Business

January/February 1998 Issue No. 98-1

China gets booster shot against Asian flu

So far immune to the Asian flu spreading through South East Asia and South Korea, China is taking no risks. The country is hastening banking reform activities, attempting to curb corruption and aiming to strengthen its regulatory bodies.

The recent experiences of its neighbours have alerted China to the financial dangers lurking within. The country carries heavy bad loans of its state-owned banks. Estimates place 20% of the loans made by the country's four main commercial banks as non-performing. Moreover, China's financial laws and regulations have so far been unable to meet established Western standards.

Several forces have been at play to keep China out of the Asian currency fray. Its financial sector is not yet part of the global system. Its currency is not easily convertible for capital-account transactions. China boasts a healthy rate of foreign direct investment (about US$200 billion). Its external debt of about US$116 billion is mainly financed by medium to long borrowing terms, as opposed to the heavy, short-term borrowing of Thailand and other countries. Finally, foreigners, restricted to a small pool of shares listed with China's two stock markets, cannot make a major impact on the financial markets through speculation.

Is it a matter of time before chaos descends upon China's borders? To demonstrate their commitment to a comprehensive financial overhaul, the country's top three leaders, President Jiang Zemin, Premier Li Peng and Executive Vice Premier Zhu Rongji, attended the National Financial Conference Nov. 16-20, 1997 for the first time. Decisions were made to:

re-model the People's Bank of China (PBoC) after the U.S. Federal Reserve, giving it more regulatory powers. PBoC branches will be replaced and established in economic regions rather than administrative regions to ensure local governments are unable to interfere with the central government's monetary policies. The branches will be accountable to Beijing.
allocate a US$12 billion reserve fund to write off money-losing state enterprises, letting them go bankrupt.
create a policy bank similar to the U.S. Resolution Trust Corp. to take on the bad loans and surplus staff of major state-owned commercial banks. The policy bank will then seek new investors for the commercial banks.

China has not wasted time in overhauling its banking sector. On Dec. 17, 1997, PBoC closed five finance companies and revoked the business licenses of 28 finance companies in Hainan province. These local credit cooperatives violated state rules by raising interest rates for deposits.

To devalue or not to devalue: what will happen to the yuan?

China is facing pressure to devalue its currency to stay competitive with the exports of many South East Asian countries. Though China registered 24% export growth for 1997, the rate will likely be lower in 1998. However, devaluing its currency now, China may risk destabilizing Hong Kong's currency and may trigger another currency crisis in the region.

China's leaders have publicly ruled out a devaluation of the yuan despite pressure from exporters. They aspire instead to increase export volumes by improving product quality, cutting production costs, absorbing foreign investments through tax adjustments and export tariffs, and reintroducing preferential tax treatments on capital equipment imports for foreign companies. Furthermore, China's average labour cost is still 30% lower than those already devalued Asean countries. China has one of the highest savings rates in the world ?more than 37% of incomes are saved ?which help to sustain its major banks. Furthermore, China is protected by a foreign reserve of US$140 billion (as of Dec. 31, 1997), the second largest after Japan.

Beyond currency woes: unemployment could destabilize economy

To avoid social unrest, China must boost domestic demand to offset the job losses of millions of workers at bankrupt, state-owned companies. At the same time, China has to be cautious against hastily arranged mergers of money-losing enterprises and against copying South Korea's structure of conglomerates, which are now collapsing under a mountain of debts.

Perhaps three recommendations emerging from the Beijing-hosted National Planning Conference of Dec. 17, 1997 are stepping stones to maintaining a smooth economy:

to further develop the agricultural sector and mobilize unemployed workers into the neglected farming industry.
to focus on infrastructure.
to encourage home-ownership program and develop residential real-estate markets.
to expand rural markets.

Taiwan set for business

With the currencies of South East Asian countries and South Korea devalued up to 60%, and the subsequent abundance of inexpensive labour, the winds of opportunity for Taiwanese entrepreneurs are blowing. According to Taiwan's Council for Economic Planning and Development, companies have already invested US$33 billion in Asean countries as of March 1997. Taiwan will continue to be one of the region's biggest foreign investors, by investing in or taking over their neighbours' businesses at bargain basement prices.

