16th National Congress of the Communist Party of China

The 16th Congress of the Communist Party of China (8 to 14 November), chose Hu Jintao as its new general secretary. The plenum also elected the new Political Buro of the CPC Central Committee and members of the Buro's Standing Committee. The new Standing Committee comprises 9 members with Hu the only one who had not retired from the previous one. The 24 new members of the Politburo and one alternate are mostly university graduates, many of them engineers. One-third are returning from the previous Politburo. The new CPC Central Committee is composed of 198 full and 158 alternate members. Some 180 of them are new. More than 20% are under the age of 50. Several members of the mainland's business elite have been elected to the Central Committee, including Zhang Ruimin, CEO of the Haier Group, who is the first enterpreneur to join the ranks of the ruling elite.

The congress approved an amendment to the Constitution of the CPC with Jiang Zemin's thought of "Three Represents" as the Party's long-term guiding ideology, on a par with Marxism-Leninism, Mao Zedong Thought and Deng Xiaoping Theory. The "Three Represents" thought calls for the CPC to represent the development trend of China's advanced social productive forces, the orientation of China's advanced culture, and the fundamental interests of the overwhelming majority of the people of China.

In his report to the Congress, Jiang Zemin outlined China's agenda for economic development and reform in the first two decades of this century. Efforts will be made to quadruple the 2000 GDP by 2020. In accordance with this target, China's economy will at least maintain a 7.18% growth rate in the coming 20 years and GDP will exceed CNY 35 trillion by the year 2020. China's economy will surpass that of France in 2005, become the world's third in 2020 and its second largest in 2050. Key economic targets and policies endorsed by the Party Congress include:
Private sector: General improvement of business environment including fair taxation, legal protection for private property and deregulation of interest rates.
State enterprises: Government functions will stay separate from enterprise management. Enterprises are encouraged to have multiple shareholders, though "controlling shares in lifeline enterprises must be held by the state."
Investing abroad: State and private companies are encouraged to invest abroad "in order to increase exports and form a number of strong multinational enterprises."
Land policy: Farmers can sell their land-use rights to allow for economy of scale in agriculture.
Education: Senior secondary education will be made "basically universal" and illiteracy eliminated. Non-governmental players will be encouraged to run schools.
Legal reform: Courts and prosecutors should be allowed to operate "independently and impartially according to law," and enforcement of judgments should be improved.

The sweeping changes in the CPC's rank and file are just the beginning of China's transition from third to forth generation leaders and will be followed by changes in the top government positions in March of next year. Hu's promotion to Secretary General of the CPC cleared the way to his election as President of the People's Republic. Vice Premier Wen Jiabao, who now holds the No. 3 position in the politburo, is expected to replace Premier Zhu Rongji. Li Peng is likely to be replaced as chairman of the National People's Congress by Vice Premier Wu Bangguo, who now is No. 2 in the politburo. For months to come, there will be leadership changes on provincial and local levels, in municipalities, state-owned enterprises etc.

After much uncertainty and speculation, the results of the 16th CPC Congress offer little surprise. It was the People's Republic first orderly transfer of authority, and had been widely expected for years. In choosing Hu, the party remained loyal to the wishes of Deng Xiaoping, who had picked him as Jiang's successor. Meanhwile, Jiang Zemin's re-election to head the party military commission ensures he will retain strong influence. Hu, like Jiang before him, may have to wait years to emerge from his predecessor's shadow. While this will ensure a level of continuity which may be comforting not least to foreign investors, some observers point out the danger of conflict and maneuvering within the Party. The targets for economic growth set by the Congress are ambitious, and some of the economic policies, in particular the ones intended to strengthen the private sector, look almost (counter-)revolutionary. However, the new leaders, faced with daunting challenges such as chronic corruption, growing wealth gap, mounting unemployment and the risk of financial meltdown, may find it difficult to reproduce the growth rates of China's economy in the 1980s and 1990s. The further reform and development of China's economy will remain a path along uncomfortable choices. It will continue under the new leadership, but it will see setbacks, and nobody should expect spectacular progress overnight.

