree aspires to shape and influence government regulation.
Take Eastman Kodak ( EK - news - people ). Some years back Kodak bought quite a few factories and owned a significant number of film production facilities in China. Therefore, everyone thought that when the next tranche of capacity would be sold, Fuji–and not Kodak–would get the right to buy it. “But Kodak got the right to buy it again because they did such a good job of living up to their commitments–putting in more technology, training people, paying taxes, being a good corporate citizens,” says a China expert. “If you make commitments to the government that are aligned with your strategy and their strategy, the government rewards you–solely because they have certain objectives and you have proved to be a good partner.”
The key is to figure out a win-win relationship. There are things you need to know and things the government wants you to know–you need to be strategic about learning it. It progresses to the next level where the government facilitates a larger participation in the business community, because they believe that what you are trying to do is good for their agenda. Increasingly, more and more of this is happening at the city and provincial levels.
Food packaging is one of the major product lines of Sealed Air Corporation ( SEE - news - people ), a New Jersey-headquartered packaging solutions company. And today, food supply and safety are important priorities for the Chinese government. “There are many things that Sealed Air does, that are of interest to the Chinese government. China has a population of 1.3 billion people and ensuring food supply and making sure everyone is fed–and well fed–is no small task. Ensuring a stable supply and improving food quality, developing inland regions and sustainable growth are among the highest priorities of the Chinese government today,” says Li Xin, president of Sealed Air China. Sealed Air communicates frequently with the government and industrial associations in the area of packaging and food safety. It aligned its business strategy with the agenda of government agencies and trade associations such as China Packaging Federation and China Meat Association. This works well for Sealed Air. “The government agency in China sees the MNC as part of the solution rather than as part of the problem,” says Anil Gupta.
· Pay attention to hierarchy. Match government hierarchy with company hierarchy. · Convey one message to all levels of the government. No conflicting signals. · Cultivate local party people; keep them informed; ask them for cooperation–right up to the central government level. · Align your goals with that of the government. This article appears in the Apr. 30 issue of Forbes India, a Forbes Media licensee.
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30. April 2010 by admin.
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16. December 2009 by admin.
HONG KONG — Back before the global financial crisis, China was the world’s factory and America was China’s best customer.
Now, while Americans are sitting on their credit cards, the Chinese are still marching toward modernity. They are moving from farms to cities, climbing from poverty to prosperity.
Along the way, more and more of the building blocks for China’s economic boom come from Australia–from coal to keep the lights on, to iron ore needed to make steel. As the Chinese earn more, they are able to buy more meat for their meals, from Australia.
“That has underpinned Australian prosperity,” says Bob Carr, former Premier of Australia’s New South Wales.
China is now Australia’s largest trade partner, buying $83 billion in Australian goods and services. Australia was the only developed country whose exports didn’t fall even as world trade volumes plunged by 20% during the economic crisis, says Tim Harcourt, chief economist of the Australian Trade Commission. And China is speeding up: Macquarie economist Paul Cavey expects China will pass 10% growth next year.
Australia is becoming China’s mine shaft and its pantry, and that didn’t just spare Australia from the grip of the global recession, which crumpled so many other developed countries: It changed the relationship between China and Australia, one of the United States’ most loyal allies. “The global financial crisis has confirmed we are economically dependent on China, not the U.S.,” Carr said Monday at the Macquarie Asia-Pacific Infrastructure & Transportation Conference in Hong Kong.
Carr sees strong growth in China stretching decades into the future as China continues to move its 1.3 billion-strong population out of farming and into factories or office jobs. In 1980, just after China began its march from communism to capitalism, the nation was 80% rural. By 2035, China will be 70% urban.
Every month, nearly 13 million Chinese move from country to city. China is urbanizing at the rate of adding one Chicago per week.
What does that mean? That China will build 50,000 skyscrapers in the next two decades, Carr says. It will need lots of steel to build the skyscrapers, and it will likely buy lots of Australian iron ore to forge the steel.
He rolls out a raft of staggering numbers that have already come to pass: China is rushing to build nuclear power stations, for which it needs uranium. Forty percent of China’s uranium already comes from Australia. Last year, China’s food imports from Australia jumped by 53%. China is now Australia’s second-biggest market for lamb exports, after the United States.
Still, there have been stumbles in the Australia -China relationship.
While Australia took in $38 billion in Chinese investment during the past two years, it also rejected some deals on national security grounds. Australian mining giant stunned China in June when it abruptly spurned a $20 billion investment from Aluminum Corporation of China or Chinalco, and announced a deal with longtime rival BHP Billiton instead. China appeared to retaliate in July by arresting an Australian Rio Tinto employee in Shanghai on suspicion of corporate espionage. China was incensed when Australia granted a visa to ethnic Uighur leader Rebiya Kadeer to attend a Melbourne film festival in August because China views her as a terrorist.
