China News in Brief
September, 2014
Compiled by Yimin Zhang, University of Shanghai for Science and
Technology and distributed free of charge.
1
Sep.14
2
Provincial GDP again surpasses national data
Total GDP figure of 31 provincial regions in Chinese mainland outnumbers the country's official GDP
calculated by the central government in the first half of 2014, China Youth Daily reported Thursday. Data shows
that the total GDP amount of the 31 provinces reached 30.3 trillion yuan ($4.9 trillion), 3.4 trillion yuan higher than
the figure of central government released by National Bureau of Statistics. It has been the 10th consecutive year
that such a difference has existed since 2004. According to the report, the huge difference between the numbers of
the provincial regions and central government may make it harder for policymakers to carry out macroeconomic
policies.
Source: Xinhua: Provincial GDP again surpasses national data, September 4, 2014
PMI shows emphasis shifting
The official services Purchasing Managers Index edged up to 54.4 in August from 54.2 in July, the National
Bureau of Statistics and China Federation of Logistics and Purchasing announced on Wednesday. In the same
month, the manufacturing PMI slid to 51.1 from 51.7 in July, the NBS and CFLP said on Monday. "The service
sector performed well in general, with business activity and new orders rebounding," CFLP Vice-Chairman Cai Jin
told a news briefing in Beijing. The reading "shows that enterprises are actively purchasing and there is a strong
chance that their production activity will pick up." The benchmark Shanghai Composite Index rose 1 percent on
Wednesday to 2,289 points, a 15-month high.
The latest figures show that China's policy mix has achieved preliminary success in shifting the economy
away from a manufacturing-led growth model to one driven by consumption. The government wants the service
sector to play a bigger role in growth because it puts less pressure on resources and the environment, and employs
more workers. In addition, a thriving service sector will counter the drag of a cooling property market and help the
nation fulfill its full-year growth target of 7.5 percent. The services PMI is based on data compiled from monthly
replies to questionnaires sent to purchasing executives of 1,200 companies in 27 industries.
Source: Gao Changxin in Shanghai: PMI shows emphasis shifting, China Daily, September 4, 2014
China to be biggest economy by 2024
A SURGE in Chinese consumer spending will help the country overtake America to become the world's
biggest economy by 2024, according to a new report. China amid a three-fold rise in consumer spending to $10.5
trillion (Pounds 6.5 trillion) over the next 10 years, from $3.5trillion today. IHS said a successful transition from
investment-led growth to domestic spending would push up gross domestic product (GDP) at current prices from
around $10trillion in 2014 to $28.3trillion by 2024. The US economy is expected to grow from around $17.4trillion
to $27.4trillion over the same period. "China's economy is expected to re-balance towards more rapid growth in
consumption, which will help the structure of the domestic economy as well as growth for the Asia Pacific (APAC)
as a region," said Rajiv Biswas, IHS's chief Asia economist. Analysts believe consumer spending in China will
grow at an annual average rate of 7.7pc per year in real terms over the next decade to become "a key engine of
global consumer demand". "China's economy will play an even bigger role as a key driver of global trade and
investment flows," said Mr Biswas. IHS expects China's share of world GDP to rise from around 12pc in 2013 to
20pc by 2025.
It also believes the Chinese consumer market will be three times larger than Japan's within 10 years, while the
Indian consumer market is also expected to catch up with Japan over this period. IHS said that rapid growth in
consumer demand would provide a boost to other APAC nations through tourism and trade ties. "The further rapid
expansion of Chinese consumer demand will provide a signifi-cant boost to [other South East Asian nations] and
GDP growth over the long term," IHS said. "Other APAC economies with strong trade ties to China, such as South
Korea and Australia, will also be important beneficiaries from the rapid growth of consumer demand." The IHS
report is based on nominal GDP, which does not accurately reflect the cost of living. Using a measure based on
3
so-called purchasing power parity (PPP), China is poised to overtake the US this year, according to a report backed
by the World Bank.
However, experts have warned that China faces a "hard landing" if it fails to implement structural reforms that
will make growth sustainable and more balanced in the long term. The IMF has recommended that China targets
growth of less than 7pc next year in order to reach its goal of "transitioning to a safer and more sustainable growth
path". It also repeated its call for the country to take steps to rein in its credit boom. Without these reforms, growth
in China could slow to around 4pc by 2030 "with considerable risk of an even sharper slowdown" to around 2.5pc,
the IMF warned.
Source: Chan, Szu Ping: China to be biggest economy by 2024, The Sunday Telegraph [London (UK)] 07 Sep 2014:
3.
Li: China will meet growth target
Premier Li Keqiang said economic fluctuation in the third quarter is "within the expectation" and China will
hold on to meet its economic growth target of around 7.5 percent for the year. The slowdown in the most recent two
months was acceptable, Li said, because the country is starting from a high base from last year, and because the
international market outlook remains gloomy. Li made the remarks during a dialog with multinational corporate
leaders on Tuesday, before the opening of the World Economic Forum's Summer Davos Forum in Tianjin. He said
China will continue to carry out targeted macroeconomic controls and economic restructuring, in a bid to invigorate
the market. The economy expanded 7.4 percent in the first half, but momentum failed to carry over into July, as
shown by China's softening industrial output, investment and retail sales.
Source: Xinhua: Li: China will meet growth target, September 9, 2014
China to continue prudent monetary policy: premier
China will continue prudent monetary policy and "targeted control measures", Premier Li Keqiang said on
Tuesday. China resorted to "strong reform", instead of "strong stimulus," last year to stimulate the economy, he said,
speaking to entrepreneurs ahead of the Summer Davos in north China's Tianjin Municipality. This can be illustrated
by the 13.6-percent growth of the broad money supply (M2) last year, the premier said. While keeping the total
amount of money at a stable level, decision makers will be focused on restructuring money supply, which means
the government will put more money into agriculture, small and micro businesses, emerging industries and the
high-tech sector, Li said. "As we are restructuring instead of expanding the monetary supply, current monetary
policy is sustainable," the premier added. Li also stressed the importance of easing access to financial markets, and
developing small, medium and private banks. Reforms of interest and exchange rates, a multi-layer capital market
and lowering leverage rates are important to controlling money supply, according to the premier.
Source: Xinhua: China to continue prudent monetary policy: premier , September 9, 2014
Sci-Tech, innovation to play crucial roles in China's long-term growth
Chinese Premier Li Keqiang's speech at the opening ceremony of the Summer Davos forum has underlined
government's commitment to supporting science, technology and innovation to play the crucial roles in
underpinning Chinese industrial upgrade and long-term economic growth, said Rajiv Biswas, Chief Asia Economist
at INC Inc, in an interview with Xinhua. Several highlights in the economic field could easily be spotted during
Premier Li's speech, said Rajiv. For instance, Premier Li stressed the importance of economic and structural
reforms as a driver of long-term economic growth, rather than relying on fiscal stimulus; China commits itself to
increasing the network of multilateral and bilateral free trade agreements to create a strong free trade net work; and
China would accelerate efforts to make the domestic economy more open for foreign investment and technology,
elaborated Rajiv. Rajiv believed that science, technology and innovation are acting as the significant roles on
China's economy restructure.
4
"Over the last three decades, Chinese economic growth was driven by exports and investment related to
external demand, as it became a global hub for low-cost manufacturing. With manufacturing labor costs rising in
China, it is becoming harder for China to compete in very low-cost manufacturing industries," said Rajiv.
"Therefore science, technology and innovation will play a crucial role over the next decade in helping Chinese
industry to move up the value-adding chain into high-tech industries and maintain strong economic growth." A
major focus of Premier Li's speech was on the need for innovation as an essential factor to upgrading the Chinese
economy, noted Rajiv. "Premier Li stated that increasing scientific research and development would be a key focus
to accelerate the development of higher value-added industries, including technological sophistication and brand
quality of Chinese products. As part of China's policy efforts to improve science and technology as well as
innovation, a key focus would be on further improving workforce skills through education and training, as well as
ensuring greater protection of intellectual property rights," added Rajiv.
Source: Xinhua: Premier: Sci-Tech, innovation to play crucial roles in China's long-term growth, 2014-09-11
Reform replaces stimulus
Li on Wednesday told global CEOs at Summer Davos that it was reform that had improved China's job market,
when dwindling growth should really have dragged things down. China, he said, now relies on strong reforms
rather than strong stimulus. The key to reforms is a clear delineation between market and government. About one
third of administrative approval items have evaporated since the new leadership took office two years ago, a goal Li
promised to achieve within five years. Financial and fiscal reforms have come thick and fast. Restrictions on
lending rates have been lifted; market friendly monetary regulation have been rolled out; private-owned banks are
open for business; Shanghai's free trade zone is testing the most contentious matters, such as the liberalization of
cross-border capital flow. All this, combined with targeted stimulating measures, means a 7.4 percent growth in the
first half this year, despite weak industrial production and a cooling property market. Nearly 10 million new urban
jobs were created in the first eight months, the government's top concern. Because of the healthy labor market,
economic fluctuations, such as declining PMI and power consumption, are deemed reasonable. This year' s 7.5
percent GDP growth target seems well within reach. So the leadership has more room to push more structural
reform and aggressive policy loosening can be forgotten about, for now. As Li promised, monetary policy is stable
and sustainable and employment spurs the economy, but the course of true reform never runs smooth. Breaking
vested interests will certainly bring fierce opposition. China is ready to face whatever the future brings.
Source: Xinhua: Reform replaces stimulus, 2014-09-11
China's inflation up 2% in August
China's inflation rate eased to 2 percent year on year in
August, marking the lowest level in four months, according to data
released by the National Bureau of Statistics on Thursday. The
Consumer Price Index (CPI), a main gauge of inflation, increased 2
percent year on year in August, compared with 2.3 percent in July.
Higher food prices were the main contributor to the CPI growth,
Food prices in August rose 3 percent from a year ago, lifting the
CPI by 1.01 percentage points.
In the food category, the price of fresh fruit surged 21.2 percent, increasing the CPI by 0.41 percentage points.
Meanwhile, prices of pork, a staple of the Chinese diet, dropped 3.1 percent, dragging down the CPI reading by 0.1
percentage points. For the first eight months, China's CPI rose 2.2 percent from a year ago, which was far lower
5
than the government full-year inflation control target of 3.5 percent.
Source: Xinhua: China's inflation up 2% in August, 2014-09-11
Improved quality 'key to growth'
Premier Li Keqiang called for promoting the quality of Chinese products to help set off the side effects of
decelerating economic growth. He made the remark at the China Quality Conference on Monday, the first meeting
of its kind held in China. His call followed a National Bureau of Statistics report over the weekend that value-added
industrial output — a major indicator of the condition of China's economy — expanded by 6.9 percent year-on-year
in August, the slowest pace in six years. The slowdown has prompted concerns that the world's second-largest
economy is losing steam.
At Monday's conference, Li said that the miracle of the Chinese economy has to rely more on the
improvement of quality, instead of speed, as the country is losing its traditional advantages to support economic
growth. "Our economic structure is far from balanced, and our innovation and high technology are often less
competitive on the global market. So we have to put quality management in a more important position as we strive
toward economic upgrading," Li said. "In other words, if quality cannot be ensured, our economy will lose the
support of further growth." Li emphasized the essential role of companies in quality management and the need for
less government intervention to give companies the freedom to decide what to produce. He also stressed the
importance of developing a pool of educated laborers and a compulsory recall system. Worries are mounting that
the world's factory is losing its competitiveness to Southeast Asia and Latin America because of the rising costs of
labor and materials. A string of quality scandals has dented consumer confidence in Chinese products and brands.
Carlos Gutierrez, former US secretary of commerce, echoed Li's view that the main responsibility for the
improvement of products and services lies with companies. "It means that the whole company, every employee,
needs to know that quality is the key of products," Gutierrez said at the conference. Gutierrez said that enterprises
should establish a system that allows workers to report defects. "We have to give the workers the confidence that if
they see a problem in a product they can bring it forward. That makes a great company," he said. Quality is also
crucial to transforming China's export-led economy to one led by consumption and innovation, he said.
Source: ZHAO YINAN and XU WEI: Improved quality 'key to growth', China Daily， 2014-09-16
New accounting regime ends "GDP supremacy"
China's new accounting regime, shifting focus from GDP to a more balanced development outlook, signals the
end of the era of "GDP supremacy". The regime, announced earlier this month by the National Bureau of Statistics
(NBS), is a multi-faceted assessment of the economy that equally weighs structural optimization, industrial
upgrades, innovation, the environment, improvements to people's livelihoods, etc. To assess these fields, over 40
economic indicators--consumption, urbanization, debt-to-fiscal revenue ratio, research and development spending,
pollution--will be regularly published by statistical authorities. The NBS believes that government statistics used to
overemphasize GDP and the new standards will be a better reflection of the quality and benefits of economic
development.
Double-digit growth may have propelled China to become the world's second-largest economy, but to a large
extent it was pursued by government officials simply because it determined their promotions, and had many
undesirable consequences: industrial overcapacity, environmental damage, uneven development. With a slowing
economy aiming for 7.5 percent growth this year, the government has concentrated on reform, restructuring and
improving people's livelihoods. The government will not be distracted by minor fluctuations of individual
indicators, Premier Li Keqiang said during Summer Davos in Tianjin this month. Li declared the key agenda to be
structural control, with coordination between stabilizing growth, promoting reform, readjusting structure,
improving people's livelihoods and preventing risks. Industrial upgrading and reducing the gap between rural-urban
development are to be promoted through science and technology innovation. He promised to reduce pollution and
6
conserve energy. Targets on greenhouse gas emissions including peak CO2 emission, carbon emission intensity and
increasing the share of non-fossil energy by 2030 and beyond are at the front of government thinking. Carbon
intensity actually dropped by about 5 percent in the first half of the year, the largest drop in many years, and energy
consumption per unit of GDP also dropped 4.2 percent. At least 70 counties have adopted people's livelihoods and
environmental protection as the major criteria for assessing officials' performance instead of GDP growth.
The NBS timetable for introducing the new accounting regime shows some indicators being released this year.
Premier Li has also called for a dialectical view of economic growth because China, a developing country, still
needs a certain level of growth, but the growth must create jobs, raise people's incomes, help protect the
environment and save energy. GDP supremacy is no more.
Source: Xinhua: New accounting regime ends "GDP supremacy", 2014-09-22
Sustaining growth is a realistic goal
Most economists think China's economic growth had to slow down. As one notes, economies that were once
the world's fastest growing such as Japan and South Korea maintained 8 to 10 percent growth for 20 years, then
slowed to 7 percent or less. China has maintained rapid growth for 33 years, averaging close to 10 percent a year
for most of that time, so how is it possible to continue to sustain that? Other economists have found that when a
country's per capita GDP reaches $11,000 in terms of purchasing power parity, economic growth slows down to 7
percent or less. China hit $11,904 last year, the World Bank says. Starting with the first quarter of 2010, the growth
of China's economy has steadily declined. In 2013, growth dropped to 7.5 percent in the second quarter. After the
government introduced policies to encourage growth, it rebounded to 7.8 percent. But in the fourth quarter, it was
down to 7.7 percent. The government's goal for this year is 7.5 percent. The rate was 7.5 percent in the second
quarter after falling to 7.4 percent in the first quarter. But that does not mean the Chinese economy is going down
the chute. India in 2010 grew by 10.5 percent; in 2011 it was 7 percent; 5.3 percent in 2012; and 4.9 percent in
2013. In Brazil in 2010, the growth was 7.5 percent, and in 2011 and 2012 it was only 2.7 percent and 0.9 percent,
respectively. Compared with those cases, the performance of the Chinese economy is still relatively good.
To understand this situation, one must understand the nature of economic growth and high growth
determinants. The essence of economic growth is the increase in per capita GDP. Rapid economic growth is a
phenomenon that appeared only in modern society. Before the 18th century, the average annual growth of per
capita GDP was only 0.05 percent in Europe. From the 18th century until the mid-19th century, GDP per capita
rose 20-fold, reaching an average of 1 percent per year. From the mid-19th century to the present, the growth of
GDP per capita has doubled, reaching an average annual 2 percent. These huge changes in growth are all due to
technological innovation that has driven a continuous improvement in labor productivity. Also, as high value-added
industries emerge, labor and resources are transferred from low to high value-added industries. Continuous
technological innovation and industrial upgrades are determinants of high economic growth, and they apply to both
developed and developing countries. Since the Industrial Revolution (1760-1850), developed countries have been at
the forefront of technology and industry around the world.
Innovations and upgrades relied on their own research and development, with R&D costs huge and risks high.
The technology used in developing countries mimics and introduces elements from the developed countries, so the
costs and risks of R&D are much lower. This is called the later advantage. According to research led by Nobel
laureate Michael Spence, after World War II, 13 economies used this later advantage to achieve annual GDP
growth of 7 percent or higher, and maintain it for 25 years or longer, while the average annual growth of GDP per
capita was 2 percent in developed countries. Coupled with population growth, their average annual GDP growth
was 2.5 to 3 percent. The growth of these 13 economies was twice that of developed countries.
After reforms that began in 1979, China became one of these 13 economies. Since the rapid economic growth
of the past 30 years relies on the later advantage, the most important factor in determining whether China still has
the potential for rapid growth is to find out how much of the later advantage the country has left. The average per
7
capita GDP level reflects the status of a country's labor force, as well as that of its overall technology and industry.
In terms of purchasing power parity, in 2008 China's per capita GDP reached 6,725 yuan (about $986 at 2008 rates),
21 percent of that of the United States that year. That was similar to Japan's situation in 1951, Singapore's in 1967,
and South Korea's in 1977, according to the late British economist Angus Maddison. That gap with the US allowed
Japan to maintain 9.2 percent average annual growth for 20 years. Singapore's was 8.6 percent, and South Korea's
7.6 percent. These economies all used the later advantage to achieve average annual growth of 7 percent or higher
for 25 years or more. Of course, continuous technological innovation and industrial upgrades are prerequisites for
making full use of the later advantage. On the one hand, China needs to make sure companies receive the correct
signals. On the other, the government should play a prominent role in overcoming market failures, external
difficulties and coordination problems during the upgrade process.
China needs a two-track system, with a market economy as the engine while the government assists in the
economy's healthy development. That should help resolve problems like unequal distribution of income,
development of monopolies and corruption in favor of social harmony and stability. Building the best type of
government-led development model is conducive to China's economic comparative advantage. Besides, it will also
help the government deal effectively with problems like reduction of the demographic dividend as society ages and
weakness in the international economy, so China can move closer to its potential GDP growth of 8 percent.
The author is vice-chairman of the All-China Federation of Industry and Commerce and honorary dean and
professor with National School of Development of Peking University. The views do not necessarily reflect those of
China Daily.
Source: Justin Yifu Lin: Sustaining growth is a realistic goal, China Daily, International ed. [Beijing] 22 Sep 2014:
20.
China's Rising Risks: New China Worries Rattle Markets --- Global Sectors Tremble as Finance Minister
Signals No Further Stimulus Is Coming to Revive Growth
Fresh worries about the pace of Chinese growth drove down financial markets from U.S. stocks to cotton and
copper prices. Fueling the declines were comments by Chinese Finance Minister Lou Jiwei, who said no change in
economic policies was imminent despite recent indicators of relatively weak growth. Mr. Lou's remarks fanned
concerns that China won't meet its full-year economic-growth target of 7.5%. That rattled commodities markets,
where booming demand from China has kept supplies tight and prices high. Currencies from commodity-exporting
countries, including the Australian dollar and Brazilian real, also fell, while U.S. stocks sank. Metals were among
the hardest-hit sectors on Monday. China is by far the biggest source of demand for industrial metals such as copper,
nickel and zinc. In addition, miners had raised production in the last decade to meet rapidly expanding Chinese
demand, so even a slight drop in the rate of growth could leave the market with extra supply. Investors in many
markets recently had placed bullish bets despite uneven data out of China, anticipating that policy makers would
spring into action at the first sign the economy was flagging.
A closely watched gauge of activity in China's manufacturing sector rose modestly in September following a
notable slowdown in August, which may ease some concerns over the Chinese economy. The preliminary HSBC
China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, rose to 50.5 in
September, compared with a final reading of 50.2 in August, HSBC Holdings PLC reported early Tuesday. The
finance minister's comments had raised doubts among some money managers about the global growth outlook.
Early Tuesday, Hong Kong's Hang Seng index was down 0.2%, while the Shanghai composite was up 0.2%. In
metals, nickel prices fell 4.2% to close Monday at $17,025 a metric ton. Zinc declined 1.5% to $2,240 a metric ton.
Copper dropped 1.6% to $3.038 a pound. Other commodities fell as well, with Brent crude-oil futures closing down
1.4%, near their lowest level since June 2012. Cotton prices ended at nearly a five-year low after a Chinese official
said the country would sharply cut import quotas for textile mills next year.
8
In April, China introduced stimulus targeting certain parts of the economy, including commodity-heavy sectors like
housing. However, aid to large banks announced last week isn't likely to have as big an impact on the real economy,
analysts say. That, plus Mr. Lou's comments, has caused more investors to come around to the view that
commodities markets won't be able to count on support from China's government. In addition to the concerns about
China, the dollar's strength has weighed on metals prices. Contracts are mostly dollar-denominated and prices
typically fall when the greenback gains, which has been the case in recent weeks as markets prepare for the U.S.
Federal Reserve to begin raising interest rates. Still, the lack of response from China's government to mounting
anxiety about the economy has spooked commodities markets.
