March/April 1998                                     Issue No. 98-2

Bold, difficult reforms forerunner to market economy

China's annual National People's Congress (NPC) has historically been uneventful ?a ceremony simply held to endorse and rubber stamp the government's policies. This year, however, things were a little different. It was no surprise that President Jiang Zemin was re-elected to another term, that Zhu Rongji was elevated to Premier of the State Council, and that outgoing Premier Li Peng will take over Qiao Shi as Chairman of the NPC. But the appointment of the youngest Central Committee member, 55-year-old Hu Jintao, as Vice-President was surprising to many. Popular belief has it that Hu is being groomed for the position of fourth generation Chinese leader.

Of major interest to Canadian business-
es seeking or strengthening relations
with China, is NPC's approval of Zhu's
radical reform programs, which are seen
as the hardest and boldest since China's
world opening 20 years ago. Three
major reforms are summarized below.

To streamline the government by
slashing 4 million bureaucrats in
three years.

This reform will do more than improve
the government's efficiency and reduce
bureaucracy. An important new
characteristic will lend itself to the State
Council as Zhu strategically retains
those with economic leadership
experience. The number of State
Council vice-premiers will be reduced
to four from six. Of the four vice-

		premiers, two have prior economic experience. The number of ministries will be reduced from 40 to 29. Of the 29 ministers, 10 have previous economic experience and three were former provincial leaders. Overall, one-third of the State Council members will be dismissed. Those who remain are the cream of China's technocracy and are considered likelier to achieve the difficult tasks that lay ahead.   To reform China's state-owned enterprises and financial systems China will inject US$32 billion to recapitalize China's state banks. This large capital injection is intended to be used to write-off bad loans and to accelerate reform of state-owned-enterprises (SOEs). Making progress with its banking infrastructure reform is also expected to encourage foreign investment in China. Foreign investments not only help China shorten the process of reviving its money-losing SOEs, they also present great opportunities for foreign companies to enter the Chinese market.   Here are two recent encouraging signs: Eastman Kodak has just been allowed to take over a large stake of three failing state-owned film manufacturers from the Chinese government in return for access to the country's large and promising market. Kodak will invest US$1 billion in China over the next three years, including the initial US$380 million purchase of Xiamen Fuda Photographic Materials Co., Shantou Era Photo Materials Industry Corp., and Wuxi Aermei Film & Chemical Corp. After eight long years of negotiations without much progress, Royal Dutch/Shell recently received approval to form a US$4.5 billion joint venture to build a petrochemical plant in China.   To boost domestic demand China is taking the tough route to a faster Asian economic recovery by boosting domestic demand to fuel the economy rather than relying on exports, which are expected to grow slowly due to recent Asian turmoil. China is proceeding cautiously in order that it does not compete directly with its Asian neighbours and to avoid another round of devaluation around the region. The government will invest US$350 billion in apartment buildings and US$750 billion in new utilities and transportation facilities over the next three years. It will also enable the participation of more foreign investors, especially in build-operate-transfer infrastructure projects. The government hopes to create as many jobs as possible to absorb the laid-off workers and cadets of SOEs and government ministries. People are encouraged to buy their own homes and the government will end the allocation of subsidized housing to its employees. On March 25, 1998, China also announced an interest rate cut to help its enterprises and to stimulate the economy.   With 20 years of economic growth at its back, the collective personal savings of China's citizens stand at more than US$560 billion. As banking reform progresses and a more structured secondary financial market is established, it is hoped these vast savings will be put to better use to stimulate the economy. In the interim, the government will encourage large enterprises to issue corporate bonds to finance their growth.   Apart from the three major reforms, Congress also approved implementing reforms in five other areas: grain supply; investment and financing; housing; health care; and taxation. Congress endorsed Zhu's proposal to "rejuvenate the nation by promoting science and education" as a strategy to foster China's long term development.    Along with these badly-needed reforms, will come much suffering. The closure of SOEs and significant government downsizing is likely to lead to social unrest. While many admire the new Chinese government's determination to proceed with tough reforms, it is hoped the government also seeks to minimize the risks associated with the reforms.   * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *   We launched Express China News three years ago and hope it has become a regular part of your business planning for Canada-China initiatives. To continue receiving complimentary copies and to help us better understand your interests, please take a moment to fill out the attached questionnaire and fax it back to us. We value your input and want to do our best to keep you informed of the latest marketplace opportunities in the Greater China Region.
