Archive for the ‘China Consulting’ Category

Preface
In accordance with China’s WTO accession commitments to opening its commercial (distribution) sector and based on wide solicitation of opinions and suggestions from the business community including foreign invested enterprises (FIEs), Chinese and foreign investors and government agencies at various levels, relevant departments of the Chinese government made comprehensive amendments to the Measures on Pilot Foreign Invested Commercial Enterprises of 1999. 

Upon the endorsement of the State Council, the Ministry of Commerce promulgated the Administrative Measures on Foreign Investment in Commercial Fields on April 16, 2004, which fulfilled the liberalization of commercial services (distribution) right on the timetable China was committed to during its WTO accession.

To facilitate overseas investors and already existing FIEs to better understand Chinese regulations on foreign investment in commercial fields (distribution), we have developed this Guiding Manual on Applications Regarding Foreign Invested Commercial (Distribution) Enterprises (hereinafter referred to as the Guiding Manual) based on existing laws and regulations. 

As a reference for investors, this Guiding Manual devotes separate sections to articulating on the approval authorities, application procedures, submissions and the time limits for approval.
The Ministry of Commerce (MOFCOM) already published this Guiding Manual on its official website (http//:www.mofcom.gov.cn) on September 1, 2005. 
Investors are welcome to use this to bring themselves up to speed with the regulations governing foreign investment in commercial fields (distribution) and the information relating to applications and submissions.
Table of Contents
I. Approval/Administrative Authorities And Their Mandates
(I)  Approval and Administrative Authorities
(II)  Mandates for Review and Approval
(III)  Listing of Approval and Administrative Authorities

II. Application Procedures and Time Limits for Review and Approval
(I)  Procedures for General Commodity Distribution Applications
(II)  Procedures for Special Commodity Distribution Applications
Time Limits for Review and Approval
(I)  Time Limits for a Competent Provincial Commerce Authority
(II)  Time Limits for the Ministry of Commerce

III. Application Submissions
(I)  Submissions for a General Commodity Distribution Application
(II)  Submissions for a Special Commodity Distribution Application

IV. Others
(I)  Taxation for Foreign Invested Commercial (Distribution) Enterprises
(II)  Applications by FIEs in Bonded Zones for Distribution Business
(III)  Franchised Outlets

Annexes: Policies and Regulations on Foreign Investment In Commercial Fields (Distribution):

I. Approval/Administrative Authorities and Their Mandates
(I) Approval/Administrative Authorities
The Ministry of Commerce (MOFCOM) is the competent authority overseeing foreign investment in commercial fields (distribution).
MOFCOM and competent provincial commerce authorities are the approval/administrative authorities for foreign investment in commercial fields (distribution).
(II) Mandates
1. Mandates of Review and Approval of a Competent Provincial Commerce Authority
(1) The application for a foreign invested commercial enterprise which opens outlets to engage in retailing shall be reviewed and approved by the competent provincial commerce authority of where the enterprise is located, with a notification made to MOFCOM for file-keeping, provided the following conditions are met.

a. The business scope of the enterprise does not cover the distribution of TVs, telephones, mail order, Internet, automatic vender machines and special commodities (listed in Articles 17 and 18 of this Administrative Measures on Foreign Investment in Commercial Fields, applicable hereinafter);
b. The operating area of a single outlet does not exceed 3,000 square meters

and the total number of outlets not over 3.  The number of outlets in China of the same nature opened by its foreign investor via an already existing commercial FIE shall not exceed 30; or the operating area of a single outlet does not exceed 300 square meters and the total number of outlets not over 30.  The number of outlets in China of the same nature opened by its foreign investor via an already existing commercial FIE shall not exceed 300.

(2) The application for a Chinese-foreign joint-equity or contractual commercial (distribution) enterprise where the Chinese side holds majority shares and owns the trademark and trade name and whose business scope does not cover special commodities and the application for the opening of outlets by such commercial enterprise shall be reviewed and approved by the competent provincial commerce authority of where the proposed enterprise is located;

(3) Distribution of audiovisual products (excluding wholesaling)
Applications in this category are subject to MOFCOM review and approval.  They may also be approved by a competent provincial commerce authority in the presence of an authorization from MOFCOM.

2. Mandates of MOFCOM
(1) Any application other than those described in the preceding paragraph, which is subject to the review and approval of a competent provincial commerce authority, shall be reviewed and approved by MOFCOM.
(2) Applications for the distribution of autos, processed oil, drugs, books, newspapers and periodicals and for the wholesaling of audiovisual products shall be reviewed and approved by MOFCOM.

II. Application Procedures and Time Limits for Review and Approval
(I) Application Procedures and Time Limits for Review and Approval (Provincial Approval)
1. General Commodity Distribution
Application Procedures

1) In cases where a new commercial (distribution) enterprise is applied for, or an already existing enterprise applies for additions to distribution scope, or an enterprise reinvests to become a commercial (distribution) enterprise, the applicant shall make the required submissions to a competent commerce authority of where the FIE is registered;
2) The competent commerce authority of where the FIE is registered shall conduct a preliminary review of the submissions before forwarding them to a provincial commerce authority;

3) The provincial commerce authority examines and reviews the contract of a Chinese-foreign joint-equity or contractual enterprise and its articles of association (only the articles of association is needed in the case of a foreign invested commercial enterprise) and the submissions, and whether the proposed enterprise or outlets comply with the urban commercial network planning;

4) In the event that the location of where the enterprise operates and where the FIE is registered do not fall under the jurisdiction of the same province, autonomous region, municipality or city under direct state planning, the competent provincial commerce authority of where the FIE is registered shall seek the consent of its counterpart of where the FIE operates whilst examining the submissions;

5) In the case of a centrally managed enterprise intends to establish a commercial FIE with a foreign investor (foreign investors) in the form of a joint equity or contractual venture, the application which is within provincial approval mandate, shall be reviewed and approved by a competent provincial commerce authority in accordance with the preceding procedures, with a notification made to the Ministry of Commerce for record-keeping.

Time Limit for the Review and Approval
Within 3 months of receipt of the complete set of application submissions, a competent provincial commerce authority shall reach a decision as to whether or not approved the application.  In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.

(II) Application Procedures and Time Limits for Review and Approval (MOFCOM Approval)
1. General Commodity Distribution
Application Procedures

1) In cases where a new commercial (distribution) enterprise is applied for, or an already existing enterprise applies for additions to distribution scope, or an enterprise reinvests to become a commercial (distribution) enterprise, the applicant shall make the required submissions to a competent commerce authority of where the FIE is registered;

2) The competent commerce authority of where the FIE is registered shall conduct a preliminary review of the submissions before forwarding them to a provincial commerce authority;

3) The provincial commerce authority examines and reviews the contract of a Chinese-foreign joint-equity or contractual enterprise and its articles of association (only the articles of association is needed in the case of a foreign invested commercial enterprise) and the submissions, and whether the proposed enterprise or outlets comply with the urban commercial network planning;

4) In the event that the location of where the enterprise operates and where the FIE is registered do not fall under the jurisdiction of the same province, autonomous region, municipality or city under direct state planning, the competent provincial commerce authority of where the FIE is registered shall seek the consent of its counterpart of where the FIE operates whilst examining the submissions;

5) Upon an affirmative preliminary review result, the competent provincial commerce authority shall forward the submissions to MOFCOM for one-off approval;
6) In the case of a centrally managed enterprise intends to establish a commercial FIE with a foreign investor (foreign investors) in the form of a joint equity or contractual venture, the application submissions may be directly made to MOFCOM for approval provided the application is within the approval mandate of MOFCOM.

Time Limit for the Review and Approval
After a preliminary review of the submissions, a competent provincial commerce authority shall forward the whole set of submissions within one month of receipt.  MOFCOM, within 3 months of receipt of the complete set of application .submissions, MOFCOM shall reach a decision as to whether or not approved the application.  In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.

II. Special Commodity Distribution
Application Procedures

1) Auto Distribution
Pursuant to the Implementing Measures on the Management of Auto Brand Distribution, applications of FIEs whose business scope relates to auto distribution, including general dealership and brand dealership, shall be forwarded to the Ministry of Commerce after a preliminary review is conducted by a competent provincial commerce authority or centrally managed company.  The Ministry of Commerce shall further examine the application and approve after seeking the opinion of the State Administration for Industry and Commerce.

In the case that a domestic auto producer farms outs the distribution side of its business to other legal entities, not only the approval from the Ministry of Commerce but also a further examination and approval from the former approval authority of the project is needed.

(2) Distribution of Processed Oil
In the case that the business scope of an FIE relates to the distribution of processed oil, the application shall be forwarded to the Ministry of Commerce for approval after a preliminary review is conducted by a competent provincial commerce authority or centrally managed company.

(3) Distribution of drugs
In the case of an application whereby the business scope of an FIE relates to the distribution of drugs, the competent provincial commerce authority shall seek the opinion of the drug supervisory administration of the same level or the enterprise applicant shall present an opinion issued by a competent drug supervisory administration endorsing the establishment of the enterprise or a drug distribution license. 

The application shall be forwarded to the Ministry of Commerce for approval after a preliminary review is conducted by a competent provincial commerce authority.

4) Distribution of audiovisual products
a. An application for a Chinese-foreign contractual wholesaling enterprise for audiovisual products shall be filed with the Ministry of Culture for acceptance review after a competent provincial cultural authority concedes to accepting the application upon an examination.

b. Upon the acceptance of the Ministry of Culture to file the application, the Chinese partner shall make an application to the competent provincial commerce authority for the establishment of the enterprise.  The application shall be forwarded to MOFCOM for approval after the provincial authority examines and approves it.

(5) Distribution of books, newspapers and periodicals
The applicant shall first make an application with a provincial press and publication administration, which, within 15 working days of receipt of the application, shall produce a review opinion, to be notified to the press and publication administration of the State Council for approval. 

The press and publication administration of the State Council shall, within 30 working days of receipt of the application with the review opinion, make a decision as to whether or not accept the application. 

The decision will be notified to the applicant via a press and publication administration of a province, autonomous region or municipality in writing.  If an application is rejected, a statement justifying the decision has to be provided. 

Upon receipt of the acceptance notice from the press and publication administration of the State Council, the applicant shall make a formal application with a provincial commerce authority, which shall form a review opinion within 15 working days of receipt of the application, to be submitted to the commerce authority of the State Council for approval.

Once the approval comes through, the applicant shall, within 90 days of receipt of the approval notice, claim the Permit for Distribution of Publications from a provincial press and publication administration against the approval documents and the FIE Approval Certificate. 

The applicant shall then claim its business license from the local administration for industry and commerce against the Permit and FIE Approval Certificate.

II. Special Commodity Distribution
Application Procedures
Distribution of Audiovisual Products (Excluding Wholesaling)
1) The Chinese partner shall make an application to a competent provincial cultural authority, requesting approval to file the application;

2) Within 6 months of the approval of the competent provincial cultural authority of the filing of the application, the Chinese partner shall make an application to a competent provincial commerce authority for approving the establishment of an enterprise.

3) Within 30 days of receipt of the FIE Approval Certificate from a competent commerce authority, the Chinese partner shall claim the Permit for Distribution of Audiovisual Products for the proposed China-foreign contractual audiovisual product distribution enterprise from the competent cultural authority against the acceptance document issued by a competent cultural authority and the FIE Approval Certificate.

4) Within 30 days of receipt of the Permit for Distribution of Audiovisual Products from a competent cultural authority, the Chinese partner shall proceed to registration against the Permit and FIE Approval Certificate.

Time Limit for the Review and Approval
Within 30 working days of receipt of the complete set of application submissions, a competent provincial commerce authority shall reach a decision as to whether or not approved the application.  In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.

Time Limit for the Review and Approval
(1) Auto Distribution
After a preliminary review of the submissions, a competent provincial commerce authority shall forward the whole set of submissions within one month of receipt.  MOFCOM, within 3 months of receipt of the complete set of application submissions, MOFCOM shall reach a decision as to whether or not approved the application jointly with the State Administration for Industry and Commerce (SAIC). 

In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.
(2) Distribution of Processed Oil

After a preliminary review of the submissions, a competent provincial commerce authority shall forward the whole set of submissions within one month of receipt.  MOFCOM, within 3 months of receipt of the complete set of application submissions, MOFCOM shall reach a decision as to whether or not approved the application. 

In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.

(3) Distribution of Drugs
After a preliminary review of the submissions, a competent provincial commerce authority shall forward the whole set of submissions within one month of receipt.  MOFCOM, within 3 months of receipt of the complete set of application submissions, MOFCOM shall reach a decision as to whether or not approved the application.  In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.

(4) Distribution of Audiovisual Products

Within 60 working days of receipt of the complete set of application submissions, MOFCOM shall reach a decision as to whether or not approved the application.  In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.

(5) Distribution of Books, Newspapers and Periodicals
Within 30 working days of receipt of the complete set of application submissions, MOFCOM shall reach a decision as to whether or not approved the application.  In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.

   III. Application Submissions
(I) Submissions for a General Commodity Distribution Application
1. Establishment of a new commercial (distribution) enterprise

1) Application form
2) Feasibility study report signed by all investing parties
3) Contract and Articles of Association (only the latter is needed in the case of a commercial FIE application, applicable hereinafter) and their attachments

4) Bank-issued credit standing certificates for all investing parties, registration documents (copies) and paper of the legal representative (copies).  If the foreign investor is an individual, a valid ID shall also be provided.
5) Auditing reports of all investing parties by accounting firms for the most recent year.  (Enterprises established less than one year ago may skip this requirement).

6) Appraisal report for state-owned assets proposed to be invested by the Chinese investor into a China-foreign joint equity or contractual commercial enterprise
7) Catalogue of import and export commodities for the proposed commercial FIE
8) Listing of directors on the board of the proposed commercial FIE and letters from various investing parties to appoint the directors

9) A prior review and approval notice on the name of the enterprise provided by the competent administration of commerce and industry
10) Land use right documents (copies) for the premise of the proposed outlet and/or rental agreements (copies), with the exclusion of outlets which operate on less than 3,000 square meters (the active operating area of the outlet does not include the office area, storage area and communal area of the enterprise, applicable hereinafter)

11) Documents issued by the competent local commerce authority of where the proposed outlet is to be located which demonstrates the compliance with urban development and urban commercial development requirements (in the case that the proposed outlet is in a city of prefecture level or below, the document demonstrating the compliance with local commercial planning is unnecessary, applicable hereinafter)

In the event that the documents are signed by parties other than the legal representative, the power of attorney from the legal representative must be presented (applicable hereinafter)

2. Merger or acquisition with a domestic commercial (distribution) enterprise

1) Application form
2) Consensual decision of the shareholders, or a decision from the shareholders’ meeting of the target domestic corporate entity of limited liabilities endorsing the equity merger or acquisition with the foreign investor

3) Contract and Articles of Association of the new FIE as a result of the merger or acquisition (only the latter is needed in the case of a commercial FIE application, applicable hereinafter) and their attachments
4) Bank-issued credit standing certificates for all investing parties, registration documents (copies) and paper of the legal representative (copies).  If the foreign investor is an individual, a valid ID shall also be provided.

5) Agreement on the foreign investor’s purchase of shareholders’ equity from the domestic enterprise or capital injection subscription to the target domestic firm
6) Financial auditing report of the target domestic firm for the most recent fiscal year; auditing reports of all investing parties by accounting firms for the most recent year.  (Enterprises established less than one year ago may skip this requirement).

7) A state-owned assets appraisal report and documentation shall be provided for a target domestic firm in possession of state-owned assets
8) Catalogue of import and export commodities of the new enterprise as a result of the merger/acquisition
9) Listing of directors on the board of the new FIE and letters from various investing parties to appoint the directors

10) Land use right documents (copies) for the premise of the proposed outlet and/or rental agreements (copies), with the exclusion of outlets which operate on less than 3,000 square meters
11) Documents issued by the competent local commerce authority of where the outlet is to be located which demonstrates the compliance with urban development and urban commercial development requirements

12) Factual statements of enterprises with investment from the target domestic firm
13) Business licenses (duplicate) of the target domestic firm and of the enterprises receiving investment from the domestic firm
14) Displacement plan for employees of the target domestic firm

3. An already established enterprise applying for additions to its distribution scope
1) Application form
2) A consensual decision reached by the board of directors of the FIE on the addition to the distribution scope
3) Agreement on the amendment to the contract and Articles of Association of the FIE
4) Catalogue of import and export commodities for the FIE

5) Certificate for the approval of the FIE and the business license (copies)
6) Copies of the original contract and Articles of Association of the FIE
7) A registered capital review report issued by a legally authorized capital review body showing full capitalization.

4. An enterprise applying for reinvestment in establishing a commercial (distribution) enterprise

1. Application form
2. Bank-issued credit standing certificates for all investing parties, registration documents (copies) and paper of the legal representative (copies).  If the foreign investor is an individual, a valid ID shall also be provided.

3. Auditing reports of all investing parties by accounting firms for the most recent year.  (Enterprises established less than one year ago may skip this requirement).
4. A prior review and approval notice on the name of the enterprise provided by the competent administration of commerce and industry
5. Land use right documents (copies) for the premise of the proposed outlet and/or rental agreements (copies), with the exclusion of outlets which operate on less than 3,000 square meters

6. Documents issued by the competent local commerce authority of where the proposed outlet is to be located which demonstrates the compliance with urban development and urban commercial development requirements
7. A consensual decision reached by the board of directors of the FIE on the investment plan
8. Certificate for the approval of the FIE and the business license (copies)

9. A registered capital review report issued by a legally authorized capital review body showing full capitalization
10. Documents on income tax status of the FIE including tax reductions or exemption
11. Articles of Association of the company receiving the investment
12. Certificate for the approval of the FIE and the business license (copies)

(II) Submissions regarding the distribution of special commodities

1. Auto distribution
For a general dealer:
1) An official notification document from the competent provincial commerce authority of where the proposed enterprise is located or a business group under direct state planning

2) Application document signed by all investing parties for the establishment of the enterprise.  It mainly covers:
A. Project profile: name of the enterprise and where it is registered, addresses of its subsidiaries, total investment, registered capital, profiles of the investing parties, shareholding structure and form, business scope, size and term of the enterprise
B. Construction and related information: major facilities, sources of the distributed commodities, mode of purchasing and delivery, environmental friendliness and fire prevention and security contingencies.

C. Professional auto marketing capability analysis: market research, marketing plan, advertising and promotion, network building and guidance, product related services, technical training and consulting, accessory supply, logistics management, organizational structure, staffing and type of employees.
In particular, the layout, scale and progress of the network building shall be clearly indicated in the network building section.

) The General Auto Dealer Authorization Letter issued by the auto producer (see Annex 1 for a sample).  In the case that the auto producer is an overseas company, its registration documents (copies) and the paper of the legal representative (copies) shall be provided.
4) Bank-issued credit standing certificates for all investing parties, registration documents (copies) and paper of the legal representative (copies).  If the foreign investor is an individual, a valid ID shall also be provided;
Auditing reports of all investing parties by accounting firms for the most recent year

5) Appraisal report for state-owned assets proposed to be invested by the Chinese investor into a China-foreign joint equity or contractual commercial enterprise
6) Listing of directors on the board of the proposed commercial FIE and letters from various investing parties to appoint the directors
7) A prior review and approval notice on the name of the enterprise provided by the competent administration of commerce and industry

For a brand dealer:
1) An official notification document from the competent provincial commerce authority of where the proposed enterprise is located or a business group under direct state planning
8) Application document signed by all investing parties for the establishment of the enterprise.  It mainly covers:

A. Project profile: name of the enterprise and where it is registered, addresses of its subsidiaries, total investment, registered capital, profiles of the investing parties, shareholding structure and form, business scope, size and term of the enterprise

B. Construction and related information: number of subsidiaries (including outlets), operating area, opinion issued by the competent local commerce authority on the compliance of a proposed outlet with urban commercial development planning, major facilities, sources of the distributed commodities, mode of purchasing and delivery, environmental friendliness and fire prevention and security contingencies.

C. Analysis relating to the scope, scale and location of the auto distribution, facilities and professional technical staff
2) Auto Brand Dealership Authorization Letter (see Annex 2 for a sample) issued by an auto supplier (auto producer or general auto dealer, applicable hereinafter).  In the case the distributed autos are imported, an Auto Brand Dealership Authorization Letter issued by the domestic general dealer of the auto supplier shall be provided.

) Contract and Articles of Association (only the latter is needed in the case of a commercial FIE application) and their attachments
4) Bank-issued credit standing certificates for all investing parties, registration documents (copies) and paper of the legal representative (copies).  If the foreign investor is an individual, a valid ID shall also be provided;
Auditing reports of all investing parties by accounting firms for the most recent year

5) Appraisal report for state-owned assets proposed to be invested by the Chinese investor into a China-foreign joint equity or contractual commercial enterprise
6) Listing of directors on the board of the proposed commercial FIE and letters from various investing parties to appoint the directors
7) A prior review and approval notice on the name of the enterprise provided by the competent administration of commerce and industry

8) Land use right documents (copies) for the premise of the proposed outlet and/or rental agreements (copies), with the exclusion of outlets which operate on less than 3,000 square meters

2. Distribution of processed oil
Besides submissions required in a general commodity distribution application, the following shall also be submitted for an application of a processed oil wholesaling enterprises:

1) Documents demonstrating stable channels of supply of processed oil;
2) Documents demonstrating the possession of a wholly foreign-owned or majority foreign-held processed oil storage with a capacity of no less than 4,000 cubic meters and that the storage was constructed in accordance with the Oil Storage Design Specifications (GBJ74—84);
3) Documents demonstrating the existence of facilities such as transmission pipelines, special rail lines or water transport docks for receiving or unloading processed oil;

4) Documents demonstrating that the storage and other facilities comply with the national standards for safe production and environmental protection;
5) Documents demonstrating the availability of professional technical staff for processed oil testing, measuring, storage and fire prevention operations;
6) Documents demonstrating the compliance with the development of network for processed oil wholesaling;
7) Miscellaneous documents on managerial affairs.

Besides submissions required in a general commodity distribution application, the following shall also be submitted for an application of a processed oil retailing enterprises:
1) Stable channels of supply of processed oil and an oil supply agreement with a processed oil distributor with wholesaling qualifications;
2) Documents demonstrating the compliance with the development of local gas stations

3) Documents demonstrating the compliance of the design and construction of the gas station with relevant state standard requirements.
4) Documents demonstrating the compliance of the construction of the gas station with relevant station regulations on land management, fire prevention and security and environmental protection;
5) Documents demonstrating the availability of professional technical staff for processed oil testing, measuring, storage and fire prevention operations;

6) In the case of an on-water gas station (supply vessel) supplying processed oil to ships, documents demonstrating the compliance with port and water transport safety and water pollution prevention regulations shall also be provided in addition to the above-mentioned documents.

Annexes: Policies and Regulations on Foreign Investment in Commercial Fields (Distribution)
Administrative Measures on Foreign Investment in Commercial Fields
 Implementing Measures on Management of Automobile Brand Marketing
Order of the General Administration of Press and Publication and the Ministry of Foreign Trade and Economic Cooperation

Administrative Measures on Foreign Investment in Commercial Fields
Foreign companies, enterprises and other economic organizations or individuals (hereinafter referred as “foreign investors”) that establish the foreign invested commercial enterprises in the territory of China and are engaged in the business operations shall abide by the Measures.

The “foreign invested commercial enterprises” here refer to foreign invested enterprises engaged in the following business operations:
(I) Commission agency: sales agents, brokers, auctioneers or other wholesalers selling other’s goods and providing relevant auxiliary services based on the contract for gaining commission fee;

(II) Wholesale: selling the goods of the retailers and industrial, commercial and institutional users or other wholesalers and providing relevant auxiliary services;
(III) Retail: selling goods and providing auxiliary services for consumption by individuals and groups at fixed location or through television, telephone, mail order, the Internet and vending machine;

(IV) Franchise: authorizing others to use one’s own trademark, trade name and business model by signing a contract for the purpose of receiving compensations or royalities.  
Foreign companies, enterprises and other economic entities or individuals shall undertake business operations outlined in aforementioned (I), (II), (III) and (IV) through the foreign invested enterprises established in the territory of China.

As a general rule, the operating term of foreign invested commercial enterprises shall not exceed 30 years and the operating term for foreign invested commercial enterprises established in central and west China shall not exceed 40 year.

Foreign invested commercial enterprises concurrently applying for establishment of the commercial enterprises and stores shall meet relevant regulations on urban development and urban commercial development.

Foreign invested commercial enterprises may authorize others to open stores by means of franchise. After approval, foreign invested commercial enterprises may engage in one or more line(s) of distribution business, and the types of the commodities sold shall be specified in the business scope in the contract and Articles of Association.

The Ministry of Commerce reserves to right to the interpretation of the Measures

 Foreign Trade Law of The People’s Republic of China has been revised and adopted by the 8th Session of the Standing Committee of the 10th National People’s Congress of the People’s Republic of China. The revised Foreign Trade Law of The People’s Republic of China is hereby promulgated and shall be implemented as of July 1, 2004.
Chapter 1 General Provisions

    Article 1 This Law is formulated with a view to expanding the opening to the outside world, developing foreign trade, maintaining foreign trade order, protecting the legitimate rights and interests of foreign trade dealers and promoting the sound development of the socialist market economy.

Article 2 This Law applies to foreign trade and the protection of trade-related aspects of intellectual property rights.
      For the purposes of this Law, “foreign trade” refers to import and export of goods and technologies and the international trade in services.
       Article 3 The authority responsible for foreign trade under the State Council is in charge of the administration of the foreign trade of the entire country pursuant to this Law.

Article 4 The State shall pursue a uniform foreign trade regime, encourage the development of foreign trade and maintain fair and free foreign trade order.
    Article 5 The people’s Republic of China shall, on the principle of equality and mutual benefit, promote and develop trade relations with other countries and regions, enter into or participate in such regional economic trade agreements as customs union agreement, free trade agreement and participate in regional economic organizations.

Article 6 The People’s Republic of China shall, in accordance with the international treaties and agreements to which it is a contracting party or a participating party grant the other contracting parties or participating parties, or on the principle of reciprocity grant the other party most-favored-nation treatment or national treatment in the field of foreign trade.

Article 7 In the event that any country or region applies prohibitive, restrictive or other like measures on a discriminatory basis against the People’s Republic of China in respect of trade, the People’s Republic of China may, as the case may be, take counter-measures against the country or region in question.
Chapter 2 Foreign Trade Dealers
Article 8 For the purposes of this Law, “foreign trade dealers” refers to legal persons, other organizations or individuals that have fulfilled the industrial and commercial registration or other practicing procedures in accordance with laws and engage in foreign trade dealings in compliance with this Law and other relevant laws and administrative regulations.

Article 9 Foreign trade dealers engaged in import and export of goods or technologies shall register with the authority responsible for foreign trade under the State Council or its authorized bodies unless laws, regulations and the authority responsible for foreign trade under the State Council do not so require. The specific measures for registration shall be laid down by the authority responsible for foreign trade under the State Council.

Where foreign trade dealers fail to register as required, the Customs authority shall not process the procedures of declaration, examination and release for the imported and exported goods.

Article 10 The international trade in services shall be carried out in compliance with the provisions of this Law and other relevant laws and administrative regulations.
    The units engaged in foreign contract of construction project or foreign labor cooperation shall be equipped with corresponding eligibility or qualification. The specific measures therefore shall be laid down by the State Council.

Article 11 The State may implement state trading on certain goods. The import and export of the goods subject to state trading shall be operated only by the authorized enterprises unless the state allows the import and export of certain quantities of the goods subject to state trading to be operated by the enterprises without authorization.

The lists of the goods subject to state trading and the authorized enterprises shall be determined, adjusted and made public by the authority responsible for foreign trade under the State Council in conjunction with other relevant authorities under the State Council.

In the event of importation of the goods subject to state trading without authorization in violation of paragraph 1 of this Article, the Customs shall not grant release.

Article 12 Foreign trade dealers may accept the authorization of others and conduct foreign trade as an agent within its scope of business.

Article 13 Foreign trade dealers shall, in accordance with the regulations laid down by the authority responsible for foreign trade under the State Council or other relevant authorities under the State Council in accordance with law, submit the documents and materials relevant to their foreign trade dealings to relevant authorities. The authorities concerned shall keep business secrets confidential for the providers thereof.
Chapter 3 Import and Export of Goods and Technologies
Article 14 The State permit free import and export of goods and technologies unless the laws or administrative regulations provide otherwise.
    Article 15 The authority responsible for foreign trade under the State Council may, in accordance with the need to supervise import and export, implement automatic import and export licensing certain goods subject to free import and export and make public the list thereof.