But there seems to be a thaw.
Last month, China’s vice premier, Li Keqiang, visited Australia, and said that China and Australia have complementary economies, and that a healthy and stable China-Australia relationship was beneficial to the core interests of both nations. With the Dalai Lama visiting Australia this month, Prime Minister Kevin Rudd, who has met with the Tibetan spiritual leader in the past, skipped the meeting this time.
Carr sees the Sino-Australian relationship as a model for other nations to follow. “This is a strategic relationship.” For China, it is about energy security. “Dealing with Australia is easier than dealing with an African supplier,” Carr says. “The relationship is based on national interest.”
“After dealing with the distractions, both sides seem to have settled down to a deep appreciation of an astonishingly mutually beneficial relationship,” Carr says. “And it is durable because it is so sober and businesslike.”
“Each side recognizes it needs the other,” Carr says.
In many ways, the mutual dependency that Australia and China now share is far healthier than the codependency between the U.S. and China. The Australia-China trade enlarges the economic pie for both nations.
American shoppers have ratcheted down their spending with the recession, slowing factory lines halfway around the world in China. China helps prop up its American customers by continuing to buy vast amounts of U.S. bonds. But it does so in part because it already owns so many U.S. bonds that if China stops its purchases, the value of those holdings could crash. Economists estimate that about two-thirds of China’s $2 trillion in foreign reserves are in U.S. securities. Meanwhile, as the economy at home stalls, American companies, desperate to hang on to customers by offering lower prices, and to hang on to stockholders by offering better returns, are moving more production lines to China. America is spinning into a vicious circle with China. It should aspire to Australia’s virtuous circle with China.
Cited from Forbes, written by Robyn Meredith, Hong Kong bureau chief for Forbes.
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17. June 2009 by admin.
In the link below you will find a great video round table on China’s economy hosted by McKinsey. The speakers are from different perspectives but all agree China is turning things around. Some are more optimistic than others but all are positive.
http://www.mckinseyquarterly.com/Is_China_recession_proof_2366
On another topic and maybe later post, it is interesting to note how much of the stimulus money is going to State owned firms compared with privately owned. It is something to watch to get an idea how deep the turn around really is.
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30. April 2009 by admin.
By Gary Lamphier, The Edmonton Journal
China is the world’s biggest — and fastest growing — source of carbon emissions, accounting for nearly a quarter of the global total.
In 2007, China’s emissions — mainly from cheap, coal-fired power plants, which generate almost 80 per cent of the nation’s energy supplies — grew by about eight per cent.
That’s roughly twice the rate of growth in oft-demonized Canada, whose carbon emissions account for two per cent of the world total.
Of course, China has roughly 40 times Canada’s population, so its emissions are still low, in per capita terms. But that may change.
If the European Union reduces its emissions by 20 per cent by 2020, as it hopes, and China’s emissions continue to rise at current rates, its per capita emissions will be twice those of the EU by 2020, according to one recent report.
That’s just one side of the story. Here’s another. Even as its emissions soar, China is moving aggressively to become the global leader in low-carbon technologies. In fact, it is already spending more on renewable energy technologies — including wind, solar, hydro, biomass, and electric-powered vehicles — than virtually every other nation on earth.
Roughly 40 per cent of China’s recent $586-billion US economic stimulus package — about $221 billion over two years — was allocated toward various green investments, according to a recent report by Hong Kong-based HSBC Global Research. Although that figure has been tweaked since, China’s commitment to clean energy dwarfs the $112 billion worth of similar initiatives contained in the $787-billion stimulus bill recently approved by the U.S. Congress.
If measured as a share of GDP, the spread is even wider. China is outspending the U.S. on clean energy by a ratio of six-to-one, according to a report by the Center for American Progress, a Washington, D.C.-based public policy think-tank.
In part, that’s a reflection of starkly different economic realities.
While the U.S. economy shrank by more than six per cent in each of the past two quarters, China’s economy continues to grow — albeit at a slower pace than the torrid, double-digit levels of recent years.
Similarly, while Europe and the U.S. face massive federal debts, deficits, broken banking systems, and highly leveraged consumers, China boasts nearly $2 trillion US of cash reserves, and a nation of debt-averse citizens.
The resulting shift of economic power and influence away from the U.S. and Europe, and toward China, is becoming more apparent every day. And make no mistake, this power shift also extends to the brave new world of green energy.