Interesting facts and figures

The Shanghai American Club opened in December 1997 in the Shanghai Bund International Tower ?the same building that houses Deloitte Touche Tohmatsu International's Shanghai Branch. The club offers members state-of-the-art fitness and business centres, internet access, e-mail services, audio and visual equipment, and casual and formal dining rooms. Membership cost US$18,500. Already about 360 individuals from 25 different nationalities have joined. The club, which also operates in Hong Kong, is aiming for a membership of 2,000.
Broad Air-Conditioning, based in Changsha, Hunan Province, has become the first privately-owned Chinese company to own an executive jet. Broad recently purchased the eight-seat plane from Cessna Aircraft Co. of the U.S. for US$8.4 million. Broad also purchased a helicopter from another U.S. firm, Bell Helicopter.
According to a recent survey conducted by Statistics Canada, Chinese is the third most spoken language after English and French in Canada.
With more than 12 million cell phone users, China ranks third, after the U.S. and Japan, in world cell phone use, according to Asia Week's report. The number of cell phone users in China increased from less than 30,000 in 1990 to 3.63 million in 1995. By the end of October 1997, the number had soared to 11.53 million.
Shanghai's expo industry is booming. International exhibitions opened every three days on average in 1997. Shanghai's International Exhibition Centre is booked solid for all of 1998. In response to these demands, two new facilities have recently opened ?the Shanghai International Agricultural Exhibition Centre and the exhibition hall of the Shanghai No. 1 Department Store. British exhibition giant Montgomery and Germany's Hannover have also shown interest in establishing branches in Shanghai.
Shanghai's per capita incomes rose 13.1% in 1997 to surpass the equivalent of US$3,000 for the first time.
China plans to invest at least US$2.4 million annually in each of five technology advancement enterprises in a bid to bring them into the ranks of the world's top 500 companies by 2010. The companies are: Baoshan Iron and Steel, Shanghai; Haier Group, a parent of Haier Refrigerator Co., Shandong, and Sichuan Changhong Electric Co., Sichuan; North China Pharmaceutical (Group) Co., Hebei; Jiangnan Shipyard Co., Shanghai; and Founder Group, Beijing.
China's vehicles sales reached 1.57 million in 1997, a 6.45% increase over 1996. Total demand for cars and trucks is expected to reach 1.7 million units in 1998. Sedan sales rose 20.17% to 470,000 units. However, the Chinese government's plan to encourage home ownership could divert consumer spending away from the industry. A recent report suggests that 80% of 3,000 households surveyed prefer to buy an apartment rather than a car.
Both the USA Poultry and Egg Export Council and Taiwan's Council on Agriculture are planning to set up distribution channels to sell their chickens in Hong Kong following the slaughtering of 1.2 million chickens in one day by the Hong Kong government to prevent an outbreak of avian influenza. Four of 12 people confirmed to have contracted the flu virus, known as H5N1, died by Dec. 29, 1997. More than two-thirds of Hong Kong's chickens are provided by China.
Selected schools in Beijing, Tianjin, Shanghai, eastern Jiangsu, Shandong and northeastern Liaoning provinces have abandoned the traditional 100-mark system in favour of a grading system. The new system defines student performance in terms of "excellent, good, pass and fail," with 60% of the grade based on overall achievement and 40% on daily behaviour. Since its introduction, homework loads have been reduced by half, giving children more time for play and extracurricular activities.
About 270,000 Chinese students are currently studying abroad, 100,000 of which left China during the past five years. During the same period, about 137,000 foreign students from 152 countries came to China to study. About 24,000 foreign-educated Chinese students have returned after graduation to work in their home country.
A recent Gallup survey identified the most popular foreign brands in China (expressed as a percentage of brand recognition among adults): Coca-cola (81%); Head & Shoulders (72%); Honda (61%); Mercedes Benz (59%); Pepsi-cola (57%); Phillips (52%); Motorola (39%); Daihatsu (39%); Playboy (35%); Star TV (34%); McDonald's (31%); General Electric (30%); Avon (30%); General Motors (28%); KFC (27%); Colgate (26%); Procter & Gamble (25%); Nike (25%); and BMW (24%). Motorola now derives 12% of its revenue from China and plans to invest US$2.5 bn in expansion by 2000. Procter & Gamble's annual sales in China hit the US$1 bn mark. Its entire business in China is valued at US$6.6 bn.
According to a recent forecast by U.S.-based Killen & Associates, spending on information technology in China (including Hong Kong) will rise from US$25 bn in 1997 to US$71 bn in 2002, a 24% compounded annual growth. China will purchase more than US$100 bn in semi-conductors by 2005, up from US$10 bn in 1997, according to the California-based Micronics International Inc., which recently opened its first sales office in Shanghai. Semi-conductor components are the top commodity imported by China.
Shanghai's first law on road and traffic management came into effect Dec. 1, 1997. Traffic police can confiscate vehicles and levy fines of up to 50,000 yuan (US$6,000) on serious offenders. Pedestrians who jay-walk can also be fined.
Beijing has banned the selling of leaded gasoline throughout the capital and outlying areas, following similar bans in Shanghai, Guangzhou and Wuhan. A recent study showed 70% of Beijing children had elevated levels of lead in their blood, which can make them more susceptible to disease and can stunt their intellectual development.
Instead of the traditional, baht look-alike "hell money," which is red with Chinese characters, Chinese funeral shops in Bangkok have started offering "hell dollars," which resemble the U.S. greenback. These are burned at Chinese cremations. Shopkeepers claim their customers prefer to offer their departed loved ones a more stable currency to take with them into the next world.