Where the consignee or the consigner of the imported or exported goods subject to automatic licensing submits the automatic licensing application before going through the Customs declaration procedures, the authority responsible for foreign trade under the State Council or its authorized authorities shall grant approval. In case of failure to accomplish automatic licensing procedures, the Customs shall not grant release.   
   

In the case of importing or exporting technologies subject to free import and export, the contracts thereof shall be registered with the authority responsible for foreign trade under the State Council or its authorized authorities.

Article 16 The State may restrict or prohibit the import or export of relevant goods and technologies for the following reasons that: 
    (1) the import or export needs to be restricted or prohibited in order to safeguard the state security, public interests or public morals,

(2) the import or export needs to be restricted or prohibited in order to protect the human health or security, the animals and plants life or health or the environment
    (3) the import or export needs to be restricted or prohibited in order to implement the measures relating to the importations and exportations of gold or silver,

(4) the export needs to be restricted or prohibited in the case of domestic shortage in supply or the effective protection of exhaustible natural resources
    (5) the export needs to be restricted in the case of the limited market capacity of the importing country or region,

(6) the export needs to be restricted in the case of the occurrence of serious confusion in the export operation order   
    (7) the import needs to be restricted in order to establish or accelerate the establishment of a particular domestic industry.   
    (8) the restriction on the import of agricultural, animal husbandry or fishery products in any form is necessary.

(9) the import needs to be restricted in order to maintain the State’s international financial status and the balance of international payment.   
    (10) the import or export needs to be restricted or prohibited as laws and administrative regulations so provide, or
   

(11) the import or export needs to be restricted or prohibited as the international treaties or agreements to which the state is a contracting party or a participating party so require.

Article 17 The State may, in the case of the import or export of the goods and technologies relating to fissionable and fissionable materials or the materials form which they are derived as well as the import or export relating to arms, ammunition and implements for war, take any measures as necessary to safeguard the state security.
   

The State may, in the time of war or for the protection of international peace and security, take any measures as necessary in respect of import or export of goods and technologies.

Article 18 The authority responsible for foreign trade under the State Council in conjunction with other relevant authorities under the State Council shall, in accordance with the provisions of Articles 16 and 17 in this Law, establish, adjust and publish the list of goods and technologies of which the import or export is subject to restrictions or prohibitions.

The authority responsible for foreign trade under the State Council independently or in conjunction with other relevant authorities under the State Council may, with the approval from the State Council, decide, on a temporary basis, to impose restrictions or prohibitions on the import or export of goods and technologies not included in the list provided in the above paragraph within the meaning of Article 16 and Article 17 in this Law.

Article 19 Goods subject to import or export restriction shall be subject to quota and/or licensing control; technologies whose import or export is restricted shall be subject to licensing control.
   

 Import or export of any goods and technologies subject to quota and/or licensing control will be effected only with the approval of the authorities responsible for foreign trade under the State Council or the joint approval of the foregoing authorities and other relevant authorities under the State Council in compliance with the provisions of the State Council.    

Certain imported goods may be subject to tariff rate quota control.
Article 20 Quotas and tariff rate quotas of the imported and exported goods shall be distributed on the principles of transparency, equity, impartiality and efficiency by the authority responsible for foreign trade under the State Council or the relevant authorities under the State Council within their respective responsibilities. Specific measures for the distribution shall be laid down by the State Council.

Article 21 The state shall implement the commodity assessment system in a uniform manner and in accordance with the provisions of relevant laws and administrative regulations carry out certification, inspection or quarantine in respect of imported and exported commodities.

Article 22 The state shall implement origin management in respect of the imported and exported goods. Specific measures therefore shall be laid down by the State Council.
    Article 23 Where the import or export of cultural relics, wildlife animals, plants and the products thereof are prohibited or restricted by other laws or administrative regulations, the provisions of relevant laws and regulations shall be observed.
Chapter 4 International Trade in Services
Article 24 In respect of international trade in services, the People’s Republic of China shall, in accordance with the commitments made in international treaties or agreements to which the People’s Republic of China is a contracting party or a participating party, grant the other contracting parties or participating parties market access and national treatment.

Article 25 The authority responsible for foreign trade under the State Council in conjunction with other relevant authorities under the State Council shall, pursuant to provisions of this Law and other laws and administrative regulations, administer the international trade in services.

Article 26 The State may impose restrictions and prohibitions on the international trade in services for the reasons that:
    (1) restrictions or prohibitions are needed to safeguard the state security, public interests or public morals

(2) restrictions or prohibitions are needed to protect the human health or security, the animals and plants life or health or the environment.   
    (3) restrictions are needed to establish or accelerate the establishment of a particular domestic service industry.   
    (4) restrictions are needed to maintain the balance of international payment of the state,

(5) restrictions or prohibitions are needed as laws and administrative regulations so provide, or (6) restrictions or prohibitions are needed as the international treaties or agreements to which the state is a contracting party or a participating party so require.

Article 27 The State may, in the case of military-related international trade in services, as well as the international trade in services relating to fissionable and fissionable materials or the materials form which they are derived, take any measures as necessary to safeguard the state security.
    The state may, in the time of war or for the protection of international peace and security, take any measures as necessary in respect of international trade in services.

Article 28 The authority responsible for foreign trade under the State Council in conjunction with other relevant authorities under the State Council shall, in accordance with the provisions of Articles 26 and 27 in this Law and other relevant laws and administrative regulations, determine, adjust and publish the market access list of international trade in services.

Chapter 5 Protection of Trade-Related Aspects of Intellectual Property Rights
Article 29 The State shall, in accordance with laws and administrative regulations relevant to intellectual property rights, protect trade-related aspects of intellectual property rights.

Where the imported goods infringe intellectual property rights and impair foreign trade order, the authority responsible for foreign trade under the State Council may take such measures as prohibiting the import of the relevant goods from being produced or sold by the infringer within a certain period.

Article 30 Where the intellectual property right owner is involved in any one of such practices as preventing the licensee form challenging the validity of the intellectual property right in the licensing contract, conducting coercive package licensing or incorporating exclusive grantback conditions in the licensing contract,

which impairs the fair competition order of foreign trade, the authority responsible for foreign trade under the State Council may take measures as necessary to eliminate such impairment.

Article 31 If other countries or regions do not grant the legal persons, other organizations and individual from the People’s Republic of China national treatment in respect of the protection of intellectual property rights, or cannot provide adequate and effective protection of intellectual property rights for the goods, technologies or services from the People’s Republic of China, the authority responsible for foreign trade under the

State Council may, in accordance with the provisions of this Law and other relevant laws and administrative regulations and the international treaties or agreements to which the People’s Republic of China is a contracting party or a participating party, take measures as necessary in respect of the trade with the country or region in question.

Chapter 6 Foreign Trade Order
Article 32 In foreign trade dealings, monopolistic behavior in violation of relevant provisions of anti-monopoly laws and administrative regulations is not allowed.
    In foreign trade dealings, any monopolistic behavior with the effect of eliminating market fair competition shall be disposed of in accordance with relevant provisions of anti-monopoly laws and administrative regulations.

Where any activities in violation of laws set forth in the former paragraph occur with the effect of impairing foreign trade order, the authority responsible for foreign trade under the State Council may take measures as necessary to eliminate the impairment.

Article 33 In foreign trade activities, such unfair competition activities as selling the products at unreasonable low prices, colluding with each other in a tender, producing and releasing false advertisements and conducting commercial bribery and others like are not allowed.    
   

Any unfair competitive practice conducted in the foreign trade activities shall be disposed of in accordance with relevant laws and administrative regulations against unfair competition.

Where any illegal activities as provided in the previous paragraph occur with the effect of impairing foreign trade order, the authority responsible for foreign trade under the State Council may take such measures as prohibiting the dealer from importing and exporting relevant goods and technologies to eliminate the impairment.

Article 34 The following practices are not allowed in foreign trade activities:
    (1) forgery, distortion of origin marks of the imported and exported goods; forgery, distortion or trading of origin certificates of imported or exported goods, import and export licenses, certificates of import and export quota or any other certificate for import and export;

(2) defrauding the State of the refunded tax on exports;
    (3) smuggling;
    (4) evading certification, inspection and quarantine inspection as provided by laws and administrative regulations;
    (5) other activities in violation of the provisions of laws and administrative regulations.

Article 35 In foreign trade activities, foreign trade dealers shall act in compliance with relevant provisions of foreign exchange administration of the state.
    Article 36 The authority responsible for foreign trade under the State Council may give a notice to the public the activities in violation of this Law for impairing foreign trade order.
Chapter 7 Foreign Trade Investigation
Article 37 In order to maintain the foreign trade order, the authority responsible for foreign trade under the State Council may carry out investigations on the following matters in accordance with laws and administrative regulations at its disposal or in conjunction with other relevant administrations:

(1) the impact on the domestic industry as well as the competitive strengths of import and export of goods, import and export of technologies and international trade in services;

(2) trade barriers of relevant countries or regions;
(3) matters needed to be investigated on in order to determine whether such foreign trade remedies as anti-dumping, countervailing or safeguard measures shall be taken;

(4) activities that circumvent foreign trade remedies;
    (5) matters in relation to state security in foreign trade;
    (6) matters needed to be investigated on in order to enforce the provisions of Articles 7, 29(2),30,31,32(3) and 33(3).
(7) Other matters which may have impact on foreign trade order and need to be investigated

Article 38 The authority responsible for foreign trade shall give a notice in case of initiating foreign trade investigations.    
    The investigation may take the form of questionnaires in writing, hearings, on-the-spot investigations, entrusted investigations and otherwise.
   

The authority responsible for foreign trade under the State Council shall, on the basis of the findings, submit investigation reports or make determinations and give public notices.

Article 39 Relevant units and individuals shall provide the foreign trade investigation with cooperation and assistance.   
The authority in charge of foreign trade and other authorities under the State Council as well as their staff members shall have the obligation to keep the state secrets and business secrets known to them confidential during foreign trade investigations.
Chapter 8 Foreign Trade Remedies
Article 40 The State may take appropriate foreign trade remedies on the basis of the findings of foreign trade investigation.   
   

Article 41 Where a product from other countries or regions is dumped into the domestic market at a price less than its normal value and under such conditions as to cause or threaten to cause material injury to the established domestic industries, or materially retards the establishment of domestic industries, the State may take anti-dumping measures to eliminate or mitigate such injury, threat of injury or retardation.

Article 42 Where the export of a product from other countries or regions to the market of a third country causes or threatens to cause material injury to the established domestic industries, or materially retards the establishment of domestic industries, the authority responsible for foreign trade under the State Council may, on the request of the domestic industries, carry out consultations with the government of that third country and require it to take appropriate measures.

Article 43 Where an imported product has directly or indirectly accepts any specific subsidiary granted by the exporting country or region and under such conditions as to cause or threaten to cause material injury to the established domestic industries, or materially retards the establishment of related domestic industries, the State may take countervailing measures to eliminate or mitigate such injury or threat of injury or retardation.

Article 44 Where a product is being imported in substantially increased quantities and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products, the State may take safeguard measures as necessary to eliminate or mitigate such injury or threat of injury and provide the industry concerned with necessary support.

Article 45 Where the increase of services provided to China by the service suppliers from other countries or regions causes or threatens to cause injury to the domestic industries that provide like or directly competitive services, the State may take remedies as necessary to eliminate or mitigate such injury or threat of injury and provide such industry with necessary support.

Article 46 Where the restriction imposed by a third country on the import of a certain product causes the increase in quantities of such product imported into the domestic market and under such conditions as to cause or threaten to cause injury to the established domestic industry, or materially retards the establishment of related domestic industries, the state may take remedies as necessary to restrict the import of the product concerned.

Article 47 Where any country or region that enters into or participate in the economic and trade treaties or agreements with the People’s Republic of China deprives the People’s Republic of China of or impairs her interests under such treaties or agreements, or hinders realization of the object of such treaties or agreements,

the People’s Republic of China has the right to request the relevant country or region to take appropriate remedies and has the right to suspend or terminate its performance of relevant obligations in compliance with relevant treaties and agreements.

Article 48 The authority responsible for foreign trade under the State Council shall carry out bilateral or multilateral foreign trade consultations, negotiations and settle disputes in accordance with this Law and other relevant laws.

Article 49 The authority responsible for foreign trade under the State Council and the other relevant authorities under the State Council shall establish the pre-warning and emergency system for import and export of goods, import and export of technologies and international trade in services so as to cope with the unexpected and unusual situations in foreign trade for the purpose of safeguarding the economic security of the State.

Article 50 The State may take necessary anti-circumvention measures against the activities circumventing the foreign trade remedies provided under this Law.
Chapter 9 Foreign Trade Promotion
Article 51 The State formulates foreign trade expansion strategies, establishes and improves the foreign trade promotion mechanism.   
Article 52 The State shall establish and improve financial institutions for foreign trade and establish funds for foreign trade development and risk as the development of foreign trade requires.

Article 53 The State may take such measures as import and export credit, export credit insurance, export tax refund and other foreign trade promotion measures for the purpose of developing foreign trade.    
    Article 54 The State establishes the foreign trade public information service system, providing foreign trade dealers and the public with information services.

Article 55 The State shall take measures to encourage foreign trade dealer to explore international market, and develop foreign trade by adopting various forms such as foreign investment, foreign contract of construction project and foreign labor cooperation.

Article 56 Foreign trade dealers may organize or participate in relevant associations or chambers of commerce for importers and exporters in accordance with the law.
   

Relevant associations or chambers of commerce shall abide by relevant laws and regulations, provide in compliance with their articles of association their members with foreign trade related services in aspects of manufacturing, marketing, information and training, play a positive role in coordination and self-discipline, submit applications for relevant foreign trade remedies, safeguard the interests of their members and the industry, report to the relevant authorities the suggestions of their members with respect to foreign trade promotion, and actively promote foreign trade.

Article 57 The organization for the promotion of international trade in China shall, in accordance with its articles of association, engage in developing foreign trade relations, sponsoring exhibitions, providing information and advisory services and carry out other foreign trade promotion activities.

Article 58 The State shall support and facilitate the foreign trade carried out by small and medium-sized enterprises with small or middle scale.
    Article 59 The State shall support and promote the development of foreign trade in national autonomous areas and economically under-developed areas.
Chapter 10 Legal Liabilities
Article 60 Anyone who imports or exports the goods subject to the state trading without authorization in violation of Article 11 of this Law may be imposed on a fine of not more than RMB 50,000 yuan by the authority responsible for foreign trade under the State Council or other authorities under the State Council;

if the circumstances are serious, the aforesaid authorities may refuse to accept the application submitted by the trade dealer in violation of laws for carrying out imports or exports of the goods subject to state trading within three years from the date the administrative sanction decision takes effect or may withdraw the granted authorization of import and export of goods subject to state trading.

Article 61 Anyone who imports and exports the goods of which import and export is prohibited, or imports and exports the goods of which import and export is restricted without authorization shall be disposed of and punished by the Customs in accordance with relevant laws and administrative regulations; if the case constitutes a crime, he shall be prosecuted for criminal liabilities in accordance with the law.

Anyone who imports and exports the technologies of which import and export is prohibited, or imports and exports the technologies of which import and export is restricted without authorization shall be disposed of and punished in accordance with relevant laws and regulations;

Where no laws or regulations are available to apply to such activities, the authority responsible for foreign trade under the State Council shall order him to make a rectification, confiscate the illegal proceeds and impose a fine from one to five times the amount of the illegal gains.

If there are no illegal proceeds or the illegal proceeds are less than RMB 10,000 yuan, a fine from RMB 10,000 yuan to RMB 50,000 yuan shall be imposed; if the case constitutes a crime, he shall be prosecuted for criminal liabilities in accordance with the law.

The authority responsible for foreign trade under the State Council and other relevant authorities under the State Council may, from the date when the administrative sanction decision or criminal penalty judgment takes effect as provided in paragraphs 1 and 2 of this Article, refuse the applications for import and export quotas or licenses submitted by the law-breaker, or prohibit the law-breaker from engaging in the import and export of relevant goods and technologies within a period from one to three years.

Article 62 Anyone who engages in the international trade in services subject to prohibition or engages in international trade in services subject to restriction without authorization shall be disposed of and punished in accordance relevant laws and administrative regulations;

Where no laws or regulations are available to apply to such activities, the authority responsible for foreign trade under the State Council shall order him to make a rectification, confiscate the illegal gains and impose a fine from one to five times the amount of the illegal proceeds.

If there are no illegal proceeds or the illegal proceeds are less than RMB 10,000 yuan, a fine from RMB 10,000 yuan to RMB 50,000 yuan shall be imposed; if the case constitutes a crime, he shall be prosecuted for criminal liabilities in accordance with the law.

The authority responsible for foreign trade under the State Council may, from the date when the administrative sanction decision or criminal penalty judgment takes effect as provided in the previous paragraph of this Article, prohibit the law-breaker from engaging in relevant international trade in services within a period from one to three years.

Article 63 Anyone who acts in violation of the provision of Article 34 of this Law shall be punished in accordance with relevant laws and administrative regulations; if the case constitutes a crime, he shall be prosecuted for criminal liabilities in accordance with the law.

The authority responsible for foreign trade under the State Council may, from the date when the administrative sanction decision or criminal penalty judgment takes effect as provided in the previous paragraph of this Article, prohibit the law-breaker from engaging in relevant foreign trade activities within a period from one to three years.

Article 64 Where a foreign trade dealer is prohibited from engaging in the relevant foreign trade activities in accordance with Articles 61-63, within the period of prohibition the Customs authority shall not grant release to the relevant imported or exported goods of that foreign trade dealer in accordance with the decision made by the authority responsible for foreign trade under the State Council,

and the foreign exchange administration or designated foreign exchange banks shall not process the procedures of selling and purchasing foreign exchange.

Article 65 Any staff member serving in the authority responsible for foreign trade in accordance with this Law who neglects his duty, engages in malpractices for personal gains or abuses his power, shall be prosecuted for criminal liabilities if the case constitutes a crime, or shall be subject to administrative sanctions if the case dose not constitute a crime in accordance with the law.

Any staff member serving in the authority responsible for foreign trade in accordance with this Law, who extorts property from others with job convenience or illegally accepts others’ property and seeks advantages for them in return shall be prosecuted for criminal liabilities if the case constitutes a crime, or shall be subject to administrative sanctions if the case does not constitute a crime in accordance with the law.

Article 66 The parties in the foreign trade activities may apply for an administrative reconsideration or bring an administrative lawsuit before a people’s court in case of dissatisfaction with a specific administrative act by the authority responsible for foreign trade administration in accordance with this Law.
Chapter 10 Supplementary Provisions
Article 67 Where other laws or administrative regulations provide otherwise in respect of foreign trade administration of military supplies, fissionable and fissionable materials or the materials form which they are derived and import and export administration of cultural products, the provisions thereof shall be observed.

Article 68 The State applies flexible measures, provides preferential conditions and conveniences to the trade between the towns on the frontier and those towns of neighboring countries on frontier as well as trade among border residents. 
    Specific measures therefore shall be laid down by the State Council.

Article 69 This Law shall not apply to the separate customs territories of the People’s Republic of China.
 Article 70 This Law shall come into force as of July 1, 2004.
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Read following laws and regulations
Regulations for the Implementation of the Law on Sino-foreign Equity Joint Ventures (2001)(2001-07-22)
Provisions on the Establishment of Investment Companies with Foreign Investment(2004-02-13)
Measures for Administration of Chinese-foreign Cooperative Distribution Enterprises(2003-12-08)

CHAPTER I GENERAL PROVISIONS
Article 1.

This Law is formulated for the purpose of
safeguarding state sovereignty and interests
strengthening supervision and control by the Customs
promoting exchanges with foreign countries in economic affairs, trade, science, technology and culture, and ensuring socialist modernization.

Article 2.

The Customs of the People’s Republic of China shall be the state organ responsible for supervision and control over everything entering and leaving the customs territory ( hereinafter referred to as inward and outward persons and objects).

The Customs shall, in accordance with this Law and other related laws and regulations, exercise supervision and control over the means of transport, goods, travellers’ luggage, postal items and other articles entering or leaving the territory (hereinafter referred to as inward and outward means of transport, goods and articles), collect customs duties and other taxes and fees uncover and suppress smuggling work out customs statistics and handle other customs operations.

Article 3.

The State Council shall set up the General Customs Administration which shall exercise unified administration of the customs establishments throughout the country.
The state shall set up customs establishments at ports open to foreign countries and regions and at places which call for concentrated customs operations of supervision and control.

The subordination of one customs establishment to another shall not be restricted by administrative divisions. The customs establishments shall exercise their functions and powers independently in accordance with the law, and shall be responsible to the General Customs Administration.

Article 4. A customs establishment shall exercise the following powers:

(1) to check inward and outward means of transport and examine inward and outward goods and articles; to detain those entering or leaving the territory in violation of this Law or other relevant laws and regulations;

(2) to examine the papers and identifications of persons entering or leaving the territory; to interrogate those suspected of violating this Law or other relevant laws and regulations, and investigate their illegal activities;

(3) to examine and make copies of contracts, invoices, book accounts, bills, records, documents, business letters and cables, audio and video products and other materials related to the inward and outward means of transport, goods and articles;
to detain those related to the means of transport, goods and articles entering or leaving the territory in violation of this Law or other relevant laws and regulations;

(4) to search, within a customs surveillance zone and the specified coastal or border area in the vicinity of a customs establishment, means of transport suspected of involvement in smuggling, and storage places suspected of concealing smuggled goods and articles, and to search persons suspected of smuggling.

Upon the approval of the director of a customs establishment, a suspected criminal smuggler may be detained and handed over to a judicial organ. Such detention shall not exceed 24 hours and, under special circumstances, may be extended to 48 hours.

The scope of the specified coastal or border area in the vicinity of a customs establishment shall be defined by the General Customs Administration and the public security department under the State Council in conjunction with the relevant provincial people’s governments.

(5) Customs officers may chase means of transport or persons defying and escaping from customs supervision and control to places beyond a customs surveillance zone or the specified coastal or border area in the vicinity of a customs establishment and bring them back to be properly dealt with;

(6) A customs establishment may be provided with arms for the performance of its duties. Rules governing the carrying and use of arms by customs officers shall be drawn up by the General Customs Administration jointly with the public security department under the State Council and reported to the State Council for approval.

Article 5. All inward and outward means of transport, goods and articles shall enter or leave the territory at a place where there is a customs establishment.

If, under special circumstances, they have to enter or leave the territory at a place without a customs establishment as a matter of contingency, permission shall be obtained from the State Council or an organ authorized by the State Council, and customs formalities shall be duly completed in accordance with this Law.

Article 6. Unless otherwise provided for, all import and export goods shall be declared and duties on them paid by declaration enterprises registered with the Customs, or by enterprises entitled to engage in import and export business.
The persons of these enterprises in charge of the declaration shall be evaluated and approved by the Customs.

The customs formalities concerning declaration of inward and outward articles and payment of duties on them may be completed either by the owner or by a person the owner has entrusted to act as his agent. The agent entrusted to complete the declaration formalities shall abide by all provisions of this Law applicable to the owner.

Article 7. Customs personnel shall abide by the laws and regulations, enforce the law impartially, be devoted to their duties and render services in a civilized manner.
No unit or individual may obstruct the Customs from performing its duties according to law.

Where a customs officer meets with resistance while carrying out his duties, the public security organ and the People’s Armed Police units performing related tasks shall provide assistance.

CHAPTER V CUSTOMS DUTIES
Article 35. Unless otherwise provided for in this Law, customs duties shall be levied according to the import and export tariff on goods permitted to be imported or exported and articles permitted to enter or leave the territory. The tariff shall be made known to the public.

Article 36. The consignee of import goods, the consignor of export goods and the owner of inward and outward articles shall be the obligatory customs duty payer.

Article 37. The customs duty payer of import or export goods shall pay the amount levied within seven days following the date of issuance of the duty memorandum.
In case of failure to meet this time limit, a fee for delayed payment shall be imposed by the Customs.
Where the delay exceeds three months, the Customs may instruct the guarantor to pay the duties or sell off the goods to offset the duties.

The Customs may inform the bank to deduct the amount of duties due from the deposits of the guarantor or the obligatory customs duty payer when it considers this necessary.
The payment of duties on inward or outward articles shall be made, prior to their release, by the obligatory customs duty payer.

Article 38. The duty-paying value of an import item shall be its normal CIF price, which shall be approved by the Customs;
the duty-paying value of an export item shall be its normal FOB price, which shall be approved by the Customs, minus the export duty.
Where it is impossible to ascertain the CIF or FOB price, the duty-paying value of an import or export item shall be fixed by the Customs.

The duty-paying value of an inward or outward article shall be fixed by the Customs.

Article 39. Duty reduction or exemption shall be granted for import or export goods and inward or outward articles listed below:
(1) advertising items and trade samples of no commercial value;
(2) materials presented free of charge by foreign governments or international organizations;
(3) goods to which damage or loss has occurred prior to customs release

(4) articles of a quantity or value within the fixed limit;
(5) other goods and articles specified by law as items for duty reduction or exemption;
(6) goods and articles specified as items for duty reduction or exemption by international treaties to which the People’s Republic of China is either a contracting or an acceding party.

Article 40. Duty reduction or exemption may be granted for import and export goods of the Special Economic Zones and other specially designated areas;
for import and export goods of specific enterprises such as Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and enterprises with exclusive foreign investment;

for import and export goods devoted to specific purposes;
for materials donated for use by public welfare undertakings. The State Council shall define the scope and formulate the rules for such reduction and exemption.

The State Council or departments empowered by the State Council shall define the scope and formulate the rules for duty reduction or exemption involved in small volumes of border transactions.

Article 41. All import goods and articles for which duty reduction or exemption is granted in accordance with the preceding Article shall be used only in specific areas and enterprises or for specific purposes. They shall not be utilized otherwise unless customs approval is obtained and duties duly paid.

Article 42. Temporary duty reduction or exemption not specified in Article 39 and 40 of this law shall be examined and approved by the General Customs Administration independently or jointly with the financial department under the State Council in accordance with the regulations of the State Council.

Article 43. Temporary duty exemption shall be granted for goods approved by the Customs as temporarily imported or exported items and for bonded goods imported by special permission after the consignee or the consignor of the goods submits to the Customs a guarantee or a deposit of an amount equal to the duties.

Article 44. Where the Customs finds that the duties are short-levied or not levied on a consignment of import or export goods or on an inward or outward article after its release, the Customs shall collect the money payable from the obligatory customs duty payer within one year of the previous duty payment or the release of the item.

If the short-levied or non-levied duties are attributable to the duty payer’s violation of the customs regulations, the Customs may collect the unpaid amount from him within three years.

Article 45. Where the duties are over-levied, the Customs, upon discovery, shall refund the money without delay. The duty payer may ask the Customs for refunding within one year of the date of duty payment.

Article 46. Where the obligatory customs duty payer is involved in a dispute over duty payment with the Customs, he shall first pay the duties and may, within 30 days of the issuance of the duty memorandum, apply to the Customs in writing for a reconsideration of the case. The Customs shall reach a decision within 15 days of the receipt of the application.

If the obligatory customs duty payer refuses to accept the decision, he may apply to the General Customs Administration for a reconsideration of the case within 15 days of the receipt of the decision.
If the decision of the General Customs Administration is still considered unacceptable by the obligatory customs duty payer, he may file a suit in a people’s court within 15 days of the receipt of the decision.

CHAPTER VI LEGAL RESPONSIBILITY
Article 47. Evasion of customs control in one of the forms listed below shall constitute a crime of smuggling:
(1) to transport, carry or send by post into or out of the territory narcotic drugs, weapons or counterfeit currencies which are prohibited by the state from being imported or exported;

to transport, carry or send by post into or out of the territory obscene objects for the purpose of profit-making or dissemination; or to transport, carry or send by post out of the territory cultural relics which are prohibited by the state from being exported; (2) to transport, carry or send by post into or out of the territory, for the purpose of making a profit, articles in relatively large quantities or of a relatively high value which are prohibited by the state from being imported or exported, but which are not included in item (1) of this Article; and goods or articles in relatively large quantities or of a relatively high value whose importation or exportation is restricted by the state or which are subject to the collection of customs duties according to law; (3) to sell, without customs approval and payment of duties, bonded goods imported by special permission or goods listed for special duty reduction or exemption which are in relatively large quantities or of a relatively high value. Any armed smuggling or resistance by violence to customs examination of smuggled goods or articles shall constitute a crime of smuggling, whatever the quantity or value of the goods or articles involved.

