May/June 1998                                      Issue No. 98-3

Financial reform key to stability as China braces against Asian storm

It was inevitable the Asian flu would spread to Hong Kong. Its GDP growth shrank 2% in the first quarter of this year, both property values and stock prices have dropped significantly from their peak and unemployment has risen to a 15 -year high of 4%.  Before Hong Kong's handover to China last summer, many believed that HK's economy would be hurt by the political transition.  Yes, HK's economy is now facing a difficult time. But  the recession has blown in from its Asian neighbours, and is not a result of China's takeover.  In fact, the link with China has had a stabilizing effect, which no-one expected before.
 

China has emerged as a steadying
influence, not only to HK but to the
whole region.  It repeatedly assures the
world that both the yuan and the HK$
will not be devalued. It was doing
everything in its power to stabilize the
yuan and calm currency markets even
when the Japanese yen slid to 146 yen
against the US dollar in mid-June. It
has borne the heavy cost of preventing
the Asian crisis from worsening, show-
ing the kind of responsible economic
leadership that the battered region needs.
Its own growth has slowed, but it
continues on its path to reform.

The HK government has acknowledged
that it needs to make hard adjustments
and has unveiled plans to stop selling
public lands for nine months to prevent
property prices from dropping further.
It is giving a rebate on some property
taxes and a 30% reduction in diesel-fuel
taxes. It will eliminate a tax on

		interest income on HK$ held in banks in HK. This could put the government in a deficit position. It plans on freezing salaries for senior government officials, including the Chief Executive. HK is undergoing a necessary correction of a bubble economy created during the '90s, which should improve its competitiveness in the years to come.   China has already embarked on a bold economic reform as detailed in our last issue, but now it faces internal resistance from different interest groups within the Chinese government.  The turmoil in the rest of Asia also may slow its pace. The recovery of the whole region is challenged by Japan's persistent recession.  Tokyo's administration has been slow to intervene. It has unveiled several stimulus packages to revive its ailing economy, but markets continued to fall, until the U.S. began to vigorously support the yen.   The lack of sophistication and efficiency of Asia's banking system has been a defining feature of the crisis. Japan's reform package included establishing a "bridge bank" that could assume the loans of distressed banks and creation of an independent Financial Supervison Agency. These measures are a start in meeting the concerns of the international community. [ Deloitte Touche Tohmatsu (DTT) has had the chance to help the region's financial  reform -- DTT recently served the Financial Sector Restructuring Authority of Thailand (FRA) as Special Advisors to 22 of 56 suspended finance companies.  As Special Advisor, DTT advised on operational and finance issues on the orderly closure of the finance companies, made recommendations on possession, control and loan administration, asset divestiture and various asset disposition strategies.] Prompted by the IMF, Korea and Indonesia also have turned their attention to financial reform.   China began down the road to banking reform earlier this year, knowing that the country's development relies on a healthy and clean financial system.  In addition to what we have reported in our Issue 98-1, The Chinese government has just announced the formation of two powerful task forces to oversee the financial and bankings sectors: The Central Financial Work Committee and The Party's Committee for the Financial Institutions.  Both will be chaired by Vice-Premier and Politburo member Wen Jiabao.  The working committee will direct, manage, supervise and co-ordinate work in the financial sector, while the party committee will limit its function to overseeing party affairs in financial institutions.   Two watchdogs have also been set up under the new organs.  The Central Financial Discipline Working Committee and Financial Institutions' Discipline Inspection Commission would work to further crack down on corruption and malpractice among officials in the financial sectors amid financial failures in neighbouring countries.   To put its words into action, China's central bank has wasted no time in restructuring its financial sector.  It shut China Venturetech Investment Corp., a "princeling" company established by children of passed-away former Chinese leaders on June 22.  The move followed China's first closing, a day earlier, of a state-controlled bank, Hainan Development Bank for capital inadequacy. The World Bank has promised a US$2.5 billion loan to help China reform its capital markets in response to the Asian turmoil.  Mr. J.M. Severino, vice-president for East Asia of the World Bank, has highlighted three areas where China should draw lessons from the Asian crisis:   keep a close eye on competiveness and improve higher education which compares poorly with neighbouring countries; improve transparency in relations between banks and companies and increase emphasis on good governance to avoid corruption; and build an institutional ability to cope with future changes within a reliable supervisory and regulatory system.   Indeed, China must establish a stronger, independent regulatory and legal system hand-in-hand with its economic reform. The recent banning of all direct selling activities would not have been necessary if a proper regulatory/legal structure was in place to control both businesses and individuals. It could lead to greater instability to liberalize the financial sector without comprehensive, transparent, well established and well practiced rules of law that investors and financial institutions could strictly follow. Those are lessons that could well apply to most of Asia.  The good news is that China does show its determination to strengthen its legal system.  The number of lawyers in China has jumped from 212 in 1979 to 100,000. It even plans to allow live television and radio coverage of all court proceedings except those involving national secrets or individual privacy, according to Xiao Yang, head of the Supreme People's Court of China.