Government

The State Statistical Bureau of China recently announced the country's GDP rose an estimated 8.8% in 1997, lower than the 10% growth projected earlier. Foreign direct investment rose 3% to US$43 bn, while foreign-pledged investments fell 28% during the first 10 months to US$48.7 bn. The following chart shows the 1997 estimates of the Bureau and year-to-year percentage changes, except for foreign exchange reserves:

Taiwan's opposition party, the Democratic Progressive Party (DPP), won a majority of seats in the late November 1997 municipal elections. The DPP won 12 of the 23 contested municipal seats, while the ruling Nationalist Party retained only eight of its previous 15 seats. The remaining seats were won by independent and minority parties. This sets an unprecedented stage for the national elections to be held in 2000 ?for the first time in Taiwan history, a non-Nationalist Party candidate may become the next president.
Effective Jan. 15, 1998, all foreign-funded companies are required to submit their investment imports to China's State Administration of Import and Export Commodity Inspection for appraisal. The rule aims to curb the number of Sino-foreign joint ventures that exaggerate the value of their foreign stake in order to secure preferential import rates.
Patent applications in China are expected to reach a record 110,000 in 1997, according to the China Patent Office, which received 93,367 applications in the first 10 months of 1997. Accumulated patent applications reached 718,676 by the end of October 1997 ?610,000 domestic applications and 108,576 overseas applications. The applications included 195,881 invention patents, 407,966 utility model patents and 114,829 design patents.
The China Securities Regulatory Commission, China's stock markets regulator, recently issued new rules to increase the transparency of listed companies' annual reports. Listed companies must provide details of their profit sources and asset restructurings, identify the use of funds raised, disclose any changes in funding uses from the purposes stated in a prospectus, and publish an opinion on the company's operations by its board of directors and supervisory body.

Agriculture, food and foresty

The Pabst Blue Ribbon beer produced by the Toronto-listed Noble China Inc. is the largest selling foreign beer in China. Its market share has grown from 0.5% to 1.4% during the past five years. Its total production reached 183,000 tonnes in the first nine months of 1997.
Canada's Seagram Co. recently formed a US$55 million joint venture, Tropicana Beverages Greater China Ltd., with China's Chongqing Three Gorges Construction Group to produce and market Tropicana orange juice in China. Seagram already sells organge juice from concentrate in China under the Dole juice brand. In the summer of 1998, Seagram plans to introduce the Tropicana brand in three Chinese cities, including its Beijing-based entertainment and retail centre, The Universal Experience, which will be opened by its Universal Studios unit. China ranks as the world's third largest producer of citrus after Brazil and the U.S. It grows 8 million tons of oranges each year.
The Solidarity Fund (TSF) and its partner, Soci??Upsilon de Commerce International Inc. (SUCI), both of Quebec, recently signed a US$9 million contract with the city of Fushung in Liaoning Province to breed hybrid pigs using Quebec agribusiness technology. In addition to livestock sale, breeding and processing equipment, TSF and SUCI will provide training required for the processing, packaging and freezing of pork. China produces 50% of the world's pork supply. Pork represents 85% of the country's meat consumption. Three to 4 kg of grain are needed to produce 1 kg of meat. Quebec's genetic and breeding technology drops that ratio to 2 kg of grain per 1 kg of meat. Another benefit of the technology is decreasing the birth-to-maturity period of pigs.
Nestle SA of Switzerland recently acquired 100% of Shanghai Fuller Foods Co., the second largest ice cream producer in Shanghai. Nestle now operates seven joint ventures and eight wholly-owned enterprises in China, including 13 factories in operation. Nestle's production in China spans almost its entire product range ?from instant coffee and seasonings to ice cream and powdered milk. To date, the company has invested about US$400 million in China and US$100 million in Hong Kong. Its sales are growing at a double digit rate and are expected to top US$200 million in 1997.