The criminal punishments imposed by the people’s court to persons guilty of smuggling include imposing a fine and the confiscation of the smuggled goods or articles, of the means of transport used for smuggling and of the illegal proceeds obtained therefrom.

Where an enterprise, an institution or a state organ or a public organization is guilty of smuggling, the judicial organ shall investigate and determine the criminal responsibility of the person or persons in charge
and the person or persons directly answerable for the offence, and issue an order to impose a fine on the unit and confiscate the smuggled goods or articles, the means of transport used for smuggling and the illegal proceeds obtained therefrom.

Article 48. If the smuggled goods and articles involved in one of the acts listed under item (2) and (3) of Article 47 of this Law are not large in quantity nor of high value, or where the carrying or sending by post of obscene objects into or out of the territory does not yet constitute a crime of smuggling, the Customs may, while confiscating the goods, articles or illegal proceeds obtained therefrom, concurrently impose a fine on the person or persons concerned.

Article 49. Any of the following acts shall be dealt with as a crime of smuggling and shall be punishable in accordance with the provisions of Article 47 of this Law:
(1) to purchase directly and illegally from a smuggler articles which are prohibited by the state from being imported; or to purchase directly and illegally from a smuggler other smuggled goods or articles in relatively large quantities or of a relatively high value;

(2) to transport, purchase or sell on inland or territorial waters articles which are prohibited by the state from being imported or exported;
to transport, purchase or sell without legal certification goods or articles whose importation or exportation is restricted by the state and which are in relatively large quantities or of a relatively high value.

Where an act listed in the preceding paragraphs does not yet constitute a crime of smuggling, punishment shall be applied in accordance with the provisions of Article 48 of this Law.

Article 50. Any individual who carries or sends by post articles for personal use into or out of the territory in a quantity exceeding the reasonable limit and fails to declare them to the Customs shall be made to pay the duties and may be fined.

Article 52. The smuggled goods and articles, illegal incomes and means of transport used for smuggling which are confiscated and the fines which are imposed by order of the people’s court shall all be turned over to the State Treasury,
so shall be the smuggled goods and articles and illegal incomes which are confiscated and the fines which are imposed by decision of the Customs.

It is the responsibility of the Customs to handle all smuggled goods and articles and the means of transport used for smuggling which are confiscated by order of the people’s court or by decision of the Customs and to turn them over to the State Treasury in accordance with the regulations of the State Council.

Article 53. If the party concerned objects to the customs decision of punishment, he may hand in an application for a reconsideration of the case, either to the customs establishment making the decision or to one at the next higher level, within 30 days of the receipt of the notification on punishment or, in case notification is impossible, within 30 days of the public announcement of the punishment.

If the party concerned finds the decision reached after reconsideration still unacceptable, he may file a suit in a people’s court within 30 days of the receipt of the decision.
The party concerned may also file a suit directly in a people’s court within 30 days of the receipt of the notification on punishment or within 30 days of the public announcement of the punishment.

If the party concerned refuses to carry out the Customs decision and fails to apply for a reconsideration of the case or file a suit in a people’s court within the prescribed time limit, the customs establishment making the decision of punishment may confiscate the deposit of the party concerned or sell off the goods, articles or means of transport it has detained to substitute for the penalty, or ask the people’s court for mandatory execution of the decision.

Article 54. If the Customs causes damage to any inward and outward goods or articles while examining them, it shall make up for the actual loss from such damage.

Article 55. The criminal responsibility of any customs personnel who divide up confiscated smuggled goods or articles among themselves shall be investigated and determined in accordance with Article 155 of the Criminal Law of the People’s Republic of China.

No customs personnel shall be allowed to purchase confiscated smuggled goods or articles. Those who have done so shall be made to return the goods or articles, and may be given a disciplinary sanction.

Article 56. Any customs personnel who abuse their powers and intentionally create difficulties in or procrastinate the control and examination process shall be given a disciplinary sanction.
Those who act illegally for personal gains, neglect their duties or connive at smuggling shall be given a disciplinary sanction or investigated for criminal responsibility in accordance with the law, depending on the seriousness of the case.

1.Can you tell us what changes in the years since China’s WTO commitment in 2001 you believe have been most fundamental to change in China’s economy and to doing business in China and why you feel these changes have been so instrumental?

1.1 WTO entry was certainly a watershed in China’s commercial   relationships with the international community.
1.2 Broadly speaking, China has adhered to its WTO commitments on time in lowering import taxes and removing formal trade barriers.
1.3 Where there have been trade disputes, notably with the US and the EU, established WTO dispute procedures have been followed.
1.4 China’s economy has been steadily increasing exports, imports of raw materials and capital equipment and even more foreign direct investment — which has stimulated both industrial production and consumption further.
1.5 However, it would be misleading to say that there was a causal effect between WTO entry and China’s robust economic growth.
—The infrastructure of China’s industrial sectors was already embedded and the economy has grown strongly without serious downturns for more than twenty years.
1.6 WTO membership has been the opening up of the domestic market,
—in particular retailing and financial services, to foreign investors.
— WTO membership can take some credit for the greater urgency in the restructure and reform of China’s banking system
—in the more recent drive to expel corruption from state-owned industries and business generally.

2.Whether Chinese government statistics are accurate or can be relied upon? 
—Under the former conditions of a command economy with minimal private business (except for foreign-invested joint ventures) there was a strong motive for provincial and municipal governments, to inflate their economic performance in order to maximize the allocation of resources from central government.
—With the growth of private business which now accounts for around half of China’s GDP and which is not dependent on government hand-outs, I believe that this tendency has diminished.
—The improved methodology and more extensive sampling of the Chinese National Bureau of Statistics have also enhanced the quality of the data.
—Overall trade and FDI figures involving international transactions are of course harder to manipulate.
—-My own opinion is that the annual econometrics which China reports today are probably sound, although some of the quarterly movements may be ‘smoothed’ in order to allay concerns. But that practice is not unknown in more mature developed economies.

3.Intellectual property protection remains a major problem in China. 
Laws have been passed but the reality is that IP still remains a major concern to most multinationals and to many Small and Medium Enterprises (SMEs) who more recently are following them into China. 

What is your assessment of China’s overall track record in enforcing intellectual property protection throughout the nation? 
What areas still remain most problematic and are there areas you can cite and examples where there has been progress?
—There is no panacea to this problem. There have been some high profile examples of successful prosecutions through the authorities rather than the courts, mainly in the field of electronic entertainment .
—but the record is patchy. Automotive multinationals have had a hard time in securing judgments against local entrepreneurs who have pirated the bodywork designs for small sedans manufactured in their Chinese joint venture (JV) plants.

—However, the construction of a complete and modern legal framework for IP rights protection is almost in place
— the central government  is dedicated to enforcement, not least in respect of industrial property rights where a growing number of Chinese companies have developed their own IP.
—-Some provincial authorities are less diligent.

—Foreign investors engaged in manufacturing JVs are better placed than those simply exporting equipment or technology to China
—for the reason that Chinese partners will do their best to protect the IP from which they benefit and are better placed to secure enforcement.

Western partners are well advised to register their industrial IP under Chinese laws in their own name before assigning manufacturing and distribution rights to their JVs.

—-The best advice for those engaged in the export of products from China or the importation of their own products is to cooperate closely with Chinese Customs who are empowered to confiscate products in violation of IP rights and to check goods that both enter and exit Chinese territory. 
4.China announced its decision to move to a managed float of the Chinese currency, the RMB or Yuan.  How has this decision affected  world trade and economic realities in Asia and elsewhere and where do you see this new policy having its most effects if any going forward?

–the 21 July revaluation was only 2.1 per cent and The People’s Bank of China (PBoC) is operating a tight system of control that allows daily fluctuations of just 0.3 percent up or down.
— The effect on the US current account balance will be only about $10 billion. 
— More important is the PBoC stated intention to keep the exchange rate stable against a basket of currencies rather than the dollar alone.

–The adjustment is consistent with the historical pattern of Chinese reforms which have always moved in incremental steps.
–In anticipation of revaluation, foreign currency has been flowing into China this year and the ‘hot money’ is unlikely to abate as further rises in the RMB are expected. China’s short-term capital controls will be under pressure.

The short-term effects on international trade of the controlled float are unlikely to be dramatic.
—Some Chinese factories will feel a pinch on exports, but are as likely to survive on reduced  profit margins rather than raise prices.

—There will be some effect on Chinese agriculture, particularly in sorya beans which is the biggest import crop.  Conversely, broiler chicken producers may benefit to the extent that local grain production is insufficient and feedstock is supplemented by imports. 
Overall, the export prices of industrial products and consumer durables may be little affected since imported raw materials will be cheaper.

However, the longer-term impact of a slowly rising RMB will be significant.
–China’s conversion to the use of monetary tools, not just in exchange rate policy but in management of the banking system, and its growing access to global capital markets means that China is becoming a decision-maker in economies, financial markets and corporate business everywhere. 

5.it is certainly true that the practical environment for doing business with Chinese counterparts has changed in recent years.

—The first change is that there is now a complex framework of commercial law in China, where previously only JV was well articulated. This means that is now essential to hire an experienced law firm for smaller ventures as well as larger, who understands fully the many ambiguities of Chinese law and how it operates in practice.

One of the difficulties is that interpretation of the law and regulations at provincial levels may differ significantly from that of Central Government in Beijing. In the event of disputes, even the largest corporations cannot be sure that the Beijing interpretation will prevail on sensitive issues.
It has always been important to consult the local office of an international firm of accountants on taxation Chinese accounting issues.

The second change is that there are now many highly educated Chinese managers with international management experience and business qualifications who are well versed in foreign investors’ financial planning and control requirements, process management and quality assurance.
They are an important factor in partner selection and are keenly motivated in profit-sharing and stock participation (which are both encouraged now in more advanced Chinese companies).

However, the basics in partner selection remain the same. We characterize the contrasting features of the ‘New China’ and ‘Old China’ companies and the perils of doing business with large state-owned enterprises of the first type either directly or with more enlightened subsidiaries where they exercise ultimate control. 
Remember when making your business marriage that you may be gaining a mother-in-law too !

6.How do you see Chinese companies responding to the competitive pressures to build and exploit an international brand name and how will these affect us all going forward?

–Time is not on China’s side in building global brand recognition for more than a few of its successful companies. In consumer durables, JVs manufacturing to their Western partner’s designs are generally precluded from exporting their products under the partner’s
brand name, even if they are so branded for sale in China.

So, that route to exploiting established brands is blocked. The solution which I expect Chinese companies to adopt is to buy established brands, even if the brand is tarnished as in the case of MG Rover and Marconi.

7.automobiles and components, banking, computer technology, consumables, energy, insurance, media, oil and gas, petrochemicals, advertising, retailing, steel production, telecommunications and travel and tourism.  where do you think the greatest opportunities exist now and why do you feel this way in China?

we think that these are the sectors of financial services, retailing and distribution where the market is opened up to foreign investors, ICT, energy and metals and generally those consumer durables and services which are already benefiting from the Chinese consumer revolution.

About the Author:  Economist and international business strategist, Jonathan Reuvid has specialized in the development of joint ventures and technology transfers in Northern China since 1984.  In 1993 he formed an association with Li Yong, then Managing Director of the Centre for Market and Trade Development (CMTD), to write and publish the first edition of Doing Business with China.

8.the terms – Economic and Technological Development Zones (ETDZs), High-tech Industrial Development Zones (HIDZs), Free Trade Zones (FTZs)  and Export Processing Zones (EPZs).  Can you explain what each of these terms signify and how they differ and can affect a company’s selection of a location?

—-Economic and Technological Development Zone (ETDZ) has the most general function, —- a High-tech Industrial Development Zone (HIDZ) will focus on high-tech industry.
But in reality, the distinction between the two is not clear and often they are differentiated only by name. Currently, new town development is also part of the functions of ETDZ and HIDZ, in order to accelerate the urbanization of China.

Free Trade Zone (FTZ) and Export Processing Zone (EPZ) are two kinds of special zones, whose main function is for international trading, exhibition and export-oriented manufacturing.
Although they are located within the PRC territory, they are deemed outside the Customs. Therefore goods imported to these zones enjoy zero custom duties. 
So choosing the kind of development zones will depend on the nature of your business.

there are also some special functional industrial parks, such as border economic cooperation zones, software development zones, and university science parks etc.

9.Location is always one of the most important factors affecting future returns of today’s investment. 

The development of China is highly divided. The level of progression of a region, including economic development, infrastructure, convenience of transportation, can often translate into investment costs and returns. Not surprisingly, the level of development in one region often has high correlations to the culture, mentality and efficacy of the local officials. 

includes five categories:
1) Location advantages and macroeconomic performance of the host city;
2) Development of industrial park;
3) Cost of investment;
4) The richness of human resourcesï¼›
5) Management and services.

Discuss the similarities and differences in business environment between U.S. and China?
—economic
–Social and cultural
–Tech
–Natural
–legislation
–political

Case Study
KFC-B
1.Political environment
Government intervention(licensing,lease)
2. Planning Economy,Economic development ,Import barrier ,Foreign Exchange rate

3.Social and cultural environment
4.Technology
5.location(Beijing,Shanghai,Guangzhou,Tianjin)
6.legislation
7.Joint venture(partner selection—Beijing animal husbandry product company,Beijing Tourist administration
,invest agreement)

General Introduction

Beijing, the capital of the People’s Republic of China, is the center of the nation’s politics, culture and international exchanges and a modern metropolis full of vitality. The beauty of the city has for hundreds of years attracted numerous people to visit this ancient capital in the East. History and Relics Beijing is home to the well-known "Peking Man (Sinanthropus pekinensis)" relic that dated back 200,000 to 700,000 years ago. Evidence of historical record and excavated relics has proved that the city has stood on its current site for well over 3,000 years. It was the capital city for Liao, Jin, Yuan, Ming and Qing dynasties in ancient and contemporary Chinese history. With the founding of People’s Republic of China on October 1st, 1949, Beijing became the capital of the new republic and has since developed itself into a political and cultural center of China and international exchange hub. Cultural relics in Beijing like the Forbidden City, the Great Wall, Zhoukoudian Peking Man Relics, the Temple of Heaven, the Summer Place and the Ming Tombs are World Cultural and Natural Heritage approved by the United Nations. There are a total of 7,309 historical and relic sites in Beijing among which 60 are classified as national cultural heritages and another 234 are Beijing cultural heritages. Natural Geography Beijing Municipality is located between 116° 20′ east longitude and 39°56′ north latitude, with Tianjin City on its eastern border and Hebei Province on the other three sides. Lying in the northern part of North China Plain, Beijing is surrounded by mountains on the west, the north and the northeast. The northeastern part of the city is high while the southwestern part is low topographically, with a southeastern plain tilted gradually downward to the Bohai Sea. Major rivers flowing through Beijing include Yongding River, Chaobai River, North Canal and Juma River that mostly originated in the northeastern mountainous areas of Beijing. These rivers flow through rugged mountains towards southeastern plain of Beijing and in the end join the Bohai Sea. Beijing has a continental monsoon climate with four distinct seasons. Spring and autumn are short while winter and summer are long. The average temperature of Beijing in year 2002 is 13.2oC. December was the coldest month with an average temperature of -2.9oC while July was the hottest month with an average temperature of 27.5oC. Average annual rainfall in 2002 equaled 370.4 millimeters, which was relatively low. The frost-free period of Beijing for year 2002 was 199 days. Beijing occupies a total area of 16,807.8 square kilometers. Around 10,417.5 square kilometers are mountainous areas, which constitute 62 percent of the total space of Beijing. The plain area of Beijing covers 6,390.3 square kilometers, which accounts for 38 percent of the city’s total area. Beijing municipality has 16 subordinate districts and 2 counties. Population and Nationalities By the end of 2002, Beijing has a total of 14.23 million residents among which 11.363 million people are registered permanent ones. The population density of Beijing is 847 people per square kilometer. According to the Fifth Census conducted in year 2000, average life expectancy of Beijing residents reached 76.7 years. Beijing boasts all 56 ethnic nationalities of the country, with nationality of Hui, Manchu, Mongolia and Korea exceeding 10,000 people.

 

Industries and Trades

Through more than 40 years of construction, Beijing has changed from a consumer-city to a major city with various industries. Beijing ranks second among the top 50 cities in China in terms of comprehensive power, and is the first among the 40 best cities in China in terms of investment environment. Capital Economy Beijing, as China’s political, cultural and international exchange center, is a dynamic city with a wide range of industries. During the years after China adopted reform and open-up policies and especially in the Ninth Five year period (year 1996-2000), CPC Beijing Committee and Beijing Municipal Government have made adjustments to the city’s economic structure and layout to ensure a healthy, sustained economic development for the city. In 2002 particularly, Beijing government managed to overcome the influence of a slowed down world economy and made active adjustment to the new economic environment after China’s entry to WTO. Beijing’s gross domestic production (GDP) in 2002 increased 10.4% from the previous year to reach 321.27 billion Yuan (approximately 38.71 billion U.S. dollars). Beijing is a major city with the greatest development of the tertiary industry with 62.2% of the total GDP devoting to the tertiary industry. Local financial revenue of the city totaled 53.4 billion Yuan (approximately 6.43 billion U.S. dollars) and saw an increase of 25.9 % over 2001 and an average of over 20% increase for a consecutive of eight years. Beijing’s local expenditure was 62.83 billion Yuan (approximately 7.57 billion U.S. dollars), which equaled to an increase of 12.4 over the previous year. Industries Beijing has a fully integrated industrial structure. It has to date nearly 23,800 industrial enterprises, covering fields of electronics, machinery, chemicals, light industry, textile and car manufacturing. Among all the enterprises, there are 4, 551 state-owned ones, with annual sales of over five million Yuan (nearly 602,409.64 U.S. dollars). High tech and modern manufacturing industries have become the leading forces of Beijing’s industrial growth. Total value added of the industrial sector of Beijing achieved 87.47 billion Yuan (approximately 10.54 billion U.S. dollars) in 2002. Gross profit realized and tax collected from medium and large industrial enterprises stood at 59.05 billion Yuan (approximately 7.11 billion U.S. dollars). Agriculture In the year of 2002, Beijing saw the establishment of a modern agriculture structure highlighting cash crops and fruit tree plantation, livestock breeding and eco-tourism. Livestock breeding occupies 55% of the gross agricultural output for Beijing in 2002. Cash crops accounted for 45.4% of the total crops. Post and Telecommunication Beijing has established postal communications with virtually all countries and areas around the world. Residents in Beijing can reach people in 2,300 cities within China via direct domestic long distance phone calls and reach people in about 260 foreign countries via direct international phone calls. By the end of 2002, every 100 Beijing residents owned 51.5 fixed telephone lines city-wide and 74.3 local phone lines in downtown areas. Mobile phone subscribers in Beijing reached 9.2 million and every 100 Beijing residents owned 80.9 mobile phones. In addition, new value-added telecommunication services like data communication, multimedia, Internet and mobile phone messages have developed rapidly in 2002. Finance and Insurance Beijing is home to China’s central bank—People’s Bank of China and headquarters of big national financial and insurance institutions. Gross outstanding of deposits of financial institutions in Beijing totaled 1,527.6 billion Yuan (approximately 184.05 billion U.S. dollars) in 2002. Outstanding of loans amounted to 922.5 billion Yuan (approximately 111.14 billion U.S. dollars). By the end of year 2002, there were 118 representatives of foreign financial institutions and non-operational organizations operating in Beijing, which equals to 50.6% of the total number nationwide. In addition, eighteen foreign banks have set up their branches in Beijing. Foreign and domestic premium in 2002 totaled 22.68 billion Yuan (approximately 2.73 billion U.S. dollars), scoring a 60.9% increase over the previous year. Insurance density of Beijing was 1,255 Yuan (approximately 151.20 U.S. dollars), which was 7.4 times higher than the average national figure. Commerce and Catering Beijing has arranged its commerce layout and developed its service facilities to meet the standards of a modern cosmopolitan city. It features many shopping compounds with comfortable shopping environment. People are now able to enjoy delicacies of any kind of Chinese cuisines and from any parts of the world. Gross retail sales revenue for Beijing’s consumer goods equaled RMB 174.48 billion Yuan (approximately 21.02 billion U.S. dollars) in 2002, which saw an increase of 11.3% over the previous year.

 

Construction and Modernization

With China’s reform and opening up, Beijing is improving urban construction on an unprecedented scale. Its speed of development is astonishing and it brings about changes day by day. Around this graceful ancient capital, a large number of key national projects, massive infrastructure buildings have sprung up. Prospect Approaching the turn of the millennium, Beijing has mapped its blueprint for tomorrow: By 2010, Beijing will achieve an all-round development of economic and social development. The functions as political and cultural center will be further enhanced and brought to perfection. It will become the best city with the most developed culture, education, science and technology, social ethics and conventions and democracy and legal system. An economic system suited to the characteristics of the capital will be completed, led by a new and high technology industry, with developed tertiary industry, rational industrial Structure and high efficiency and high quality. The people’s living standards will be raised to a higher level on the basis of a comfortable level. The city environment will be further improved and the city’s management level will be improved markedly. By 2010, the GDP will be double that of 2000 and a fairly perfect socialist market system will take shape. The comprehensive strength of the economy, science and technology and social development will reach or surpass in some aspects the levels of capital cities of middle developed countries. By the mid-21st century, Beijing will become a modern international metropolis. With full confidence, Beijing is on its march into the new century. New Concepts Economic reform and opening up have created wide variety of new job opportunities. Many of them have never been heard of. These include clerks at foreign companies, fashion models, and free-lance artists. Taking up these jobs are mostly young people. At present, Beijing is home to tens of thousand of Chinese, foreign and Sino-foreign companies, which between them have a work force of hundreds of thousands. Foreign companies alone have employed more than 20,000 locals. Most of them are young professionals and receive high incomes. Their presence can be found in all high-ticket consumption sites. On the Beijing streets, one could often see young people holding mobile phones and driving private cars. Most of them are rising business people. In the past young people used to have their jobs arranged by the government. But today they have shown much interest in taking up their own business to become bosses. They run companies or open shops, exhibiting great enthusiasm. There are also some young people eager to experience life, becoming freelances or change their job frequently. Young parents are not mince at money to enable their children to receive overall and modern education, thus giving rise to all kinds of spare time training class. They hope their children would learn to play piano, chess or sing and dance. Toys designed for intelligence development have become very popular. Education of children has become a matter of first and foremost importance in a family. It has become a new fad for young people to learn driving, operating computers and foreign languages. They hope to master more knowledge and skills in order to cope with the rapid development of the society. Today’s Beijing is developing into a world-class city with unprecedented speed. Only by being in Beijing, can you feel the boundless vitality, the breath enormous changes in the people’s solid step into a bright future. Modern Beijing Beijing thrives today as the political and cultural capital of China as well as a center of international activity and an important socialist base. Great changes have taken place since the founding of the People’s Republic of China in 1949. The city walls were demolished to facilitate transportation and allow for general expansion. By 2001, the population exceeded 12.5 million, and the total municipal area was increased to over 17,800 square kilometers. The city is presently divided into 16 districts: Dongcheng, Xicheng, Chongwen, Xuanwu, Chaoyang, Haidian, Shijingshan, Fengtai, Shunyi, Changping, Mentougou, Tongzhou, Fangshan, Daxing, Huairou and Pinggu. In addition to these urban districts, the municipality is comprised of two counties: Miyun and Yanqing. Plans for future development retain the symmetrical layout of the old city on its north-south axis, extending out into the suburban districts. From Dingfuzhuang in the east to Shijingshan in the west and from Qinghe in the north to Nanyuan in the south, the overall plan covers an area of 1,000 square kilometers. A traffic network of four concentric beltways, 28 radial roads, and underground and suburban railways are being further developed to link the city center with outlying areas and surrounding towns. With Tian’anmen at the center, offices along 38-kilometer-long Chang’an Boulevard will concentrate on state, political and economic affairs. The areas around the Palace Museum (Imperial Palace or Forbidden City) and city gates as well as the lakes — Zhongnanhai, Beihai and Housanhai — have been designated landmark districts. And with a look to the future, an increasing number of historical, cultural and revolutionary sites are being renovated and opened to the public. Urban Construction An annual investment of over hundreds of billion Chinese Yuan input in fixed assets has not only spurred the rapid development of the local economy, but also laid a solid foundation for future development. Year 2002 saw the accumulative investment in fixed assets amounting to 181.43 billion Yuan. Implemented investment for infrastructure in 2002 equaled 41.19 billion Yuan (approximately 4.96 billion U.S. dollars), reaching a record high in Beijing’s infrastructure investment history. Environment Protection and Afforestation After recent years of environment protection efforts since 1998 with dozens of air quality control measures taken in eight phases, Beijing witnessed significant improvement in terms of air quality. In 2002, two hundred and three days in Beijing were rated to have good and excellent air quality. All the pollutant-emitting enterprises have take measures to turn their emissions environmental friendly. There are 4,681 coal-consuming furnaces have switches its power supply from coal to clean energies. Natural gas supply in Beijing reached 2.05 billion cubic meters. Over four million square meters of heating space are now fuelled by electricity. A total of 1,800 public transportation buses are now using clean fuel. About 80.4% of all the vehicles in Beijing have met the environmental standard of exhaust emission. Beijing is also working on the establishment of greenbelt in the city. In 2002, over 51 green areas in urban region and 110 square kilometers of greenbelts around the city were built. Over 200,000 mu (nearly 13,333 hectares) of mountainous areas and 40,000 mu (nearly 2,667 hectares) of land in five places, which were haunted by dust and wind in Beijing were planted with trees. By the end of 2002, public green space reached 7,907 hectares. Trees and grass coverage ratios of Beijing and urban area in Beijing are 45.5% and 40.2% respectively. In terms of urban water system improvement, the Yuyuantan, South Moat and Tonghui River-Gaobeidian Lake water system have been dredged and were turned into a site-seeing waterway route. Daily urban sewage processing capability reached 1.8 million tons, which is 25.9% higher than that of the previous year. Annual sewage processing rate equaled 45%. Pilot garbage sorting and collection projects have been carried out in 250 inhabitant areas. The first phase of Gao’antun Garbage Handling Factory became operational in 2002. Urban garbage has been cleaned and processed daily. About 86.5% of the urban garbage in 2002 was processed to be environmentally harmless.