INTERESTIN G FACTS AND FIGURES		n David Copperfield hopes to make the 367-metre, 70-storey Bank of China (BoC) Tower in Hong Kong, a creation of American-Chinese architect I.M. Pei, disappear under his hi-tech magic touch. The dangerous but entertaining moment is expected to be staged during the Chinese New Year in 1999. This magic performance will cost up to HK$40 million and involve over 100 workers as well as the cooperation of Hong Kong's traffic department. Apart from installing special lighting and scaffolding, the event will require covering the entire building with fabrics before the performance. At the moment, the event is still subject to BoC approval and cooperation.   n On March 25, 1998, China cut its deposit rates by an average of 0.16% and lending rates by an average of 0.6%. The moves come as the country's retail price index, the benchmark inflation measure, fell by 1.9% in February from a year earlier ?the fifth consecutive monthly drop. China's bank reserve ratios were also lowered to 8% from 13%. This cut will free funds for China's state banks to purchase a US$32 billion special treasury bond issue in order to lift their capital adequacy ratio to 8%, the minimum rate considered healthy by international standards.   n Beijing Founder SunTendy Software Technology Ltd. (BFST), a Chinese software publisher, has filed in the United States for at least US$5 million in compensation against Alestron Inc., a New York company, for an alleged copyright infringement. BFST is the first Chinese information company to seek damage in a foreign court. It claims Alestron registered itself on the Internet under a web site name that is similar to BFST's Chinese Star software brand name, a trademark worth US$140 million.   n China has replaced Belgium/Luxembourg as the world's tenth largest trading nation with total 1997 import/export volumes of US$325 billion. Hong Kong ranked seventh with US$397 billion and Taiwan ranked 14th with US$232 billion. The remaining top 10 ranks were: U.S. (1), Germany (2), Japan (3), U.K. (4), France (5), Italy (6), Canada (8), and the Netherlands (9).   n Despite Asian turmoil, China's exports continue to rise. In the first two months of 1998, exports reached US$24.83 billion, up 15.7% from the same period last year. Imports reached US$17.69 billion, amounting to a trade surplus of US$7.1 billion ?nearly double last year's amount. Exports jumped 24.4% to the U.S. and 35.9% to the European Union, which more than offset a 20.5% drop in shipments to Korea and zero growth to Southeast Asia.   n China's total population at the end of 1997 was 1.24 billion, a net increase of 12.37 million people from the year before. In 1997, 20.38 million babies were born in China and more than 80 million people were over 65 years. Currently, 866.37 million (70.08%) live in rural areas and 369.89 million (29.92%) live in urban cities. The urban population has increased 0.55% since 1996.   n One-quarter of the world's poor lived in China 20 years ago. According to The China Daily, the number of impoverished people in China has dropped from 250 million in 1978 to 50 million in 1997. Today, one-twentieth of the world's poor reside in China.   n About 150 people dialled the new consumer complaint hotline run by the Beijing Administration for Industry and Commerce during the first three hours of its March 12, 1998 launch. To date, more than 30 cities in 14 provinces and regions have opened similar hotlines. The government has mobilized 36,000 local industry and commerce offices across China to crack down on illegal business activities. Last year, the administration heard about 47,000 consumer rights infringement cases, double the previous year's cases, and recovered 296 million yuan (US$35.66 million) in compensation for consumers. Most disputes were related to counterfeit commodities, substandard quality and misleading advertisements.   n The largest share transfer in China's IT industry recently took place when Tontru Information Industry Group, the third domestic PC maker based in Nanjing, Jiangsu province, recently agreed to buy 10% of the stake of Shenzhen Rayes Group, a large on-line information services firm, for US$36.14 million. Tontru sold 300,000 PCs last year and cornered 6.6% of the domestic market in China. Though smaller than domestic rivals such as Legend, Tontru is leading the way in its ambition to become China's Compaq. Tontru and Rayes will jointly develop a dial-up network on-line information service in 108 cities in China. By providing access to Internet resources via telephone lines, they will target computerless customers and those with few computer skills.   n Effective Jan. 1, 1998, China lowered the price of 22 charges collected by 13 different departments, according to a joint notice of the State Planning Commission and the Ministry of Finance. Among the lowered charges, commission charges on customs control of tax-free commodities have been lowered from 2% to 1.5% of C.I.F. prices. Quarantine inspection charges by the public health department at the border on small batches of imported foodstuffs are reduced from 6% to 5% of the import value. Inspection department charges for examining the quality of imported or exported chemical fertilizers are reduced to 2% from 2.5% of the total value of the commodities. Bar code service and film master research and manufacturing fees are reduced from 60 yuan to 48 yuan.   n One-sixth of Beijing people now commute to work by taxis or privately-owned cars, although the majority still commute by bike or bus, according to a recent survey conducted by a private consulting firm. Taxi riders are mainly high salary employees of foreign enterprises. Of note, company buses account for 11.3% of commuting methods because many companies are buying or leasing buses as an employee incentive and fringe benefit.   n About 30% of China's population are overweight, according to a recent survey by Nanjing Medical University of men and women over 20 years. The survey categorized 15% as "fat" and another 15% as "fat-to-be". The survey also found that 16 to 17% of the country's urban population are overweight.
GOVERNME NT		n China's plans to restore some investment incentives (first mentioned in Express China News Issue No. 97-5) for foreign-funded projects that are taking root. China has officially announced that effective Jan. 1, 1998, foreign investment projects within its "Encouraged" and "Restricted B" categories of industry sector lists are entitled, upon approval, to import capital equipment itemized in HS tariff chapters 84-90 as duty and VAT-free. Exceptions of consumer items and office equipment are listed. To qualify for the duty/VAT-free treatment, investors must apply for special certification. Projects approved between March 31, 1996, and Dec. 31, 1997 are eligible.   n After consulting and planning for three years, China recently approved an unprecedented government overhaul during its National People's Congress meeting in Beijing. The change will effectively halve eight million officials to four million. Relocating and/or retraining government officials is expected to be completed in three years. Fifteen of 40 ministries will be eliminated, while four new ministries will be created, for a total of 29. The 15 ministries to be eliminated are: 1. Metallurgical Industries 2. Power 3. Coal 4. Machinery 5. Electronic Industries 6. Chemical Industries 7. Internal Trade 8. Posts and Telecommunications 9. Labor 10. Radio, Film and Television 11. Geology and Mineral Resources 12. Forest 13. Sports Commission 14. Defense Science and Technology Commission 15. State Commission for Restructuring Economic Systems.   The four ministry additions are: 1. Commission for Science, Technology and Industry for National Defence 2. Information Industry (a combination of the previous Posts and Telecommunications and Electronic Industries ministries as well as major broadcasting networks) 3. Labour & Social Security 4. Ministry of Land and Resources.   As well, three government bodies will be renamed. The State Planning Commission will be renamed Development Planning Commission. The Science and Technology Commission will become the Ministry of Science and Technology . The Education Commission will be called the Education Ministry.