Banking, finance, and insurance

In mid-November 1997, the China Securities Regulatory Commission (CSRC) signed a memorandum of understanding on cooperation with the Brazilian Securities Commission, making it the seventh such cooperation between China and an overseas securities authority after the U.S., Singapore, Australia, the U.K, Japan, Malaysia and Hong Kong. Brazil is one of the most important capital markets in South America. According to CSRC Chairman Zhou Zhengqing, there are 720 listed companies on China's two stock markets as of September 1997 with combined raised funds of US$29 bn. The market value of these shares amounts to US$180 bn ?one-quarter of the country's GDP. Thirty nine Chinese companies list their shares overseas; 101 Chinese companies have issued B shares restricted to foreign investors, so far raising US$13 bn. Nationwide, China has 2,420 trading office networks and 31 million trading accounts. China's Ministry of Geology and Mineral Resources is studying ways to list Chinese mining companies on the Vancouver Stock Exchange.
Taiwan's two largest brokerages, Core Pacific Securities (CPS) and Capital Securities, recently gained approval from China's central bank to open representative offices in Shanghai's Pudong area. They are the first Taiwanese securities firms allowed direct access to the mainland market. The two firms will conduct their trading operations in Shanghai through overseas-based subsidiaries. In a bid to become a regional financial force, CPS also agreed to buy the 121-staff Yamaichi International (HK) Ltd., a Hong Kong unit of Yamaichi Securities of Japan, which went bankrupt last November. CPS also plans to open an office in Tokyo, creating a "bridge" between Japanese investors and Chinese and Taiwanese companies.
Bank of China recently obtained a license to sell life insurance and pension fund services in Hong Kong and has opened a representative office in Budapest. Bank of China also plans to build its overseas securities brokerage and investment banking capabilities to establish a regional investment banking franchise. The bank is China's only financial institution to make Fortune's 1997 top 500 at the rank of 164 with US$20.4 bn in revenue, US$1.1 bn in profit and US$292.6 bn assets in 1996.
BankAmerica Corp., the third largest U.S. bank, is moving its Shanghai office from the current Puxi district to Pudong in early 1998 in anticipation of being among the second batch of foreign banks that will soon be allowed to conduct business using the Chinese yuan.
Generale de Banque SA (GdB), Belgium's largest bank, recently won approval to apply for a license to open a bank branch in Shanghai. The bank already has representative offices in China. If the application is approved, GdB will be the second Belgian bank to open a branch in Shanghai, following Kredietbank NV, which opened a branch in June 1997 and has already extended loans of more than US$98 million.
State Street Mansion House Investment Management Services Group (SSMH) plans to form a joint venture with Guangdong Overseas Chinese Trust & Investment Corp. to seek a license to distribute mutual funds in Guangdong, China. SSMH is itself a joint venture formed by Boston-based State Street Bank & Trust Co. and Mansion House Group of Hong Kong in early 1997.
In 1998, China's central bank will begin to abolish lending quotas by state-run commercial banks to aid the development of a modern commercial banking sector.
The All-China Federation of Industry & Commerce, formed by a group of Chinese entrepreneurs who established China's first private bank, China Minsheng Banking Corp. in early 1996, plans to apply for a license to open a private life insurance company. Also named MinSheng, the company will challenge the state-owned People's Insurance Group, which maintains 70% of China's insurance market.
Transatlantic Reinsurance Co. of the U.S. has won approval to open a representative office in Shanghai. It is expected to open in early 1998.
Aetna Inc., a large U.S. health care insurance company, plans to begin selling life insurance in Shanghai in April 1998 through its joint venture, China Pacific Aetna Life Insurance Shareholding Co.

Consumer/Retail market

Planet Hollywood-style restaurants are heading east, according to a plan by a group of more than 40 Hong Kong entertainers, including Jackie Chan, Anita Mui and Alan Tam. The first of the Star East restaurant chain recently opened in China's Guangzhou Garden Hotel. The 15,000 sq. ft. restaurant, which has attracted more than 50,000 people on the opening night, includes a dance floor, a small concert stage, 12 karaoke rooms and wall scenes from Hong Kong movies. The second Star East will open in Los Angeles later this year. Outlets in Hong Kong, Beijing, Shanghai and other major Asian cities are also on the drawing board.
Amway Corp. of the U.S. will invest an additional US$30 million in China to build a plant in Pudong's Jinqiao Export Processing Zone. The 100,000 square metre plant will produce personal care products, cosmetics, Nutrilite, and vitamin and mineral products, to be sold mainly in China. Amway's distribution outlets first opened in Guangzhou a few years ago. They have since expanded to Beijing, Tianjin, Shanghai, Chongqing and 33 major cities in 13 provinces ?a potential market of 175 million people. Amway has between 80,000 and 90,000 distributors and consumers in Shanghai alone. According to China Daily, China's cosmetic sales reached 14 bn yuan (US$1.7 bn) in 1996, 40% higher than 1995 sales. Shanghai women spend an average of 89 yuan (US$11) on skin care and make-up products each month.
Shanghai Tang (ST), the Hong Kong clothing brand that has inspired designers to fashion clothes after traditional Chinese styles, such as low collars, cloth fastenings and rich embroidery, recently opened its first foreign store on New York's Madison Avenue. The traffic-stopping opening event turned away late arrival celebrity guests due to limited space, despite its 12,000 sq. ft. capacity. More than two million shoppers, mainly foreign, visited ST's main store in Hong Kong last year. The next foreign store is slated to be located in Las Vegas.
Japan's Lecien Corp. plans to open its first foreign outlet in Dalian, China by the fall of 1998 to sell locally-made lingerie. The boutique will be housed in a building jointly constructed by Japan's Mycal Corp. and a Chinese partner.
KFC, the fried chicken chain, which has 191 stores in China, plans to increase its number of outlets to 350 by the year 2000. It has 36 restaurants in Shanghai alone.
Koninklijke Ahold NV , the Dutch food retailer, and its partner Shanghai Zhonghui bought 22 supermarkets in Shanghai from Japan's Yaohan Liancheng in early 1997. The acquisition will extend the Ahold chain of Tops supermarkets in Shanghai from 18 to 40 and increase sales in China from US$30 million in 1997 to US$100 million in 1998. The 22 stores will be converted to the Tops store format after the Lunar New Year. Japan's Daiei Inc. and Mitsubishi Corp. have also formed a US$5 million joint venture with a Chinese partner to open a chain of supermarkets in Dalian. The first outlet opened in late 1997 and more are expected to open in 1998.