 

 

Archaic Civilization

With China’s reform and opening up, Beijing is improving urban construction on an unprecedented scale. Its speed of development is astonishing and it brings about changes day by day. Around this graceful ancient capital, a large number of key national projects, massive infrastructure buildings have sprung up. The Number "Nine" and Imperial Buildings It may not be common knowledge among Western visitors that the number "nine" carried a special significance in old China. Ancient Chinese regarded odd numbers as masculine and even numbers as feminine. "Nine, " the largest single digit number, was taken as representing the "ultimate masculine" and was, therefore, symbolic of the supreme sovereignty of the emperor. For this reason, the number "nine" (or its multiples) is often employed in palace structures and designs. A noticeable example is the number of studs on palace gates. The studs are usually arranged in nine rows of nine each, totalling eighty-one. This is even true of the marble gates of the "underground palace" of the Dingling Mausoleum in Beijing: 81 (or 9 X 9) studs were carved out of the stone. If the visitor goes to the Temple of Guan Yu in Luoyang, he will also find on the red gate nine rows of nine wood studs each. This was because Guan was given posthumous honours of an emperor. Ancient palaces generally consisted of nine courtyards or quadrangles; so does the Temple of Confucius in Qufu, Shan-dong Province -a magnificent architectural complex worthy of an imperial household and testifying to the importance attached to the great sage by the courts of various dynasties. The buildings of the Forbidden City of Beijing are traditionally measured as having a total floor space of 9,900 bays-some even say 9, 999 bays, which may be an exaggeration. The picturesque towers guarding the four corners of the palace compound have each 9 beams and 18 columns, and the three famous screen walls (in Datong and Beijing – see above article ) have nine dragons on each. The number "nine" was sometimes combined with "five" to represent imperial majesty. The great hall on Tian’anmen is 9 bays wide by 5 bays deep. There is a seventeen-arched bridge in the Summer Palace of Beijing. This, too, has much to do with "nine". Count the arches from either end, and you will find that the largest span in the middle is the ninth. An extreme example of the "game of nine" is perhaps the Circular Mound Altar (Huanqiutan) in the Temple of Heaven. Site for the Ming and Qing emperors to worship Heaven, the al tar is in three tiers. The upper terrace is made up of nine concentric rings of slabs. The first ring or innermost circle consists of nine fan-shaped slabs, the second ring 18 (2 X 9) slabs, the third 27 (3 X 9)… until the last or ninth ring, made up of 81 or 9 X 9 slabs. The number "nine" is not only used on buildings. The New Year dinner for the imperial house was composed of 99 dishes. To celebrate the birthday of an emperor, the stage performances must comprise of 99 numbers as a sign of good luck and long life. Cloisonne Cloisonne, in which China excels, is known as jingtailan in the country. It first appeared toward the end of the Yuan Dynasty in the mid-14th century, flourished and reached its peak of development during the reign of the Ming emperor Jingtai (1450 – 1457). And as the objects were mostly in blue (lan ) colour, cloisonne came to be called by its present name jingtailan. A jintailan article has a copper body. The design on it is formed by copper wire stuck on with a vegetable glue. Coloured enamel is filled in with different colours kept apart by the wire strips. After being fired four or five times in a kiln, the workpiece is polished and gilded into a colourful and lustrous work of art. During the Ming Dynasty (1368 – 1644), cloisonneware was mainly supplied for use in the imperial palace, in the form of incense-burners, vases, jars, boxes and candlesticks -all in imitation of antique porcelain and bronze. Present-day production, with Beijing as the leading centre, stresses the adding of ornamental beauty to things that are useful. The artifacts include vases, plates , jars , boxes , tea sets . lamps, lanterns, tables, stools, drinking vessels and small articles for the desk. A pair of big cloisonne horses have been made in recent years, each measuring 2.1 metres high and 2. 4 metres long, and weighing about 700 kilograms. They took eight months to finish, involving the labour of hundreds of workers and 60 tons of coal for the firing. They represent the largest object ever made in cloisonne in the 500 years since the art was born. Cloisonneware bears on the surface vitreous enamal which. like porcelain, is hard but brittle, so it must not be knocked against anything hard. To remove dust from it, it should be whisked lightly with a soft cloth. Avoid heavy wiping with a wet cloth, for this might eventually wear off the gilding. Ornamental Pillar A well-known architec tural ornament in China is the huabiao, often seen on the grounds of palaces, imperial gardens and mausoleums. It is also seen at some crossroads to mark the thoroughfares. There is a pair of such ornamental pillars carved out of marble standing in front and behind Tian’anmen, the Gate of Heavenly Peace, at the centre of Beijing. Each pillar, entwined by a divine dragon engraved in relief, carries a plate on top, on which squats an animal called kong. This creature in Chinese mythology is supposed to be born of the dragon and good at keeping watch. It is generally referred to as the "stone lion. " The four kong at Tian’anmen have different names, the two in front facing south and with their backs to the wall are called wangjungui or "looking out for the emperor’s return. " Their duty, it is said, was to watch over the emperor’s excursions and call him back if he was too long absent from the palace. The couple inside the gate facing north are called wangjungchu or " looking out for the emperor’s progress," and their job was to supervise how the emperor behaved in the imperial palace. If he should indulge himself and neglect court affairs, the stone lions would remind him of his duties and tell him it was time to go out among the people. These popular explanations reflected the naive wishes of the people for an emperor who would listen to advice and work really for their good. The huabiao has a long history behind it and can be traced back to Yao and Shun, legendary sage kings in remote times. To solicit public criticism, it is said, they erected wooden crosses at marketplaces so that the people might write their complaints and wishes on them. These wooden posts were replaced during the Han Dynasty (206 B. C. – 220 A. D. ) by stone pillars, which grew more and more decorative and ornately carved until they became the sumptuous columns to palace gates. Palace The Chinese word for "palace" is gong which, however, may refer to anyone of several different things. In the earliest Chinese writings it meant no more than an ordinary house. After the founding of the Qin Dynasty (221207 B. C.), gong came gradually to mean the group of buildings in which the emperor lived and worked. From about the same time, the Chinese palace grew ever larger in scale. The Efanggong (or Epanggong, according to the purists) of the First Emperor of Qin, according to an authoritative source, measured "5 li (2 1/2 km) from east to west and 1,000 paces from north to south. " The Weiyanggong of the Western Han Dynasty (206 B. C. – 24 A. D. ) had, within a periphery of 11 kilometres, as many as 43 halls and terraces. The Forbidden City of Beijing, which still stands intact and which served as the imperial palace for both Ming and Qing emperors (1368-1911), covers an area of 720, 000 square metres and embraces many halls, towers, pavilions and studies, measured as 9,900 bays. It is one of the greatest palaces still existing in the world. In short, the gong grew into a veritable city and is often called gongcheng (palace city). Apart from the palace, other abodes of the emperor are also called gong. So, the Yiheyuan Park used to be the Summer Palace; the Mountain Resort at Chengde and the Huagingchi thermal spa near Xi’an were both xinggong or "palace-ontour. " Then there is another type of gong called zhaigong, where the emperor prepared himself with ablution and abstinence before he offered sacrifice at a grand ceremony. There is one such zhaigong on the grounds of Beijing’s Temple of Heaven. Inside a great gong, certain individual buildings may also be called gong. The Qing emperors used to live at Qianqinggong (Palace of Heavenly Purity) in the Forbidden City, whereas the living quarters of the empresses were at Kunninggong (Palace of Female Tranquility). The imperial concubines of various ranks inhabited the six gong or palace quadrangles on either side of the ‘central axis of the Forbidden City. When the monarchs or their spouses died, they were buried in digong ( underground palaces ). The name gong is also used for religious buildings of great dimensions. The Potala in Lhasa is a gong to the Chinese; the lama temple of Beijing is Yonghegong. The temples of Taoist priests are generally called sanqinggong (palace of triple purity). For thousands of years in old China, the word gong was reserved exclusively for naming imperial and religious buildings. With the passage of time and political changes, many of the old gong have been opened to the general public for sightseeing. Furthermore, a number of buildings have been named gong or palace. For instance, Taimiao or the Imperial Ancestral Temple in Beijing has been renamed the "Working People’s Palace of Culture. " On West Chang’an Jie, a comparatively new building serves as the "Cultural Palace of National Minorities. " Similar gong or palaces have been built in many cities of the country for the cultural, scientific and recreational actvities respectively for workers, youth and children. Hall The than is the largest single building in traditional Chinese architecture and is generally referred to as dadian (grand hall). It is also called zhengdian (central hall) as it is invariably built on the axis of an architectural complex. Corresponding to the rigid ranking system of feudal times, there were strict regulations about the building of palace halls. The dadian was the grandest of all buildings, being symbolic of the supreme power of the emperor. The most famous Chinese than are three: Taihedian or the Hall of Supreme Harmony in Beijing’s Forbidden City, Dachengdian or the Great Hall in the Confucius Temple of Quf u , and Tiankuangdian or the Hall of Celestial Gift in the Daimiao Temple at the foot of Mt. Taishan. Of the three, the Hall of Supreme Harmony in Beijing is the greatest and most splendid. It measures 28 metres high, 11 bays wide and 5 bays deep, totalling 55 bays. Its double-eaved, four-sloped roof is covered with yellow glazed tiles. From each end of the main ridge, which is straight and level, fork down two corner ridges, which curve slightly and turn up at the lower corners, presenting a beautiful skyline. All the ridges are decorated with wenshou or zoomorphic ornaments, adding a mystic flavour to grandeur. At the centre of the ornate interior, the emperor’s throne, gilded in gold and carved with dragons, stands on a platform flanked by six huge columns also entwined with gilded dragons. The caisson ceiling high above carries a dragon carved in relief playing with pearls and has a big glass-ball mirror hanging down from the centre. Taihedian is the main hall of the palace, where grand ceremonies took place and important edicts were read and issued during the days of the emperors. It represents the most sumptuous example of the traditional art of Chinese architecture. Other halls deserving to be called than were mostly buildings where imperial sacrifices took place. Tiankuangdian, mentioned before, was the hall in which the emperors worshipped the God of Mt. Taishan. Qiniandian in Beijing’s Temple of Heaven, famous for its unique structure, was where the emperors prayed for good harvest and has been known as the "Hall of Prayer" among Westerners. For the worship of their ancestors . the emperors used to go to a great hall in Taimiao, the Imperial Family Temple lying to the east of Tian’anmen Gate. The above example suffice to show that the name dian or dadian was reserved only for certain buildings related to the supreme ruler. Zoomorphic Ornaments Chinese palaces, temples and mansions have on their roofs a special kind of ornaments called wenshou or zoomorphic ornaments, some on the main ridges and some on the sloping and branch ridges. The monstrous thing at either end of the main ridge, called chiwen, appears roughly like the tail of a fish. Fierce and formidable, it looks as if it were ready to devour the whole ridge; so it is also known as tunjishou or the ridge-devouring beast. It is, according to Chinese mythology, one of the sons of the Dragon King who rules the seas. It is said to be able to stir up waves and change them into rains. So ancient Chinese put a chiwen at either end of the main ridge for its magic powers to conjure up a downpour to put out any fire that might break out. But for fear that it might gobble up the ridge, they transfixed it on the roof with a sword. At the end of the sloping and branch ridges there are often a string of smaller animals, their sizes and numbers being decided by the status of the owner of the building in the feudal hierarchy. The largest number of zoomorphic ornaments is found on the Taihedian Throne Hall or the Hall of Supreme Harmony of the Forbidden City. Leading the flock is a god riding a phoenix, after whom come a dragon, a phoenix, a lion, a heavenly horse, a sea horse and five other mythological animals, all called by unusual names. Qianqinggong (the Palace of Heavenly Purity), which the emperor used as his living quarters and his office for handling daily affairs, being next in status to Taihedian, has a band of nine animal figures. Still next in importance is Kunninggong (the Palace of Female Tranquility), which served as the empress’s apartments; it has a group of seven zoomorphic figures. This number is further reduced to five for the twelve halls in side courtyards, that used to house the imperial concubines of different grades. Some of the side halls have only one animal figure each on their roofs. These small animals were also believed to be capable of putting out fires. While this can be easily dismissed as superstition, they do add to the grandeur and magnificence of the imperial buildings. The earliest ridge animals so far discovered in the country came to light in 1960 in a suburban area of Shashi, Hubei Province. On the interior wall of a roll tile which served as the body of a ridge animal figure was engraved "first year of Yuanguang," which means the year 134 B.C. It can be seen that installing animal figures on roof-ridges has been an established practice for at least 2,100 years.

 

 

Investment Case Studies

The Successful System Converting of Beijing Jiangong Hospital     At present, the public hospitals in our country are facing the major system reforms and strategies adjustment, and the national investments will exist from some of public hospitals and combine medical resources, where the hospitals established by enterprises and some medium and small-size public hospitals take actions at the utmost first, which will no doubt bring a good chance for the investors intending to developing medical industry. 　　 Where is the direction of development for these public hospitals? Which questions having influences on strategies choice should be resolved in the reform? Which knowledge needs to be unified? And now we will give a brief introductions and comments about the successful converting of Beijing Jiangong Hospital. At earlier 3 year before (that refers to 2000), the Beijing Construction Engineering Co. Ltd. (Group) firstly separates the major businesses and accessorial businesses to respond to the government policies, and peel off the hospital directly under the Group located in Xuanwu district—-Beijing Construction Workers Hospital, and invited public bidding for inducing nongovernmental capitals, cooperated with investors with management experiences and capitals for jointly development. The Phoenix Hospital Group established in 1988 was one of the largest nongovernmental hospital industry groups then and there. And erenow, the Group has successfully purchased Dalian Steel Factory Staff Hospital (Renamed as Dalian New Century Hospital), and set up a whole set of “ management mode of the Phoenix Hospital” applicable to the requirements of the development of market economics, and now, they intend to exploit the Beijing market. The Phoenix Hospital Group grasps the better chance and makes a well-considered practical programs for converting of stock system, pays attentions on the maintaining values of state properties and how to maintain the benefits of two parties and the long-term development of the Hospital focused by the government and enterprises, thus the Group win the bid, and the two parties signed an agreement to convert the stock system of the Hospital based on 34% for the Beijing Construction Engineering Co. Ltd.(Group) while 66% for the Phoenix Hospital Group, after that, the Hospital became the largest profitable and hospital and profitable medical insurance designated hospitals. A board of directors has been established to choose & employ and assign the leaders, properly make arrangements of all the staffs of the original hospital, and give repeat trainings and communications to dismiss the considerations of staffs, reconstruct, rebuild the hospital based on a long-term development views, give the staffs hopes, create expansive spaces in the welfare and business development as well as promotion, thus to achieve the final success of the converting reform. The Hospital formally was renamed as Beijing Jiangong Hospital, which paves the first path in the reforms of Beijing medical organizations. After having been converting systems and re-opened, Beijing Jiangong Hospital takes on a new look. As the leader of nongovernmental hospital, Beijing Jiangong Hospital takes efforts to create brands and put forward individuation services concepts, and positioning itself as one of elaborate hospital, that is to say that the hospital will provide medical technologies services of the third class hospital, adopt the charging standards of the second class hospital and face to patients participating in medical insurance and commons. With Repackaging the Hospital, re-training the staffs, strengthening servicing awareness and making out reasonable charging standards, the Phoenix presents servicing advantages of nongovernmental hospital in the competition with public hospitals. After shorter 3 years, the turnovers of Jiangong Hospital achieves 84 million Yuan RMB from 30 million with 3 times of original turnovers. In view of the developing trends, there are much more spaces for developing. It has approved that the system converting of Beijing Jiangong Hospital is a successful one, which stands on the reforms and advancing with the times to develop for complying with the developments of the economic markets and acting as “bellwether” in the standardized development. Comments of contributing experts: the medical industry in our country is now in the developing stage of reforming and adjusting. On the one hand, the problems rising from the system of medical organizations, management and talents seriously restrict the developments of organizations; at other hand, the bottleneck of the capitals also restricts the reforming of the medical organizations, which face many problems, such as system reform, perfecting management and investments & financing and purchasing for combination, thus more powerful requirements has come into being. The successful experiences of Phoenix Hospital firstly are based on a strategic view, and prefer to choosing the object units needed to be reformed—-Hospitals Under Control of Enterprises (Beijing Jiangong Hospital), which is a non-operating assets peeling off and also is a successful experience of system converting of enterprises, and can be directly applied to the system converting, that is to start from the changes of structures of capitals based on confined objectives and modes, and make further changes of organizational structures, operation management modes, make optimization combination with various resources, make proper arrangements of original staffs, position accurately in the market, set up the new servicing brands and strengthen the competitive power applicable for the economic conditions of markets, and make the medical industry blooming and active, thus the medical industry can make quick development and growth on the path of markets so as to promote the process of the industrialization of Chinese medical industry. —-Beijing Zhengtai Law Firm, Lawyer Yaode He

 

 

Development Zones

To strengthen the attraction to investment and improve the investment environment, Beijing will go all out to build the urban functional districts, so as to form a rational multi-level layout to attract foreign investment. 　　 So far, a structure composed of Zhongguancun Science Park, Beijing Economic-Technological Development Area, Beijing Tianzhu Export Processing Area, Central Business District, Financial Street and Industrial Development Areas, which are well coordinated and developing supplementary to each other, has taken shape in Beijing. 　　 Zhongguancun Science Park is the earliest national high-tech industry development area of China. Its focal point in attracting investment is to attract domestic and foreign investors to set up high-tech enterprises, R&D centers, incubator, and intermediary institutions in the Park, and thereby to make Zhongguancun Science Park a innovation and achievement transferring base. 　　 Over years of development, Beijing Economic-Technological Development Area has become an important area that multinationals and world-renowned firms pile into. It has formalized an industrial structure characterized by pharmaceutical, IT, optical, mechanical & electronic integration and new-type materials industries. By attracting more multinational investment, the Development Area is expected to become a high-tech manufacture-oriented industrial base 　 Beijing Tianzhu Export Processing Area takes electronic communication, warehousing & free trade as well as aviation-related industries as its major industries, and encourages the development of pharmaceutical, machinery, fine chemical, biological engineering and new-type materials industries. As the first national airport free trade zone, the Area will further improve the investment environment and build itself into an international-level high-tech industrial area. 　 Central Business District (CBD) is a key open area of Beijing. It functions mainly as site for headquarters of domestic and foreign renowned companies, financial institutions and intermediary institutions. While developing related supporting service industries, CBD will finally become one of the control centers in economic circuit in Asia Pacific region and the whole world. Currently engaged in the preparation work for the key projects of "core area", World Trade Tower Ⅲand Beijing Fortune Center, CBD has got into the accelerative development stage. 　 Financial Street in Xicheng District has become the most influential area to China’s financial industry. Gathering 530 domestic financial institutions and reputable companies that manage 1,300-billion RMB assets, Financial Street controls 90% credit fund and 65% insurance fund of the country. 　 Additionally, Beijing has ratified to set up 10 city-level and 50 town-level industrial development areas to specially absorb relocated urban industrial companies and foreign investment to develop processing and manufacturing industries. These industrial development areas, in combination with small-town construction, will become the major impetus in accelerating the urbanization process of Beijing’s rural areas. National Development Areas Zhongguancun Science Park Beijing Economic & Technology Development Area Beijing Tianzhu Export Processing Area Central Business District-CBD Financial Street Development Areas At City Level Beijing Shilong Industrial Development Area Beijing Liangxiang Industrial Development Area Beijing Tongzhou Industrial Development Area Beijing Daxing Industrial Development Area Beijing Linhe Industrial Development Area Beijing Tianzhu Airport Development Area Beijing Xinggu Industrial Development Area Beijing Yanqi Industrial Development Area Beijing Miyun Industrial Development Area Beijing Badaling Industrial Development Area Beijing Optics-Machinery-Electronics Integration Industrial Base

  

Beijing has established
cooperation relations with 27 sister cities all over the world…

	City	Country	Date of Sister City Relationship Establishment
1	Tokyo	Japan	1979-03-14
2	New York	U.S.A	1980-02-25
3	Belgrade	Yugoslavia	1980-10-14
4	Lima	Peru	1983-11-21
5	Washington D.C.	U.S.A	1984-05-15
6	Madrid	Spain	1985-09-16
7	Rio de Janeiro	Brazil	1986-11-24
8	Ile-de-France	France	1987-07-02
9	Köln	Germany	1987-09-14
10	Ankara	Turkey	1990-06-20
11	Cairo	Egypt	1990-10-28
12	Islamabad	Pakistan	1992-10-08
13	Jakarta	Indonesia	1992-10-08
14	Bangkok	Thailand	1993-05-26
15	Buenos Aires	Argentina	1993-07-13
16	Seoul	South Korea	1993-10-23
17	Kiev	Ukraine	1993-12-13
18	Berlin	German	1994-04-05
19	Brussels	Belgium	1994-09-22
20	Hanoi	Vietnam	1994-10-06
21	Amsterdam	Holland	1994-10-29
22	Moscow	Russia	1995-05-16
23	Paris	France	1997-10-23
24	Rome	Italy	1998-05-28
25	Gauteng	South Africa	1998-12-06
26	Ottawa	Canada	1999-10-18
27	Canberra	Australia	2000-09-14

Question 1. Can you tell us a little about your city in terms of location in China, population, standard of living, industries, etc?
Answer: Weihai is in Shandong province of China and is located on the east end of Shandong Peninsula. Being on the same latitude as San Francisco in the United States, Weihai is surrounded by sea on three sides, facing Liaoning Penisula to the north and the Korean Peninsula and the Japan Islands to the east. It is the “doorway” to Beijing and Tianjin, thus bearing the name of “coastal front of China”
Weihai has a population of 2.5 million and a total area of 5400 square kilometers. As one of the most developed areas in north China, Weihai achieved a GDP of $8 billion and GDP per capita of $3,070 in 2001, which was the highest in Shandong Province and the same as that of Beijing.

There are four major industries in Weihai:
1. Marine aquaculture and fishery: Weihai is China’s largest base for marine aquaculture and fishery. This accounts for 25% of the City’s GDP.

2. Industrial and agricultural manufacturing: There are more than 10,000 small and medium sized companies that are engaged in industrial and agricultural manufacturing. Weihai is the largest manufacturing base for products such as tires, auto crankshafts, carpets, fishing tackle and carpenter machinery. In addition, Weihai is well known for manufacturing high-speed fax, printing machines, fiber-optical cable, polymer medical appliances, airport equipment, leather shoes, agricultural vehicles and fruit processing.

3. Tourism: Wehai is known throughout China as one of China’s premier tourist cities. Weihai has a lot of scenic spots and historical sites and received about 8 million tourists in 2002. It is extremely popular for tourism during summer time and boasts huge potential for tourism development.

4. Imports and exports: Weihai is one of the earliest trade ports in northern China. It has linking shipping service with major ports in northern China such as Tianjin, Qingdao and Dalian Ports. Additionally, Weihai has cargo and passenger ship service internationally to South Korea, Japan, Hong Kong, etc.
Question 2. How does your city compare to other Chinese cities in terms of economic development, unemployment, educational qualification of the workforce, average wages, GDP per capita and other basic measures of economic success?

Answer: Being one of the 50 cities that have the strongest economy in China, Weihai’s GDP and local government tax revenues have been growing at an average rate of 18.2% and 23.3% respectively in the past 15 years.

Since Weihai does not have a lot of state-owned companies, it has a very small number of people who are unemployed. In year 2002, the total unemployment rate is 1.7% as compared with the average unemployment rate of 3.9% across China.

Thanks to the city’s strong educational tradition, Weihai’s high school students have achieved the highest scores in national college entrance exams consecutively in Shandong province for the past 9 years. In Weihai, there are Harbin Polytechnic University (Weihai), Shandong University Weihai Campus, One Higher Vocational Institute and Higher Technical College. There are also 20 foreign language schools and many other educational training centers. Each year, there are over ten thousand university or college graduates and ten thousand graduates from vocational schools. Virtually all employees have graduated from High School or higher. As a result, Weihai boasts a high quality work force and its productivity has ranked first place in Shandong province consecutively for the past 14 years.

Finally I would like to note that Weihai has the highest income of urban residents and farmers in Shandong province in 2001. This prosperity adds to the city and has helped to reinforce the city’s livability.

Question 3. What are the major industries in your city and which sectors of business do you feel that Weihai companies both have demonstrated their ability to compete and their cost advantages vis-à-vis other areas in China? Also which new sectors do you for see generating the most growth in the years ahead?

Answer: Marine aquaculture and fisheries, auto parts industry, tourism and biotech production are currently are our key industries. We see bio-tech and the high-tech industries as being further future engines of growth.

Question 4. If you were to give five reasons for a company to consider establishing a factory or a business office in your city, what would those reasons be?

Answer:
1) Livability, clean and beautiful environment, golfing (Weihai has four of these) and other recreational sports near beaches.
2) Close to the developed economies and markets such as Japan and South Korea in North Asia
3) International ports, convenient marine transportation and convenient air access via two neighboring airports
4) Two well-known Chinese universities have two huge campuses near beaches, providing talents and trained professionals,
5) Well trained leaders at the municipal government. The city has several leaders who have studied or worked in North America.

Question 5. Weihai is located in Shandong province and I know that Shandong is a leader in both agriculture and the fishing industry in addition to having a large and well developed manufacturing base, are both the fishing and agriculture industries also important to Weihai and has Weihai used its connections through its distribution system for both industries to help serve as an export gateway to import overseas food and other items to China?

Weihai has imported a lot of production equipment from the United States and Europe and is planning to distribute salmon, tuna and other seafood to Beijing and Shanghai via its vast sales network across the country.

Question 6. I understand that your city has developed or is in the advanced planning stages of developing several incubators to help promote new industries in Weihai. Could you tell us about these incubators and your plans for new innovative means of growing new companies?

Answer: We have two incubators in Weihai right now. One is run and sponsored by the government, the other is run by a private company. Both will provide free offices for three years if the high-tech project meets the necessary qualifications. So far we have about 50 start-up companies in the incubators. With the completion of another 15000 square meters of space, we are poised to accept more start-up companies this year. An example of this is San Diego based Genway, a biotech company, that is going to move its antibody production center to the incubator in the next three months. We expect more biotech companies will move a portion of their production function to Weihai when our life science park is established here shortly.

Question 7. Your city has been named for several years as one of the 500 most livable cities in the world by the United Nations. Because of the quick pace of industrialization in China, “livable” is not a term often used to describe China’s major cities. What are the factors that make your city so suitable as a place to live and work?

Question 1. Can you tell us a little about your city in terms of location in China, population, standard of living, industries, etc?
Answer: Weihai is in Shandong province of China and is located on the east end of Shandong Peninsula. Being on the same latitude as San Francisco in the United States, Weihai is surrounded by sea on three sides, facing Liaoning Penisula to the north and the Korean Peninsula and the Japan Islands to the east. It is the “doorway” to Beijing and Tianjin, thus bearing the name of “coastal front of China”
Weihai has a population of 2.5 million and a total area of 5400 square kilometers. As one of the most developed areas in north China, Weihai achieved a GDP of $8 billion and GDP per capita of $3,070 in 2001, which was the highest in Shandong Province and the same as that of Beijing.

There are four major industries in Weihai:
1. Marine aquaculture and fishery: Weihai is China’s largest base for marine aquaculture and fishery. This accounts for 25% of the City’s GDP.

2. Industrial and agricultural manufacturing: There are more than 10,000 small and medium sized companies that are engaged in industrial and agricultural manufacturing. Weihai is the largest manufacturing base for products such as tires, auto crankshafts, carpets, fishing tackle and carpenter machinery. In addition, Weihai is well known for manufacturing high-speed fax, printing machines, fiber-optical cable, polymer medical appliances, airport equipment, leather shoes, agricultural vehicles and fruit processing.

3. Tourism: Wehai is known throughout China as one of China’s premier tourist cities. Weihai has a lot of scenic spots and historical sites and received about 8 million tourists in 2002. It is extremely popular for tourism during summer time and boasts huge potential for tourism development.

4. Imports and exports: Weihai is one of the earliest trade ports in northern China. It has linking shipping service with major ports in northern China such as Tianjin, Qingdao and Dalian Ports. Additionally, Weihai has cargo and passenger ship service internationally to South Korea, Japan, Hong Kong, etc.
Question 2. How does your city compare to other Chinese cities in terms of economic development, unemployment, educational qualification of the workforce, average wages, GDP per capita and other basic measures of economic success?

Answer: Being one of the 50 cities that have the strongest economy in China, Weihai’s GDP and local government tax revenues have been growing at an average rate of 18.2% and 23.3% respectively in the past 15 years.

Since Weihai does not have a lot of state-owned companies, it has a very small number of people who are unemployed. In year 2002, the total unemployment rate is 1.7% as compared with the average unemployment rate of 3.9% across China.

Thanks to the city’s strong educational tradition, Weihai’s high school students have achieved the highest scores in national college entrance exams consecutively in Shandong province for the past 9 years. In Weihai, there are Harbin Polytechnic University (Weihai), Shandong University Weihai Campus, One Higher Vocational Institute and Higher Technical College. There are also 20 foreign language schools and many other educational training centers. Each year, there are over ten thousand university or college graduates and ten thousand graduates from vocational schools. Virtually all employees have graduated from High School or higher. As a result, Weihai boasts a high quality work force and its productivity has ranked first place in Shandong province consecutively for the past 14 years.

Finally I would like to note that Weihai has the highest income of urban residents and farmers in Shandong province in 2001. This prosperity adds to the city and has helped to reinforce the city’s livability.

Question 3. What are the major industries in your city and which sectors of business do you feel that Weihai companies both have demonstrated their ability to compete and their cost advantages vis-à-vis other areas in China? Also which new sectors do you for see generating the most growth in the years ahead?

Answer: Marine aquaculture and fisheries, auto parts industry, tourism and biotech production are currently are our key industries. We see bio-tech and the high-tech industries as being further future engines of growth.

Question 4. If you were to give five reasons for a company to consider establishing a factory or a business office in your city, what would those reasons be?

Answer:
1) Livability, clean and beautiful environment, golfing (Weihai has four of these) and other recreational sports near beaches.
2) Close to the developed economies and markets such as Japan and South Korea in North Asia
3) International ports, convenient marine transportation and convenient air access via two neighboring airports
4) Two well-known Chinese universities have two huge campuses near beaches, providing talents and trained professionals,
5) Well trained leaders at the municipal government. The city has several leaders who have studied or worked in North America.

Question 5. Weihai is located in Shandong province and I know that Shandong is a leader in both agriculture and the fishing industry in addition to having a large and well developed manufacturing base, are both the fishing and agriculture industries also important to Weihai and has Weihai used its connections through its distribution system for both industries to help serve as an export gateway to import overseas food and other items to China?

Weihai has imported a lot of production equipment from the United States and Europe and is planning to distribute salmon, tuna and other seafood to Beijing and Shanghai via its vast sales network across the country.

Question 6. I understand that your city has developed or is in the advanced planning stages of developing several incubators to help promote new industries in Weihai. Could you tell us about these incubators and your plans for new innovative means of growing new companies?

