EMBASSY OF SWITZERLAND IN CHINA - CHINESE BUSINESS BRIEFING N° 37 05 March

Premier outlines 10th five-year-plan to be adopted by NPC
The 10th five-year-plan for economic and social development as outlined by Chinese Premier Zhu Rongji in his government work report to the National People's Congress is one step further away from old-style production target lists and towards a Western style government program. As for substance, there is hardly any surprise. For the 2001 to 2005 period the Government, among other things, intends to:

target an average GDP growth rate of 7%, for which it will rely heavily on state infrastructure spending;
create 80 million jobs, 40 million for urban workers and 40 million for those who shifted to the urban economy from the farms;
ease the burden of the country's 900 million farmers by replacing the system of multiple local fees through uniform agricultural taxes;
continue structural adjustments of the economy such as boosting the competitveness of State owned enterprises by offering more room for the private sector and foreign investment and encouriging the SOEs to adopt the shareholding system and to change their operating procedures.

According to Zeng Peiyan, Minister of the State Planning and Development Commission, the focus of the 10th five-year-plan is on raising the quality of life for the nation's 1.3 billion people, i.e. in particualr to increase the urban and rural income levels and to put in place a social security system. (Various sources, 6 March)

China to go USD 31.4 billion over budget
China unveiled a record budget deficit for 2001 as the government tries to aggressively spend its way to 7% growth. The central and local governments will increase spending by 9.3% to RMB 1.74 trillion (USD 210.46 billion) and raise about RMB 1.48 trillion (USD 179 billion) in taxes and other revenues. This represents the fourth year that China has used massive state spending to fuel economic growth. Yet, China's deficit of approximately 2.7% of expected GDP this year is still relatively conservative by global standards. (ChinaOnline, 6 March)

SOE profits jump 140%
According to the National Bureau of Statistics profits of state-owned enterprises in 2000 showed at a a staggering increase of 140% (to RMB 239.2 billion) over 1999. (ChinaOnline, 6 March) While this seems to show that the Prime Minister's 1998 program for completion of SOE reform within 3 years is a success, others seem less convinced. SDPC Minister Zeng Peiyan has been reported to remark that "there has still not been a fundamental change in the way [SOEs] operate. They are not in a position to make innovations, and a number of them are having difficulty continuing to operate."

Nokia draws component makers to new industrial park in Beijing
Last year, Nokia invested RMB 10 billion in the Beijing Economic and Technological Development Zone (BETDZ). This year, companies that make parts and accessories for Nokia products are opening up shop in the BETDZ. Ultimately, there will be 30 component-manufacturing firms in the SNIIP, all of them making the innards of Nokia cell phones. (ChinaOnline, 6 March) Swiss SME's please note this model case of how a large manufacturer draws supppliers into the Chinese market.

Successful CNOOC listing boosts IPO interest
The successful flotation of China National Offshore Oil Company, China's third largest oil producer, in New York and Hong Kong has provided cause for optimism over the listing prospects of other Chinese companies on overseas stock markets. The queue waiting for overseas IPOs is filling up with companies as the country speeds up efforts to reform its economy. China Telecom, the largest fixed-line telecommunication service provider in China, is to go public on the Hong Kong and New York stock exchanges to raise a total of USD10 billion in the second half of the year. (Business Weekly, 6 March)

China to be Matsushita's major production base
The Japanese Electronics giant Matsushita announced that China would become its major production base. Matsushita, which includes Panasonic brand electronics, also plans to move its Southeast Asian factories to China to save money. (People's Daily, 6 March)

SETC, MST get new leaders
The 20th Standing Committee of the Ninth National People's Congress has appointed Li Rongrong (currently deputy minister of the State Development Planning Commission) State Economic and Trade Commission minister, while Xu Guanhua (currently deputy minister of MST) was approved to be the minister of the Ministry of Science and Technology. (ChinaOnline, 6 March)

Subway projects in 5 Chinese cities
China will build subways in Chongqing, Shenzhen, Nanjing, Wuhan and Qingdao over the next five years, spending altogether RMB 800 billion. Shenyang and Suzhou also have subway plans. Beijing, Shanghai, Tianjin and Guangzhou already have subway systems. (Xinhua, 7 March)

China ponders USD 18 billion water diversion project
Delegates to China's ongoing annual legislative session urged the government to approve an USD 18 billion water diversion project to bring badly needed water resources to the north. The first phase of the project consists of eastern and central water diversion channels which would divert water thousands of kilometers northward from the Yangtze River in Jiangsu province to the Beijing region and from the Danjiangkou reservoir in Hubei province to the Beijing-Tianjin region. (China Daily, 7 March)

Coke still China's best-known soda
According to a report by Research and Consulting Center of China Central Television, Coca-Cola again bubbled to the top spot for brand-name recognition and reputation among soft drinks for the sixth consecutive year. Coca-Cola Co. also retained its strong leadership position in market share. (ChinaOnline, 7 March)