Health Care

Beijing's first Sino-American hospital, United Family Health Centre (UFHC), recently opened. The US$3 million, 20-bed facility is a private joint venture between U.S.-China Industrial Exchange (Chindex) and the Chinese Academy of Medical Sciences.
A Sino-Canadian joint venture hospital, The Beijing Toronto International Hospital (BTIH), is under construction. The hospital's US$29 million phase I will be completed by the end of 1998. BTIH is formed by InterHealth Canada (China), the state-owned Beijing Comprehensive Investment Co. and the China National Medical Equipment Import & Export Co. When completed, BTIH will be linked directly to Canada's Hamilton Sciences Centre, including McMaster University Medical School, via satellite communication links developed by Interhealth Canada.
Beijing's state-run Xuanwu Hospital, Beijing Tianchuang Co. and Hong Kong Jetfree Investment Ltd. have joined forces to build the Beijing Rui'er International Hospital (BRIH) to serve foreigners and citizens from Hong Kong, Taiwan and Macao. BRIH, to be opened by the end of 2000, will be located inside the courtyard of Xuanwu Hospital.
Roche Holding AG of Switzerland recently formed a US$25 million joint venture, Roche Zhongya (Wuxi) Citric Acid Ltd., with China's Wuxi Zhongya Co. to produce citric acids and citrates for Asian markets. This is Roche's sixth joint venture in China. To date, the company has invested US$155 million in China, producing vitamins, pharmaceuticals, citric acid, flavours and fragrances.
Integra LifeScience Corp. of the U.S. recently obtained approval from China's Medical Device Administration to import and market its Integra artificial skin. The product will be used for burns, plastic surgery and reconstruction surgery procedures.
The New York-listed Pall Corporation said recently that China's Ministry of Public Health has mandated the use of their Ultipor(R) virus removal filter for all China-based producers of blood derivative products. Pall claims the filter could remove 100% of certain major viruses, including HIV.
SmithKline Beecham Biological Shanghai Ltd., a US$100 million joint venture formed recently by SmithKline Beecham Co., Shanghai Institute of Biological Products Co., and China National Biological Products Co., will produce several types of vaccines beginning in the summer of 1999.

Manufacturing

Uniwear SA, a Belgian textile company, recently announced its plan to invest US$7.5 million to open a linen mill in northern China in a joint venture with the Chinese government. It is expected the plant will employ 500 workers by the summer of 1998. Uniwear estimates its production costs will decrease by US$3 million a year.
A 60:40 joint venture of Krupp Thyssen Stainless GmbH (KT) and Shanghai Pudong Iron & Steel (Group) Co. will build a US$1.4 bn stainless steel factory in Shanghai. KT is owned by German steelmakers Fried Krupp AG Hoesch-Krupp and Thyssen AG. The project is jointly financed by International Finance Corp. of the World Bank and Kreditanstalt fuer Wiederaufbau, a German state-owned bank. Steel production is expected to begin in 2001 with about 230 workers. It is expected that by 2006, about 1,300 workers will produce 440,000 tons of stainless steel per year.
Phelps Dodge Corp. of the U.S. recently established a US$18 million joint venture, Phelps Dodge Yantai Cable Company, in Yantai, Shandong province to produce about 7,000 metric tons of copper and aluminum medium- and high-voltage insulated power cables. The cables, mainly for underground installation, will replace traditional overhead power lines in China's high density cities. Other partners include Keystone Corp of Hong Kong, and Shandong and Yantai electrical power bureaus.
B.F. Goodrich Co. of Ohio, U.S., has agreed to form a joint venture with China's Wenzhou Youli Plastic Industry Co. The Sino-U.S. Youli Piping Co. will sell plastic piping systems in China. Wenzhou Youli makes piping systems for the chemical, paper, metal treatment and mining industries, using specialty chemicals supplied by Goodrich.
Transit, a commercial passenger vehicle co-developed by Ford Motors and China's Jiangling Motors, rolled off the assembly line in December 1997 in Nanchang, the capital city of Jiangxi province. Transit is a well known Ford model in Europe. Currently, the vehicle is available in 12-seat and nine-seat models. A long wheel-base, 15-seat model will be launched later this year. Annual production is expected to be 60,000 units.
Molex Inc. of the U.S. paid US$25 million for a 40,000 sq. metre piece of land in Pudong's Waigaoqiao district to build a plant for manufacturing electrical connectors. Molex plans to invest US$80 million in this wholly-owned venture.