Answer: We have two incubators in Weihai right now. One is run and sponsored by the government, the other is run by a private company. Both will provide free offices for three years if the high-tech project meets the necessary qualifications. So far we have about 50 start-up companies in the incubators. With the completion of another 15000 square meters of space, we are poised to accept more start-up companies this year. An example of this is San Diego based Genway, a biotech company, that is going to move its antibody production center to the incubator in the next three months. We expect more biotech companies will move a portion of their production function to Weihai when our life science park is established here shortly.

Question 7. Your city has been named for several years as one of the 500 most livable cities in the world by the United Nations. Because of the quick pace of industrialization in China, “livable” is not a term often used to describe China’s major cities. What are the factors that make your city so suitable as a place to live and work?

Answer: There are four factors. They are:
Cleaniness: Weihai has three cities under its juridiction, all of them have received awards by the central government naming them as being “China’s Exemplary Clean Cities”.

Nice weather: Weihai has average temperature of 12 centigrade, which means it is not hot in the summer and not cold in winter. Most beach cities have high humidity, Weihai is the only city along the coast of China that is comfortable and dry.

Green land: Weihai maintains strict protection of its green belt of pine trees along the beach. It has invested huge sums of money and built many parks along the beaches and throughout the city to give the public access to green open spaces.

Key City Services: Fast growing economy, low unemployment, low crime rate, friendly neighborhoods, reasonable house prices.

Question 8. Having visited your city, I know that in many ways you are one of China’s best kept secrets in terms of both your environment and your economic viability. What is your city’s plan as to how to continue your economic development while still protecting your pleasant environment?

Answer: Promote venture capital investments, establish venture capital funds with leading venture capital companies in China, provide funding for high-tech projects from North America and Europe.

Question 9. How does the city go about competing with the bigger Chinese cities like Beijing, Shanghai, Guangzhou to attract investment and are their any upcoming plans for investment conferences, trade fairs or other venues that you could mention if readers were interested in learning more about your city and the potential for business?

Answer: We have followed policies that do the following:
• Promote the unique non polluting industries that will keep Weihai growing;
• Promote the concept of livability, create clusters of low polluting industry and attract high tech companies to establish offices, production centers and testing centers in Weihai.
• Build a convention center and develop international conferences and trade shows and continue to promote tourism.
We also are planning to host a major trade and investment conference in May for companies interested in further exploring locating in Weihai.

Question 10. If a company wanted to find out more about starting a business or building a factory in your city, what would be the best route for him or her to better research the potential? Also, saying a company wanted to attend your upcoming investment conference how could he or she learn more now about Weihai to help better prepare them for their visit and for meetings with you and your city team?

Answer: We have aligned with Runckel & Associate to promote trade and investment between Oregon and Shandong Province. You can visit the websites of both Weihai, www.weihai.gov.cn, and Runckel & Associates, www.business-in-asia.com, to find out more about Weihai or call Runckel & Associates since they are on your same time zone and can quickly respond with information and guidance.

To save your valuable time and make your visit to China and to Weihai as valuable as possible, we want to get you fully prepared before you travel to Weihai. We therefore hope to exchange information with you on many issues related to your plans for trade and investment and to give you wide ranging knowledge on potential prices of land, labor, rental, utilities and many other issues that will help you to better hone your business plan. We fully subscribe to the belief that the secret to success in business is good research and planning and we stand ready to assist in everyway possible to make your visit to Weihai a success.
About the Interviewer:
Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)
Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.

INTERVIEW WITH

FRANK JURGEN RICHTER and PAMELA C.M. MAR
Director, Asia,The World Economic Forum (WEF) and Associate, Director, China

ON THEIR NEW BOOK

CHINA – ENABLING A NEW ERA OF CHANGE

1. China is much in the news these days with articles regularly appearing concerning China’s success in attracting Foreign Investment (FDI), China’s nearly eight percent GDP growth last year, China’s exceeding a one trillion dollar figure for its economic production, etc. Was it just the fact that China is newsworthy these days that caused you to focus your new book on China or are their other factors?

China’s current newsworthiness and the book’s release do coincide. But the book has arisen out of our desire to contribute something more substantial to China’s efforts to continue to reform and expand its economy regardless of the conditions. As we say, the World Economic Forum has been in China for over 20 years, and this is just one concrete synthesis of some of that involvement.

2. This is your second collaboration and your new book is very different in organization and style from your previous book last year on Asia. You use many different techniques with a longer opening essay setting the stage for the book and your views on China, then follow with a series of short in-depth articles by noted China watchers, a section with view of current government officials, a panel of business entrepreneurs and then end with a summation and conclusion. Are you both still experimenting with your style and how happy are you both with the final book and what parts do you think worked particularly well?

Definitely each book is a bit of experimentation together with a bit of certainty. While we are happy with the result—especially the section on geopolitics and regional relations—there are always things that one thinks could have been better or that one could have spent more time on. For instance, it would have been ideal to have a piece directly addressing the social challenges facing the country. This is a book primarily about China’s economy, but within that there is definitely a social component. Perhaps in the 2nd edition!

3. In the preface of your book written by Mr. Klaus Schwab, President of the World Economic Forum (WEF), Mr. Schwab notes the WEF’s 20 year collaboration with China. Given Mr. Schwab’s obvious commitment to engagement with China and the fact that he is both of your “boss or leader” how much of his perspective and the perspective of your organization defined or affected your writings and how much of the book is truly independent?

Certainly the fact that the book is under the World Economic Forum has shaped our view of the way the country has developed. However, the effect has been very positive. We take a multi-stakeholder view of the world, and by that you see included not only government views, but also business, economists, media fellows—and from all over, too. Each are reputed in their own fields. The fact that part of the book contains contributed pieces gives space for independent viewpoints.

4. In your essay on the current state of affairs in China, you quote some interesting statistics on China’s economic development. Among them, “today over two-thirds of foreign manufacturing in China is for the domestic market.” “The second wave of FDI is characterized by a two-fold shift: from low knowledge base industries to medium and highly knowledge-intensive industries and geographically from the coastal and southern areas of the country inward.” (p. 10). These seem to indicate a less coastal bound stage of development and a more domestic as opposed to export oriented economy than most other observers have reported. Are these trends clear at this time and how certain are you of this change in economic development?

The statistics we quote are all from publicly available, reputable sources and the fact that they counter commonly held perceptions could be due to the fallibility of the latter. Having said that, we would admit that statistics only present part of the picture, and that it is necessary to take into account the whole picture that emerges, rather than just the slice presented. In this specific case, the fact that a lot of manufacturing is destined for the domestic market is only a sign of that market’s strength and size, and the collapse in global demand, especially from the first world. With regard to the shifts from low to high knowledge bases and from the coast to the inland, those are gradual trends which will take some time to be visible on a macro-level.

5. A similar statistic that seems to also indicate the change in China’s economy is noted in Fan Gang’s following essay on Reform and Development on page 35 where he notes that “the non-state sector, which consists of private companies, self-employed businesses, shareholding corporations, joint ventures with foreign investment, and community-owned rural industries, a great part of which are actually private undertakings, now contributes 74% of industrial output, 62.2% of GDP, and more than 100% of the increase in employment.” This and other statistics you note in your earlier essay seem to indicate an economy that has already transitioned much more to a private business model than most people outside of China realize. Is this change as deep as the above statistics suggest and in terms of state control of business how different is China today than many European countries in terms of state control and state intervention in the economy?

The emergence of the non-state sector is a phenomenon that has been mentioned by a number of analysts and observers. In fact the recent Party Congress in Beijing acknowledged this in allowing members of the private sector to come into the Standing Committee. This is a huge step forward, and does indicate a trend towards a more open, diverse economy. While it is too early to say, it is possible to imagine a situation in which the Chinese economy is as diverse and possibly more flexible than some of those in Europe today.

6. In your earlier piece setting out your view of the current China situation, in Fan Gang’s following article and in the article by Hank M. Paulson and Fred Hu from Goldman Sachs Group titled “Banking Reform in China: Mission Critical” all of you discuss the current weak banking sector in China but all of you conclude that although the current situation is unfortunate and even worrying, none of you believe that it will likely lead to a major banking crisis. Is this characterization of the three positions fair and if so why do your all seem so confident that the problem is solvable?

While we cannot speak for the others, we attribute our confidence primarily to two factors. The first is that the problem is critical but will only have the possibility to “blow up” and instigate a large scale collapse in the medium term. The problem is definitely fundamental to developing a healthy functioning economy, but in the short term, China can get by, by “muddling through”. The second factor is that China is doing much more than just “muddling through” the problem, by pinpointing the sources of the problem and beginning to address those, even when politically dangerous (e.g. with corruption). Recent events in China, especially in the creation of a regulatory body specifically to oversee the banking sector, confirm that China is moving in the right direction.

7. Midway in the book, Andy Xie from Morgan Stanley writes an interesting essay on the importance of enhancing competition for capital in China. In fact, he notes that this is “the last major hurdle in China’s transition toward a full-fledged market economy.” He notes the weakness of China’s current stock market in promoting corporate development and the problem with so much credit going to the state sector and sets out his prescription for China’s resolution of this problem by what he calls “a financial big bang.” Could you explain exactly what this is and whether you both agree with Mr. Xie as to the problem and as to his proposed solution?

We agree with Andy Xie that forthright action is needed to create a true market economy, although for sure people will interpret “big bang” in different ways. While we prefer to let Andy Xie elaborate further on his ideas, we do agree that coordinated action commensurate to the complex and large-scale nature of the problem is needed. Only such action will enable the government to create a financial system that is robust and flexible enough to support the growth demands of the economy.

8. Later in the book, Professor Hu Angang and Guo Yong from Tsinghua University argue that Administrative Monopolies in China are a greater danger than corruption of government officials and each year deprive Chinese citizens of much more money and create many more opportunities for corruption. Can you give some examples of Administrative Monopolies in China today and do you agree with Professor Hu as to their economic effect on China? Lastly, do you feel that the Chinese government realizes the danger and if so could you give concrete examples of how it is moving to resolve the problem?

Professor Hu and Guo Yong point to administrative monoplies as one of the drains on the economy, and in this regard, we do think that they raise a significant point. However we do also note that the government is proactively moving to dismantle these and create a more competitive framework. Its approach is pragmatic and step-by-step, and is seen in its moves to inject competition into telecom services and break up the State Power Corporation of China. These are just two examples where the government is moving ahead, and we note that it is not just the WTO

9. Philip Bowring from the International Herald Tribune sets out four issues that he feels will dominate China’s agenda in the 21st Century – economic modernization, particularly through enterprise reform, the future of Taiwan, the relationship with the United States and China’s Asian regional role. Given the fact that without further progress in the first of these issues that China’s scope for progress in the three others will be somewhat hindered, how internal focused do you see China being in the years ahead and why?

The trend today certainly seems to be of China becoming more outward looking and active internationally. China has taken leading roles to push the concept of free trade areas in Asia, and has also been a strong voice for multilateralism in the resolution of international disputes, for instance in Iraq and North Korea. It is increasingly aware of the weight of its presence internationally. Of course, like other countries, there will continue to be an extent to which foreign affairs are shaped by domestic agendas. People have said that this is very true in China’s case, although we would also argue that China is not unique in this regard.

10. Mr. Bowring, Professor Zhang Yunling from the Chinese Academy of Science and Victor Chu of First Eastern Investment group all write about China’s regional role and China’s efforts to work with Southeast Asia and Japan. To date, it seems China’s approach to Southeast Asia has had much more initial success than its “competitive partnership” with Japan. Why is this so and do you see room for optimism that China and Japan can truly come to a closer working relationship?

As Victor Chu says, the China-Japan relationship is one of Asia’s most important relationships and yet at the same time, one complicated by economic trends and historical weight. We must acknowledge these difficulties, and also realize that there is no choice but to try to focus on those areas where it is possible to make progress, and to build trust from those points. Victor Chu names several possible areas, and these are good places to start.

11. At the 2001 ASEAN Plus Three (APT) meeting (10 ASEAN countries plus China, Japan and the Republic of Korea (ROK), China and ASEAN announced their intention to establish a Free Trade Area (FTA) within ten years. Do you see such a goal as realistic and what implications does an Asian FTA have for both trade in the region and relations with the EEU and the U.S?

A free trade area in Asia would do much to solidify trade within the region and also present the region as a larger market—in consumers and suppliers—to do business with countries and firms overseas. It also makes possible the idea of an integrated pan-Asian supply chain, and could be one huge unexploited competitive advantage.

12. Your book in the section on government voices has essays by Cheng Siwei, Vice Chairman of the National People’s Congress on the need for a vibrant venture capital industry in China and from Li Yuanchao of the Nanjing City government on “Development Strategies for Big Cities”. Both of these essays are interesting. How did you decide what issues to include and what subjects to not include and how did you settle on contributors for the book?

We tried to identify key actors in policy making circles who represented different parts of the government—so for instance, central and regional, and at the central level, both Ministerial as well as from the other legislative bodies such as the CPPCC (Chinese People’s Political Consultative Conference) and the National People’s Congress.

About the Authors:

Pamela C.M. Mar is Associate Director, China, for the World Economic Forum. She has worked for a satellite television company in Asia, in rural development in Thailand and in venture capital in Hong Kong. She holds degrees from Yale and the London School of Economics and has published on China and Asian economy and business in both scholarly and general interest journals.

Frank-Jürgen Richter is Director, Asia, for the World Economic Forum. He has lived, studied, and worked in Asia for over a decade– in Tokyo and most recently in Beijing where he developed and managed a European multinational company’s China operations. An active scholar, he has authored and edited on Asian economies and international business.

Dr Richter and Ms. Mar’s most recent publication is Recreating Asia:
Visions for a New Century, which presents a wide-ranging case for Asia’s renewal in terms of regional relations and trade, governance and leadereship, globalization, and managing business challenges.

About the Interviewer:
Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)
Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.
Exclusive Interview with
MR. MIKE ROWSE, DIRECTOR-GENERAL OF INVESTMENT

PROMOTION, INVESTHK, GOVERNMENT OF HONG KONG

Question 1: As I understand it, InvestHK is the official investment promotion organization of the Hong Kong government. Also as I understand it, you play a role similar to the Board of Investment in Thailand, the Ministry of Planning and Investment in Vietnam plus similar organizations in Singapore, Malaysia and elsewhere. Could you tell us a little about InvestHK, the role of your organization in attracting investment to Hong Kong and whether you have overseas offices in addition to your office in Hong Kong?

Answer: InvestHK was established in July 2000 as a Government Department to spearhead Hong Kong’s efforts to attract inward investment. It provides information and assistance to corporations and individuals looking for direct investment opportunities in Hong Kong.

InvestHK’s sector specific experts guide potential investors thorough all stages of the investment process. We help all companies who approach us on their own initiative. When in proactive mode we focus on the following sectors :
- Financial Services
- Business and Professional Services
- Information Technology
- Media/Multimedia
- Technology (especially Electronics and Biotechnology)
- Telecommunications
- Tourism and Entertainment
- Trade Related Services
- Transportation
InvestHK offers extensive information and assistance concerning investments related to Mainland China. We maintain three dedicated teams to promote direct investment from Beijing, Shanghai and Guangdong. We also maintain representatives in London, New York, San Francisco, Paris, Milan, Brussels, Toronto, Sydney, Osaka, Seoul and Tokyo.

Question 2: Recently Hong Kong and China signed a free trade agreement. Can you tell us a little about this agreement and how it will improve Hong Kong’s trade advantages for companies that are located there?

Answer: The Closer Economic Cooperation Arrangement (CEPA) is consistent with China’s obligations as a member of the World Trade Organization. As regards trade in goods, it will eliminate all tariffs on Hong Kong-made goods exported to the Mainland in two phases (273 categories from 1 January 2004, all other goods no later than 1 January 2006). It will also provide Hong Kong companies and professionals in several services sectors with early access to the Mainland and simplify cross-border trade. Industries which will particularly benefit include management consultant services, exhibitions and conventions, advertising, legal services, accounting services, medical and dental services, real estate and construction services, transport services, distribution, logistics, forwarding services, storage services, tourism, audiovisual, banking, securities and insurance.

CEPA should also stimulate the local economy, especially the high value added manufacturing and the services sectors. It will add to Hong Kong’s advantages as an investment destination and strengthen the city’s historical role as gateway to China.

Question 3: Hong Kong was one of the first commercial hubs in Asia to see substantial investment and resulting economic development. After thirty plus years of rapid economic growth, obviously today Hong Kong is a modern city with a higher cost of living, wages and other costs than that found in much of the rest of Asia. Considering this, does Hong Kong still make sense as a location for manufacture and/or other business operation for Western companies? Also, what industries would location in Hong Kong offer the most advantages?

Answer: Hong Kong is Asia’s most international city: a vibrant, cosmopolitan community where East meets West. This produces a creative and dynamic business culture and an ideal environment for international investors interested in expanding into Asia. It is the preferred location for Asia-Pacific regional operations and a major centre for China headquarters for MNCs.

Hong Kong is one of the most open, externally-orientated economies in the world. The city is a duty-free port, where no quotas or tariffs apply. Money, goods and services flow without restriction. A strong financial system and solid economic fundamentals underpin the economy. Life in Hong Kong is based on the rule of law, providing a level playing field for individuals and enterprises. This guarantees a safe and predictable investment environment. Intellectual property rights are also protected through a sophisticated legal framework and effective enforcement of regulations.

While the manufacturing industries used to play a major role during Hong Kong’s economic development in the past, most of these operations have moved to Mainland China, taking advantage of lower labour costs. Hong Kong still retains a small manufacturing base, especially in high value-added industries, but we are now essentially a services-based economy. However, with the elimination of tariffs in some high tech sectors, Hong Kong will become more attractive for manufacturers in certain industries such as electronics, IT, pharmaceuticals etc.

Moreover, Hong Kong is home to more than 380 banking institutions, over 200 insurers, around 2100 securities dealers and about 1600 unit trusts and mutual funds. 80 of the world’s top 100 banks operate in Hong Kong.

Question 4: In the 70’s, 80’s and 90’s, Hong Kong was the centre of much of the toy manufacture, plastic molding and many other industries located there. As I understand it, most of Hong Kong’s manufacturing base has now moved across the border to Shenzhen, South China and other locations. Does Hong Kong still make sense for certain manufacturing operations and if so can you give a few examples and discuss incentives that the Hong Kong government is offering to attract investment in these industries?

Answer: As I mentioned before, the manufacturing industry only plays a relatively minor role in Hong Kong, which is now primarily a services and knowledge based economy. However, the recently signed free trade agreement between Hong Kong and the Central Government is expected to stimulate growth in certain high value-added manufacturing sectors in Hong Kong.

Unlike other economies in the region, the Hong Kong Government does not use incentives such as tax breaks or subsidies to attract international investment. We believe that Hong Kong’s advantages speak for themselves. We offer a level playing field for all companies who would like to do business here.

Question 5: Hong Kong competes directly with Singapore and Shanghai to attract companies to site their Regional Headquarters in Hong Kong. Historically Hong Kong was the first choice but has over the last several years been second choice to Singapore or Shanghai by many large multi-nationals. Has Hong Kong’s advantage as the best site to locate a regional office changed and if not, what advantages does Hong Kong possess vis-à-vis Singapore, Shanghai or other locations to site an East Asia Regional Office for a company?

Answer: The question is factually incorrect. Hong Kong is the number one location for regional operations. It is the chosen base for some 3,000 regional headquarters and regional offices representing companies from around the world. In 2002, the number of regional headquarters increased to 948, an all-time high.

We are currently seeing the weight of regional economic activity shifting to North Asia. This is mainly caused but the continuous growth and market potential of the Chinese economy, but also because countries such as Korea and Thailand emerged more rapidly from the effects of the Asian financial crisis than economies in the South. Hong Kong is a beneficiary of this trend and we are therefore in an excellent position to attract additional regional headquarters.

With China’s economy constantly expanding, Hong Kong and Shanghai will continue to play important roles in the country’s future. Shanghai is the undisputed powerhouse of China’s domestic economy, while Hong Kong is the country’s international business centre. As a result, both cities bring their distinctive characteristics and expertise to the country’s overall economic development. They are not rivals but generally complementary in an economy that will see the emergence of not one or two, but several business centres to drive its trade and investment to new levels.

Question 6: Hong Kong is known as a lower tax area and as a duty-free port. Is this information in fact true and what are the tax withholdings for a foreign corporation located in Hong Kong? Can you also list the costs of establishing a company, acquiring necessary business licenses and other procedures necessary to start business?

Answer: Hong Kong taxes are among the lowest in the world, and Hong Kong’s tax regime is simple and predictable. The corporate profits tax rate is 17.5% but the actual tax bill is often less after deductions and depreciation allowances. The personal tax rate is capped at 16%. No tax is paid by firms or individuals on foreign-sourced income of any kind, and there is no estate duty tax on non-Hong Kong assets. Basically, only company profits, salaries and property rental income are taxable. Hong Kong does not tax dividends or bank interest. There is no capital gains tax, no VAT or sales tax. This limited tax base, combined with exceptionally low tax rates, makes Hong Kong’s tax burden much lower than in virtually all other developed economies.

Registering a business in Hong Kong is a simple, straightforward procedure. All businesses need to register with the Business Registration Office and pay a fee for the issue of a business registration certificate. The current fee for a one-year certificate is HK$2,600 (US$333) and a three-year certificate is HK$7,000 (US$897).

Question 7: According to various reports including a recent article by the New York Times News Service, unemployment in Hong Kong is currently the highest ever at 8.6 percent for the period from April through June and underemployment – people who settle for part-time jobs because full-time jobs are not available – recently jumped again up to 4.3 percent of the workforce. Obviously these statistics must be of concern to the Hong Kong government. What steps are being taken to increase employment and are foreign companies who hire the unemployed given further incentives to assist their establishment in Hong Kong?

Answer: Hong Kong is closely interconnected with the global economy. As a result, we cannot escape from the effects of the current global economic downturn.

The Hong Kong government put several measures in place to assist job seekers with upgrading their skills to become more employable. It also provides short-term employment opportunities.

For example, in May, the Government put forward a package costing HK$$432 million to provide 21,500 short-term employment and training opportunities. In June, the Government proposed an additional allocation of HK$715 million to create a further 32,000 short-term jobs and training vacancies. Altogether, 53,500 employment and training opportunities have been provided in less than two months.

We were badly hit in the second quarter of 2003 by the SARS outbreak, but now this has been broughgt under control we are confident the unemployment situation has peaked and will gradually recover. We are beginning to see an upturn in Hong Kong’s economy, which, combined with the positive impact of the Mainland’s continued strong growth, should provide significantly increased job opportunities.

Question 8: The property industry in Hong Kong was long the engine of growth and of wealth accumulation. Over the last several years property values have continued to spiral downward and many individuals in Hong Kong now own properties where the mortgage amount is currently greater than the value that the property because of persistent deflation in the property sector. What is the Hong Kong government doing to revive the property sector and to stop deflation?

Answer: There is no doubt that Hong Kong economy is struggling with the effects of deflation and the ”negative wealth effect,” caused by declining asset prices. However, four years of deflation has also made Hong Kong much more competitive, which is particularly important for foreign investors. But the double-edge of the deflation sword has also affected sentiment in the general community and, with high unemployment and downward pressure on wages, it is only natural that people will feel less confident than they might otherwise feel.

Question 9: Henry C.K. Liu, Chairman of the New-York based Liu Investment Group in an article published by the Asia Times recently wrote “There is a tendency to substitute problem-solving economic measures with public relations fluff, such as “Brand Hong Kong” and “Invest Hong Kong”; as if an economy can be marketed like toothpaste. Billions are wasted to bring a Disneyland to Hong Kong on false hopes while it is well documented by now that the opening of a Disneyland theme park contributes little economically to the host community. Hong Kong cannot expect to depend on foreign investment and foreign-company regional headquarters to make it competitive. Hong Kong must first become competitive in order to attract them.” This seems very critical of Hong Kong. How would you respond to this criticism?

Answer: There is no doubt that Hong Kong Disneyland will be a tremendous asset to Hong Kong, and our investment in it a good and sound one. The millions of additional tourist arrivals that it will attract, and the tens of thousands of jobs that it will create here and in the rest of the community are but some tangible indicators of the benefits that Hong Kong will stand to enjoy.

In today’s global economy, countries and cities compete for investment. Public relations and branding are important tools to communicate the advantages Hong Kong offers to new investors. It is key to get these messages out in a coordinated and effective way.

Question 10: Hong Kong is viewed in many international travelers’ minds with SARS as ground zero even though SARS actually started across the border in China and only spread to Hong Kong later. Given the great difficulty experienced by Hong’s medical sector of doctors, nurses and hospitals in dealing with SARS many potential investors and/or tourists are wondering if Hong Kong will be struck again by SARS when the hot weather passes. What steps is and has Hong Kong taken to ensure that there is no reoccurrence of SARS and that Hospitals and the medical sector are strengthened to better deal with a potential future threat?

Answer: Thanks to the hard work and dedication of Hong Kong’s outstanding medical staff and health workers, combined with community-wide cooperation and advice from WHO and other outside experts, the SARS outbreak has been contained in Hong Kong. However, Hong Kong is not relaxing its vigilance or the strong measures that have been put in place to protect the health of residents and visitors.

As an immediate step, the Government will improve and develop the existing isolation facilities in our acute hospitals. These include improving ventilation, more individual rooms to isolate patients where necessary, allowing our frontline health care workers more room for changing and resting. The Government has reserved HK$435 million for this purpose. We are also considering the construction of additional buildings for isolation and treatment of patients with infectious diseases in selected acute hospitals.

Question 11: Hong Kong tourist arrival numbers were greatly reduced due to the fear of SARS and the reduction in international air travel. How badly was Hong Kong’s hotels and tourist industry hurt? How are current tourist numbers running and what do you think the final effect will be on annual tourist arrivals and the overall health of the Hong Kong Exhibition and meeting sector, Hong Kong hotels and the large number of service industries – restaurants, shops, etc. dependent on tourist and business travel?

Answer: There is no doubt that the outbreak of SARS was particularly damaging to the tourism industry, including hotels, restaurants and entertainment. However, in the last few weeks we are already saw a strong rebound, especially in terms of passenger arrivals and departures. Business travelers are coming back, and hotel occupancies are steadily improving. Tourists from the mainland area also visiting us again, and while we expect international tourist arrivals to take a bit longer to recover, Hong Kong is definitively back on track and open for business. In fact, tourist arrivals in June were up 71% compared to May 2003. Hotel occupancy is now over 80% and climbing.

Question 12: Your organization works directly with companies to encourage them to locate in Hong Kong. If a company was interested in further exploring locating in Hong Kong, can you give suggestions of where best they could research information on Hong Kong and also how best to contact with your organization?

Answer: InvestHK supports prospective investors with finding up-to-date market information, and we assist with identifying the right business partners. InvestHK also guides companies through the networks of government departments and facilitates ancillary services such as work visas, trade mark registration, business incorporation and countless other administrative, legal and financial logistics.

