May, 2011 Compiled by Yimin Zhang, University of Shanghai for Science and Technology and distributed free of charge

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Third-party payment licenses granted to 27 firms

The People's Bank of China offered third-party payment licenses to 27 companies including Alipay, Unionpay and a unit of Tencent Holdings Ltd, the central bank said in a statement posted on its website on Thursday. Alipay, China's largest e-payment platform, said the license would allow the company to handle foreign exchange transactions, Internet and mobile payments, and debit card services

Source: Anonymous: Third-party payment licenses granted to 27 firms, China Daily, 2011-05-27
Shanghai edges closer to correction territory

If China’s Shanghai Composite Index loses another half a per cent on Wednesday it will have entered correction territory, having fallen more than 10 per cent in less than six weeks. Surely the SCI is a crucial daily gauge for macro-strategy traders in the US and Europe to use when they get to their desks. Not necessarily; it depends on one’s time horizon.

The problem for any short-term equity investors is that the stock markets of the world’s first and second biggest economies display a fairly weak linkage from day to day. While mostly positive, the 50-day correlation between the SCI and the S&P 500 is weak, often negative – a trait seldom seen between Wall Street and Europe, for example. Why is this? Is it because global investors are sniffy about China’s closed market and thus until recently were not prepared to accept its message: tighter policy equals slow growth equals lower stocks.

Perhaps, but of late it may also reflect another example of the market’s blind love for QE2, an infatuation that is undoubtedly now fading. The SCI peaked this year in April, the S&P 500 hit a cyclical high two weeks later. Message now received.

Source: Jamie Chisholm: Shanghai edges closer to correction territory, The Financial Times, May 24 2011

The story of China and India usually goes as follows: After decades of socialism, China's and India's market reforms and increased international trade have led these two "sleeping giants" out of poverty and to the forefront of the world stage. For Berkeley-based economist Pranab Bardhan, this narrative is based on oversimplifications of a more nuanced story. Growing up in Kolkata having witnessed destitution and poverty firsthand, Bardhan's focus is to better understand the economics of poverty. In his new book, Awakening Giants, Feet of Clay, he urges us to look beyond the hype in many media accounts of the two economies by presenting metered analysis of the data on economics and globalization in India and China.

For example, World Bank figures indicate that China's drastic decline in poverty occurred in the early 1980s, long before the country's global integration. Bardhan hypothesizes the reduction of poverty was more likely a result of domestic policies, such as equal land redistribution schemes, than a result of globalization. Meanwhile, Indian government figures show no difference in the rate of poverty decline before and during the 1993 to 2005 expansion of India's economy. With certain populations in India and China benefiting from market reforms, these trends indicate that inequality has actually increased, particularly between urban populations and in urban versus rural areas. His analysis, however, does not indicate that globalization is responsible for the widening chasm between rich and poor, but rather that the connection between globalization and poverty is more complex than a linear, cause-effect relationship. Quoting American writer Henry James, Bardhan urges us to see "what goes on beneath the vast smug surface" of media hype by investigating the economic situation in each of these countries more fully.

Source: Pranab K. Bardhan: AWAKENING GIANTS, FEET OF CLAY: ASSESSING THE ECONOMIC RISE OF CHINA AND INDIA, Journal of International Affairs 64. 2 (Spring 2011): 288-289.

Rising wages, inflation to weaken exports

China's rising wages and inflation will soon make its exports too expensive to compete with low-cost manufacturers, according to a group representing US companies with operations in the world's second-largest economy. "China's competitiveness in terms of wage rates will evaporate," Christian Murck, president of the American Chamber of Commerce in Beijing, said on Monday. Factories are "being squeezed very, very severely by rising wages", he said. Murck said the yuan is likely to continue its steady appreciation against the dollar because Chinese policymakers want to curb inflation and limit their accumulation of US Treasury bonds. A rising currency also makes exports more expensive.

Chinese efforts to develop "national champions" in high-technology industries reflects an awareness that its supply of low-cost labor from provinces is drying up as its population ages, said James McGregor, senior counselor at APCO Worldwide. "They are using the power of their market," he said.

