China has approved a US$1.12 billion joint venture led by Shanghai Chlor Alkali Chemical and Germany's BASF to build a chemical plant near Shanghai. Chinas domestic chemical demands continue to increase due to stellar economic growth and its position as a low-cost production base.

The plant will produce 160,000 tons of crude methylene diisocyanate (MDI) and 130,000 tons of toluene diisocyanate (TDI) a year. TDI and MDI are the major components of polyurethane, which is used in the vehicle and construction industries and in products such as refrigerators, upholstery and mattresses.

Chinese partners would provide 30 per cent of the investment and BASF and Huntsman the rest. The companies are expecting to complete the project in 2005.

(Source: REUTERS)

Foreign Express Companies Refuse to Comply

September 27, 2002

International mail express companies, led by United Parcel Service (UPS), have rejected a registration deadline to carry parcels on the mainland. The move defies mainland authorities, who this month gave foreign operators 60 days to register for "entrustment" with the State Post Bureau, the express companies' competitor. Failure to register by November 5, 2002 will result in a ban of the foreign express carriers' operations.

The bureau later restricted them to carrying parcels over 500 grams - or to charging more for delivering shipments under that weight - in a bid to carve out a valuable sector of the market for China Post's Express Mail Service (EMS). The notice also restricted the couriers from carrying "private letters and official documents" of the party, government and military "above county level".

Last December, the State Post Bureau required all forwarders and couriers to be certified to operate in the US$2 billion mainland express industry. The move by China seriously questions it's commitment to the WTO. It appears to a another form or market protectionism as China's EMS has seen its express market share in China drop to about 30 per cent from a monopoly five years ago.

China the World's Best Investment Area

September 24, 2002

China is the world's most attractive place for foreign direct investment (FDI), topping the United States for the first time, according to AT Kearney's annual FDI confidence survey. The study, dated this month, said nearly one in three corporate executives cited China as their preferred first-time destination for investment, more often than any other market.

China's WTO entry, its successful bid for the 2008 Olympics, steady economic growth and stable politics outweighed negative factors such as huge non-performing loans at state banks and a murky regulatory environment.

China attracted US$29.54 billion in foreign direct investment during the first seven months of 2002, a 22 per cent year on year. The United States, Britain, Germany and France rounded out the top five, with Brazil falling to 13th place this year from third last year.

(Source: REUTERS)

China's Anti-Piracy Efforts Still Lacking

September 20, 2002

United States entertainment companies, software developers, book publishers and drug manufacturers have told the Bush administration that China's poor enforcement of laws against copying their products is costing them billions of dollars a year.

The International Intellectual Property Alliance asserts that Chinese penalties were too weak to discourage widespread piracy of music CDs, movie DVDs and other copyrighted goods. Piracy levels in most of the copyright sectors in China were about 90 per cent, costing foreign firms US$1.9 billion in losses annually, he said.

The Assistant US Trade Representative for North Asian affairs, stated that China had made progress in a number of areas, such as reducing tariffs on industrial and agricultural goods and increasing opportunities for foreign firms to compete in its services sector.

While China has adopted many laws and regulations to implement its commitments, there are been signs of continuing discrimination against foreign goods and services, such as the express mail issue that has been going on for almost one year.

The Pharmaceutical Research and Manufacturers Association, said the industry conservatively estimated counterfeit drugs cost US firms about 10 per cent to 15 per cent of annual revenue in China.

(Source: REUTERS)

WTO praises China, Taiwan

September 19, 2002

World Trade Organization members have praised China and Taiwan's efforts to bring commercial laws into line with norms of the global body, but said more should be done to fight counterfeiting and piracy.

In their first report on Beijing and Taipei's progress since joining last December and January, respectively, their partners said both had made progress in complying with the WTO's trade-related intellectual property agreement on protecting intellectual property and patent rights.

(Source: AGENCE FRANCE-PRESSE and REUTERS )

China's Foreign Reserves Exceed US$87b

September 14, 2002

China's personal foreign exchange savings exceeded hit US$87.47 billion at the end of last month. The central bank stated that savings were up 11.3 per cent year on year at the end of the month, weaker than the 12.3 per cent rise at the end of July. Overall foreign exchange deposits, including those by firms, were US$145.54 billion, up 3.7 per cent.

(Source: REUTERS)

China Rebuked for Failing WTO Promises

September 13, 2002

The United States Chamber of Commerce has criticized China for failing to live up to its pledges to the World Trade Organization. The most detailed criticism was in the agricultural sector, where it said the mainland had used delaying tactics and other means to avoid opening its market to more foreign wheat, corn, cotton and soya bean oil.

The report, also faulted China for the continued use of agricultural export subsidies, which it promised to ban, and for jeopardizing more than US$1 billion in US soya bean exports through its clumsy implementation of a new law requiring safety certificates for imports of genetically modified crops.

The report also said violations of copyright and trademark protections for intellectual property products ranging from software to pharmaceuticals remained "rampant" in China due mainly to poor enforcement of existing laws.

In the services sector, it cited problems with China's implementation of promises to open its insurance and commercial banking sectors to more foreign participation.