China may be dirty today, in terms of its huge and growing carbon emissions, but it aims to be the top dog when all the smoke clears, and the age of fossil fuels starts its long decline.
While U.S. President Barack Obama talks bravely about rebuilding the U.S. economy, and creating five million new green energy jobs over the next 10 years, the U.S. is already well behind the curve. America has already forfeited the crucial “first mover” advantage to China, in many key areas.
Of the world’s top 30 players in solar energy, wind energy, and advanced battery technology, only six are based in the U.S. Most are based in countries like China, Germany, Spain or Denmark. It’s hard to see how the U.S. can rebuild its manufacturing sector on that basis.
Perhaps that’s partly why American venture capitalists are losing their enthusiasm for clean energy startups. In the first quarter of 2009, VC investments in this sector fell by nearly 90 per cent in the U.S., versus a year earlier.
“China is already the leading renewable energy producer in the world in terms of installed generating capacity, with the largest hydro-electric fleet, and fifth-largest wind power fleet in the world,” says a recent report by The Climate Group, a non-profit enviro research group supported by dozens of major international companies, foundations and green lobby groups.
“China ranked second for the absolute dollar amount invested in renewable energy in 2007, at approximately $12 billion, trailing the leader, Germany, which invested $14 billion,” it adds.
Based on China’s bold renewable energy goals — it plans to nearly double the share of renewable energy it uses by 2020, to 15 per cent — it’s likely not in second place any longer. Analysts figure China will spend nearly $400 billion through 2020, or $33 billion a year, to reach its target.
Only the U.S. could match that level of spending. And now that Washington faces years of massive deficits, it won’t be easy.
In the auto sector, it’s a similar story. While the North American auto industry endures its worst sales slump in decades, auto sales in China are expected to grow by close to 10 per cent this year.
By 2015, forecasters say China could supplant the U.S. as the world’s biggest new vehicle market. Longer term, the Asian Development Bank projects the total on-road vehicle fleet in China will hit 400 million units by 2035, triple the current level.
Meanwhile, China is working hard to secure the valuable “first mover” advantage in the neophyte electric car market.
By the end of 2009, one of China’s leading automakers — BYD Auto, backed by U.S. investment tycoon Warren Buffett — aims to launch its new E6 fully electric car.
BYD’s new model will employ a new iron-phosphate battery that can reportedly be recharged more than 2,000 times, powering a car for over 600,000 miles.
It’s designed to travel up to 400 kilometres on a single charge, or up to half that distance on shorter,
10-minute charges at dedicated, high-voltage recharging stations (which have yet to be built).
The new entry from BYD (which stands for Build Your Dreams) is just one of several new electric cars due to be launched soon, by such auto makers as Ford, General Motors, BMW and Toyota.
GM’s widely-anticipated new entry, the Volt, is expected to be launched next year. It will reportedly have an electric-only range of 65 kilometres. A gas engine will kick in once its battery is drained.
A lot can change in a year, of course. But China is now flexing its muscles in a way that only one country — the U.S. — used to do. It will be fascinating to see how this battle plays out.
glamphier@thejournal.canwest.com
© Copyright (c) The Edmonton Journal
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17. April 2009 by admin.
This article is cited from Global & Mail, written by Marcus Gee and Andy Hoffman, April 11, 2009 at 12:47 AM EDT
It revealed a problem that commonly exists within China as its economic structure is right in the transition from Planning to Marketing basis. However it can not be blamed on such simple reason as China is a country with most dynamic and complicated social, politic and economic structure. It is hard for one to get a real judgement and true understanding to the country if just based on piece of news or a bunch of statistic numbers, especially to the people who are not living in that country a long time, or without profound knowledge of its culture, history, and state structure. There are so many ‘because’ or the explanations. It’s fine everyone has own opinion. However it becomes more critical if you take that into your lifetime business as these impression may mislead your decisions which may determine where and how to catch opportunities for your business sustainable growth.
Here is a rare chance that will equip your business brain with the first hand information, deep dug and simple displayed for you on how to develop your business with China.This seminar will make you a fundamental knowledge and enhance your capability to digest the questions and grasp with opportunities in order to explore your business into China market. Attending to this event presented by Don and Steven on May 20 at MacEwan city center campus. More detail: www.yourchinastrategy.com.