Media and communications

The New York-listed PRIMEDIA Inc. recently entered a joint venture with Cheng Cheng Enterprises Holdings (China) Ltd. to publish up to 43 technical publications of Intertec Publishing, the company's trade and technical division. Eleven of Intertec's leading titles will be launched in Chinese editions in 1998-1999, including Global Telephony, Cellular Mobile International, International Construction, Tranmission and Distribution World, Electrical Construction & Maintenance, Coal Age and World Broadcast News. The project, to span four years, will give industry leaders in China access to world-wide technical data reported by the magazines and their advertisers.
Mitteldeutsche Rundfunk (MDR), a TV station in eastern Germany, recently announced it has signed agreements with the Chinese Institute for TV and Film, Wuhan, and TV Hubei , to broadcast its programs, including a children's series.
The 125 million people with access to Oriental TV, Shanghai, and Liaoning TV, Liaoning province, can now tune into episodes of TV Ontario's "Polka Dot Shorts," Canada's best known children's program. The stations will broadcast 89 episodes of Polkeroo and the gang. TVO and Oriental TV will also be co-producing a major animation series based on the Polka Dot Shorts characters as well as a documentary based on the Charles Dickens novel A Tale of Two Cities. TVO also sold 36 episodes of its science & nature series "Inquiring Minds" to China's national broadcaster CCTV.
ADC Telecommunications Inc. of the U.S. said recently that Nanjing CATV has installed its Homeworx (TM) telephony platform to deliver telephone service over its hybrid/fibre coax (HFC) network. Nanjing CATV operates a cable TV network that serves more than 400,000 subscribers in Nanjing city, the capital of Jiangsu province. Nanjing CATV will be one of the first cable TV operators in China to deploy telephony over an HFC architecture.
Clear Channel Communications Inc. , Texas, and China's Radio Shanghai (RS) recently signed an agreement allowing Clear Channel to sell advertisements on all RS frequencies as well as the Shanghai Drama Cable TV channel. RS operates 13 state-owned radio stations. The two parties also agreed to exchange program material, cross-training programs and co-production efforts.
According to the Wall Street Journal, six Chinese film-related companies, including Beijing Film Studio and the China Film Import & Export Co., are considering merging. It also reported that China Central Television is considering listing some of its assets.

Mining and resource

Vancouver-based Integrated Carbonics Corp. (ICC) and Heilongjiang Liumao Graphite Group (HLGC) signed a 30-year joint venture agreement last year to produce, in Heilongjiang province, high-purity graphite with an initial annual production of 3,000 tons. ICS will provide 80% of the capital required for technological advances and receive 80% of the equity and profits, while HLGC provides graphite feed stock.
Thirty five new aluminum smelters with a combined annual capacity of 630,000 metric tons are currently under construction, according to China National Nonferrous Metals Im/Ex Corp. When the smelters are completed by 2000, China's aluminum production will increase to 3.08 million tons a year, challenging Russia as the second largest producer after the U.S. In fact, China's aluminum production will meet one-seventh of current global demands. Russia produced 2.9 million tons in 1996 and the U.S. produced 3.6 million tons. To fuel the industry's growth, China must import more alumina, the key raw material required to produce aluminum. In May 1997, China signed a 30-year US$2.4 bn alumina supply contract with Alcoa World Wide Alumina and Chemicals, a joint venture between Aluminum Co. of the U.S. and Australia's WMC.
Improvements in the quality and production of China's coke, which is used in steelmaking, have helped raise the country's coke export volumes from 2 million tons in 1990 to 7.8 million tons in 1996. China now holds 57% of the world's seaborne coke trade. China has rich coking coal reserves and expects to export 13 million tons by 2000. India is the major buyer, taking 16% (1.3 million tons) last year, while the U.S. ranked second with a purchase of 1.2 million tons. Other major buyers include Germany, the U.K., Japan, Brazil and Switzerland.
China's gold production for 1997 reached 166.3 tons, a jump of 37.5% from the previous year.
Petroleum Geo-Services ASA (GEO), a Norway oilfield service company, and the China National Offshore Oil Corp. (CNOOC) signed a contract on Jan. 5, 1998 to conduct a 2,150 sq. km seismic 3-D survey in the Qiang Dong Nan Basin, which is offshore of Hainan Island. Beginning in April 1997, GEO will use the Nordic Explorer in 6-stream, dual-source configuration, which is designed to delineate deep structure while maximizing productivity shooting in the strike direction. CNOOC said it has found offshore oil reserves of 10.5 bn barrels and pumped a record 113 million barrels of crude oil and 140 bn cubic feet of natural gas in 1997. CNOOC expects to double annual offshore oil production to 210 million barrels by 2005.

Power/Utility/Infrastructure Projects

China's State Council has recently opened Lukou Airport, in Nanjing (the capital city of Jiangsu province where Deloitte Touche Tohmatsu International have just opened its 7th branch in China - see page 17) to foreign aircraft. Lukou is the first airport in the province accessible to overseas planes.
Canada's Hydro-Quebec International (HQI) recently signed a two-year contract to build a Cdn$350 million hydro-electric power station in Hunan province with China International Water & Electricity Corp. and the Hunan province. The station will be built on Hongjiang River and will supply power to more than one million rural families. HQI, along with Groupe S.M. International and Roctest Ltd., also announced the signing of a memorandum of understanding with China's Ministry of Water Resources to manufacture instruments and dam safety monitoring devices, worth an estimated Cdn$240 million. China has a total of 84,000 dams and reservoirs.
The building of a US$2 bn bridge between Hong Kong's Tuen Mun district and China's Zhuhai special economic zone has been approved by China to ease traffic congestion. The six-lane bridge will cut travel time between Hong Kong and Zhuhai in half to about 45 minutes.
China recently announced its intention to allow private take-overs of some of its 40,000 miles of railway lines crisscrossing the country. The government may need to lay off more than one million railroad workers in the next two years. The state-owned railway system posted a loss of 4 bn yuan (US$480 million) last year.
Sithe Energies Inc. of the U.S. recently signed a contract with Japan's Marubeni Corp. to jointly build a US$470 million coal-fired power plant in Hubei province. The two partners will operate the 2 x 300 megawatt power plant for 20 years, at which point it will be handed over to Chinese authorities.
Fangzhi Thermal Power Plant, Shandong province's oldest power plant, was recently closed down as an environmental precaution. The well-functioning plant, which has a generating capacity of 42,000 kilowatts, is the first of its kind to be shut down as part of a government effort to maintain sustainable development. Shandong has 193 high energy consuming power plants that are inefficient and harmful to the environment. Another thermal plant is expected to be closed down in the first half of 1998.

