CIEC ECONOMIC BRIEF
Nov. 30, 1999
C a t a l o g
China will slash 468 trade and inspection fees in an effort to save foreign and Chinese businesses 3 billion yuan ($360 million), according to an official with the State Development Planning Commission. These fees apply to customs, import and export inspections and quarantines covering animals and plants. The purpose of the fee-reduction drive is to reduce enterprises' burden in a practical way, improve China's investment environment and promote the healthy development of foreign trade and social and economic growth.
The Commission and the Ministry of Finance recently released a notice urging government departments at all levels to cut fees. The practice of slashing fees is applied to all enterprises in China, no matter whether they are State-owned, joint ventures or foreign-funded. Enterprises will benefit greatly. For example, registration fees charged by industrial and commercial administrations will be cut 20%. The processing fees for tax-refund on imports will also be slashed 20%. And the State Administration for Entry-Exit Inspection and Quarantine will cut fees for 450 items. The amount of fees for collected will drop by more than 30%. This is the second time the Chinese Government has taken measures to dramatically reduce the burdens of commercial enterprises. The first massive fee cut was initiated at the end of 1997. Twenty-two fees covering communication, securities and futures, agriculture, customs and construction were reduced.
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The State Economic and Trade Commission (SETC) promulgated recently ¡°Interim Regulations on the Assets Reorganization of State-owned Enterprises (SOEs) with Foreign Investment". The new rules define the respective regulation undertakings as the use of foreign direct investment by SOEs to merger other domestic enterprises (merger projects) or supplement them owned current capital (debt service project) and all should be done in line with relevant laws, regulations and principles. SETC will be responsible for guiding, together with other related departments, the SOEs in their use of foreign investment in assets reorganization.
The regulations stipulate authorities and procedures for the examination of project proposals and feasibility reports of the assets reorganizations of SOEs with foreign investment.
1. For projects with total investment of over $100 million, applications should be firstly sent to related departments of the State Council, foreign economic and trade committees of the provinces, autonomous regions and municipalities, and cities with independent planning power, which shall then submit the applications to the State Economic and Trade Commission, and the latter shall add proposals to the application after primary examination, and then turn them to the State Council for final approval.
2. For projects with investment ranging from $30 million to $100 million (including 30 million), applications should be firstly sent to related departments of the State Council, foreign economic and trade committees of the provinces, autonomous regions, municipalities, and cities with independent planning power for primary examination and then in turn be submitted to the State Economic and Trade Commission for final examination and approval.
3. For projects with a total investment of less than $30 million, applications should be sent to related departments of the State Council, foreign economic and trade committees of the provinces, autonomous regions, municipalities, and cities with independent planning power for primary examination and then be in turn submitted to the State Economic and Trade Commission for filing and for which the authority for examination and approval must not be transferred to a lower level.
The regulation stipulate that application documents for a project should include name and address of the project; name, business scope, technical force, assets, and operational status of the SOEs; name, nationality, registration certificate, legal representative; certificate of credit of the foreign investor; content, development goal and orientation of the project; mode, scale, product variety, production capacity, sales orientation of the use of foreign capital; total investment, registered capital, ratio of different investors and sources of funds; operational term; and analysis of operational profits and social profits. For a project that finds difficulty to balance its own foreign currency account, the approval from the State Foreign Exchange Administration and opinions of the enterprise CEOs (main body of investment) should be attached.
The regulations emphasize that in using foreign investment in reorganization of assets of SOEs, there should be a clear statement in the feasibility report to command the foreign investors to put in all the capital due within three months, starting from the granting of the business license. In case delayed payment due to special circumstances approval should be sought after from competent department and 60% of the total capital should be paid up within six months, starting from the granting of business license with the rest be paid up in a year. Foreign investors can only enjoy part of their rights in proportion to the capital paid up before paying the entire sum.
The regulations shall apply to the reorganization of assets with investment from HKSAR, Taiwan and Macao.
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In a bid to boost export and encourage foreign investment to China, the State Administration of Exchange Control (SAEC) recently adopted a package of new preferential measures.
A. As of July 15, 1999, a few measures will be adopted to facilitate borrowings of renminbi (RMB) loans by foreign-funded enterprises (FFEs) under foreign exchange (forex) guarantees of the FFEs.