The profit margin for small-scale industrial companies fell to 3.9 percent last year, a drop of 0.2 percentage points from a year earlier, the nation's statistics bureau said on its website. Labor shortages in manufacturing hubs on China's east coast are persisting and spreading to central and western regions as economic growth spurs demand for workers and population growth in rural areas slows, Yin Weimin, minister of human resources and social security, said in Beijing on March 8.

Source: Mark Drajem: Rising wages, inflation to weaken exports, China Daily, 2011-05-04
China trade surplus surges to $11.4bn

China recorded a large trade surplus in April as imports of commodities and raw materials slumped and exports surged, renewing pressure on Beijing to allow faster appreciation of its tightly controlled currency. China’s trade surplus reached $11.4bn in April, ahead of analysts expectations. The figure marked a dramatic turnround from the three months to March, when China recorded its first quarterly trade deficit in more than seven years. China’s fastest-growing exports are labour-intensive, low-margin products whose competitiveness would suffer from a dramatic appreciation of the renminbi.

Some economists believe that a decline in raw material imports including copper, iron ore, aluminium and raw plastics showed that government measures to slow the pace of economic growth had started to take effect in April. But most observers warned against reading too much into one month’s data, arguing that Chinese companies typically build up large inventories of raw materials at the beginning of the year. The devastating earthquake and tsunami that struck Japan in March also led to supply disruptions that appear to have affected Chinese imports of Japanese machinery and components. Chinese imports from Japan grew just 4.6 per cent in April from the same period last year, according to UBS, compared with 35 per cent growth in 2010 and the first two months of 2011.

Source: Jamil Anderlini in Beijing and Richard McGregor in Washington: China trade surplus surges to $11.4bn, The Financial Times, May 10 2011

Guangdong leads processing trade innovation

The General Administration of Customs and Guangdong province signed a cooperation memorandum here on Monday to build a demonstration region in Guangdong for upgrading the processing trade industry. Upgrading the processing trade is essential to deepening China's opening-up and maintaining China's international competitive edge, and it is also the earnest need of Guangdong, said Wang Yang, chief of the Guangdong Provincial Committee of the Communist Party of China. Yu Guangzhou, minister of the General Administration of Customs, said innovations in customs management will be conducted in Guangdong to facilitate the operations of businesses. The memorandum said innovative customs regulations will be applied in the demonstration region to encourage high-end equipment manufacturing in the region.

Source: Xinhua: Guangdong leads processing trade innovation, 2011-05-17
Beijing to ease Japan food restrictions

Wen Jiabao, China’s premier, has agreed to soften curbs on some Japanese agricultural products introduced amid safety fears over the crisis at the Fukushima Daiichi nuclear plant. The decision was a gesture of goodwill at a trilateral weekend summit in Tokyo between Naoto Kan, Japan’s prime minister, Lee Myung-bak, South Korean president, and Mr Wen.

The three leaders also agreed to expedite a joint feasibility study for a free-trade agreement. However, even if the governments embark on trade negotiations in 2012, they are likely to face obstacles relating to agricultural and manufactured products. The three leaders agreed to co-operate on nuclear safety and disaster management through methods including sharing information and sending “self-supporting” emergency relief teams and supplies as quickly as possible.

Source: Lindsay Whipp in Tokyo: Beijing to ease Japan food restrictions, The Financial Times, May 21 2011

China-ASEAN FTA works on win-win for all

Indonesia stands to benefit from the implementation of the China-ASEAN free trade agreement (FTA) with easier access to more deals in new markets for its manufactured products and raw materials, contrary to views that the FTA is hurting the local economy, said a senior official from China's Ministry of Commerce. "The problems (of unemployment and dropping sales) should be attributed to the weak competitiveness of their own industries, rather than the impact of the China-ASEAN FTA," Jiang Jiqing, director of Department of International Trade and Economic Affairs said.