Robust textile sector reaped what it sewed in 2000
Textile industry profits in 2000 hit a record high of RMB 29.01 billion, up 120% over totals at the close of 1999. In the industries ongoing efforts for higher productivity, the cotton textile sector eliminated 340'000 more substandard spindles last year, bringing the total of discarded spindles to 9.4 million. Meanwhile, wool textile enterprises took 280'000 substandard wool spindles out of production. (ChinaOnline, 7 March)

Volkswagen to invest USD 1.48 billion in China by 2005
Volkswagen plans to invest USD 1.48 billion for the expansion of their joint ventures in Shanghai and Changchun, not including further investment in family mini-cars. The auto-maker said it aims to increase Asia Pacific sales by 50% in the coming five years. It will introduce a new model every year in China to achieve the long-term goal of covering other Asian-Pacific countries from its regional headquarters in China. (ChinaOnline, 7 March)

CSRC tightens stock market standards
The China Securities Regulatory Commission has issued new regulations concerning information disclosure about companies applying for public listing. Starting from March 17, the CSRC will adopt a new IPO regulatory system which will reduce the government's power in approving IPOs and increase the responsibility of lead underwriters of firms applying to be listed. (China Daily, 8 March)

B-share market might open further
According to China Securities Regulatory Commission the Chinese government might open the B-share market even further after July or August if interest to do so from foreign investors continues. The next step might be for the government to develop a B-share fund and index fund and to permit legal entities to hold B shares. (ChinaOnline, 7 March) For reliability of CSRC's announcements with regard to future steps in stock market restructuring see article below.

CSRC deflates hopes for early restructuring of markets
China Securities Regulatory Commission chairman Zhou Xiaochuan said the establishment of Shenzhen's second-board market for high-technology companies had been delayed. Worries about the associated risks have led to further debate on whether China is really ready to launch the NASDAQ-style Second Board, which has been in the works since 1999. Apparently, he also said that a merger of the A and B-share markets, originally expected within two to three years, was more likely five to 10 years away. (SCMP, 8 March)

USTR report on China piracy problems
The U.S. Trade Representative 2000 Annual Report to Congress has given mixed reviews to China's efforts to combat piracy of intellectual property, saying that while Beijing has made significant progress in cracking down on illegal copying and sales, it still has a way to go, with protection of brands being a major concern. (ChinaOnline, 8 March)

Shanghai punishes firms for refusing to pay social security
Shanghai Municipal Court disciplined five enterprises for refusing to fulfil their social security payment obligations. The ruling came as part of an inaugural municipal court campaign to protect the legal rights of those covered by social security insurance. (ChinaOnline, 8 March)

China's corruption estimated at USD 150 billion
According to a report of Prof. Hu Angang from Tsinghua University, illicit siphoning of funds from projects and companies wiped out the equivalent of 13% to 16% of China's GDP (about USD 150 billion) over the past decade. The Professor also calls China one of the most corrupt countries. (Asian Wall Street Journal, 8 March)

Economists spark off discussion on financial markets
In a an open letter to the National People's Congress, three Chinese economists have released a condemnation of the stock market claiming that a financial oligarchy, which includes the China Securities Regulatory Commission, the Shanghai Stock Exchange, the Shenzhen Stock Exchange, securities companies, listed companies and investment funds, are manipulating markets at the expense of small and medium-sized investors. (Financial Times, 9 March)

New subway lines in Guangzhou
The city of Guangzhou plans to build two more subway lines totaling 53 kilometres. The first subway, 18.5 kilometres long and built mainly with overseas loans, has been open since June 1999. Its revenues last year were RMB 192 million. (Xinhua, 9 March)

Advertisement spending up 36%
RMB 80 billion was spent on advertising in China last year, 36% higher than in 1999. The strong growth stemmed from mainland-based companies, which took the top 10 slots for ad spending. (SCMP, 9 March)

Industrial output up 10.2%
Chinese industry grew 10.2% in the first two months of 2001. Large enterprises performed better than smaller ones. The overall value of large state-owned enterprises increased 10.3%, while that of large share-holding firms increased 11.9%. The value of output from foreign-funded firms increased 12.4%. Mainland enterprises exported RMB 197.8 billion worth of products in January and February, up 11.7%. (SCMP, 9 March)

CPPCC members call for credit-based economy
Members of the National Committee of the Chinese People's Political Consultative Conference have urged building up a credit-rating system to curb rights infringements, frauds and chain debts. The members are of the opinion that absence of personal credit investigation services has "bottlenecked" the growth of consumer credits in the country and hampered Chinese enterprises' efforts to compete on the international market. (Xinhua, 10 March)

Internet connections cut, again!
The US-China undersea fiber optic cable has been severed for the second time in a month. China Telecom's claim that internet access from the Chinese mainland to North America has been restored after less than 24 hours can not be confirmed by this user. As long as millions of private and commercial Internet users are hostage to one lonely undersea cable with a tendency to regular cuttings, China's much heralded new economy may be farther off then many would like to believe. (one frustrated internet user, 10 March)