The report praised Beijing for moving with "speed and seriousness" to develop regulations to put many of its WTO commitments into effect. But in many cases, the process had moved so swiftly that companies had not had adequate time to express their concerns.

To eliminate bureaucratic in fighting, the report also called for a central government authority to oversee the implementation of all of China's WTO commitments. That responsibility at present rests mainly with the Ministry of Foreign Trade and Economic Co-operation, but other ministries have some jurisdiction.

(Source: REUTERS)

China Wont Float Yuan

September 11, 2002

Beijing has ruled out freely floating the yuan following a meeting in Washington with United States policymakers. China's policy is to maintain a managed, market-oriented currency based on supply and demand. China has had a managed exchange-rate regime since 1994.

The yuan is virtually pegged to the US dollar and foreign exchange is tightly controlled. China received praise for its refusal to devalue its currency during the Asian financial crisis.

(Source: AGENCE FRANCE-PRESS)

China Urged to End Protectionism

September 5, 2002

According the WTO chief China has made progress after being a member of the WTO for almost one year. Still China must discard protectionist measures and be more transparent.
In anticipation of more competition from foreign entities, China is has been coming up with certain regulations that are not in accordance with their commitments to the WTO,'' Mr Supachai said.

For instance, new rules were imposed on imports of certain food products, with Chinese authorities reportedly scrutinising imports of genetically modified food. Foreign banks were also facing tight regulations in setting up branches.

Such laws must be ''harmonised'' in accordance with China's WTO commitments, he said, as failure to do so could lead to disputes with its trading partners in the global body.
Mr Supachai, who took over as WTO director-general on Monday, said China must also be more transparent in providing reliable statistics as present methods of collating data lagged behind international standards.

(Source: AGENCE FRANCE-PRESS)

China: A Good Deal?

September 5, 2002

Multinational corporations' torrid but often painful love affair with China has blossomed. Analysts say fierce domestic rivalry, alien markets and copy-cats mean it could be some time before they reap substantial profits in a country of 1.3 billion people.
Beyond targeting wealthy Beijing, Shanghai and Guangzhou, few firms have a concrete strategy to tackle China, one of the largest markets for computers, mobile phones and electronic devices. And fewer are making money, analysts said.

Many are not making any progress in China. Still many companies are in China for the long haul. Firms need to sacrifice immediate profits and even market share to ensure long-term earnings, analysts said. Chinese firms can now make the same products, or better ones, at lower prices and if not now surely later.

Legend chief executive Yang Yuanqing summed it up best in a ringing challenge to his foreign rivals. "We're not afraid of competition, not even with foreign brands. I don't see that they have increased their market share at all in the past few years," he said earlier this year.
Industry experts said Chinese firms had better contacts and wider distribution, and often won lucrative government contracts. Just look what has happened in refrigerators and washing machines.

Few foreign firms reveal earnings for their China operations. Domestic firms, armed with technology acquired from foreign counterparts, are expected to prevail in virtually every area of consumer electronics and other areas in the near future. The first handsets from the likes of TCL International Holdings and Haier Group appeared in 1999. Domestic brands now own a 17.7 per cent market share, an alarming figure to Nokia and other foreign mobile phone makers.

Corruption Study

August 29, 2002

Over two-thirds of the world's countries are rife with corruption.
The survey revealed high levels of bribery by firms from Russia, China, Taiwan and South Korea, closely followed by Hong Kong, Italy, Malaysia, Japan, the United States and France.

Singapore did well, in fifth place with 9.3, and Hong Kong in 14th with 8.2. In contrast, China was way back in joint 59th place with 3.5.

Foreign Invested Enterprises in Shanghai

August 28, 2002

During the first six months of this year, 1,978 foreign-invested enterprises were set up in Shanghai, a 52.74 per cent increase from last year. Foreign investors setting up wholly owned foreign enterprises had become a trend. According to the latest statistics, 81.5 per cent of newly set-up foreign-invested enterprises this year were wholly owned foreign companies.

Personalized License Plates Suspended

August 27, 2002

A recent experiment with personalized car license plates shows that many Chinese are reserved, shy and subtle in expressing their feelings as many foriegns are lead to believe.

SEX001, MAN001, IAM007, GOD001, WIN001, WIN100 and VIP001 are among the bold personal statements owners have chosen to put on their vehicles. Some plates also carried names of official businesses or agencies, such as CIA and FBI, and even offensive words such as TMD001 - the acronym of China's national curse.

Earlier this month, people in Shenzhen, Beijing, Tianjin and Hangzhou were allowed to choose their car number plates. They were able to take any six letter-number sequence that someone in the same city had not claimed and pay only the usual US$12 license fee.

But the new-found freedom of expression was short-lived. After 10 days the program was introduced the Public Security Bureau suspended the practice, citing technical problems. Controversial words on the plates may have led to the cancellation, based on official media reports and public speculation.

Some reports, more likely and excuse as IP infringe a the real problem is rampant in China, indicated that choices such as BMW001 and TCL001 could cause concern about infringements of trademarks and intellectual property rights.

Allowing more freedom to choose personal licence plates is also considered to be in line with international standards and can help curb corruption.
China has about five years before the industry is entirely opened to foreign players, and in that time needs to give the industry a push.