(Various sources; for detailed official information visit www.16congress.org.cn)

Economy

Swatch hopes to double number of franchise stores
Swatch Co. of Switzerland is moving ahead with an aggressive plan to boost its presence in China by doubling the size of its distribution network over each of the "next few" years. The company's growth blueprint envisages not only increasing its distribution channels to inland regions and smaller cities but also importing the latest products into the Chinese market and stepping up its marketing activities, the most important of which is its sponsorship of the 2008 Olympics in Beijing. The company said it aims to post an annual double-digit business growth in China in each of the "next few" years. The company has more than 100 Swatch counters in department stores and agent boutiques in hub cities, including Beijing, Guangzhou and Shanghai. The network is now being extended to more than 30 cities, such as Chongqing, Hangzhou, Kunming, Nanjing, Suzhou and Xiamen. (Business Weekly, 12 November)

China Telecom IPO-dilemma bad news for economic reforms
China Telecom is expected to re-launch its initial public offering at less than 50% of the original size. Cutting the size of the deal is the only way to make the deal more attractive to investors. The price of the shares cannot be lowered, because government officials do not allow selling stock under book value. Banks are now watching closely to see what the effect of the China Telecom IPO will be on other state-owned companies. China's government needs the money from SOEs going private on the domestic and foreign markets, in order to finance its economic reform plans and fill the empty coffers of the pension funds. (Chinabiz, 5 November)

Almost 7% of urban Chinese jobless
About 7% of urban Chinese workers are jobless, the labor minister said, even as he insisted that only those counted under the government rate of nearly 4% were officially unemployed. The higher figure has long been acknowledged as the more realistic one. As of the end of September, just 3.9% of urban Chinese workers (about 7.25 million people) were officially "unemployed", a status that makes the government responsible for their welfare. However, another 6 million were registered as "xiagang," ("off-post"). The dueling figures are not unusual. As it infuses capitalist reforms into a once-planned economy dominated by state-owned industries, China is caught between statistics and reality. (Dow Jones, 11 November) Keep that last bit in mind!

China, ASEAN kick off free-trade process
At the 6th China-ASEAN leaders' summit in Phnom Penh, China and the 10 ASEAN countries agreed to establish a free-trade zone by 2010. The free trade zone covers trade in goods and services, investment and economic cooperation, with the trade of goods being the core of the free trade. Tariffs and trade limits on most goods and products will be abolished gradually. China has shifted its focus from WTO membership to forming regional trade blocs, the Ministry of Foreign Trade and Economic Co-operation said. (Business Weekly, 12 November)

China's competitiveness rises to 33rd in the world
The US has the most competitive economy in the world, according to the Global Competitiveness Report 2002-2003 released by the World Economic Forum. According to the report, China's competitiveness for 2002-2003 has risen to 33rd from the 39th for 2001-2002. (People's Daily, 13 November) Switzerland moved up to No. 6 position from last year's No. 15.

China announces temporary tariffs on steel imports
China will impose a 22% import tariff on steel from selected countries for the next three years. A global dispute began in March when the US raised tariffs on steel imports by up to 30%. China, the EU, Japan and South Korea have appealed to the WTO for rulings against the American tariffs. (FT/Dow Jones, 13 November)

China faces continued deflation
China's consumer price index fell 0.8% in October compared to a year earlier. Excess output from industries combined with consumers who are reluctant to spend their money are believed by analysts to be the cause of deflation. (Chinabiz,13 November)

Mainland companies are snapping up more overseas assets
Mainland Chinese corporations are snapping up overseas assets. Shanghai Automotive Industry Corp. said it would pay USD 60 million for a 10% stake in the revived Daewoo Auto, Sinopec bought a 75% stake in an oil field in North Africa for USD 394 million. Chinese companies will spend at least USD 2.4 billion abroad this year, just a fraction of the USD 50 billion in foreign investment China is projecting for 2002. The modest numbers hide grand ambitions. China's expansion follows a pattern set by Japanese companies in the 1970s and '80s and by Koreans in the 1990s. With China joining the WTO, mainland companies are going abroad to acquire technologies and skills they need to survive in the increasingly competitive market at home. (Business Week, 18 November)

Finance

China to open medical insurance to foreign companies
China's insurance watchdog is considering the feasibility of opening up group medical insurance to foreign companies. Despite enormous market potentials, Chinese insurers have remained cautious about medical insurance. (People's Daily, 4 November)

China's largest life insurance joint venture approved
Heng An Life Insurance Company of China and Standard Life Assurance Company of Britain have been given the go-ahead to set up China's largest life insurance joint venture in Tianjin. Both will contribute 50% each for the joint venture. Its registered capital will be CNY 1.302 billion, the largest of any joint venture life insurance firm in China. (People's Daily, 7 November)

Banks shift business focus to less-risky personal loans
China's three biggest banks, which account for almost 70% of the nation's lending, will shift to less-risky personal loans in the next three years to feed a burgeoning middle class and private entrepreneurs. Mortgages, car loans, financing for small private businesses and credit cards will become the new hallmarks as they turned from decades of unprofitable lending to insolvent state-owned companies. (SCMP, 11 November)