Read the article:
FENGRUN, CHINA and TORONTO — Yu Jianshui fidgets in his big leather chair as he chain-smokes his way through an interview. Times are tough at the Tangshan Fengrun Zhengda Iron and Steel Co. Ltd.With China suffering its sharpest economic slowdown in decades, Mr. Yu, the firm’s general manager, complains that he is getting fewer and fewer orders for his main product, huge bars of raw steel known as billets. In his 23 years in steel, “this is the worst I’ve ever seen.”Yet under the corrugated metal roofs of his steel mill, blast furnaces still blast and two assembly lines still roll out 3,000 tonnes of steel a day. It is the same story elsewhere in Fengrun, a gritty steel town where the red flag of the People’s Republic flies from giant-like loading derricks. After shutting briefly when steel prices dipped last fall, most of Fengrun’s more than 100 mills have come back to life to exploit a price uptick this winter, churning out countless tonnes of pipe, girders, rolled steel and heavy cable.And that, Mr. Yu says, is the problem: Not that so many mills are going out of business, but that so many are still going.China simply makes too much steel. The government estimates that China’s annual production is about 100 million tonnes more than it should be, a figure equal to the whole annual output of the industry in the United States.Worse, China has far too many steel companies, more than 700 at last count. Add in iron companies and companies that roll or otherwise shape steel, and the total comes to more than 7,000. Despite repeated government attempts to force them to consolidate into fewer, bigger companies, most of them are still small and inefficient.By rights, many companies should have closed. Instead, they march on like zombies, China’s industrial undead.That was not such a problem when China was growing at 10 per cent or more a year and demand was soaring for products made in the “workshop of the world.” No matter how much steel China made and how many companies were making it, there was always a market somewhere.Now it’s a problem, and not just for China and its steel makers. In China and around the world, demand for steel is plummeting. Producers are cutting back: Japan’s output fell 39 per cent and Germany’s 31 per cent in February from the same month last year.But China’s crude steel production in February actually grew 4.9 per cent, even as steel exports hit a 52-month low, falling 62 per cent on a yearly basis. Since last October, most steel makers have been losing money. Prices for Chinese hot-rolled steel fell to about $400 (U.S.) a tonne in March, less than half the peak of $980 a tonne hit last year. Even China’s Iron and Steel Association has cautioned that overproduction has risked flooding the market with unwanted steel. In its latest master plan for steel, drawn up this winter, Beijing says it will force the industry to slim down and consolidate. But such edicts have been issued many times before, and instead, production has continued to proliferate. Few believe this time is likely to be different. The impact of China’s overproduction is being felt around the world. As demand for steel products plunges, China’s continued strong production is hurting producers in other countries. Just this week, a group of American makers of steel pipe used in oil drilling filed complaints with U.S. trade officials alleging unfair competition from Chinese imports they say have been dumped on the domestic market. “That is the challenge of China,” says Michael Willemse, an analyst with CIBC World Markets in Toronto. “They can be very disruptive to the global market if their capacity-expansion plans are not consistent with consumption needs of the industrial economy.” MINERS STILL HAPPYChina’s romance with steel goes back a long way. Chinese in the Han Dynasty, 1,800 years ago, produced an early form of steel by combining wrought iron and cast iron.In the disastrous Great Leap Forward of 1958 to 1961, Mao Zedong made grain and steel production the centrepiece of his plan to surpass the decadent West. The Great Helmsman encouraged the people to build backyard steel furnaces in every commune and neighbourhood. To meet wildly unrealistic production goals, they melted down pots and pans and burned furniture for fuel.When Deng Xiaoping abandoned Maoist economics in 1978, China began building its steel industry in earnest. As foreign investment poured in and the economy took off, China ramped up production. In the present decade, it has grown at an average of more than 20 per cent a year. It now exceeds the combined production of Japan, the United States, Russia, India, South Korea, Germany, Ukraine and Brazil.China became the world’s biggest consumer and producer of steel, accounting for a third of the world’s total output. Like the auto industry in North America, steel in China came to be considered an essential industry, too big to fail. It directly employs 3.58 million people. Millions more live off it in support roles. As of 2007, it contributed 4 per cent of China’s gross domestic product and 9 per cent of industrial profits.For a long time, everyone seemed to benefit. Chinese steel makers were growing and making money. Foreign steel makers were selling lots of steel to China, which was a net importer of steel until 2006. Iron ore producers in resource-rich countries such as Canada made a fortune as the steel boom pushed up prices for ore.Indeed, the relatively stable demand from China has helped coking coal and iron prices weather the global economic collapse better than most commodities – and if Chinese steel makers remain at their current production levels, that would not be unwelcome to the international iron ore and coking coal producers. At a time when financing for most mining firms has all but disappeared, China has