Commentary: Day of reckoning has arrived 
China comes of age

Navigating China's web of markets

U.S. firms bet on China consumer boom

Consumption play! Commentary: Asia could be world's new growth engine 

Wen Jiabao explained: the 5 principles are based on the WTO framework and basic norms of international trade, which are necessary for the correct understanding and properly handling of possible disputes and frictions that may emerge for some time to come. The core and marrow of the five principles lie in 6 characters: development, equality, and mutual benefit. Development serves as the driving force, equality the precondition and mutual benefit the aim. The way I see it, they fully conform to the requirements of developing constructive cooperative ties between the two countries.

12/22/03 -- Liu Yajun, vice director general of Foreign Investment Promotion Bureau of the Ministry of Commerce claimed today China has become one of the world's most appealing countries to multinationals' investment. Multinationals' investment in China increases rapidly, and about 400 of the world's top 500 companies have invested in over 2000 projects in China, which take on 3 new characteristics. 1. The structure of multinationals' investment in China has been continually optimized, and investment in processing and manufacturing industry and fund-intensive projects has seen remarkable growth. Big investment projects approved by the State Council and the State Planning Committee numbered 38, with a total investment of US$12 billion. A batch of fund and technology-intensive projects like heavy industry, energy sources, car and electronics invested by renowned multinationals start construction one after another. 2. Multinationals attach greater importance to localized operation: multinationals speed up industrial transfer, and the construction of production and manufacturing centers picks up speed remarkably; setting up of R&D centers; to lower cost, building procurement centers to allocate resources worldwide; implementing brand and talent strategy, expanding external economic room in China. 3. Investment takes diversified forms and goes beyond the 3 traditional models of foreign investment, with solely foreign funded enterprises holding the dominant place.

BEIJING (XFN) By Graham Earnshaw, Xinhua Financial Network -Oct. 7, 2003
-- The days when China and its economy could be dismissed with the word "potential" have passed. This country is now well on its way to becoming the factory of the world, while its booming domestic economy is being targeted by companies from all over the world. From a U.S. perspective, the big issue in recent weeks has been the question of whether China's currency, the yuan, is being kept artificially low to strengthen the export capacity of Chinese companies.
This country's fast-growing foreign exchange reserves -- now at $365 billion -- and the mounting trade deficit with the U.S. clearly reflect an imbalance of some sort. But the whole debate masks a fundamental shift of global manufacturing into the Chinese mainland, and a revaluation of the yuan will do nothing more than slow that process.
Also worth considering is the fact that China's booming export trade to the U.S., for instance, comes not only at the expense of factory workers in Michigan, but possibly even more at the expense of other export-strong countries.
Japan's trade surplus with the U.S. is falling, and all the former Asian Tigers, from Taiwan to Hong Kong to South Korea and Singapore, are watching the transfer of production capacity into China with mounting unease. In other words, China's growing trade surplus with the United States is to some extent at least a soaking up of trade surpluses from other countries.
China is also doing well at attracting capital from abroad -- this year's foreign direct investment is expected to top last year's impressive total of $52.5 billion -- because it provides competitively priced stable manufacturing with cheap, well-educated labor. Plus, a once-in-a-lifetime opportunity to grab a slice of the last great consumer frontier on earth. China has gone in just over a decade from being almost anti-consumerism to being arguably the most rabidly capitalist and fiercely competitive retail environment in the world.
The dream of 1.3 billion consumers is finally coming true. Foreign brands are now making big bucks in the China market. McDonalds (MCD: news, chart, profile), Coca-Cola (KO: news, chart, profile), Anheuser-Busch (BUD: news, chart, profile), Boeing (BA: news, chart, profile), Motorola (MOT: news, chart, profile), AIG (AIG: news, chart, profile), Intel (INTC: news, chart, profile) and Microsoft (MSFT: news, chart, profile) -- all the big names are here and those listed are all probably doing more than OK.
The Chinese consumers of the coastal cities are racing to create lifestyles for themselves that match what they see on their pirated DVD movies from the United States. They want it all and they want it now, providing an extraordinary opportunity for brands from Dunhill to Drambuie at a time when sales in Japan, Europe and the U.S. are hardly sizzling. The Chinese economy is growing at somewhere around 8 percent year on year, and even when taking into account the unexpected -- SARS came and went and business bounced back even stronger -- the economy is expected to maintain that same growth rate for the foreseeable future.
The middle classes of China's cities have decided they want to own their own home, something almost unknown here 10 years ago. This has sparked a massive building boom across the country, along with some property bubbles too, of course. But in the process, China is on course to becoming the world's biggest consumer of a wide range of building related products.
And as for commodities, don't ask. Steel, copper, wood ... the list of products where China is becoming the dominant global player goes on and on. When China gets a cold, Chicago is going to have to get used to doing the sneezing.
Another indicator of the strength of China's domestic economy is domestic tourism, which now completely overshadows foreign tourist numbers in the eyes of China's hotels and airlines.
The first week of October was the national day holiday, and the hordes flew out of Shanghai and Beijing and other cities heading for the domestic resorts in south China, not to mention Thailand, Hong Kong, Malaysia and even further afield. The number of Chinese tourists heading out to play is growing at more than 20 percent year-on-year. The high rollers in Las Vegas these days come not from Japan but from mainland China.
All this is not to say that China doesn't have problems. It does. Investment here can be a bureaucratic nightmare, and the regulatory environment is still struggling towards full effectiveness. The Chinese banking system is weighed down by mountains of non-performing debt from state-owned enterprises, the lack of transparency in some areas is a cause for pause and the Chinese capital markets and its regulators are still struggling between a desire to suck in more foreign money and a fear of shrinking control.
But the fact is now inescapable -- the Chinese are here. So it's best to learn to say "welcome" -- or better yet "huan ying."
Graham Earnshaw is editor-in-chief of Xinhua Financial Network.