Capital waiting in queue
China's monetary policy-makers have completed and approved a study that outlines the best way to open the nation's capital market. Approval of the study means China will enhance efforts to open the capital market - including stocks, bonds and currency exchanges under capital account. Policy-makers also agreed to liberalize bank interest rates ahead of the renminbi's exchange rate. (Business Weekly, 12 November) No timetable was given…

October trade, output figures illustrate China's strong growth
China's strong export growth boosted the country's trade surplus to USD 4.75 billion in October, more than double the previous month. Both exports, up 31.5% on the year to USD 29.95 billion, and imports, up 33% to USD 25.2 billion, beat consensus forecasts. China's industrial output grew by a faster-than-expected 14.2%, bolstering expectations that the expansion in GDP will hit 8% in 2002. (WSJ, 12 November)

China injects CNY 260 billion in "Go West" campaign in the last 3 years
The central government has injected CNY 260 billion into developing China's vast western areas in the last three years. Of the total, about CNY 200 billion were allocated for infrastructure, CNY 50 billion for environmental protection, while over CNY 10 billion went to social undertakings. In addition, CNY 160 billion, or over one-third of the long-term state treasury bonds was used for western development. The central government also transferred CNY 300 billion of payment to the western areas. Moreover, outstanding loans from financial institutions in the western region increased by more than CNY 600 billion in the three years. (People's Daily, 13 November)

China Re shapes up for competition
China Reinsurance Company, which has a near monopoly on the mainland market, will undergo a major restructuring into a holding company to boost its competitiveness ahead of sector deregulation. The firm will lure foreign and domestic investors to set up separate subsidiaries for the reinsurance of life and non-life policies. (SCMP, 14 November)

Business

Chinese portals near profitability, boosted by text-message services
After losing money for years, China's three main Internet portals are showing improved financial health and are poised to achieve consistent profitability. The improving financial performance of the portals has boosted their share price over the past few months. SMS-based services are where the growth is coming from for this industry. (Dow Jones Newswires, 6 November)

Courier firms settle dispute with China's postal authority
The world's four major express-delivery companies have settled a dispute over the Chinese post office's attempt to limit their operations in China, as they agreed to accept a new licensing system. The Chinese cabinet intervened in the dispute in July, apparently worried about the political damage of violating WTO commitments. (AP, 8 November)

Honda gets China's approval for majority stake in venture
Honda Motor Corp. has received approval to take a majority stake in a new auto joint venture. The approval marks the first time a foreign company has been given control over a joint-venture auto-manufacturing company. The JV in Guangdong has an initial production target of 50'000 sedans a year. The plant's entire output will be exported. (Dow Jones, 14 November)

Advertising booms
Among a worldwide recession in the advertising business, ad expenditure in China was up 16% last year. Total ad spend was USD 11 billion, and is expected to grow in excess of USD 14 billion in 2002. Strong spenders are pharmaceuticals and household appliances. Telecom, tonics & confectionery are not far behind. (Business Week, 12 November)

Airlines to gain more freedom over ticket sales
A new pricing policy from China's civil aviation administrator will give domestic airlines more freedom over ticket sales within about 12 months. The move will allow airlines to offer up to a 40% discount on domestic fares, double that of the existing baseline of 20%. Conversely, demand could push fares up by 40% of the base price. (China Daily, 14 November)

Continued rapid growth predicted for China's tourism industry
In spite of the global downturn in the industry, an annual growth rate of about 10% for the next few years has been forecasted for China's tourism industry. By the end of this year, 780 million domestic tourists will have traveled within China, generating revenue of CNY 385 billion. The tourism industry has played a vital role in increasing consumption, reducing poverty and creating job opportunities. In addition, the industry has received an influx of overseas capital in the last two years, with 11 Sino-foreign travel agencies established by the end of August 2002. (China Daily, 14 November)

China tipped as world's fifth largest drug market by 2010
China is expected to become the fifth largest drug market in the world by 2010, according to predictions by Chinese and foreign pharmaceutical experts. China's medicines market is expected to grow at an annual rate of 6-8% in the next few years. With its aging population, the demand for a range of drugs will grow every year. China is currently ranked 7th in the world in terms of medicines consumption with earnings from pharmaceutical sales topping USD 6.8 billion in 2000. (People's Daily, 17 November)

Energy

Yangtze River Three Gorges stopped from flow
With the closure of the man-made diversion canal completed at the Three Gorges Project, the Yangtze is fully stopped from natural flow at the famed Three Gorges. Navigation on the river, temporarily stopped after the closure of the diversion canal, is expected to resume in June next year when the permanent ship lock is put into operation. (People's Daily, 6 November)