Source: Erheriene, Ese; Cowley, Matthew; Iosebashvili, Ira.: China's Rising Risks: New China Worries Rattle
Markets --- Global Sectors Tremble as Finance Minister Signals No Further Stimulus Is Coming to Revive Growth
Wall Street Journal, Eastern edition [New York, N.Y] 23 Sep 2014: C.1.
Structural reforms more important than growth in China: ADB
Steady consumption and rising external demand will support economic growth in China this year, especially if
the government continues its accommodating macroeconomic policy package, the Asian Development Bank (ADB)
said in Beijing on Thursday. According to the Asian Development Outlook 2014, ADB's annual publication, its
growth forecast for China's gross domestic product (GDP) was unchanged at 7.5 percent in 2014 and 7.4 percent in
2015. "At this critical juncture in China's transition, carrying out the government's announced structural reforms is
more important than meeting the growth target," said ADB's chief economist Shang-Jin Wei. "Even if the growth
rate falls somewhat below the predicted rate, as long as the employment situation is healthy, there is no need for
panic."
Jurgen Conrad, head of Economics Unit of ADB's China office, said that though several key activity indicators
weakened in the third quarter, China's economy is still on the track for steady growth. He said in September there
have been sings of rebound in figures including the Purchase Management Index (PMI) which slid a bit in August.
The principal domestic risks to the forecast stem from uncertainty over the government's ability to control an
ongoing correction in the real estate sector and avoid a rapid buildup of fiscal and financial strains, the report said.
The report noted that in a positive sign for long-term sustainable growth, the Chinese government has made
progresses on its reform agenda, like development of the regulatory framework for the Shanghai free trade zone,
doubling the daily trading band of the Renminbi and opening a new window for capital transfers by connecting the
stock exchanges of Shanghai and Hong Kong.
Source: Xinhua: Structural reforms more important than growth in China: ADB, 2014-09-25
Top State banks' asset quality weakens in H1
The asset quality of major State-owned banks weakened further during the first half of 2014 under the pressure
of a slowing economy and restructuring, while their risk
exposure expanded to more regions and sectors. The
five largest Chinese lenders had 423.49 billion yuan
($54.64 billion) in nonperforming loans as of June 30,
up 49.18 billion yuan from Dec 31. Their average NPL
ratio went up 5 basis points to 1.08 percent.
Commercial banks reported a total of bad loans of
694.4 billion yuan on June 30 with an average NPL
ratio of 1.08 percent, the China Banking Regulatory
Commission said in a statement. In addition, some companies in the coal and steel industries have gone out of
business. Small and medium-sized enterprises are also finding it tough to survive, further raising banks' risks. In
9
Jiangsu, Zhejiang and Fujian provinces, some homeowners have even stopped paying their mortgages. And certain
steel trading companies, wholesalers and retailers are facing liquidity problems.
The NPL problem expanded from its former epicenter of the Yangtze River Delta region to wider areas,
including the Bohai coastal region touching Shandong, Hebei, Tianjin and Liaoning in northern China. Other rapid
increases were seen in the Pearl River Delta region and the western region in the first half of 2014. Several major
banks said NPLs surged in the manufacturing sector as well as in wholesale and retail trade. Industrial and
Commercial Bank of China Ltd had a 15.7 percent increase in NPLs involving the wholesale and retail trade in the
first half. Its NPL ratio in the sector reached 3.62 percent on June 30, up 22 basis points from Dec 31. China
Construction Bank Corp reported a 13.6 percent rise in NPLs to the manufacturing sector. Its NPL ratio in this
sector rose by 30 basis points to 3.18 percent. Apart from real estate, bad loans in sectors such as steel trading also
triggered concerns. Risks in trade financing also extended to commodities such as coal, copper and iron ore.
For some commercial banks, special-mention loans (potentially
weak loans for which there may not be sufficient documentation, for
example) also increased significantly in the first half. At Bank of
Communications Co, such loans hit 74.6 billion yuan on June 30, up
26 percent from Dec 31 and up 14.8 percent year-on-year. Those rates
were far higher than the single-digit growth in total loans during the
corresponding periods. Commercial banks accelerated NPL write-offs.
In the first half, 16 banks listed in the A-share market wrote off bad
loans worth 71.05 billion yuan, which was close to the amount of 83.25 billion yuan for the whole year in 2013.
Five major State-owned banks accounted for the largest proportion of write-offs, or 46.91 billion yuan.
With both bad loans and NPL ratios increasing in the first half, net profit growth for three major State-owned
banks - the Industrial and Commercial Bank of China, China Construction Bank and Bank of Communications fell to single-digit levels.
Source: Jiang Xueqing: Top State banks' asset quality weakens in H1, China Daily, September 2, 2014
New yuan loan growth dips in Aug
New yuan loan growth dropped sharply in China from a year ago in August, indicating weak demand for
financing amid slowing investment in the infrastructure and property markets, the central bank said on Friday.
According to statistics released by the People's Bank of China, new yuan loans were 702.5 billion yuan ($115
billion) in August, down 10.3 billion yuan from a year ago. During the same period, aggregate financing fell to
957.4 billion yuan from 1.58 trillion yuan. M2, a broad measure of money supply, rose by 12.8 percent in August,
hitting the lowest growth rate since April. The credit slowdown was in accordance with the slowdown of growth in
power generation and industrial added value in recent months. Due to an increasing pressure from the downturn of
asset quality and housing prices, banks tightened lending to sectors that have potentially high financial risks. That
was also part of the reason for the drop in bank loans. Data from the central bank showed that new yuan deposits
fell to 108 billion yuan in August, down 699.5 billion yuan year-on-year, which Lian considered a major cause for
the slowdown in M2 growth. The country's weighted average interbank interest rate was 3.17 percent in August,
falling 24 basis points from the previous month and 27 basis points from the previous year. Wen said the new local
currency loans of 702.5 billion yuan met the majority of market expectations that ranged from 650 billion to 750
billion yuan and could basically satisfy the companies' demand for financing.
Source: Jiang Xueqing: New yuan loan growth dips in Aug, China Daily， 2014-09-13
World News: Economic Slowdown Tests China Central Bank
As China considers a change of guard at its central bank, Chinese leaders face a larger question: Are they
willing to tolerate slower economic growth? Many economists say Beijing may have to resort to more big-bang
10
measures -- such as a blanket interest-rate cut that, according to central bank advisers, has been fended off by Mr.
Zhou -- to rev up economic activity. Those moves, however, would mean Beijing returning to its old handbook of
putting a priority on stoking growth. The emphasis on growth might exacerbate already high levels of debt and
delay reforms leaders say they want to put the economy on a more sustainable path. Mr. Zhou is seen by many
officials and economists as willing to hold the line against short-term growth to put in place financial reforms such
as interest-rate liberalization that would better allocate credit and, many say, better serve the economy over the long
term. So his fate is seen by some as a measure of the leadership's commitment to reform.
So far, Chinese leaders have sent mixed messages about what they would do. In June, Premier Li Keqiang told
local party chiefs from across the country that the 7.5% target was "legally binding." Yet in a speech this month,
Mr. Li seemed comfortable with growth coming in "slightly higher or lower" than the target, saying China can't
always rely on easy credit to spur the economy. He further pledged to maintain the government's focus on
economic overhauls. "The government's reluctance to use stronger stimulus is understandable given the leap in
China's leverage and excess capacity in recent years," said Tao Wang, an economist at UBS. "But its resolve may
be increasingly tested." China's economy has been wobbling in recent months, dragged down by a sluggish
property market, which accounts for a quarter of the country's gross domestic product, and by a widening
corruption crackdown that has cast a chill over spending and investment. To counter the effects of the global
financial crisis, China in 2008 launched a massive stimulus plan, which helped lift the Chinese economy but also
saddled it with debt. Back then, Mr. Zhou warned then-Premier Wen Jiabao that the stimulus was going on too long
but his advice was ignored, according to Chinese officials with knowledge of the matter. The result was that the
PBOC was late in trying to contain the resulting inflation, and China's debt problems also worsened.
Source: Wei, Lingling: World News: Economic Slowdown Tests China Central Bank, Wall Street Journal, Eastern
edition [New York, N.Y] 26 Sep 2014: A.8.
Two private banks get nod
The China Banking Regulatory Commission announced on Monday that it has approved the launch of two
new private banks in an effort to promote innovation models for the country's financial reform. Back in July, the
regulator gave consent to three such banks, which was considered a landmark effort for the government to open up
the State-controlled financial market to private investors. One of the two newly approved private lenders, MYbank,
boasts the recently listed Alibaba Group Holding Ltd as a major founder. Based in Hangzhou, Zhejiang province,
MYbank has registered capital of 4 billion yuan ($651 million), with Zhejiang Ant Small and Micro Financial
Services Group of Alibaba holding 30 percent of its shares. Other leading private companies such as Shanghai
Fosun Industrial Technology Development Co Ltd under the conglomerate Fosun Group will hold 25 percent of its
shares. In a written statement sent to China Daily, MYbank said it will use the Internet as its major means of
operation and will provide financial services and products with relatively simple structures to micro and small
enterprises as well as individual customers on e-commerce platforms. The bank will accept deposits of up to
200,000 yuan and offer loans of up to 5 million yuan.
Wu Qing, a financial researcher with the State Council's Development Research Center, has great expectations
for the role Alibaba will play in China's banking system. "Alibaba said it will set up a distinctive bank that operates
nationally by relying on the Internet to develop financial services, rather than having many physical branches. The
bank will explore the potential of big data and create a brand-new business model for banks, which may bring
revolutionary progress to the banking system," Wu said. Though doubting the reliability of big data, he thinks
people should recognize the benefits of new technologies while being aware of the risks they may bring. "We
encourage Internet giants like Alibaba to explore big data and use it as a way to improve the company's risk
management ability. Alibaba has already managed to control borrowing costs for small businesses. Now, it needs
the guidance and help from the banking regulator to better contain risks," he said.
11
The other lender, Shanghai Huarui Bank Co Ltd, will see 30 percent of its shares held by Juneyao Group,
parent of Juneyao Airlines, and 15 percent held by Shanghai Metersbonwe Fashion and Accessories Co Ltd. With
plans to register in the China (Shanghai) Pilot Free Trade Zone, the bank will build a financial service system that
will cover settlement, investment, finance and transactions in the free trade zone.
Source: Jiang Xueqing: Two private banks get nod, China Daily, 2014-09-30
More tax breaks for small Chinese firms
More small businesses in China will enjoy tax breaks as part of the government's efforts to promote their
growth and counter pressure on economic growth, the State Council announced following a meeting on Wednesday.
From Oct 1 to the end of 2015, any company with a monthly revenue under 30,000 yuan ($4,886) will be exempted
from value-added tax and business tax, according to a statement. Currently, the threshold for the favorable policy is
20,000 yuan. A statement issued after the meeting, presided over by Premier Li Keqiang, deemed small and micro
firms as the "main force" of development, the "main channel" for job creation and an "important source of
innovation." The Chinese government is also mulling other support measures for small businesses, said the
statement. It was decided at the meeting to accelerate removal of unnecessary certification and qualification
procedures so as to "lower the threshold and eliminate hurdles" for small firms. Financing support is also set to be
enhanced. The government said it will use "subsidies" and "incentives" to encourage financial institutions to
provide more finance to small firms. The statement also promised subsidies for small firms employing people with
difficulties in finding jobs, as well as free training to help them secure big data information services supported by
cloud computing. The State Council urged all regions and departments to make sure all these policies are
implemented as soon as possible, without giving a detailed timetable. Small and micro firms are a vital foundation
for Chinese economic growth. By the end of 2013, there were about 11.7 million such companies in China,
accounting for 76.6 percent of the total number of firms in the country, according to the State Administration of
Taxation.
Source: Xinhua: More tax breaks for small Chinese firms, 2014-09-18
Li pledges more tax rebates for yangtze river ports
Premier Li Keqiang pledged on Friday to expand tax rebates to companies operating at inland ports in
provinces that lie along the Yangtze River. He made the pledge during a visit to Shanghai port, a major logistics
hub that connects the country's underdeveloped west to overseas markets via China's longest river. Xing Kangdi,
head of the Shanghai Waigaoqiao Bonded Logistics Zone, said at least four inland areas, including Wuhan in Hubei
province and Chongqing municipality, are providing tax rebates to trading firms. But not all inland provincial areas
along the river are included in the rebate system. "Shanghai port is like the 'head' of the Yangtze River. Only when
the head of the dragon is flexible, can its body and tail be dynamic," Premier Li said as he got a bird's-eye view of
containers at the logistics zone. After the meeting with Xing, Li took a ride throughout the logistics zone, which has
operations by leading global logistics companies such as DHL Express, C. Steinweg-Handelsveem BV and Kerry
EAS Logistics Ltd. He also inspected warehouses in the second phase of the zone. Over the past decade, the annual
value of goods entering the bonded logistics zone has exceeded $100 billion. The value of exported goods has
exceeded $20 billion, accounting for 60 percent of the total value among all nine logistics zones in China. Logistics
companies in the zone pay about 20 billion yuan ($3.25 billion) in annual taxes, which amounts to 40 percent of the
zone's entire tax revenue.
Source: Li pledges more tax rebates for yangtze river ports, development stressed, China Daily, 2014-09-20
New gold exchange aims to catapult China into ranks of global bullion centers
CHINA'S first global physical gold market opened in Shanghai's pilot Free Trade Zone ahead of the zone's
first anniversary. The aim of the market is to lift China's influence over worldwide bullion prices. Shanghai
12
International Gold Exchange Co, a wholly owned subsidiary of the Shanghai Gold Exchange, began operation on
September 18, giving foreign investors their first direct entry into China's physical gold market. Zhou Xiaochuan,
governor of the People's Bank of China, hailed the international gold-trading board as a milestone in national
reforms to open up financial markets further to global trade. The new gold exchange is also expected to strengthen
Shanghai's drive to recast itself as an international financial hub on par with New York and London. The pricing
mechanism of the new board is similar to those operating in London and New York, the two biggest hubs for gold
pricing. Gold for spot delivery in Shanghai will be quoted in yuan. "The launch of the Shanghai International
Exchange marks a transformation," said Aram Shishmanian, chief executive officer of the London-based World
Gold Council. "Shanghai will become one of the world's leading gold trading centers. Shanghai gold will influence
the price and rebalance the drivers of the price today." The new board mirrors services already available to
domestic investors through the Shanghai Gold Exchange - which ranks fourth in the world in trading volume. The
main board of the bourse has 13 products, covering gold, platinum and silver. It provides quotes on spot gold and
offers gold derivatives like forwards and swaps. The international board has three yuan-denominated spot gold
contracts at its start. They include bullion of 99.99 percent and 99.5 percent purity, settled in multiples of 100
grams, 1 kilogram and 12.5 kilograms, and also a 100 gram bullion bar. Overseas investors may trade gold on the
main board and settle with counterparties, but they cannot take delivery of gold from the main board's warehouses.
Similarly, domestic investors will be allowed to trade on the new international board, but cannot take delivery of
gold outside the zone. More than 40 global banks, gold refiners and investment institutions have signed up at the
first group of members on the new bourse. They include HSBC, Standard Chartered, Scotiabank, Goldman Sachs,
Deutsche Bank, UBS, Morgan Stanley, Australia & New Zealand bank, Standard Bank of South Africa, the
Metalor Group, Heraeus Hong Kong and MKS Switzerland SA. A second group of 30 global institutions will usher
in Citigroup and Societe Generale. Eight Chinese banks, including the Industrial and Commercial Bank of China,
China Construction Bank, Agricultural Bank of China, Bank of China, Bank of Communications and Shanghai
Pudong Development Bank, will provide clearing services through free trade accounts for the international board.
The free trade account allows split accounting to separation from restricted trade accounts operating outside the
zone. Free trade accounts have no capital cap on fund transfers overseas, but they do restrict fund movement to
onshore accounts.
Gold imports arriving at the Pudong International Airport in Shanghai have surged 200 percent,
month-on-month, since June in the lead-up to the start of the new board. Some of the more active importers have
bought up more than 4 tons of gold a month, according to the Shanghai Customs. The storage fee for physical gold
on the international board is 0.18 yuan (3 US cents) per kilogram per day. Bulk storage costs 200,000 yuan a month.
Up to 18 tons of bullion can be stored at any one time, according to the exchange. Shanghai-based Bank of
Communications operates the only vault for the zone's gold market. It has the capacity to store more than a
thousand tons of bullion. China overtook India to become the world's biggest gold consumption market last year.
Up to 1,000 tons of gold are expected to be sold here this year, according to the World Gold Council.
Source: New gold exchange aims to catapult China into ranks of global bullion centers, Shanghai Daily [Shanghai,
China] 29 Sep 2014.
Rule revisions outlined for securities
The China Securities Regulatory Commission (CSRC),on Friday released revised draft rules for asset-backed
securitization (ABS) of securities firms and subsidiaries of fund companies. The revisions would allow fund
management companies, in addition to securities firms, to do ABS business. The commission would cancel
administrative examination and approval of ABS businesses and companies need only to have filings with the Asset
Management Association of China. "We pay attention to underlying assets, integrity and investor protection," said
Deng Ge, a spokesman for CSRC.
Source: Cai Xiao: Rule revisions outlined for securities, China Daily, 2014-09-25
13
Chinese vice premier stresses cotton pricing reform
Chinese Vice Premier Wang Yang has urged efforts to improve the experiment on a target price system for
home-grown cotton. On an inspection tour to Northwest China's Xinjiang Uygur autonomous region, Wang said the
experiment will help improve the country's agricultural products pricing mechanism and give full play to the
market's role in allocating resources. China started the experiment for cotton in Xinjiang earlier this year. Under the
target price system, the government will subsidize farmers to ensure their earnings when market prices fall below a
preset target price. The vice premier visited households, farms and companies in Xinjiang to solicit opinions for
improving the pilot program. The government must strive to make the pilot program easy to implement, decide the
subsidy amounts in a scientific way and optimize the procedure for handing out the subsidies, Wang said.
Confronted with shortage in cotton supply, China should make the information about cotton imports and sales of
government cotton reserves more transparent in order to stabilize market expectation, he said. The country should
also support companies to purchase cotton and encourage growers to sell cotton at satisfactory prices, Wang added.
Source: Xinhua: Chinese vice premier stresses cotton pricing reform, 2014-09-01
Klaus Schwab: Finding the 'heart and soul' for reform
Prior to the 8thAnnual Meeting of the New Champions that opens today in Tianjin, Klaus Schwab, founder
and executive chairman of the World Economic Forum, talked about issues relating to the Chinese economy with
China Daily reporter Zheng Yangpeng.
What are the highlights of the Annual Meeting of the New Champions 2014 in Tianjin?
This year's meeting comes as our world is undergoing rapid and far-reaching change. Economics, the environment
and technological advances are reshaping conditions in complex, interconnected and unpredictable ways. The
meeting is the foremost gathering of entrepreneurial talent shaping the future of business and society. There are
global growth companies, young global leaders, young scientists, technology pioneers, social entrepreneurs and
global shapers, together with the forum's members and partners. This year's theme - creating value through
innovation - is designed to emphasize creative thought with a focus on China and emerging markets.
The past year has seen changing dynamics in the world - while the US recovery is gaining momentum,
emerging economies are struggling with slower growth, high inflation, weakening currencies and capital outflows.
Do you think this pattern will last long?
The key priority for emerging economies is to boost their competitiveness by furthering structural reforms and
productive investments such as human capital development and the innovative capacity of their labor forces.
Increasingly, innovation is ever-more critical to long-term economic potential. As such, I feel that the traditional
distinction between "emerging" or "advanced" economies will gradually disappear and we will instead refer to them
as "innovation-rich" versus "innovation-poor". This is true of emerging economies, which until now relied on
credit-fuelled investment and failed to implement market-oriented reforms that foster entrepreneurial talent. So the
challenge is to move to long-term increases in productivity, which requires innovation, investment in new
technologies, open economies and private-sector development. This transition is difficult and requires bold
leadership that advances collaboration between business, government and civil society to create a competitive
ecosystem.
While many observers fear China's slowdown will affect the world economic recovery and dampen external
demand in many countries, some have argued that it is conducive for reform, which will lay a foundation for future
sustainable growth. What do you think?
I have said before that we need to build a world in which the quality of life, and not just the quantity of
production, is at the center of our activities. This is true for China, which now faces the challenge of moving from a
growth model based on investment and exports to one led by internal demand. Innovation is needed to generate
high-income jobs. China is not yet an innovation powerhouse, but I believe it can be. The so-called
14
"second-generation reforms" required are structural in nature, future-oriented and difficult to realize. They include
labor market reforms and liberalization that encourage competition, access to loans for SMEs and reduced barriers
to entry, giving entrepreneurs the ability to transfer talent into products, services and institutions that meet the needs
of the societies they serve. I believe China is laying the right foundations. Our latest Global Competitiveness
Report shows gains in a number of areas consistent with long-term gains in productivity.
The Third Plenum of the 18th CPC Central Committee laid out a grand blueprint for China's overall reform.
Eight months have passed and there are concerns that there is little substantial movement so far. Which area do you
think is the most urgent for reform?