BEIJING (CBS.MW), By Allen Wan, CBS.MarketWatch.com, Oct. 7, 2003
-- It takes a clever investor to wade through China's virtual alphabet soup of stock markets. There are the A, B and H shares as well as red and P chips. It sounds a little complicated but until recently, the only game in town for foreign investors who wanted a piece of China's booming economy was the H-share market in Hong Kong, where the cleanest if not the best and brightest Chinese companies are listed. 
That's no longer the case. Since the government in Beijing allowed increasingly wealthy domestic investors to trade in B shares starting in 2001, investing in the mainland has gotten a whole lot more complicated. The country's domestic yuan-denominated A-share market, long considered off-limits outside China, in turn opened up this year to large foreign institutional investors. The opportunity comes at a critical time for the Chinese markets, which have benefited from an inflow of foreign money this year but appear vulnerable to mounting questions about the health of the country's banking industry, its currency dispute with the U.S. and speculation that a giant bubble has been created, particularly in the Chinese Internet sector.
In the wake of the mainland's economic diversification, some analysts regard Hong Kong as less attractive, given that there are no major listed China plays for emerging sectors like the banking, media and retail industries. However, the international fund managers still believe Hong Kong's H shares offers the best exposure to China with the least amount of risk. "The answer to Chinese investing remains Hong Kong -- the part of China that has world class infrastructure, full rule of law, a well-regulated market and a free press, said Mark Headley, a portfolio manager of several top-ranking Matthews Asian funds.
By and large, international fund managers are pretty selective when it comes to picking Chinese companies to invest in. They tend to focus on blue-chip shares that benefit from continued growth in China's economy such as the telecom stocks, including China Mobile (CHL: news, chart, profile) and China Unicom (CHU: news, chart, profile), and the auto sector. Minivan maker Brilliance China (CBA: news, chart, profile) and Denway Motor are set to benefit from what analysts say will be the third-biggest auto market by 2006.
The world's most famous value investor Warren Buffett started a stampede into Chinese oil stocks after his Berkshire Hathaway vehicle disclosed back in May it had taken a significant stake in state-run oil firm PetroChina (PTR: news, chart, profile). Most of the so-called Chinese blue chips are dual-listed in both Hong Kong and China though the valuations are wide apart.
Ben Kwong, research director at Hong Kong's KGI Securities, thinks that H shares are more attractive in the short term for several reasons: they are trading at a discount to A shares (though the gap is closing) and they could benefit if the Chinese government decides to relax currency controls in order to alleviate pressure on the yuan currency. "But in the longer term, A shares offer a wider base for foreign investors," he admits.
The mainland's B share market is another investing possibility, especially now that it has become a much more active market after the government allowed mainlanders to invest in the once-foreigners' only bourse from Feb. 2001. However, the move, while revitalizing the once-dormant market, didn't improve its image as being just a shadow of the A-market nor did it help foreign investors deal with the currency issue and the need to buy lots of yuan. Ironically, the B-market's resurgence has created fresh headaches for the government by making it more difficult to merge the parallel indexes (though the unconvertible currency may have made the issue a moot point anyway).
For investors betting on China, the A-share market may be worth the gamble even as it suffers from problems of lack of transparency, high valuations, shortage of blue chips and unsophisticated domestic investors. With a market capitalization of over $500 billion, China's A-share markets have quietly become Asia's second-biggest bourse after Japan. There are around 1,250 companies listed on the bourse, with a spread across industries that makes it prime to take advantage of China's fast-growing economy.
It's precisely China's strong economic growth of 8 percent on average over the past decade that helped fueled the A-share market's climb in the ensuing years. The benchmark index has been in a consolidation phase of late after hitting a record high in the middle of 2001. It is down 35 percent from the highs and sank to an eight-month low in September due to a recent flood of initial public offerings, lingering high valuations and as the government put the clamps on bank lending, stemming the liquidity that typically drives the market. "It's in a correction phase," said James Huang, deputy general manager of top broker China Galaxy Securities. "What it will take for the market to improve is investor confidence, institutional investors and for the legal environment to improve. Also, company fundamentals - the SOE's don't even have PEs."
From humble beginnings back in 1990, when China's paramount leader Deng Xiaoping launched the locals-only A-share markets in the cities of Shanghai and Shenzhen as capitalist experiments, the country's stock markets have gotten a whole lot more complicated. The only thing that hasn't changed is their reputation for operating like casinos. Unlike many other global stock markets where institutions dominate, the Chinese markets are really for the people. But that's part of the problem. The majority of investors in China (some speculate 60 million retail investors) are everyday people such as office workers and retirees, who buy or sell stocks based on rumor and speculation rather than by doing fundamental analysis like P/E ratios and other common metrics.
A shares are also incredibly pricey compared to their global counterparts. They trade at around 40 times future earnings, similar to stocks on the Nasdaq but three times more expensive than Hong Kong-listed China stocks.
Another turnoff is the fact that many of the companies listed on China's exchanges are small- and medium-sized companies, many of which are money-losing state-owned concerns. Just like the big gap between the country's rich and poor, there's also a wide spread of investible companies with the internationally competitive listed powerhouses like China Telecom and oil giant Sinopec on one hand and the smaller concerns that are vulnerable to share manipulation on the other. "Getting a clear understanding of mainland-based companies remains very challenging," said Asian fund manager Headley.
Wall Street may have had its fair share of corporate scandals over the past few years, but it still pales in compassion to China were the issue of corporate governance has been a mostly alien concept. The China Securities Regulatory Commission, in charge of regulating the stock markets, has done little until recently to meet investor concerns about transparency and minority shareholders' rights.
Reform-minded However, the government's view has changed in recent years due to what one analyst says is the government's attempt to channel the country's huge pool of household savings ($750 billion) into the stock market as a way to better allocate resources and a desire to improve their corporate governance in the midst of scandals at home and abroad. Headley, president of Matthews International Capital Management and co-portfolio manager of the China fund (MCHFX: news, chart, profile), said that China's entry into the World Trade Organization has also put pressure on the country to reform its stock markets.
"China knows that it needs global participation in its domestic financial system -- it is also under WTO requirements to open up over the 5 or so years -- so the access to the A share market is one of the many small steps they will be taking before things start really opening up in a few years," he said in an interview.
Bank of China economist Antony Lok says that one of the main drivers of the increasing maturity of the Chinese markets has been the emergence of the large-cap blue chip China stocks in Hong Kong and the A-share market over the past five years.
"The listing of large A-share companies such as Baosteel, Sinopec (SNP: news, chart, profile), Huaneng Power (HNP: news, chart, profile), China United (CUHTF: news, chart, profile) and China Merchants Bank over the past few years has started to create a core of blue-chip companies in the domestic markets," he said.
As part of efforts to increase investor trust in the Chinese markets, CSRC enacted legislation last year that requires companies to produce quarterly reports and requires listed companies to have at least two independent non-executive directors and also possibly delist poorly performing companies. Another serious reform step has been the opening up China's domestic stock markets to large foreign investors. In Nov. 2002, the government announced that it would allow foreign institutional investors to invest in China's domestic markets.
The Financial Times reported earlier this year that foreign investors may pump as much as $4 billion in China's domestic markets this year as a result of the scheme. The catch for qualified investors is that they cannot withdraw funds from China until one year after the initial investment and no foreign investor can hold more than 10 percent of the shares in a listed company.
"QFII in its current form should be viewed as a cautious first step toward allowing foreigners in and to push forward the development of the local stock markets," said Guinness fund manager Harriss.
Harriss says he doesn't doubt that China wishes to improve the quality and operation of its stock markets but wonders how much is possible given limits as to what the government can do to open up the domestic markets to international investment so long as the currency is not convertible. "There is no immediate prospect of the yuan becoming convertible and therefore a wholesale opening of the markets cannot be expected," he said.
For China's sake, the hope is that institutional investors will have the buying power to press for better returns and end an investment culture that has been too focused on sentiment rather than careful fundamental analysis.