INTERES TING FACTS AND FIGURE S		n Taipei, the capital of Taiwan, will adopt China's romanized spelling system for street and place names to avoid confusing foreigners. China introduced the system in 1949, anticipating the Chinese language would eventually be romanized. Taiwan's current road signs and place name spellings are not standarized. Some place names are spelled in four or five different ways, confusing foreigners and creating problems for mail delivery.   n According to an economist at Merrill Lynch, more than half of China's urban dwellers could own their homes by 1999, up from less than 10% now. The government is planning to sell off much of the country's public housing and that could result in 100 million new homeowners by 1999. The government first will raise the rents, from about 3% of the average consumer budget to about 15%. Salaries will rise to compensate in part for the decreased housing benefits, and banks will provide increased mortgage financing. Under the current system, only married couples may apply for subsidized apartments. Since March this year, more than 10,000 couples have registered for marriage in Beijing to be qualified for the last phase of the government's subsidized housing. July 1st, 1998 is the date set for phasing out the distribution of the housing.   n Recently,17 foreign law firms have been given approval to establish offices in China.  Among them is Canada's Blake Cassels & Graydon which will open an office in Beijing run by Canadian lawyer Barry McGee and assisted by Wu Tong who practices both Chinese and Canadian law.  China now has a total of 67 foreign law firms, including 26 from Hong Kong.  Chinese cities that are open for foreign legal firms now include Tianjin and Qingdao, as well as Beijing, Shanghai, Guangzhou, Shenzhen, Haikou and Suzhou.   n According to Liu Shanzai, Vice-Foreign Trade Minister, the biggest database on Chinese export products is available on the Internet.  The database, dubbed "Made in China," can be found at "www.moftec.gov.cn", the home page of the Ministry of Foreign Trade and Economic Co-operation (Moftec).   n China's GDP growth for the first quarter of this year is 7.2%. Its foreign reserves reached US$140.9 billion at end of May 1998. The following table sets out China's latest economic data, in US$:       n China, Hong Kong, Taiwan and Chinese communities worldwide have reached a critical mass in Internet use that firms such as Yahoo!, AltaVista and Netscape can not afford to ignore. These three American Web giants have each announced plans to introduce Chinese-language search engines or Web site guides. Sites are classified manually into different categories by directory services like Yahoo! Chinese (www.chinese.yahoo.com). Search engines like AltaVista (www.altavista.digital.com) comb the Internet for all documents that match a request.  Netscape is launching the same service. An estimated 1.25 million people are on-line in Taiwan, 500,000 in Hong Kong and at least 600,000 in China.  Internet users in China will jump to at least three million by 2001.   n Recent studies in the IMD International's World Competitiveness Yearbook suggest that Asia's "Sino" economies China, Singapore, Hong Kong and Taiwan are among the most competitive and least risky for foreign investors in the region.   n The Bank for International Settlements (BIS), based in Basel, Switzerland has chosen Hong Kong as the site of  its first overseas office to open in July this year.  BIS was founded in 1930 and its membership consists of 32 central banks, including central banks of the Group of 10, the world's top industrialised nations.  BIS sets international standards for banking and supervisory activities which Hong Kong and most other economies adhere to. These include the 8% capital adequacy ratio banks require when making loans. The new office will be responsible for improving cooperation with central banks and monetary authorities in the Asia-Pacific region. n According to Dai Xianglong, governor of the People's Bank of China, the country will develop a deposit insurance system to boost depositor confidence in the banking system.  No time frame has been announced. The program will begin in some leading banks before extending to others. As part of China's banking reform, Dai said the government will double the number of private banks to 200 and restructure other credit cooperatives.  Contrary to IMF estimates that problem loans constitute 15% to 25% of total lending, Dai said unrecoverable loans account for only 6% to 7%. China's total lending in 1997 was US$902 billion.   n Underwriters Laboratories Inc. (UL), an independent, not-for-profit product safety testing and certification organization based in the U.S. has  opened its second office in China, located in Shanghai.  UL already has an office in Guangzhou. UL's new office will help Chinese clients obtain UL's product safety certification services and UL Marks for the Canada, U.S. and other markets around the world.  More than 14 billion products bearing the UL Mark are sold every year.   n According to the Far East Economic Review, the Chinese edition of F.A. Hayek's The Constitution of Liberty, a primer of classical liberalism, has run into second printing, after immediately selling out the first 20,000 copies .  What makes the public debut of the book in China so incredible is that Hayek's emphasis is not simply on the inefficiencies of socialism but also on the  inhumanity of its basic premises on which it rests.   n The U.S.-based discount brokerage firm, Charles Schwab Corp., has launched a new Chinese-language web site, allowing its growing base of Chinese-American customers to trade on-line in Chinese. This service is believed to be the first of its kind in the U.S. Although only 2-3% of Schwab's clients speak Chinese, those using the services of the Asia Pacific group trade twice as much as other Schwab's investors.   n The University of Alberta is conducting a study to determine whether elk antler, a 2,000-year-old traditional Chinese remedy, could boost muscle strength and accelerate healing from repetitive strain and injury. The study will focus on 37 football players and policemen in Edmonton, 10 from the university team, the Golden Bears, and 27 from the Edmonton Police Academy. They will take six pills of ground elk-antler velvet each day for 10 weeks while continuing a personal workout program. Results of the study will be available in September, just as the Canadian Interuniversity Athletic Union football season opens.
GOVERN MENT		n On May 20, 1998, China's State Administration of Taxation (SAT) issued its first comprehensive set of transfer pricing guidelines. There are 12 chapters and 52 articles in the guidelines. The content is comparable to international practices and the OECD transfer pricing guidelines.  The guidelines cover a definition of related parties, classification of inter-company transactions and determination of their values, selection criteria of the audit target, auditing methods, contemporaneous documentation of transfer pricing transactions, acceptable transfer pricing methods, transfer pricing adjustment process and settlement procedures, objections and appeals, case documentation and cataloguing, and case follow-up. They take effect April 23, 1998, and call for  stringent reporting and documentation by multinational companies doing business in China.   n On May 18, 1998 Canadian Industry Minister John Manley and Chinese Minister of Information Industry Wu Jichuan signed a telecommunication and information technology cooperation agreement, covering standards and certification, policy and regulatory issues and technical exchanges. Telecommunication products were Canada's second largest export to China in 1997. Although more than 3,300 projects in China involve direct Canadian investment, Canada still accounts for only 1% of foreign invested companies in China.  Several Canadian companies accompanying Manley on his visit to China signed agreements with Chinese companies and government agencies. These include ABL Canada Inc.'s agreement with Stone Telecom and SVT Nanjing; Harris Communications with the Hunan Water Resources Information Centre and the Ministry of Water Resources Information Centre; and SR Telecom Inc. with the Gansu Post and Telecoms Administration and the China Overseas Trade Corp.  Manley also travelled to the city of Chongqing where Canada is the first country to open a consular office.