1. Registrations of contingent debts and forex hypothecations are to be exempted for RMB loans to FFEs under forex guarantees of the enterprises£»
2. No more special requirements on credit ratings of foreign overseas banks as guarantees for borrowings of RMB loans by FFEs and in extending such loans, Chinese banks are given a free hand to judge the risks themselves;
3. Sources of forex as hypothecation of FFEs can be extended from merely forex income under foreign debt accounts to capital fund and forex incomes under current account;
4. RMB loans under guarantee of forex can be used to make up for circulation funds or invest for fixed assets but cannot be used to purchase forex;
5. Longest term of the loans can be extended to 5 years.
B. In terms of account settlements of FFEs, the restriction on turning of FFEs' forex settlement accounts into savings accounts deposits will be lifted to allow funds of FFEs in the forex settlement accounts being deposited in savings deposits accounts.
C. According to dependence administration, powers to approve settlements of forex under capital accounts and purchase of forex for services of principals and interests of loans will be transferred to lower levels.
In addition, in terms of technology transfer, the new measures permit FFEs to arrange for forex payments under technology transfer on the strength of the technology transfer agreements and approval documents related to the establishments of the FFEs.
Related measures to support exports include: As of October 1, 1999, receipt, settlement and accounting of export forex will no longer be examined and all forex incomes of enterprises within Chinese territory can be directly settled or entered into account in designated forex banks and the new measure shall prevail whereas there are any provisions contradicted to the measure in whatever regulations. The putting off of the examinations and approvals of receipt and settlement and entry into account of forex income under current account will add turnovers to capital fund of enterprises to promote import and facilitate on time forex settlements of enterprises within the Chinese territory.
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China will deregulate its silver market in two months. The central government has decided to lift the decades-long ban on free trading and pricing of this metal that had been used for money by the Chinese people for generations. The deregulation is a prelude to a similar market-driven program for gold, said Liu Shan'an, deputy-director of the Gold Economic Development Research Center. The central government has banned free transactions and pricing of gold and silver for decades. Trading and pricing of the metals have been under the monopoly control of the People's Bank of China, the country's central bank.
However, only a few domestic dealers will be granted access to the silver market after the government's deregulation. According to Liu, there is no accurate timetable for the government to open silver and gold markets to overseas traders. Insiders said the pilot silver exchange market will likely be established in a non-ferrous metals wholesale market on January 1,2000, in Shanghai,the flag-ship city in China's market-oriented economy. Only domestic dealers will be allowed to make spot silver transactions using the renminbi (RMB) currency. Silver exports will remain under the control of the central bank. Now, any company that wishes to handle exports of silver are required to get a license from the central bank.
The State Economic and Trade Commission (SETC) will implement a quota system on silver exports beginning next year. Detailed rules for the market's operation are being considered. Since the early days of the People's Republic, the central government has regulated silver production, purchasing and sales in a bid to consolidate the dominance of the RMB in currency circulation. As a result, China experienced a serious silver shortage and had to turn to imports prior to the 1990s. This provided a great incentive for silver production. Statistics indicate that output experienced an annual growth rate of 8.79% from 1983 to 1997 and amounted to 1,300 tons last year.
The market could only absorb 600 tons, which created tremendous surplus the central bank had to deal with. Opening the silver market and boosting demand has become a pressing task. Early in 1996, China opened its silver jewelry market. The demand went up to nearly 800 tons without strong price fluctuations, proving the feasibility of market liberalization. The liberalization plan won the nod of the State Council this March. Insiders said it was resisted by silver producers because they feared they would have no new purchasers. To deal with the uncertainty, the central bank convinced them to enter the market, but continued to purchase their products. This will continue until the end of this year.
According to other experts, China should also establish a futures market for silver which can help producers analyze market trends, adjust prices, and reduce risks and thus benefit current production. They expect the transition from a spot market to a futures market to take two to three years. Domestic and foreign markets should not be exclusive to each other. Otherwise, this could add to the incentive to smuggle or engage in black market transactions. Sources indicate silver prices on the domestic market are 1.17 yuan ($0.14) per gram, compared with 1.32 yuan ($0.16) on the foreign market.
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The Central Economic Working Conference that concluded on November 17 set five top tasks for the year 2000.
1. The government will continue to carry out an active fiscal policy by issuing additional treasury bonds. The major part of government investment will continue to be directed to infrastructure and technological upgrading.
2. The government will take economic restructuring as the focal point of its work, starting from next year. In adjusting industrial structures, China will consolidate primary industry, enhance the secondary industry, and expand tertiary industry. Development of western China will receive strategic priority as the government channels more funds, technology and talent to the region.