BEIJING (CBS.MW), By Allen Wan, CBS.MarketWatch.com, Oct. 8, 2003
-- Wal-Mart along with other U.S. companies such as Starbucks which have found the gospel of China over the past few years, is betting big that mainland consumers, flush with disposable income after more than a decade of high economic growth, will continue to want to ascend the global economic ladder by not just buying U.S. goods but also adopting the American lifestyle.
"Generally, the Chinese think that American goods are of higher quality," said Michael Zhang, director of client services at market research firm AC Nielson China, which recently launched a study into the "five faces" of the Chinese consumer. "But you have to take into account what Chinese consumer want as well as their pricing power."
In order for Wal-Mart to succeed, it's going to have to believe that there will be enough middle-class Chinese out there with the willingness to buy by the truckload and who have cars large enough to carry the huge crates of Cokes and Buds that the mega-retailer plans to sell to China's masses. A look inside Sam's Club in Beijing on a recent Monday afternoon offers a mixed picture. While the warehouse was bustling with activity, big-ticket buyers were few and far between.
The consumer electronics department was fairly deserted, though the sales clerk insisted that at least one of the $2,000 Sony PTV big-screen televisions get sold every day. The home appliances section was a ghost town except for a woman who was trying to decide whether to buy a refrigerator from China's Haier or Germany's Siemens. "I want to buy the Siemens, but they don't have the one I want," said Eva Hu, a sales manager at the Longquan hotel in Beijing. "Haier is OK but even if it's a little cheaper, I would go with the Siemens."
The Wal-Mart example speaks volumes at how much the Chinese consumer market has changed over the past few years. "While the world eyes China's rapid foreign-direct investment export growth, rising income from external sales is underpinning wealth accumulation in China, which in turn is becoming an increasingly relevant consumer markets and growth driver for multinationals," Morgan Stanley economist Sharon Lam told clients in a recent note.
China also has become an incredibly important consumer market for U.S. multinationals because it still has huge growth potential. Companies like McDonald's (MCD: news, chart, profile) have been able to offset sluggish growth at home by expanding in China, where only a few prosperous cities have the ubiquitous fast-food chain.
And continued demand for imports has larger implications for the U.S. than just lining the pockets of multinationals. With U.S.-Chinese tensions high over Beijing refusal to revalue its yuan currency, the only way to cut the country's massive $100 billion trade surplus with the U.S. is for the Chinese to continue buying planes, trains and automobiles, so to speak.
Beijing appears to be more intent on doing that of late, with U.S. shipments up by over 20 percent in the first seven months of this year. Moreover, China now imports more than Japan though its economy is one-third of the size.
It was just over a decade ago that mainland consumers had a choice between one shoddy state-owned shop and another equally bad state-owned enterprise. Back then, America's influence on consumer trends didn't extend beyond the fast-food industry, with the likes of Kentucky Fried Chicken, a unit of Yum Brands (YUM: news, chart, profile), which opened its first store back in 1987. Since then, it has become arguably, China's most popular fast-food chain, with more than 900 stores spread throughout the country and a new one opening up about every three of four days.
McDonald's arrived three years after KFC but it's influence over consumer eating habits has been just as great. The fast-food giant has around 566 stores in the mainland and is opening up around 60 new ones per year. That's pretty impressive given that none of these are franchises -- though the burger chain is considering changing that and has launched an experimental franchise in the northern city of Tianjin.
According to statistics, more than 10 percent of Beijing households own cars, with private car buyers accounting for 90 percent of auto purchases. But one American industry source with knowledge of Chinese consumer trends downplayed the notion that incomes are rising fast enough to justify recent announcements by Mercedes-Benz and rival BMW to build luxury sedans with Chinese joint venture partners.
Sure, the Chinese have gone from bicycles to cars in a generation, but if one looks at the type of cars that are being bought and driven by China's masses -- locally produced Xiali and old Volkswagen Santanas -- then one has to look at the rush into the mainland as nothing short of irrational exuberance, the American said, who declined to be identified.

By Yiannis G. Mostrous, Wall Street Winners, THE GURU'S CORNER, Sept. 24, 2003
MC CLEAN, VA -- If I hear one more person saying that Asia is a dangerous, extremely volatile, high beta investment place and therefore unfit for the "prudent" investor, I swear I am going to cry.

People seem to forget that since 1997, the "developed" investment world is the one that has assumed the above-mentioned characteristics, and is not in a hurry to abandon them. Regular readers of Wall Street Winners know that we have a structural bearishness on the U.S. Our view is that the world economy is entering a post 1990s era where the economic imbalances of the last mania will have to be repaired and a new leader of sustainable economic growth will emerge.

Investors should expect a reversal of the past decade, namely a structurally weaker dollar and slower U.S. growth. For the global economy to genuinely grow economies with pent-up demand, undervalued currencies and real opportunity to ease fiscal and monetary conditions need to step up. And there is one region in the world that possesses these characteristics -- Asia.

Coming on strong Asia ex-Japan is the largest region in the world, with a 26 percent weight in the global economy, and since the 1997 crisis it has become the net creditor to the rest of the world. At the same time, the world's growth engine -- the U.S. -- totally depends on foreign capital in order to cover its deficits. The majority of the funding comes from Asian central banks.

I concede that Asia is mercantilist, and that Asian banks have been buying U.S. Treasurys in an effort to prevent their currencies from appreciating against the dollar. This attitude emerged after 1997, when domestic economies were damaged and exports were viewed as the only solution for growth. But because of the crisis, people and institutions cleaned their balance sheets and tried to implement some real reforms. Currently, savings are extremely high, the system is flush with liquidity, and financing costs are very low.

Furthermore, the region's population is growing extremely fast, with the new generation being more consumption oriented. Hence, the main macro call for the next decade will be to determine the point where Asia as a whole will stop financing other people's spending habits and decides to finance its own. When -- and not if --this happens the returns for farsighted investors will be colossal.

Investors should realize that if genuine growth is needed, some risks have to be taken. And Asia will deliver that growth. Make no mistake, Wall Street still drives the world, and there's a long way until decoupling. But the fact that Asia and other emerging markets have a beta of around 0.6 is becoming one more strategic reason for investors to own Asia.