The Mayor is Who?

August 22, 2002

In China it is difficult to find out some times who your City’s current Mayor is. In a survey of more than 3,400 residents of major Chinese cities showed that not a few had trouble identifying the mayor.

The survey asked whether residents knew the mayor's name, and were familiar with the mayor's policies and achievements as well as personal image. It also asked whether the mayor was perceived as honest and whether respondents approved of the performance on the job. The published results of the survey covered the cities of Beijing, Shanghai, Guangzhou, Chengdu, Shenyang, Xiamen, Zhengzhou and Wuhan.

Of the eight cities left, Wuhan was at the bottom of the list. Only 52.8 per cent of the respondents in Wuhan said they knew who the mayor was. Far more had trouble describing the personality of the mayor or figuring out what he did while on the job.

Residents certainly get a chance to see the mayor's smiling face on television or plastered over the pages of the local newspaper.
Usually they see the mayor at a ribbon-cutting ceremony, so it would not be surprising if a few mainland viewers concluded that the mayor started out his or her career as a tailor or seamstress. Of course, a few of them have had problems now and then, like Beijing's former mayor, Chen Xitong, who is still serving out his prison sentence. Shenyang's ex-mayor Mu Suixin was jailed for life while the city's vice-mayor Ma Xiangdong was executed.

Overall, about 20 per cent of those people covered in the survey said they did not know the name of their mayor and about 40 per cent said they did not have a clue what the mayor had achieved or what policies had been pursued. Now I also might point out that mainland mayors do a lot of good work.

Suzhou Reels in More Chip Factories

August 17, 2002

National Semiconductor, promising US$200 million in investments during the next five years, has signed a pact to build its first mainland plant in Suzhou. Rivals Fairchild Semiconductor, computer processor-maker Advanced Micro Devices, contract manufacturer Solectron and other large United States-based enterprises have all set up shop at the Suzhou Industrial Park.

Construction of the new plant is scheduled to start in November, with commercial operations beginning in 2004. It will employ about 500 people. National's US$200-million investment plan comprises costs for construction, equipment, facilities and personnel during the next five years.

Chinese Bottler May Sue Pepsi

August 17, 2002

A Sichuan bottling company is threatening to sue United States soft drinks giant Pepsi-Cola for "stealing commercial secrets" in an escalating dispute over a soured joint venture.

The threat came after Pepsi earlier this month turned to the Arbitration Institute of the Stockholm Chamber of Commerce to terminate its ties with the Sichuan bottling plant and its Chinese partner in the venture. While joint-venture disputes are common in China, such claims against a foreign multinational are rare and usually made against the Chinese partner.
In its arbitration request, Pepsi said it had lost management control, though both partners could name three appointees to the joint venture's board. The Sichuan bottler's managers had ignored the expiration of their tenure on January 31 and Pepsi's intention for new appointments. Pepsi asserts that they had been operating illegally and the firm had large financial irregularities.

In addition to Pepsi requesting an unspecified amount of damages from the Chinese side, Pepsi has asked to terminate the joint venture contract with its Chinese partner, ban the Sichuan bottler from using its brand name and stop supply of soft drink syrup to the Sichuan bottler.

Analysts said the dispute harked back to an earlier China investment spree
Pepsi set up the Sichuan bottling plant with Sichuan Broadcasting Industrial Development in January 1994 when multinationals often valued their mainland partners' close government ties more than their business merits and value synergy.

China Market not Right for all Foreign Companies

August 17, 2002

Cable & Wireless (C&W) is just one foreign company that is in no hurry to return to China after bailing out of Hong Kong Telecom two years ago. The SAR communications carrier, now called PCCW, never delivered on its promise as a portal into the mainland.

Unlike most global network operators who rave about the potential of the world's largest telecommunications market, C&W says China is a myth - a big but carefully guarded market just beginning to open up to foreign investment.

C&W has since emerged as the world's leading Web-hosting firm. In the 1990s, C&W discussed a number of mainland ventures, such as a Beijing mobile-phone project, as majority shareholder of Hong Kong Telecom, the crown jewel of its overseas assets.

C&W even promised to slash its prized 54 per cent stake to 30 per cent in return for a piece of a much-desired mainland project. But nothing came of talks and C&W eventually unloaded its stake to PCCW.

Many believe that even with China’s entry into the WTO it's still five years before any real significant changes. Under China's commitments on joining the WTO, foreign firms can take up to 25 per cent of mobile telecoms firms, rising to 49 per cent in three years. Without controlling states it is difficult to manage an efficient business operations in China.

Joint-venture Regulations Confusing

August 2, 2002

China's trade ministry has issued rules on joint ventures in logistics, capping foreign ownership and confining them to a handful of geographic areas. It is not clear how the rules fit with its promises to the World Trade Organization. They appear to be more restrictive than expected. Logistics joint ventures would be limited to four cities - Beijing, Tianjin, Shanghai and Chongqing - and the coastal provinces of Zhejiang, Jiangsu and Guangdong.The ventures had to have at least US$5 million in registered capital and would be given permission to operate for 20 years with an option to renew, said the statement.