China's longest oil pipeline begins trial run
An oil pipeline linking Lanzhou, Chengdu and Chongqing cities has gone into trial operation. The 1'250-km pipeline involves a CNY 4 billion investment. It is one of China's key projects and listed as one of the 12 vital projects for developing western China. The transport volume of the pipeline is expected to reach 3.5 million tons in 2003. (People's Daily, 11 November)

Beijing 2008

Beijing urged to adopt effective ways to curb pollution
Officials with the International Olympic Committee Sport and Environment Commission hailed Beijing's progress in protecting the environment, they also urged it to develop effective ways to protect it even more effectively. (China Daily, 4 November)

Logistics industry will be winner at Olympics
The 2008 Beijing Olympics will generate as much as CNY 43.2 billion for the logistics industry and has seen interest from domestic and international companies. (China Daily, 12 November)

Olympics committee seeks bids for projects
The capital's organising committee for the games set a December 28 deadline for overseas and domestic builders to sign up to bid for seven of the largest projects for the summer games. Hong Kong developers are likely bidders, seeking to expand their mainland business amid a property slump in the SAR. Short-listed candidates will have until next July to submit bids, which will be decided by the end of next year. (Bloomberg, 15 November)

Beijing

Beijing reports two-digit economic growth rate
The GDP of Beijing totaled CNY 243.41 billion in the first ten months of this year, a rise of 10% on a yearly basis. The successful bid for hosting the 2008 Olympic Games has made Beijing an investment hotspot for foreigners. In the first ten months, the city approved 1'161 foreign-funded ventures, 29.9% more than a year earlier. Contractual foreign investment totaled USD 4.44 billion, doubling the figure for the same period last year. (Xinhua, 13 November)

McDonald to open 100 more restaurants in Beijing next year
McDonald's has resolved to close 175 overseas restaurants, reducing 400-600 staff worldwide and withdrawing from three Middle East and Latin American markets. Meanwhile, 100 more restaurants are poised to open in the area of Beijing next year according to original plan. (People's Daily, 13 November)

Shanghai

Overseas investors eye Shanghai's service sector
Of the 1'113 overseas-invested businesses set up in Shanghai between July and September, 636 are engaged in the service trade. China's service industries are set to become a major attraction for overseas investors now that the country has gradually opened up the sector in line with its commitments to the WTO. (People's Daily, 6 November)

Pearl River

Trade fair shows China's export potential in WTO
Despite the slump world economy, the 92nd Chinese Export Commodities Fair reported record attendance and trade volume, showing China's great export potential since it joined the WTO. 135'000 traders from 191 countries or regions participated in the fair, a record number, and trade volume rose 9.6% from last year to USD 18.47 billion. (Xinhua News Agency, 1 November)

Hong Kong named world's freest economy for 9th year
According to this year's Heritage Foundation survey, Hong Kong has retained the top spot as the world's freest economy, closely edging out Singapore. The survey acknowledged that Hong Kong's virtues included a duty-free port, very low barriers to foreign investment, very low level of restrictions in banking and finance, low level of intervention in wages and prices, strong property rights and a low level of black market activity. (People's Daily, 12 November)

Various

Agricultural Bank vice-president sacked on graft suspicion
China's government has removed Agricultural Bank of China Vice-President Zhao Ange from his post as it investigates him for alleged financial irregularities related to his previous position at Bank of China. The move appears to widen the investigation into corruption at Bank of China, which is generally considered the best managed of China's four major state-owned banks. (Dow Jones, 7 November)

Toy-factory workers stage rare strike in southern China
Hundreds of workers at a toy factory in Shenzhen went on strike to protest long hours, but the government intervened to settle the grievance and work was set to resume. The work stoppage at the Korean-invested factory was due to a "misunderstanding between the workers and management," said the director of the plant. The apparent peaceful resolution was a marked contrast to much of the scattered labor protests that have ended in violence by both demonstrators and authorities. (Dow Jones, 13 November)

Markets

A tiny leap forward
From December 1st, some foreign investors may be allowed to invest in the Chinese (A-share) stockmarket. The new scheme ("QFII": qualified foreign institutional investor) is an import from Taiwan. To apply for the special yuan accounts, foreign investors must have at least USD 10 billion in assets under management. Banks must be "in the top 100" globally, and the QFII may buy at most 10% of any Chinese company listed on yuan-denominated stockmarkets. Repatriation will be a nightmare. The barriers are only one reason why international fund managers are not exactly fighting for applications. The other is the peculiar nature of China's market. Only 35% of this capitalisation (about USD 540 billion comprising 1'212 companies) is tradable, since the state-the owner of virtually all listed companies-sits on the rest. Corporate governance is widely acknowledged to be atrocious. And valuations are probably overdone, with an average price/earnings ratio of 40, compared with about 12 for mainland companies listed in Hong Kong. (Economist, 14 November)