AGRICU LTURE, FOOD AND FOREST RY		n According to the Beijing-based State Flood-Control and Drought-Prevention Headquarters, more than 2.1 million hectares of crops have been destroyed in recent months.  In North China, drought has postponed the planting of 6.7 million hectares of wheat, while rice planting has been delayed in southwestern China due to a lack of irrigation water.  China's harvest may fall short of the country's forecast of 490 million tons of grain this year, forcing it to raise grain imports. That could lift world grain prices. China may import 175 million tons of grain by 2025, compared with 4.17 million tons last year. Drought is a serious problem this year with 300 of China's 617 cities facing a water shortage.   n New York-listed Pioneer Hi-Bred International Inc . has  won approval to establish a research centre in Tieling, Liaoning province. The 25-acre research centre has been leased from the city's Agricultural Academy . It will be managed by Dr. Dapeng Bai, a graduate of Canada's University of Saskatchewan.  The centre will develop top-performing corn hybrids adapted to the China's growing conditions. China has  passed a law to protect proprietary genetic material.   n The Eisenberg Group and Dead Sea Works (DSW) of Israel have agreed with the Chinese government to set up a US$450-million joint venture potash plant in western China. The government will own 66% of the plant while Eisenberg and DSW will own the rest. DSW will be in charge of technology transfer, set up and operation of the plant with a work force of 1,400. Annual production of 800,000 tons of potash will begin in 2001.
BANKIN G, FINANC E AND INSURA NCE		n Sun Life Assurance Co of Canada has received approval to open a representative office in Chongqing, making it the first foreign insurer to open office in China's largest city. Meanwhile, Colonial Ltd. has become the first Australian company to win an insurance license from the Chinese government., beating out rival National Mutual Holdings Ltd .  Colonial expects to invest about A$40 million over four years setting up its business and is now looking for a local partner.  It will start operations in Shanghai within a year.   n American International Group (AIG) is expected to obtain its third license soon to operate in China, becoming the first foreign company to sell insurance policies in Beijing. China's insurance market is growing at an annual rate of more than 30% while the growth in the U.S. and Europe slows to 4%.   n SCOR Group, the world's 6th largest provider of reinsurance, has been appointed lead reinsurer for construction risks on the second tranche of the US$1 billion Qinshan nuclear power plant, (100km south of Shanghai). The insurer is Chinese firm Ping An. Scor is also lead reinsurer for other major power plants such as Daya Bay, Ling Ao, Zhuhai and Laibin B.   n China Construction Bank, one of China's four state-owned commercial banks, has launched a system with China Southern Securities Co. allowing the bank's current accounts in Guangzhou to double as stock trading accounts. The process could funnel more deposits into the bank and draw more of China's huge savings into the domestic stock market and to state-owned companies in need of fresh capital.  Southern's Shanghai branch earlier set up a similar system with the Industrial and Commercial Bank of China's Shanghai branch.   n Sumitomo Bank of Japan has agreed to cooperate with Bank of China on forward exchange contract business for Chinese currency.  The agreement will do away with a requirement that Chinese companies seeking to conclude forward contracts deposit 10% of the contract's value in foreign currency.  Instead, Sumitomo will issue Letters of Credit to Bank of China on behalf of such companies.  The agreement, which is the first of its kind by a Chinese bank, will cover letters of credit in four currencies, US$, yen, German marks and HK$.   n A delegation led by Dr. John C. Kuan , the Vice-President of the Examination Yuan, the state authority overseeing Taiwan's pension funds, and Chairman of the Supervisory Board of the Civil Servants Pension Fund has visited Toronto  and signed a memorandum of understanding on cooperation and information sharing with the Toronto Stock Exchange.  The visit was arranged by GW Welkin Capital Corp of Canada and the Taipei Economic and Cultural Office in Toronto. The delegation included senior officials from the Taiwan Securities and Futures Commission, the Taiwan Stock Exchange and the Taiwan International Mercantile Exchange.  Taiwan, with a savings rate of 25%, represents a significant capital pool and is embarking on liberalizing and opening its financial markets.   n Ceska Sporitelna AS, the Czech Republic's main savings bank, opened a representative office in Shanghai .  It is the first bank office representing a Central or Eastern European country in Shanghai.   n China is drafting regulations allowing foreign fund managers to establish joint ventures with local partners to buy Class A shares. This opens the opportunity for foreign investors to buy shares of the 545 Chinese companies now restricted to domestic investors.  Presently, foreign investors may trade only Class B shares of 90 companies. The new rules, expected to be effective this year, will allow the licensing of Sino-foreign fund managers. An injection of foreign cash could expand the overall market and encourage more of China's enormous pool of domestic savings to flow into stocks. The change could also reduce volatility in China's stock markets by establishing buy-and-hold institutional investors.  Several foreign fund managers have already established joint ventures in anticipation of the regulations. These include: Van Eck Global which has tied up with China's biggest stockbroker, Shenyin & Wanguo Securities Co.; Salomon Smith Barney with Shanghai Industrial Investment (Holdings)., AIG with China International Trust & Investment Co.; Martin Currie with Huaxia Securities and Dresdner Bank AG with China Guotai Securities. Templeton, Fidelity and Jardine Fleming are also seeking to expand in China.   n Following the successful launch of two domestic mutual funds, Jintai and Kaiyuan, in March, China has launched a third, the Xinghua Fund . Xinghua has assets of two billion yuan (US$240 million). Its price jumped to 2.18 yuan from the issue price of one yuan, as did the price of the two earlier funds. Xinghua is underwritten by China Securities Co., Beijing Securities Co . and China Science and Technology Trust and Investment Co., with the China Construction Bank acting as trustee.  Two more funds will be launched this year, according to the China Securities Regulatory Commission.   n China International Capital Corp. (CICC), a joint venture investment bank , said it earned US$30 million before tax in 1997.  CICC was established in August 1995, owned 35% by Morgan Stanley Dean Witter and 42.5% by China Construction Bank.  CICC participated in 24 transactions in 1997, including co-managing, with Goldman Sachs, China Telecom (HK) Ltd.'s sale of US$4.2 billion in shares last October. Last year CICC ranked third in sales of new shares in the Asia-Pacific region excluding Japan.  Morgan Stanley ranked fifth while Goldman Sachs ranked first. The other CICC shareholders include China National Investment and Guaranty Corp., Singapore Investment Corp. and Hong Kong's Mingly Corp.   n Hong Kong Mortgage Corp.(HKMC), established in the second half of 1997 and modeled on the U.S.-based Fannie Mae, plans to set up a second program to sell local-currency notes through banks instead of the government.  HKMC began issuing notes in March with the HK$20-billion Hong Kong Monetary Authority-sponsored Note Issurance Program. It has since issued two HK$500-million three-year fixed-rate notes. The new program will target institutional investors and raise HK$7 billion through bond sales this year. The issue will fund its mortgage purchase target of HK$10 to $15 billion.