Logistics ventures included transport, storage, loading and unloading, processing, packaging, delivery and information management. The Chinese-language WTO accession document does not contain the word "logistics", but does include promises to open areas such as shipping, storage and maritime agencies to foreign involvement over four years.

Geographic restrictions in those areas are mentioned only in vague terms. China's WTO protocol said foreigners could conduct freight transport only in "ports open to foreign vessels", but did not elaborate on which ones those were. It was unclear whether the rules would affect foreign companies already operating in China, some of which had licenses for cities not on the list. Maersk Logistics, the world's largest logistics firm, announced in early July it had obtained five new operating licences in China, including one in Dalian and one in Chengdu.

The WTO accession document also promises to allow full foreign ownership in storage businesses three years after WTO entry, but caps foreign investment in shipping and maritime agency joint ventures at 49 per cent.
Foreign and Chinese companies have been announcing logistics tie-ups at a steady pace over the past year, hoping to provide transport, warehousing and delivery of products from information technology equipment to steel to cars.

(Source: REUTERS in Shanghai)

 

China Replaces America as Taiwan's Largest Market

July 30, 2002

China has surpassed America as Taiwan's largest export market, taking up a record 25 per cent of the island's exports in May. Taiwanese exports to China totaled NT$94.6 billion (about US$2.8 billion) in May, a 44.5 per cent increase from the same month last year.

In the first five months this year, Taiwan exported to China 23.5 per cent of the island's total exports, the report said. The United States, which for decades had been the island's largest market, took up 20.6 per cent of Taiwanese exports.
The island's ''export reliance'' on China, or the share of goods exported to China, has increased from 9 per cent in 1991 to 16.5 per cent in 1996 and to 25 per cent in May 2002.

Taiwan has been cautious about relying too much on the market of its biggest rival, fearing that close economic ties might give China more political control over the island.

However, facing pressure from Taiwanese businesses, the government has been gradually relaxing restrictions on trade and investment in China.

(Source: ASSOCIATED PRESS)

Shanghai Opens Up for Lawyers

July 30, 2002

Shanghai has taken steps to open up the legal profession by allowing lawyers to set up one-person shops which could extend legal help to those who might otherwise be unable to afford it.

It is hoped that the change will create smaller law firms that are able to meet the needs of people requiring less costly and less complicated legal assistance.
The so-called one-person shops will actually require three lawyers, although two can be employees hired by a principal lawyer. Lawyers need at least three years' experience and must be 60 or under, while the firm needs registered capital of US$ 12,000.

WTO Entry Prompts New Laws
July 27, 2002

Legislation required under the mainland's entry to the World Trade Organization is expected to be passed this year in stages according to legislators. The National People's Congress is expected to debate laws on government licensing and enforcement as well as the revision of laws on administrative procedure and compensation.

Last month the NPC passed the Government Procurement Law, aimed at regulating government purchasing activities and stemming corruption. Government departments at various levels have been among the biggest buyers on the mainland, with purchases amounting to US$ 4.2 billion in 2000, up from US$ 1.5 billion in 1999 and US$ 390,000 million in 1998. The government's purchasing power is expected to reach US$ 12 billion a year within the next few years

The drafting and revision of administrative laws comes about because the government is trying to honor its commitments made in entering the WTO. Although the objective is to establish a transparent, responsible, legal and honest government China still has a long way to go.

Visa Sweep on Foreigners Nets 525

July 17, 2002

Shanghai has cracked down on foreigners working and living illegally in Shanghai, netting 525 people during a three-month sweep of the city. The crackdown was launched as part of a nationwide campaign that started in April, Shanghai had given the matter special attention because of the rising number of foreigners in the city.

Shanghai has more than 50,000 long-term foreign residents, officials say. A long-term downturn in Asian and other economies and heightened expectations of opportunities from China's entry last year to the World Trade Organization have brought a flood of economic refugees to the city.

Police found 485 cases, including 30 of foreigners working without permits and 18 cases of people entering the city illegally. The remaining 437 cases involved foreigners living illegally in Shanghai or failing to process the required residence permits.

China in WTO Compliance?

June 7, 2002

Six months after China joined the World Trade Organization US officials have said it is too early to tell how well it will honor its commitment to open its market to more foreign goods.

Since joining the WTO last December, China has substantially cut tariffs on agricultural and industrial goods, removed other obstacles to imports and repealed hundreds of trade-related laws and regulations that conflict with its new obligations. Still there has been delayed and flawed allocation of tariff-rate quotas' for agricultural imports and further delays in opening its insurance sector to more foreign competition.

Chinese restrictions on imports of genetically-modified soybeans and 'restrictive measures in the area of express delivery services are some more recent issues that go against China’s Wto commitments. Senior Chinese leaders appear committed to making the needed reforms, but there often is disagreement between different ministries about complying with WTO rules. Many provincial and municipal authorities also question the benefit of making changes 'or simply do not yet understand WTO rules..