AGRICULTU RE, FOOD AND FORESTRY		n Pillsbury International, a unit of Grand Metropolitan, recently signed an agreement with Lady Chong's Peking Dumplings Ltd., one of Hong Kong's dumpling manufacturers. The deal enables Pillsbury, one of the world's largest dough-based food producers, to use its skills in manufacturing, marketing and distribution to expand the dumpling market in Hong Kong and southern China.   n Itochu Corp . of Japan will join hands with Indonesia's PT Sinar Mas Multiartha to build a food processing complex in China. The companies plan to invest US$100 million to construct piers, grain silos and oil refineries in Ningbo, Zhejiang province, and to equip the facilities for processing imported grain for re-shipment.   n The Hong Kong-based, Nasdaq-listed Dransfield China Paper Corp. recently announced it is building two modern, fully integrated paper mills in Shanghai and Guangzhou. The paper mills will produce more than 200 metric tons of recycled pulp (mainly imported from North America) and more than 50 metric tons of jumbo rolls per day, which will be converted into tissue products for consumption in China and Southeast Asia.    n Beijing Opal Agriculture and Biochemistry Co. (BOA), which is 55% owned by Hong Kong-based and Nasdaq-listed Opal Technologies Inc., recently announced it has obtained a working capital credit facility from the Agricultural Bank of China, one of the four major state-owned banks, with an initial loan of 10 million yuan. The loan will help to complete BOA's second production facility in Beijing, which is expected to provide an additional capacity of 75,000 metric tons of granular fertilizer per year. The loan is a favourable sign that the company's foliar and granular fertilizers and soil conditioners can help meet the Chinese government's goal of promoting the use of organic agricultural products.   n Food consumption in China during the first nine months of 1997 increased 29% from the previous year, according to a report by the Ministry of Internal Trade. Average spending on food accounts for 53% of a family's total income. The annual average per capita consumption of meat, eggs, milk and acquatic products in the 1990s is 20.1 kg, 63 kg, 4.2 kg and 6.5 kg respectively, more than double the rates of the late 1970s. There are increasing demands for three major food types: nutritious and healthy foods; natural, fresh and safe foods; and convenient and quick-to-serve foods. More than 200 factories produce 2 million tons of instant noodles a year in China. However, the average daily instant noodle consumption is 10 times less the rates of Japan and Korea. The production of frozen food in China is expected to reach 8.5 million tons by 2000.
BANKING, FINANCE AND INSURANCE		n Bank of China will delay its push to restructure and build an integrated Wall Street-style investment bank a few months to June 1998 so that it can hire more bankers and strengthen its risk management program. The plan includes establishing the Bank of China International in Hong Kong for the purposes of investment banking, which is now mainly based in Asia and Europe. BoC's restructuring plan includes merging China Development Finance Co., its wholly-owned investment bank, Bank of China Group Securities, its brokerage arm, China Development Investment Management Ltd., and Bank of China Group Investments, which controls direct investments.   n Solomon Smith Barney's Smith Barney Inc. unit in Taipei recently obtained a license from the Taiwan Securities and Futures Commission to trade in specified off-shore securities, including stocks, government bonds, corporate bonds and listed mutual funds.   n The New York-based boutique investment bank, Duke & Co., recently formed a joint venture with China Liaoning Securities Co. in Beijing. To be named Duke Liaoning Investment Consulting Co., the new venture will provide investment and consulting services to assist in the reorganization, listing and merging of Chinese state-owned enterprises, and will support Chinese enterprises in raising funds in the U.S. capital markets.   n China recently launched two securities investment funds to lure the country's massive savings into the stock market and to help reform state-owned enterprises. The Industrial and Commerce Bank will act as trustee of the new Kaiyuan and Jintai funds, each of which are worth 2 billion yuan (US$240 million) and will mature in 15 years. Kaiyuan will be listed in Shanzhen while Jintai will be listed in Shanghai.   n Sun Life of Canada (SL), which first came to China in 1892, re-entered China in 1995 by establishing a representative office in Beijing. Last year, John McNeil, Chairman and CEO of SL, announced a donation of US$1 million to build the Wanxian Sino-Canadian Friendship School in Chongqing to be opened in 1999. This 1,200-student primary school will be tuition-free and will be equipped with modern facilities such as a computer centre, a gymnasium, science labs and language labs. The donation will also go to the Canada-China Child Health Foundation to build children's medical clinics in Chongqing and Ningxia, China's developing areas.   n The Shanghai government will issue 500 million yuan (US$60.2 million) of bonds to help finance the construction of the city's second subway line, Metro Line Two. The 5-year bonds are redeemable after three or five years at an annual 8% to 9% interest. The US$1.2 billion project will also be financed in part by foreign government loans.   