Some suggestions Recently Asia, and particularly China, has come under fire regarding its currency policies. As long as the world economy was growing strongly and the stock market was soaring, no one appeared to have a problem with losing manufacturing jobs to far away places. But a weak economic environment going into an election year has politicians looking at things through a different prism. Needless to say, what everyone conveniently forgets is that U.S. companies, their stockholders, and the American consumer are the ones that benefit the most from the status quo.

China is the main macro theme, and rightfully so. But our favorite long-term investment destination is India. Briefly, India is a micro story, having some of the most promising companies on earth and a huge potential pent-up domestic demand. It also has two of the most promising exports of Asia: IT and services outsourcing and generic pharmaceuticals.

Hong Kong remains one of our favorite markets, and the place that should benefit most from China's growth. Property remains this market's main story and currently we are very positive on it. The easiest way to participate is through the Hong Kong IShares (EWH: news, chart, profile).

Allocations Absolute return investors with long-only portfolios should allocate funds as follows: 50 percent in government bonds (U.S. and Europe), 25 percent in stocks (U.S., Europe, emerging Asia), 15 percent in gold stocks and 10 percent in gold bullion.

Yiannis G. Mostrous is an editor with Wall Street Winners and Trading Floor Pro. Prior to turning his hand at financial journalism, Mostrous enjoyed a career in international project finance and venture capital financing.

HONG KONG, Sept. 15- By KEITH BRADSHER - Credit-rating agencies strongly warned today that China should not let its currency appreciate soon or relax controls on the movement of large sums of money in and out of the country, as the Bush administration has asked. The Chinese banking system was not ready, the rating agencies said.

An increase in the currency's value in foreign exchange markets "would place additional strain on an already insolvent banking system," said Paul Coughlin, the managing director for Asian government and corporate ratings at Standard & Poor's, the world's largest credit-rating company. If China allows currency appreciation and relaxes controls, the Chinese government's credit rating, "would undoubtedly be under a lot of downward pressure," Mr. Coughlin said in a conference call with reporters.

Wei Yen, the Chinese banking analyst at Moody's Investors Service, agreed in a separate telephone interview that currency revaluation or a reduction in capital controls could be harmful to China's credit rating. Chinese bank depositors would eagerly invest overseas if they could, he said, and this would deprive Chinese banks of the constant inflow of fresh deposits they need to continue making new loans even as many old loans are not repaid.

"Right now, the banks are held together by liquidity, by depositors," he said.

China's four main government-owned banks already rank among the most insolvent in the world, failing to collect timely interest and principal payments on nearly half their loans. The possibility of a Chinese banking crisis has been rising toward the top of Western experts' lists of what could cause political instability in China, and the problem has been receiving top-level attention from China's leaders.

In the latest sign of Beijing's deepening concern, the official New China News Agency reported tonight that the China Banking Regulatory Commission had sent inspectors to visit the four big banks to review the prudence of their recent loans. The People's Bank of China, the country's central bank, has been expressing worry that the bad debt problem may worsen and that sectors of the economy may overheat because of a recent frenzy of lending, often to speculative real estate projects.

The news agency noted with unusual bluntness that the central bank's monetary policy department had "warned against possible high inflation" because of rapid growth in the money supply. China's banks lent more in the first seven months of this year than in all of last year. The central bank ordered banks on Aug. 23 to keep larger reserves on deposit with it, in a bid to slow the lending.

But that decision is also pushing up interest rates in China's relatively small and illiquid debt markets, which makes it harder for the government to finance its large and persistent budget deficits. The finance ministry failed today to auction all of a new bond issue, with a third of the bonds left unsold after many potential buyers refused to bid the ministry's minimum price. In essence, buyers demanded a higher interest rate than the ministry was willing to pay.

With American politicians increasingly blaming imports from China for unemployment in the United States, Treasury Secretary John W. Snow visited Beijing nearly two weeks ago to ask for a revaluation of China's currency, known as the yuan or renminbi, and some relaxation of China's controls on capital movement. Chinese officials repeated previous promises to pursue greater flexibility someday, but made no promises on any timetable. They did, however, offer a series of small adjustments to capital controls, like making it a little easier for foreigners to invest in Chinese securities and for the Chinese to invest in foreign securities.

Finance ministers from the European Union, the United States and Japan have all been pressing for a rise in the yuan, and are expected to discuss the issue at a meeting this weekend in Dubai of the finance ministers from the Group of Seven leading industrial countries plus Russia.

FRANKFURT, Sept. 11 - By MARK LANDLER- Canvas the top automotive executives at the Frankfurt International Motor Show about what gives them hope for their industry's future, and the answer is the same: China. With their home countries in the doldrums, and the outlook for 2004 scarcely better, the eyes of the world's automakers are fixed firmly on the market in China, where sales of cars and trucks are rocketing.

"Growth in China is absolutely amazing," said Rick Wagoner, the chairman of General Motors, in an otherwise subdued speech here on Wednesday. "The Volkswagen brand sold more vehicles during the first quarter of 2003 in China than they did in Germany. Last month, G.M. sold more vehicles in China than we did in Germany." To understand what that means, consider that G.M. owns one of Germany's major car companies, Adam Opel. Mr. Wagoner's theme was echoed by the chief executive of DaimlerChrysler, Jürgen E. Schrempp, who increasingly regards China as the cure for what ails his trans-Atlantic colossus.

It is easy to understand what is fueling the euphoria. Automobile sales in China are growing at an annual rate of more than 50 percent, compared with about 3 percent in the United States and Europe. By 2013, Mr. Schrempp predicted, China will be the world's second-largest car market, after the United States, with 8 percent of global sales. In trucks, where it already accounts for a quarter of worldwide demand, China will be the world's largest market within a decade.

"The auto industry certainly hopes that China will be the cavalry pouring over the hilltop, with bugles blaring," said Garel Rhys, director of the automotive industry research institute at Cardiff University in Wales. But, he added, "the industry would be very foolish if they thought China was the answer to all their problems."

Mr. Rhys said the euphoria masked a range of potential threats: too many foreign carmakers entering China, the lack of a genuine used-car market, the development of consumer credit in a country with debt-laden banks, and the simple question of whether torrid growth in China is inevitable. "In 1976, it was confidently predicted that Brazil would be an eight-million-car-a-year market by 1996," he said. "It didn't happen."

As with the makers of everything from laundry detergent to cellphones, car manufacturers look at China and see a rapidly growing middle class of perhaps 400 million, with rising incomes and a taste for consumer products that will show off their newfound affluence. The new assembly plant of BMW in Shenyang, in northeastern China, will be equipped to turn out 30,000 5-series sedans a year. Chinese drivers, Mr. Panke noted, tend to favor cars with the most powerful engines. He expects China to become the largest market for the 12-cylinder engines of BMW.