We can be contacted at:
Invest HK
Suites 1501-6, Level 15
One Pacific Place
88 Queensway, Hong Kong

Tel: (852) 3107 1000
Fax: (852) 3107 9007
E-mail: enq@investhk.gov.hk
Website: www.InvestHK.gov.hk

An Interview with Mr. Fang Youxin
Director General of Beijing Capital International Airport
September, 1999
It would be hard to find a man with more responsibility or busier than Mr. Fang Youxin, Head of Beijing’s Capital International Airport. For four years, Beijing has been involved in a major upgrade of their airport facilities and will shortly open a new state-of- the-art and much larger passenger terminal. When you meet Mr. Fang, you notice that although he is short in stature, he immediately conveys a sense of energy and leadership that mark him both as a man and a manager. Insight caught up with Mr. Fang late one evening in early September. Although it had already been a very long day for him in overseeing final details of the upcoming opening of the new terminal, VIP travel arrangements for the large Universal Postal Union conference held in Beijing, preparations for the 50th Anniversary of the founding of the People’s Republic of China and despite the fact that he had spent two nights that same week with virtually no sleep finalizing details for tests of the new terminals facilities, Mr. Fang was as always the perfect host and totally in command of all details of operations at the Airport.
Insight: Thank you for taking the time to talk with me today. I know you are very busy now preparing for the opening of the new Airport terminal and our readers and we very much appreciate your agreeing to talk with www.business-in-asia.com First, the Airport terminal is obviously much larger than the old terminal. Exactly how large is the new terminal and how does it compare to the old terminal and to other airport terminals in China?
Mr. Fang: Essentially, to date, there have been three stages to the development of Beijing Capital International Airport. The original site for the airport was chosen in 1954 and following construction opened as the capital’s first airport in December 1957. The original airport which served Beijing’s requirements during the early years had a 10,000 square meter terminal and a 2,500 meter runway with approximately 84,000 sq. meters of apron space. This was the first period. By the 1970s, it became obvious that the airport needed to grow to fully serve the nation. In January 1980, a 600,000 sq. meter new terminal building was built. This new terminal was designed to serve 60 flights daily and 1500 passengers at peak hours. Work was also done to improve the runways, support facility and air traffic control systems. This terminal served the capital and the nation well over the next nearly two decades. The decade from the founding of the Beijing Capital International Airport Administration till 1997 saw the greatest growth to date in airport operations – passenger traffic rose from 4.65 million to over 16.91 million passengers. Mail and Air freight growth rocketed to just under 500,000 tons a year by the end of 1997. By this time, however, it was extremely apparent to all that economic growth spurred by China’s modernization demanded a new airport. Therefore in 1992-3, planning started on a new airport and in 1995 construction work actually commenced. The new terminal which is scheduled to officially open on October 1 of this year will include a 336,000 sq. meter passenger terminal and 16 other supporting facilities including a 464,000 sq. meter terminal apron, multi-story car park, a cargo station and other facilities. The opening of the new terminal and the renovation of the old terminal will commence the third state of development for Beijing’s Capital International Airport, the nations largest airport.
Insight: How long has it been since your started construction and what exactly is the total cost of the new facility? Did the government provide all of these funds or did some of the funds come from the departure tax or other revenue sources?
Mr. Fang: Work on the 17 new airport facilities, which include the new passenger terminal, which is the most noticeable improvement, started on October 16, 1995. As I noted, we are already testing the new terminal by accommodating incoming and departing flights on a test basis although the airport will officially open on October 1 in recognition of the 50th anniversary of independence of the People’s Republic of China. This means that in less than four years; we have completed all of these projects, an immense improvement for Beijing and for China. Total cost of all of the construction is just over one Billion U.S. dollars (8 Billion RMB). This is an immense amount in a developing country such as China although relatively modest compared to what airport upgrades cost internationally. Less than one-third of the required funding came from passenger fees. The remainder was financed by the State.
Insight: When exactly will the new terminal open? Will the new terminal open all at one time or will services be gradually phased in?
Mr. Fang: The new passenger terminal is complete at this time and we have had two tests of the facilities using incoming or outgoing flights. The official opening of the new airport will be October 1. Our plan is to gradually phase in services in the new facility. All services will not necessarily be available immediately but will be offered as systems prove themselves and in a manner convenient to passengers and provision of all services.
Insight: Because of the delays and complications experienced in the opening of the Hong Kong and Malaysian airports, many Asian travelers are skeptical when they hear about firm dates for opening a major airport. Did you study the openings of the Hong Kong and Kuala Lumpur airports and did you learn lessons from the challenges they experienced that you applied here in Beijing? Also, could you give us an example of such a change?
Mr. Fang: We have been examining and learning from the openings of new airports long before last year and by using not only the Asian experience with this but also by looking to airport openings in Europe and in the Americas. Airport officials and myself visited Denver in the U.S. to observe the opening there and have constantly studied reports and management studies on new airport projects. We have attempted to apply the lessons learned from these past terminal openings to help assure the public of the smoothest transition here in Beijing. For example, a large part of the problem in the Hong Kong airport was with the computer system. We studied the problems experienced there and invited Hong Kong officials to visit here to allow us to learn from their experience. An additional lesson we drew from the opening of the Hong Kong Airport was not to open too soon and to fully practice with all systems. As a result, even though we could conceivably open now, we have used the time to exercise the systems to make sure that any problems are resolved before the public becomes inconvenienced. I meet daily with immigration, customs, baggage handling, food service and others ensuring that each system is tested and that all parties are working together to resolve any remaining issues. Baggage transfer systems also have been shown to have caused a large portion of the problems in Hong Kong and Kuala Lumpur, we have therefore spent much time testing our new baggage systems including live tests with flights so as to ensure that they operate as expected when the new facility is opened.
Insight: Is. Beijing, the country’s largest airport? How does it compare to other airports both internationally and in China?
Mr. Fang: Beijing is the largest airport in China in terms of passengers. In terms of world airports, Beijing Capital International Airport is the only Chinese airport that is in the top 50 airports in terms of passenger loads. In 1997, Beijing handled 141,185 airplane movements, just under 17 million passengers and 458,000 tones of airfreight. With the addition of the new passenger terminal and renovation of the old facility, we will be able to sustain future growth that would more than double the 1997 figure and still achieve first rate service to all of our passengers and airlines.
Insight: On an average day, how many departures and arrivals do you usually expect at Beijing Capital International Airport? With the opening of the new airport, will there be any increase in the number of flights utilizing Beijing Capital International Airport?
Mr. Fang: In 1997, Beijing Capital International Airport served 16,907,054 passengers, among which 11,629,400 were on domestic routes, 5,278,554 were on international routes and routes to and from Hong Kong and Macau. On average, 46,323 passengers arrive or depart the airport every day on just under 400 flights to or from about 140 plus destinations at home and abroad. Over two-thirds of our passengers are domestic and just over a quarter are international with the difference being travelers to Hong Kong and Macau. Because of the drop in passenger loads experienced by most airlines in the Asia Pacific region as a result of the Asian Financial Crisis, passenger arrivals and departures in 1998 were not as great as had been predicted. We have however seen a recovery in passenger loads as the Asian economies have started to return to growth. We anticipate that 1999 and 2000 passenger arrivals and departures will exceed our 1997 figures and that passenger loads will nearly double over the next 5-7 years.
Insight: You mentioned renovation plans for the current terminal. What exactly are the plans for the current terminal?
Mr. Fang: Our plan is to gradually renovate the current terminal and to use is for shorter-range flights. Longer-range flights would use the new terminal.
Insight: With the opening of the new airport, obviously Beijing will now have a much larger and more modern facility. In addition to more space for passengers, what new services and facilities will be available at the new airport?
Mr. Fang: As I mentioned earlier, the new passenger terminal is just one of the 17 improvements completed over the past four years. The new facility will have more apron space, a modern automated baggage handling system which uses the best available luggage handling systems, some of them from the U.S. and European countries, plus many other advances. The biggest changes may, however, be less visible. First, the new airport will have more controls over doors and access to improve passenger security. Further in a very significant change, we will be updating and modernizing our management systems. More work will be done under contract and not directly by Airport staff. Concession services, cleaning, and many other services will be awarded of the basis on open and competitive bidding so as to reduce cost, limit overhead and improve services to passengers. In essence, Beijing Capital International Airport will operate very similarly in terms of management to other major international airports.
Insight: Mr. Fang, again we thank you for the time you have taken to talk with us today. We wish you the best success in the opening of the new terminal and thank you and the many people at the Beijing Capital International Airport who will be helping make travel smoother and more enjoyable for the people of China but also for many of our readers as well.

Note: The above interviews was conducted in Chinese and translated into English.
About the Interviewer:
Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)
Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.
The Dragon Versus The Elephant:
when a company wants to move a factory to Asia

The Dragon is a symbol of China just as the Elephant is a symbol of Thailand. Our Company works in both countries and handles a number of projects each year in which clients in primarily Europe or the U.S. come to us with plans to either have a product currently produced in their country produced somewhere in Asia (so-called OEM manufacture) or to actually move a factory or build a new factory in Asia. Usually most of these clients tell us they want to go to China. The reason is that they have read countless stories of other companies relocating there or stories about China’s growing middle class and think they need to be there. Also, most of them believe manufacturing in China is the cheapest in Asia and that they also need to be cheapest to compete effectively.
In business, the customer is always right, but in consulting one also has a professional responsibility to politely point out the pitfalls and to ask the tough questions to help the client fully think through the process he or she has started. The truth is that many if not most of these companies really haven’t thought their plans through completely and that often more research is required before the best location to move a factory or to manufacture an item can be determined. This is an area in which our company excels in that we have completed projects across China and can compare North China with areas such as Shanghai, Hangzhou, Beijing, Chengdu or South China. We also are different because of our long term relationships in Vietnam, Thailand and elsewhere in Southeast Asia allow us to look at these locations and evaluate them as alternate sites as no company can afford to have all of their eggs in one basket.

Weihai, China

Recently we completed a project for a major client who came to us thinking he wanted to move one of his factories to China. Usually the first choice mentioned by the client is Shanghai. Unfortunately, Shanghai is no longer a low cost center and there are many better locations, such as Weihai in the North where labor rates are a third of those in Shanghai, land is cheaper and where there is much more motivated City and Province leaders competing for investment. Shanghai is a big modern city and the right location for a head office in China, headquarters of a world bank or business services company or a base where better infrastructure or people skills are needed, it is certainly no longer the lowest cost site in China or even when compared to many other places in Asia. I believe the situation with Shanghai is analogous to the situation in the stock market in a sense where public perception is often several months behind the market and by the time most buyers know of the opportunity and are ready to move, much of the opportunity is already gone as new opportunities develop.

Although China can be the right choice for certain projects, we believe that China is only one site to be evaluated and that there are also opportunities elsewhere in Asia. We convinced our client to look at more than one location in Asia and Thailand after consideration of Vietnam, the Philippines, Indonesia and Malaysia was selected as the alternate site. The interesting outcome of this whole exercise was the result – in actuality China was not the best or even cheapest location for the proposed factory. Thailand came out to us a somewhat surprising winner on many fronts and overall. It is a lesson that many foreign investors would be wise to note and the Thai government to better publicize.
Thailand, sometimes called the “Land of Smiles” was the hot foreign investment (FDI) site of the 1980s. During this time, many companies built factories to service Asia and to re-export back to their own country. Thailand was a first choice because of its location, stability and the long term pro-business outlook of succeeding Thai governments. Japan took the lead in this and still has a leading role in international business throughout the country. In the 1990s, Thailand’s cost advantages comparatively became less compelling and from 1997 through the rest of the century, Thailand was working off a major debt crisis that slowed business throughout the country and the region.
At the same time Thailand was stumbling badly, China was yearly seeing increases in investment and business as the low wage rate and growing consumer market attracted investors to China. Last year, China exceeded the U.S. as the number one site for foreign investment and continues to boom as America barely keeps from tumbling back into recession. Having just returned from a week long swing through Shanghai, Hangzhou, Suzhou and Weihai in China, I can hardly believe how fast China’s economy is obviously growing. This growth is an attraction for those wanting to tap the growing middle class in China but it has been our experience that most of our investors have been less interested in this and more focused on where is the best location in terms of cost, stability, intellectual property protection and tax incentives to site their factory now.
With the above considerations in mind, Thailand surprisingly beats China especially for investors who are willing to look outside of Bangkok and its suburbs to the industrial sites of Rayong and other areas nearer to the Thai coast and to shipping connections. Why is this area in particular attractive? The reason is that the Thai government has come up with an impressive package of tax and other incentives to encourage economic development and job creation outside of Bangkok and the neighboring provinces. These incentives when combined with the coming of age of many of Thailand’s better Industrial Parks such as Rojana Industrial Parks have created both the opportunity and the support structure for comfortable factory operations at low cost.

Thailand has 56 provinces and 40 of them are in what the Board of Investment (BOI) calls Zone 3. Zone 3 investments when also located in a government approved Industrial Park such as the Rojana Industrial Park in Rayong, entitles approved Board of Investment (BOI) projects lots of benefits. Here is a short table that shows how Zone 3 in Thailand compares to China in a number of areas:
Cost Comparison for Thailand and China
Factor Thailand –Zone 3 China Difference
Land Cost $30/sq meter $30/Sq meter China -50 yr lease
Land Ownership Fee Simple 50 Year Lease Thailand – Full Ownership
Plot Coverage About 85% 50-60% Thailand allows more building for same amt of land
Building Cost For Western high quality factory $25/sq ft For similar structure – $22/sq ft Slight difference in favor of Thailand
Utilities Similar Similar No major difference
Taxes Thailand offers 8 yr exemption for BOI approved projects plus 5 additional years at 50%. Further deductions for transportation, electricity, water for 10 years plus other deductions 2 yr exempt – 3 yrs at 50% Thailand clearly better
Import Tax on Raw Materials 5 year exemption, 75% exemption of imports exempt on domestic sales No Customs Duty if for Export Only Slightly more generous for Thailand
Value Added Tax 7% 17% Thailand less tax , easier on refund for exports
Cost of Fees Thailand slightly more expensive China slightly cheaper Thailand needs to reduce these fees
Unskilled Labor Thai Zone 3 minimum wage about $70/month China cost of unskilled worker $60/month China looks cheaper but required benefits actually make China more expensive
Skilled Labor Thailand competitive because of addition of China required benefits in middle but not at top China about the same through the middle levels, but cheaper at the top end Thailand more expensive for high level management, engineers, etc.
Cost of Shipping a 40 foot Container Slightly under $2,000 About $2,000 Slight benefit to China
Additional Shipping Fees Thailand Cheaper China more Costly Slight advantage to Thailand
Protection of Intellectual Property Thailand Stronger China Weak Thailand clearly stronger
Size of Domestic Market China clearly larger Thailand’s increasing with AFTA and possible FTA with China Advantage to China
Quality of Life for Expatriate Staff Thailand Offers more amenities except when compared to maybe Shanghai China Improving
Thailand provides more extensive activities
Cost of Supporting Expatriate Staff Relatively Cheaper housing, food and other costs More expensive Housing, Food and other expenses Thailand cheaper
The above figures may look surprising but they are current and based on considerable research by Runckel & Associates staff. Each project is different and we always believe that any project needs full research and consideration. Thailand is not right for every project as intensely labor intensive projects usually are cheaper in Thailand. Further, not only Zone 3 in Thailand should be consider for every project as existing factories in Bangkok or the suburbs maybe a good choice for projects requiring a considerable design component or other factors. However, the truth of the above also have been recognized by Chinese entrepreneurs such as the China World Best Group of Companies from Shanghai (a large textile and garment group of companies), that has built four factories in Rayong’s Rojana Industrial Park and currently has over 1,000 employees producing for re-export to China and elsewhere.

(Left and right) China World Best Group, Shanghai, moved its factory to Rayong’s Rojana Industial Park
The good news for Thailand is that parts of the country are as competitive as potential sites for a new factory as their competitor sites in China. The Thai government policy on offering increased tax incentives to investors willing to create jobs and increase income outside of Bangkok is a sound one. The BOI website on Thailand as a source of investment is also a winner. The problem, however, is that the BOI and the Thai government need to do more. Because of government policy, some basic items made in Thailand like plastic resin are purchased for cheaper rates in China than they are sold for in Thailand even though they are produced there. Fees for everything from renewal of work permits to licenses needs to be lessened and the application process made less costly and more efficient. BOI and Government officials need to do more to get out the good news on Thailand’s competitiveness and they particularly need to do more to convince Thai executives who are often the quickest to advise would-be investors to look to China. Thailand truly can be the “land of smiles” for newly hired workers in rural factories but government, business and the press need to do more to let the world know that Thailand is open for business and welcomes foreign factories with open arms not just a pretty smile.

About the Author:
Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)
Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.

F r e q u e n t l y A s k ed Q u e s t i o n s (FAQs)

Is Asia right for my business?
o Do you have a plan to expand internationally?
o Are you thinking of expanding your product lines and expanding market shares to some of the fastest growing economies in the world?
o Do you want to export your products/services?
o Do you feel that to remain competitive you need to transfer your manufacturing operations to a lower cost location like Asia?
o If you do not manufacture but instead source products for resale from others, to remain competitive, do you feel you have to lower your costs by cutting out the middlemen and sourcing your products direct from the manufacturer in a lower cost location like Asia
o Are you willing to put up with a time difference that may require you to work a bit later at home at night to take phone calls or answer e-mails, travel long hours to Asia, meet and work with new people.
o If you answered Yes to one or all of the above questions, then talking further with our company could benefit you and us. Runckel & Associates helps businesses do the above. We’ve helped U.S. and other companies smoothly expand their operations and we can help you.
Which companies are currently doing business in Asia?
All Fortune 1000 companies are currently doing business in Asia. Some well known names: Ford, GM, Microsoft, Wall Mart, Colgate Palmolive, Motorola, Oracle, Cisco Systems, Hewlett Packard, Compaq… but also small and medium sized U.S. companies including small to medium sized family owned companies.
Brief economic information about Asia:
China is the fastest growing consumer economy in Asia and unless conditions change will soon surpass Japan as the largest Asian economy and the second largest world economy. Some facts on China – GDP growth has averaged 8% throughout the last 20 years; 1.3 billion people; major cities are: Beijing, Shanghai, Tianjin, Guangzhou and Chongqing. Twenty years of economic growth have created a middle class in more relatively affluent coastal areas and in Major cities.

Many Chinese now have cars, own their own apartments, condominiums or houses, eat out frequently and are willing to buy western products, eat in western restaurants and shop for new products and services. China will host the 2008 Olympics Games. China entered into the World Trade Organization (WTO) in 2002. China has a pro business government and progressive economic policies that encourage foreign investments.

In addition to China, Asian economies throughout Southeast Asia are continuing to grow and expand their manufacturing operations. Thailand has over 60 million people and a growth rate of slightly over 3 percent. Vietnam has a population of over 80 million and a growth rate of over 7%, second in growth to only China in 2002. Collectively, the Southeast Asian region offers a population of over 250 million and is continuing to grow despite the current world economic slowdown. Most Asian government are stable and pro-business and all are actively seeking foreign investment from companies like yours.
Does Asia have modern infrastructure to support its economy and my investment?
Believe it or not, China has the highest number of cell phone users in the world. The quality of the phone lines in many locations can be better than those in most developed countries because quite often China and other Asian countries have gone from nothing right up to the most modern systems without the now aging equipment. Highways in China and in much of Asia are as good or better as the U.S. Highway systems, the autobahns in Germany and the cross country links in Canada and Australia. Driving from Beijing to Shanghai or from Bangkok to Chiang Mai can be just as convenient as driving across the U.S. Air transportation is as modern as anywhere in the world. Beijing, Hong Kong, Shanghai and many other sites in Asia have brand new airports. Air links exist daily to most major cities throughout the world and are on state of the art Boeing and Airbus planes. Railway transportation is quite convenient throughout Asia and China is now just starting a multi-billion dollar rehab of its entire systems. In the cities, you will see modern skyscrapers, well laid out streets and all the consumption culture with shopping malls, etc. as seen in the west. Office space throughout Asia is plentiful.
How much does it cost to start a business in Asia?
This depends totally on the type of business, the size and the goals. Generally in Asia, labor to meet highly intensive unskilled work is inexpensive. Skilled, white color workers are getting expensive in larger cities such as Singapore, Hong Kong, Beijing, and Shanghai but generally the salaries are still lower than in the U.S. or the EEU. Getting your business registered can often cost a few thousand dollars. Beyond that, it depends on how well thought out are your plans; how many options are evaluated and the particular circumstances of the location chosen. This all can be worked out with Runckel & Associates. We will work with you to prepare business plans for your venture and to ensure that your plans are well conceived, well research and efficiently commenced.
How do I get my product into Asia?
It is very important that you test your products if required and to thoroughly do your basic homework before you invest resources in a new venture. If your product needs product testing to be permitted in Asia, Runckel & Associates can let you know this and help you with several kinds of testing depending on the product you have. The process can take weeks and even a month and will cost you $2,000 or more. We can take you all the way through and provide you with an analysis and report.

Getting your company registered- Starting Your Business – Basic Principles:
o All Asian countries welcome all types of foreign investments almost across all industries.
o Getting a company started in Asia usually requires formal registrations. This can be a headache without expert assistance. With expert assistance, the process can move more swiftly and involve much less of your important time.
o Unless specially approved by local authorities, local law in many Asian countries does not recognize the forms of sole proprietorships and partnerships.
o All businesses in most Asian countries require an annual audit, which can be conducted by local accounting firms at inexpensive prices.
How do I get my company into Asia?
Runckel and Associates has extensive experience in market entry and company registration related issues. As we often get question specifically about starting a business in China, following is the basics on foreign related business structures in China. The current Chinese law recognizes THREE types of business entities that have foreign interest. These are as follows:

Type 1: A Foreign Representative Office: This was the earliest and for a time the predominant form of foreign related entity that was/is allowed to do business in China. A so-called Rep office, as it is commonly called, can only perform liaison work between the foreign parent and local businesses. A Rep office cannot generate revenue in China and cannot sign or enter into any types of revenue generating contracts with local businesses. It is solely a communications vehicle that helps its parent company to do business with Chinese clients. Advantage: easy to establish, visible and looks good; Disadvantage: cannot operate as a revenue-generating business, can be expensive and has negative tax consequences. A Rep office is like the face of a foreign company, the flashier the Rep office, the better the image of its foreign parent.

Type 2: A Joint Venture (JV) company. This used to be the predominant business vehicle for foreign companies. The foreign company provided the product, the money and sometimes the management expertise, the Chinese company provided the local connections necessary for government approval and local market expertise and the two companies split any profits. In China, a JV is a recognized corporate entity, which is a partnership between the foreign investor and the local Chinese partner. However, the JV is a corporate entity and not a partnership in the western legal sense. A JV can conduct business in China like any other business although there are certain industries that only permit 100% Chinese companies. With China’s entry into the World Trade Organization (WTO), the country is becoming more and more open to foreign businesses. A JV can enter into a vast majority of Chinese industries. Advantage: immediate market entry with local market expertise and understanding of local practice and requirements; Disadvantage: shared decision-making power, which sometimes resulted in conflict, delay or confusion. Oftentimes, less efficient use of resources and slowdown in decision making. We would recommend against entering into minority participation in a joint venture in all cases. There are instances in which the joint venture still makes sense but generally Wholly Foreign Owned Enterprises make the best sense today.

Type 3: A Wholly Foreign Owned Enterprise (WFOE). A WFOE is a 100 percent wholly owned foreign subsidiary doing business in China. This is becoming increasingly the vehicle of choice for foreign direct investment in China. The WFOE is a registered local company but the difference with other local companies is that is its’ 100% foreign ownership. Advantage: absolute decision making power, no sharing of profits, more control over company operations, can be quicker decision making, more use of western business customs; Disadvantage: lack of local knowledge, lack of local government connections, less ability to influence government permit, tax and other decisions. This can be mitigated by using expert assistance, hiring qualified local managers and building a quality staff. Runckel & Associates has extensive experience in the registration of a WFOE and we have assisted many WFOE clients in various business ventures. We will assist you determine the optimum solution for your company.

The above example is for China. Vietnam follows a somewhat similar system. Thailand, Malaysia, Singapore and to some extent Cambodia utilize more westernized business structures with definite British business influence such as the use of the Limited Partnership, Managing Directors in place of Company Presidents, etc.
How do I get a factory started in Asia?
Choosing the country in Asia to start your business and then choosing the form of your company are only the beginning. Then you need to decide on a region or a city and a site. Cost is one factor here. Also important are access to a stable source of trained labor, quality of local utilities, quality of roads and other infrastructure, proximity to ports, airports, etc. Additionally, you will need to register with required government agencies, select the right local or expatriate key company officials, file licenses, lease or build office space and production facilities, start hiring and many more issues. The decisions are many and the chance for error can initially be great until you gain experience and confidence. The old saying “Experience is often the best teacher” is true. The problem is that often the lessons may not come cheap or without a tremendous expenditure of time and delay. A little help at first goes a long way and can save you time, money and business opportunities. We are there to help.
How do I get qualified people or human resources for my planned Asian venture?
Most Asian countries are interested in foreign investment because of the fact that it creates jobs and generates income. Generally you will have no trouble finding employees. Also, to a large extent the way you will find them will be the same way you would do it in the place you are now. Want Ads, notices to labor brokers, etc. all can be effective. Additionally, you may want to look at:

1. Contacting local universities or trade associations
2. Job Fairs
3. Ads in the paper
4. Through word of mouth and upon recommendation of existing staff
12 Self-Interview : Should you be Starting a Business in Asia?
What are the Differences between Management and Corporate Structures in Asia and the West?
Where do I start?
Pick the right consultant. Use consulting service of Runckel & Associates We are not like the rest of consultants. First we have lived and worked throughout Asia, speak most of the Asian languages and understand the law, culture and challenges of living and working throughout the region. We have people on the ground in most areas in Asia and access to specialists who will put your issue first and handle it confidentially and professionally. Second, we do not seek to be all things or to accept work in areas where others may provide a better service. We will analyze your issue in confidence and if we believe your matter is unlikely to achieve the results you desire or others would represent you better we will so advise you.

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What you should consider for your Asian trip?
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How do you learn more about Asia?
o Read Exlcusive Interviews About Business and Economy in Asia
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o Read Exclusive Article, A Tale of Three Cities Insight on a Business Trip to Three Cities in Asia
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Salary rises for foreign firms continued in China

According to a new wage survey published in Shanghai recently, professionals and executives with foreign enterprises in China saw their salaries rise by nearly 7 per cent on average last year.

The survey published recently by the international Hewitt Associate Consulting Corp, included 800 foreign firms in major cities, such as Beijing, Shanghai and Guangzhou, and also many secondary cities in China.

According to Qi Xu, a senior consultant for Hewitt, only 7 per cent of the firms said salaries did not rise in 2003. Four percent said salaries would probably remain the same in 2004. According it Qi Xu, “Such a drastic increase rate is an epitome of foreign enterprises’ confidence in investing in China.” Throughout China, Shanghai toted up the highest wage hikes at 8.3 percent with both Beijing and Guangzhou following at about 7.5 percent. According to the survey, the annual per-capita income of a senior executive in a foreign enterprise in China is 645,000 RMB (approx. US$77,700). A mid-level executive makes by comparison 297,000 RMB (approx. US$35,780).

To give an example of the spread in salaries in a foreign firm in China, a professional employee could earn an annual salary of approximately 100,000 RMB (approx. US$12,000) while a factory worker or an ordinary employee could expect about 36,000 RMB (approx US$4,340).

Qi attributed the increase to “the increasing pressure on foreign firms to draw talent, foreign enterprises in China had to keep the percentage of volatile salary and long-term encouragement rewards in their salary systems.” He also stated that “The growing salaries in foreign enterprises also reflect the soaring direct investment in China”.

In 2003, despite SARS and other concerns, more and more multinational firms and global research organizations entered China. Many foreign firms have moved their China headquarters from Hong Kong or elsewhere to Beijing and a larger number are choosing Shanghai according to most reports. By early 2004, the number of foreign firms in China had increased to 468,200 with a total investment of US$953.3 billion and actual investment of US$505.55 billion.

Sourcing in Asia: China
SHANGHAI’S WORKSHOPS: SOURCING GOOD CHINESE COMPANIES IN THE SHANGHAI CHINA REGION

Shanghai is the modern, thriving hub of business in China and many Overseas companies naturally think of it first as they consider sourcing products in China and/or locating a factory there. The fact is, however, that Shanghai has already become a more expensive place to do business and although many Chinese companies maintain offices there, most Chinese company’s factories in the area are likely to be located in one of the two neighboring provinces – Zhejiang or Jiansu which border and surround China’s commercial hub.

Recently I visited Shanghai with three groups of clients involved in outsourcing aluminum fabrication, computer monitors and in sourcing plastic items.

A number of major aluminum fabricators and manufacturers make Shanghai, Jiansu and Zhejiang their home and good companies can be readily found to handle even complex projects. In terms of computer items Suzhou which is located a little of an hours drive out of Shanghai in Jiansu province is the place to go. Suzhou which is Portland, Oregon’s sister city in China has become the hub for Taiwanese and other major companies involved in computer monitor, printer and other components and is a must stop if your company is looking to source items in China, have a major OEM design completed or especially to move a factory to lower costs. City authorities are welcoming and the Business Development and Cultural Outreach city offices under Mr. Ronglong Tang are well run, proactive and can be counted upon for support with major projects.

In all of China, most first time overseas visitors fail to realize the large spaces involved or how much development has occurred already and how much is still going on everyday. China is one vast construction project with new cities, government offices, roads, housing developments, shopping centers, malls, factories, etc. going up everywhere. Air quality is seriously impaired and traffic is often dense and congested. Despite this, even in less well known locations, generally there are good hotels, safe restaurants and a warm welcome for the company interested in sourcing products or doing other projects.


A good example of the above is Zhejiang Province. As noted earlier, the province borders Shanghai which lays to its east and extends over a relatively large area which means that visits are usually best performed by air to airports in Yuanyan, Ningbo or Hangzhou. Modern highways link all of the major cities and transportation is relatively straight forward although leave some time in your schedule as factories are often a farther drive time than expected as many Chinese don’t want to disappoint or inhibit their potential buyers. Factories often will provide a car and an English speaking staff person to meet so the process shouldn’t inhibit even buyers for mid and smaller overseas companies as the process is less daunting than might be imagined. An additional advantage of Zhejiang is also that it is the site of the major port for the area which is located in Ningbo and containerized shipping can therefore be easily arranged as local transportation from the factory to the port is relatively low cost.