n Hainan Airlines, a Chinese regional airline that is 21.3% owned by U.S. financier George Soros, recently obtained a US$11 million syndicated loan from France's Banque de l'Indochine et de Suez, Banca Commerciale Italiana and the Shanghai branch of Hua-Xia Bank of China. The lead manager is Shanghai Joint Financial Co. Hainan borrowed 6.5 billion yuan from the Bank of China last year to buy 10 aircrafts.   n Reliance National (RN), a unit of New York-based Reliance Group Holding, recently acquired a 50% stake in Hong Kong Chinese Insurance Co., a general insurance company that is also 50% owned by the Hong Kong Chinese Bank, a joint venture of the Lippo Group and China Resources. The company will be renamed Lippo Reliance Insurance Co. RN also signed a cooperative agreement earlier this year with China's Huatai Insurance Co.   n Standard Life of the U.K. recently opened an office in Beijing, its second office in China after Shanghai, which was opened in 1996. WIH Winterthur Interational Holding, an Australian insurance company, recently won approval to open a representative office in Beijing too. WIH's main shareholder, Winterthur Swiss Insurance Co., obtained a license in 1996 to conduct non-life insurance business in Shanghai.   n Unibank A/S, Denmark's second largest bank, expects to open a representative office in Shanghai next year to sell services to Nordic companies doing business in China, such as Swedish car maker Volvo AB and ball bearings maker SKF AB. Aegon NV, one of the world's top 10 insurers, was also granted a license recently to set up an office in Beijing.   n Chinese banks based in Shanghai's Pudong development zone will offer foreign currency services to non-resident individuals and companies. Services will include foreign currency savings and lending, international payments, foreign currency guarantees, interbank lending, and issuance of deposit certificates.
CONSUMER / RETAIL MARKETS		n Amway Corp. plans to build its second manufacturing plant for US$30 million in Shanghai. Amway now boasts 80,000 distributors in 37 Chinese cities. Its 1997 sales amounted to US$178 million, up 80% from 1996. The company expects China will become its third largest market, behind North America and Japan.   n China's first condom joint venture, Qingdao London International Latex Co., Shandong province, was recently formed by London International Group plc, manufacturer of the Durex brand condom, and China's Qingdao Latex Co. (QLC). At present, seven domestic condom producers, including QLC, supply more than 90% of China's condom market. China's annual condom output amounts to 1.2 billion and has traditionally been dominated by the government free supply program. However, it is expected that as income levels rise, Chinese consumers will begin to make informed contraceptive choices, expanding the retail condom market as is the trend in cities such as Shanghai and Beijing.   n Tully's Coffee, Seattle's second largest specialty coffee retailer, recently opened three stores in Beijing, including a flagship store located in the new Full Link Plaza, a mixed use retail/high rise office/condominium project of 2.4 million sq.ft. The other two stores are located in the East Ocean Centre office complex and the Cofco Plaza, also a mixed use retail/high rise office/condominium. Tully's will open another three stores in Beijing by May of this year.
HEALTH CARE		n In addition to recently winning contracts worth 12 million guilders to supply advanced equipment to two hospitals in Beijing and Shanghai, Philips Electronic NV of the Netherlands, won a 34 million guilder contract (US$16.6 million) to modernize 80 hospitals in China's Jiangsu province, which has a population of 70 million. The contract includes training employees and equipment maintenance.   n Daiichi Pharmaceutical, Japan's leading ethical drugs producer, will strengthen its operations in China by consolidating all China-related departments into the newly established China Operations Promotion Office. Daiichi will also establish a joint venture production centre in China. It plans to develop and market various products centered around synthetic antibacterial agents and central nervous system transmission agents. The company aims to double its current sales in China to 10 billion yen by 2000.   n Rhone-Poulenc Rorer, a unit of Rhone-Poulenc SA, recently received approval from China to market its Taxotere product for the treatment of advanced metastatic breast cancer and non-small-cell lung cancer.    n The Nasdaq-listed Quintiles Transnational Corp . (QTC) opened an office in Shanghai in late January 1998, following the opening of offices in Hong Kong and Beijing in 1997. QTC recently formed strategic alliances with three leading Chinese medical centres: Peking Union Medical Colledge, for collaboration in clinical trial services, and Shanghai and Beijing medical universities for the provision of Good Clinical Practice training to staff and students and general collaboration in conducting clinical research.   n The bird-flu virus that killed six people in Hong Kong and set off a mass killing of chickens and other poultry can now be reliably detected by the new ZStatFlu influenza test, according to the Center for Disease Control, Atlanta, of the U.S. The ZStatFlu test is a product discovered and developed by ZymeTx, a Nasdaq-listed biotech company that focuses on the diagnosis and treatment of viruses.   n With duty free shops across Canada, Asia Development Enterprises (ADE), a unit of UTD Inc. that specializes in the distribution of cosmetics, fragrances and consumer care products, has agreed to distribute all products of U.S.-based EROX Corporation through ADE's distribution channels in China. EROX's products include fragrances and toiletries sold under the REALM, inner REALM and EROX trademarks.