Since my first visit to China in 1979, I have observed one repeating lesson: the pessimists have always been wrong
and continually underestimated the resilience of China in the face of significant challenges. The World Economic
Forum's latest Global Competitiveness Report shows China as the highest-ranked BRICS economy, and despite a
slowdown from the breakneck pace of the past decade, we see encouraging signs that growth is sustainable. China's
leadership has established an enormously ambitious agenda that will require all the building blocks for an inclusive
and accountable ecosystem that allows for entrepreneurship and innovation to flourish: education and skills,
cooperation between research and business, financing for SMEs, and removing barriers that limit competition.
You have met Premier Li Keqiang several times. Any comment on the new administration?
I see four qualities that define good leaders: brains, soul, heart and good nerves. As a leader, you need intellect to
know what you are doing. That is brain. Your soul gives you a direction, a compass and a vision. Your heart brings
passion and compassion. Finally, leaders must be bold to combine a strong vision with the ability to translate that
vision into action, even with risky odds. That is nerves. I see these qualities embraced by China's leadership.
Source: Klaus Schwab: Finding the 'heart and soul' for reform, China Daily, 2014-09-10
Science; New Anthropology Findings from Sun Yat Sen University Reported (Identity Building and
Communal Resistance against Landgrabs in Wukan Village, China) (Identity Building and Communal
Resistance against Landgrabs in Wukan Village, China)
Investigators discuss new findings in Science. According to news reporting from Guangdong, People's
Republic of China, by VerticalNews journalists, research stated, "Over the last two decades, rapid urban expansion
building on landgrabs has become ubiquitous in China. The pursuit of urban-centered economic growth has created
crises of land deprivation and rural identity in Chinese rural society." The news correspondents obtained a quote
from the research from Sun Yat Sen University, "Land-related protests have become the focal point of movements
for the protection of Chinese farmers' rights. Drawing on ethnographic materials concerning a series of influential
protests over landgrabs in Wukan village, this paper presents a critical rethinking of the economy and an
examination of how the restoration of villagers' collective identity has led to communal resistance that has
successfully reclaimed governing power and social order, sowing the seed of hope for a better life. A revitalized
and reinvented clan system organized around extended kinship networks has played a critical role in reconstituting
the collective identity of villagers. The Wukan events constitute the first steps in an ambitious project to turn
around farmers' subordinate and vulnerable role within China's relentless urbanization." According to the news
reporters, the research concluded: "In this process, the economy has been redefined so as to give greater importance
to the livelihood and the well-being of the marginal groups."
Source: Science; New Anthropology Findings from Sun Yat Sen University Reported (Identity Building and
Communal Resistance against Landgrabs in Wukan Village, China) (Identity Building and Communal Resistance
against Landgrabs in Wukan Village, China), China Weekly News (Sep 23, 2014): 321.
China doubles charges on pollutant disposal
China's top economic planner announced Friday it would double charges for pollutant disposal in the latest
move against pollution. Charges on pollutants in sewage and exhaust gas disposal will be set at no less than 1.4
15
yuan ($0.23) and 1.2 yuan per pollution equivalent, respectively, according to a notice jointly released by the
National Development and Reform Commission, Ministry of Finance and Ministry of Environmental Protection.
Currently, the rates are 0.7 yuan and 0.6 yuan. The notice requires local authorities to properly adopt the change
before the end of June 2015. Thermal power, steel, cement and paper-making industries will be most affected by
the policy, analysts said. In the meantime, the government will encourage highly polluted and developed regions to
formulate higher standards for such charges. "Regions should set up differentiated charging mechanisms to impose
higher standards on enterprises that have surpassed the emission limit, while adopting lower standards on
businesses with better pollution-treatment efforts," read the notice.
China started charging for pollutant disposal in 2003, but the low fees created little incentive for companies to
cut emissions. The latest move came as China intensifies efforts to improve its deteriorating environment, which
has been a growing source of public complaints. At the annual session of the National People's Congress in March,
Chinese Premier Li Keqiang "declared war" against pollution and pledged to fight it with the same determination
the country battled poverty.
Source: Xinhua: China doubles charges on pollutant disposal, 2014-09-5
Greater coordination of environmental protection, development stressed
Chinese environmental authorities should play a bigger role in drawing up national and local development
plans, vice-minister for the environment Pan Yue said in Beijing on Monday. Speaking at a conference on China's
environmental policy and legislation, Pan said city and land planning must be aligned with environmental
protection, citing the new environmental protection law which was revised for the first time in April this year.
"Elements of environmental protection should be incorporated into all development plans," he said, adding the
environmental assessment system should be used as an important tool to promote "green development". China's top
legislature adopted revisions to the Environmental Protection Law in April, giving heavier punishment to
environment-related wrongdoings. The new law says economic and social development should be coordinated with
environmental protection and that the country should establish and improve environment and health monitoring as
well as survey and risk assessment systems. Pan said environmental authorities across the country should make
good use of the new law to push forward China's green development and its economic restructuring, while calling
for increased efforts to better environmental monitoring. They should also promote transparency and encourage
public engagement, he added.
Source: Xinhua: Greater coordination of environmental protection, development stressed, 2014-09-23
China punishes 19,289 environmental violations
As China cracks down on environmental violations, authorities handed out punishment in 19,289 cases in the
first half of the year, the Ministry of Environmental Protection said on Tuesday. Violators were fined a total of
743.25 million yuan ($121 million), the ministry said in a statement. According to the ministry's statistics, East
China's Zhejiang province tops the punishment list with 4,077 cases punished and 187.22 million yuan of fines in
the region. Six other regions including Beijing, Hebei and Jiangsu saw more than 1,000 violators punished
respectively. A majority of cases involved violations in environmental evaluation, with water, air, solid waste and
noise pollution also high on the list. Environmental authorities at all levels transferred 861 cases of suspected
environment-related crimes, such as discharging heavy metal or persistent organic pollutants, to the police for
criminal investigations. Also on Tuesday, the ministry published a circular to promote the supervision over
government enforcers' work in environmental regulation enforcement.
Source: Xinhua: China punishes 19,289 environmental violations, 2014-09-24
Creating value through innovation
Premier Li Keqiang opens the 2014 Summer Davos in Tianjin on Wednesday. More than 1,600 participants
16
from 90 countries are expected to attend the three-day gathering that will focus on innovation, entrepreneurship,
science and technology. Below four participants look at ways value can be created through innovation and the use
of new technologies. Although there is still concern that technology is replacing jobs, in reality the opposite is true.
Digitalization and greater access to technology provide new opportunities to boost global labor productivity,
expand business reach and stimulate collaboration in ways that were previously impossible. However, to fully
realize the potential offered by the digital transformation and address the current talent shortage in China,
employers and educators must collaborate with the government to develop talent with skills that match the roles
transformed or created by technology. To address its talent shortage and fully maximize its technological
transformation, China must develop new education models to grow a technologically savvy and adaptable talent
pool.
The slowdown of China's economy has resulted in more competition for fewer jobs. This has affected the
entire workforce, including previously exempt university graduates. Clearly there is a disconnect between the talent
businesses need and the skills and knowledge educational institutions are teaching. To bridge this gap and align
China's talent with the skills demanded by employers, educators should focus on developing soft skills as well as
hard skills, so students have the capacity to think critically, question assumptions and act quickly - both
independently and as part of a team - to develop flexible solutions that meet the needs of business in today's
ever-changing environment. Also to stop or at least significantly slow the brain drain, which is both economically
and socially costly, educators, regulators and employers must work together to develop professional opportunities
that nurture and value talent, and outline clear paths for professional growth.
Expanding on-the-job training and professional growth opportunities, encouraging entrepreneurship and
innovation and creating modern career development tracks will help employers build a strong talent pipeline. There
is no doubt that digital transformation will continue to drive China's growth, productivity and innovation. To sustain
this process, China's employers, educators and government must collaborate in order to accelerate changes in the
way talent is developed, and on how local opportunities are perceived and utilized. Both China and Europe have
understood the need to help top scientific talent thrive and to encourage research that boosts innovation and
competitiveness.
In 2007, the European Union took a bold step by establishing the European Research Council to invest in the
most creative researchers in any field, from social sciences and humanities to physical sciences, engineering and
life sciences. The originality of the ERC lies in allowing scientific talent to pursue ambitious projects in frontier
research. This type of research is performed by scientists driven by the curiosity to push the boundaries of
knowledge and know-how further, without having any specific applications in mind. History shows that without
curiosity-driven science, research constrained to solving "real problems" would be routine and technological
progress would remain purely incremental. Although the impact of frontier research is often difficult to predict, this
is where the real breakthroughs often happen; the laser, the identification of the DNA structure and penicillin are
just a few examples of ground-breaking discoveries that sprang from such research. A huge variety of new materials
have also emerged in this way, for instance new ceramics as well as graphene, a new form of carbon considered one
of the materials of the future. Such breakthroughs lead to the emergence of new industrial sectors, spur innovation,
stimulate the economy, and have the potential of improving society and people's quality of life. The overall theme
of this year's Meeting of the New Champions organized by the World Economic Forum - "Creating Value through
Innovation" - resonates with the ERC's mission to fund ambitious projects proposed by researchers with an open
mind for long-term innovation. This is crucial, as innovation - recognized as a decisive driver of economic growth is boosted by scientists who have been given the opportunity to carry out high-risk, high-gain research at the
frontier of knowledge.
As people live longer, the need to invest in healthcare is growing exponentially. This is true not only in Asia,
but throughout the world. It is within such a challenging environment, that the World Economic Forum will seek to
elevate the role of health in driving socioeconomic growth by engaging three stakeholders - governments,
17
businesses and communities. The immediate challenge in emerging markets is to improve access to care and
connectivity for patients, whereas in mature economies it is to improve outcomes at lower cost. With significant
multistakeholder investment and partnership programs, we can transform societies more rapidly and profoundly
than in any previous age. For example, the Forum's "The Future is Healthy" initiative aims to demonstrate that
healthy populations can drive socio-economic growth. To ensure this occurs, the initiative encourages both private
and public investment in initiatives with better health returns on investment. This involves more than just saving
lives - according to a report from The Lancet, the world's leading medical journal, reductions in mortality could
instigate economic growth of more than 10 percent in low- and middle-income nations. But to do so we need to
share our expertise, our resources, and most importantly, our ideas. We need to take visionary ideas, encourage
debate about their efficacy and implementation, and then promote such concepts to become transformative
achievements. Nowhere is this process more vibrant and promising than in the field of health and healthcare. For
we have reached a hugely significant point in history - diseases are being eradicated, chronic conditions treated
more effectively, longevity is increasing and more consumers are in control - or want to be in control - of their
well-being than ever. At such a moment and with the right dialogue, we can help to shape a healthier future.
As Milton Friedman said, "The poor remain poor not because they are lazy but because they do not have
capital." Several reports have marked the concurrence of financial inclusion to reduced robbery rates and higher
literacy rates which are key parameters to assess the well-being of a nation. It is in this context that the
micro-financing institutions are crucial to emerging economies, as sustained financial inclusion not only helps
individuals but also society at large. For all economies combating challenges to financial inclusion, a pervasive
financial sector is a must. Traditionally banks have avoided operations in remote locations due to high costs and
low returns. But many leading banks are now getting into partnerships with non-governmental organizations and
micro-finance institutions. While the immediate purpose is to micro-credit, it opens up the field for wide variety of
financial services such as insurance and savings products. Technology has a paramount role to play in creating the
backbone for financial inclusion models. It is technology that is becoming the enabler for institutions, be it the
scanning and uploading of documents from remote locations, banking tips via text messaging, or grievance and
counselling centers. Technology binds the processes together. With the challenge of finding skilled professionals at
remote locations, technologies while being effective have also to be simple enough to be adopted and flexible
enough to be adapted to regional requirements. With branchless banking solutions, banks and financial institutions
can seamlessly offer last-mile banking services in a cost-effective manner to the unbanked and under-banked
segments by enabling consumers to easily access banking services through agents rather than bank branches. This
brings in operational efficiencies and a larger served market base.
Everyone has the right to dream and no dream should fade because it did not find an expression. Let's create
an environment, where ideas flourish and create a virtuous cycle.
Source: Jeffrey A. Joerres: Creating value through innovation, China Daily, 2014-09-10
Tech innovation hub takes shape
Haidian district in Northwest Beijing has become one of the most vibrant high-tech centers for technology
innovation, as well as a hub for international technology communication. Statistics showed that in 2013, Haidian
district had 21,372 patents, a rise of 7.6 percent year on year. After China's international technology transfer center
and national technology transfer accumulation center were set up in the western region of Zhongguancun, Haidian's
technology exchange was tipped to become more high-end, professional and international, officials said.
To build Haidian into a "never-ending technology exchange exhibition center," the Haidian district established
a service platform for Zhongguancun's technology transfer and intellectual property protection. The platform is
based on Zhongguancun Science Park's beneficial policies and R&D centers. It mainly serves technological
enterprises in the Zhongguancun Science Park and spreads the services to the country's major industrial parks in
different fields. The platform focuses on the resource advantages of Zhongguancun Science Park and shares
18
information from the China Technology Exchange. It also includes related agency services and encourages
enterprises to take part in market-oriented activities including technology transfer and intellectual property
exchange. The platform has four virtual halls featuring different functions. The information hall releases supply and
demand information in Beijing and other places in the country. The exchange hall publicizes projects with rights
that have been confirmed. It also offers a space for price bidding exchanges of patents and trademarks. The service
hall provides support services from research institutes and investing agencies. The news hall releases notices for
exhibitions, exchanges, latest news and policy orientations. Officials said that market demands were very important
for the platform, which would also provide convenient Internet access to help users find information quickly. The
platform also enables users to apply for projects on-line to save time and money.
Haidian district also released several related policies to boost the development of intellectual property right
protection and technology transfer. The maximum awards for intellectual property right exchanges can reach
500,000 yuan ($81,976). Maximum awards for commercializing patents can reach 1 million yuan. Haidian district
offers subsidies to enterprises that purchase high-end services for intellectual property rights, which can reach up to
500,000 yuan. The district encourages industrial leagues and associations to initiate innovational activities.
Source: Zhuan Ti: Tech innovation hub takes shape, China Daily， 2014-09-16
China needs to level up to an innovation-based economy: study
In order for China to move up the "value chain," it must evolve from relatively commoditized manufacturing
and lower-skilled assembly to a more innovation-based economy, which includes design, logistics, financial and
business services, high-tech industries and life sciences. This is according to the latest competitiveness report from
Deloitte Touche Tohmatsu (Deloitte Global). "There is no question that China's economic transformation over the
last three decades has been remarkable," said Gary Coleman, managing director for industries at Deloitte Global.
"To grow to even greater heights, China today must embrace new sectors and strategies for growth, as well as build
a culture of innovation, in order to maintain its comparative advantage." Also, the report maintains that China must
transition from labor- and capital-intensive activities to those that use knowledge, innovation, design, IT sciences,
software, and marketing. The sectors driving China's "next wave" of growth should focus on more specialized and
innovative production, particularly in the industries of aerospace; high-value machinery and components; life
sciences; mobile technology; internet e-tailing and social media; logistics and other services; health services;
education services; and energy.
Further, the report discusses the role of government and its revamping of economic policies. Among these is
the opening up of markets to increased foreign investment--critical to China's continued growth trajectory and its
ability to take its place on the world stage as an important trade partner and global leader.
Source: China needs to level up to an innovation-based economy: study, Modular Data Centers: Should You Jump
On The Bandwagon?. Enterprise Innovation (Sep 15, 2014).
Conference calls for more patent commercialization
What a two-day patent information meeting discussed was "of particular significance to slow recovery of the
global economic situation and robust advancement of digital technology", according to a senior official of the
World Intellectual Property Organization. "Both were linked to the utilization, sharing, dissemination and
management of patent information, "Wang Binying, deputy director-general of WIPO told the Patent Information
Annual Conference held in Beijing last week. The event drew more than 1,800 attendees from China and abroad.
"I'm quite impressed by the level of the participants in this year's conference and the expertise they represent," she
said. "Patent information is the key and basis to shape up scientific research and thus promote innovation," she said.
Shen Changyu, commissioner of the State Intellectual Property Office, told the audience that the number of patent
documents that SIPO publicized in Chinese surpassed 10 million since the Patent Law took effect in China in 1985.
Filings continued their momentum in the country, with invention patent applications growing 10.8 percent
19
year-on-year to 351,000 in the first half of this year. During the same period, SIPO dealt with 11,000 international
filings through the Patent Cooperation Treaty, up 20.5 percent year-on-year, reinforcing the country's third position
in the global PCT ranking last year. Invention patent applications with IP offices in the United States, Europe, Japan
and South Korea from China increased 32.6 percent, according to Shen. "The fast rise in patent numbers and
continuous improvement in quality provide a strong support for the popularization and use of Chinese patent
information," he noted.
Source: Zhuan Ti: Conference calls for more patent commercialization, China Daily， 2014-09-17
Survey: Foreign companies in China feel 'targeted'
An American business group warned Tuesday that foreign companies in China feel increasingly targeted for
enforcement of anti-monopoly and other laws and said investment might decline if conditions fail to improve. The
American Chamber of Commerce's report adds to mounting complaints about a flurry of investigations of global
automakers, technology suppliers and other companies in recent months. Foreign companies believe they face
"selective and subjective enforcement" of anti-monopoly, food safety and other rules, said the American Chamber
of Commerce in China. Almost half of companies responding to a survey "believe that foreign companies are being
targeted," the group said. It said the risk was increasing that China "will permanently lose its luster as a desirable
investment destination." "Improvements in these areas are imperative if foreign companies are to continue to invest
in China's future," the group said in a statement.
Uncertainty over regulatory investigations adds to challenges for foreign companies at a time when China's
growth is slowing and they face more competition from ambitious local rivals. Beijing announced last week it will
fine 12 Japanese auto parts suppliers a total of $202 million on charges of price-fixing. Officials have said
Mercedes Benz, Audi and Chrysler also will face punishment. Microsoft and chip maker Qualcomm also are under
scrutiny. Another business group, the European Union Chamber of Commerce in China, said last month that
competition law should not be used to achieve other goals such as forcing price reductions.
Source: Xinhua: Survey: Foreign companies in China feel 'targeted', 2014-09-02
Chinese insurance firms fined $18m for price-fixing
National Development and Reform Commission (NDRC) Tuesday announced that Zhejiang Insurance
Industry Association and 23 provincial level insurance companies have been fined more than 110 million yuan
($17.89 million) for fixing new car insurance discount and other anti-competitive practices. The NDRC dropped its
investigation of nine insurance companies, including American insurance company Liberty Mutual Insurance
Group's subsidy in Zhejiang and Japanese Aioi Insurance Co, when it discovered they were not involved in
price-fixing.
Source: Lan Lan: Chinese insurance firms fined $18m for price-fixing, China Daily，2014-09-2
Anti-trust fine totals 1.6b yuan Jan to Sep
Fines for anti-trust violation have accumulated to more than 1.63 billion yuan ($266.6 million) , as two
multinational automakers and their dealers were reported on Thursday to have breached rules and been issued
heavy fines. FAW-Volkswagen Sales Co was fined 248.58 million yuan, equivalent to six percent of the company's
sales in 2013, with seven dealers of its luxury brand, Audi, fined 29.96 million yuan. Meanwhile, Chrysler Group
China Sales Ltd was fined 31.68 million yuan by the Shanghai Municipal Development and Reform Commission,
which is equivalent to three percent of its sales of the previous year. Three Chrysler dealers were fined 2.14 million
yuan. The penalties follow a series of anti-monopoly probes Chinese regulatory launched since the beginning of
last year. High-profile investigations such as those against Microsoft and Jaguar Land Rover are rippling across the
Western business circles.
20
Only 10 percent of the total number of companies being probed by Chinese antitrust authorities are foreign
enterprises, Premier Li Keqiang said on Tuesday at the eighth World Economic Forum - Annual Meeting of New
Champions (also known as Summer Davos), dismissing speculation that foreign companies are being targeted.
"China's door has opened, and it will never be closed again. I do hope that you will not worry for the future of
China's opening-up," Li reassured the corporate leaders at the conference. "But, of course, the investment in China
should follow the laws and business ethics." The increase in antitrust probes is part of the results of improved
administrative transparency, the premier said. "We improved the transparency of government supervision, which is
meant to restore the fairness of the market," he said. Li said these supervision efforts, including antitrust probes, are
legal, transparent and fair. "It will benefit the opening-up and make more foreign investors come to China in the
long run." Chinese regulatory is expected to continue and enhance the ongoing anti-monopoly investigation against
companies, domestic or foreign, of all industries, China News Service reported quoting experts in the field.
This is the list of companies recently fined for antitrust violation and price manipulation:
Sep 2014: FAW-Volkswagen fined 248.58 million yuan, with seven dealers of its luxury brand, Audi, fined
29.96 million yuan; Chrysler fined 31.68 million yuan, with its three dealers fined 2.14 million yuan; Three
Chinese cement companies fined 114 million yuan in total.
Aug 2014: 12 Japanese auto suppliers in total fined 1.24 billion yuan.
Aug 2013：Five Chinese jewelers fined 10.1 million yuan； Six milk formula makers, including MeadJohnson
and Chinese brand Biostime, fined 669 million yuan in total.
Mar 2013：Chinese distiller Moutai and Wuliangye fined 449 million yuan.
Jan 2013：Six television producers including Samsung, LG, and Chimei fined 353 million yuan in total.