Indonesia's exports to China increased to $20.75 billion in 2010 from $9.61 billion in 2006, with an annual growth rate of 21 percent, 6 percentage points higher than the growth of the ASEAN nations' exports to China during the same period. Indonesia has rich natural resources including coke, cocoa powder and palm oil. These are included as non-crude oil and non-natural gas goods. In 2010, exports of these products reached $14.1 billion, and China overtook the United States to become Indonesia's second-largest export destination for non-crude oil and non-natural gas goods, after Japan.

Chinese investment in Indonesia has also been on the rise. By the end of 2010, more than 1,000 Chinese companies had cumulatively invested $6 billion, creating 30,000 jobs, in the country. The investments were mainly in the infrastructure and energy sectors. China ranked the 13th in terms of foreign direct investment in Indonesia, according to official data. Indonesia's Vice-President Boediono has urged more inflows of Chinese investment to the nation, especially in the manufacturing sector, to help strengthen the competitive edge of Indonesian industries

Source: Ding Qingfen: China-ASEAN FTA works on win-win for all, China Daily, 2011-05-24
Beijing Tightens Trade Ties With Brazil

China and Brazil agreed to strengthen cooperation in trade and development in April in a joint statement released in Beijing by Chinese president Hu Jintao and recendy elected Brazilian president Duma Rousseff. After the statement was released, Rousseff told media that Taiwanese electronics company Foxconn Technology Group, whose Chinabased factories produce a variety of products including the iPhone, was considering a $12 bilHon investment in Brazil. Following her trip to Beijing, Rousseff joined Hu and die leaders of Russia, India and South Africa at the BRICS Leaders Meeting in southern China. In a joint statement, the five countries called for greater representation of developing nations in international organizations such as the World Bank and International Monetary Fund (IMF).

Source: Clouse, Thomas: Beijing Tightens Trade Ties With Brazil, Global Finance 25. 5 (May 2011): 14.
Business Basics in China

In an interview, Timothy J. Hilligoss, CPA, MST, partner in charge of Asia for Southfield, MI-based firm Clayton & McKervey PC, talked about some basics on what US companies face when investing in Chinese ventures. Hilligoss said there are three common methods for a US investor to do business in China. Those being a representative office, a wholly owned foreign enterprise (WOFE or WFOE) or an equity joint venture (EJV) in which the direct foreign investment is less than 100%. Both the WOFE and EJV are limited liability companies. Chinese tax authorities require entities with foreign ownership to submit an audited financial statement with their annual corporate income tax returns. The audit is required under Chinese or "PRC" GAAP. International trade is typically different, as many buying and selling relationships involve letters of credit. However, absent a letter of credit, terms across borders or within China are similar.

Source: Lamoreaux, Matthew G.: Business Basics in China, Journal of Accountancy211. 5 (May 2011): 42-44,46,10.
US welcomes Chinese investment: Locke

The United States welcomes Foreign Direct Investment (FDI) from China, which benefits the US economy, said Secretary of Commerce Gary Locke here on Wednesday. Chinese FDI is "good for the American workers and good for American businesses," Locke said at the Woodrow Wilson Center days before the two countries hold their third round of Strategic and Economic Dialogue in Washington.

According to a report conducted by the US Asia Society and the Kissinger Institute on China and the Unite States at the Woodrow Wilson Center for scholars, Chinese FDI in the United States totaled $5 billion in 2010 and has been increasing rapidly in recent years. Locke said that the US government believes more Chinese FDI in America is "a good thing." Meanwhile, he said that China's openness has also provided opportunities for foreign investors to enjoy substantial profits from their China operations. "It has been a mutually beneficial relationship," he observed.

Source: Xinhua: US welcomes Chinese investment: Locke, 2011-05-07

Economic reform creates opportunities for foreign firms

The next five years will be a critical period for China to deepen the economic reform and to accelerate the transformation of its economic development pattern, according to the country's 12th Five-Year Plan. "Transformation" and "opportunity" were the two words reporters heard most when interviewing the senior executives of certain foreign enterprises. In their eyes, the accelerated transformation of the economic development mode in China will not only promote the country's economic and social development but also create golden opportunities for various businesses. Many foreign companies have adjusted their global strategy and are paying more attention to the Chinese market.