3. The government will try to accelerate scientific and technological advancement and improve the country's ability to innovate. It will continue to increase investment in research and development and push for the establishment of a venture capital investment system.
4. The government will strive to reach the targets of a three-year drive to reform State-owned enterprises (SOEs).
5. The government will continue to improve standards of living by raising the income of urban and rural residents, especially low-income people.
The conference said that implementation of China's reform and development policies should continue, focusing on SOEs, economic restructuring, scientific and technological advancement, and the stimulation of domestic demand. Efforts should be made to further stabilize the status of agriculture, readjust agricultural and rural economic structures, and increase farmer incomes. The conference stressed the reform of SOEs should be put at the core of economic work.
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China and United States signed on October 15 a last-minute agreement on market access, which, though it is not the end of the story, will provide real momentum in the process of China's access to the World Trade Organization (WTO). It was praised as a win-win deal. The agreement, if implemented, will create myriad opportunities for American farmers, workers and companies to compete on the Chinese market, and will accelerate China's economic reform as well. China's entry into the WTO will also create a fair trade environment for China, lifting it from the risks of unfair unilateral sanctions from trade partners.
China applied to rejoin WTO's predecessor, GATT, in 1986, seven years since the country practiced its open-door policy. Thirteen years have passed and China has witnessed tremendous changes. The signing of the agreement indicates that China will put forward its reform and opening-up policy, expand mutually beneficial cooperation with other countries, and contribute to building an integrated and open international economic system£®
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The 86th session of the Chinese Export Commodities Fair ended with a boom on October 30 in Guangzhou. Total deals clinched during the 15-day event were worth $12.7 billion, climbing 10% from the 85th session of the fair held in April this year. The deals signed at the fair have laid an initial foundation for China's sustained exports in the coming year.
Of the total transactions, daily necessities and handicrafts made up 36.6%; electronics and household appliances, 17.3%; garments and textile consumer products, 15.3%; hardware and machinery, 12.8%; raw materials and chemical industrial products, 10.2%; and food,medicine, local products and animal by-products, 7.9%. Transactions of household appliances rose 26.5% from the 85th session while information and telecom products were up 22%. Insiders credited the magnitude of deals at the fair partially to the strategy to optimize the structure of the exhibits as well as the mix of participating enterprises.
Manufacturing enterprises and foreign-invested enterprises accounted for some 40% of the total number of exhibitors, and their transactions amounted to 27% of the total, or 6 percentage points higher than the preceding session. And the 11 privately run manufacturing enterprises at the fair concluded deals worth $18.86 million, soaring 122% from the previous session. The bullish momentum of global economic development also contributed to the record-breaking transactions. Besides representatives from 126 multinational chain store enterprises, 91,213 business people from 174 countries and regions worldwide visited the fair. Business people from Asia grew 15.6%; Europe, 21.3%; the United States, 8.3%; and Africa, 29.7%. And transactions concluded with the European Union were worth $3.7 billion, up 5.7% from the 85th session; the United States, $1.9 billion, up 12.2%; Gulf countries, $1.15 billion, up 6.5%; Hong Kong, $1.13 billion, up 2.9%; and Southeast Asian countries, $1.03 billion, up 26.6%.
China's trade grew in October, with a total import and export volume of $32 billion. Statistics released by the General Administration of Customs indicate that the volume, including $18.2 billion of export and $13.8 billion of import, spells a 21.3% increase over the same period last year. October's increase has added China's total foreign trade volume in the first 10 month of the year to $286.6 billion, 10.6% more than the same period last year. By the end of October, China's trade surplus reached $23.8 billion, according to the statistics. October was the second in a row that the country's general exports increased, as a result of higher export rebate rates adopted in the second half of the year. Also on the rise was the export in processing industry, which achieved 6.4% growth in the first 10 months of the year, to reach nearly $89.2 billion.
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Southwest China's Sichuan Province has been strongly recommended by the World Bank to investors. Statistics suggest the World Bank has a point: Investment there has grown despite slumps elsewhere in Asia. In a recent report, the World Bank wrote that the investment environment in western Sichuan almost measures up to that of the Yangtze and Pearl river deltas. It is one of China's hinterland regions that investors should tap first. The World Bank recommends Sichuan because the province boasts abundant natural resources and an improved investment environment.