been a lone source of capital, playing sugar daddy abroad to shore up the future of the domestic steel industry. Last week, Wuhan Iron and Steel Group Corp., or WISCO, one of China’s largest steel producers, agreed to invest a total of $240-million to acquire a 20-per-cent stake in Consolidated Thompson Iron Mines Ltd. and a 25-per-cent stake in the company’s Bloom Lake iron ore development project in Quebec.But for China, the continuing steel push, once a sign of strength, has become a sign of weakness. The sector’s prodigious growth made it a vivid symbol of China’s rise. Now, it tells the story of chronic overinvestment and overcapacity, manipulated lending, political interference in markets and overreliance on heavy industry – faults that are being exposed by the crisis across many of the country’s industries, and that could cost China dearly as the global recession grinds on. Steel is not the only industry plagued by too much capacity and too many companies. China has 5,000 cement makers, 3,800 glass makers, 3,500 pulp and paper producers, and no less than 24,000 chemical companies.“It’s a kind of a perpetual theme here,” says Jack Perkowski, now a merchant banker in Beijing who came to China from the United States almost 20 years ago to start a car parts company – and was startled to find there were already 150 companies making piston rings.“If you look at any product, there are usually only half a dozen or so companies making it in most countries. In China, there are hundreds or thousands making that same product.”The reasons behind China’s capacity issue say a lot about how China works – or doesn’t – and points to a slew of other problems.Outsiders tend to think of China as a centralized state with an all-powerful government that can order industries around at will. In fact, real power often lies with provincial and local officials, the powerful barons of the Chinese political system.Like Canadian premiers, they fight among themselves to attract industry. And steel is a particular favourite, a “pillar industry” that produces a crucial raw material for many other prestige industries, like automobiles and appliances. In China, Mr. Perkowski says, “every town and every village has to have a steel mill.” The result is a highly dispersed, even balkanized industry, with production spread around a half-dozen major steel-producing provinces and a dozen or more smaller rivals. Those provinces compete constantly to outdo each other at steel production. The perennial winner is Hebei province, a traditional industrial powerhouse in northeastern China, surrounding Beijing and the port of Tianjin. According to the industry watcher mysteel.net, Hebei – where Mr. Yu’s Fengrun mill is located – won the output “championship” for the seventh successive year in 2008, producing more than 100 million tonnes.A value-added tax introduced in 1996 gives the provincial barons even more incentive to lure steel companies and win bragging rights. A quarter of the revenue from the VAT goes to local governments. Balkanization makes for massive inefficiency. In a country like China that lacks high-grade iron ore, the ideal would be to produce steel in big, modern plants near coastal ports, making it cheaper to bring in ore and coking coal, and easier to export production. Instead Chinese mills often have to bring in their ore over hundreds of kilometres of rail track, pushing up their costs.Pushing up pollution, too. A report last month from the Alliance for American Manufacturing claimed that China’s steel industry, with its massive consumption of coal and electricity, produced half of the carbon dioxide from world steel production, making it a huge contributor to the greenhouse gases said to cause global warning. It also claimed that governments help the industry with more than $15-billion a year in energy subsidies, adding to pollution and overproduction.China’s government-directed banking system plays a part in runaway steel output, too. In China, the big banks are run by the state. Their local branches are often closely tied to local officials. Eager to reap the taxes they get from steel companies, those officials arrange with banks to provide financing for new mills. In China, where labour and land is cheap, mills can be built in a fraction of the time it takes in the West for a fraction of the cost. If steel prices are rising, they quickly generate handsome profits. But that adds to China’s capacity and, in time, overcapacity. That, in turn, puts downward pressure on prices. In a normally functioning market, Mr. Perkowski says, that would lead to an industry shakeout. Weaker, smaller mills would close. Production would fall to meet demand. Not in China. With “everyone incentivized to keep producing,” he writes in his 2008 book Managing the Dragon, “this capacity never closes. Instead, the plant churns out product at ever-diminishing prices. As long as it can sell at a price equal to the variable costs of production, it keeps producing.” Even if it can’t cover those costs, friendly banks may step in to cover its losses.