DaimlerChrysler signed an agreement on Monday to produce its C-class and E-class cars with a Chinese partner, the Beijing Automotive Industry Holding Company. Mercedes-Benz also has a thriving business importing its top-of-the-line S-class sedans, which can cost more than $100,000.

Indeed, DaimlerChrysler, like other foreign investors, wants Chinese officials to drop a regulation that requires carmakers to maintain separate distribution channels for imported and domestically produced cars. Mr. Cordes, who accompanied Mr. Schrempp to a meeting with Prime Minister Wen Jiabao of China earlier this week, said he was confident that the government would ultimately drop the requirement.

The investment in trucks in China by DaimlerChrysler might prove to be as important as its venture in cars. It agreed to buy a stake in Beiqi Futian, a Chinese truckmaker that is controlled by Beijing Automotive. The venture, Mr. Cordes said, would allow DaimlerChrysler to produce a full range of commercial vehicles, from the relatively simple trucks of Futian to the sophisticated ones of Mercedes. As China's economy develops, he expects buyers to gravitate to the Mercedes end of the market.

DaimlerChrysler will also be helped by the emphasis of China on roads, not railway lines, as a way to open its vast hinterland. That will make trucks and buses the main means of moving people and goods.

General Motors, which has an assembly plant in the Pudong industrial park next to Shanghai, has had success selling its Buick Regal sedan to Communist Party officials and executives at state-run enterprises. Even Rolls-Royce, the venerable British carmaker owned by BMW, has set up dealers in Beijing, Shanghai and the southern city of Guangzhou to handle sales of its new Phantom, which retails for $330,000.

By Paul Erdman, CBS.MarketWatch.com
All of a sudden there is a big push underway in political circles in Washington to pressure China into revaluing its currency. As a result, Secretary of the Treasury John Snow has promised to bring this subject up during his visit to Beijing this week. Most of the chatter is coming from politicians catering to the vested interests of powerful constituents with big stakes in the manufacturing sector of our economy, ranging from executives of textile companies in the south to labor union leaders in Chicago.

Their common beef: the undervaluation of the renminbi has led to a $100 billion a year trade deficit with China which translates into huge jobs losses by U.S. manufacturers unable to compete with cheap Chinese goods. Their solution: force Beijing to revalue its currency by as much as 40 percent.

IT WON'T HAPPEN. And even if China did agree to revalue by even half that much, it might well do more harm than good. This is certainly true where the American consumer is concerned. We Americans can go to any Wal-Mart and buy everything from toys to shoes to DVD players at unbelievably low prices. Why? One major reason is that Wal-Mart (WMT: news, chart, profile) alone imports goods worth $10 billion a year from China. Were such products still made here, you might be paying twice the price in many cases. In fact, in macroeconomic terms one of the reasons why we have been enjoying declining rates of inflation in the United States in recent years has been the increasing availability of low-cost Chinese-made goods.

And remember something else: in a large percentage of cases these incoming "Chinese" products that are "undermining" American-made goods are coming from manufacturing facilities that were financed by and are wholly or jointly owned by American companies.
DEFICITS - Then there is the increasingly role that China plays in financing our skyrocketing federal deficits. The fact that China is currently exporting $125 billion a year in goods to us while importing only $19 billion a year from us means that they are ending up with over $100 billion of IOU's known as dollars.

What do they do with these dollars? Buy U.S. Treasuries. Were they not doing so on a massive and continuing basis, the prices of Treasuries would be substantially lower than they are now, meaning interest rates would be higher across the board, representing a further drag on our economy which we do not exactly need right now.

There is also the real possibility that a massive revaluation of the renminbi could lead to serious deflation in China -- it is already just on the edge of it -- which could seriously undermine an already fragile Chinese banking system and kill off growth in what is today the world's most dynamic economy. That could, in turn, threaten the Chinese political leadership and destabilize what is now the second most powerful nation on earth.

And this at a time when we urgently need the help of Beijing in bringing the North Korean leadership to their senses before we get involved in a nuclear confrontation with that rogue state. To bring pressure on the Chinese under these circumstances is bound to be counterproductive. The more we press, the deeper they are going to dig in their heels.
JAPAN'S PLAY - With the exception of Japan, we are not going to get much help from other quarters on this issue. For while China is running this huge bilateral trade surplus with the United States, it is actually running a trade deficit with the rest of the world to the tune of $75 billion a year.

Where Japan is concerned, it is especially ironic that they would like to force a revaluation of the renminbi while they continue to massively intervene in the foreign exchange market in order to prevent a further rise in the exchange value of the yen which would hurt their exports, especially to the United States where, for decades, they have enjoyed huge bilateral trade surpluses.

For the past nine years China has operated a managed float under which it intervenes in the market to keep the renminbi between 8.276 and 8.280 to the dollar. Left to their own devices, in time China can be expected to make at least some soothing gestures designed to calm down the American protectionists by adjusting these intervention points in a process of very gradual and very limited revaluation. But nothing much will really happen until the political leaders in Beijing are convinced that the specter of outright deflation in China has disappeared. So any of you would-be-billionaires out there who are tempted to play George Soros and bet the farm on a massive renminbi revaluation might be well advised to think again.

Economist and author Paul Erdman is a CBS.MarketWatch.com columnist.

It's fast becoming an important hub for IT services. Move over, India

Since it began in 2001 in a tiny, windowless room, the Cap Gemini center has grown to employ 120 people doing everything from entering sales data for a Hong Kong convenience-store chain to processing cargo information for a Norwegian shipping line. And Reilly expects the staff to reach 500 within 18 months. 

That progress is starting to spread across China. After emerging as the world's hottest manufacturing hub, China is joining English-speaking countries such as India and the Philippines as a key destination for outsourced service jobs. Near Guangzhou's airport, a call center run by Hong Kong's PacificNet Inc. employs 2,000 Chinese manning the phones for telecom and insurance companies in Hong Kong, Taiwan, and China. PacificNet plans to have a staff of 5,000 by the end of next year. Accenture Ltd. has opened a software-development unit in the northern coastal city of Dalian that will soon boast 1,000 staff. And at its new center in Shanghai, BearingPoint Inc. (formerly KPMG Consulting) aims to quadruple its staff, to 600, by yearend 2004.