Located in the upper reaches of the Yangtze River, Sichuan covers 485,000 square kilometers, which is 5.1% of China's total area. It is the country's third most populous province with nearly 85 million people. Since China adopted economic reforms and opening-up policies in the late 1970s, Sichuan has witnessed unprecedented economic development. Its economic potential makes it the most powerful province in western China. From 1995 to 1998, its gross domestic product (GDP) was higher than the national average. Last year, its GDP was 358 billion yuan ($43 billion), 4.5% of the national total and 10th in the country. Sichuan's water resources that can be exploited rank first in China. And the province has 4,500 kinds of medicinal plants, 75% of China's total. Covering 0.7% of China's territory, Sichuan's Panxi region boasts 13% of the country's iron ore, 91% of its titanium, 69% of its vanadium and 82% of its cobalt. The region's rare-earth deposits rank second in China. Striving to create a better investment environment, Sichuan has invested heavily in infrastructure. Highways, railways and air routes have taken shape. At the end of the year, Sichuan will have more than 800 kilometers of expressway, more than any other province. The province has also developed power and telecommunications networks linking the province's major cities. In recent years, Sichuan's power capacity has increased annually by 1 million kilowatts, to reach 12.6 million kilowatts. The Ertan Hydropower Station, with an installed capacity that ranks second in Asia, started generating electricity last year.
Meanwhile, Sichuan has drawn up preferential policies, in line with the central government's policies, to encourage foreign investment in industry. It offers ¡°one-stop" service for foreign investors. In brief, foreign investors can go through all the formalities concerning the approval of their firms in Sichuan within 15 working days£¬the vice-governor said. Sichuan has reduced the number of taxes levied on foreign firms from 900 to 90. To safeguard foreign investors' rights,Sichuan has set up a complaint center. Last year, the center properly handled 69 cases. Also to make life easier for foreign investors, Sichuan has set up international schools and clubs. An international hospital will soon open in Chengdu.
The efforts have paid off. Last year, Sichuan attracted about $1.6 billion in contractual foreign funds. Of that, $1.1 billion was actually spent in the province, up 21% over the previous year. In the first half of this year, contractual foreign funds rose 104% over the same period last year. Foreign cash invested went up 35%.
The province will encourage foreign business people to invest in the following industries and projects:
1. New Agro-technology, comprehensive development of agriculture, key raw materials, energy, transportation and infrastructure.
2. Electronic information, machinery and metallurgy, building materials, brewery and food, chemicals and medicines, tourism.
3. Advanced technologies aimed at improving product function, saving energy and raw materials, and improving enterprise's economic efficiency, new equipment, new materials.
4. High-tech industries such as new energy and biological engineering.
5. Environmental protection industry, new equipment and technology for comprehensive utilization of resources and regenerated resources£®
6. Research and development, education, hospital, health care center.
7. Natural resources in mountainous areas, mineral exploitation encouraged by the State.
8. Reorganization of State-owned firms, technical upgrading for converted military firms.
9. Other products conducive to increases exports.
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The investment environment in North China's Tianjin has improved remarkably during the past two years, according to a recent survey conducted by the Horizon Investigation Group. The random survey covered 549 foreign-invested companies located in 21 investment areas in Tianjin. Compared with the results of a similar survey conducted two years ago, the 1999 survey indicated that five aspects of the investment environment in Tianjin--unreasonable charges and fees, governmental efficiency, labor quality, uprightness of the government, and freedom in market competition--have achieved the most noticeable enhancements.
Although those surveyed said certain aspects of the city's investment environment, such as traffic and environmental conditions, entertainment availability, employee's wage levels and the availability of consulting services have regressed somewhat, these factors accounted for a small part of the overall impression of the investment environment compared to things that have improved, a report from the Horizon Investigation Group said.
67.2% of the investors surveyed feel satisfied with the investment environment in Tianjin. When given an opportunity to reselect an investment site, about 77.6% of those surveyed said they would still choose Tianjin. Most foreign investors have made investments in Tianjin because they are attracted by Tianjin's overall business environment or its advantages in certain fields. Statistics indicate that by the end of June, 12,733 foreign-invested companies had been established in Tianjin, involving $25.02 billion in pledged capital and $11.92 billion in actual input. The surveyed investors reported the performances of their companies were good (32.7%) or ¡°just so-so" (50.5%). Only 3% of those surveyed reported that they plan to reduce their investments. About 50% of the investors said they expected to increase their investments in Tianjin. None of the surveyed enterprises with investment scales ranging from $1 million to $10 million plan to cut back on their investments, but about 60% of them said they expect to expand their enterprises. In the group of enterprises with more than $10 million in investment, only one company reported that it intended to reduce its investment scale, while nearly 70% said they were committed to making larger investments.