Source: Dai Tian and Lan Lan: Anti-trust fine totals 1.6b yuan Jan to Sep, China Daily, 2014-09-18
China Fines Volkswagen and Chrysler for Antitrust Violations: [Business/Financial Desk]
Chinese regulators fined Volkswagen and Chrysler for violating antitrust laws, announcing on Thursday the
first monetary penalties against large multinational carmakers swept up in a broad investigation. The fines, which
totaled $46 million, were the latest in a series of tough measures by China against what it considers monopolistic
practices. In recent months, foreign companies in a range of industries including automobiles, technology,
pharmaceuticals and food packaging have faced increased scrutiny, including raids and allegations of unfair
practices. The scrutiny of automakers comes as Chinese players are being pummeled by international competition.
The government has been searching for ways to help its homegrown industry, which only several years ago held the
promise of becoming a big exporter.
But Chinese officials have taken pains in recent weeks to deny that they are targeting multinationals. Prime
Minister Li Keqiang said on Tuesday that antitrust cases against foreign companies represented only a tenth of all
such investigations. He said enforcement of the antitrust rules would, in fact, make "even more foreign investors,
and more foreign products, willing and daring to enter China, because there is a fair competitive environment."
On Thursday, price regulators in Hubei Province imposed a fine of $40.5 million on the Audi unit of Volkswagen,
saying that the automaker had reached monopolistic agreements with 10 dealerships to maintain high prices for cars
and replacement parts. The investigators said the agreements were "hurting the interests of consumers." Audi,
which confirmed the penalties and violations, said that its joint venture with China FAW, the partner in its Chinese
operations, was "optimizing the management processes in the sales and dealership structure" and would "attach
great importance that all applicable antitrust and competition laws are adhered to." Shanghai price regulators
leveled similar accusations against Chrysler, levying a $5.2 million fine, the official Xinhua news agency said.
Chrysler said in a brief statement that it "respects and accepts this final ruling by the Shanghai Price Bureau" and
that it was committed to remaining highly competitive in the Chinese market. Fines against Volkswagen and
Chrysler could help the government address persistent complaints that international brands of cars typically cost
twice as much in China as overseas, and sometimes almost three times as much. The fines could foster an
21
impression that auto prices are high in China not because of taxes but because of price gouging by multinationals.
That could erode the ability of multinationals to charge extra for coveted brands that have strong reputations for
style, safety or other attributes, making them more affordable for Chinese consumers.
China is not the only Asian country this summer that has examined automakers' compliance with antitrust
regulations, particularly over replacement parts. India recently assessed fines totaling $420 million on 14
automakers after accusing them of manipulating the market for replacement parts. India said that they had forced
consumers to purchase high-priced parts from the automakers' factories instead of generic parts by using measures
like not selling diagnostic tools to independent garages.
Source: Bradsher, Keith; Buckley, Chris: China Fines Volkswagen and Chrysler for Antitrust Violations:
[Business/Financial Desk], New York Times, Late Edition (East Coast) [New York, N.Y] 12 Sep 2014: B.2.
EU envoy to China: Probes not targeting foreign firms
The new European Union ambassador to China said it does not make sense to say the country is targeting
foreign companies for antitrust investigations based on just one or two cases. Hans Dietmar Schweisgut, speaking
on Tuesday at his first news conference since arriving in Beijing on Friday, said the EU is looking forward to a
constructive dialogue on antitrust issues and will push forward a bilateral investment treaty during his tenure in
China. "When you look at Chinese policy objectives and the need to bring about the transition to a more balanced
economy, it would not really make much sense to scare away foreign investors and the economic actors who could
make an important contribution to achieving this change," Schweisgut said. Schweisgut said he welcomed the
premier's commitment to reform and said, regarding China's antitrust probes, "we need to look at how the situation
can be judged in a larger context". The EU will closely follow the Chinese investigations while continuing to have a
constructive dialogue with Chinese authorities to push forward principles of transparency, the right of defense and
objectivity, the ambassador said. Schweisgut was the Austrian ambassador to China from 2003 to 2007. In the
seven years since he was last in Beijing, he said the EU-China relationship has advanced in all fields and now
constitutes "a strategic partnership that shows we are indispensable partners". Another priority of his tenure will be
the bilateral investment treaty, with the fourth round of negotiations coming up soon.
According to the European Chamber of Commerce in China, while bilateral trade between the EU and China,
at more than 1 billion euros ($1.29 billion) per day, is the second-most important in the world, China accounts for
under 3 percent of Europe's total investments abroad. Representing the Italian presidency of the Council of the
European Union, Alberto Bradanini, Italy's ambassador to China, said negotiations on market access in China
should be emphasized at the bilateral trade talks. "I believe that the Chinese authorities are interested in seriously
and quickly addressing the issue of market access, which is the only way to make our two economies more
integrated," Bradanini said.
Source: MU CHEN: EU envoy to China: Probes not targeting foreign firms，China Daily， 2014-09-17
SINOPEC Wins "2014 Global Competitiveness Brands - Top 10 from China" for the Fifth Consecutive Year
Key challenges facing the Chinese economy include boosting energy efficiency and achieving sustainable
development - both economic and social. Chinese enterprises that meet these challenges while also improving their
own global competitiveness must focus therefore on increasing their commercial strength as well as brand value. As
an advocate for and leader in China's green and low carbon transition, Sinopec has always adhered to the principles
behind the new path of industrialization: advanced technology, low-resource consumption, and lower
environmental pollution. Via its evolving development model, it has also been constantly enhancing its core
competitiveness by building brand value and capacity for sustainable development. Indeed, Sinopec's rising brand
value has supported the development of related industries and secured energy supply and high quality services for
the country's "basic necessities of life". In 2013, Sinopec launched the "Clean Water and Blue Sky Initiative" and
started a RMB 23 billion investment spanning the period 2013-2015 for the environmentally-friendly treatment of
22
existing production facilities. This year, it also launched an "Energy Efficient Multiplication" plan to increase
energy efficiency by 100 percent by 2025.
At present, Sinopec is present in 70 countries engaged in oil and gas exploration, overseas investments,
engineering technology services construction, and international trade. It strives to seek both a return on its
investments as well as economic and social growth of the local communities in which it operates. As of the end of
2013, Sinopec's foreign assets to total assets ratio hit 37.7 percent, and overseas revenue accounted for 32.1 percent
of the Group's total income. Sinopec is the highest ranked Asian company on the 2014 Fortune 500 List and is
placed third overall. Sinopec has achieved in one generation what took the West a hundred years.
The "2014 Global Competitiveness Brands - Top 10 from China" has successfully been held for the past four years.
Ten companies including Sinopec, ICBC (the Industrial and Commercial Bank of China), China Construction Bank,
China Life Insurance, China Mobile, Huawei, ZTE, Tencent, Haier and BOE Technology won awards. In this
competition, Sinopec also won the single prize of "Most Sustainable Competitive Brand".
Source: SINOPEC Wins "2014 Global Competitiveness Brands - Top 10 from China" for the Fifth Consecutive
Year, PR Newswire [New York] 18 Sep 2014.
China fines Glaxo £297m for bribery, Mark Reilly sentenced
UK pharmaceutical company issues statement of apology to Beijing over bribery scandal Chinese authorities
have fined British drug giant GlaxoSmithKline a record Rmb3bn (£297m) and handed executive Mark Reilly a
suspended prison sentence for bribing doctors. Mr Reilly, the former head of GSK's China operations, was given a
three year suspended prison sentence and will be deported, it is understood. He was convicted of bribing
non-government officials under article 164 of Chinese law. It is understood he will be dismissed from GSK.
An editorial by Chinese state news service Xinhua accused Mr Reilly of pushing a "selling-led" strategy, starting in
2009, which evolved into a "pattern of bribery". It alleged that the company based salaries and benefits on sales
performance and that the finance, compliance, IT and legal department were all involved in covering up the activity.
"The evidence is abundant and the investigation is clear. Since the defendant Mark Reilly came back to China [from
the UK] to cooperate and the other defendants have confessed, they have been given lenient punishments according
to the law," said the court in a statement. It added that there would be no appeal. Zhang Guowei, the company's
head of human resources, was also given a three-year suspended sentence and both Liang Hong, the head of
operations, and Zhao Hongyan, the company's legal counsel, were given a two-year suspended sentence, according
to Xinhua. Huang Hong, a member of the procurement department, also received a suspended sentence. All four
were also convicted under article 164 in Chinese law, and it is understood they will be dismissed by the company.
Xinhua reported that the sentences of the convicted Chinese executives and Mr Reilly were reduced since they
"confessed the facts truthfully and were considered to have given themselves up". The executives and other senior
managers were "directly responsible" for "actively organising, promoting and implementing the corrupt strategy",
the court said, according to Xinhua.
Andrew Witty, chief executive, described the bribery within the Chinese unit as "deeply disappointing" but
said the company had "reflected deeply and learned from its mistakes". He also stressed that the company remained
"fully committed" to China despite its recent troubles. "We will continue to expand access to innovative medicines
and vaccines [in China] to improve their health and well-being. We will also continue to invest directly in the
country to support the government's health care reform agenda and long-term plans for economic growth," he said.
After the verdict, GSK issued an "apology to the people of China" on its website.
Source: China fines Glaxo £297m for bribery, Mark Reilly sentenced, Telegraph.co.uk [London] 19 Sep 2014.
Premier: China's anti-trust probes do not target foreign firms
Premier Li Keqiang said Tuesday that recent anti-trust probes had not targeted specific firms or industries, and
foreign companies accounted for only 10 percent of those involved. China has tried to cultivate an easy, fair and
23
competitive business climate, the premier told a group of business leaders ahead of the Summer Davos forum.
China launched a series of probes into big foreign names in recent years, the latest episodes being anti-monopoly
investigations against Microsoft and Jaguar Land Rover. These high-profile probes are rippling across the Western
business circles and stirring unease among firms who perceive unfair treatment. Apart from anti-trust investigations,
China also cracked down on theft of trade secrets, intellectual property rights infringement and counterfeiting, the
premier said, stressing that these measures do not target particular firms. The amount of attention given to the
probes is a result of increasing transparency on the part of the regulators. The regulative measures China carried out,
including the anti-monopoly probes, are in accordance with the law, transparent and fair, the premier emphasized. It
benefits China because more foreign firms and products will be more likely to enter the Chinese market if the
environment is fair and competitive. Klaus Kleinfeld, CEO of global aluminum producer Alcoa, attended the event
and was reassured by Li's remarks. "He described the rules apply to everyone," Kleinfeld told Xinhua. "The
premier has emphasized very strong desire to push reforms and to make a level play field. I feel very welcome and
so do the colleagues."
Source: Xinhua: Premier: China's anti-trust probes do not target foreign firms, 2014-09-10
China to increase economic impact of Yangzte River
China aims to increase its dependence on the Yangtze River, the country's longest and the world's third longest
river, to further develop its economy. The State Council released a guideline, on Sept 25, promoting the
development of the Yangtze River economic belt into a new engine of economic development. The belt covers nine
provinces and two cities, 20 percent of the country's land area and 40 percent of its GDP. The guideline proposes to
offer regions along the upper and middle reaches of the Yangtze better access to the ocean, in a bid to broaden the
opening-up of the inland region. It calls for a more balanced development among the regions and wants to see an
increase the economy's reliance on the ports along the river.
"The trunk river now sees an annual cargo throughput of more than 2 billion tons, the largest among all the
world's inland rivers. Twelve ports along the river reported a cargo throughput of more than 100 million tons in
2013, but most of them are located along the river's lower reaches," says Zhang Xiaowen, chief engineer of the
Transport Planning and Research Institute of the Ministry of Transport. The Yangtze River and its tributaries boast
a total navigable length of more than 70,000 kilometers, making the it the major water transport artery between
west and east. Zhang thinks that the river should have been playing a much larger part in the country's economy and
the current situation is far from satisfactory. He made the remarks during a high-level national seminar on the
future development of Yangtze River watercourse and ports, held in Ma'anshan, a port city in Anhui province, on
Sept 28. China has seven of the world's 10 busiest ports, but the world's second largest economy's logistics
performance only ranks the 28th in the world, according to the Logistics Performance Index by the World Bank.
"China's logistics costs takes up 18 percent in the country's GDP, while the percentages of the developed countries
are as low as 9 percent." According to Zhang's estimation, the cost of river transportation is only half of railways
and one-third of roads. In awareness of the importance of ports to the local economy, many provinces are attaching
more importance to ports. "Coastal provinces and cities are the first to be opened up to the world, but a more
developed river transport system can offer inland cities equal access to the world", says Wei Rao, mayor of
Ma'anshan, which has the largest and newest port in Anhui province, Zhengpu Port. The port will start operating in
October. It can handle ships up to 50,000 tons and a cargo throughput capacity of more than 100 million tons. It is
expected to help Anhui-based enterprises cut their logistics costs by 30 percent, compared to sending goods to the
nearby Nanjing Port in the lower reaches.
Source: Zhu Lixin in Ma'anshan, Anhui: China to increase economic impact of Yangzte River, China Daily ,
2014-09-29
Timely steps needed to save the future
24
The UN secretary general hosted the Climate Change Summit on Sept 23, at which heads of state, cities,
organizations and companies announced bold new initiatives to address climate change in the short to medium term.
It was a significant stage to voice ambitious, scientifically credible and clear visions on where the world needs to
aim over the long haul. Bold initiatives are certainly needed now to slow the growth in emissions before 2020 policies need to be put in place that are capable of delivering clean and resilient development. Yet, like a young
person planning a career, a mayor looking at future demographics, or a corporation evolving a business strategy,
there also needs to be a long-term view of where we want to be in 50 years. That long-term vision should be
climate neutrality as soon as possible in the second half of the century. There is ample evidence from the Fifth
Assessment Report of the Intergovernmental Panel on Climate Change that global greenhouse gas emissions have
to be zero or near zero by the end of the 21st century if we want to achieve the goal of holding a global temperature
rise below 2 C. It is also the best guarantee of ensuring that the poor and vulnerable are spared from ever more
threatening conditions such as heat waves, crop failures, floods and water shortages that will increasingly threaten
their lives and livelihoods. Continued unabated, emissions pose an unacceptable risk of pushing our climate system
toward potentially irreversible changes with highly damaging impacts to all sectors of society.
Let us be clear. Climate neutrality is not nirvana nor an alternative universe - it is about dramatically reducing
current greenhouse gas emissions to the point where we reach a balance between those emissions entering the
atmosphere, and the capacity of the Earth to absorb them. This will require charting the path from the
high-emissions society we have today, including initially through some level of certified carbon offsets, to a deep,
de-carbonization of the global economy, before arriving finally at a climate neutral family of nations. It also
demands a rapid transformation in the way we value healthy ecosystems to ensure that nature will continue to play
an ever more central role in removing carbon from the atmosphere. This will require significant investment in
cleaner, greener energy and energy efficiency in transport and buildings, alongside smarter management to sustain,
expand and restore degraded coastal zones, forests and soil. Overall this will be a much less costly economic
development path for the entire planet, preventing potentially enormous costs connected with climate change
impacts. It will also be good for jobs, with many emerging from the construction of green buildings, low energy
transportation systems and other climate-friendly infrastructure, as well as from natural-resources management.
The effort is undoubtedly long-term and ambitious, but must be seen as the eventual target so that today's
decisions are taken with the long game in mind. Climate neutrality may seem like a tall order this year with global
emissions still climbing despite the growing penetration of renewable energy, improved energy efficiency in many
countries and actions to sustainably manage natural assets like forests. But some countries have already glimpsed
the long term and are pointing their economies in that direction, from Bhutan and Costa Rica to Papua New Guinea,
Sweden and Switzerland. Many cities have become affiliated with associations like International Council for Local
Environmental Initiatives, an international association of local governments and national and government
organizations that have made a commitment to sustainable development, and the C40, a network of the world's
megacities taking action to reduce greenhouse gas emission. They are pledging ambitious long-term targets, some
of which call for 80, 90 and even 100 percent emission reductions. These pioneering urban centers range from
Copenhagen and Stockholm to Oslo and Seattle. Visionary companies, many of them household names in the
Internet, high tech and banking sectors, are following suit. The UN secretary general's summit at the UN
headquarters in New York was about raising ambition en route to the Lima, Peru UN Climate Convention meeting
later in the year and in advance of the UN Climate Convention meeting in Paris in late 2015.
In Paris, nations have agreed to ink a new agreement that can mark a turning point toward bending down the
current greenhouse emissions curve and assisting the poor and vulnerable to better adapt to the climate change
already underway. But as the science spells out, this is not the end game, if poverty is to be truly eradicated and our
collective goal of a safe and secure world is to be realized. Only a long-term vision of climate neutrality in the
second half of the century can do that and in doing so provide a real and exciting prospect for over 9 billion people
of a functioning, fit and healthy world for generations to come. Christiana Figueres is executive secretary, UN
25
Framework Convention on Climate Change; Mario Molina is Nobel Prize-winning chemist and president of Molina
Center on Energy and Environment; and Joseph Alcamo is executive director, Center for Environmental Systems
Research at University of Kassel, and former UN environment program chief scientist. The views do not
necessarily reflect those of China Daily.
Source: Christiana Figueres, Mario Molina and Joseph Alcamo: Timely steps needed to save the future, China
Daily, 2014-09-29
HK and mainland are a winning team
President Xi Jinping met a delegation of Hong Kong business leaders in Beijing last Monday. During their
talks Xi noted that continuing implementation of the "One Country, Two Systems" policy in Hong Kong was
conducive to the nation's interests and to Hong Kong's as well as those of overseas investors. Xi's comments
brought an important message to Hong Kong and overseas investors: The "One Country, Two Systems" policy
ensures Hong Kong's stability and prosperity by allowing the special administrative region (SAR) to profit from its
growing exchanges with the mainland, without losing its uniqueness and role as an international financial center.
After more than 30 years of reform, China has become the world's second-largest economy. It is still growing
at a pace faster than other economies. Hong Kong has been a major contributor to the nation's rise while also
greatly benefiting from it. Today, the city's economy is so closely connected to the mainland that it is impossible
for Hong Kong to grow without continued integration with the mainland. This is what attracts overseas investors to
Hong Kong. The SAR is the perfect "springboard" for foreign investors seeking to profit from the mainland's
industries and expanding consumer market.
The central government spared no effort in ensuring Hong Kong continued to thrive as a vibrant economy
after the handover - with impressive results. Following the handover Hong Kong was able to overcome major
challenges - most notably the Asian financial crisis of the late 1990s, the recession caused by the SARS epidemic in
2003 and the global financial crisis triggered by the US subprime collapse in 2008. Hong Kong emerged stronger
than ever from these crises because of Beijing's support. After its manufacturing industries moved their operations
to the mainland in the 1980s, Hong Kong's economy became more reliant on service industries - particularly
finance, retailing, logistics and tourism. This transformation resulted from the mainland's economic reforms. It is
also a logical response to a major economic shift - from the West to the East - in recent decades. China (including
Hong Kong) has been at the center of this. Hong Kong will thrive while the mainland does, but the mainland's
growth cannot continue at the same pace without Hong Kong.
The "One Country, Two Systems" policy has been beneficial. It has been successful because Hong Kong has
generally been able to keep politics out of economic development. However, this does not mean political
interference during this time has been benign. Attempts by the opposition in Hong Kong and its overseas supporters
to sabotage the implementation of "One Country, Two Systems" by political means, never stopped following the
signing of the Sino-British Joint Declaration in late 1984. The disruptive strategy began with the "democratic
reforms" launched by last governor Chris Patten in violation of the joint declaration. Patten also allowed political
organizations to form which made running Hong Kong more difficult following the handover. There have been
political showdowns between China and some Western powers over the continuation of "One Country, Two
Systems" in Hong Kong. Beijing has resisted attempts by foreign countries to hinder the country's peaceful rise by
destabilizing Hong Kong. The central government has resolutely reacted to these provocations.
In June, the Information Office of the State Council released its first-ever white paper on the practice of the
"One Country, Two Systems" policy in the HKSAR. This was to set the record straight on principal issues
regarding the constitutional status and autonomous powers of the city as an SAR of the People's Republic of China.
This was followed by the decision of the National People's Congress Standing Committee (NPCSC) on Aug 31,
which laid down the framework for the election of the Chief Executive by universal suffrage in 2017 and the 2016
Legislative Council (LegCo) elections. These two crucial measures were seen as "preemptive strikes" against
26
opposition attempts to hijack Hong Kong's democratic progress. In response, the opposition camp has now
launched the illegal "Occupy Central" campaign. Apparently, some western powers and their supporters in Hong
Kong believe the best way to upset mainland's rise is to cause disruption in Hong Kong. They are going all out to
mislead the public on matters concerning universal suffrage. They are spreading all sorts of misinformation and
street protests to stop traffic in Central. This is to cause chaos and force the central government to compromise or
even resort to excessive force. Either way this is an attempt to make Beijing look bad in the eyes of the
international community. But these tactics will never work. Hong Kong and the mainland have achieved too much
over the years to let any internal disruption or outside interference get in the way of future triumphs.
Source: Yan, Ming: HK and mainland are a winning team, China Daily, Hong Kong ed. [Aberdeen] 30 Sep 2014:
5.
Supply chain to hold key role in transition to a consumer demand driven-economy
The transition of the Chinese economy is reflected by the growing appetite for consumer products, which will
mean not just more imports and more brands but also increasingly heated competition in the management of the
supply chain, according to Edwin Keh from the Wharton School of the University of Pennsylvania. In a recent
interview in Beijing, where he was guest lecturer teaching supply chain management at the Cheung Kong Graduate
School of Business, Keh also said high demand volatility can easily lead to an excess inventory. Keh is a former
COO and senior vice-president of Wal-Mart global procurement, a position he held until April 2010, when he
managed the sourcing activities in more than 50 countries. "The typical supply chain today is agile, intelligent,
transparent, and shorter than before," he said. "Managers will have to come up with accurate demand forecasts to
cope with the rising volatility in demand."