CONSU MER / RETAIL MARKET S		n In April, China issued a new directive banning all direct selling activities to protect consumers from illegal pyramid scams, which have become a serious social problem.  The State Administration for Industry and Commerce said it has registered 518 direct sellers from both domestic and foreign companies. However, unofficial figures show more than 1,500 additional businesses operating illegally and employing 1.5 million salespeople. The ban directly affects Amway, Avon and Mary Kay which had sales in China of US$178 million, US$60 million and US$21 million respectively last year. All are working to change their distribution system and modify their operations. Amway has 40 product service centres in 14 provinces and four municipalities. Under the proposed new approach, those who were distributors and purchased Amway products for their own use could continue to buy these products at a discount. Those who were actively serving customers would be incorporated into a service and training team. Details remain to be finalized.   n Kingfisher, one of Europe's biggest non-food retail groups, is embarking on a massive expansion plan in Asia, using Hong Kong as its headquarters. The group's total sales last year were 6.4 billion and it expects to generate 10% of its sales from the Asia-Pacific region within five to seven years.  Kingfisher has already brought its do-it-yourself stores, B&Q, to the region - there are three in Taiwan - and will focus its attention initially on greater China.   n Sola International Inc. of the U.S. has started to cast ophthalmic lenses in its second Chinese manufacturing plant. The plant will support Sola's growing business in China, where it's a leader in the rapidly growing market for plastic eyeglass lenses. It also will serve Sola's growing marketing and sales network in China which includes operations in Shanghai, Beijing, Guangzhou, Wuhan and Chengdu.  Sola estimates more than 50 million pairs of lenses are sold each year in China, but fewer than 10% of them are plastic lenses.  Sola believes Chinese consumers will shift to plastic lenses as they are lighter weight and more impact resistant.   n In agreement with China's Jin Ming International Trade Co., Frederick Brewing Co. of the U.S. has begun distributing three of its best-selling beers, Wild Goose India Pale Ale, Blue Ridge Golden Ale and Brimstone Honey Red in China.  It said 2,800 cases of the beers have been shipped to China's Zhejiang province.
HEALTH CARE		n According to Ren Minhui , deputy director of China's Ministry of Health, China will set up a unified medical-care program in cities nationwide in three to five years. This would replace the current system in which employees are provided with health care through their employer. The ministry will make medical insurance available for all state and corporate employees. The plan, to be funded by mandatory contributions from employers and employees, could generate business for foreign insurers as more Chinese buy insurance policies to supplement their coverage.   n Cell Robotics Int'l Inc. of the U.S. has  signed an exclusive distribution agreement with the Beijing-based C.A. Continentals Inc.(CAC) to sell Lasette in China. Lasette is a nearly painless finger perforator used to sample blood and test glucose levels. Lasette is the only laser device cleared by the FDA for use on diabetic patients. CAC and its partnership companies which distribute medical products throughout China had sales of US$250 million in 1997.  CAC, jointly with a Chinese partner, produces and distributes The Medical Equipment Magazine to over 40,000 hospitals.   n Vancouver-listed Response Biomedical Corp. (RBC) has  signed a letter of intent with BioCare Corp.(BCC) for the joint development of all RAMP assays for Taiwan, China and/or other Asian countries. BCC is the biotechnology and medical care arm of Taiwan's Koo's Group.  RBC is using the RAMP (Rapid Analysis Measurement Platform) technology to develop point-of-care diagnostic assays with a sensitivity that is currently obtainable only with expensive, laboratory-based analysers.   n Taisho Pharmaceuticals Co. announced  that it will begin producing its Lipovitan tonic drinks in Shanghai through a joint venture with a local food company established last year. The tonic will be marketed in Shanghai and other eastern China cities for seven yuan (85 US cents) for a 100-ml bottle. Taisho expects to sell five million bottles the first year and 10 million by 2000.