Pi Qiansheng, director of the Tianjin Foreign Trade and Economic Co-operation Committee, said the municipal government will continue to employ independent research organizations to conduct surveys on behalf of foreign investors in Tianjin to help investment, management and service sectors truly meet the expectations of investors. He urged authorities in all investment areas to adjust their foreign investment management and service measures to address problems raised in the survey.
The city has seen its imports and exports rise to $18.4 billion in the first nine months of this year with a trade surplus of $2.3 billion. Statistics showed that foreign trade rose 18% over the same period last year. Foreign-funded enterprises increased their trade to $3.7 billion. Showing a remarkable surge, State-run enterprises recorded imports and exports of $9.8 billion. Imports and exports generated from State-run enterprises account for 53% of the city's total foreign trade.
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Among the cities of China, Shanghai is the most favorite for FFEs to set up their representative organs in the country. Quite a part of foreign enterprises have planned to increase their investment in the city in the coming three years. The city has decided to answer global economic challenges by putting the majority of its fixed assets investment into high and new technology industries over the next three years. High and new technology industries including telecommunications, biotechnology and new materials, will get 110 billion yuan $13.25 billion), accounting for 45% of the city's total investment of 240 billion yuan for the 1999-2001 period. The six pillar industries--automobile, steel, petrochemical, biotechnology, home appliances and power--will get 80-90 billion yuan ($9.6-10.8 billion) over the same period.
Shanghai plans to hold a large-scale industry fair every year as an effective way to promote the development of high and new technology industries. The first such fair, Shanghai International Industry Fair, will run from December 13 to 17 in Shanghai Intex Center, and preparations are right on track. The show will highlight the latest products with new and high technology input made by enterprises in Shanghai including: electronics, information, electronic equipment and devices, biomedicine and new materials. Major exhibits are products in the aeronautical,power plant equipment, shipping, automobile, building machinery and biological engineering fields, taking up a 70% share of the total displayed items. Traditional items, such as garments and textiles. will be excluded to allow the fair to present a large gathering of high tech products. High and new technology industry increased its share to 16.48% in 1998, up from 13.8% in 1994 in the city's total industry volume. More than 20,000 products with high and new technology input were developed£®
Heilongjiang offered projects for foreign investment
1. Coke and tar. Content: annual production capacity is 200,000 tons of coke, 8,400 tons of tar, 2,400 tons of crude benzene and 2,463 square meters of charred gas.
2. Activated carbon. Content: annual production capacity is 2,000 tons of activated carbon.
3. Coke and gas. Content: annual production of 400,000 tons of coke, 20,000 tons of tar and 9,225 cubic meters of gas.
4. Linen canvas. Content: annual production of 1 million meters of linen canvas and 3 million gunny bags.
5. Information technology and electronic industry. Content: increased annual production capacity is 400,000 personal computers.
6. Controlling machines. Content: annual production capacity is 4,000 controlling machines.
7. Infrastructure construction. Content: local railway 165 kilometers long.
8. Infrastructure construction. Content: construction of Heilongjiang River Bridge.
9. Infrastructure construction. Content: construction of a 2,500-meter-long, 48-meter-wide runway airport.
10. Infrastructure construction. Content: construction of a 42.7kilometer-long railway from Xiangyangchuan to Tongjiang£®
11. Recreation club. Content: construction of Harbin Qianshoufuo Recreation Club.
12. Power plant. Content: a heat and power plant with installed capacity of 24,000 kilowatts£®
13. Heat and power plant Content: a heat and power plant with an installed capacity of 100,000 kilowatts.
14. Meat processing. Content: breeding 200,000 heads of cattle every year and construction of a 45,000-square-meter stall for oxen.
15. Oil processing. Content: annual processing capacity is 21,600 tons of edible oil, 5,000 tons of protein detached from soybean, 80,000 tons of forage and 700 tons of lecithinum.
16. Protein. Content: annual production capacity is 3,000 tons of protein detached from soybean and 16,500 tons of forage.
17. Corn. Content: annual processing capacity is 200,000 tons of corn; producing 100,000 tons of fruit syrup and 40,000 tons of starch.