“This is a topsy-turvy, helter-skelter model of economic growth where each province has its own plans and the central government just sits on top and screams,” says Hans Mueller, an independent consultant based in Tennessee who follows China’s steel industry.The screaming does not seem to do much good. Beijing’s latest master plan would hold crude steel output to its current level of about 500 million tonnes. It would move more steel-making capacity to the coastal regions. And it would raise the minimum size of blast furnaces to 400 cubic metres, up from 300 at present, with the intention of forcing smaller, less-efficient mills to close. The aim is to make its industry more like other countries’, with a few big dominant players. China’s top three companies account for only about a fifth of the country’s total production, compared with well over half for the top three in the United States, Russia or South Korea. South Korea, in fact, gets 87 per cent of its production from just two giant mills.To bang heads together, China’s cabinet set a goal last month of raising the share of output from its top five steel companies to 45 per cent of the total from 28 per cent at present.Canada’s Teck Cominco Ltd., a major producer of coking coal used to make steel, is betting on the consolidation of the Chinese steel industry. Although it doesn’t sell coal to China now, it hopes to in the future once more Chinese production moves to the coast, creating demand for seaborne coal.Selling to China’s coastal regions was a key driver behind the company’s $14-billion (Canadian) takeover last year of Fording Canadian Coal Trust – a deal that has left Teck straining under more than $9-billion (U.S.) in debt. “It’s one of the reasons that we believe in the coal assets,” said Teck spokesman Greg Waller. “There is going to be a fundamental change in the valuation of metallurgical coal in the future.” If history is any guide, it could take a long time for Teck’s coal to get to China’s coast. The Chinese “have been talking about this as a matter of national state policy since 2001 and the number of steel firms went up and up and up,” says Daniel Rosen, principal of Rhodium Group, a New York consultancy. “The reality went in a totally different direction.” In fact, Beijing’s massive four-trillion-yuan economic stimulus program threatens to worsen steel’s obesity issue. Much of the money will be used for steel-gobbling projects like railway expansion. To further cushion the industry from the global recession, Beijing is raising a rebate on steel exports.Yet despite the likelihood of continued Chinese steel overproduction, the country’s growth could very well serve as the cornerstone for a global economic recovery.Na Liu, China strategist at Scotia Capital, says China’s iron and copper imports hit record highs in February, and net imports of aluminum and zinc are at their highest in several years. China’s recent willingness to pay $140 a tonne for coking coal helped support a 2009 benchmark coal contract of $129 a tonne that was much higher than many expected. As for steel, low prices coupled with China’s relatively high cost of production may have already tipped the trade balance in favour of imports. Russian steel producers “have been selling into the Chinese market at very competitive prices, and China might actually have become a net importer of steel in March,” Mr. Liu says. While China’s labour and regulatory costs give it a major advantage over other steel-producing nations, the bulk of those benefits will eventually disappear. “Gradually, Chinese steel mills are going to lose their cost advantages, as environmental protection and other regulatory costs begin to go higher,” Mr. Liu says.Back in Fengrun, Mr. Yu knows his industry may need to change. “When I was a kid, the country’s power was measured by how much steel it produced,” he says. Now, he complains that the industry has too much capacity and too many players. “They can’t all survive,” he says. “Some of these companies have to die off.”
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7. April 2009 by admin.
The Guardian has printed a piece stating “A ray of hope may be emerging with signs of China’s economy bottoming out by mid-2009,” the bank said. “A recovery in China, fuelled largely by the country’s huge economic stimulus package, is likely to begin this year and take full hold in 2010, potentially contributing to the region’s stabilisation, and perhaps recovery.”
For the full article go to the link below.
http://www.guardian.co.uk/world/2009/apr/07/world-bank-predicts-china-recovery
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22. December 2008 by admin.
DECEMBER 2008 • Yasheng Huang
The credibility of American-style capitalism was among the earliest victims of the global financial crisis. With Lehman Brothers barely in its grave, pundits the world over rushed to perform the last rites for US economic ideals, including limited government, minimal regulation, and the free-market allocation of credit. In contemplating alternatives to the fallen American model, some looked to China, where markets are tightly regulated and financial institutions controlled by the state. In the aftermath of Wall Street’s meltdown, fretted Francis Fukuyama in Newsweek, China’s brand of state-led capitalism is “looking more and more attractive.” Washington Post columnist David Ignatius hailed the global advent of a Confucian-inspired “new interventionism”; invoking Richard Nixon’s backhanded tribute to John Maynard Keynes, Ignatius declared, “We are all Chinese now.”
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11. December 2008 by admin.
China’s export business dropped to the lowest point in November 2008 since 1999. Export was $114.99 billion, hitting -2.29%, while import was $74.89 billion, fell to -17.9%. It made $40.1 billion trade surplus, 52.5% increased.
Although Chinese government rolled out prompt policies by tax rebate to export businesses, reduce VAT, and business tax, and even to adjust RMB exchange rate, for stimulating exporting, it will not be an effective solution. For maintaining GDP at 8%, as one of the most priority tasks in 2009, to launch domestic consumption is expected a major measure to save China’s crisis. According to World Bank’s estimate, China’s GDP in 2009 might below 8%, possibly reach 7.5%.
FDI figures
From Jan to Nov, FDI was $86.42 billion. In November it was $5.32 billion, took -36.52% decline continued in five months.
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9. December 2008 by admin.