Bob McDonald, chairman of the US-based Procter & Gamble, said in an interview that China's economic growth will help improve the employment situation in the United States. There are some 1.3 billion consumers in China. Their income is growing steadily, and their demand for quality products and services is increasing rapidly. He said that the company will invest $1 billion in China in the next four to five years. Ouyang Kun, chief of the World Luxury Association's China office, said that as the income of the Chinese people grows and their purchasing power increases, the sales of luxury goods will be further boosted, and the Chinese people will gradually develop more mature attitudes toward consumption.

David Hathaway, managing director of the world-renowned consulting firm ICF International, is upbeat about China's environment protection market for the next 10 years. He said, "I greatly admire the executive abilities and the far-reaching vision of the Chinese government. China has assumed its obligations to mankind and the world as a major power. The Chinese government has always strived to formulate sound energy and environmental policies, and its people have increasingly higher demand for the environment. Chinese enterprises have also drawn more and more attention to the "green marks" on their products or services. The development of China's future green economy will surely be better and better and the environmental protection sector will promote China's economy to a higher level in the future."

Ronald Frank Christie, head of the China Regional Office of the Novo Nordisk Pharmaceuticals Science and Technology Company, a leading global biopharmaceutical company, said during an interview that the Chinese government is moving in the right direction of cultivating creative talent. "As a pharmaceutical company, we are impressed by the improvement of China's medical security system. I appreciate the cooperation between public hospitals and community clinics in the healthcare reform, which can maximize the introduction of advanced medical resources in rural areas and benefit the people at the county level with high-tech drugs," Christie said. Christie also said that Novo Nordisk's first overseas research and development center is located in China. "The policy environment, human resources environment and market environment in China are very attractive to foreign companies. More than 90 percent of employees in our company come from the Chinese mainland, and the proportion in the research and development team is even higher. We also plan to double the number of employees in the research and development team in the next two years. Facts have proven that in China, we have the best talent, the most efficient production lines and the best market potential," Christie said.

Source: Anonymous: Economic reform creates opportunities for foreign firms,, May 11, 2011
Investment from US declines 28%

US investment in China dropped sharply by 28 percent, while foreign direct investment (FDI) maintained double-digit growth from January to April, the Ministry of Commerce said on Tuesday. US investment from January to April decreased to $1.03 billion and the number of US firms setting up in China also fell by 3.85 percent to 475. In contrast, European Union investment rose by 23.42 percent to $2.64 billion. Investment from the Asia-Pacific region, including Japan, South Korea and Singapore, registered growth of 31.23 percent to $32.88 billion.

"US investment could drop further over the short-term," Song Hong, head of the Department of International Trade at the Chinese Academy of Social Sciences, said. Song attributed this to a decline in US manufacturing, a key component of US investment, following the global financial crisis. He also said that with the recovery in the US economy, businesses that had invested in China were returning to the US market. But others cited rising labor costs as a reason. In a survey of its member companies released last month the US Chamber of Commerce in China cited "bureaucracy, lack of management, ambiguous laws and infringement of intellectual property rights" as major challenges facing US firms here. But the survey also pointed out that 80 percent of the companies recorded profits in 2010 and many have expansion plans. Robert Poole, vice-president of China Operations at the US-China Business Council, told China Daily that a number of companies plan to boost investment in China. General Motors said it will invest $5 billion to $7 billion over the next five years, aiming to double its sales to 5 million units by 2015. Starbucks said recently it was planning to expand its network in China to 70 cities from the current 35.