China No. 1 for Pirated CDs

June 13, 2002

Two out of every five music recordings sold worldwide last year were illegal copies, up from the one out every five for 2000. China tops the list of illegal sales, with 90 per cent of all music sales being fake, followed by Indonesia (85 per cent), Russia (65 per cent), Mexico (60 per cent) and Brazil (55 per cent).

Pirated CD sales rose to 950 million copies last year from 640 million a year earlier. With CDs and cassettes combined, 1.9 billion bogus recordings flooded global markets last year. In 2000, the ratio of pirated music to genuine recordings was one out of every five, the group reported.

(Source: AGENCE FRANCE-PRESSE)

Foreign Safety Experts advise China Factories

May 30, 2002

Foreign experts have conducted training programs in factories producing shoes for Adidas, Nike and Reebok to help protect workers from hazards that can result in limb amputations, poisonings and other industrial accidents.

Independent labor organizations are banned, leaving workers with little legal protection or understanding of their rights or the risks they face.

Nobody in China really enforces labor laws according to one expert. The project brought industrial health and safety experts from the United States, Hong Kong and the mainland into three factories employing tens of thousands of workers who make shoes.

Participants said they hoped the project might serve as a model, and discussions were under way for a similar training project at a toy factory. The program set up plant-wide health and safety committees, including workers, which will be responsible for helping to identify and remove safety hazards that kill or injure tens of thousands of labors each year.
As an incentive to implement the training and prevention, the factories plan to give awards to departments which can operate with the best safety records, it said.

(Source ASSOCIATED PRESS)

Express Mail Dispute Continues

May 16, 2002

The State Council-directed deadline for two of China's most powerful ministries to settle their differences over the mail imbroglio came and went yesterday without a resolution but both sides remain at the negotiating table.

The Ministry of Foreign Trade and Economic Co-operation (Moftec) and the Ministry of Information Industry (MII), which governs the State Post Bureau, were last month given until yesterday to settle differences over restrictions imposed by document No 64, which restricted forwarders and express operators to carrying packages weighing 500 grams or more.

If carriers elected to handle packages lighter than 500 grams they would have to charge more than China Post. Carriers in March were given until May 6 to comply or face the consequences of operating an "illegal" enterprise. The deadline has since been extended to June 15.

The China International Freight Forwarders Association, which has about 540 member companies, said the restriction would eliminate about 60 per cent of its revenue base. The international express operators, represented by the Conference for Asia-Pacific Express Carriers in the dispute, claim the restrictions run contrary to provisions for acceptance into the World Trade Organization, which emphasize liberalization of markets.

The dispute started last December when Moftec and the MII issued document No 629, telling express operators they would have to undergo a "security entrustment procedure", couched as necessary to ward off the threat of bio-terrorism. Many saw the move as an attempt by China Post to protect the lucrative market for its Express Mail Service.

China Attracts More Foreign Investors

May 16, 2002

Foreign direct investment (FDI) increased 29%, at US$14.13 billion, in the first four months as China extended its role as a global manufacturing powerhouse after joining the World Trade Organization.

Foreign firms have been rushing into China in the hope of unprecedented market openings after WTO entry. That pushed up growth in contracted FDI - where deals have been signed - to a breakneck 42.29 per cent in the first half of last year.
Today, 388,945 foreign firms are approved to operate in China.

FDI represents just less than 5 per cent of China's gross domestic product but it is the best part of the country's production and economic activity as it brings in modern technology and management. FDI churns out about half the mainland's exports, playing an important role in driving job creation, domestic demand and export growth. In recent months, foreign firms, including those from Japan, have diverted FDI flows to China to take advantage of cheap labor and a large market.

China posted a 12.1 per cent jump to US$ 32.1 billion in industrial output last month as the economy built up momentum alongside the recovery global economy.

BP to Spend over US$300m/yr on China Projects

May 16, 2002

International oil giant BP will steadily increase investment in China in the next couple of years, spending US$300 million to US$500 million a year on top of US$4 billion it has already committed. BP is China's biggest investor in the energy sector and is involved in oil and gas exploration and production in the South China Sea, petrochemical projects, liquefied petroleum gas supply and lubricants.

The company plans to expand in 2005 its acetic acid plant in the southwest city of Chong Qing to 350,000 tons per year (tpy) from 150,000 tpy. Acetic acid is used in the production of paints, dyes and textiles. Part of the extra acetic acid production will feed BP's 350,000 tpy plant for purified terephthalic acid (PTA) in south China's Zhuhai. PTA is the feedstock for polyester.

BP is also the equal partner with Sinopec in China's largest ethylene plant, which will have a capacity of 900,000 tpy and will be built in Shanghai around 2005 at a cost of US$2.7 billion. BP paid US$1 billion to buy shares in China's top two oil companies, PetroChina and Sinopec, when they were partly sold off and listed in 2000. As part of the share acquisition, BP was given a strategic alliance to build 500 service stations each in Guangdong and Zhejiang provinces.

(Source: REUTERS in Beijing)

Foreign Companies Gouged for Natural Gas

May 11, 2002

German chemical giant BASF still has no agreement with China on plans to buy natural gas for a US$2.9 billion petrochemical base in Nanjing, and called initial prices uncompetitive. BASF's integrated petrochemical site, a joint venture with state-run China Petroleum & Chemical (Sinopec), is already under construction and is scheduled to begin trial operations in 2005.