A good example of what Zhejiang has to offer is the city of Taizhou. Taizhou which was formed a little over 10 years ago is what is considered a mid sized city in China, with over 5.5 million people. In China, large population numbers are taken for granted and a city of a million is considered minor in Chinese terms although it would be a major city in the U.S., Europe or many other countries. Taizhou’s airport is located in nearby Huangyan which was formerly a Chinese Airbase and where some planes are still based but what now is mainly a civilian airport with several daily flights from Shanghai and other Chinese cities. The airport is about 10 minutes to the city center of Taizhou, and 15 minutes to Huangyan, the city for which it is named.

Taizhou is the largest plastic manufacturing base in China and the premier Chinese city for plastic mould fabrication. Much of this work started in China in Guangdong province when neighboring Hong Kong became too expensive but has now moved more to the Taizhou area although many of the larger Taizhou companies also have sales offices in Shanghai. Taizhou is however not just a major plastics center, it is also a major site for automotive and the automotive and motorcycle accessories industry, home and commercial sewing machine manufacture, medical and commercial chemical facilities, pumps and valves, clothing, small and family electrical appliances, food processing and for many arts and crafts. During my recent visit, I visited many of these facilities and found them modern, well run and looking for increased business.
(Picture from left: Leo Chen – Officer of Taizhou International Investment Promotion Center, Chris Runckel – President of Runckel & Associates, Jeff Bailey – General Manager of Max Packaging, Jin Yujia – Director of Foreign Investment Service of Taizhou Foreign Trade and Economic Cooperation Bureau, David McFarland – Vice President of Max Packaging , and Chen Weilin – Vice-Director of the Government Information Office of Taizhou and Director of China Taizhou Internet Information Center)

As many cities in China, Taizhou has an active office promoting investment and seeking to attract companies to locate in their city or to source major projects there. Jin Yujia (Mr. Jinni) heads the Foreign Investment Service of Taizhou’s Foreign Trade and Economic Cooperation Bureau and is actively assisted in the Taizhou’s International Investment Promotion Center by Leo Chen, a very active, well informed and well spoken official who assists foreign businesses interested in the city. Taizhou also is lucky to have the services of Mr. Chen Weilin, Vice-Director of the Government Information Office of Taizhou, and the Director of China Taizhou Internet Information Center which is seeking to bring Taizhou and its many advantages to the attention of a wider audience and support investment attraction and job creation. Together these three are ably assisted by many others who make the process of doing business in Taizhou straight forward and easy to understand.

Major industrial factory zones around Taizhou include Damai Island Economic Development Zone, Huangyan Economic Development Zone, Linhai Economic Development Zone, Taizhou Economic Development Zone and Wenling Economic Zone plus several smaller areas. I visited a number of factories located in these zones and most are located in fairly new facilities although some of those in especially Huangyan that I saw had been in operation for well over 10 years.

Although I was prepared for a Spartan hotel stay, Taizhou also has the four star New Century Hotel in Taizhou and is building a five star hotel that will open in mid-2004. We stayed in the New Century and ate at three of the restaurants there and found the food, service and facilities to be excellent. We also ate dinner at the Huangyan International Hotel which although not as new seemed well run and had a very good restaurant.
Taizhou and Zejiang province are firmly now in the front of my mind as places to think about whenever I am looking for a company to produce a product or a new area to site a factory and from what I saw the rest of the world will be hearing more and more about this booming industrial and commercial area.

About the Author:
Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)
Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.
SOURCING AND BUSINESS TRAVELLING
IN CHINA’S SHANGHAI DELTA REGION

In June 2004, I again visited Shanghai and Zhejiang province to assist clients source items and to visit the China International Consumer Goods Fair in Ningbo on June 8-9, 2004. Shanghai is a world city which with a population of over 14 million often is overwhelming. The City though is not only a “go-go” business Mecca but also a city of great parks, sights to see and fantastic restaurants, bars and entertainment locations.

No visit to business visit to Shanghai is complete without at least a short time off to visit a little of the city. Some of the sites I always try to include are a visit to one of Shanghai’s parks – I would recommend – the Jing’an Park and the Jing’an Temple. Both are central but not touristy and with many sights of real Chinese life.

I also recommend a visit to the Shanghai Museum which has a collection so large that trying to “do” the entire museum in a day will put you in sensory overload – try it instead in parts – a day for the ceramics, a day for Chinese furniture, painting and calligraphy and another sections on other days. At one-two hour “chunks”, the Museum is a much more pleasant and relaxing venue. Also, don’t forget a visit to the Museum store – it is a great location for a unique and tasteful gift.

For a different eating experience, try the Dong Bei Ren (Litterally North East People) restaurant for a fun and tasteful change. For a great western eating experience in a very unique atmosphere try T8 at the Xindiandi complex which is a great area to people watch some of the over 100,000 expatriates that live in Shanghai and the hundreds of thousands more than visit yearly.


HAINING – CHINA’S LEATHER CAPITAL

When your country has twenty-five percent of the world’s population as China does and increasingly is becoming the workshop to the world, cities can and do in China specialize to differentiate themselves and to take advantage of their specific local advantages. Although I had often heard knowledgeable friends note that Zhejiang province and the city of Haining was the place to start any search for a leather product, this was my first visit.

First, a little geography, Haining is what the Chinese term a small city (less than a half million people – although still with a population which would make it a mid-sized city in Europe or the U.S.) and is a part of Jiaxing. (A larger city of about one million located next to Haining). Haining has a number of attractive sites and is known for its tides as the Emperor was said to visit here at one point in ancient times to view the moon at this location. It is located in Zhejiang province which neighbors Shanghai and requires about a two hour drive from Shanghai to reach the city.

Haining has over 3,000 factories with the majority of them involved in the leather business. About 2-300 firms already are export qualified and items are shipped yearly to Korea, Japan, Germany, the U.S., Canada, Russia and many other locations. English language skills of some of the staff are still developing and finding a good partner who understands international business can take some work but there are several good agents working this field who we can recommend through prior experience.

Each year Haining hosts major Leather and Leather goods fair in September (the next major exhibition is scheduled for September 3-5, 2004) we were told by Mr. Anthon Huang from the Haining China Leather Market Administrative Committee. According to Mr. Huang this exhibit usually hosts up to 800 exhibitors and includes all the major quality leather goods vendors not only in Haining but from all over China. For those in the leather trade, the Haining Leather Exhibition is a very convenient way to see new products and to make new sourcing connections.

During our visit, we observed companies making leather, rabbit fur, sheepskin and other coats and jackets. We also saw companies making wallets, purses, bags, belts and many other accessories. The range of goods was very high with leather sofas and chairs, leather automobile seats and many other items also being produced at factories that are located throughout the city and its suburbs. One of these factories has over 5,000 employees but many were a hundred or less employees and were much more basic in operation.
NINGBO – PORT AND MAJOR EXPORT CENTER

Ningbo is a 25-30 minute flight from Shanghai’s Pudong or Honggiao airports. It also is a three hour drive although this drive time should be cut greatly by a long bridge and viaduct that will shortly span Hangzhou Bay from Shanghai to Ningbo. . Ningbo is a city of about eight million people. It is a major port, food processing and other business hub. Ningbo has been a major city from ancient times and there are a number of very well preserved and interesting temples and other sites to see in the city. In Ningbo we stayed at the Ningbo New Century Hotel, a four star property, in the central city that has conference facilities and a full range of restaurants with everything from Western to naturally Chinese food

Ningbo each year hosts on behalf of Zhejiang Province the China International Consumer Goods Fair and the Zhejiang International Trade and Investment Seminar. These two events are hosted concurrently yearly. The first event this year had over 2,200 exhibitors in one of the largest and a quite modern exhibition center. The exhibition included manufacturers, trading companies, e-sourcing companies, shippers and other service providers. The range of products was very extensive – everything from cars to light handicrafts with everything between. International visitors at the show included visitors from all continents – Africans, South Americans, Australians, Indian, Pakistani, Arab, U.S., Canada, Europeans and Russian with Chinese suppliers all trying to attract interest in their company and foreign and domestic buyers looking to negotiate favorable business deals.

The Zhejiang International Trade and Investment Seminar included nine cities in Zhejiang province that are all competing to attract investment and to lure new factories and other investments to their cities plus to promote international trade as a means of increasing employment and trade. One exhibition hall was set aside for these exhibitions which were highly professional and very well laid out. Additionally, each city held smaller seminars for interested investors at which they set-out their programs and discussed incentives and the cities comparative advantages in comparison to its neighbors.
TAIZHOU – MAJOR TOURIST AND INDUSTRIAL CITY


Taizhou is located a two hour drive from Ningbo and about a three hour drive from Shanghai. It is the middle part of Zhejiang’s costal are and on the southern wing of the Shanghai Economic Zone bordering Ningbo and Hangzhou on the north and connecting to Wenzhou on the South. Taizhou made up of three districts which include Jiaojiang, Huangyan and Luqiao and includes two sub cities – Linhai and Wenling. It is served by Taizhou Huangyen Airport which is modern and has flights from many Chinese cities. Flight time from Shanghai is about thirty-five minutes.

(above left) Taizhou’s exhibition area at the Ninbo’s Zhejiang Province the China International Consumer Goods Fair and the Zhejiang International Trade and Investment Seminar this year. (above right) Deputy Mayor of Taizhou greets visitors at the Taizhou exhibition area.

Taizhou is the largest base of China’s plastic, plastic mould, automobile and motorcycle spare parts, sewing machines, chemical and pharmaceutical, valves and pumps and many other industries. The city was formed years back from joining together several nearby cities into a larger urban complex and currently has a population of 5.5 million.

As most of Chinese cities, construction is taking place everywhere with new buildings being added, new roads constructed and many major infrastructure projects being undertaken. Taizhou is definitely a city on the move and you can see this in the aggressive leadership of the Cities female Mayor and its active Vice Mayor who at six foot two is a person who most people look up to.

Taizhou also is a scenic area with sites as diverse as the largest Ancient Great Wall in the South of China, Shiliang waterfall, Changyu Caves, drifting in Yangan River plus many temple and tranquil gardens tied to Confusius and Taizhou’s links to Southern Buddhist traditions in the area.

Taizhou also is served by another of New Century Hotels plus a new five star facility is set to open shortly. Restaurants specializing in seafood, excellent fresh fruit and vegetables raised nearby and many unique local products make Taizhou a great visit site as well as a good place to do business

The Purchasing Magazines: Global Sourcing Section

Buyers look toward China—but with a degree of caution One of the hesitancies: the difficulty in calculating the total cost of producing and shipping products to the U.S.

One of the hesitancies: the difficulty in calculating the total cost of producing and shipping products to the U.S.
January 13, 2005
(Source: http://www.purchasing.com/article/CA497347.html)
Purchasing professionals and supply-chain executives are testing such Chinese products as metal parts and assembly components, primarily because of perceived lower costs. But they are so cautious that sourcing is slow-paced: Only 27% of the products bought by original equipment manufacturers surveyed by PURCHASING magazine are being offshored this year in China.
That doesn’t surprise Christopher W. Runckel at the Runckel & Associates international business consulting firm in Portland, Ore. “Global sourcing dynamics are always changing and, with so many potential suppliers in one nation, a good source today may not be so good six months from now.” China already is a manufacturing powerhouse, but it remains a net importer of many manufactured products because its home market is so huge and its own industrial economy is expanding at a 14% annual rate.
Still, manufacturers of all shapes and sizes of consumer goods—making everything from windshield wipers to washing machines to clothing—are setting up factories in China despite huge cultural and logistical challenges. According to Boston Consulting Group, the average hourly pay (including benefits) of production workers in China is 80¢ versus $21.86 in the U.S. So, given the same equipment, American workers need to be 25 times more productive than their Chinese counterparts to remain competitive (excluding the cost of logistics and overseas supplier management).
But, a big issue is that China’s much-publicized manufacturing expansion has been multi-tiered but incomplete—ranging from such basic materials as cement, steel, nonferrous metals and chemicals to such finished goods as consumer electronics, home appliances, televisions and automobiles. What’s still missing, the analysts agree, is a real expansion of export-oriented commodity materials, industrial components and manufactured parts.
It is estimated that 75% of the buying groups in Industrial America are offshoring—that is, purchasing products and materials for production outside North America— to some degree. However, many of these manufacturing buying groups are hesitant to extend their industrial supply chains across the Pacific: None of the 573 purchasing personnel polled by PURCHASING magazine are sourcing the majority of raw materials there and only 10% are sourcing the majority of their intermediate parts and components with Chinese suppliers.
One of the hesitancies: difficulty in calculating the total landed cost of a product, that is, what is its true cost when logistics and delivery times are factored into the equation. In addition, they are moving cautiously because of the need to team with supply companies that have people who are fluent in English as the international language of business and who can answer e-mails, understand business principles discussed in such e-mails—and who are Internet savvy and have a professional website.
Still, numerous overseas purchasing offices are being set up in Hong Kong (to concentrate in the consumer products companies in Guangdong Province) or in Shanghai (to mainly cover Jiangsu and Zhejiang provinces with their industrial products manufacturing complexes). Economists and industrial experts say lower-end manufacturers and suppliers affected by cheap labor markets will continue to expand manufacturing in China. But that won’t happen much for higher-end manufacturers. The gurus expect that companies in the U.S. will maintain production of high-quality and precision components and parts, along with research and development, in the U.S.
Buyers polled by PURCHASING agree: Only 46% of the purchasing managers who do source in China already say their firms are building manufacturing plants there. Of those queried, 17% aren’t offshoring any of their own manufacturing to China, and the remaining 37% are only entering joint ventures in China—and there are as many of those for subassembly of parts as there are for assembly of finished end products. “It is no longer a question of if you are going to work with a manufacturer in China,” says Richard Dougherty, an analyst with Envisioneering Group in New York, “Now, it’s a matter of when and how much equity and how much co-manufacturing occurs.”
China last year shipped goods to the rest of the world worth about $438 billion; the U.S. purchased $152.4 billion, or nearly 40%, of that total. “China is turning into an attractive place for multinational buyers,” according to a report by Roland Berger Strategy Consultants that is based on a survey of 32 multinational companies. However, the products highlighted by the study are consumer-oriented: Printers, personal computers, televisions, cellular telephones, microwave ovens, DVD players, and clothes.
Most analysts note that China excels at sourcing components or goods made on templates for items such as furniture, toys, electronic components and consumer electronics, small appliances and telecommunications equipment. This fits with U.S. Census Bureau data that shows that the biggest categories of goods shipped into this country from China are clothing apparel and footwear, followed by household goods, and then toys, shooting and sporting goods, and bicycles.
The fourth-largest category—and the largest manufacturing-bound commodity group—is semiconductors, components and peripherals. The fifth-largest group of products is machinery—17 categories of durables ranging from generators, transformers, pumps, compressors, generators and electric apparatus to oil-field drilling and oil- processing equipment; from mining, excavating, paving, and construction machinery to metalworking machine tools and textile, sewing, leatherworking and food-processing machinery.
What and why buyers source
The PURCHASING magazine survey found the Top 10 products sourced from China by U.S. manufacturing buyers are completely different—ranging from metal stampings, machine-shop products, fasteners, tool and die equipment and forgings and castings to iron and steel products, plastic products, fabricated- metal products, nonferrous-metals products and electrical components.
The next batch of popular products sourced by U.S. buyers in China is builders’ hardware, machinery (in-cluding machine tools), semiconductors and other components, rubber products, consumer electronic products, electrical equipment, paper packaging materials, plastic packaging materials, motor vehicle parts, and plastic resins. The last group that make up the Top 25 are furniture, hand tools, chemicals, specialty metals and superalloys and wood products.
Actually the purchasing of materials and products from Chinese sources is so widespread that another 30 categories made the list. This doesn’t surprise analysts and trade insiders. “As more foreign companies source in China, they are challenging local factories to compete not only on price but on quality and service,” says the U.S.-China Business Council.
Of the buyers polled by PURCHASING who are offshoring from Chinese sources, 84% believe they can get cheaper goods there because of the nation’s perceived lower manufacturing and labor costs. The key reasons why buyers source in China range from their firms wanting to avoid capital investments, to supply chain groups wanting to reduce inventory costs, from obtaining procurement expertise and leverage through sourcing internationally, to using offshoring to shift cost structures from fixed to variable.
Some of the buyers also believe using China as a purchasing resource will improve their company’s time to market, help buyers obtain design and technical assistance, help buyers obtain design-for-manufacturability expertise and improve product quality. However, not everybody agrees with the idea of Chinese sourcing. “Buying from China isn’t cost-effective,” says one buyer. “The quotes I have received for custom fabrications aren’t practical, the leadtimes are too long, quality issues are problematic and the dollar saving are only 10% to 15% before assessing freight costs. China sourcing is too big a risk for too little gain.”

The ABCs of Chinese Sourcing
A. Pick product to source and define product criteria
B. Search for suppliers and research supplier qualifications
C. Evaluate samples and audit factories
D. Choose supplier
E. Establish reliable quality control
F. Establish communications

China in Major Change: Opens Retail, Distribution Sectors to Foreign Businesses

Some, including Wall Street Journal have described change as
“revolution in China’s the investment environment”

A new law which was issued in April and goes into effect at the first of June will open China’s retail and distribution sectors wide open to foreign investors. Implementation of the new law will set off a new round of faster growth in what is currently an already rapidly expanding area of the economy.

Till now, foreign companies seeking to enter China’s retail market were required to have Chinese partners to set up stores anywhere in the country. The law that comes in effect from June will mean that after December 2004, foreign companies will no longer have to meet prohibitive asset and sales requirements that had barred all but the world’s largest retail chains from entering China. It will also loosen an earlier rule that all store openings needed approval from the central government.

While the law only allows China to meet its’ undertakings to the World Trade Organization (WTO) – under which Beijing agreed to open its retail and distribution sector within three years of joining the global trade organization – it is particularly welcome to foreign investors since it runs counter to recent protectionist calls by Chinese retailers and some officials. According to the Wall Street Journal in a recent article, “It will increase the speed of expansion of the big retailers,” says Li Fei, a professor at Tsinghua University’s School of Economics and Management who was involved in drafting the new law.

In recent years, major international chains like Carrefour SA of France and Walmart Stores Inc. of the United States have expanded aggressively in China. Local Chinese retailers have loudly protested this and lobbied heavily for protection from the new competition in price and service that these major retailers have set off. Earlier drafts of the law had included a requirement for a system to rate and punish foreign retailers who had previously set up stores without central government approval. Another proposal would have prohibited foreign retailers from opening stores in cities that haven’t drawn up detailed maps of planned retail sites, which would include many smaller cities.

But the new law – which Professor Li says went through about 10 draft versions balanced local concerns by including input from foreign and domestic retailers as well as economic experts – dropped both of these provisions in the final version and appears to reflect a commitment toward a more open and fair market. U.S. trade officials say they lobbied hard to get China to remove vague and, at times, anticompetitive provisions in earlier drafts. Thy note that thee final result “shows that officials are quite determined to not protect what does not need to be protected any more,” says Allan Liu, President of the China Retail Fund, which invests in retail ventures. “It’s an encouraging sign.” Mr. Liu said.

For the immediate future, the big chains will probably be the first to benefit according to local experts. The Ministry of Commerce, which overlooks the retail sector, has begun accepting applications from foreign retailers seeking to restructure through buying out their Chinese partners, says one person who has filed such an application. Previously, foreign retailers had to operate through joint ventures. Because most Chinese companies had limited cash or narrow geographical focus, the former requirement to pair with them caused most foreign companies to limit their expansion plans; the change is likely to speed up change in a fast altering field.

In the longer term, the law also opens up a whole new area of business for smaller foreign companies that didn’t qualify to compete under previous retail and distribution laws that favored the big multinationals. Only retailers with average annual sales of more than $2 – billion (US), for example, were allowed to apply to set up in China previously. This meant in practice that only companies that manufactured in China – generally, big companies like Coca-cola, Procter & Gamble, etc. could distribute their own goods in the domestically. Everyone else had to rely on Chinese distributors, forcing companies to cede control over key aspects of business such as quality control of their products during shipment.

According to Eduardo Morcillo, a senior consultant for InterChina Consulting, now with the new law, foreign companies of any size will be able to distribute or sell goods at retail. Those likely to immediately benefit from the new policy include makers of luxury goods, high-end electronics, and industrial products, Also under the new law, foreign companies will also be permitted to import and export goods; previously they could only do this through approved Chinese companies.

“It’s a revolution in the investment environment in China,” according to Mr. Morcillo, who is based in Shanghai. “There’s a huge market for imported products, but now you will be able to import directly and sell directly.

What You Need to Know About International Banking?
In order to be a success in your export activities, you need to know how to finance your import or export and how to get paid, espescially when dealing in foreign currencies. Your banker can and should be a key member of your advisory team. Finding a bank that is comfortable and proficient in providing the various products and servcies required by exporting and importing firms is becoming easier as international sales become more and more common. The expansion of the internet and the advent of e-banking are also helping to increase the number of banks that companies can work with for their international banking requirements.
Banking Products And Services You Should Know About
Depending upon the industry in which your company operates, there are several products and services available from major international banks that can help you to get ahead of the competition. Financing and speed are integral to any sale and now is the time to look for banks on the leading edge. Multinational companies, commodity companies, capital equipment and consumer product producers are the primary users of trade financing products, which include import letter of credit, export letter of credit, stand-by letters of credit, collections, trade-related loans, structured and barter trade. The most common of these is the letter of credit. Simply put a letter of credit is a banking mechanism that permits importers to offer secure terms of sale to exporters.
In the past, most companies didn’t need to know about letters of credit. With the expansion of international trade, this has changed and even small companies increasingly are coming to utilize letters of credit and other even more advanced international financing services. Knowledge is power and you should learn about each of these instruments and evaluate if they are applicable to your particular transaction. Definitions of most of the products such as letters of credit are included in the Glossary on this website. The website www.mantissa.co.uk offers both a quick and a more extensive course for learning more about Letters of Credit and other international financing instruments. This subject is very important both for exports and imports and a visit to the website is definitely recommended.
In addition to providing the services above, companies should also expect the financial institution to be able to provide products through a web-enabled delivery portal. Many of the best trade banks are already doing this. Additionally, your international bank should also be able to offer information on the following value-added trade products and services such as:
• Prepayment and structured pre-export facilities: these services finance pre-export fabrication and provide export financing for a country’s key exports.
• Export receievables financing.
• Government-backed insurance and guarantee programs: These are available from government bodies such as Eximbank or private insurers and can help your company spread the risk.
• Programs offered by regional development banks and institutions: the IFC, ADB, World Bank, and other institutions support international sales by providing guarantees as credit support or enhancement.
• Linked exports and import financing: In some countries the export contract can act as security for essential imports. For example, in some countries that export value-added products (Asia has many), if imports (generally but not always raw materials) do not flow into the country then value-added exports stop. An international bank can credit-enhance the deal by using the export contract as security thus allowing country imports to continue.
• Global trade management: This allows you to out-source the trade documentation preparation to others who are more familiar with it and who work with these forms daily.
• Option-linked financings for commodities: Again, these are risk spreading options. Examples are trade finance solutions that have interest rate, foreign exchange, and commodity-hedging options. These can be made part of the transaction if desired.
• Counter-trade transactions: commodities, durable and other goods are essentially bartered.
• Forfeiting: This is a provision of medium-term trade finance where trade contracts are sold into the secondary market.
• Multinational inter-company structured trade/tax facilities.

Online Letters of Credit – The International Bank of the Future
For a company dealing globally, the internet is a critical tool for speed and efficiency of communications. One area where it is still in its infancy, however, has been in financing international deals. This is changing. Recently Imperial Bank launched its online SWIFTrade service at www.imperialbank.com/home.asp The site was in beta testing for two years prior to this so this is a very mature service at this point. With this service, Imperial Bank’s customers can obtain a letter of credit immediately and have it seen immediately by those who need to know about it.
The information in the system is not public and if fact most people wouldn’t have access to it. For example, the system can be kept secure by a series of passwords. In the case of imports, the importer can let the person selling to him see the letter of credit online by supplying a password; the exporter then doesn’t have to wait to be advised by his bank in his home city and can begin production immediately. In the case of fast changing market requirements such as fashion or toys, this speed can be critical. The company receiving the letter of credit can also allow others to view the document such as freight forwarders, customs brokers or other specialists, so preparation and paperwork can begin in those areas, as well.
The Imperial Bank also has an online system for financing. The importing company can fill out an application online at the website.
SWIFTrade is still being enhanced but can already provide the following online services:
• Letter of credit issuance;
• Sending electronic copies of letters of credit to the beneficiaries via e-mail;
• Allowing shippers and other partners of the company acquiring the letter of credit to have access to specific portions of the information to speed their work;
• Tracking the status of letters of credit;
• Monitor account activity, even for accounts held with foreign banks.

Opportunities for success and failure in Asia
Christopher W. Runckel

(Online source: http://portland.bizjournals.com/portland/stories/2005/01/10/focus3.html)
Asia is home to two of the World’s fastest growing economies: China and India, each with more than 1 billion in population. Asia, however, is much more than either of these countries with large trading partners like Japan, Korea, Taiwan and increasingly Southeast Asia (home to over 500 million) continuing to develop their economies and trade possibilities. Additionally, many of the trade barriers such as high import tariffs are disappearing or being greatly reduced throughout the region. Asia is currently the site of the World’s most active Free Trade Agreement environment with Thailand and Singapore both noted for their recent rapid progress in this area and now with China a significant player in the field as well.
Portland and the Northwest economically have come through very tough times. Managers have had to look long and hard at all costs and to develop creative ways to stay competitive. Despite this and the fact that Oregon and Washington State are closer to Asia than is most of the nation, many Northwest companies, especially small companies, have not taken advantage as fully as larger firms of the lower sourcing potential that Asia can offer.
Although our firm only counsels companies to look and to move jobs off shore as a last resort, often times some functions must be moved if the company is to continue to compete effectively and if jobs are to be saved here. It is with this thought that many managers and business owners approach us and in which we try to help them through our free website at www.business-in-asia.com and through our for fee consulting business.
Companies considering sourcing in Asia for the first time should heed the following advice.
Do your homework. Internet sites can help you learn more about Asia and about sourcing opportunities.
Sourcing, like any other skill, is something that is possible for all but it may be more cost-effective for you to hire someone to do the initial research as they may do this more often, have greater contacts and experience and be able to give you a more comprehensive report to work with. Therefore think about whether this is something you feel comfortable with doing and have the time to accomplish.
Sourcing need not be expensive but does involve effort, so be prepared to invest the time or pay accordingly. We and many other sourcing specialists can provide a simple sourcing report with a list of 5 or 6 potential qualified companies for well under $2,000. For this you should get company names and contact information, information on the number of employees, years in business, list of previous sales and much other relevant information.
Using a trade consultant, just as using an attorney or other professional, should follow a well thought-out process. First, you need to consider what you want to accomplish. Second, if you are going to consider hiring someone to assist you, take the time to complete a written scope of work — this need not be long, one page or so is sufficient — as to what you want to accomplish, what issues are most important to you and how broad or how narrow you want to make your search (for example, only Chinese companies, all Asian companies, only companies in a certain region, etc.)
Talk to more than one sourcing specialist. For the relationship to work, trust and a good professional and personal relationship greatly simplifies communication and increases the chances of success. Your consultant should be willing to sign a non-disclosure agreement with you in advance of any talks and to discuss your requirements in an initial consultation, then give you a written quotation noting what work is to be performed, the time period, fee, terms of payment, governing law and other critical elements of the agreement.
All consultants aren’t created equal. Get the right tool for the job. Any honest firm doing sourcing or market research work in Asia should be able to tell you where they have worked in the past, to give you references and to note areas where they have had success.
No firm is equally good throughout the region. Our firm for example has had excellent results in Thailand, Vietnam and parts of China, but will be the first to tell you that we are weak in Indonesia, the Philippines and Japan.
Even in China, no firm is equally good throughout such a large country. In the south of China, Portland companies like eBI have experience, connections and have had much success. In the north of China, other names locally would come to mind. Also, some companies are good in a particular sub sector, for example, our company has had good results in injection plastic molds and items, leather and textiles, jewelry and stamped metal items but has done little work in oil and gas, chemicals, microprocessors or high-tech manufacturing.
Use your sourcing specialist wisely. Generally the more time involved for your sourcing specialist, the more he or she will charge. Think clearly in advance whether you need help with just the initial targeting of companies or something more.
Lastly don’t underestimate yourself. Last year, thousands of companies sourced products in Asia for the first time. Most of them will tell you it was a challenging but mind-opening experience. You can do this.
Christopher W. Runckel is president of Runckel & Associates, a Portland-based international business consulting firm focused on Asia. He can be reached at (503) 244-4551 or at crunckel@business-in-asia.com.