Real Estate and construction

Chicago-based USG Corporation, a Fortune 500 company and world leader of ceiling grid manufacturing, announced late in 1997 its plans to acquire a 60% interest in the Shenzhen-based Zhongbei Building Material Products Co. It has formed a new joint venture, USG Zhongbei Building Material Products Co., to produce ceiling grids. Zhongbei is owned by China Foreign Trade Development Co. under the Ministry of Foreign Trade and Economic Cooperation.
To end corruption in the construction industry and speed investment in the real estate sector, China will introduce new laws standardizing construction procedures and outlining building permit application rules and the issuance of company certificates as of March 1, 1998. A recent government inspection found half of all new buildings violated building regulations; 1,730 construction projects completed before 1995 had serious quality problems; 107,600 projects were illegally built; and 800 officials had accepted bribes.
Floor space for buildings under construction during the first 11 months of 1997 decreased by 2.6% from 1996 figures of 359.53 million sq. metres, according to China Daily. Floor space for residential buildings was down 4.1%, while floor space for office buildings rose 1.2%. Commercial housing sales rose 20.9% to 81.6 bn yuan, with an average price of 2,024 yuan per sq. metre. Investment in residential housing between January and November 1997 rose 0.5% to 117.4 bn yuan. Total investment in China's real estate sector is expected to reach 320 bn yuan in 1997, close to 1996 levels.
The concept of borrowing money for a house is becoming more widely accepted in Shanghai. Each day, about 200 home mortgage contracts are signed. Home buyers can borrow money from the Public Housing Fund (PHF), a commercial bank or from both. The Shanghai Public Housing Reserve Management Centre estimates total mortgage contracts of five bn yuan in 1997. Recent PHF rates are: one year (0.425%) and 15 years (0.576%). Recent commercial bank rates are: one year (0.765%) and 15 years (1.035%). Since the fund's establishment five years ago, 72,000 Shanghai families have borrowed about four bn yuan as of September 1997. The average amount borrowed has jumped from 12,100 yuan in 1992 to 84,800 yuan in 1997. The average borrowing term has also increased from 5.78 years in 1992 to 8.5 years in 1997. In 1997, 48% of mortgagees were under 35 years old and 32% were between 36 and 45 years.
Vacancy rates among Taipei's commercial properties dropped to 7% in November 1997, the lowest in 10 years. Demand for commercial space is expected to grow as the government continues the deregulation of its telecommunications companies and insurance and other financial institutions. At the same time, the government has relaxed restrictions on real estate investments, prompting a series of property investments by insurance companies. On Dec. 3, 1997, Shinkong Life Insurance pre-purchased a NT$3 bn (US$92 million) office tower to be built by Delpha Construction Co. Cathay Life, Taiwan's largest life insurer, spent NT$5.3 bn last year for an 11-storey office building on a 5,100 sq. metre plot of land in Taipei's Shihlin District. Nan Shan Life also bought 4,000 sq. metres of land in eastern Taipei's Hsinyi district for NT$2.7 bn.
Most of the glass windows of the Hong Kong Convention and Exhibition Centre, where Hong Kong's handover took place in July 1997, were supplied by Fulton Windows , a window specialty store in Mississauga, Ont., Canada.