BASF plans to generate power for the petrochemical site with natural gas from the east-west pipe line. Officials said price guidelines for the Shanghai area called for sales of natural gas at 1.35 yuan (about HK$1.26) per cubic meter, which was 50 per cent higher than natural gas in Europe.

China Increases Environment Protection with WTO Accession

May 10, 2002

China will step up international environmental cooperation following its accession into the World Trade Organization (WTO), according to Xie Zhenhua, Minister of the State Environmental Protection Administration.

The minister made the pledge at the PRC-Day Seminar Thursday in Shanghai, a key event of the 35th annual meeting of the board of governors of Asian Development Bank (ADB).
To achieve a "win-win" result in environment protection and trade growth, China planned to adopt the "clean production" method in primary and secondary industries, launch labeling and authentication for organic and green food production in line with the ISO14000 environmental management system, accelerate the formulation of environmental standards for market access, and improve environmental inspection and supervision and the management of imports and exports, Xie explained.

The minister also pointed out that China planned to improve pollutant discharge registration, push forward the reform of taxation and mobilize enterprises to participate in environment protection. The demand for investment in environment protection was estimated to reach US$84 billion during China's 10th Five-year Plan Period (2001-2005).
He invited overseas investors and financial institutions to explore the massive market, promising that "China will strictly fulfill its commitments on opening the environment service industry". China was putting great importance on the sustainable development strategy and the environment protection drive. It had formulated 36 environmental laws and regulations in recent years.

(Source: Xinhua)

Customs Seize Fake Goods

May 6, 2002

Customs officers on Monday seized $440,000 worth of electric blenders bearing false labels of origin and ftrade marks in a container on board a mainland cargo vessel at Kwun Tong public cargo working area.
Officers said the consignment was picked up for inspection after arriving from Jiangmen, Guangdong on Sunday. A spokesman said the goods were destined for a port in West Africa. The consignment bore ''Made in France'' labels and forged trade marks but they were made on the mainland. No one was arrested.

China's New OSHA Law takes Effect

April 13, 2002

An alarming rise in job-related injuries on the mainland have initiated the passing of China's Vocational Disease Prevention Law will take effect on May 1, International Labour Day. The law requires employers to establish proper occupational health facilities and provide employees with insurance against workplace accidents. It requires employees' contracts to mention potential occupational hazards and forces employers to provide regular medical examinations and pre-work training.

The move comes after a series of major industrial accidents, including the deaths of six teenage girls from exposure to benzene fumes at leather bag factories in Hebei province. After the accidents, central government officials conducted a national inspection of businesses, with emphasis on small workshops where benzene-based glue is used to produce shoes, handbags, toys, and furniture.

There were 13,218 cases of vocational injury or occupational disease reported in China last year, a rise of 13 per cent from the previous year. Nearly 80 per cent of the problems were related to lung disease, according to ministry statistics. And 2,365 people died as a result of on-the-job poisoning or other illnesses. The rate of acute poisoning accidents in work places in Beijing has doubled since 1994.

China's Hard and Some times Dangerous Road for Investors

April 13, 2002

During President Jiang Zemin recent trip to Germany, motor industry executives there are fearful plans to secure a firm grip on China's apparently booming market are beginning to run into difficulties. Problems with mainland partners, reports of interference by gangsters, and disappointment at a lower than expected level of sales have dampened their hopes.

The feeling now, is very different to the euphoria of Mr Jiang's ground-breaking visit to Germany in 1995, when multibillion-dollar projects were signed. While Volkswagen has been successful in gaining a dominant share of the market, industry sources say the company will have complained about the actions of its partner, the Shanghai Automotive Industry Corporation (SAIC), in helping a manufacturer in Wuhu to build a model, the Charade, that will compete with its own Jetta and that SAIC formed a partnership with General Motors to build a rival factory in Shanghai.

In 1995, the German company Daimler agreed to open up a bus factory with a Chinese partner, Yaxing Bus Company, in President Jiang's hometown in Yanzhou, Jiangsu. This is where according to a report, gangsters recently forced their way into the hotel room of Daimler's manager, put a gun to his head and demanded the company stop buying tires directly from Pirelli, insisting instead they went through Chinese middlemen.
These recent allegations follow the killing last year of previous Daimler manager Juergen Pfrang, 50, his wife and their two teenage children. They were found stabbed in their villa in Nanjing. Pfrang was said to be about to expose corruption, but this was never proved.
Later, three unemployed peasants were arrested, sentenced to death and executed, but many remain unconvinced by the official account of how they entered a well-guarded compound and why they committed the crime.

After merging with United States firm Chrysler, Daimler also acquired the Beijing Jeep Company, the first Sino-US joint motor venture. The factory is going from bad to worse. No one is buying its products. With an annual capacity of 80,000 jeeps, it made just 210 in the first two months of the year. Last month, crowds of workers, fearing for jobs and pensions, protested outside the factory gates, near Beijing's embassy quarter.

Behind the problems of the German companies in China lies general disappointment with the market potential. Passenger car sales have not doubled to 1.2 million, as was predicted in the mid-1990s. They remain stuck at around 550,000.