18. Cereal. Content: annual processing capacity is 100,000 tons of corn and an annual production capacity is 30,000 tons of alcohol, 30,000 tons of high protein forage and 1,000 tons of corn oil.
19. Alcohol. Content: annual production capacity is 30,000 tons of edible alcohol and 35,000 tons of corn protein.
20. Food and beverage. Content: annual production capacity is 20,000 tons of fresh carrot juice and 5,000 tons of carrot candy£®
21. Food and beverage. Content: annual production capacity is 100,000 tons of mineral water.
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China's construction machinery industry is expected to develop quickly. It is expected to achieve at least 10% annual growth during the next three years. But insiders predict momentum will taper off beginning in 2003 when the government is likely to curtail its massive investment in infrastructural construction. During the initial stage of the 10th Five-Year Plan (2001-2005), China will need about 80 billion yuan ($9.6 billion) of construction machinery to undertake large-scale construction of communications and water conservancy facilities. The central government recently made a decision to issue 60 billion yuan ($7.23 billion) in treasury bonds, more than half of which will be invested in infrastructural construction, the biggest development force in the industry.
Sources said the industry will experience growth of about 30% by the end of this year. During the first half of this year, sales in the industry increased by 36%. The industry still faces some problems, including poor product performance, when compared to imported equipment, and an irrational product mix. Industrial restructuring is under way. The industry has 17 key enterprises, which will be reorganized into 8 to 10 giants in the future. Han Xuesong, vice-chairman with the China National Construction Machinery Association, said the industry will channel 350 million yuan ($42.2 million) into technical upgrading. Exports of new high-tech products are expected to increase by $100 million. Exports from 1995 to 1998 were nearly $1 billion, equaling imports in 1998. The industry lured foreign investment of $7.3 billion from 1981 to 1996.
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Set up in October 1988, the New and High-Tech Development Zone in Changsha, Hunan Province, is a national-level one of its kind. From 1991 to 1998, the zone's annual revenue from technological, industrial and trade sectors soared from RMB100 million to RMB11 billion. Meanwhile, the zone's annual export value rose from $160,000 to $70 million. In 1998, the zone attracted over $50 million of foreign fund. So far, more than 500 enterprises have settled down in the zone.
Changsha New and High-Tech Development zone has taken a way of commercialization, industrialization and internationalization in developing the new and high-tech industry. Among the 500 enterprises in the zone, 473 are listed as new and high-tech enterprises. These enterprises have developed over 700 items of new and high technology, 26 of which have been listed as projects of ¡°National Torch Plan" and 93 of which as projects of ¡°provincial torch plan". Four pillar new and high tech industries have taken shape in the zone. They are the program-controlled machinery industry, the electronic information industry, the new materials industry and the industry of modern biological technology and new and high-tech agriculture.
The Zone has become an important base for transferring, transforming, upgrading and promoting the development of traditional industries to help upgrade some old enterprises by making full use of its advantages in science and technology, talents and equipment in the universities, big units, big institutions and large and medium-sized enterprises in and nearby the zone. The fast development of Changsha New and High-Tech Development Zone is not only a result of the rising of a large amount of new and high-tech enterprises, but also a result of its opening to the outside world and its policy of soliciting foreign investors. In the past decade, the Zone has developed 146 new and high-tech projects and products. It has had over $300 million of contracted overseas funds, 87% of which has been allocated to the zone.
Facing the new century, the Zone has planned to build the Yuelushan High-Tech Garden, a comprehensive industrial base with electronic information industry and bio-medicine industry as the pillar; the Xingsha Industrial High-Tech Garden, a high-tech industrial base led by program-controlled machinery industry; the Mapoling Agricultural High-Tech Garden, a high-tech agricultural base with the stress on developing seeds and seedlings catering to the southern part of China; and the Yuanda High-Tech Garden, a base for developing and producing central air-conditioners with the stress laid on producing lithium bromide direct combustion engines.
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China is expected to become one of the world's largest sanitary ceramics exporters during the next several years. The country plans to export 10% of the sanitary ceramics products it produces annually during the next two or three years, said Ding Weidong, president of China Building and Sanitary Ceramics Association. At present, China produces about 55 million sanitary ceramics pieces annually. Several large sanitary ceramics companies and overseas-funded firms have begun operations in China during the past decade. This has helped improve the quality of China's sanitary ceramics. The country's sanitary ceramics exports grew by an average annual rate of 131.78% in 1995-97. Earnings from exports grew at an average of 71.48% annually.