Technology and telecommunications

On Jan. 5, 1998, Bell Canada International (BCI) announced the consortium Shandong Bell (owned 39.8% by BCI of Canada, 38.2% by AIG of the U.S. and 22% by Hehua Electronic Information Group of China) has launched a mobile cellular network in Weifang, a city of five million people in Shandong province. The network service builds on the Nov. 28, 1997 BCI launch of a similar service in the provincial capital Jinan, a city of eight million people. The consortium also plans to launch services in Zibo in early 1998. Including its operations in Yantai, BCI's market population will be 25 million, about 30% of the province's population. Shandong is the third largest province in China in terms of population and GDP.
Acer Inc. of Taiwan, the world's eighth largest PC producer, has teamed up with Hong Kong film studio Golden Harvest to produce CD-ROM computer games. The games will mainly be based on the studio's Chinese films, which include stars such as Bruce Lee and Jackie Chan. Meanwhile, Acer's subsidiary, Acer Peripherals Inc., expects to begin producing computer monitors at a US$42 million factory in Cardiff, Wales, by the end of 1998.
ABL Canada Inc. , Montreal, recently signed a US$3 million agreement with Stone Group Corp. (SGC), for product distribution into China. SGC is a key information technology company in China with 3,000 employees and sales of more than US$750 million. ABL specializes in video codes, optical fibre multiplexers and broadband switches for multimedia transmission, such as distance learning, video conferencing, remote surveillance and broadcast and cable TV distribution. ABL will help SGC in the development of China's broadcast infrastructure.
East Asiatic Co. A/S, a consumer products and graphics distribution company, and GN Store Nord A/S, a telecommunications equipment company, both of Denmark, have formed a US$2.2 million joint venture, EAC/GN Communications Equipment Ltd., in Beijing to produce, market and sell their products in China.
The Ministry of Public Security in Shaanxi Province has launched its SmartCard Drivers' license and Infraction Management System. The Ministry mandated about 800,000 drivers to obtain a valid SmartCard license by Feb. 1, 1998. BIT Integration Technology Inc. (BIT), Canada, will conduct the initial license issuance and first two license renewals for about US$6 million each. Traffic police will carry BIT's portable SmartCard reader to issue electronic tickets. This launch complements a similar BIT project currently underway in the province of Guangxi. The projects will impact about 8% of the Chinese driving population.
Evans & Sutherland Computer Corp. of the U.S. recently won an order from China Central Television for a MindSet virtual set system for news programming and special events coverage. The system electronically combines on-screen talent, such as an announcer who is postioned on a blue-screen set, with a computer-generated background and foreground. The image can be broadcast live or recorded for future use.
Alanco Environmental Resources Corp. of the U.S. signed an agreement through its wholly-owned subsidiary, Alanco Environmental Technology (Beijing) Co., to install three charged dry sorbent injection (CDSI) industrial air pollution control systems in the SINOPEC Lanzhou Chemical Industry Corp. plant in Gansu province. The system uses an electrostatically charged sorbent to remediate and remove noxious gases, such as sulfur dioxide, from a hot exhaust gas stream. Alanco has sold 11 CDSI systems to China, including a power plant and a steel mill. Alanco's CDSI system is one of five environmental technologies listed in China's environmental clean-up plan for the next century, Agenda 21.
Solucorp Industries Ltd. (SIL) of the U.S. and its licensee for China, Smart International Ltd., recently formed a joint venture with China Aerospace Bureau of Product Development and the China Green Environmental Development Center. The venture will market SIL's MBS technology in China. In its pilot project stage, SIL is designing an in-line system to be fully implemented by March or April 1998 at the China Aerospace Bureau Battery Plant in Guizhou province. The MBS system will eliminate hazardous metals in the plant's estimated 10,000 tons of monthly waste by-product. This will result in revenues of US$400,000 per month for SIL.

Transportation

Shanghai became the world's 12th busiest container port in 1997 with a total volume of 2.5 million TEUs, up from 1.53 million in 1995. By 2007, the volume is expected to increase to 14 million TEUs.
Peninsular and Oriental Steam Navigation Co. (P&O) of Britain recently agreed to merge its bulk shipping unit with Shougang Group, Beijing. The new venture will have a combined fleet of 26 ships that can carry four million tons of goods. Its annual sales are expected to be about US$500 million. Shougang is one of China's top three producers of pig iron and steel. Its 1996 sales were about US$2.6 bn.

Travel, tourism and leisure

The Shanghai-based China Eastern Airlines (CEA) is the newest participant in the WORLDSPAN (WSP) computer reservation system. CEA will upgrade to Direct Access and Direct Sell in early 1998. Direct Access displays greater levels of airline inventory and information to travel agents, including last-seat availability, fares and fare rules. Direct Sell is a real-time, interactive booking system that enables WSP agents to sell CEA flights over a dedicated communications link. CEA's participation enriches the WSP database in the growing China market.
To speed immigration clearance, Hong Kong's Securities Bureau will issue special travel passes in early 1998 to the first 10,000 qualifying applicants. Visitors must be from countries with visa-free status, have made five or more visits prior to their application and "have a genuine need to visit Hong Kong frequently." The pass costs HK$500 and is valid for three years. It can be used for multiple stays of up to two months. Application forms are available from the Hong Kong immigration department, trade-related organizations and Hong Kong Economic and Trade Office branches overseas.
Hong Kong's new Chek Lap Kok Airport will open on July 6, 1998, rather than previous reports of an April 1998 opening. The US$10-12 train journey from the airport to downtown will take 23 minutes, compared to the US$50 taxi or limousine ride of 45 minutes. The airport will boast 288 check-in counters, a monorail system, communications booths with e-mail capabilities and touch-screen dialing phones, and a 140-store shopping mall.

Deliotte & Touche in China related projects

Deloitte Touche Tohmatsu International (DTTI) opened a representative office in Nanjing, Jiangsu province on Dec. 2, 1997. This is the seventh DTTI office operating in China. Other offices are located in: Beijing, Dalian, Guangzhou, Shanghai, Shenzhen and Tianjin. The new office is managed by Ted T. Lee, national managing director and chief representative, DTTI China practice, and Shen Jia Yun, local representative. The office is located at: D3, 23F Golden Eagle International Plaza, 89 Hanzhong Road, Nanjing 210029, China. Tel: 86 (25) 471-5095/5096; Fax: 86 (25) 471-3818.

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