MANUFACTU RING		n Wuxi Little Swan Co., China's largest automatic washing machine maker, will form a US$29.8 million joint venture with Italy's Merloni Elettrodomestici SpA to produce dishwashers in China. The joint venture ownership will be split 75:25 by Wuxi and Merloni respectively.   n Dell Computer Corp. will open its first factory in Xiamen, Fujian province, across the strait from Taiwan, to produce PCs, notebook computers and servers. The US$30 million investment is expected to be operating by August 1998 and will initially employ about 200 staff. Dell, the world's number three computer maker, ranked ninth in Asian sales at the end of 1997, up from its 32nd placed ranking of three years previous. Dell's Asia sales increased 79% in the fourth quarter of 1997 to US$240 million ?most of which were made in China and Australia, countries not hit by recent Asian turmoil.   n Due to increased demand, Acer Peripherals Inc ., the world's fifth largest manufacturer of computer monitors, which is 40% owned by Taiwanese computer maker Acer Inc., expects to increase production by 50% from 4 million monitors produced last year to 6 million in 1998. Most of the production increase will come from its plant in Suzhou, China. Taiwan is the world's largest manufacturer of computer monitors and third largest manufacturer of computer equipment.   n Deutz AG of Germany recently formed a 50:50 joint venture with China's Weifang Diesel Engine Works to produce for the Chinese market the high-speed, water-cooled Deutz model 226 diesel-engine for installation in generators and other heavy equipment. Production will begin this year and full output capacity will reach 25,000 engines each year up to 2002. Another German company, Degussa, the top manufacturer of cyanuric chloride with 40% of the world's market and number two in the world in sodium cyanide manufacturing, recently conducted a feasibility study of building a DM 1 billion specialty chemicals complex in China. Degussa's proprietary technology process for producing methionine from hydrogen cyanide would be used.   n General Motors' Delphi Automotive Systems unit recently made two significant transactions in China. First, it bought the 49% stake of its Chinese partners in the Beijing Wan Yuan-GM Automotive Electronic Control Ltd. joint venture and  renamed it Beijing Delphi Automotive Systems Co. Electric fuel pump production in China is expected to begin later this year. Second, it formed the joint venture Shanghai Delphi Automotive Air Conditioning Systems Co. with Shanghai Automotive Air Conditioner Factory to make air conditioning modules and heat exchangers.   n Dongfeng-Citroen Automotive Corp ., a joint venture between France's PSA Peugeot Citroen and China's Dongfeng Motors, plans to double its Wuhan plant production to 60,000 cars this year, mainly 4-door sedans, in order to reach economies of scale. Meanwhile, Germany's Volkswagen AG cut prices by 20,000 yuan on its Santana and Jetta models to boost slowing sales growth and to maintain its 50%-plus share of China's car market. PSA's other venture in Guangdong province was bought by Japan's Honda Motors last year.   n NACCO Materials Handling Group (NMHG), a unit of the New York-listed NACCO Industries, recently set up a joint venture with Shanghai Perfect, a Chinese land developer, and Sumitomo-NACCO, NMHG's long-time Japanese partner, to manufacture lift trucks in China for sale in China. The partners have purchased land in Pudong, Shanghai to build the manufacturing plant. Production of Hyster (R) large and medium capacity diesel lift trucks is expected to begin by the second quarter of 1999. NMHG owns 55% of the joint venture at an initial investment of US$13.5 million.   n The New York-listed TRW Inc . recently formed a joint venture with Ningbo Yong Xing Automobile Parts Co. to produce automotive fasteners and plastic injection-molded components in Ningbo, Zhejiang province. TRW will own 70% of the joint venture. This is TRW's third joint venture in China; the others are a seat-belt plant in Shanghai and the manufacturing of automotive switches in Suzhou.   n Boeing Co. and Hexcel Corp. of the U.S. recently formed a joint venture with China's General Company of Aeronautics Industry to manufacture composite airplane components in Tianjin. Production will begin within two years. The products will be shipped to Hexcel's facility in Washington for final assembly, inspection and shipment to Boeing and other customers worldwide.
MEDIA AND COMMUNICA TIONS		n The U.S. magazine Newsweek debuted its first Chinese edition the week of March 6, 1998 with an 88-page special issue "Your Child: From Birth to Three." The issue will remain on newstands for three months in China, Hong Kong, Macau, Malaysia, Singapore, Taiwan and Thailand and will be printed in both simplified and traditional Chinese characters. Johnson and Johnson is the exclusive advertiser for the edition with 23 pages of corporate and product ads.   n Internetworld , a monthly magazine published by the International Data Group (IDG) of the U.S., was launched in China this March in partnership with the Institute of Science & Technology Information (ISTI). The new magazine is IDG's 17th computer publication in China, its third largest market in the world. IDG estimates that China's total IT market will reach US$21.5 billion by 2002, up from US$7.3 billion in 1997. IDG's most popular computer weekly publication, the 288-page China Computerworld, which is also jointly produced with ISTI, has 70% ads, 150,000 paid subscribers and 2 million readers.   n Dentsu Inc. of Japan recently established a 50:50 advertising joint venture with an undisclosed local company in Shanghai. The venture will be capitalized at US$500,000 and will focus on promoting Japanese business in China.