He said the traditional supply chain, namely that of the past three to four decades, was mainly to serve the
"made in the East" and "consume in the West" scenario. With the growing weight of the Chinese market, the global
supply chain is no longer the same. The key in supply chain management is increasingly how to serve the market the market just anywhere. One feature of the change is the direct connection with the consumer, as the traditional
business-to-business focus shifts to the business-to-consumer type. Selling products directly to customers,
especially the ubiquitous "e-customers", has become vital, he said. The global marketplace requires "multi-country
and multi-market capabilities", he said, to make anywhere and sell everywhere. Speed is more important. The
traditional supply chain is slow, taking months to produce and weeks to ship.
Keh envisages that in the next three to four decades, any company's China-US supply chain will need to be
faster than ever just for it to remain competitive. Now more and more companies are making new products every
month, changing their styling every week. Speed can help companies cut down inventory risks, improve consumer
experience, and thus resist market turbulence and keep up with the industry's rate of innovation. Products that fail
to be delivered to consumers will quickly become obsolete. In the meantime, the China market will demonstrate
some new features. The Chinese economy is shifting from an export type to a domestic consumption type. China
was once mainly the workshop of the world but now has its own huge domestic market. Having grown 9 to 10
percent year-on-year for the past 30-some years, China's growth rate has slowed and fallen in the range of 7 to 7.5
percent. But since it has grown into "a much larger pie", it will hold a greater influence on global demand.
China will have to learn to manage its outbound and inbound goods and services more skillfully, just to create
more value from its supply chain, Keh said. The country will also have to learn to contribute brands, as much as it
contributes products, to the world market. "To copy is part of the development process," said Keh. He took the
Daphne brand of Hong Kong-based Daphne International Holding as an example of how a contract manufacturer
could develop its own retail brand. Daphne started as a family-owned shoe manufacturer, producing mainly for
large US retailers such as Wal-Mart. In order to use up excess materials and idle production capacity during the low
season, the owner started making and selling shoes in China under the company's own brand. "It turned out to be a
success," said Keh. "With the right supply to the right market, Daphne became an accidental retailer."
27
Source: Du Xiaoying: Supply chain to hold key role in transition to a consumer demand driven-economy, China
Daily, September 2, 2014
China's final HSBC PMI falls to three-month low in August
Growth in China's large factory sector slipped to a three-month low in August as foreign and domestic demand
cooled, a private survey showed on Monday, raising concerns that the economy is faltering after a bounce. The final
HSBC/Markit Purchasing Managers' Index (PMI) retreated to 50.2 in August, roughly in line with a preliminary
reading of 50.3. China's official manufacturing PMI for August, reported on Monday, was 51.1, compared with 51.2
in a Reuters poll and July's 51.7. A breakdown of the official survey showed output, employment, new orders,
delivery time and raw material inventory all fell across the board, with the labor market showing the most weakness.
China and Hong Kong stock markets rose slightly after the HSBC and official PMIs came out. Regional currencies
did not move on the numbers.
In the HSBC survey, demand appeared to have softened across the board in August. New orders and new
export orders - proxies for domestic and foreign demand, respectively - fell to their lowest in two to three months,
but managed to hold above the 50-point level. The new orders sub-index was the worse performer of the two,
shedding two full points to 51.3 from July. "The economy still faces considerable downside risks to growth in the
second-half of the year, which warrants further policy easing,” said Qu Hongbin, an economist at HSBC. Firms had
reported "subdued client demand" for new orders, especially for those selling investment goods, the PMI showed.
Lackluster final demand weighed on the labor market, which shrank the most in three months in August as
companies fired workers or declined to fill job vacancies as to reduce costs. The broad cooldown in activity caused
production prices and final sales prices to fall, the survey showed, adding that a number of companies had cut
spending on steel in particular.
Source: Xinhua: China's final HSBC PMI falls to three-month low in August, September 1, 2014
China's August PPI down 1.2%
China's producer price index (PPI), which measures inflation at wholesale level, dropped 1.2 percent
year on year in August, the National Bureau of Statistics (NBS)
said on Thursday. The PPI declined for a 30th straight month and
at a faster pace than the previous month, confirming pressure
from slowing economic growth. The PPI dropped 0.9 percent
from a year ago in July, down from 1.1 percent in June and 1.4
percent in May. Factory prices of production materials declined
1.7 percent in August, contributing 1.3 percentage points to the
PPI drop, while factory prices for consumer goods gained 0.2
percent, data showed. Yu Qiumei, senior statistician of the NBS,
attributed the decline to price falling for a series of industrial products and material. Prices of crude oil and oil
products ended a rising streak and started falling in August, while prices of coal, steel, concrete and cement
remained on a losing track.
Bucking the trend, producer prices in 30 sectors rose on a month-on-month basis. Prices in food processing and
medicine production increased in August, with non-ferrous metal smelting climbing for a fourth straight month. In
the first eight months, the country's PPI dropped by 1.6 percent year on year, unchanged with the Jan-July period,
the data showed. Yu said the market will continue to have a grim outlook as overcapacity still weighs on industrial
product prices.
Source: Xinhua: China's August PPI down 1.2%, 2014-09-11
Chinese property developers borrow at record pace
28
Global investors are lending money to Chinese property developers in record amounts this year, in spite of a
deteriorating housing market and warnings from rating agencies over the state of the sector. Offshore bond issuance
from mainland property companies is on track for a record year, with $18bn of debt sold year to date, according to
Dealogic – fast approaching the $19.5bn total for all of 2013. The year’s biggest deal came in July, when
Sino-Ocean Land borrowed $1.2bn in the dollar bond market. Falling housing sales have also hit the most
important cash generator for developers. Sales have dropped 8.2 per cent so far this year by value, while price cuts
introduced to entice buyers have dented margins. A number of listed developers have issued profit warnings,
including Greentown – the biggest developer in Hangzhou – as well as China Overseas Grand Oceans and
Greenland Hong Kong, both Hong Kong-listed units of state-owned property groups.
In spite of worsening market conditions, global investors seeking yield in an era of record low interest rates
have shown willingness to step into the breach. Developers have borrowed a total of $27.6bn via offshore bonds
and syndicated loans so far this year, according to Dealogic, up from $26.9bn over the same period last year. But
while lending has continued at a rapid rate, investors have become more demanding. The latest 5-year bond sold in
April by Poly Real Estate – one of China’s largest developers – paid a coupon of 5.25 per cent, up from the 4.5 per
cent it offered in a similar deal completed last year. Debt levels within the sector have risen sharply this year as
earnings have dropped and borrowing has increased. For example, Barclays estimates that net gearing at
Evergrande, China’s third-largest developer by sales, will rise to 200 per cent by the end of this year, up from 91
per cent in 2012. Many analysts believe that the problems in the sector will be felt most acutely by small, local
developers – those unlikely to have access to offshore funding. Hopes, too, that steps by local government to boost
demand and improve access to credit will provide support have helped fuel a rally in some property shares.
Source: Josh Noble in Hong Kong: Chinese property developers borrow at record pace, Financial Times, September
5, 2014
Premier says Shanghai free trade zone can 'push the boundaries'
Premier Li Keqiang wrapped up a two-day visit to the China (Shanghai) Pilot Free Trade Zone on Friday with
a promise that companies registered in the zone will get more flexibility to expand beyond the boundaries of the
FTZ while still functioning under the umbrella of the zone's pilot status. Experts said his comments indicated that
the 28-sq-km area will become a concept as well as a specific location. Companies in the zone will be able to
include facilities in areas that surround it within the scope of what are considered China's boldest reforms in
decades, including the liberalization of the yuan and market-driven interest rates. The actual FTZ is too small for
developing large projects that require a lot of land, such as ports, logistics centers and hospitals. Companies
registered in the FTZ should be allowed to establish factories in surrounding areas, Li said, after hearing reports on
the FTZ's development. As reforms in the FTZ cannot yet be replicated elsewhere, the pilot zone's scope should
initially be expanded to adjacent areas, Li said. Li made the remarks after a fact-finding trip to a logistics center in
Waigaoqiao, the largest of the four sectors of the Shanghai FTZ.
While approving innovative management moves to cut red tape and facilitate customs clearance, the premier
expressed concern over the lack of space at the port. Shanghai is the leading city on the "golden" Yangtze waterway,
so Shanghai's prosperity could accelerate the development of the entire Yangtze River economic belt, Li said.
However, "containers here have already piled up for eight layers and there is no room left. How do you plan to push
forward further development?" Li asked the management of Waigaoqiao port. Experts said Li's remarks sent a clear
signal for the expansion of the Shanghai FTZ. Since the FTZ opened a year ago, surging land prices and office rents
have troubled many of the companies registered within the zone. According to a report by Dooioo Property, real
estate prices in the FTZ have increased nearly 20 percent year-on-year amid an overall cooling market nationwide.
The average housing price in Waigaoqiao has exceeded 40,000 yuan ($6,516) per sq m, a level equivalent to
downtown Shanghai. The FTZ expansion will mainly benefit logistics companies, hospitals and schools, Chen said.
He noted that manufacturers may not be very interested because land prices will still be much higher than outside.
29
But whether the zone actually expands will depend on the first-year evaluation of the FTZ, Chen said. "If the results
turn out to be bad, and that's not because of inadequate land supply, the central government would be reluctant to
do so." But the official attitude is positive overall at the moment, he said.
Source: Wei Tian and Zhaoyinan in Shanghai: Premier says Shanghai free trade zone can 'push the boundaries',
development stressed, China Daily, 2014-09-20
AmCham China Supports Reform Agenda, Increasingly Concerned About Fairness
"As China's economy rebalances from a state-led model based on exports and investment to a market-led
model based on services and consumption, a difficult transition is to be expected for all private sector companies in
China," said AmCham China Chairman Gregory Gilligan. "Today's update on our view of the investment
environment, combined with what we are hearing from our members, demonstrates that the transition is indeed
disruptive, perhaps more so for foreign companies, and progress on reform has been disappointingly slow. "Since
we analyzed the investment environment last year, there have been many encouraging promises of reform, but the
environment for many foreign companies has nevertheless deteriorated. While we still believe in China's ability to
make the changes necessary to transition to the next stage of development, delays and disruptions are leading
foreign investors to alter their perceptions of the China market in fundamental ways." Reflecting this urgency, this
year's report not only updates recommendations from last year, but also offers a timeframe of reform, with some
reforms possible now and others tied to developments in the China (Shanghai) Pilot Free-Trade Zone and a bilateral
investment treaty now being negotiated between China and the United States. The report highlights some of the
limited reforms made so far, as well as ongoing regulatory issues at both a macro and industry-specific level.
Source: The American Chamber of Commerce in the People's Republic of China; AmCham China Supports Reform
Agenda, Increasingly Concerned About Fairness, China Business Newsweekly (Sep 16, 2014): 122.
Information Age: Alibaba: Too Big to Expropriate?
Alibaba last week became the largest-ever initial public offering in the U.S., valued at more than $200 billion.
The scale of the Chinese e-commerce company is hard to comprehend. There are 600 million Chinese online,
nearly twice the entire population of the U.S. On a single day last year, one-third of all adults in China used
Alibaba's sites, spending more than $5 billion on more than 100 million shipments. The value of goods sold
through Alibaba is equal to that of Amazon and eBay combined. The Alibaba story is so compelling that Wall
Street raised $22 billion for the company. But under Chinese law, these shares could end up worthless. Alibaba and
its investors are betting that Communist Party officials won't expropriate the company and its shareholders.
Alibaba's mission is "to make it easy to do business anywhere." Founder Jack Ma wrote in his letter to
investors: "We want to help small businesses grow by solving their problems through Internet technology. We fight
for the little guy." By connecting China's small businesses to one another and to customers, the company is leading
the country's march toward a consumer society. Its online marketplaces bring to life Deng Xiaoping's rallying cry:
"To get rich is glorious." Silicon Valley envies the Alibaba business model. The company's Taobao website, similar
to eBay, enables small businesses and individuals to sell goods. Its Alipay is akin to PayPal, with payments
released only when goods arrive, a benefit in a low-trust society like China. Its Tmall site lets global brands sell
goods online a la Amazon. Much of Alibaba's business mirrors Google's highly profitable business model of selling
search advertising. But Alibaba's smart business strategy and charismatic leadership come with a massive risk: It's a
Chinese company operating under Chinese law, which does not recognize the ownership rights of its new
shareholders. China bans foreigners from owning a majority interest in companies from what Beijing calls
"strategic and emerging industries." Chief among these is the Internet, which connects individuals and thus terrifies
the Communist Party. To get around the law, Chinese Internet companies give shareholders rights to a "variable
interest entity" instead of direct ownership. In Alibaba's case, shareholders own a piece of a shell company in the
Cayman Islands with a contractual right to a share of the profits.
30
The U.S.-China Economic and Security Review Commission, set up by Congress, warned against these
arrangements in a June report: "This intricate ruse is a way of making the business appear to be Chinese-owned to
Chinese regulators while claiming to be foreign-owned business to foreign investors. Neither claim is technically
true, and the arrangement is highly risky and potentially illegal in China." Last year, China's highest court ruled that
variable interest entities amounted to "concealing illegal intentions with a lawful form."
In its IPO disclosures, Alibaba acknowledged that if the Chinese government "deems that the contractual
arrangements in relation to our variable interest entities do not comply with PRC governmental restrictions," the
company could "be forced to relinquish our interests in those operations." Alibaba could also lose its operating
license or variable interest entities if either is found to violate "any existing or future" laws. The Communist Party
could wipe out that $22 billion by decree. Alibaba executives believe there is now so much foreign investment in
Chinese Internet companies through variable interest entities that Beijing wouldn't dare endanger these property
rights, according to people familiar with their thinking. Alibaba's listing brings to more than $500 billion the
foreign market capitalization of Chinese Internet companies. It would be a shock to global markets -- and an
international incident -- if China's leaders undermine the arrangement. All true. But there is no precedent for
predicting the behavior of authoritarian regimes when so much capital is at stake.
Mr. Ma, the Alibaba founder, has done both well and good by helping small businesses find new opportunities
through transparent online marketplaces. The usual way of doing business in China involves bribing government
officials and hoping to avoid selective prosecution. It's encouraging that Mr. Ma became China's richest person by
running an Internet company. Unlike traditional sources of wealth such as real estate or commodities, Mr. Ma's
online marketplaces don't rely on government licenses or permissions. It may be asking too much, but all Alibaba
needs is for the government to leave it and its investors alone.
Source: L. Gordon Crovitz: Information Age: Alibaba: Too Big to Expropriate?, Wall Street Journal, Eastern
edition [New York, N.Y] 22 Sep 2014: A.15.
The Alibaba moment (Posted 2014-09-25 00:47:39): We will see more Chinese firms venturing onto the world
Alibaba, China's giant e-commerce firm, is a harbinger. We are going to see more Chinese firms venturing
onto the world stage. The most ambitious are no longer content to operate just in China or act as manufacturing
contractors for well-established American, European and Japanese brands. More and more of them will raise
money in global capital markets (as Alibaba did in its initial public offering of stock), acquire foreign firms and set
up foreign manufacturing and distribution operations.
State capitalism is often viewed as China's ability to control the economy through its state-owned enterprises,
which receive preferential bank loans and government subsidies. Indeed, China's leaders have sometimes attempted
just that. But the reality is murkier: These efforts have usually failed and private companies have been China's main
engine of economic growth. So argues economist Nicholas Lardy of the Peterson Institute in a new book, "Markets
Over Mao: The Rise of Private Business in China." Since 1978, when premier Deng Xiaoping launched China's
economic reforms, there have been two basic transformations of the economy, Lardy writes. The first has been the
shift of pricing decisions from government agencies to the marketplace. In the late 1970s, few prices were set in the
market; by 2003, more than 95 percent of retail and food prices were established by private buyers and sellers.
Some prices -- for gasoline, electricity, water, railroad freight, postal services and telecommunications -- are still
government-controlled, but these exceptions are "commonplace in other market economies," Lardy notes. In
economic theory, market pricing promotes efficiency and growth. Prices rise for products or services in short
supply, prompting existing producers to expand or new companies to form. Similarly, competitive pressures favor
efficient over inefficient firms, rather than imposing identical prices on both. The second major transformation,
Lardy says, has been the steady shift of production away from state enterprises to private companies. This, too,
favored efficiency and growth, because private firms have greater incentives to maximize profits by keeping costs
down and providing products that meet market demand.
31
An impressive array of statistics buttresses Lardy's conclusion. By 2011, state-owned companies represented
only 26 percent of China's gross industrial output, down from nearly 80 percent in the late 1970s. In 1978, private
employment -- mainly small mom-and-pop firms -- was less than 1 percent of the total in urban areas. Now it's
about two-thirds, estimates Lardy. (Note also that these figures exclude farm workers and employees of
foreign-owned firms; both are overwhelmingly private.) To be sure, many powerful state firms, most prominently
three huge oil companies, endure. But the gradual expansion of private firms will continue, Lardy argues, for one
compelling reason: Private firms are more profitable than state firms. That gives them more retained earnings from
which to finance new investment; this more than offsets state firms' preferential access to bank credit and
government subsidies. In 2012, Lardy reports, private firms' rate of return on assets -- a broad measure of
profitability -- was nearly triple that of state businesses: 13.2 percent vs. 4.9 percent. State capitalism is an elastic
term that can mean whatever people choose it to mean. Lardy has debunked one common version: that the
state-owned businesses enable the government to guide economic growth.
But he hasn't dispensed with the important question of the nexus between the Communist Party and China's
businesses. As he notes, the party has eagerly recruited entrepreneurs as members, and entrepreneurs have often
eagerly sought to use party connections to advance their business interests. Who dominates and for what ends? As
Chinese business expands abroad, it's still an open question of how much they are driven by commercial interests
and how much they serve as instruments of state policy. Similarly, it's unclear whether or how much, in its
domestic laws and regulations, China discriminates against foreign firms to give local companies an advantage. But
these are questions for another day.
Source: The Alibaba moment (Posted 2014-09-25 00:47:39): We will see more Chinese firms venturing onto the
world stage., The Washington Post [Washington, D.C] 25 Sep 2014.
China, Spain to ink $4b deals
China and Spain will sign cooperation deals and business contracts worth more than $4 billion during Spanish
Prime Minister Mariano Rajoy's visit to China, according to source with the Chinese Foreign Ministry. After talks
between Chinese Premier Li Keqiang and Rajoy at the Great Hall of the People on Thursday afternoon, the two
sides signed 14 documents covering cooperation in areas including alfalfa export, film, nuclear power,
telecommunication, finance, wind electricity, sea water desalination and tourism. The Chinese government attaches
great importance to relations with Spain, and is ready to maintain high-level engagement, continue to understand
and support each other's core interests and major concerns, expand substantial cooperation, and maintain close
communication and coordination on international and regional affairs, Li said in the talks. He urged the two sides to
continue to expand bilateral trade and promote a balanced and sustained trade growth, strengthen cooperation in
such areas as energy, finance, biological medicine and aerospace, strengthen cultural exchanges and two-way
language teaching, and send more students to study in each other. The Chinese government will encourage
companies to invest in Spain and hopes Spain could provide more legal and policy guarantees as well as visa
facilitation, the premier noted.
Rajoy said Spain is willing to further reciprocal cooperation with China, which is in favor of its own economic
growth. Spain welcomes more Chinese tourists and will provide visa procedures within 48 hours, he added. Li also
spoke positively of the role played by Spain in promoting the development of China-EU relations. He said China
will work with Spain to implement the China-EU 2020 Strategic Agenda for Cooperation, push forward the
China-EU investment agreement negotiation and feasibility research on China-EU free trade area, jointly promote
the liberalization and facilitation of trade and investment, and oppose protectionism. Rajoy echoed Li saying Spain
will continue to play a positive role for the development of EU-China relations. Rajoy will conclude his four-day
official visit on Saturday.
Source: Xinhua: China, Spain to ink $4b deals, 2014-09-26
32
Forum to develop cooperation with overseas Chinese
An economic forum designed to strengthen links between the central plains and Chinese people living abroad
will take place in Pingdingshan, Henan province, from Oct 15 to 17. The fifth Economic Cooperation Forum in the
Central Plains for Overseas Chinese is intended to attract investment in new economic, high-tech and cultural
projects. The forum is organized by the State Council Overseas Chinese Affairs Office and the Henan provincial
government. Its theme is "the construction of a central plains city cluster and the sustainable development of a
resource-based city". Song Liping, head of Henan's Overseas Chinese Affairs Office, said 500 representatives of
overseas Chinese — including entrepreneurs, specialists, scholars, and heads of institutions — have been invited.
"Participants will visit the airport harbor economic experimental district in Zhengzhou and exchange opinions
about the prospect of developing freight links between Zhengzhou and Europe," he said. Zhang Guowei, mayor of
Pingdingshan, said, "Such an event is a good opportunity for Pingdingshan to expand its investment platform and
improve its industrial structure." More than 4,000 people attended the first four forums, and more than 200
contracts that have brought 168 million yuan ($27.2 million) of investment to the central plains were signed.