China exported 2.04 million items of sanitary ceramics valued at $24.17 million last year, up 18.3% and 81.9% when compared to 1997. The country has become a net sanitary ceramics exporter since 1998. During the first eight months of this year, China exported 1.71 million sanitary ceramics products worth $22.47 million, up 29.06% and 54.2% from a year ago. The majority of the sanitary ceramics were sold to the United States, Japan, Hong Kong, Taiwan and England.
China has about 400 sanitary ceramics enterprises, including famous brands such as Toto, American Standard and Huida. However, China still lacks large enterprises. More than 90% of the companies are small. Sanitary ceramics enterprises need to sharpen their competitive edge by forming larger companies. China's sanitary ceramics industry is faced with structural supply difficulties. About 70% of the sanitary ceramics were of low quality, while another 20% were of middle quality. High-grade sanitary ceramics accounted for only 10% of the total. An oversupply in the medium and low-grade sanitary ceramics sector contributed to a price war, which has slashed profit margins. Some sanitary ceramics manufacturers made inferior products to try to balance income and expenditures. This hampered the healthy progress of the industry. China will try to increase the output of high-grade and medium-grade sanitary ceramics to 20% and 50% of the total during the next several years.
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Two British companies have agreed to establish a joint venture to make a $100 million private equity investment in China. CGU plc and Commonwealth Development Corporation (CDC) signed a memo-randum of understanding in October in London to launch the ¡°CGU-CDC Partnership," which will commence operations next year, according to a press release from CGU plc. The joint venture will make direct investment in China through purchasing equity in Chinese enterprises. Under the terms of the memorandum, CGU and CDC agreed to finalize details of the joint venture and its investment policy by April 1, 2000. CGU is the largest insurance group in the United Kingdom while CDC is a leading private equity investor in emerging markets. In September 1998, CDC was granted approval by the UK government to invest in China. In addition, in July this year, both the UK and Chinese governments gave their formal support to CDC's decision to commence operations.
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The International Finance Corporation (IFC) agreed on October 25 to loan $55.6 million to Lafarge Dujiangyan Cement Co Ltd, a Sino-French cement company based in Southwest China's Sichuan Province. The Lafarge Dujiangyan project is the second largest foreign invested project and the largest cement plant in Sichuan.
The loan will encourage more foreign investment in the country's inland areas and close the gap between the east and west regions. The lender is a member of the World Bank Group. A joint venture between Lafarge China Offshore Holding Co Ltd and Dujiangyan Building Materials Corporation, the Sichuan cement plant is expected to be completed by 2001. Investors have put up $158.88 million altogether. By 2001, it will produce 1.24 million tons of cement annually and sell it mainly in Sichuan Province, where the supply of high quality cement now falls short of demands. The factory will apply advanced pollution control technologies to help improve the quality of infrastructure in China's interior provinces.
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China United Coal-bed Methane Corp Ltd and Lowell Petroleum Co of Australia signed a contract in Beijing on November 12 to cooperatively explore coal-bed methane resources in Liulin of Shanxi Province. This is the seventh formal contract between China United and foreign companies since the company was founded in 1996. The contract site, which has an area of 198 square kilometers, is expected to have more than 30 billion cubic meters of coal-bed methane. The signing of the contract indicates that more foreign companies, besides companies from the United States, are interested in seeking China's coal-bed methane resources. The Hedong area (to the east of the Yellow River) will likely become China United's largest coal-bed methane production base, because five out of a total of seven cooperative projects are located there. The site has methane reserves of about 3,000 billion cubic meters. China has so far approved eight coal-bed methane blocks to be opened by ventures with foreign partners. They are in Huainan and Huaibei of Anhui, the east area of Taihang Mountains in North China, and Linxing, Sanjiao, North Sanjiao, Shilou and Liulin areas in Shanxi, and Fengcheng of Jiangxi. Texaco Inc of the United States was the first overseas company to join in the project. It signed a contract with China United on January 8, 1998 to jointly explore coal-bed methane in Huaibei in Auhui.
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US-based Caterpillar, the world's largest engineering construction company with a 1998 global turnover of $21 billion, formally launched a new venture, AsiaTrak, in Tianjin on October 20. A wholly foreignowned company in cooperation with Japan's Itochu and SNT, AsiaTrak is Caterpillar's fifth venture in China. Sources declined to say how the shares would be divided.
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