So far, China's role is largely focused on providing back-office support for financial service, telecom, software, and retail companies in neighboring Asian countries. Operators can easily talk to people in Hong Kong and Taiwan in their own languages. China also has plenty of Japanese and Korean speakers. But it is making inroads as an outsourcing base for English-speaking nations, a business dominated by India, because of the influx of Western multinationals who now are bringing back-office work to China. ConnectITChina, a Shanghai consultancy, estimates China's software outsourcing revenue will more than double, to $5 billion, by 2005. Gartner Inc. predicts that by 2007 China will pull in $27 billion for IT services, including call centers and back-office work, matching India.
China's ascent could inflame an already heated debate in the U.S. about companies sending work abroad. With the U.S. economy still struggling and the jobless rate at 6.4%, lawmakers in several states want to make it harder for governments to contract work to low-wage countries. India is the center of attention. But China, which many Americans view as a political and economic rival, is likely to be a bigger lightning rod for outsourcing foes.
The economic forces driving work to China are powerful, though. There is huge demand inside China for skilled service workers to meet the needs of both the country's own booming economy and of the thousands of multinationals that have set up manufacturing bases on the mainland. Many companies in Greater China are, for instance, turning to outside providers for information technology needs rather than doing the work in-house. "There's massive need for data entry from banks, insurance companies, and hospitals," says PacificNet CEO Tony C.W. Tong. Operators at Tong's call center start at salaries of $150 per month; in Hong Kong they average $1,300. PacificNet serves Chinese cellular carriers and is mulling a Dalian office for Japanese clients.
Chinese officials aim to give this burgeoning industry a push, by forging partnerships with multinationals to train information technology engineers. For example, IBM has signed deals to train 100,000 software specialists in various Chinese cities over three years. Indian computer-training companies are teaching 20,000 students in more than 100 centers across China. Gartner figures China needs 4 million more IT professionals to meet future demand.
China's low-cost talent is another edge. Although India is a powerhouse in high-end IT services, latecomers these days must pay higher wages for experienced engineers. That's one reason BearingPoint chose Shanghai for its new software-development center, says the company's Greater China President, Bryan Huang. BearingPoint pays $500 a month for engineers in Shanghai. In India, he says, the pay would be $700, and $4,000 in the U.S. "Where can we sustain our cost advantage for the next 40 years?" Huang asks. "We're convinced that China is the only place."
 Sweetheart Cup Co., an Owings Mills (Md.) maker of plastic plates, cups, and utensils for customers such as McDonald's and Wendy's International, hired consultancy E5 Systems of Waltham, Mass., to develop a system to track production processes at its 14 North American factories. E5 is doing the job in Shenzhen, where it has a joint venture. Sweetheart figures it saves 40% by sourcing in China rather than India. In a business where pennies matter, "cost is a consideration in everything we do," says John McGregor, Sweetheart's chief information officer. Several big Indian IT-services companies are determined to tap
 China for their own advantage. In fact, Gartner predicts Indian firms will eventually control 40% of China's IT services exports. Satyam Computer Services Ltd., India's fourth-biggest supplier, set up a 27-person development center in Shanghai last year with plans to expand. Satyam Asia-Pacific Chief Virender Aggarwal says his sales team is telling him that China presents more opportunity than any other country, mainly from multinationals that need reliable software support for their expanding mainland businesses. So far, 14 Indian companies have set up shop in China, says India's National Association of Software & Service Companies.
No big Chinese rivals for the multinational outsourcing firms have yet emerged -- although that may soon change. Piracy fears, relatively poor English, and a lack of high-level international quality certification have held Chinese upstarts back. But with training and experience, such obstacles are surmountable. And expertise in written and spoken Asian languages will remain an edge. By honing skills in burgeoning markets close to home, China's IT outsourcing industry is sure to get up to speed fast.
By Bruce Einhorn in Guangzhou, with Manjeet Kripalani in Bombay

SHANGHAI, Aug 28 (Reuters) - U.S. giant Citibank said on Thursday it had won approval to exchange yuan for foreign currency for Chinese individuals, the latest step in a piecemeal effort to prise open the insular industry to foreign lenders.

Following rival HSBC Holdings Plc (HSBA) (0005), Citigroup Inc (C) unit Citibank is the second foreign bank to provide yuan services to Chinese, whose $1.2 trillion in savings makes them coveted future clients, executives said.

Full personal banking, particularly lending in local currency, is still walled off to foreign banks, which have long focused on serving multinationals with operations in the country.

"The market is quite large. With more and more Chinese living a richer lifestyle, travel for leisure or for work will increase," said Li Wang of Citibank in Shanghai. "Our new service is made possible with gradual capital liberalisation."

China's rising middle class has spawned a new generation of travellers, many from the affluent cities of Shanghai and Beijing. About 10 million mainlanders went abroad for personal reasons last year, a jump of more than 40 percent on 2001.

While the government imposes a ceiling of just 6,000 yuan ($725) on the amount of foreign currency that people can take out on each trip abroad, this limit is expected to be relaxed gradually.

Banking executives portrayed the new service as a tiny liberalisation of a closed capital regime whereby the government maintains a tight grip on the outflow of hard currency.

As such, Citibank's and HSBC's transactions under this policy would be closely monitored by the State Administration of Foreign Exchange, the country's forex authority.

China's shuttered banking industry is expected to be open to foreign lenders by 2007. ($1=8.277 Yuan)

China's insistence on tying its currency to the greenback is riling U.S. lawmakers and worrying Asian neighbors.  Topic A these days for economists around the globe is China's currency peg to the U.S. dollar. Finance officials from the Group of Seven industrialized nations and the International Monetary Fund, and most recently, U.S. Treasury Secretary John Snow in a July 29 TV interview, have called on China to loosen its official peg of its currency, the yuan, to the dollar. It has been fixed at around 8.28 yuan per greenback since 1995.

The reason? With its foreign exchange so tightly tied to the dollar, China appears to be keeping its currency artificially weak, the better to pump up exports. That has led other Asian exporting nations to respond by buying dollars -- thereby driving down the comparative values of their own currencies -- in order to stay competitive. And while the pressure mounts for China to relax the yuan peg, so far, the Middle Kingdom is showing little sign that it's eager to cooperate.

The tethered yuan also has to be on the minds of Alan Greenspan & Co., since a weak yuan arguably exacerbates disinflation (a decline in the rate of inflation) in the U.S. through lower import prices. That, in turn, is making U.S. industries like textile and furniture outfits especially upset, as cheaper imports from China and other Asian nations threaten domestic jobs and the manufacturing base. Now, Congress is getting into the act, with a bipartisan group of senators asking Snow to investigate if China is manipulating its currency at the expense of U.S. exporters.

PRESSURE MOUNTS. For now, this outcry for a yuan revaluation is causing an inflow of speculative capital back into China, resulting in a rapid rise in its money supply (see BW, 8/4/03, "Should China Revalue? Soon, It May Have No Choice"). But Beijing doesn't necessarily have to address the currency issue, at least not now. It could loosen ownership rules on foreign assets to allow more legal outflows of money from the country.

Still, the foreign-exchange markets are increasingly speculating about the potential for China to move to a more flexible exchange-rate stance. Snow first spoke of a possible rethinking of the Chinese peg in June. This followed direct calls for an upward revaluation in the yuan by Japan and other Asian countries trying to stay competitive with China as low-cost exporters.