China’s top policymakers ponder ways to ensure GDP growth of at least 8 percent next year, the government is “very likely” to initiate cuts in business tax to add impetus to the slowing economy. The officials Monday began the three-day annual Central Economic Work Conference in Beijing, which sets the tone for policies next year. The authorities may soon cut business tax for enterprises by 1 percentage point from the current 5 percent, a source close to policymakers told China Daily, without mentioning a timeframe.That would amount to 120 billion yuan ($17.5 billion) worth of tax cuts given annual business tax revenues of more than 600 billion yuan ($87.6 billion) last year.Business tax - distinct from enterprise income tax and value added tax - is levied on enterprises and individuals that provide labor services, transfer intangible assets or sell immovable property in China.It was also reported earlier that policymakers would discuss raising the threshold of personal income tax from 2,000 yuan to 3,000 yuan a month to spur domestic consumption.The government, which announced a massive $586 billion stimulus package on Nov 9, wants at least 8 percent growth to provide employment opportunities to the roughly 10 million people entering the job market each year.Policymakers at the economic conference are expected to reach a consensus on how to implement the stimulus plan in a coordinated manner.“The economic conference this week may be mostly about fine-tuning these stimulus measures and thinking ahead to what next,” said David Dollar, the World Bank country chief for China.“I think the stimulus will be enough to keep China growing at a healthy rate so the focus now should be on good implementation.”“They (policymakers) will be laying out just how big the kitchen sink has to be to re-invigorate the economy,” said Stephen Green, senior Standard Chartered Bank economist in Shanghai. “All the data suggests the economy has further skidded into the fourth quarter.”“How to co-ordinate all that, how to judge its effectiveness, and what is next in terms of policy will likely all be discussed at the conference,” Green said.The major task at the conference is for policymakers to take concerted steps to keep the economy from being derailed by the global financial crisis and economic slowdown.“Above all else, the aim of the meeting will be to get everyone on the same page - growth, above all else,” he said, adding that the effect of the stimulus policies would surface in the second quarter of next year.The nation’s economic growth dropped to 9 percent in the third quarter, compared with 11.4 percent last year. The global economic slowdown may even drag down China’s growth to 7.5 percent in 2009, the lowest in two decades, the World Bank forecast earlier.The Chinese Academy of Social Sciences, however, was more upbeat in a report last week, tipping growth of around 9 percent next year.
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5. December 2008 by admin.
China could next year notch up growth of 9 percent, or even above, as the world’s fourth-largest economy pulls out all stops to stimulate investment and consumption, the nation’s top think tank said on Tuesday.
“I think China can achieve 9 percent GDP growth, or even higher,” said Wang Tongsan, a senior economist at the Chinese Academy of Social Sciences (CASS), at a news conference releasing the academy’s annual economic forecast, or Blue Book.
“The possibility is quite high - it could be at least 70 percent possible that GDP growth reaches 9 percent next year.”
The economic forecast research team said in an article in the CASS blue book that next year, economic growth could reach 9.3 percent, compared with this year’s estimated 9.8 percent.
Zheng Jingping, an official at the National Bureau of Statistics, also said in an article for the CASS book that growth would be about 9 percent next year.
The forecasts are higher than those made by international organizations.
The World Bank said last month that China’s growth may slow to 7.5 percent next year, the lowest since 1990. Though the bank expects 9.4 percent growth this year, it said the global financial crisis would take a greater toll in 2009.
An Organization of Economic Cooperation and Development report said China’s growth next year could be 8 percent, while the International Monetary Fund put it at 8.5 percent.
The CASS’ Wang said the government’s forceful stimulus moves would make a big difference next year. “We believe the pro-active policies to stimulate domestic demand will work and the effect will be impressive,” Wang said, referring to the country’s $586 billion stimulus plan announced on Nov 9.
Local governments have also pledged to follow suit to help prevent the national economy from sliding further after it registered an annualized 9 percent growth in the third quarter of this year, compared to nearly 12 percent for last year.
The central bank slashed the benchmark interest rates by 1.08 percentage points last week, the steepest cut in 11 years, to reduce borrowing costs for enterprises and individuals, and bolster confidence.
More supportive fiscal and monetary policies are believed to be in the pipeline, analysts said.
Given the serious global financial turmoil and economic slowdown, China would not be unscathed but “we should be confident in China’s stable economic growth, or relatively high growth”, Wang said.
He said there are two prerequisites for the GDP to grow by at least 9 percent: The US economy does not significantly worsen and China’s pro-growth economic policies are well implemented.
The CASS team also forecast that China’s consumer price index (CPI), the key gauge of inflation, could drop to 4.3 percent next year from more than 6 percent this year.