MANUFA CTURIN G		n Xian X.R. Aerocomponents (XRA), a Chinese joint venture between Rolls-Royce of the U.K. and China's Xian Aero Engine Corporation (XAE) has  produced and delivered its first components to Roll-Royce's U.K. engine plant, less than a year since work began on XRA's new factory.  The stone-laying ceremony of the 13,000 sq.m. factory was held on May 9, 1997. In just over 10 months XRA's factory for the casting and machining of specific components for the Rolls-Royce Tay engine and BMW aero engines has been built, equipped, staffed and begun to make its first parts. XRA expects its sales to reach US$22million by the year 2000.   n AlliedSignal Inc. of the US has  received contracts from three Chinese airlines to provide wheels and brakes for 11 Boeing 737 jets.  AlliedSignal said it will equip five 737-800s for Air China, three 737-700s for Shanghai Airlines and three 737-800s for Hainan Airlines.   n Sweden's SKF AB, the world's largest roller-bearing maker will invest US$30 million in a 51/49 joint venture with China's Wafangdian Bearing Co. (WBC) to manufacture and market spherical roller-bearings. The plant, located in Wafangdian, northeastern China, will employ about 700 workers. Initial production is expected to be 1.1 million bearings a year and will reach 1.5 million bearings within five years. WBC is China's biggest bearing producer with a 10% market share.   n Elf Atochem SA of France has formed a 80/20 joint venture with China's Gaoyuan Organic Powder Plant (GOPP) to build two co-polyamide powder plants in China, one in Shanghai's Pudong area and the other in Jiangsu Province's Changshu complex. Co-polyamide powders are used in the textile, furnishing, automobile and electronics industries.  Elf expects its Chinese revenue to grow from US$200 million in 1996 to US$500 million in 2001. Its Chinese work force is expected to expand from 400 to 2,000.   n Lucas Control Systems of the U.S. has opened a new fully automated production facility named Lucas (Tianjin) Control Systems Co. Ltd. to make metal and plastic domes for switching applications in telecommunications products. Plans also are made to manufacture and assemble related telecommunications components this year.  Lucas's investment in equipping the new plant alone is around US$1.9 million.  It expects to double the current 20 workers within a year.   n Citibank of the U.S. has signed a 30-year joint venture agreement with the parent company of refrigerator maker Guangdong Kelon Electrical Holdings Co. to make air conditioners in China. Citibank paid close to US$22.5 million for a 40% stake in the venture.  Meanwhile, Korea's Samsung Electronics Co. will build a US$72-million air-conditioner factory in China with annual production capacity of 150,000 units. Samsung earlier moved its audio equipment production facility to a Chinese subsidiary to cut down on high domestic operating costs.
MEDIA AND COMMU NICATIO NS		n New York-listed Clear Channel Communications has entered into an agreement, subject to regulatory approvals, to acquire a 50% stake in China's Hainin White Horse Advertising Media Investment Co. for 180 million yuan (US$22 million).  White Horse is one of China's largest outdoor sign operators with 2,500 bus shelters in 16 markets.  The existing White Horse management team will stay to manage the joint venture.   n Asiatainment Marketing Concepts (AMC) of Hong Kong has signed an agreement to act as the licensing agent for Magic Mountain, a co-production between China Central Television (CCTV) and Australian Broadcasting Corp.  The program, broadcast on CCTV, features colourful animal characters portrayed by actors in costumes and is aimed at pre-school children. AMC is the first foreign company to represent CCTV for merchandise licensing. AMC will license images of the program's characters to appear on a variety of products, ie. toys, stationery, novelty items, clothing and accessories to be sold in China and Hong Kong.   n The Connecticut-based market researcher, ACNielsen Corp.(ACN) plans to expand its television ratings services into nine more cities in China.  ACN measures TV viewing habits and advertising trends with an electronic device called the "Peoplemeter" and expects to have 3,000 such devices in operation in China within two years. ACN now provides rating services in Shanghai and Guangzhou and will serve a third market, Beijing, by the end of 1998. Other major cities that ACN plans to cover include Hangzhou, Shenyang, Fuzhou, Tianjin, Chengdu and Nanjing.  Almost two-thirds of China's TV advertising dollars are spent in these cities.  China is home to more than 300 million TV households and more than 900 TV stations.   n Frost & Sullivan, an international marketing consulting and training company based in the U.S., has opened an office in Beijing, prompted primarily by increasing global demand for Chinese Market Intelligence. F&S's initial focus is to produce market reports, the titles of which will be selected and prioritized in accordance with client and market demand.
MINING AND RESOUR CES		n According to a London-based Saudi-owned newspaper Al Hayat, China will increase its crude oil imports from Saudi Arabia from last year's 4.5 million tons to 18 million tons (130 million barrels) in 1998. Asian countries import about 60% of Saudi's crude exports.   n China National Petroleum Corp. (CNPC) plans to invest two billion yuan (US$240 million) in a new crude oil wharf in Tianjin to ease transportation of crude oil produced by CNPC's oil fields in China's northern region. The wharf will include a 150,000-ton berth and a 29 km channel and will have a total handling capacity of 11 million tons of crude oil. CNPC also said that it will build two new pipelines to transport oil from the country's oil fields to refineries and consumers. One will be a 1,000-km pipeline in Northeast China, linking Daqing oil field in Heilongjiang province to Dalian in Liaoning. The other will be a 900-km pipeline in Northwest China, connecting either the city of Wuwei or Lanzhou in Gansu with Chengdu.   n Britain's Fortune Oil PLC is in negotiation with one of China's largest refiners, Maoming Petrochemical, to build US$75 million of crude oil storage in China to expand its oil handling business.  The two partners intend to build oil storage tanks with capacity of one million cubic meters of oil (6.3 million barrels) in two phases, subject to regulatory and shareholders' approval.  The venture would expand Fortune's current oil unloading venture with Maoming, which has handled about 15% of China's oil imports since 1994.   n Calbag Metals Co., a U.S. processor and trader of nonferrous metals has  formed a joint venture with Taiwan's Extra Group to expand production capabilities in China. The new plant at the Huizhou Tang Sia Nonferrous Metal Industry Co.'s scrap processing complex in Guangdong province will process insulated copper, brass and aluminum products. Calbag gains a competitive advantage among Korean and Japanese consumers as it will be able to provide material consistent with U.S. quality almost twice as fast as processors without capabilities in China.   n A 300 km stretch of gold deposits estimated at about 350 tons has been discovered in the southern parts of west China's Qinghai-Tibet Plateau by Chinese geologists. An earlier discovery of 500 km of gold deposits was found in the northern rim of the basin.  China now plans to open several small to medium-sized gold mines in the region.  China produced about 34.5 tons of gold in the first three months of 1998, up 36.3% compared with same period last year.   n Global-Pacific Minerals Inc. of Canada has issued a progress report on Phase One of its program to rehabilitate and develop the Qian Chang gold-copper-iron deposit in Anhui Province. Based on a preliminary engineering study, construction of a 1,000-tonne-per-day mine is being considered. Capital cost is estimated at US$7 million, and the mine would produce about five million pounds of copper, 21,000 oz of gold, 229,000 tonnes of iron concentrate, 64,700 pounds of cobalt and 45,000 oz of silver. G-P will seek a partner to finance production costs for the Qian Chang deposit upon completion of the feasibility study in August 1998.