Source: Lyu Qiaoye: Forum to develop cooperation with overseas Chinese, China Daily , 2014-09-29
Negative list to get shorter, premier says
The list of off-limit areas for foreign investment in the Shanghai Free Trade Zone will be further slashed,
Premier Li Keqiang said on Thursday, a pledge experts said signals the government's determination for further
opening up. The remark, amid a decline of foreign direct investment into China, is expected to ease mounting
foreign businesses' worries that China's is closing its door to them, experts said. "The negative list reduces
government intervention and gives the market more space to stretch its muscles. We ought to further cut the
negative list," Li said during a visit to the Shanghai FTZ on Thursday.
Earlier this year, the pilot zone slashed a quarter of the off-limit areas from its negative list, giving more freedom
for investment in financial, education, medicine and cultural sectors. In addition, the number of government
documents setting limits on investment and business operation in the FTZ has also been cut from 186 to 35. The
29-square-kilometer zone was meant as a model to open up and implement the boldest reform measures in decades,
including currency liberalization, market-determined interest rates and free trade. The premier also said China
should treat local and foreign firms equally in the FTZ. He made similar remarks during a trip to Tianjin last week
to reassure foreign enterprises, which are unsure whether they are still welcome. The premier said the current
negative list still has too many restrictions, especially in the financial sector, and there might not be a breakthrough
in the short term as there are too many risks and too much resistance.
Source: ZHAO YINAN/WEI TIAN: Negative list to get shorter, premier says，China Daily， 2014-09-19
Global Finance: A Year On, Shanghai Zone Disappoints
One year after the launch of the Shanghai free-trade zone, promoted as a landmark effort to remake China's
economy, the project has generated few significant reforms. Promoted by Premier Li Keqiang as a symbol of
China's commitment to reform, the Shanghai free-trade zone, launched on Sept. 29, 2013, initially fueled hopes for
a repeat of the Shenzhen special economic zone in the 1980s, which transformed the fishing village into the heart of
China's export machine.
The Shanghai zone encompasses nearly 11 square miles of docks, hangars and warehouses in Shanghai's
Pudong district. It was promoted as an incubator for financial revamps such as interest-rate liberalization and easier
cross-border capital flows that eventually would spill over the entire country. Instead, the most visible change
inside the zone is cheap, directly imported seafood. Waiting in lines that are often over 100 yards long, customers
snap up frozen Mozambique lobsters, Chilean king crabs and Vietnamese tiger prawns, which are usually sold out
within an hour after opening. There have been some overhauls in the free-trade zone, including a reduction in red
33
tape for business registration, minimizing bureaucracy at customs, and opening up investments for foreign capital
in areas such as health care and engineering.
But business executives aren't impressed. "I still don't find the FTZ as a physical entity very exciting because
one year on, I would expect more to have happened," said Fredrik Hahnel, general manager of merchant banking at
the Shanghai branch of Nordic lender Skandinaviska Enskilda Banken AB. Mr. Hahnel said he had hoped for
breakthroughs such as permission for companies to issue yuan-denominated bonds in the free-trade zone and full
access for wholly owned foreign investment banks or brokerage firms to China's domestic capital markets. Mr.
Hahnel said SEB isn't considering setting up a branch in the free-zone now. "We don't see anything we can do in
the FTZ that we can't do outside now. . .. But if we see fundamental changes, such as total access to offshore
funding or the capital markets, we'll look into it," he said.
Other modest overhauls include a measure to allow companies registered in the zone to borrow the Chinese
currency from offshore and another allowing companies to transfer yuan-denominated funds between their entities
registered in the free-trade zone and those offshore or in the mainland. In March, the central bank also removed the
upper limit on foreign-currency deposit rates offered by lenders in the zone. Those moves are in contrast to the
ambitious vision that regulators initially painted for the reform testing ground. In addition to proposals for giving
banks broad freedom to set interest rates and trade in foreign exchange, there were plans to build marketplaces in
the zone for trading of financial derivatives and foreign-company shares. The changes have fallen far short of those
expectations. The latest effort to put some shine on the free-trade zone is an international trading platform at the
Shanghai Gold Exchange, which will allow investors to price and trade the precious metal using the Chinese
currency. There have been other encouraging signs lately. Microsoft Corp. said on Thursday that its new game
console, the Xbox One, will go on sale through the Shanghai free-trade zone on Sept. 29. It will become the first
game console to be legally sold in mainland China after the country lifted a ban that lasted more than a decade. But
the good news is overshadowed by what still isn't allowed in the free-trade zone. Beijing has kept a long "negative
list" that details industries that are off limits to foreign investors. The government did cut the number to 139 from
190 in July, lifting barriers to foreign investment in banks and other financial companies, land, Internet cafes and
rail-freight transport. But business executives say the list is still too long.
Source: Shen, Hong: Global Finance: A Year On, Shanghai Zone Disappoints, Wall Street Journal, Eastern edition
[New York, N.Y] 29 Sep 2014: C.3.
Small site provides big lessons
The nation will draw practical lessons from the development of the China (Shanghai) Pilot Free Trade Zone to
reduce limits on foreign capital in the service and manufacturing sectors, senior government officials said. Hu
Zucai, deputy director of the National Development and Reform Commission, said that such practices as the
"negative list" system and easier market access for foreign companies would be formalized and extended to suitable
areas of China. "The government will continue to open the markets for financial services, education, culture and
healthcare for foreign capital to invest in China, and dismantle policy barriers involving nurseries, elder care,
architectural design, auditing, logistics, e-commerce and other service businesses, as well as opening up the general
manufacturing industry," said Hu. As of Aug 31 this year, 1,612 foreign companies had been established in the
Shanghai FTZ, which adopted a system of "general registration" for foreign investment instead of the traditional
approval mechanism. About 91 percent of those companies obtained their business licenses through the new system.
To broaden market access and improve transparency for foreign companies, the 2014 negative list reduced the
number of banned items from 196 to 139. "As the negative list represents a new and internationally accepted model
for the administration of foreign investment, China will enhance its supervision in the whole investment and
operation process to prevent potential risk and maintain a healthy market order within the FTZ," said Wang.
"Besides trading companies, the proportion of service and manufacturing businesses has risen fast within the
FTZ," said Yu Guangzhou, head of the General Administration of Customs. Yu said the FTZ's growing headquarters
34
economy, cross-border e-commerce, global equipment maintenance service, financial leasing and cultural industry
are driving economic growth in the Yangtze River Delta. Total trade in the FTZ was 500 billion yuan ($81.7 billion)
between January and August, customs figures show. Eager to create market growth points, the customs copied 14
innovative services from the FTZ nationwide in the first half of 2014.
Financial initiatives:
1. Starting Feb 10: Agency: State Administration of Foreign Exchange; －Administration
of financial leasing services, provided by financial leasing companies at the FTZ to overseas companies, has
changed from an approval-based to a registration-based system.
2. Starting June 1: Agency: State Administration of Foreign Exchange; －Foreign-invested enterprises at the
FTZ can convert their registered capital in foreign currencies into renminbi based on their operational needs. In
addition, they can apply for centralized management of foreign currencies of their member companies inside and
outside of China.
3. Starting June 1: Agency: State Administration of Foreign Exchange; －Foreign-invested companies at the
FTZ do not need administrative approval from the SAFE for overseas lending operations, especially when
providing external guarantees. The companies are also not subject to the requirements on the proportion of net
assets between the guarantor and the guarantee.
4. Starting June 11: Agency: People's Bank of China; －Simplified cross-border RMB settlement under
current and direct investment accounts in FTZ
－Individuals working at the FTZ can open settlement accounts to process RMB cross-border collection and
payment, in accordance with relevant provisions. Foreigners need to present valid residence permits.
－Cross-border mutual RMB cash pooling with companies at the FTZ
－Centralized collection and payment of cross-border RMB under current account at the FTZ between Chinese and
foreign enterprises.
5. Starting June 23: Agency: the China Banking Regulatory Commission; －Senior executives in the banking
sector (or lower than branch-level) at the FTZ do not need prior approvals from the CBRC for access to the FTZ.
Rather, the after-event reporting mechanism applies.
6. Starting July 11: Agency: China Banking Regulatory Commission; －Financial leasing companies at the
FTZ are allowed to set up subsidiaries at home and abroad.
Reforms on investment policies: 1. Starting March 1; Agency: State Administration for Industry and Commerce;
－Business licensing process is simplified. A company may start
production and operations as soon as it registers and obtains a license.
Companies must report their registered capital, and the minimum
capital requirement has been abolished.
2. Starting March 1: Agency: State Administration for Industry
and Commerce; －Unified style of business licenses for enterprises in
the FTZ.
3. Starting May 8: Agency: National Development and Reform
Commission; － Reduced control over sectors accepting foreign
investment.
4. Starting June 17: Agency: National Development and Reform
Commission; －Foreign companies investing in China must notify
the authorities rather than seeking prior approval.
5. Starting Oct 1: Agency: State Administration for Industry and
Commerce; －Enterprises in the Shanghai FTZ must report their
credit information annually. Those who fail to do so, or file inaccurate
reports, will be put into an online watchlist.
6. Starting Oct 6; Agency: Ministry of Commerce; －For firms
35
that are registered in the FTZ aiming to establish nonfinancial firms abroad by either opening new ones or acquiring
existing firms, the processing system has changed from approval-based to registration-based.
10 things made possible by FTZ
Source: Zhong Nan: Small site provides big lessons, China Daily , 2014-09-30
Alibaba's real meaning: Business Comment [Edition 2]
SPEAKING of jobs and opportunities, the flotation of Alibaba, a gigantic online retailer, in the world's
largest-ever initial public offering (IPO) should also remind us of another shift with hugely important consequences,
especially for skilled, middle-class workers. Alibaba is based in Hangzhou, China; its founder, Jack Ma, will make
an immense fortune from the float. He symbolises a monumental change: the days when the West focused on
highvalue-added services and tech, while the emerging markets concentrated on lowcost manufacturing - the norm
since the 1980s - are gone forever. Alibaba is an astonishingly advanced company; its technology is far more
advanced than that of most Western firms. China is beginning to crack consumer tech; there will be much more of
this from emerging countries in the years and decades ahead. Of course, this shift has hardly come out of the blue:
India, to name just one other country, has spent years building a thriving and ultra-modern tech industry. Just as
obviously, the US will retain its astonishingly successful tech industry, for a variety of economic, political and
cultural reasons.
What is different post-Alibaba is that the psychology has changed. We now all need to face up to the fact that
there is competition in every kind of industry, even in those where Western professionals used to enjoy some sort of
protection. This doesn't mean that the number of high-value-added jobs will now collapse in the UK, or that the
wage slump of the past few years will become permanent. Clever Western companies and entrepreneurs will be
able to ride a new wave of prosperity and job creation as a result of Asia's coming of age. Free trade and the
integration of the global economy are not zero sum games: they allow all countries to get wealthier. What is certain
is that there are no longer any easy rents to capture, no lowlying fruit in areas until recently sheltered from
emerging markets. Competition will be much more intense. Lawyers, for example, are now facing the full force of
globalisation even in the City of London, and are having to tackle bloated cost bases. Skills will need to be honed
and incentives improved. Education, tax and infrastructure will all have to be right. Alibaba's mega-float ought to
serve as a salutary reminder to Western economies: nobody is immune from globalisation and powerful market
forces any longer.
Source: Heath, Allister: Alibaba's real meaning: Business Comment [Edition 2], The Daily Telegraph [London
(UK)] 19 Sep 2014: 2.
Public freely discusses FTZ with Li
The Comprehensive Service Center of the China (Shanghai) Pilot Free Trade Zone was abuzz as Premier Li
Keqiang arrived on a fact-finding mission on Thursday morning. Company owners who happened to be there at
about 11 am for registrations, as well as staff who had been waiting for hours, instantly surrounded the premier,
taking pictures and videos, reaching out for handshakes and greeting the leader. After walking through the throng,
Li examined paperwork prepared by the local authorities and then asked the public for comments regarding the
zone. Wu Qiong, shareholder of a registration agency that caters to companies interested in entering the FTZ, was
the first to weigh in. Wu told Li he expects more open policies regarding overseas financing. In response, Li
suggested he watch closely what happens with the upcoming Shanghai-Hong Kong Stock Connect. Following his
brief talk with the premier, Wu said: "I have been observing the progress of the FTZ since it was officially launched.
We can see that the central government is paying great attention to the FTZ, as top leaders including President Xi
Jinping and Vice-Premier Wang Yang have paid visits here."
After chatting with Wu, Li was guided to the heart of the service center, where three tables had been set up to
demonstrate the road that led to the new "negative" list. A green table showed 186 documents before the reform, a
36
blue table held 151 documents after the first adjustment, and an orange table displayed the 35 documents that are
currently needed. Li noted that the list should be further shortened to make more room for the market.
After the presentation, Li again sought the public's input on the free trade zone. One company owner asked
him about the international ship registration system that was included in FTZ policies but has not yet been put into
effect. Then Yan Lun, business manager of a fertilizer trading company from Hubei province who had just
submitted application materials for an import/export license, told Li he expects support from the FTZ authorities
regarding financing and insurance. The premier responded that "the FTZ
serves largely to expand the market and inject more vitality into the companies
here. "I guess you are all coming from the so-called grassroots without much
support and starting up your own businesses here. We expect you to grow from
grass into strong sprouts and even tall trees. We will work together to help you
loosen the soil, water and fertilize. "I hope you will not only set foot here but
also make your companies prosper. The FTZ promises a bright future, and
Shanghai will also promise a bright future," Li said.
Wu Wei, an employee at Bank of China's FTZ branch, told China Daily
that the premier stopped by the branch later, asking customers for ideas on
financing services in the free trade zone. "Premier Li was very much
concerned about the service efficiency and quality," she said.
Source: SHI JING/WU YIYAO: Public freely discusses FTZ with Li，China Daily， 2014-09-19
China a Threat to the U.S.?
YES The rise of China to the status of world gg power almost surely will involve collisions with the United
States. From ancient Athens and Sparta to the empires of Rome and Carthage, history teaches the same lesson:
Rising powers collide with declining powers. In the 20th century, Germany's clashes with Great Britain led to two
world wars. Now China has set its sights on overtaking the U.S. There are reasons to believe that China's rise will
not remain peaceful. Lately, China has claimed all the islands in the East and South China seas. Some of these are
also claimed by Japan and the Philippines. The U.S. has security treaties with both countries that require us to come
to their defense should China attack either one. China's long-term goal is to drive U.S. power out of the Western
Pacific. The U.S. is equally determined to remain an Asian and Pacific power, so a clash seems inevitable.
Beijing's amazing economic growth has been partly financed by American investment. For 25 years, U.S.
companies have been moving manufacturing and jobs to China. The result-including the fact that we buy much
more from China than it buys from us-has been an economic disaster for the U.S. Eventually, the desire to protect
American interests will lead to greater conflict over this lopsided trade relationship.
China's economic growth, which has created a middle class for the first time, could actually be a destabilizing
force. That growing middle class will soon demand a voice in who rules China and challenge one-party Communist
rule. History also teaches that when strong nations face internal unrest, they often seek to unite the public and divert
attention by identifying enemies, creating crises, and even going to war.
Avoiding war with China will call for wiser statesmanship by American and Chinese leaders than the British
or Germans showed in the last century, when they plunged the world into two global conflicts that cost tens of
millions of lives. * History shows that rising powers often collide with declining powers. -PATRICK J.
BUCHANAN Former White House senior staffer & presidential candidate
NO There's no doubt that China's rapid rise-both economically and militarily-poses an enormous challenge to
the United States. But it's nothing to fear. Consider China's economic boom. Its economy is now the second-largest
in the world and could overtake the U.S. economy soon. But because of China's huge population, that milestone is a
bit deceptive. The goal of China's leaders is to raise its per capita GDP-currently just $9,100-to the level of a
middle-income European country by 2049. China will fall far short of that goal if it gets into a conflict with the U.S.
37
because the U.S. is the top buyer of Chinese products, from clothes to electronics.
Should we be concerned about China's military spending, which has been rising at double-digit rates for two
decades? Of course, but what's needed is vigilance, not alarm. It's important to look at those figures in context:
China has land borders with 14 countries, including four (Russia, India, Pakistan, and North Korea) that have
nuclear weapons. The U.S. borders two countries, neither of which are military threats or nuclear powers. The other
thing to consider is that China's last armed conflict occurred 35 years ago. In other words, China's current military
leaders are not battledtested. U.S. commanders are.
It's true that most Chinese view the U.S. as a declining power, but a Chinese think tank recently concluded that
the U.S. will remain a superpower for a long time to come. The American strengths it cites include our geographic
position and natural resources, our military and intelligence capabilities, our technological know-how, and our
education system. Just as important are our broad cultural influence and our geopolitical power-in other words, our
ability to project our power throughout the world. (The U.S. has more allies than any other country in the world.)
More than any other nation, the U.S. can be confident in dealing with a rising China. We should respond not
with fear, but with determination-a quality with which we're richly endowed. * China's rapid rise poses a challenge
to the U.S., but it's nothing to fear. -J.STAPLETON ROY U.S. Ambassador to China (1991-95)
Source: Buchanan, Patrick J; Roy, J Stapleton: China a Threat to the U.S.?, New York Times Upfront147.1 (Sep 1,
2014): 22-23.
China suggests six steps to boost ASEAN ties
China renewed its commitment of cooperation with its ASEAN neighbors, promising to solve border disputes,
build communal economic area along the border and start talks to expand a free trade agreement. In a speech at the
opening ceremony of the 11th China-Asean Expo on Tuesday, Vice Premier Zhang Gaoli made six suggestions to
deepen China-ASEAN ties that include offering 150,000 Chinese college slots to ASEAN students and building
financial infrastructure to strengthen the application of the yuan in China-ASEAN trade. To strengthen mutual
political trust, Zhang reiterated China's line to hold open talks directly with countries that it has border disputes
with, to reach agreements. Zhang promised to start as soon as possible the next of round of talks with ASEAN to
upgrade the China-ASEAN Free Trade Agreement, to further open up each other's market and lower tariff. China is
also looking to sign more agreements with ASEAN to strengthen cooperation in energy, environment and
sustainable development. China will strive to raise bilateral trade to $50 million in 2015 and $1 trillion by 2020.
China-ASEAN trade has jumped to $44.38 million in 2013 from $6 million in 2003, when the China-ASEAN Expo
is first held. Zhang proposed to make 2015 the year of China-ASEAN maritime cooperation, as part of a plan
President Xi Jinping announced last year to build a maritime Silk Road intended to revive a trade route running
from China through Southeast Asia and the Indian Ocean to Europe.
Source: Gao Changxin: China suggests six steps to boost ASEAN ties，China Daily， 2014-09-17
Canada's ratification of investment accord a positive signal
Canada's ratification of a foreign investment promotion and protection agreement with China signaled
Ottawa's efforts to strengthen bilateral relations, a Canadian think tank expert told Xinhua on Thursday. If this is the
case, it is likely that Canadian Prime Minister Stephen Harper will prolong his stay in China in November, he said.
Harper is expected to attend an informal meeting of leaders of the Asia-Pacific Economic Cooperation forum.
Canadian International Trade Minister Ed Fast announced on Sept. 12 that the investment agreement has been
ratified and will come into force on Oct. 1. The agreement, signed in 2012, sets a framework of legal obligations
and rights aiming at promoting investment in each other's country. But its ratification was delayed as a result of
domestic disputes in Canada.
Although Canada's official announcement also stressed that the investment agreement is not a free trade
agreement, its ratification was considered as Canada's important and meaningful stance to enhance closer economic
38
cooperation with the world's second-largest economy. Lombardi predicted that, from a long-term view, a free trade
agreement with China would be consistent with the government's ambitions of expanding Canada's international
business and diversifying trade so that Canada would become less reliant on the United States. (PNA/Xinhua)
Source: Canada's ratification of investment accord a positive signal, The Philippines News Agency (PNA) [Manila]
19 Sep 2014.
Xi Jinping's visit to redefine Indo-China business ties
Although India and China are often lumped together as the two largest and most populous emerging
economies in Asia, there are many differences in their development models. China has been an export-driven
economy that has achieved early success in labour-intensive manufacturing sectors. India began with a
development model based on import substitution but later moved to an economic environment where many controls
were liberalised. The contrast in the evolution of the two economies is evident in economic indicators such as GDP,
savings, investments and current account balances. It is apparent that the economies of China and India display
different characteristics and hence their strategic requirements are different. For China, it is important to rebalance
the economy away from excessive investment by slowing down overall GDP growth. The Chinese government has
explicitly stated that it would like to move towards a more domestic consumption driven economy and depend less
on exports. The imperatives for India are quite the reverse-it needs to increase investment and exports. At the same
time, it needs to enhance domestic capacity across sectors in order to curtail imports. Since the needs of the two
economies are complementary, the two governments need to work towards rebalancing the flow of trade between
them. The business communities of the two countries need to co-operate to enhance investment across borders.
Trade between India and China has seen rapid and unbalanced growth since 2008. Bilateral trade crossed $65
billion in 2013. Chinese imports have grown sharply relative to Indian exports resulting in a record deficit of $35
billion in 2013. India has emerged as one of the key markets for China, growing at a faster rate than the country's
other trading partners, except Vietnam. Today, India's imports from China continue to be dominated by high-skill
and technology-intensive manufactured products and exports by primary commodities. In addition, China is
undertaking about $60 billion worth of projects in India which further exacerbates the trade deficit. This economic
engagement model between India and China is unsustainable and needs to be restructured.