MINING AND RESOURCES		n Global-Pacific Minerals Inc. and Southwestern Gold Corporation, both of Canada, recently formed the joint venture Black Dragon Mining Co. with a subsidiary of China's Ministry of Geology and Mineral Resources. The new company will explore four large blocks of land in Heilongjiang province, totalling about 4,000 sq. km, that contain numerous gold prospects. The two Canadian companies also recently established the Inner Mongolia Huadi Mining Co. joint venture with Hohhot City Changdi Technology Development Industry Co ., a unit of Inner Mongolia Geological Exploration Bureau, to explore 1,345 sq. km of inner Mongolia's main gold belt located 650 km northwest of Beijing.   n The largest sino-foreign joint venture to date was recently signed by the Royal Dutch/Shell Group (Shell) with China National Offshore Oil Corp. (CNOOC) in a US$4.5 billion agreement to build a petrochemical plant in Nanhai, Guangdong province. Shell will own 50% of the venture, CNOOC will own 40%, and two other Chinese partners, the Guangdong Investment and Development Co . and the China Merchants Holdings Co., will each own 5%. Total investment may be further increased to US$6 billion. Beginning later this year, Shell will lead construction of an 800,000 ton per year ethylene plant and five plants producing polypropylene and other petroleum-based chemicals, which are expected to be completed by 2003. China plans to increase capacity for cracking ethylene, a key raw material in plastics, from the current production of 3.94 million tons a year to 5 million tons a year by 2000 and up to 10 million tons a year by 2010.   n The initial phase of the first privately-run ethylene refinery centre in Taiwan will be completed in Mailiao this May by Formosa Plastic Corp. (FPC). The new petrochemical complex will have an ethylene processing capacity of 450,000 t/y. The second phase, to have an ethylene capacity of 900,000 t/y, is scheduled for construction in 2000. FPC recently completed a 240,000 t/y high-density polyethylene (HDPE) plant in Mailiao. Taiwan's HDPE consumption in 1996 was about 300,000 tons; the shortfall was made up with imports. With the increased capacity of the new centre, Taiwan will suddenly become an ethylene exporter country. FPC is eyeing the Chinese market.   n Monde Group of the U.S. recently signed a US$325 million contract with China National Petroleum Corp. (CNPC) to apply new technology and drilling techniques in five sections of the Zhongyuan Oil Field in Henan province to improve production of 800 wells. According to CNPC, Husky Oil of Canada will also invest at least US$18 million to boost the recovery rate in the Zhongyuan field. Currently, there are 4,500 wells in the Zhongyuan field that produce 90,000 barrels of oil a day, down from a peak of 150,000 barrels in 1989.
POWER / UTILITY / INFRASTRU CTURE PROJECTS		n Huaneng Power International Inc., listed both in New York and Hong Kong, is China's largest independent power producer with an installed capacity of 5,300 MW. It recently announced approval of its project proposal for the Huaneng Shanghai Shidongkou Second Power Plant Phase Two Expansion by China's State Council. The project will consist of two supercritical coal-fired units with an installed capacity of 600 MW per unit. The company has successfully raised US$140 million to finance the project with the recent issuance of 250 million shares.   n Five consortia including New World Infrastructure of Hong Kong, Compagnie General Des Eaux Group of France, Kvaerner ASA of Norway, Enron Corp. of the U.S. and Mitsubishi Corp. of Japan are bidding against each other for China's first urban water supply project in southeast China's Chengdu city. The US$100 million project is to be financed on a build-operate-transfer basis for 18 years.   n Fujitsu General Ltd. of Japan recently received an order for 120 plasma display panels (PDPs) for a railway linking Hong Kong with its new airport. The PDPs, which will display flight arrivals and departures, will be located at station entrances and exits, and near check-in counters.   n In mid-March, Foster Wheeler Energia, SA (FWESA), of Madrid, Spain, a unit of Foster Wheeler Energy International Inc. of the U.S., received a Notice to Proceed on a US$72 million contract with Bechtel Overseas Corp. for two 365 MW bituminous coal-fired boilers and auxiliaries for a power plant in Meizhouwan, near Putian, Fujian province. FWESA will supply the plant with boilers, including coal feeders and pulverizers, coal burners with oil igniters, an air/flue gas duct system including fans/air heaters, and HP/LP turbine bypass valves. The plant is owned and operated by Fujian Pacific Electric Co. Ltd., a wholly owned foreign enterprise in China.
REAL ESTATE/ CONSTRUCT ION		n Industrial and Commercial Bank of China (ICBC), one of China's state banks, announced in mid-March that it will treble mortgage lendings to 24.5 billion yuan this year to support the housing industry and to fuel domestic economic growth. Ten days before ICBC's announcement, China Construction Bank (CCB) also announced that it will double its housing loans to 30 billion yuan this year. ICBC and CCB extended 8 billion and 16 billion yuan respectively in housing loans last year.   n China is soon expected to announce amended home mortgage rules, including the extension of repayment periods to 20 years, and to allow more banks to offer mortgage loans. A comprehensive policy is to be announced in mid 1998, allowing people to buy and sell their homes freely. Private-sector property developers will be offered incentives to build more affordable housing with low-interest mortgage loans. China also plans to end the allocation of inexpensive, government-subsidized apartments during the second half of 1998 and to support a sell-off of housing that has already been allocated.   n Core Pacific Group, one of Taiwan's largest property developers, expects the island's largest shopping mall with 12 floors above ground and seven underground, to be completed in 2001. The US$750 million mall, of which Core Pacific has a controlling stake, may trigger price hikes near downtown Taipei.   n An average of 10 property management companies have opened each week in Shanghai since 1996. Currently, about 1,960 of these companies manage properties covering 120 million square metres, or about half of the city's total available housing.   n Two Canadian property developers, Law Development and Concord Pacific, both owned by Chinese entrepreneurs, are planning to file for a listing with the Toronto Stock Exchange this year.   n Inax Corp and Itochu Corp., both of Japan, established a US$9.5 million, 200-staff plant in Suzhou to manufacture and sell luxury tiles. The plant can produce 2 million square meters of tile per year, of which 80% are targeted for the Chinese market and the remaining for the Japanese market.