POWER / UTILITY / INFRAS TRUCTU RE PROJEC TS		n Stagecoach, the largest bus company in the U.K., paid HK$1.4 billion to become the second-largest shareholder in Road King Infrastructure Ltd.(RKI). It bought one-fifth of RKI from American International Group's Asian Infrastructure Fund and another 8% stake in new convertible preference shares, for total holding of 28%. RKI owns at least 29 toll roads in eight Chinese provinces.  RKI plans to spend up to US$194 million in 1998 buying new roads in China.   n Portugal's second-largest construction company, Somague-SGPS SA has  signed an accord to build and operate two toll bridges in China.  Somague owns a 30% stake in the US$243-million venture that will build the bridges in Chongqing city.   n China National Railway Locomotive & Rolling Stock Industry Corp. (CNRL) has agreed  to buy US$1.5 million in software and services to improve and expand China's railroad system. CNRL will incorporate software from Nasdaq-listed ANSYS Inc. as its key enterprise-wide computer-aided engineering tool.  China has allocated US$29.5 billion to modernize its railroad system and has given CNRL the responsibility to design and build a high speed train and to improve the speed of the existing train system.   n U.K.-based Mitsui Babcock Energy Ltd (MBEL) has won a US$330-million contract from China's Shandong Zhonghua Power Company (SZP) to supply, install and commission boiler equipment for coal-fired power stations to be built at Heze and Liaocheng in Shandong province. The contract forms part of the US$2.2 billion Shandong Zhonghua Power Project being undertaken by SZP to address the extensive power shortages in the province. U.K.'s Export Credits Guarantee Dept. has underwritten a US$288-million loan to finance MBEL's order. The loan, jointly arranged by Greenwich NatWest, IBJ Asia and Societe Generale Asia, has been structured on a "Limited Recourse" basis, by which repayments will be made from revenues generated by the sale of electricity from the completed power stations.   n Canada China Power Inc. (CCPI), a "Team Canada" company established in 1994 by Canada's three consulting engineering firms, AGRA Monenco, SNC-Lavalin and Acres Int'l., has so far been involved in most of the major water resources and hydroelectric projects in China that have required foreign technical assistance. It participated in the Geheyan Hydropower Project, Three Gorges Water Resources Project, Xiaolangdi Multipurpose Dam Project, Wanjiazhai Water Diversion Project, Longtan, Jiangya and others. CCPI has completed several planning studies, including the ongoing South China Strategic Energy Planning, feasibility studies and training programs with China's Ministries of Water Resources, Electric Power and other institutions.   n Stone & Webster (SWI) of the U.S. has received a US$19-million contract from Foster Wheeler Energy Corp. (FWE) to provide engineering for the boiler island and supply structural steel for the Jiu Jiang Thermal Power Plant in Jiangxi province. FWE is building the 2x350 megawatt coal-fired plant in a consortium with Japan's Hitachi Corp.  SWI is currently working on 14 projects in China, including cogen plants, nuclear plants, hydroelectric plants, pulp and paper plants. Combined estimated value is US$75 million.   n Westinghouse Power Generation of the U.S. and its joint venture partners, Black & Veatch and CMEC of China, have won a US$170-million contract to design and supply turbine and boiler equipment for the coal-fired Yuzhou Power Plant in Henan province. Two 350-megawatt steam turbine generators will be built in Westinghouse factories in the U.S. The Yuzhou plant is scheduled for completion in early 2001.