It is in this economic backdrop that President Xi Jinping will be making his maiden visit to India this week. It
is expected that his visit would include a strong business focus. About 100 Chinese companies have presence in
India, in sectors ranging from iron & steel to IT and hardware manufacturing. However, Chinese investments in
India is still only $410 milllion. On the flip side, China has presented itself as a good location for business for
Indian IT companies. Several Indian IT companies have invested in China to cater to their clients in Asia-Pacific
region. Indian manufacturing companies, especially in the automotive sector-both in OEM and component
space-are investing in China to take advantage of the large domestic Chinese market.
In order to promote Chinese investment in India, the two countries have agreed to set up two Investment Parks
for Chinese manufacturing companies. The Indian industry believes that this would be the right way to step up
manufacturing investments in India and help Chinese companies leverage our cost-competitive environment and
skilled workforce. This also works well with the government's overall objective to promote the manufacturing in
India. However, these need to be prioritised in sectors which are mutually beneficial like power equipment,
industrial machinery, apparel, footwear, API and intermediates, etc, and specific propositions need to be thought
through to attract Chinese investment in these sectors. The states will play a crucial role in this process. The
infrastructure sector is another area where India and China can work together. China has about $3 trillion in
accumulated foreign exchange reserves which are mostly invested in US treasury bonds and some EU bonds. Even
if a small fraction of that amount were to be invested in long-term infrastructure financing bonds in India-even if
there is a need to give an assured rate of return in reminbi over a 20+ year period-it would go a very long way in
alleviating the resource crunch being faced in this sector. To encourage more Chinese business and tourists, direct
39
air links must be increased between more cities across India and China. The overland route was opened up with
border trade arrangements but lack of infrastructure is a challenge. An economic corridor through Bangladesh and
Myanmar to south-western China has been proposed. It is hoped that this proposal will receive a further boost
during this visit. Indian industry is confident that President Xi's visit would be a landmark visit in terms of the
bilateral economic relationship and we look forward to the outcomes.
Source: Banerjee, Chandrajit: Xi Jinping's visit to redefine Indo-China business ties, Financial Express [New Delhi]
16 Sep 2014.
REVIEW --- For Poor Countries, China is No Model --- State-centered growth may seem like an answer to
popular unrest, but the long-term costs are too high
The world's emerging economies face an emerging crisis. Such states are home to 90% of the world's
population, and on average, 70% of their people are less than 25 years old. Those young citizens dream of a better,
freer life with greater opportunity and are increasingly taking to the streets, from South Africa to Thailand, Brazil to
Ukraine. But too many governments in the developing world are moving backward, not forward -- responding to
popular discontent by following some version of what they see as the "China model." The results could be dire for
the global economy. The sheer size of the emerging economies -- a list that starts but hardly ends with the so-called
BRICs (Brazil, Russia, India, China) -- means that their actions can jolt equity and bond markets, shift foreign
exchange rates, bump commodity prices, alter global trade and shape corporate investment decisions. These
countries have hugely varied politics and cultures, but the primary driver of unrest in all of them is a strikingly
similar set of entrenched economic woes: low growth, stubborn poverty, stagnant wages and intractable
unemployment rates that cut off millions from work and any real prospects of progress for themselves and their
families.
A growth rate of 7% is the minimum required to double per capita incomes in a generation and thus make a
meaningful dent in poverty. But for most of the emerging world, growth rates won't reach half that anytime soon. In
Brazil, Thailand and Russia, growth will stay below 3% through 2014, say recent International Monetary Fund
forecasts. And matters could get worse. Under pressure from citizens rightly impatient for progress, too many
leaders in these countries are pivoting toward policies that, in the longer term, are likely to inhibit economic growth
and spark more turmoil. Already, tariffs, quotas, export bans and even outright expropriation have started to stall
global trade growth. In 2013, the World Trade Organization revised its forecast for global trade growth down from
4.5% to 3.3% -- strikingly lower than the average 5.3% growth of the previous 25 years. Protectionist tendencies-in India, Brazil and elsewhere -- are producing choke points in cross-border capital flows. The movement of money
through the financial system has been stagnant over the past decade: In dollar terms, cross-border capital inflows
among the G-20 economies have fallen nearly 70% since mid-2007.
Meanwhile, the state's role in emerging economies is expanding. The world's top 13 energy producers are
government-owned, mainly in the developing world. And nine of the 10 largest sovereign-wealth funds by assets
are in emerging markets. Other rising powers are eager to emulate China's success and pursue statist policies that
can quickly deliver a short-term jolt. Under state capitalism, China has delivered phenomenal growth, brought
hundreds of millions out of poverty, bulked up infrastructure and delivered social services. Moreover, as autocratic
China has surged, democracy and capitalism have suffered a series of setbacks that make them less tempting
options. These range from high levels of income inequality in the U.S. to the rise of governments in Russia,
Venezuela and elsewhere that are nominally democratic but sharply limit free speech and the rule of law. Many
leaders in emerging economies increasingly see economic growth as a prerequisite for democracy rather than the
other way around. They point to booming economies not just in China but also, historically, in such autocratic
states as Singapore under Lee Kuan Yew and Chile under Gen. Augusto Pinochet.
China's track record is unquestionably impressive. But the Chinese model isn't as viable as its admirers in the
emerging world often think. First, unlike many emerging markets, China's growth has been driven largely by
40
exports. Its success has been dependent on the free markets of the West. Most other emerging-market economies
are based on agricultural commodities -- just the sort of produce that the U.S. and Europe undercut with their own
domestic subsidies. Second, an economic system with the state at its heart is inefficient because it dislocates
markets. When the government is the ultimate economic arbiter, assets are inevitably mispriced, which hinders
sustained, longer-term growth. It also creates imbalances between supply and demand, which can spark inflation
and distort interest rates. Finally, policies that mimic China may yield a short-term burst in employment, but they
also produce serious negative externalities and economic dead weight. China itself is now grappling with massive
debt woes in its financial sector, a property bubble that could burst at any time and pollution that slows growth. It
should worry us all that, in the face of growing popular unrest, many leaders in emerging markets are turning to
authoritarian, state-centric models. Whatever the short-term political appeal of such policies, they are likely, in the
long run, to exacerbate social turmoil and create a vicious cycle for both emerging markets and the world as a
whole.
Dr. Moyo is the author, most recently, of "Winner Take All: China's Race for Resources and What It Means for the
World," published by Basic Books.
Source: Moyo, Dambisa: REVIEW --- For Poor Countries, China is No Model --- State-centered growth may seem
like an answer to popular unrest, but the long-term costs are too high, Wall Street Journal, Eastern edition [New
York, N.Y] 20 Sep 2014: C.3.
Slower China Stumbles Into Stimulus
China's economy may be wobbly, but Beijing isn't going weak-kneed just yet. August data showed another
stumble is under way. Industrial production, retail sales and property activity all grew more slowly than expected.
Supply of unsold residential property surged to its highest level on record, despite price cuts by developers and
moves to make buying homes easier. The question is what is China's Communist Party leadership going to do about
it. The old handbook would instruct immediate stimulus for fear China would miss its target of 7.5% growth in
gross domestic product. Lower interest rates, increased bank lending, infrastructure spending and easing regulations
would be in the cards. In June, Premier Li Keqiang said the GDP target was "legally binding."
Yet in a speech last week, Mr. Li seemed comfortable with growth coming in "slightly higher or lower" than
the target, as long as the economy is creating enough jobs. On that score, Mr. Li flagged China's secret, unpublished
unemployment rate, which held steady at around 5% in August. A shrinking labor force and more of the economy
dedicated to the services sector means China can create enough jobs even while the growth rate is slowing, notes
Societe Generale's Wei Yao. If Mr. Li's thinking represents the latest consensus government view, then expect more
small stimulus measures toward targeted areas of the economy. Indeed, Beijing has made clear that extricating the
country from a growth formula that relies on a new dose of stimulus every few months is a priority. And that calls
for new thinking among investors. In the past, truly bad economic data often launched stocks higher as hopes for
stimulus became clearer. This time around, China is proving stingier.
Source: Frangos, Alex: Slower China Stumbles Into Stimulus, Wall Street Journal, Eastern edition [New York, N.Y]
16 Sep 2014: C.10.
China's external debt hits 5.58 trln yuan
China's outstanding foreign debt hit 5.58 trillion yuan (907.24 billion US dollars) by the end of June, the
country's forex regulator said on Friday. The amount does not include the outstanding external debt of the Hong
Kong and Macao special administrative regions or that of Taiwan, the State Administration of Foreign Exchange
said in a statement on its website. Most of the debt owed to foreign creditors resulted from short-term borrowing, as
outstanding external debt with a term of one year or less amounted to 4.40 trillion yuan, while long- and
medium-term outstanding external debt came in at 1.18 trillion yuan. In terms of currency structure, debt
denominated in US dollars accounted for 81.35 percent of the outstanding registered external debt, that in Japanese
41
yen accounted for 4.46 percent and that in euros accounted for 4.46 percent.
Source: Xinhua: PM: China's external debt hits 5.58 trln yuan, 2014-09-26
China's exports expand 9.4% in August
China's exports in August rose 9.4 percent year-on-year to $208 billion, with monthly trade surplus reaching
an all-time high of $49.8 billion. The export growth was significantly lower than the 14.5 percent rise in July, but
higher than June's 7.2 percent. In August, China's imports continued to contract and stood at $159 billion, a
year-on-year decrease of 2.4 percent, after dropping 1.6 percent in July, the General Administration of Customs
(GAC) said in a statement. Trade surplus in August jumped 77.8 percent year-on-year and hit a record high again,
after reaching an all-time high of $47.3 billion in July. Last month, China's total trade volume rose 4 percent
year-on-year to $367.1 billion. For the first eight months, total trade edged up by 2.3 percent to $2.77 trillion, with
exports up 3.8 percent to $1.48 trillion and imports up 0.6 percent to $1.28 trillion. In the Jan-Aug period, China
posted a total trade surplus of $200 billion, an increase of 30.3 percent from a year earlier, according to the GAC.
The European Union (EU) continued to be China's biggest trading partner, with two-way trade totaling $404.1
billion in the first eight months, up 11.4 percent from a year earlier. In the first eight months, China exported $241.9
billion worth of goods to the EU, representing a year-on-year increase of 10.9 percent. While China's imports from
the EU rose 12.9 percent year-on-year to $162.1 billion, GAC data showed. China's trade with the United States,
the second largest trade partner, gained 6.1 percent year-on-year to $354 billion in the first eight months. China's
exports to the US were up 7 percent to $249 billion, while imports rose 4 percent to $105 billion. China's total trade
with the ASEAN till the end of August stood at $301 billion, up 6 percent from the same period last year. Trade
with Japan edged up 2 percent to $204 billion in the first eight months. Trade between China's mainland and Hong
Kong continued to stay in contraction territory, falling 16.5 percent to $223.5 billion in the first eight months.
In terms of regional performance on foreign trade, Guangdong, Jiangsu, Shanghai and Beijing took the lead.
The southern Chinese province of Guangdong, a traditional export powerhouse, recorded 4.02 trillion yuan ($652.6
billion) in foreign trade in the first eight months, down 11.7 percent (under yuan term) over the same period last
year. In the first eight months, China's central and western regions saw faster growth rates in export than traditional
exporting regions in the east, GAC said in the statement. Yunnan, Chongqing, Shaanxi, Guangxi and Hunan saw
their exports till the end of August growing by 49.5 percent, 45.7 percent, 34.2 percent, 28.2 percent and 26.4
percent, respectively. GAC data showed that China's import value of commodity products continued to fall, despite
a rising import volume, owing to decline in global commodity prices. In Jan-Aug, China imported 201 million tons
of crude oil, up 8.4 percent year-on-year, at an average price of 4,796 yuan per ton. Iron ore imports rose 16.9
percent from a year earlier to 614 million tons, at an average price of 681 yuan per ton, down 16 percent
year-on-year. China's coal imports contracted 5.3 percent to 202 million tons in the first eight months, at an average
price of 480.5 yuan per ton, down 15.3 percent from a year ago. In the first eight months, China's grain imports
jumped 24.4 percent to 671 million tons. Of that, soybean imports totaled 477 tons, up 16.2 percent from a year
earlier, customs data showed.
Source: Xinhua: China's exports expand 9.4% in August, September 8, 2014
Looking Beyond China, Some Companies Shift Personnel: [Business/Financial Desk]
General Motors moved the headquarters of its international division here from Shanghai last month. Archer
Daniels Midland, the agribusiness giant, is gradually doing the same with its Asia and Pacific operations. Other
multinationals, like IBM, have shifted staff members here from China for a few functions, like treasury operations.
"I'm going to spend a lot of time going back and forth -- the five-hour flight is going to be my monthly bus trip,"
said Ismael Roig, the president of Archer Daniels Midland's Asia and Pacific operations.
The moves reflect the broader evolution of China, now the world's largest market for cars, flat-panel
televisions and scores of other products. The Chinese economy has become so large and affluent that companies
42
increasingly treat it like Europe, with reports going directly to head offices in home countries and no longer lumped
in with those from developing countries. "We are big in China, and we want to be," said Stefan Jacoby, the
president of General Motors International. His division, which officially moved here on Aug. 5, no longer includes
the company's China operations, but encompasses G.M. subsidiaries in Africa, the Middle East, Southeast Asia,
Australia and South Korea.
The many frustrations of doing business in China have made some difference in the plans to move executives
here -- choking air pollution, countless regulations that favor local competitors and weak protection for intellectual
property. A rising wave of economic nationalism has also manifested itself in large-scale raids on the Chinese
offices of multinationals in the automotive, pharmaceutical and technology sectors. Police officials are copying
large numbers of computer hard drives and interrogating employees without allowing access to legal advice. More
important, many multinationals are starting to pay renewed attention to Southeast Asia, which is showing signs of
revival 17 years after the Asian financial crisis. They have found it hard to do that from Shanghai or Beijing. Each
major city has no more than one flight a day to Jakarta, Indonesia, for example. And China's diplomatic and trade
ties to Southeast Asia have been strained by its increasingly assertive claims to control over practically all of the
South China Sea. The reasons for companies to shift headquarters to Singapore, "relate to the growth opportunities
in Asia Pacific beyond just China," said Keat Chuan Yeoh, the managing director of the Economic Development
Board, Singapore's investment promotion agency.
But so far, it has not translated into a mass exodus. Two of the largest corporate leasing brokers in Singapore -the New York-based Cushman & Wakefield and the Chicago-based Jones Lang LaSalle -- each say they see no sign
of large-scale moves by multinationals from mainland China or Hong Kong to Singapore. "There isn't a huge long
list of people moving out of China; that isn't what we see at all," said Chris Archibold, the head of Singapore
leasing for Jones Lang LaSalle.
While few headquarters are moving, and even fewer factories, multinationals do appear more cautious in
adding further to their already numerous research centers in China. Companies like Procter & Gamble and Baxter
Pharmaceuticals have been opening or expanding research and development centers and high-tech factories here in
Singapore, although they also retain large operations in China.
Source: Bradsher, Keith: Looking Beyond China, Some Companies Shift Personnel: [Business/Financial Desk],
New York Times, Late Edition (East Coast) [New York, N.Y] 10 Sep 2014: B.1.
Import policies to assist trade balance
China rolled out a package of import-boosting policies on Wednesday as the world's top merchandise trader is
likely to miss its trade target for the third consecutive year. One of the key steps in Wednesday's policies is to
readjust the list of government-encouraged imports, aiming to bring more advanced technologies and key
equipment parts into China. As a supportive policy, the government will allow companies to provide leasing on
imported equipment for buyers at home, according to an article published by the State Council on its website after
the meeting. The new policies are "not only to boost imports", Premier Li Keqiang said at the meeting, but also to
improve China's economic structure and narrow a rising trade surplus. Other trade-boosting policies on Wednesday
include preferential tax policies, which will be given to imported equipment for science, research and development
to encourage industrial upgrading of companies. In addition, companies can book customs clearance on holidays
and customs will be open around the clock to facilitate the flow of goods. The government will import more
products such as beef, lamb and seafood, and an e-commerce platform will be set up to encourage companies to
build overseas networks. For the first eight months, China's exports gained 3.8 percent to $1.48 trillion, while
imports edged up a mere 0.6 percent to $1.28 trillion. The monthly trade surplus in August jumped 77.8 percent
year-on-year and hit a record high again, as weak domestic investment and falling commodity prices continued to
affect imports, which stood at $159 billion, a year-on-year decrease of 2.4 percent.
Source: ZHAO YINAN and ZHONG NAN: Import policies to assist trade balance, China Daily, 2014-09-30
43
Report: China trade - Introduction - China trades up
China's shift from producer to consumer is changing the nature of the country's trade, as well as the strategies
of banks that are seeking to capture the trade flows in and out of the country. Opportunities abound in meeting the
increasing demands of consumers in China. Meanwhile, the country's largest companies are expanding
internationally and are increasingly being recognised as global brands by the rest of the world's consumers.
Trade accounts for a large portion of the country's gross domestic product and is one reason why the economic
research institution Peterson Institute describes China as a 'mega trader'. The other factor contributing to China's
'mega trader' status is its share of world trade. According to the latest figures from the World Trade Organisation from the end of 2012 - China accounted for a 11.13% share of the world's exports and a 9.77% share of the world's
total imports. That proportion is expected to rise further as China consumes more and the country's exporters move
up the value chain - away from low-cost producers for the rest of the world - to exporting hi-tech electronics, for
example. More broadly, global trade flows are also changing as China increasingly trades intra-Asia and with other
emerging economies, a topic that James King will explore further in his article in this special report.
China's banks have also been part of this growth story, and have been steadily climbing up The Banker's Top
1000 World Banks ranking. In 2014, Industrial and Commercial Bank of China and China Construction Bank took
the top two spots in the ranking, with Tier 1 capital of $207.61bn and $173.99bn, respectively. These lenders, along
with Bank of China and Agricultural Bank of China, are also the world's most profitable banks. In this special
report, Stefania Palma will look at the strategies adopted by these large banks when it comes to financing China's
trade.
The Chinese authorities have supported the international expansion of its companies with its strategy of
internationalising the renminbi. Given the increasing share of trade that is done with China it is natural that traders
will move to settling their transactions in the Chinese currency. As part of this plan, China has been building its
financial infrastructure, payment systems and gradually loosening restrictions on the renminbi so that Chinese
companies can be paid directly in the currency. Although still a small share of total trade payments, the renminbi's
rise has been dramatic in recent years. According to the Society for Worldwide Interbank Financial
Telecommunication, South Korea's use of the currency, for example, increased 563% between June 2013 and June
2014, putting the country in the top 10 countries in the world for renminbi payments value (excluding China and
Hong Kong). The internationalisation of the renminbi has also spread to the China (Shanghai) Pilot Free Trade
Zone - as it is officially named - where restrictions on the use of cross-border renminbi have been lifted for certain
uses, such as offshore borrowing in renminbi and cash pooling. The zone, launched in 2013, is part of China's
efforts to open up its trade and economy, and in its current state could be viewed as a window into China's future.
Source: Cooper, Jane: Report: China trade - Introduction - China trades up, The Banker (Sep 2014): n/a.
Foreign investors set sights on new targets
Foreign investments in China exceeded $1.5 trillion by the end of July, and the country will continue relaxing
the restrictions on foreign investors, especially in the service industry, Vice-Premier Wang Yang said on Monday.
As the second-largest country by economic gross, China's enterprises have increasing international competitiveness
and China's overseas investment was almost $100 billion in 2013, Wang said at the 18th China International Fair
for Investment and Trade in Xiamen, Fujian province. China's FDI inflow was $123.9 billion in 2013, said Qiu
Lixin, deputy director of Ministry of Commerce's foreign investment department. And by the end of July this year,
there were more than 800,000 enterprises nationwide that had foreign capital investment, she said. Statistics from
the Ministry of Commerce show that tax from foreign investing companies contributed 19.2 percent of China's total
tax revenues between January and July this year.
However, foreign investment into China has shown some new features this year, she said. The foreign
investment into the central and western regions has increased rapidly, $7.16 billion flowed into the two regions
44
between January and July, a 17.8 percent year-on-year rise, and some industrial bases were formed in the regions
using foreign capital, Qiu said. "The government is encouraging foreign investors to promote China's regional
economic development," she said. Foreign investment into the service industry has also continued to rise, and
opening-up service sectors, such as healthcare, was a hot topic at the fair.
China's foreign investment from the four main investor countries worldwide - the United States, the United
Kingdom, France and Germany - is still very low. It only accounts for 4.5 percent among China's total FDI inflow,
said Ge Shunqi, deputy head of the Institute of International Economics at Nankai University in Tianjin. One of the
main reasons is that they only can invest in a limited number of industries and have already saturated them, so they
need new investment targets, Ge said. However, the future for investment in China is still very promising, and
international companies are not considering a withdrawal, Ge said. Masataka Fujita, director of United Nations
Conference on Trade and Development's investment trend department, also takes an optimistic view of China's
foreign investment trends. UNCTAD released the Chinese version of its World Investment Report 2014 on Monday
at CIFIT, which showed that China was the second-largest recipient of FDI after the US in 2013.