The IMF's economic adviser has called on China to allow a stronger currency given its mounting trade surplus and fast domestic growth. And European Community President Romano Prodi has also expressed concern that global trade imbalances would be hard to correct unless China loosens its peg -- and other Asian countries refrain from buying dollars to stay even.

Other European officials have joined the fray, suggesting that a stronger Chinese currency would help in the rebalancing of trade surpluses. So far, China allows only that it is studying several options for dealing with huge and rising foreign exchange reserves -- now at a record $340 billion.

ELECTION ISSUE. The implications for the U.S. economy are enormous. The bulk of the U.S. trade deficit is with Asia, and increasingly with China. Indeed, at more than $100 billion, China is running the largest current trade surplus of any nation with the U.S. And that figure is likely to rise further this year. A weaker dollar is seen as one way to help the U.S. recovery by boosting exports and foreign-based profits until a sustainable return to growth can be achieved.

Unfortunately for export-hungry American manufacturers, while the value of the U.S. dollar has fallen at double-digit percentage rates vs. major European currencies over the past 12 months, its decline was far less in relation to the Asian currency bloc. The Fed's "broad" trade-weighted dollar index is off less than 5% so far in 2003, with key Asian currencies accounting for nearly 40% of the overall basket.

If China and the rest of Asia aren't careful, Asia's pegging of currencies to the dollar -- whether directly or indirectly, like Japan and Korea -- looms as a possible political issue in next year's U.S. Presidential election. If China doesn't relax its currency peg, lower requirements for dollar reserves held by China -- the second largest holder of U.S. Treasury debt -- could also eliminate a sizeable source of funding for the U.S. budget deficit. That will make deficit hawks on both sides of the political aisle in Washington howl.

STEEL BALANCE. U.S. manufacturers and industries bedeviled by cheaper foreign imports will likely pressure the White House even harder to drop the "strong" dollar mantra or take a tougher stance with countries manipulating their currencies for export gain. The National Association of Manufacturers considers China's monetary stance a major issue in the coming months, while the Coalition for a Sound Dollar (an association of several U.S. business and commodity trade groups) is drawing attention to Asian countries that keep their currencies undervalued. In the eyes of U.S. manufacturers, China has now replaced Japan as the chief source of their woes, unfairly taking market share through an artificially weak currency.

It isn't surprising they would take that position. Just look at the steel industry. Over the past eight years, China's share of global steel production has grown from about 15% to almost 30%, double the U.S. and Japanese share and slightly greater than Europe's. And a trade group representing U.S. textile and apparel makers claims that an undervalued yuan could allow China to capture up to 75% of U.S. markets in 2005, after quotas limiting Asian imports expire at the end of 2004. Chinese sales of textiles to the U.S. rose over 60%, to $3.1 billion, in 2002.

Amid growing political pressure, U.S. Commerce Secretary Donald Evans said his department will soon hold roundtable meetings with manufacturers -- and he promised aggressive action to make China adhere to its commitments as a member of the World Trade Organization and further reduce trade barriers.

STRATEGIC ALLY. Ultimately, the challenge for Team Bush is to get China to become more accommodating, without provoking renewed tensions with the Middle Kingdom. Washington especially needs China's help in dealing with North Korea, which is openly flaunting its nuclear-weapons development programs.

Thus, Snow & Co. are likely to stick to the line of repeatedly asking China for a more flexible currency regime -- but not actually pushing for an outright revaluation of the yuan. Beijing may budge a bit, too. But it may not be enough to provide U.S. manufacturers with the relief they're seeking -- or stem the rising tide of job losses in the industrial sector.

Citigroup Global Transaction Services custody business arm in China has been top-rated for five years in a row* and the Bank has been rated / awarded Best Global Custodian in Asia Pacific and Best Custodian in Asia by a number of reputable publications in 2002**. Citigroup is currently a custodian for B-shares and is one of the three clearing banks for the Shenzhen market. The Bank is also an active Receiving Bank player in both the Shanghai and Shenzhen markets of B-share rights issues. Citigroup has also been actively involved in the B-share market since 1991, when the Bank advised on the design of the Shanghai B-share clearing system. In 1992, Citigroup was formally appointed Technical Advisor for the B-share clearing systems and since then, has become the sole USD clearing bank for China Securities Depository and Clearing Company Limited - Shanghai Branch.

HONG KONG -(Dow Jones)- The Hongkong & Shanghai Banking Corp. unit of HSBC Holdings PLC (HBC) said late Wednesday that it is applying for an initial investment quota of $100 million under China's qualified foreign institutional investor program.
  The China Securities Regulatory Commission said earlier Wednesday that it approved HSBC as the seventh foreign financial institution to participate in the investment scheme.
  The first QFII licenses were granted to UBS Warburg Ltd.(UBS) (U.UBS) and Nomura Securities, a unit of Nomura Holdings Inc. (NMR) in May. UBS has already started investing in the China markets. Since May, Deutsche Bank AG (G.DBK or DB), Citigroup Inc.'s (C) Citigroup Global Markets Ltd., Morgan Stanley (MWD) and Goldman Sachs Group Inc.(NYSE:GS) (GS) have also received their QFII licenses.
HSBC said it intends to invest in yuan-denominated securities including government bonds and corporate bonds and equities.
  The U.K.-based bank said it appointed China Construction Bank (Q.CCB) as its QFII custodian and it will appoint Guotai Junan Securities Co. as its QFII securities broker.
-By John Ryan, Dow Jones Newswires

The Guohai Franklin Fund Management Co., Ltd. (under preparation) co-founded by the Guohai Securities Co., Ltd. and the Templeton International Inc. under the US-based Franklin Templeton Fund Group has recently got the green light for establishment from the China Securities Regulatory Commission.
     The joint-ventured Guohai Franklin Fund Management Co., Ltd. (under preparation) will have a registered capital of RMB 100 million, in which the Guohai Securities Co., Ltd. will have 67 per cent shareholdings, and the Templeton International Inc. will have 33 per cent shareholdings.
     Recently, the Everbright Prudential Fund Management Co., Ltd., a joint venture between the Everbright Securities and the US-based Prudential Financial Inc., has been approved to set up. The joint venture will have a registered capital of RMB100 million, in which the Everbright Securities will have 67 per cent shareholdings, and the Prudential Financial Inc. will have 33 per cent shareholdings. This will be the 6th joint-ventured fund management company approved to set up in China. 