REAL ESTATE/ CONSTR UCTION		n China has set up a real estate index of housing prices in 35 cities. It will be published quarterly by the State Statistics Bureau which will monitor apartment prices, rents and land transfer prices.  At the end of March, apartment prices were 1.3% higher than a year earlier, while rents were up 3.7% and land transfer prices up 1.7%. In a bid to promote the housing market and stimulate the economy, the People's Bank of China has reduced the mortgage rates by 0.18 to 0.36 percentage points.  Effective June 1, the mortgage rate for terms of less than one year is 7.02%; for one to three years, 7.92%; three to five years, 9%; and five to ten years, 9.72%. The central bank is allowing all commercial banks to provide mortgage loans to home-buyers and to provide construction loans for low-cost housing, provided the developers already have 30% of the total costs.   n International architects and engineering firms are competing fiercely for design contracts of the US$2.4 billion Guangzhou Airport in southern China. The winner will be in a position to influence the sale of more than US$500 million in equipment, from earth movers to air traffic control technology.  Seven firms are bidding on the project. Bidders include Canada's Bregman+Hamann Architects, a group formed by U.S.-based URS Corp. and Parsons Corp.; France's Aeroports de Paris; and Dutch firm Netherlands Airport Consultants teamed up with U.K.'s Foster and Partners.  Other Canadian firms active in China's building industries include: Petroff Partnership, H+L, Zeidler Roberts Partnership, Webb Zerafa Menkes Housden, Kirkland Partnership, Murray Marshall Cresswell, Yabu Pushelberg and WGA.   n Canada's Asia Pacific Concrete Inc. (APC) has  formed a joint venture with Guangxi Youjiang Water & Power Development Corp. (GYWP) to make ready mix concrete for the site development of the Youjiang water dam in Bai Se, 200 km from Guangxi's capital city of Nanning.  The cost of the dam project is estimated to be US$1 billion with 30% financing provided by the World Bank.  APC has a 55% interest in the C$906,000 concrete-making venture with GYWP. Production will begin in the fall of this year with an estimated output of 40,000 cubic metres a year.  Bai Se became a major railway centre with the recent opening of a new line linking the provinces of Yunnan and Guangdong.   n The Beijing municipal government will invest 116.5 billion yuan (US$14 billion) in infrastructure in the city within the next three years. It will improve heating systems, water, gas and electricity supplies, disposal of garbage and sewage. It also plans to spend on medical care, education and building more residential apartments. Priority will be given to six projects for a streamlined traffic network and completing construction of the 13.5 km Fuba subway which was started in mid-1989 but delayed due to a funding shortage.  The government also plans to construct a 42.8 km U-shaped corridor for three important rail lines that pass through the downtown.  In addition, 11.7 km of subway lines, 24.4 km of roads and 31 km of expressways are slated to be added before 2000.
TECHNO LOGY AND TELECO MMUNIC ATIONS		n The 100-year-old Peking University, one of the largest universities in Asia, has selected SIRSI Corp.'s UNIX-based client/server automation system for its library. The partnership between Peking University and U.S.-based SIRSI will provide a library system in Chinese for the university's library patrons as well as a package for worldwide distribution. The completion date for the Unicorn library system is September 1998.  On May 4, 1998, Party and state officials, and 10,000 alumni from all over the world, gathered in the Great Hall of People in Beijing to celebrate the centenary of Peking University.   n ComStream, a U.S. subsidiary of Canada's Spar Aerospace Ltd., has signed an agreement to provide digital satellite modems and earth stations to Datacraft China Ltd., a system integrator specializing in data delivery and telephony applications in China. Datacraft has 43 offices throughout Asia.   n New York-based Egan System Inc . has  been negotiating to acquire China Business Resources Co. (CBR) which maintains the largest business database in China and is authorized to provide Internet-related services.  Clients from over 60 countries, such as Reuters, Financial Times, Singapore Telecom, France Telecom and Thomson Financial Services use CBR's business to business systems to identify prospects and expand market share. CBR, recognised by the Chinese government as one of the six model information companies, is aiming to become the Chinese "Yahoo." The other five model companies include: Shenzhen SEG Electronics Group, SAST (Xianke) Group, Great Wall Computer and Huawei Technology.   n New York-based Corning Inc plans to spend US$77 million to build a wholly-owned plant in Shanghai's Pudong area to meet future demand for pollution-control devices throughout Asia. The plant will include sales, marketing, engineering and manufacturing facilities for the core material used in catalytic converters, which reduce pollution from motor vehicles. Plant construction will start in late 1998 and production will begin in 2000.   n Brighton Technologies Corp.of the U.S. announced that it has completed demonstrations of its STAQ On-line (STAQ) network terminals in Hong Kong and Taipei. Installation of terminals in brokerage offices is now subject to government approval.  The terminals, which are connected to the STAQ network, will be the first on-line trading system to link to Chinese securities exchanges from outside China. STAQ is the first commercial on-line securities quotation and trading network operating in China. Brighton hopes to create a modern commercial securities network that will connect key Chinese securities exchanges.   n Earth Partners, a privately held Canadian company, has been chosen by China's "Water China Secretariat" as its North American co-organizer for "The 1st International Exhibition & Conference for Technology & Equipment for Water Treatment" to be held during September 22 - 26, 1998 in Beijing.   n Concise Technologies Inc. (CTI) of the U.S. has  installed an Abacus data collection system at children toy manufacturer Mattel Inc.'s factory in China. The system displays up-to-the-minute data for every injection molding machine in the Mattel plant, giving production personnel the information they need to manage the millions of parts for Barbie and other toys produced each week. CTI said the Abacus is so easy to use that Mattel was able to deploy a data collection system in a plant where few of the operators understand English.   n Sirius Technologies of Australia has sub-contracted some of its manufacturing to Hong Kong electronics manufacturer VTech, which operates a cluster of factories in Dongguan, Guangdong province. This enabled Sirius to distribute its Banksia Wave modems assembled in China through a Chinese distributor with presence in Guangzhou, Shanghai and Beijing   n In early May, Intel Corp. opened its US$200-million semi-conductor plant in Shanghai, completing the factory ahead of time. The PC market in China has been expanding in recent years by 40% a year. Intel announced it will invest US$50 million for the next five years to build a new information technology research centre in Beijing. The centre will develop Internet-related technology, including speech recognition technology for Chinese applications. Intel will also channel research funds to Chinese institutions and universities.   n NetUSA Inc. of the U.S. has  signed a memorandum of understanding with Alestron Corp.(AC) for electronic distribution of several Chinese computer products through its NetUSA Software Centre. AC is the exclusive distributor of these products in North America. The products include Richwin, a Chinese language system created by Stone Rich Sight Co. of China that allows Windows-based computers to read or input Chinese characters in any document. Another is Wisdom Pen System, a pen-based Chinese writing system made by Motorola.