What is Asia-Pacific Economic Cooperation?

 Asia-Pacific Economic Cooperation, or APEC, is the premier forum for facilitating economic growth, cooperation, trade and investment in the Asia-Pacific region.

 APEC is the only inter governmental grouping in the world operating on the basis of non-binding commitments, open dialogue and equal respect for the views of all participants. Unlike the WTO or other multilateral trade bodies, APEC has no treaty obligations required of its participants. Decisions made within APEC are reached by consensus and commitments are undertaken on a voluntary basis.

 APEC has 21 members – referred to as “Member Economies” – which account for more than a third of the world’s population (2.6 billion people), approximately 60% of world GDP (US$19, 254 billion) and about 47% of world trade. It also proudly represents the most economically dynamic region in the world having generated nearly 70% of global economic growth in its first 10 years.

 APEC’s 21 Member Economies are Australia; Brunei Darussalam; Canada; Chile; People’s Republic of China; Hong Kong, China; Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; The Republic of the Philippines; The Russian Federation; Singapore; Chinese Taipei; Thailand; United States of America; Viet Nam.

Purpose and Goals

 APEC was established in 1989 to further enhance economic growth and prosperity for the region and to strengthen the Asia-Pacific community.
 Since its inception, APEC has worked to reduce tariffs and other trade barriers across the Asia-Pacific region, creating efficient domestic economies and dramatically increasing exports. Key to achieving APEC’s vision are what are referred to as the ‘Bogor Goals’ of free and open trade and investment in the Asia-Pacific by 2010 for industrialized economies and 2020 for developing economies. These goals were adopted by Leaders at their 1994 meeting in Bogor, Indonesia.
 Free and open trade and investment
 Helps economies to grow
 Creates jobs
 Provides greater opportunities for international trade and investment.
 Lower the costs of production and thus reduces the prices of goods and services – a direct benefit to all.
 In contrast, protectionism keeps prices high and fosters inefficiencies in certain industries.
 APEC also works to create an environment for the safe and efficient movement of goods, services and people across borders in the region through policy alignment and economic and technical cooperation.
 Asia-Pacific Economic Cooperation (APEC) works in three broad areas to meet the Bogor Goals of free and open trade and investment in the Asia-Pacific by 2010 for developed economies and 2020 for developing economies.
 Known as APEC’s ‘Three Pillars’, APEC focuses on three key areas:
 Trade and Investment Liberalization
 Business Facilitation
 Economic and Technical Cooperation
 Trade and Investment Liberalization reduce and eventually eliminate tariff and non-tariff barriers to trade and investment.
 Protectionism is expensive because it raises prices for goods and services.
 Thus, Trade and Investment Liberation focuses on
 Opening markets to increase trade and investment among economies, resulting in economic growth for APEC Member Economies
 Increased standard of living for all.

Business Facilitation

 Business Facilitation focuses on
 reducing the costs of business transactions
 improving access to trade information and aligning policy and business strategies to facilitate growth
 Free and open trade.
 Essentially, Business Facilitation helps importers and exporters in Asia Pacific meet and conduct business more efficiently, thus reducing costs of production and leading to increased trade, cheaper goods and services and more employment opportunities due to an expanded economy.

Economic and Technical Cooperation (ECOTECH)

 ECOTECH is dedicated to providing training and cooperation to build capacities in all APEC Member Economies to take advantage of global trade and the New Economy.
 This area builds capacity at the institutional and personal level to assist APEC Member Economies and its people gain the necessary skills to meet their economic potential.

How APEC Operate

 APEC – A Multilateral Economic Forum
Asia-Pacific Economic Cooperation (APEC) operates as a cooperative, multilateral economic and trade forum.
 It is unique in that it represents the only intergovernmental grouping in the world committed to reducing trade barriers and increasing investments without requiring its members to enter into legally binding obligations.
 The forum succeeds by promoting dialogue and equal respect for the views of all participants and making decisions based on consensus to achieve its free and open trade and investment goals.
 APEC Member Economies take individual and collective actions to open their markets and promote economic growth.
 More information about these actions is available in the Action Plans section of this website.

Host Economy

 Every year one of the 21 APEC Member Economies plays host to APEC meetings and serves as the APEC Chair.
 The APEC host economy is responsible for chairing the annual Economic Leaders’ Meeting, selected Ministerial Meetings, Senior Officials Meetings,
 the APEC Business Advisory Council and the APEC Study Centers Consortium and also fills the Executive Director position at the APEC Secretariat.
 The Deputy Executive Director position is filled by a senior diplomat from the economy which will host in the next year.

Funding

 APEC is not a donor organization. Instead, APEC activities are centrally funded by small annual contributions from APEC Member Economies – since 1999 these have totaled US$3.38 million each year.
 These contributions are used to fund a small Secretariat in Singapore and various projects which support APEC’s economic and trade goals.
 Since 1997 Japan has provided additional funds for projects (between US$2.7 and 4.2 million annually, depending on amount and exchange rates) which support APEC’s trade and investment liberalization and facilitation goals. Projects generally

Build capacity

 Improve economic efficiency, and encourage the participation of the business sector, non-governmental institutions and women.

APEC’s Project Database contains information about all APEC projects.

 APEC Member Economies also provide considerable resources to assist in the operations of APEC. These include
 the secondment of professional staff to the Secretariat;
 the hosting of meetings;
 partial (or full) funding of some projects.

At the beginning of 1984, to further open to the outside world, China government decided to establish economic and technological development zones (Hereinafter referred to ETDZ) along seas by using successful experiences of special economic zones in the previous period. From 1984 to 1988, 14 ETDZs including Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong, Minhang, Hongqiao, Caohejing, Ningbo, Fuzhou, Guangzhou, Zhanjiang are the first that had been established by the approval of the State Council.

In 1992 and 1993, eighteen other ETDZs including Yingkou, Changchun, Shenyang, Harbin, Weihai, Kunshan, Hangzhou, Xiaoshan, Wenzhou, Rongqiao, Dongshan, Guangzhou Nansha, Huizhou Dayawan, Wuhu, Wuhan, Chongqing, Beijing, Urumchi are the second to be set up.

From 2000 to 2002, the State Council approved to build the third group including Hefei, Zhengzhou, Xi’an, Changsha, Chengdu, Kunming, Guiyang, Nanchang, Shihezi, Xining, Huhhot, Taiyuan, Nanning, Yinchuan, Lanzhou, Lasa, Lanzhou
Besides, it also ratified Suzhou Industrial Park, Hainan Yangpu ETDZ, Shanghai Jinqiao Export Processing Zone, Ningbo Daxie ETDZ and Xiamen Haicang Investment Zone to enjoy the preferential policies for the ETDZs at state level.

China ETDZ is a relatively small piece of land carved up in the coastal cities and other open cities. It attaches great importance to improving hard and soft investment environment and adheres to the policy of “mainly developing the high-tech industry, focusing on industrial projects, absorbing foreign fund and building up export-oriented economy” to strive for a fast and sound development.

Serving as “Windows and bases” in the fields of opening-up, capital attraction, export enlargement, hi-tech development and regional economy promotion, it now becomes a powerful engine in developing regional economy and plays an important role in adjusting regional economy and industry structure.

As a matter of fact, The ETDZs have scored great achievements and become the hot places of foreign investment and main forces of export.

The ETDZs of coastal cities have achieved remarkable success. By summarizing the experience of fast and sound development of national development zones, as a major component of a strategy to develop the western area, the State Council made a decision in 1999 that middle west provinces, autonomous regions and municipalities directly under the central government could choose one qualified and established provincial-level ETDZ from its capital city to bid for a national-level ETDZ.

To date, there are 54 national-level ETDZ, among which, eastern coastal regions 33, Middle West regions 21 (Nanjing ETDZ is newly approved to be established). The pattern of national-level ETDZs in various provinces, cities, autonomous regions and other open cities is quite reasonable especially the newly established national-level ETDZs, which will play an active role in implementing the strategy of developing the west strengthening the economic cooperation between eastern and middle western regions and promoting the coordinated growth of regional economy.

About different types of development zones
Since the establishment of state-level ETDZs, in order to promote the development of different types of industries, the State Council approved to establish Hi-tech Industrial Zones in 1984, altogether 53 to date, some of which has been merged with economic and technological development zones.

Advantages and Characteristics of State Economic and Technological Development Zones

Directly approved by the state council, Economic and Technological Development Zones (hereinafter referred to ETDZs) are pivot economic regions of China. The government offers supports in the fields of land, revenue and finance and makes special arrangements in economic and legal system, rights and important project examination and approval. Their advantages and characteristics are:

◇　Economic regions with foreign investment most centralized
◇　Regions with economic developing most rapidly
◇　Regions with capital and technology intensive enterprises, hi-tech industries in the leading place
◇　Regions with most development potential and obvious geographic advantages
◇　Regions with advanced infrastructures and sound support system
◇　Regions in line with international practice and regions of high standard of opening-up

◇　Regions with good investment policies and legal environment
◇　Regions with good economic system advantages

Over more than twenty years’ construction, state-level Economic and Technological have spread from littoral to inland and become special economic regions.
They are regions with foreign investment most centralized, economic developing most rapidly, most vigorous market, most mature investment environment, newest operative system and best economic benefits.

Regions with good economic system advantages
Their economic system has the following advantages:

1. State-level ETDZs are approved by the state council and authorized fully by the government. It Serves as “Windows and bases” in the fields of opening-up, capital attraction, export enlargement, hi-tech development and regional economy promotion.

2. As an assigned organization by municipal government, the administrative committee employs the economic rights, enjoying a comparative large limit of authority.

3.ETDZs set up streamlined organs, heighten working efficiency and economize administrative expenses.

4. The administrative committee focuses on economy, taking projects as lifeline and thinking everyone as investment environment.

5. ETDZs renovate the concept of land using and try out the way of land-using charge. ETDZs also have a solid financial basis to indirectly compensate high land exploiting costs.

6. ETDZs lay emphasis on their service function. All kinds of One Stop services have come out. At present, many ETDZs are established online foreign investment promotion and online government service system to create a real international investment environment.

7. ETDZs made reforms in labor management. A set of new measures has been carried out in the zone, which also fundamentally changed people’s ideas of choosing a job. The profound transforms in ideology bring a huge potential for the sustained development of ETDZs.

8. In environment protection, a portion of ETDZs has passed ISO14000 environment management authentication standard, becoming regional environment protection demonstration zones.

9. To make full preparation for the entry into WTO, ETDZs positively carry through the transformation of government functions to meet the requirements of WTO rules.

10.tax breaks.

Management Organization Responsibilities of State Economic and Technological Development Zones

State-level Economic and Technological Development zone carries out some policies for China Special Economic Zones and new pattern management system under the guidance of local government. The administrative committee, assigned by the local municipal government, implements uniform management of development zones and cooperates with other departments.

The committee’ work includes,
I. To make the overall program and economic and social development plan as well as industrial development policies of development zone (under approval);
II. Lay down the administrative regulations of development zone; perform preferential policies;

III. Be responsible for the layout, expropriate, exploitation and management of land; for the construction and management of infrastructures and public utilities;
IV. Administer the finance, tax revenue, labor and personnel and industry and commerce; protect legal rights of staffs;
V. Examine and approve investment projects and provide consultation and service for investors;

VI. Deal with general economic and foreign affairs

VII. Administer the import and export operations

VIII. Administer the environment protection work

IX. Initiate education, science and technology, health, physical education and other commonwealth

X. Supervise and administer all kinds of enterprises and institutions;
XI. Supervise, administer and harmonize filiations set up by departments of municipal governments;
XII. Harmonize filiations set up by none-municipal governments;
XIII. Set up streamlined organizations;
XIV. Other functions and powers authorized by municipal government; Appoint and remove work staffs of administrative committee and its foliations.

Economic and Technological Development zones are under the guidance of the Office for Special Economic Zones under the State Council in the early days, Minister of Foreign Trade and Economic Commission (MOFTEC) from 1999 and Department of Commerce from 2003 since the restructuring of the State Council.

Which companies are currently doing business in China?

 All Fortune 1000 companies are currently doing business in China. Some well known names: Ford, GM, Microsoft, Wall Mart, Colgate Palmolive, Motorola, Oracle, Cisco Systems, Hewlett Packard, Compaq… but also small and medium sized U.S. companies including small to medium sized family owned companies.

Brief economic information about China

 China is the fastest growing consumer economy in Asia and unless conditions change will soon surpass Japan as the largest Asian economy and the second largest world economy.

 Some facts on China – GDP growth has averaged 8% throughout the last 20 years; 1.3 billion people; major cities are: Beijing, Shanghai, Tianjin, Guangzhou and Chongqing.

 Twenty years of economic growth have created a middle class in more relatively affluent coastal areas and in Major cities.

 Many Chinese now have cars, own their own apartments, condominiums or houses, eat out frequently and are willing to buy western products, eat in western restaurants and shop for new products and services.

 China will host the 2008 Olympics Games.

 China entered into the World Trade Organization (WTO) in 2002.

 China has a pro business government and progressive economic policies that encourage foreign investments.

Does China have modern infrastructure to support its economy and my investment?

 China has the highest number of cell phone users in the world. The quality of the phone lines in many locations can be better than those in most developed countries .
 Highways in China are as good or better as the U.S.

 Driving from Beijing to Shanghai can be just as convenient as driving across the U.S.
 Air transportation is as modern as anywhere in the world. Beijing, Hong Kong, Shanghai and many other sites in China have brand new airports. Air links exist daily to most major cities throughout the world and are on state of the art Boeing and Airbus planes.

 Railway transportation is quite convenient throughout China; It is now just starting a multi-billion dollar rehab of its entire systems. In the cities.
 You will see modern skyscrapers, well laid out streets and all the consumption culture with shopping malls, etc. as seen in the west. Office space throughout China is plentiful.

How much does it cost to start a business in China?

 This depends totally on the type of business, the size and the goals.
 Generally in China, labor to meet highly intensive unskilled work is inexpensive.
 Skilled, white color workers are getting expensive in larger cities such as Hong Kong, Beijing, and Shanghai but generally the salaries are still lower than in the U.S. or the EEU.

 The process can take weeks and even a month and will cost you $2,000 or more. We can take you all the way through and provide you with an analysis and report.

 Getting your business registered can often cost a few thousand dollars.
 Beyond that, it depends on how well thought out are your plans; how many options are evaluated and the particular circumstances of the location chosen. This all can be worked out with Runckel & Associates.
 We will work with you to prepare business plans for your venture and to ensure that your plans are well conceived, well research and efficiently commenced.

How do I get my product into China?

 It is very important that you test your products if required and to thoroughly do your basic homework before you invest resources in a new venture. If your product needs product testing to be permitted in China, Runckel & Associates can let you know this and help you with several kinds of testing depending on the product you have.

 Getting your company registered- Starting Your Business – Basic Principles:
o China welcome all types of foreign investments almost across all industries.
 Getting a company started in China usually requires formal registrations. This can be a headache without expert assistance. With expert assistance, the process can move more swiftly and involve much less of your important time.
 All businesses in China require an annual audit, which can be conducted by local accounting firms at inexpensive prices.

How do I get my company into China?

 The following is the basics on foreign related business structures in China. The current Chinese law recognizes THREE types of business entities that have foreign interest. These are as follows:

Type 1: A Foreign Representative Office

 This was the earliest and for a time the predominant form of foreign related entity that was/is allowed to do business in China. A so-called Rep office, as it is commonly called, can only perform liaison work between the foreign parent and local businesses.

 A Rep office cannot generate revenue in China and cannot sign or enter into any types of revenue generating contracts with local businesses. It is solely a communications vehicle that helps its parent company to do business with Chinese clients.

 Advantage: easy to establish, visible and looks good; Disadvantage: cannot operate as a revenue-generating business, can be expensive and has negative tax consequences.
 A Rep office is like the face of a foreign company, the flashier the Rep office, the better the image of its foreign parent.

Type 2: A Joint Venture (JV) company.

 This used to be the predominant business vehicle for foreign companies.
 The foreign company provided the product, the money and sometimes the management expertise
 The Chinese company provided the local connections necessary for government approval and local market expertise and the two companies split any profits.

 In China, a JV is a recognized corporate entity, which is a partnership between the foreign investor and the local Chinese partner. However, the JV is a corporate entity and not a partnership in the western legal sense.

 A JV can conduct business in China like any other business although there are certain industries that only permit 100% Chinese companies. With China’s entry into the World Trade Organization (WTO), the country is becoming more and more open to foreign businesses. A JV can enter into a vast majority of Chinese industries.

 Advantage: immediate market entry with local market expertise and understanding of local practice and requirements;

 Disadvantage: shared decision-making power, which sometimes resulted in conflict, delay or confusion. Often times, less efficient use of resources and slowdown in decision making. We would recommend against entering into minority participation in a joint venture in all cases. There are instances in which the joint venture still makes sense

 but generally Wholly Foreign Owned Enterprises make the best sense today.

Type 3: A Wholly Foreign Owned Enterprise (WFOE).

 A WFOE is a 100 percent wholly owned foreign subsidiary doing business in China. This is becoming increasingly the vehicle of choice for foreign direct investment in China.
 The WFOE is a registered local company but the difference with other local companies is that is its’ 100% foreign ownership.
 Advantage:
 absolute decision making power
 no sharing of profits
 more control over company operations
 can be quicker decision making
 more use of western business customs; Disadvantage:
 lack of local knowledge
 lack of local government connections
 less ability to influence government permit
 Tax and other decisions. This can be mitigated by using expert assistance, hiring qualified local managers and building a quality staff.

How do I get a factory started in China?

 Choosing the form of your company are only the beginning.
 Then you need to decide on a region or a city and a site. Cost is one factor here. Also important are access to a stable source of trained labor, quality of local utilities, quality of roads and other infrastructure, proximity to ports, airports, etc.
 Additionally, you will need to register with required government agencies
 select the right local or expatriate key company officials
 file licenses, lease or build office space and production facilities
 start hiring and many more issues.
 The decisions are many and the chance for error can initially be great until you gain experience and confidence. The old saying “Experience is often the best teacher” is true. The problem is that often the lessons may not come cheap or without a tremendous expenditure of time and delay. A little help at first goes a long way and can save you time, money and business opportunities.

How do I get qualified people or human resources for my planned China venture?

 China are interested in foreign investment because of the fact that it creates jobs and generates income. Generally you will have no trouble finding employees.
 Also, to a large extent the way you will find them will be the same way you would do it in the place you are now. Want Ads, notices to labor brokers, etc.
 All can be effective. Additionally, you may want to look at:
1. Contacting local universities or trade associations
2. Job Fairs
3. Ads in the paper
4. Through word of mouth and upon recommendation of existing staff.

Management and Corporate Structures in Asia and the West: 25 Key Differences

Large Western Firm
1. Short time horizons in decision making
2. The company is driven by profits and/or market share
3. Corporate direction determined by overall corporate “vision” and strategy
• Large Asian Firms
• Long time horizons in decision making
• The company is growth-driven
• Corporate direction determined by opportunity

4. Highly structured
5. Wide ownership (institutions)
6. Professionally managed
7. More concentrated
8. Invest on the basis of research

• Often poorly structured
• Narrow ownership (family)
• Family managed
• Highly diversified
• Invest on the basis of connections

9. Minority shareholders well treated
10. Dispersed decision making
11. Relatively small number of units/companies
12. Prefer accrual accounting
13. Lots of contracting out and buying in
• Minority shareholders abused
• Centralized decision making
• Large number of units/companies
• Prefer cash accounting
• High degree of vertical integration; lots of internal transactions

14. Reliant on external funding
15. Services are very important
16. R&D-intensive
17. Participative management
18. Senior management is relatively aloof
• Prefer internal funding
• Dislike services
• Little or no R&D
• Patriarchal management
• Senior management is hands-on

19. Well-defined career ladder for staff
20. High priority given to transparency, auditing, and disclosure
21. Fringe benefits are generally a small part of total remuneration
22. Staff training is formal and structured
• Vague career ladder for staff
• Low priority given to transparency, auditing, and disclosure
• Fringe benefits are a high component of salary (remuneration is paternalistic)
• Staff are trained informally and on the job

23. Employees tend to be promoted on the basis of their inherent productivity
24. Job descriptions are precise and employees are encouraged to us initiative
25. Staff initiative expected and rewarded

 Employees tend to be promoted on the basis of their connections and perceived loyalty
 Job descriptions are vague and employees work as directed
 Staff initiative discouraged

Question 1. Can you tell us a little about your city in terms of location in China, population, standard of living, industries, etc?

• Weihai is in Shandong province of China and is located on the east end of Shandong Peninsula. Being on the same latitude as San Francisco in the United States.
• Weihai is surrounded by sea on three sides, facing Liaoning Penisula to the north and the Korean Peninsula and the Japan Islands to the east. It is the “doorway” to Beijing and Tianjin, thus bearing the name of “coastal front of China” .

• Weihai has a population of 2.5 million and a total area of 5400 square kilometers. As one of the most developed areas in north China, Weihai achieved a GDP of $8 billion and GDP per capita of $3,070 in 2001, which was the highest in Shandong Province and the same as that of Beijing.

• There are four major industries in Weihai:

1. Marine aquaculture and fishery: Weihai is China’s largest base for marine aquaculture and fishery. This accounts for 25% of the City’s GDP.

2. Industrial and agricultural manufacturing: There are more than 10,000 small and medium sized companies that are engaged in industrial and agricultural
• manufacturing. Weihai is the largest manufacturing base for products such as tires, auto crankshafts, carpets, fishing tackle and carpenter machinery.
• In addition, Weihai is well known for manufacturing high-speed fax, printing machines, fiber-optical cable, polymer medical appliances, airport equipment, leather shoes, agricultural vehicles and fruit processing.

3. Tourism: Wehai is known throughout China as one of China’s premier tourist cities. Weihai has a lot of scenic spots and historical sites and received about 8 million tourists in 2002. It is extremely popular for tourism during summer time and boasts huge potential for tourism development.

4. Imports and exports: Weihai is one of the earliest trade ports in northern China. It has linking shipping service with major ports in northern China such as Tianjin, Qingdao and Dalian Ports. Additionally, Weihai has cargo and passenger ship service internationally to South Korea, Japan, Hong Kong, etc .

Question 2. How does your city compare to other Chinese cities in terms of economic development, unemployment, educational qualification of the workforce, average wages, GDP per capita and other basic measures of economic success?

• Being one of the 50 cities that have the strongest economy in China, Weihai’s GDP and local government tax revenues have been growing at an average rate of 18.2% and 23.3% respectively in the past 15 years.
• Since Weihai does not have a lot of state-owned companies, it has a very small number of people who are unemployed. In year 2002, the total unemployment rate is 1.7% as compared with the average unemployment rate of 3.9% across China.

• Thanks to the city’s strong educational tradition, Weihai’s high school students have achieved the highest scores in national college entrance exams consecutively in Shandong province for the past 9 years.

• In Weihai, there are Harbin Polytechnic University (Weihai), Shandong University Weihai Campus, One Higher Vocational Institute and Higher Technical College. There are also 20 foreign language schools and many other educational training centers.

• Each year, there are over ten thousand university or college graduates and ten thousand graduates from vocational schools. Virtually all employees have graduated from High School or higher. As a result, Weihai boasts a high quality work force and its productivity has ranked first place in Shandong province consecutively for the past 14 years.

• Finally I would like to note that Weihai has the highest income of urban residents and farmers in Shandong province in 2001. This prosperity adds to the city and has helped to reinforce the city’s livability.

Question 3. What are the major industries in your city and which sectors of business do you feel that Weihai companies both have demonstrated their ability to compete and their cost advantages vis-à-vis other areas in China? Also which new sectors do you for see generating the most growth in the years ahead?

• Marine aquaculture and fisheries, auto parts industry, tourism and biotech production are currently are our key industries.
• We see bio-tech and the high-tech industries as being further future engines of growth.

Question 4. If you were to give five reasons for a company to consider establishing a factory or a business office in your city, what would those reasons be?

1) Livability, clean and beautiful environment, golfing (Weihai has four of these) and other recreational sports near beaches.
2) Close to the developed economies and markets such as Japan and South Korea in North Asia
3) International ports, convenient marine transportation and convenient air access via two neighboring airports.
4) Two well-known Chinese universities have two huge campuses near beaches, providing talents and trained professionals.
5) Well trained leaders at the municipal government. The city has several leaders who have studied or worked in North America.

Question 5. Weihai is located in Shandong province and I know that Shandong is a leader in both agriculture and the fishing industry in addition to having a large and well developed manufacturing base.

Are both the fishing and agriculture industries also important to Weihai and has Weihai used its connections through its distribution system for both industries to help serve as an export gateway to import overseas food and other items to China?

• Weihai has imported a lot of production equipment from the United States and Europe
• It is planning to distribute salmon, tuna and other seafood to Beijing and Shanghai via its vast sales network across the country.

Question 6. I understand that your city has developed or is in the advanced planning stages of developing several incubators to help promote new industries in Weihai.

Could you tell us about these incubators and your plans for new innovative means of growing new companies?

• We have two incubators in Weihai right now.
• One is run and sponsored by the government
• the other is run by a private company.
• Both will provide free offices for three years if the high-tech project meets the necessary qualifications.
• So far we have about 50 start-up companies in the incubators. With the completion of another 15000 square meters of space, we are poised to accept more start-up companies this year.
• An example of this is San Diego based Genway, a biotech company, that is going to move its antibody production center to the incubator in the next three months.
• We expect more biotech companies will move a portion of their production function to Weihai when our life science park is established here shortly.

Question 7. Your city has been named for several years as one of the 500 most livable cities in the world by the United Nations. Because of the quick pace of industrialization in China, “livable” is not a term often used to describe China’s major cities.

• What are the factors that make your city so suitable as a place to live and work?
• There are four factors. They are:
• Cleanness: Weihai has three cities under its jurisdiction, all of them have received awards by the central government naming them as being “China’s Exemplary Clean Cities”.
• Nice weather: Weihai has average temperature of 12 centigrade, which means it is not hot in the summer and not cold in winter. Most beach cities have high humidity; Weihai is the only city along the coast of China that is comfortable and dry.

• Green land: Weihai maintains strict protection of its green belt of pine trees along the beach. It has invested huge sums of money and built many parks along the beaches and throughout the city to give the public access to green open spaces.
• Key City Services: Fast growing economy, low unemployment, low crime rate, friendly neighborhoods, reasonable house prices.

Question 8. Having visited your city, I know that in many ways you are one of China’s best kept secrets in terms of both your environment and your economic viability.

What is your city’s plan as to how to continue your economic development while still protecting your pleasant environment?

• Promote venture capital investments, establish venture capital funds with leading venture capital companies in China, provide funding for high-tech projects from North America and Europe.

Question 9. How does the city go about competing with the bigger Chinese cities like Beijing, Shanghai, Guangzhou to attract investment?

• We have followed policies that do the following:
• Promote the unique non polluting industries that will keep Weihai growing;
• Promote the concept of livability, create clusters of low polluting industry and attract high tech companies to establish offices, production centers and testing centers in Weihai.
• Build a convention center and develop international conferences and trade shows and continue to promote tourism.
• We also are planning to host a major trade and investment conference for companies interested in further exploring locating in Weihai.

Question 10. If a company wanted to find out more about starting a business or building a factory in your city, what would be the best route for him or her to better research the potential?

• Also, saying a company wanted to attend your upcoming investment conference how could he or she learn more now about Weihai to help better prepare them for their visit and for meetings with you and your city team?

• We have aligned with Runckel & Associate to promote trade and investment between Oregon and Shandong Province. You can visit the websites of both Weihai, www.weihai.gov.cn, and Runckel & Associates, www.business-in-asia.com, to find out more about Weihai or call Runckel & Associates since they are on your same time zone and can quickly respond with information and guidance.

• To save your valuable time and make your visit to China and to Weihai as valuable as possible, we want to get you fully prepared before you travel to Weihai.
• We therefore hope to exchange information with you on many issues
related to your plans for trade and investment
• give you wide ranging knowledge on potential prices of land, labor, rental, utilities and many other issues that will help you to better hone your business plan.
• We fully subscribe to the belief that the secret to success in business is good research and planning and we stand ready to assist in everyway possible to make your visit to Weihai a success.

About the Interviewer:

Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)