Source: Wang Wen in Xiamen, Fujian province: Foreign investors set sights on new targets, China Daily,
September 9, 2014
Medical sector a lure for foreign players
The Chinese government is considering allowing overseas investors to fully own medical facilities in multiple
locations in China, which will certainly increase the interest of overseas investors and facilitate foreign capital's
entry into the country's healthcare sector. But there are problems that could have a restrictive impact on overseas
investment in China's healthcare sector. The multiple policies, procedures, rules and regulations that each overseas
investor will eventually encounter while applying for necessary licenses and permits to operate a healthcare facility
in China are part of such problems. The myriad, unfamiliar requirements could be overwhelming and devastating to
uninitiated foreign executives. Besides, fulfilling these requirements is a time-consuming affair and requires
considerable effort and capital. For instance, in the period between applying and getting approval, which could be
more than one year, an investor has to pay huge amounts of money to pay the rent for a space that at best is unused.
The healthcare sector is one of the last untapped frontiers in China. The transformation of China's healthcare
sector from a State-planned system to a market-driven system is a once-in-a-lifetime opportunity for investors.
China's recent healthcare reforms are fostering a competitive, for-profit sector in the healthcare industry. Reforms
have laid the framework for a "market-driven concept" to provide special or superior quality services that State
hospitals may not provide. China's middle class is continuing to demand better healthcare services and is willing to
pay a premium for them. The foreign capital to be invested in China's healthcare sector can help make that possible.
Foreign investors will get specialist physicians and surgeons, and high-quality professionals to staff their facilities,
whose expertise will help lift medical services truly to top level. Perhaps some additional measures should also be
taken to improve market access for foreign capital. For example, the government could allow private medical
facilities to apply to be part of the country's medical insurance system, offer financial support to private institutions
that are providing unique or high-value services, and grant tax holidays to foreign companies for the first few years
of their operations. The government should be applauded for its efforts to increase foreign investment in the
healthcare sector. And it could add to its laudatory move by appointing a thoughtful ombudsman with extensive
experience in the regulatory vagaries of healthcare regulations in each city.
The author is CEO and medical director of US-Sino HeartCare.
Source: Clark, Dwight W.: Medical sector a lure for foreign players, China Daily, International ed. [Beijing] 09 Sep
2014: 9.
Golden age for foreign companies in China 'is over'
THE golden age of rapid growth and easy profits in China is at an end, according to a group representing
45
1,800 European companies doing business in the world's second-largest economy. From the late 1990s to the end of
last year, most European businesses grew at a double-digit pace, said Joerg Wuttke, president of the European
Chamber of Commerce. In response, foreign investment into China has slowed dramatically this year. "There was a
fall of 17pc to 18pc for European and American companies," said Mr Wuttke. The European Chamber released its
420-page "position paper", calling for China to live up to a raft of commitments it made last November, amid
tensions in Beijing after a series of foreign companies were targeted by investigators. In recent weeks Microsoft,
Qualcomm, Daimler, BMW, Audi and a host of Japanese car makers have been investigated under China's
anti-monopoly law. The American Chamber of Commerce released a report on Monday saying that accusations of
monopolistic behaviour by the Chinese authorities "often appear designed to advance industrial policy and boost
national champions".
However, Mr Wuttke said the inquiry into the European car makers had simply been badly presented.
According to analysis by the European Chamber's automotive component working group, the European car makers
controlled the flow of expensive spare parts by stopping their suppliers from distributing directly to mechanics.
Nevertheless, Mr Wuttke criticised the Chinese investigators for not conducting the investigation transparently.
"The process is the problem," he said. "They work on cases without letting the defendants argue their case and they
leak the information to the state media. It could have been handled better," he said.
Source: Moore, Malcolm: Golden age for foreign companies in China 'is over', The Daily Telegraph [London (UK)]
10 Sep 2014: 8.
PM: S'pore-Guangzhou venture raises bar for govt-to-govt projects
THE successful progress of the private sector-led Guangzhou Knowledge City (GKC) has raised the bar for
future government- to-government projects, Prime Minister Lee Hsien Loong said. Mr Lee, who visited the 123 sq
km site for the first time yesterday, told reporters that the way both governments took a backseat - "supporting the
project with training, with advice, with guidance" - has worked and that he is happy with the results. Since both
governments have limited resources, and the private sector has the resources and interest to do more, this is a good
approach forward for Singapore.
But in a lunch meeting following the visit, the drawbacks of such an approach were conveyed to Mr Lee by
Guangzhou Mayor Chen Jianhua, who asked that the GKC be put on the Sino-Singapore national bilateral agenda.
As a private sector-led project, the GKC is not on the permanent agenda of the Joint Council for Bilateral
Cooperation, the highest platform for Sino-Singapore bilateral exchange. This is unlike the Suzhou Industrial Park
and the Tianjin Eco-City, Singapore's two government-to-government joint ventures with China, where investors
can now raise yuan funding directly from Singapore. This, Mr Chen said, cuts their financing costs to less than half
those of GKC investors and puts the GKC at a "different starting point". Companies raising capital in the mainland
typically face interest rates of 7 to 8 per cent. This falls to 2 to 3 per cent if they can borrow capital offshore. Mr
Chen said this was not a big issue in the past as investments in the GKC, which broke ground in 2010, involved
only about 20 billion yuan (S$4 billion). But from now on, as the project gains momentum, the investments under
discussion reach up to hundreds of billions of yuan, he said. "So, the capital costs will be a deciding factor for the
results and prospects of this project, and also the development speed," he said.
Officials said that the recent announcement of a third government-to-government project in China's western
region also intensified the issue for Guangdong provincial authorities, which thought that the GKC's private
sector-led model was now the norm for Sino-Singapore projects. The idea was proposed by Chinese Vice-Premier
Zhang Gaoli last year. Singapore officials are now exploring several cities as the site and also in what form the
project will take. Singapore's criteria are that it must be ground- breaking, commercially viable and supported by
local authorities. Mr Lee told Mr Chen that "as far as the (GKC) model is concerned, we should maintain it as a
model that's led by the private sector and supported by two governments". He said he understood from the Chinese
central government that the financial liberalisation in the two flagship projects was not a "special privilege" but a
46
"pilot arrangement". "When the pilot is expanded, GKC should be at the head of the line." GKC chief executive
Chin Phei Chen told The Straits Times later that "while the project is private sector-led, government support to
create the conditions for attracting investment and knowledge-intensive industries is critical for its success". The
GKC is a 50-50 joint venture between Temasek-owned Singbridge International and the Guangzhou Development
District Administrative Committee. Singbridge chairman and former deputy prime minister Wong Kan Seng is also
on the trip.
Source: Rachel Chang In Guangzhou: PM: S'pore-Guangzhou venture raises bar for govt-to-govt projects, The
Straits Times [Singapore] 13 Sep 2014.
Japan's investment in China declining
Two years have passed since Japan-China relations deteriorated over the Senkaku Islands, but the economic
relationship has yet to improve, with Japan's direct investment in China continuing to decline. Japan's direct
investment in China from January to June dropped 48.8 percent from the same period last year to 2.4 billion dollars
(about 260 billion yen). This indicates Japanese companies' efforts to make inroads into China have lost steam.
Another decline is in tourism, with fewer Japanese tourists visiting China. According to travel agency JTB Corp.,
the number of tours to China it sold in the first half of this fiscal year is about 30 percent to 50 percent fewer than
that in 2012. JTB's branch in Minato Ward, Tokyo, reduced the variety of pamphlets for low-priced tours to China.
"It's difficult to attract customers who want to visit [China], and even if we offer tours at a discount, they don't sell
well," a JTB official said. Meanwhile, the sales of Japanese cars in China have started to recover. Japan's car
exports to China between January and June increased by 49.2 percent from the same period last year, reaching
levels seen in the January-June period of 2012. Recently, some Japanese companies have reduced their dependence
on China and are trying to make inroads in Thailand and other Southeast Asian nations. However, more than
20,000 Japanese companies are still doing business in China, and Japan imports a large amount of Chinese food and
other products. It is, therefore, crucial to improve bilateral economic relations.
Source: Shinichi Ikeda: Japan's investment in China declining, The Japan News [Tokyo] 24 Sep 2014.
FTZ eases foreign access to market, improves transparency
The Shanghai free trade zone (FTZ) and the negative list approach have made it easier for foreign companies
to enter the Chinese market, the head of the FTZ said on Friday. Companies in the zone with businesses that are not
on the negative list do not have to go through normal approval processes. A new list has reduced the number of
banned items from 196 to 139, Ai Baojun, director of the FTZ, told a press conference on Friday. "The updated
version of the negative list has broadened market access and improved transparency," Ai said. The 29 square km
zone was launched on Sept 29, 2013 as a testbed for reform. More than 12,000 firms have set up there. Many
special measures piloted in the zone - business registration, cross-border investment, customs clearance,
cross-border use of renminbi - have been replicated elsewhere in China.
Source: Xinhua: FTZ eases foreign access to market, improves transparency, 2014-09-26
Survey: US firms still optimistic about China
The vast majority of US companies operating in China remain optimistic about their business prospects in the
world's second-largest economy, according to a survey released Monday by the US-China Business Council
(USCBC). Overall, 85 percent of the companies polled said they are optimistic or somewhat optimistic, while 14
percent said neutral. Only 1 percent said somewhat pessimistic. Although the percentage of optimistic and
somewhat optimistic dropped slightly from last year's report, and the percentage of neutral expanded, the
percentage saying somewhat pessimistic also came down. None chose pessimistic this year, compared with 2
percent in the previous survey. The report, USCBC 2014 China Business Environment Survey Results, was
USCBC's annual survey of senior executives at its more than 200 member companies. Half of the respondents are
47
China-based; the other half is based in the US. Eighty-five percent of participating companies have been in the
Chinese mainland market for more than 10 years, with the majority having more than 20 years' experience.
USCBC President John Frisbie said in a statement about the report that the Chinese mainland market continues
to deliver important revenue opportunities for American companies, even as GDP growth moderates. Nearly 50
percent of respondents reported double-digit revenue expansion, less than in prior years, but still impressive
compared to other markets around the world, according to the report. And the great majority, or three quarters, of
US companies remained profitable in the Chinese mainland market last year. Meanwhile, 71 percent expect their
revenue to continue to increase this year, while 19 percent expect the same as last year. Only 10 percent said their
revenue will decline in 2014. The survey also found that 43 percent said the profit margin rate of their China-based
operations is better than their overall operations. Twenty-seven percent said the same; 31 percent said worse. The
major reasons cited for the restraint on increased profitability include competition from domestic companies, rising
costs and government policy and regulation, according to the survey. On the question of who are the main
competitors in China, 91 percent said US and other foreign companies, 79 percent said Chinese non-state-owned
and private companies, and 61 percent said Chinese state-owned enterprises. Most economists agree that after
decades of development, Chinese companies, especially private firms, have become increasingly competitive in the
business world.
Many observers have also attributed the growing competition from the Chinese companies to as of 2011
foreign-funded companies no longer enjoy tax preferences in China as in the previous more than three decades,
thereby putting them on a level playing field with Chinese domestic companies in terms of tax regime. While
responding to the question of China's prominence in the overall company strategy, the survey found 93 percent said
it is the top priority or among the top five priorities, slightly down from the previous year. Yet the percentage
putting China on top priority increased to 22 percent from 15 percent last year. On committing resources for the
next 12 months, half the respondents said it will accelerate, and 48 percent said it will remain unchanged. Only 2
percent said they will curtail the committed resources.
While the Chinese mainland market provides huge opportunities for US companies, the survey found that the
top 10 challenges cited by USCBC-member companies were competition with Chinese companies in China,
intellectual property rights enforcement, foreign investment restrictions, human resources pertaining to talent
recruitment and retention, cost increases, uneven enforcement/implementation of Chinese laws, licensing,
transparency, nondiscrimination/national treatment and overcapacity in the Chinese mainland market. Frisbie of
USCBC said while both foreign and domestic companies are being investigated under China's relatively new
anti-trust and competition regime, foreign companies appear to be facing increasing scrutiny.
Source: Chen, Weihua: Survey: US firms still optimistic about China, China Daily, US ed. [New York, N.Y] 30
Sep 2014: 1.
Human capital key to success in US markets
Human capital is the key to success for Chinese companies doing business in the US, leading industry experts
said during a recent panel discussion in San Francisco. The discussion was held as part of the deliberations during
the release of a new survey report - Chinese Enterprises in US - organized by China General Chamber of
Commerce-USA and the China Business Studies Initiative of the University of San Francisco. Representatives from
Chinese enterprises, business schools, law firms and overseas organizations participated in the discussions held at
the University of San Francisco on Friday. The survey was conducted by Yang Xiaohua, associate professor at the
University of San Francisco, and Richard Huang, executive director of China General Chamber of Commerce-USA.
"The event is aimed at bringing policymakers, business insiders, business organizations and students together to
assist Chinese companies in going global," said Yang.
The report dwelt on details on the business environment for Chinese companies investing in the US. It also
emphasized that such companies need to be guided by local talent and experts, which must be integrated with the
48
local community. According to Yang, Chinese outbound investment in the US is growing and the trend is
unstoppable. "Last year, Chinese firms invested more than $14 billion in the US, which was double that of the year
before," said Yang. However, some Chinese enterprises operating in the US are not doing that well and they have to
learn how to expand their business in a totally different business environment. Although more than 60 percent of
Chinese companies in the US make profits, there are still more than 30 percent of them that operate at a loss, Yang
said, adding that the high cost of doing business in the US is one of the reasons for their failure. Yang said Chinese
companies should invest in the US by hiring local talent and training their executives at US business schools to
make their business more localized. "Human capital is the key for Chinese companies here in the US to gain huge
success," she said. "Improving cultural intelligence is also very important," said Yang, who defined cultural
intelligence as knowing how to do business in a different environment, where the cultural, legal and political
systems are totally different.
Huang from the China General Chamber of Commerce gave an example of the differences. "Chinese
businessmen prefer to make friends first and then do business," she said. "But in the US, businessmen prefer to do
business first and then make friends with you." Yang said that Chinese companies operating in the US vary in scale.
"A large proportion of them are small-and medium-sized here in the US, even though they are very large companies
in China," said Yang, explaining that they are testing the waters and some of them believe that they can be regarded
as global companies only if they have operations in the US. Stanley Kwong, a professor of marketing at the
University of San Francisco, said that during the 1990s, the business school of the university played an important
role in providing MBA and executive MBA programs for China's future business leaders. He said the university is
still a big player in providing education to hundreds of Chinese students.
Source: Lian Zi: Human capital key to success in US markets, China Daily, September 2, 2014
Companies urged to go global with investments
China's outbound investments may show year-on-year growth of 10 percent in 2014, while the administrative
processes for Chinese companies' overseas investments will be simplified, a senior official from the Ministry of
Commerce said on Tuesday. Because of some regional conflicts this year, outward investments from Chinese
companies will not have the same high growth as that of 2013, which was 22.8 percent, said Fang Wei, deputy
director of the ministry's outward investment and economic cooperation department. However, the future of China's
overseas investment is still very bright, Fang said at the 18th China International Fair for Investment and Trade in
Xiamen, Fujian province. China National Offshore Oil Corp spent $15.1 billion on the acquisition of Nexen Inc, an
oil company based in Canada, in early 2013, which is the largest acquisition by a Chinese enterprise in the overseas
market so far. Boosted by this, China's outbound direct investment reached $107.84 billion last year.
To encourage Chinese companies to go global, the government released a revised edition of overseas
investment management regulations on Sept 6, which will take effect on Oct 6, Fang said. "The new edition
supports Chinese companies with advantages to make overseas investments," he said. About 90 percent of
outbound investment projects will only need to report to the authority rather than get approval, according to the
new edition. Only investments in sensitive regions and sensitive industries need to be approved by the authority,
Fang said. In the old edition, projects with 100 million yuan ($16.3 million) or above had to be approved by the
governmental department. Fang said this measure was canceled in the new edition and that administrative processes
of approval would also be reduced. Projects that only need to report to the authority can complete the processes in
three working days. This means the approval period for big projects will be reduced by five working days, Fang
said. The Chinese government also asked domestic companies to improve on environmental and labor protection as
well as cultural development cooperation in invested countries.
"China's outward foreign direct investment flow exceeded $100 billion in 2013 for the first time, and China
was the third-largest investment source country in the world in the past two years," Fang said. By the end of 2013,
15,300 Chinese investors established 25,400 enterprises in 184 countries and regions all over the world, according
49
to the statistics from the Ministry of Commerce. During last year's CIFIT, outward projects with combined value of
30 billion yuan were signed. The growth potential of China's outward investment is huge, although it started late
and has a huge gap compared to developed countries, said Fang.
Source: Wang Wen in Xiamen: Companies urged to go global with investments, China Daily, 2014-09-10
China's outbound investment expected to exceed FDI in 2015
China's outbound investment is expected to continue to increase and could soon exceed foreign direct
investment (FDI), an official said Tuesday. The statement was made by Ministry of Commerce (MOC) spokesman
Shen Danyang after the MOC released the investment figures for the first eight months this year. From January to
August, FDI, which excludes investment in the financial sector, stood at $78.34 billion, down 1.8 percent from the
same period last year, the ministry said. In contrast, China's outbound direct investment by non-financial firms
surged 15.3 percent to $65.17 billion in the same period. Shen said China's outbound investment would continue
growing rapidly, and the long-term growth trend would not change.
He attributed the prospects mainly to a more favorable policy environment for companies to "go out," better
financial conditions, and Chinese firms' increasing competitiveness in the sectors of light industry, machinery
equipment, ship-building, chemical engineering and electronic information. The outbound investment in the first
eight months last year was greatly boosted by CNOOC's $15.1 billion acquisition of Canada's oil and gas company
Nexen, said Shen. When excluding the effect of this big deal, outbound investment for the first eight months this
year could be more than 40 percent higher than the same period last year, he added.
Source: Xinhua: China's outbound investment expected to exceed FDI in 2015， 2014-09-17
China eyes $20 billion investment in India in five years
China announced Friday that it will try to increase its investment in Indian industrial and infrastructure
projects to $20 billion in the next five years. The target was proclaimed in a joint statement the two sides issued in
New Delhi on the final day of Chinese President Xi Jinping's state visit to the southern neighbor. In the statement,
which highlighted the two Asian giants' commitment to building a closer development partnership, China also
announced the establishment of two industrial parks in western India. India, for its part, said it welcomes Chinese
investment in its manufacturing and infrastructure projects. They both pledged to facilitate the investment and
operations of companies from the other side in their markets, and to work together to forge production and supply
chain linkages and thus help develop a more broad-based and sustainable economic partnership. India is the last
stop of Xi's four-nation tour in Central and South Asia, which has already taken him to Tajikistan, Maldives and Sri
Lanka. In Tajikistan, he also attended a summit of the Shanghai Cooperation Organization.
Source: Xinhua: China eyes $20 billion investment in India in five years， 2014-09-19
Chinese outbound M&A transactions continue rising
Chinese firms are more confident in making outbound mergers and acquisitions (M&A), despite volatility in
the international financial markets, consultancy Deloitte said in its latest report. For the first five months of 2014,
there were 106 Chinese outbound M&A transactions with a total value of $31.7 billion, Deloitte said late Thursday
in the report. The majority of the surveyed M&A practitioners believe that the number of Chinese outbound M&A
transactions will grow as much as 30 percent in the coming year, it said. The number of China's outbound
investment deals has grown for four consecutive quarters since the second quarter of 2013, said Patrick Yip, head of
Deloitte China M&A Services. "US economic recovery and renminbi internationalization may provide favorable
conditions for Chinese investors seeking more premium assets and larger market share abroad," he said. In addition,
distressed assets and depressed valuations in the Euro zone will probably attract more bargain hunters from China,
particularly in the manufacturing, technology, media and telecommunications sectors, which are the primary
beneficiaries of Chinese investment in the Euro zone, Yip said. When it comes to transaction size, the report said
50
the number of small-sized M&A deals with a value of up to $50 million grew the most (by 65 percent year-on-year)
in the first five months of 2014. The proportion of mid- and large-sized M&A deals with values ranging from $50
million to $1 billion dropped, and the share of mega-deals with a value of over $1 billion climbed gradually.
Surveyed respondents, however, seem to have a different view about the trends for the remainder of 2014. They
expect a higher deal volume for mid- and large-sized M&A transactions alongside a reduction in the number of
small-cap M&A transactions. The findings indicate that Chinese investors may develop an appetite for larger
transactions, said Dennis Chow, head of Deloitte Global Chinese Services Group.
However, when compared with other developed countries from January of 2013 to May of 2014, total value of
Chinese outbound M &A transactions was comparable with that of Germany and Japan, and only reached a quarter
of that of the United States and half of that of the United Kingdom.
The report also analyzed the target regions for Chinese outbound M&A and found that Western Europe superseded
the US as the most popular target market for Chinese investors in the first five months of 2014. In the Jan-May
period, Western Europe attracted 25 Chinese outbound M&A deals with a total value of $9.7 billion, compared to
17 transactions in the US with an aggregate value of $6.1 billion. A total of 95 percent of respondents said that Asia
will attract the most Chinese outbound M&A investment for 2014. When it comes to M&A challenges, surveyed
respondents cited the difference in management culture of European and North American targets as the major
obstacle. Other issues include financial constraints, exchange controls and convertibility of the Chinese currency
yuan, or renminbi. More respondents found professional advice crucial to realizing higher returns from the
transactions, especially in due diligence, structuring, and post-merger integration issues, according to the report.
Source: Xinhua: Chinese outbound M&A transactions continue rising, 2014-09-26
51