“The falling trend of CPI is entrenched,” said Wang, adding it would not rebound in the coming months.
Zheng from the NBS put CPI growth much lower for next year, at around 3 percent.
The urban jobless rate, meanwhile, could rise to 4.5 percent next year from this year’s 4 percent, according to a forecast by Fan Jianping, an economist from at the State Information Center.
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5. December 2008 by admin.
China should prepare for the worst and take “timely and effective measures” to overcome the global financial crisis and maintain growth and stability, the central bank governor said on Thursday.
Speaking at the fifth China-US Strategic Economic Dialogue (SED), Zhou Xiaochuan, however, expressed confidence that China would sustain its growth and financial stability. Nevertheless, policymakers “need to prepare for the worst,” Jin Qi, head of the bank’s international department, quoted Zhou as having said.
“Excessive consumption in the US and over-reliance on debt are the key reasons behind the (global financial) crisis,” Zhou, said, urging the US to increase savings and reduce its budget and trade deficits.
“For China, the key to maintaining stable growth is increasing domestic demand,” Zhou said. “We should use the crisis as an opportunity to increase consumption and expedite the transformation of China’s development pattern.”
The country’s economy has been slowing down over the past few months, largely because of a slump in the property market and shrinking overseas demand.
On the global front, things do not look like improving in the near future because major economies such as the US, Japan and many European Union countries have entered into recession.
The country’s GDP growth dropped to 9 percent in the third quarter of this year, the lowest in five years.
The forecast for next year does not look brighter either because the World Bank has slashed it to 7.5 percent, the lowest in almost two decades. Government authorities, though, have said the country could have a growth rate of 9 percent next year.
“China has announced a series of measures to spur domestic demand, which is a significant move for world economic and financial stability,” Vice Premier Wang Qishan said in his opening speech at the SED Thursday. “We hope the US takes necessary steps to stabilize the financial market and the economy.”
Apart from the $586-billion stimulus package, the government will also use further interest rate cuts and other necessary measures to maintain ample liquidity.
The announcement came on Wednesday, a day before the European Central Bank cut its benchmark lending rate from 3.25 to 2.5 percent, the steepest rate cut in the past decade.
The sudden fall of the yuan against the US dollar has triggered speculation over further revaluation of the Chinese currency. The yuan recorded its highest one-day fall against the dollar on Monday, and has being sliding since. It closed at 6.88 to a dollar on Thursday, down from its peak of 6.80 on Sept 23.
Commerce Minister Chen Deming, however, said at the SED that the yuan’s movement this week was normal and its fall can be attributed to the rise of the dollar against other currencies.
A top US Treasury official said at a media briefing at the SED on Thursday that “China’s currency reform has progressed well in the past two years” and the “Chinese leadership” is committed to the reform.
“Our focus is still on the long term,” the official said when asked about the yuan’s sudden fall. “We’ve seen a continued rise of the yuan over time.”
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3. December 2008 by admin.
A recent note from HSBC passed on this information which we believe is worth sharing.
“Jim O’Neill, the Goldman Sachs economist who in 2001 coined the acronym BRIC economies, says the faster growth investors have come to expect from these countries will survive this crisis. O’Neill believes the citizens of
BRIC nations are poised to spend more, the BRIC consumer is going to rescue the world,he says.
While Chinese consumers, as a group, do not spend more than their American counterparts, their outlays are growing.
China’s retail sales jumped 22% in October. Consumer purchases in the US, by contrast, dropped in Q3 for the first time in seven years. Since October 2007, the Chinese shopper alone has been contributing more to global GDP growth than the American consumer, O’Neill wrote. He predicts BRIC economies will account for 20% of global economic output by 2010
compared its current contribution of about 15%.”
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2. December 2008 by admin.
Hard to believe only 17% of Canadian exporters have a China Strategy, as the Canadian Manufacturers and Exporters survey in 2007 states. With the USA becoming less of the guaranteed go to exporting partner, China needs to be given a reasonable hearing for the potential success and growth of Canadian businesses.
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1. December 2008 by admin.
Most Canadians when thinking of China think about the vast exports they have been sending from their shores to ours. While this type of trade will be prominent for years to come, the opportunity many businesses in Canada need to think about is exporting products and services that are highly needed by Chinese Business and consumers.
The Chinese government is shifting from an export economy to a domestic economy and if we as Canadian businesses remain blind to this fact we risk missing the opportunity to get into this new powerful Chinese economy on the ground floor. Study the changing FDI emphasis and the current 11th five-year-plan for the clues where your business should begin to develop a China Strategy.
Staying stuck in the mindset that China is just about exporting goods from there to here, will shackle your business growth opportunities.
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