Industry experts say that behind the miscalculations and alleged violence in Yanzhou lie some unpalatable facts about the fragmented Chinese car industry. It costs up to a third more to produce a car in China than it does in Germany, a country that has the highest-paid automobile workforce in the world. Even so the quality is often poorer. Many reported profits by big motor industry investors are suspected by analysts of being the result of misleading accounting practices.

The frustrations of Volkswagen and DaimlerChrysler's management also stem from a suspicion that China may be seeking to develop an indigenous industry at the expense of foreign investors, who are all asked to spend heavily on training and on research and design centers that are inappropriate for a market of this size. Some foreign investors have also been pushed into investing in inappropriate locations. Daimler was sent to Baotou to make trucks in an old tank factory. Ford was sent to Chongqing to build a production base far from either the marketplace in the east or its suppliers.

Many believe the Government has used the industry as diplomatic bait. Now there are far too many fighting over a modest market. Volkswagen's sales and profits in China have already slumped, partly because it, like others, overestimated the market's size. Most of Daimler's ambitious plans for China have been shelved amid problems.

Foreign BOT Power Firms Fined US$30M

April 5, 2002

Electricite de France (EdF) and Alstom have paid a fine of US$30 million for a delay in construction of what was supposed to be a model power project in Guangxi province. In 1997, the two firms signed a contract for a coal-fired plant at Laibin in Guangxi with two 360-megawatt generators worth more than US$600 million. This was the first build-operate-transfer project in the power sector.

Under the contract the two firms signed with the Guangxi provincial Government, construction would be completed at the end of 1999 and they would operate it for 15 years before handing it to Guangxi. Representatives of the two firms had paid the fine due to building delays since the varieties and sources of coal in China had to be taken into account by the suppliers of equipment. But the plant has been producing electricity for more than a year and selling it to the Guangxi power company at the price agreed in the contract.
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The Chinese power market has changed dramatically since 1995, when Chinese and foreign specialists predicted a long-term power shortage, interest rates were high and the Government was eager to attract foreign investment in this sector. But after 1997, with a slowing of economic growth and the coming on stream of new generating plants, that situation changed which resulted in a power surplus in some provinces. The Government became less interested in foreign investment in power.

The risk for foreign companies is that a build-operate-transfer plant sells its power to only one or a few state firms, which often have monopoly opportunities to lower the price, giving the foreign investors no alternative customer.

Chinese Law Delivers Shipping Controversy

April 4, 2002

U.S.-based giants FedEx, UPS and DHL, are facing a May 6 deadline to turn over the bulk of their business in China to the government-run postal service under a new order, where private services may not deliver any letters or packages under 1.1 pounds, may not charge prices below those of China Post and may not deliver to private homes or major government offices. The restrictions would apply to shipments within China and those to or from other countries.

They new law could eliminate up to 60% of the business private express shippers do in China and could disrupt and possibly close down the air freight industry. Furthermore it seems it would violate commitments China made when it entered the World Trade Organization in December. State media accounts that said the new rule was required by a Chinese law guaranteeing the post office a monopoly in delivery of "private letters."

One rationale (excuse) is that China Post is required to provide service to all locations in the country, even places where it cannot make a profit. Private carriers face no such requirement. Another is that Chinese officials also have invoked an anti-terrorism rationale for the restrictions, saying they are needed to make sure all deliveries are subjected to screening for anthrax and other poisons.

As businesses enlarge their China operations, demand for express shipping is booming. UPS reported that volume in its China operation grew 45% in 2000 and China-related revenue was up 35% in the first half of 2001.

( Source: USA TODAY)

China's Media Claims World Bank not Paying

April 3, 2002

Recently a Chinese newspaper implied the World Bank had failed to provide the US$165 million loan, the World Bank's largest to combat air pollution by subsidizing the conversion of 2,200 small-scale (defined as 10 tones) coal boilers, which had contributed the most to polluting Beijing's environment, and promote the conversion of 3,500 burners.

In 1998, Beijing mandated everyone within the third ring road to convert all scattered coal boilers and burners either into natural gas or larger district heating boilers by 2003. Beijing Gas Group, the only government-appointed enterprise eligible to use World Bank funds and procure low-cost, compliant natural-gas burners, has been frustrated since no one was using its services. Therefore, they can't access the World Bank funds for reimbursement us for the alleged US$7 million they have spent to procure boilers.

Well that is there side, the real problem is that Beijing Gas forked spent US$7 million in a one-size-fits-all approach to buy 231 of the same burners that turned out did not fit consumers' needs. The World Bank stipulated the company had to sell the burners to get reimbursed, and the market's needs were far more diverse than Beijing Gas anticipated.

China's WTO Accession Terms

March 4, 2002

Under China's WTO accession terms within three years foreign companies will be able to conduct distribution and trading activities. China's access commitments are contained in the Protocol of Accession (POA) including the legal framework, market access schedules, and specific commitments on goods and services.