TECHNOLOG Y AND TELECOMM UNICATIONS		n Ericsson, the Swedish telecommunications giant, recently said it will pay between US$7 million and US$12 million to licence Zi Corp. of Canada's technology for the next two years in order to market a device to enter Chinese text into a cellphone. This will enable users to compose e-mail in Chinese characters using a standard keypad. With about a 30% market share, China is Ericsson's second largest cellphone market after the U.S. It is estimated that about 12 to 14 million cellphones will be sold in China this year. Other cellphone makers are expected to match Ericsson's product with Zi's technology feature.   n Northern Telecom of Canada recently won two major contracts in China. The first contract, valued at US$27 million, is to expand Zhejiang Unicom's GSM digital cellular telephone network in Hangzhou, Wenzhou and to add coverage in Shaoxing. This expansion will increase the capacity of Zhejiang's GSM network by 130,000 subscribers by mid 1998. The second contract, valued at US$24 million, is to expand and upgrade the intelligent network-based system of SUNDAY, a personal mobile communications services company in Hong Kong, and to add more radio equipment.   n Newbridge Networks Corp. (NNC) of Canada recently won two contracts in China. The first contract is to supply and install equipment for a broadband multiservices network in Hunan province. The network will enable the Hunan Provincial Telecommunications Authority to generate flexible rate and traffic-based billing files and to track network performance for frame relay customers. The second contract, valued at US$32 million, is to expand and upgrade Guangdong Provincial Telecommunications Authority's existing Newbridge narrowband digital data network (DDN).   n Intel Corp. and Pacific Century Group, owned by Richard Li, the younger son of Hong Kong tycoon Li Ka-shing, formed the 40:60 joint venture Pacific Convergence Corp. to provide Asia with high-speed access to the Internet using satellites. Existing phone lines are scarce in Asia; high-speed data access will be more feasible and efficient using satellites.   n Energy Research Corp. (ERC) of the U.S. recently signed a license agreement with two partners, the Formosa Plastics Group of Taiwan and the City of Xiamen, Fujian province of China, to use ERC's environmentally friendly nickel-zinc battery technology for electric and hybrid electric vehicles. Under the agreement, ERC will receive US$5 million in licensing fees and royalties on each nickel-zinc battery produced and sold. The agreement also grants ERC an option to acquire an equity interest in a new joint venture battery company that will produce and sell the batteries in China, Taiwan and 10 other Southeast Asian countries. The Xiamen government plans to utilize ERC's battery to power its many city fleet vehicles, such as taxicabs and postal delivery vehicles.   n Huntington Environmental Systems Inc ., a unit of the Nasdaq-listed MPM Technologies Inc., reached an agreement earlier this year with CNTIC Trading Co. of Beijing to exclusively represent Huntington in marketing, sales, site design, engineering, and installation and to provide technical assistance of its Regenerative Thermal Oxidizer system and related air pollution control equipment throughout China.   n Symbol Technologies Inc. (STI) of the U.S. said its PDF417 two-dimensional bar code symbology was recently approved as China's national standard. This advanced data-storage technology can encode a kilobyte of data in a single machine-readable symbol printed on paper. Data, which may consist of text, photographs, voice prints, fingerprints, biometric signatures or a computer program, is carried in a symbol the same size as a regular bar code. The entire data file is stored in the symbol, compared to the traditional bar code that simply functions as "keys" to access external databases. STI wishes to promote its services to both government and private organizations in China for identification cards and drivers' licenses and for manufacturing and transportation logistics.   n America Online Inc . (AOL) recently announced its agreement with China Internet Corp., a unit of China's Xinhua News Agency, to offer Internet services, including a combination of on-line commerce and content, in Hong Kong by next year.   n Nasdaq-listed CellStar Corp . will be the sole supplier of Motorola cellphones and accessories to all sales branches of the Beijing Radio Telecommunications Bureau, according to a recently signed agreement. CellStar will operate the Motorola branded sales outlets for the Bureau. Sales from these outlets presently account for about 30% of Beijing's cellphone market. Earlier, Nokia had appointed CellStar as its authorized China distributor of cellphones and accessories produced by Beijing Nokia Mobile Telecommunications Ltd, a joint venture between Nokia and Beijing Telecommunications Equipment Factory 506. Nokia recently extended its agreement with Nasdaq-listed Brightpoint Inc. to distribute cellphones and accessories in China.   n ALPNET Inc., a Nasdaq-listed international translation and localization services company, was recently contracted by Oracle China to localize its enterprise automation suites, Oracle Applications Release ii, for the Chinese market. The multi-million word project is expected to be completed in the second quarter of this year. The work will be performed out of ALPNET's production centre in Shenzhen, China by an in-house team of 24 translators, editors and engineers.   n Microsoft recently announced it will provide its Internet Explorer browser and other technology to Hong Kong-based China Telecom (CT), which is controlled by China's Ministry of Posts and Telecommunications. CT will develop its own version of Internet Explorer. Other Microsoft software, technology and training will also be provided to CT.