TRANSP ORTATI ON, Travel, tourism and leisure		n The Commercial Simulation Division of CAE Electronics of Montreal, a unit of Toronto-based CAE Inc. has  received orders valued at US$15 million from China's Southern Airlines for an Airbus 320 Full Flight Simulator and two state-of the-art technology MAXVUE Plus(TM) Visual Systems   n Air China has made several alliances in the U.S. lately to code share and sell seats on flights of other airlines. Its code-share partners are: Continental Airlines, Northwest Airlines and American West Airlines.  Air China plans to go public and may seek an overseas listing by the end of this year.   n Halter Marine Group of the U.S. has formed a joint venture, Halter-Yantai Raffles International, with China's Yantai Taisan Shipbuilding Co. to build offshore drilling rigs, boats and barges. Halter will also buy  10% of the Yantai yards located in northeast China as part of its global expansion plan.   n Britain's Peninsular and Oriental Steam Navigation Co. and China's Shougang Group agreed to merge their bulk shipping businesses, forming a 50/50 venture named Associated Bulk Carriers Ltd. (ABC). ABC has a 33- vessel fleet and ranks among the world's largest shippers of heavy goods such as iron ore and coal. Shougang is one of China's top three steel producers and the venture includes two of its subsidiaries, Shougang Holding (Hong Kong) Ltd. and Shougang Concord International Enterprises, listed in Hong Kong.   n New World First Bus Services (NWF), a joint venture formed by FirstGroup plc, one of Britain's biggest bus operators, and Hong Kong's New World Development, has won the lucrative 88-route franchise currently run by China Motor Bus in Hong Kong .  It beat out five other bidders to operate 59 routes on Hong Kong Island and 29 across the harbour from Sept. 1, 1998 to July  31, 2003. NWF will invest HK$2 billion on 500 new air-conditioned buses and other facilities.  FirstGroup, which owns 26% of NWF, will provide technical expertise and support.
deloitte & touche in china related activitie s / projects		On March 31, 1998, Deloitte Touche Tohmatsu (DTT) signed an agreement with the Hong Kong Chinese Enterprises Association (HKCEA), Association of Chartered Certified Accountants (ACCA), and China Central Radio & TV University to provide the Chinese Diploma in Accounting and Finance Training in Hong Kong to members of HKCEA.  According to M.K. Tan, Chairman of DTT's China Practice, the idea of the program originated in 1994 during a discussion with Madam Xie Li-juan, then Vice Mayor of Shanghai, about providing practical western accounting training to management personnel in Shanghai.   "After careful study and preparation, a decision was made to adopt the Chinese version of ACCA's Certified Diploma in Accounting and Finance Program. Using the Education TV channel of Shanghai TV University as the teaching media, the program was launched in December 1995 in Shanghai," said Mr. Tan.  In Shanghai, 13,000 people have enrolled and there have been 35,000 exam sittings, with nearly 3,000 people completing all four exams and receiving the diploma.  The sponsoring organizations have decided to take the experience of the program in Shanghai and apply it nationwide, with Hong Kong as the start of the nationwide launch.

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Joseph Tse Brent Wyatt   This publication is issued regularly by the Canada-China Business Group in Toronto with information extracted fromillion the following sources:  China Economic News; China Economic Review;  Hong Kong Economic Journal; Wall Street Journal; Asian Wall Street Journal; The Financial Post; Globe & Mail; Toronto Star; Far Eastern Economic Review; South China Morning Post; Ming Pao Daily News of Toronto; Sing Tao Daily; World Journal; Canadian Business; The China Daily; Canada-China Business Forum; Hong Kong Trader; Time Magazine; AP Business; Dow Jones News and Bloomberg News. We believe the sources of information to be reliable, but we cannot represent that they are complete or accurate and we accept no responsibnity for any errors this publication may contain, whether caused by negligence or otherwise, or for any losses, however caused, sustained by any person that relies on it.      1998 Deloitte & Touche. Printed in Canada. 9806		Vancouver, British Columbia V7X 1P4 Tel. (604) 669-4466 Fax (604) 669-4434 Gary Nott International Offices China/Hong Kong Deloitte Touche Tohmatsu China Head Office Wing On Centre, 22nd Floor 111 Connaught Road Central Hong Kong Tel. (852) 2852-6318 Fax (852) 2542-4225 Patrick ChengTed Lee Deloitte Touche Tohmatsu Shanghai CPA 16th Floor, Shanghai Bund International Tower 99 Huangpu Road Shanghai 200080 People's Republic of China Tel. 86 (21) 6393-6292 Fax 86 (21) 6393-6290 / 6393-6291 Arthur Tse/Chris Lu/Joseph Tse   Deloitte Touche Tohmatsu Beijing Representative Office 6th Floor, Tower A COFCO Plaza 8 Jianguomennei Dajie Beijing 100005 People's Republic of China Tel. 86 (10) 6526-3899 Fax 86 (10) 6526-3898 Clarence Kwan/Arthur Wong		Fax (212) 436-5000 Jack Ribeiro Chicago Deloitte & Touche LLP 1 Tower Lane, Suite 1800 Oakbrook Terrace, Illinois 60181 Tel. (630) 645-8229 Fax (630) 645-8203 Robert Rohleder/Patrick McKenna San Francisco Deloitte & Touche LLP 50 Fremont Street San Francisco, California 94105 Tel. (415) 247-4000 Fax (415) 247-4329 Dennis Wu/Anna Mok/Lili Zheng Los Angeles Deloitte & Touche LLP 1000 Wilshire Boulevard Los Angeles, California 90017 Tel. (213) 688-0800 Fax (213) 688-0100 David Tong/Tomillion Iino   Seattle Deloitte & Touche LLP 700 5th Ave., Suite 4500 Seattle, Washington 98104 Tel. (206) 292-1800 Fax (206) 343-7809 Bob Gerth/David Cordova
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