Source: Ding Qingfen: Investment from US declines 28%, China Daily, 2011-05-24

China to open RMB FDI

China is mulling policies to allow foreign institutions to invest directly in renminbi in China, China Business News reported on Friday. Li Bo, director of the Monetary Policy Bureau at the People's Bank of China, was quoted at a financial forum in Shanghai Thursday. Li didn't give a specific timetable for the new policy. One industry insider said there was a huge demand for renminbi from foreign institutions' direct investments. However, the supervision must be very strict to guard against speculative capital inflows, the source told the paper.

Source: Ben Yue: China to open RMB FDI, China Daily, 2011-05-20

The companies' optimism comes partly from their confidence that China's 12th Five-Year Plan (2011-2015) will stimulate the business environment, opening opportunities for high-tech and green products and technologies and in the service industries, Cucino said. The Chinese market has great potential, said Dominique Pouliquen, president of Alstom China. About 40 percent of the global new power plant investment is planned in China each year and about 50 percent of the world's new metro lines each year are built in China, indicating the dynamism of its market and its sustainability over the next decade, he said. But the companies surveyed also mentioned growing competition from domestic companies, which have made improvements in areas ranging from brand recognition to technology development.

Source: Ben Yue: China to open RMB FDI, China Daily, 2011-05-20
EU firms are thriving in China, survey finds

A survey released on Wednesday showed that European companies in China saw significant increases in revenue and net profit in 2010, and European companies have reaffirmed their commitment to continue developing in the Chinese market. The survey by the European Union Chamber of Commerce in China found that about 78 percent of responding European companies reported a marked revenue increase last year, compared with 50 percent in 2009, and 71 percent reported a rise in net profit in 2010, compared with 43 percent in the previous year. "China is increasingly regarded as a strategic market for European companies, not only because of the Chinese market itself, but also for the companies' global strategies," said Davide Cucino, president of the chamber. About 70 percent of the companies reported that profit margins in China were higher than or equal to their worldwide profit margins, and about 59 percent said they are planning major new investments in the country in the next two years, up 11 percent from last year.

Source: Lan Lan and Li Aoxue: EU firms are thriving in China, survey finds, China Daily, 2011-05-26
Relax overseas investment rules: experts

Experts have suggested that the government should remove restrictions on private-sector businesses and individuals making direct overseas investments, pointing out that it could benefit the domestic economy. The pundits and investment consultants talked about the idea during the 2011 China Private Capital Summit (Wenzhou), which concluded on Saturday. "The highest level of investment management is to make global resources, including technology and capital, available for our own use," said Feng Pengcheng, the director of the International Investment Research Laboratory, University of International Business and Economics.

According to Forbes Weekly, Chinese businessmen invested $56.5 billion overseas in 2010. The amount totals $215.9 billion during the past five years. During the first four months of 2011, the volume of overseas investments rose by another 17.5 percent. One goal of the 12th Five-Year Plan (2011-2015) calls for more private investors to buy into overseas markets. However, at the moment, most of the overseas investment is being made by State-owned enterprises. Private companies have been restricted from using their money in the global market and those that get involved find various routes to do so. Early in January, Wenzhou publicized a trial policy that would allow individual investors to make direct overseas speculations. However, the pilot was later suspended and is still under review by the State Administration of Foreign Exchange.

Source: Yu Ran: Relax overseas investment rules: experts, China Daily, 2011-05-30

Pause For Thought -- China in Africa

Recent popular uprisings in North Africa and beyond may be causing China to slow its headlong rush into the continent. Over the past decade, China has become a key source of investment, aid and trade for Africa, a continent that was once dominated by relations with Europe. Bilateral trade between Africa and China has been growing by an annual average of more than 30% of late, hitting a record $127 billion in 2010 as China seeks access to Africa's raw materials and Africa delves into China's deep pockets, particularly to fill the continent's infrastructure void. But recent uprisings throughout North Africa could be giving Beijing pause. While some analysts say China is more interested in Africa's natural resources than its domestic politics, often dealing with African dictators and turning a blind eye to corruption, others say the political unrest could lead to changes in how China does business on the continent.

Source: Guerrero, Antonio: Pause For Thought -- China in Africa, Global Finance 25. 5 (May 2011): 46-48

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