TRANSPORT ATION, Travel, tourism and leisure		n Sometime this year, the Canadian Consulate General's office in Shanghai will begin accepting applications for visitor visas from Chinese citizens, reducing the workload of the Canadian Embassy in Beijing, which is currently the only place in China that issues Canadian visas.   n Responding to increased demand, Air China announced that beginning April 3, 1998, it will double the number of its flights between Vancouver and Beijing-Shanghai to twice a week ?on Monday and Friday. According to reports, the number of passengers to China and Taiwan by Canadian International Airlines (CIL), which flies to Beijing five days a week, has increased 8% so far this year from the same period last year. CIL is also planning to start a new direct route from Vancouver to Shanghai sometime this year.   n Under a 1997 agreement between China and Japan, Japan's airlines will open new routes and offer more flights on existing routes to China by 70% as of April 1998. Japan Air System will provide five more flights a week while Japan Airline and All Nippon will each provide three more flights. Nippon Cargo Airlines will offer the route for the first time with one flight a week.   n While suspending some flights to Southeast Asia, Qantas recently increased flights to China by adding two weekly Boeing 767 flights from Brisbane to China ?one to Shanghai and one to Beijing.    n Target AirFreight Inc ., a unit of Nasdaq-listed Amertranz Worldwide Holding Corp., has recently been granted a Class-A license by the Chinese government to operate a variety of freight forwarding operations in China for its joint venture Target International Freight. The operations will initially be carried out in Tangshan, Beijing and Tianjin. Meanwhile, Danzas Holding AG, a Swiss transport and distribution company, also obtained the same Class-A license to offer freight services in China without using the help of local transporters, as was previously necessary. In 1997, Danzas handled more than 10,000 shipments to and from China.   n Lockheed Martin Air Traffic Management of the U.S. won a contract from the Civil Aviation Administration of China (CAAC) to install air traffic control systems at Hongqiao International Airport and the new Pudong International Airport, both in Shanghai. The interconnected systems are based on Lockheed's microprocessor-based Enroute Automated Radar Tracking System terminal software and flight data processing as well as CAAC-unique functions. Lockheed is also planning to bid on three CAAC-offered Area Control Centre contracts in Beijing, Shanghai and Guangzhou within the first half of 1998 with a total contract value of US$100 million.   n Universal Studios, a unit of Canada's Seagram Company, will open its first trial project in China this summer. The 20,000 sq. ft theme park Universal Studios Experience will be located in a 800,000 sq. ft. shopping mall, which itself is located in the Beijing Henderson Centre, a new mixed-use retail/high-rise office/condominium complex built by Universal's strategic partner Henderson China Investments of Hong Kong.   n Visitors arriving in China numbered 57.6 million in 1997, an increase of 12.6%  over the previous year. Of the total, 47.9 million came from Hong Kong and Macau and 2.1 million from Taiwan. The number of foreigners originating from the following countries are listed: Japan (1.582 million); Russia (814,000); Korea (781,000); U.S. (616,000); Malaysia (361,000); Mongolia (343,000); Singapore (317,000); Philippines (277,000); U.K. (228,000); Germany (185,000); and Canada (174,000).
deloitte & touche in china related activities / projects		The recent 1998 Vision in Manufacturing Study, a survey conducted every three years by Deloitte & Touche and Deloitte Consulting in collaboration with the Kenan-Flagler Business School of the University of North Carolina, made several remarkable findings relating to China:   China is the target of over 45% of manufacturers worldwide, lead by the high-tech and pharmaceutical sectors, with over 57% planning to expand in China.  China is the destination of choice in the emerging markets.  By 2020, China will command 65% of global GDP. China's pharmaceutical market is expected to grow 15-20% in the coming years compared to 7-9% in the U.S. and Europe.   The study results were based on data collected from more than 3,000 top manufacturing executives in industrialized and emerging markets of 35 countries. The study was an integrated campaign that included screensaver teasers, direct mail targeting, advertising, a special web site, briefings, one-on-one meetings with clients and prospects, and a global summit.

		Chinese Business Sector - Contacts
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Editor Loretta Yuen,  Tel:  (416) 601-6222   Advisory Board Graham Baragwanath Frank Brown Hugh Miller		Toronto, Ontario M5J 2V1 Tel. (416) 601-6150 Fax (416) 601-6151 Frank Brown Vancouver Deloitte & Touche 1055 Dunsmuir Street, #2000 4 Bentall Centre	Patrick Cheng/Ted Lee   Taiwan Deloitte & Touche 7th Floor, Chinese Television Building 102, Kuang Fu South Road Taipei, Taiwan Republic of China
Seymour Temkin Joseph Tse Brent Wyatt   This publication is issued regularly by the Canada-China Business Group in Toronto with information extracted from 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; 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 responsibility 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. 9802		Vancouver, British Columbia V7X 1P4 Tel. (604) 669-4466 Fax (604) 669-4434 Gary Nott International Offices China 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 Ted 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	Tel. 886 (2) 741-0258 Fax 886 (2) 773-3833 William Lin United States New York Deloitte & Touche LLP Two World Financial Centre New York, New York 10281 Tel. (212) 436-2000 Fax (212) 436-5000 Jack Ribeiro 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/Tom 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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