Vice Director General of National Bureau of Statistics Qiu Xiaohua said in Shanghai recently, since the beginning of this year, the Chinese economy has sustained the fast-growing pattern, but 6 major problems exist, which are note-worthy - consumption is not powerful enough in driving consumption; the development of the service industry tends to be weak; employment is under high pressure; farmers had greater difficulties increasing income; growth of bank loan is too fast; there exist repetitive construction in some industries and regions.
     At the Leading-edge Corporate Top Management Forum, Qiu delivered a theme speech. He said, it’s the first year the Chinese government put forward the goal of construction of a well-off society on a full scale when the national economy had a good beginning. The precipitated SARS impact was but partial and periodical, which did not impair the fundamental situation of the national economy. Currently, economy is still growing swiftly. He said, we are very confident about the target of 7-percent growth in GDP, which may probably score an 8-percent high-speed increase.
     In analyzing the new characteristics arising from this year’s economic operation, Qiu said that since this year, demand and investment have played more outstanding roles in the economy. Industry-oriented pattern is becoming all the more noticeable. The curve of relatively stable economic development experienced new fluctuation. External factors exerted stronger influence on economy. And economic growth turned more independent.
     He said despite the rapid economic growth, there are 6 major problems that we should be greatly concerned about. First, weak consumption is outweighed by investment. Second, the weak development of the service industry will cause greater pressure on employment. Third, SARS outbreak added to the highly pressured employment. Forth, farmers have greater difficulties increasing income. Fifth, bank loans increases too fast. Sixth, blind and repetitive construction in some industries and regions is making a comeback, which is especially true of the iron and steel and textiles industry. 

The world’s renowned rating institution Moody’s Investors Service claimed recently that China’s foreign debt is still under control, and that the actual GDP of this year and next will maintain a 7.0 per cent to 8.0 per cent increase.
     The report claimed that financial stimulus, steadfast monetary and credit policies and the sustained robust import increase should enable the country’s actual GDP to maintain a 7.0 per cent to 8.0 per cent increase. China’s powerful export strength and its ability to control the overseas debt–borrowing institutions combine to stabilize risks confronting overseas investors in China.
     As regards administration of foreign debt, China’s status is fairly sound and is little influenced by outside interference. By the end of 2002, China’s foreign debt totaled about US$169 billion, changing li compared with last year. Short-term debt due within a year is not up to 1/6 of the US$350-billion national foreign exchange reserve by the end of June. Moreover, the banking system still possesses US$100 billion worth of overseas assets.

Like many international economists, DeKaser is simply arguing that trade, while seemingly unequal, isn't a zero-sum game.  China now has a trade surplus of around $100Bn with the United States.  This unequal trade relationship between the United States and China has drawn the ire of U.S. labor unions as well as many other Americans concerned with the loss of manufacturing jobs. 
By Allen Wan, CBS Marketwatch.com (5/9/2003)

According to the White Book about Trade and Investment in 2003 published by the Japanese Council for Trade Rejuvenation, both goods trade volume and service trade volume worldwide recovered slowly in 2002, but the volume of direct investment decreased for two consecutive years, compared with the previous year. And the Chinese trade and investment was the most active of all – world’s direct investment in China first outnumbered that in the U.S., putting China on top of the list. China’s export volume also rose to the 4th place in the world, and China outperformed the U.S. to become Japan’s largest importer for the first time since World War II. China-Japan Trade became increasingly active.
     With respect to trade volume, China’s export volume reached US$325.6 billion, up by 22.3 per cent over the previous year, reaching the record high. The top 3 countries were the U.S., (US$69.31 billion, down by 4.9 per cent from the previous year), Germany (US$609.0 billion, up by 6.7 per cent over the previous year), and Japan (US$415.8 billion, up by 2.6 per cent over the previous year).
     The White Book went further to note Japan’s import and export volume in 2002 turned into positive increase as a result of enlarged trade with China. Export increased by 8.4 per cent over the previous year, and import 1.6 per cent. Japanese enterprises’ transfer of production bases to China sent component product trade climbing up. 2002 saw Japan’s import from China hit US$61.7 billion, up by 6.2 per cent over the previous year, signaling that China has first outperformed the U.S. to become Japan’s largest importer since World War II.

Since this year, the country’s auto product import continued soaring. Jan.-July, the total value of imported auto and key auto components and accessories totaled US$8.189 billion, up by 109.2 per cent over the same period of last year. The Electromechanical Department of the Ministry of Commerce projected that China’s auto product import will reach an all time high of US$10 billion this year.
     The customs’ statistics revealed that in the first 7 months, the country imported US$2.98 billion worth of whole car (including whole sets of car parts), up by 81 per cent over the same period of last year; imported US$1.601 billion worth of key car components, up by 167.3 per cent over the same period of last year; and imported US$3.606 billion worth of car parts, up by 116.1 per cent over the same period of last year.
     While auto product import increased sharply, there emerged 3 new tendencies – the growth rate of imported parts outpaced that of whole car, the growth rate of imported SUV surpassed that of car, and imported cars tended to be increasingly high-graded. That worked to promote and complement domestic car industry on a fuller scale.
     At present, China practiced quotas license administration on auto product import. In 2003, the country’s import quotas for auto and key auto parts was US$9.125 billion, which will go up by 1 per cent in 2004 to reach US$10.494 billion.

 [Origin:www.xinhuanet.com] 

The just concluded China Venture Capital Semi-Annual Forum 2003 finds that at present foreign investment has become the driving force behind the growth of venture investment in China. According to data by the Semi-Annual Research Report on Venture Investment in China 2003, in the first half of 2003, Chinese and foreign venture investment institutions invested US$372 million in 66 mainland Chinese and mainland-related enterprises, an increase of 46 per cent over the same period of last year, accounting for 89 per cent of last year’s figure. The total investment this year is expected to exceed US$600 million, surpassing the US$518 million and US$418 million of 2001 and 2002 respectively.

Compared with the fifty-fifty investment performance of local and overseas venture investment in 2002, the first half of 2003 saw foreign investment institutions step up investment efforts considerably, with a venture investment of US$277 million, accounting for 74% of the total. The venture investment mainly went into communications/telecommunications, IT in a narrow sense, service trades, new energy resources, and semi-conductor, accounting for 44%, 17%, 11%, 10%, and 6% of the total investment respectively.

Private equity fund, Newbridge Capital, is looking to take a stake in Shenzhen Development Bank, one of 4 listed lenders, but talks seem to have stalled over the discovery of approx. US$10Bn in bad loans made in the past (mostly to poorly run former state-owned enterprises). This has been denied by bank officials who claim that the correct bad loan figures are $1.1Bn or 12.3% of their loans. 

The city, which controls the bank is unwilling to part with such a sizable stake of the bank at Newbridge’s proposed price (a 15% stake for 1.5 billion yuan or ~ $180MM), which has become another major sticking point according to sources.  

China’s backward banking industry has been deep in talks with foreign counterparts ever since China’ entry into the WTO in 12/2001, because of which the