Currently it is almost impossible for foreign companies to establish distribution and trading operations as China maintains a foreign trade system that strictly controls goods imported from abroad. Current laws require the importing of foreign goods only by authorized Chinese foreign trade corporations (FTCs) and the imported products must be sold to Chinese import/export companies or customers with foreign trade authority. Foreign-invested enterprises (FIEs) and wholly foreign-owned enterprises (WFOEs) that have production facilities can only import goods for their own use and can only sell what they produce.

The Ministry of Foreign Trade and Economic Co-operation (Moftec) has issued a notice permitting production FIEs to purchase export items which are not subject to quota or license control. Sino-foreign joint-ventures dealing in foreign and domestic trade and retail ventures are the exception to the rule but require approved by the central government and may have numerous restrictions such as the qualifications of the investors, the percentage of foreign ownership, the number of joint ventures, venture and branch location(s).

Larger foreign companies who need to provide distribution and sales support to their subsidiaries located in China can set up holding companies which may act as the sales agent and distributor for products manufactured members. They can not engage in domestic trade of third party products and must have registered capital of at least US$30 million. Holding companies can to import parent company products under certain circumstances (market promotion or product development purposes) so long as they are not subject to import quotas and the goods are identical or similar to the products to be produced by the investee enterprise.

China under its WTO entry terms, all companies in the PRC including FIEs, will be permitted to engage in trading activities three years after China's accession, except goods which are subject to state trading rules. Foreign companies will be permitted to establish joint ventures and WFOEs to engage in the following supply chain activities: retailing, wholesaling, franchising, storage and warehousing, packaging, maintenance and repair, rental and leasing. Additional restrictions on the establishment of distribution joint ventures and WFOEs will be lifted within the end of 2004. Still special provisions will apply to chain stores based on the number of stores and the types of goods being sold.

Still one will need to see if, or how, China implements and interprets these commitments. The government still can impose other new restrictions on a particular sector so long as it is not arbitrary.

US Factory in China with 50-year Lease Forced to Close

February 22, 2002

SureBlock a US company that produces building materials is being forced to move out of its Tianjin factory it built five years ago. The company has invested US$6.5 million (80% ownership) in the plant which has been operating since 1997 to manufacture concrete products. Sureblock had a signed lease for 50 years.

The Chinese government has condemned the plant for a university project that is being built on the site. Even though Sureblock may have to move out by May of this year they still have not received any formal notice or offers of compensation from the government. Sureblock representatives became aware the situation from reading the local newspapers.

This action Government's decision illustrates one of the risks in doing business in China, where regulations can suddenly change or often lack clarity on how they should be applied. Under Chinese law there is no private ownership of land, only land use rights that vary depending on the location and the land use classification.

(Source: SCMP)

China New Anti-Corruption Legislation May Help Foreign Companies

February 18, 2002

Foreign companies that want to do business, ethically and legally, still have many hurdles to overcome in China as illustrated by the current events of several of China’s more prominent banks.
Even though bribing public officials, is illegal under various Chinese laws, making it a crime to offer cash, or property, to state functionaries with the intention of obtaining an illegitimate benefit it is still prevalent throughout China. Public Officials are broadly defined as the staff of government agencies, institutional organizations of the state, managers of state-owned enterprises (SOEs), and those managers who were appointed by a government department. Basically, one should presume that any Chinese national doing business on a large scale in China is a state functionary until proven otherwise.

Even obtaining a receipt with a government chop for a debatable payment will not guarantee the payment was not a bribe. If a bribe is demanded, the payer will not be guilty of bribery unless it receives an "illegitimate benefit", typically as a preferential treatment that violates laws, regulations, or state policies. Therefore, one can assume that the only legitimate purpose for making a payment to a state functionary it to insure they perform their lawful duties.

Penalties for giving bribes are imprisonment up to life for serious offenses. Companies who give bribes puts both the persons responsible, and directly in charge, subject to imprisonment or detention. Penalties for bribe recipients range from administrative to sanctions to the death penalty. In the past, the law was more concerned with the bribe takers that the payers. Now, the law concerns both payers and taker of bribes.

China also prohibits bribery and kickbacks in private commercial transactions by individuals or entities for the purchase or sale of goods or in the trade of goods or services. A person who bribes an employee of a company or enterprise is subject to imprisonment for up to 10 years, depending on the size of the bribe.

Recent penalties for those caught in corrupt operations cost them their life as the death sentence was handed down and carried out. For foreign companies this is a both a good reason and example, for have a strict company policy against making bribes or kickbacks.

Free Consulting Services in Beijing for Foreign-invested Projects

December 26, 2001

As of this year Beijing Foreign Investment Service Center (BFISC) has been offering free, one-stop, services to help overseas investors establish companies in Beijing more conveniently. The services include: investment consultation, listing of investment projects and business partners, assistance with application and registration procedures with relevant departments.

The center claims that foreign-investments from 1,033 companies amounted to 3.54 billion U.S. dollars, up 63.2 percent over the same period of last year. Still, one should be mindful when using their services for other than administrative tasks. Surely their investment consulting, and partner locator services, will be bias to helping the Chinese side, and surely not the foreign side. This is an important detail that one must pay attention when using these services at the center. It is the old adage “you get what you pay for”. This is especially true in China.