CIEC ECONOMIC BRIEF
April 16, 2001
C a t a l o g
China's highest construction authority pledged to open the industry to the outside world in the near future, given that the country's entry into the WTO is approaching. According to the Ministry of Construction's 2001 agenda, branch units, service agencies and construction companies are now required to proceed with their work in line with agreed WTO principles and the bilateral agreements signed with other countries. In the next three to five years, China's construction market will be open to foreign investors, who will be allowed to enter every sector apart from the general planning of cities' to high-level real estate projects. This will give a much needed impetus to the healthy development of the construction sector. The challenges that will face China's construction businesses when the country enters the WTO mean that they have to develop their competence and bid against other companies for more projects on the world market.
According to the Ministry, further housing reform and strengthened management are top priorities this year. One essential aspect of housing reform will be the replacement of the old welfare housing distribution system with a commercialized housing distribution mechanism. Every unit of work and organization in China used to allocate free housing to their employees as a kind of social welfare. The central government now wants housing to be privatized, so that accommodation can be a product on the market just like any other commodity To ensure that every family can afford to buy commercial houses, the Ministry will further emphasize the construction of affordable housing. Affordable housing, mainly targeted at medium and low-income families, is aimed at stimulating domestic demand. The housing sector will pay close attention to actual market demand to ensure that only enough houses are built.
In the area of urban construction and management, projects that help protect the environment and improve transportation will be the main focus. All cities are required to attach importance to water-saving programs and projects that increase green areas. The Ministry is also putting a lot of stress on construction quality. Advanced technologies and information technologies are emphasized. This year, the Ministry will base the development of some cities on information technologies and computer controlled facilities.
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China's securities market opened wider to insurance funds on March 1 as three insurers were given the go-ahead to invest more of their money in securities investment funds, the China Insurance Regulatory Commission (CIRC) announced on March 1. The industry watchdog has decided to allow Ping An Insurance Company of China, New China Life Insurance Company and the Manulife-Sinopec Life Insurance Co to invest all their premium income from unit-linked products in securities funds. Unit-linked products are a new type of life insurance that allow insurance companies to invest their premium income and render returns to policy holders. They have been selling well since their debut at the end of 1999. Before this decision, no more than 30% of these funds could be invested in the securities market -- the remaining 70% was put in the bank, into treasury bonds, corporate bonds and inter-bank loans. This has kept back the profitability of insurance companies.
Industry insiders and experts have been calling for the securities market to open up wider to increase investment returns for life insurers to fend off the mounting payment risks in China's life insurance industry, resulting from a severe imbalance of high nominal rate policies and the low profitability of insurers. Channeling more insurance funds into the stock market would also mean increased risks for the insured, because the stock market is more risky than the present investment channels. It requires insurance companies to possess as much management know-how and expertise as professional fund management companies to ensure proper returns. Some of China's insurance companies already have enough professionals to deal with securities investment. Companies like Ping An have set up their own investment division. Ping An is China's largest shareholding insurance company. New China Life is also a major shareholding life insurer in China, and Manulife-Sinopec is China's first joint venture life insurance company.
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China's investment fund law is to be discussed and voted on by lawmakers late this year or early in 2002 in an effort to offer a legal framework to encourage the growth of China's fledgling fund industries. The draft of the law is scheduled to be submitted to the National People's Congress (NPC) Standing Committee for a first review in August, said Wang Lianzhou, director of the law's drafting group under the NPC Standing Committee. Drafts of the law have been revised four times since late 1999. The latest draft will have three hearings before final approval by the NPC Standing Committee. Each step is expected to take two months, so the process would take six months altogether. If successful, the final debate on the draft of the investment fund law would be in December. Major issues remain unresolved, including whether the law should govern only the securities fund or also regulate the industrial fund, securities fund and venture capital funds. The growth of a mature financial market in overseas markets indicates that the law should include regulations of all types of funds, some experts said. The drafting group is now busy preparing for the NPC's first review. More revisions are likely before this August.
Wang defied speculations that China's first open-end fund, another hot topic in China's stock market, would be kicked off after the formal release of the law. Instead, he said the open-end fund would be governed by regulations of the open-end fund released by the China Securities Regulatory Commission in October. Apart from the open-end fund rules, China passed its first set of rules governing the investment funds in 1991. He predicted that China's first trial open-fund law would be launched in the first half of the year. A lot of companies, including fund management firms and commercial banks, have prepared diligently, and they are now waiting for final approval from the authorities. To date, China has 10 fund management companies governing the operations of 33 funds, but all these funds are close-end funds. Release of the law would be a great stimulus for development of the funds market in China, because the move would encourage an influx of capital from commercial banks.
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An official from the Department of Foreign Investment of the Ministry of Foreign Trade and Economic Cooperation recently said that the meaning of granting national treatment to foreign investors refers to the situation where treatment extended to foreign investors by the host government should not be less than that given to domestic investors under the same circumstances. However, this does not mean that one country cannot give foreign investors preferential treatment, in accordance with the law. In a country with unsatisfactory investment environment, granting certain preferential treatment to foreign investment is a necessary means to compensate for the inadequacy of the investment environment. From this point of view, preferential policies worked out by developing countries to encourage foreign investment are conducive to enabling them to compete against developed countries for international investment in a fair manner. In fact, many developing countries and even some developed countries grant certain preferential policies to foreign investment.
China is a developing country and its absorption of foreign investment depends on actively expanding opening areas and markets and also improving the investment environment. It also needs a preferential policy guide for industries that the State encourages and strives to develop, in particular, in inland and remote areas. Therefore, after it joins the WTO, China will continue to use the existing favorable policies extended to foreign investment for a fixed period of time. Of course, from the long-term point of view, with the improvement of China's market economic system and investment environment, treatments extended to both domestic and foreign funded enterprises should gradually become the same. In the future China will persist in the policy of giving priority to the absorption of foreign direct investment while borrowing loans from foreign countries or organizations in moderation and will remain cautiously raising funds through issuing securities in order to improve its capability of resisting risks and preventing international financial crisis. China will also improve its related laws, policies and measures to better its investment environment and create conditions for turning foreign investment into direct productivity.
In terms of the opening of financial market, the official stated that China will remain cautious when opening its financial market. The opening of the capital market should have preconditions, that is, the perfection of the financial system and the improvement of the Central Bank's supervision ability, and correspond with the reform of the overall economic system. In terms of exploring the overseas financing market, the Chinese government will continue to utilize Hong Kong's role as a window to international financing, select state-owned enterprises to float shares in Hong Kong, and explore the securities markets of other countries.
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China has clearly defined the qualifications for basic telecom service operators, an official in charge of the Ministry of Information Industry recently disclosed. No operator will be allowed to offer basic telecom services in China until approval has been received from the State Council information industry authorities and an operating license obtained. The basic telecom service refers to providing public network infrastructure, public data transmission and basic voice communications. According to related regulations, the requirements for a basic telecom service operator are: 1. It must be a specialized basic telecom service provider established in accordance with the law; 2. It must have no less than 5l% of its stock rights or shares owned by Chinese investors; 3. It must have a feasibility research report and networking technical solutions; 4. It must have sufficient funds of its own and enough professional backup to carry out operations; 5. It must have sites and corresponding resources to undertake operations; 6. It must have the reputation or the ability to provide clients with long-term services.
It is understood that the State Council information industry authorities should complete the examination and make a decision within l80 days of receipt of the application. During the examination, state security, telecom network security, sustainable utilization of telecom resources, environmental protection and competition on the telecom market should be taken into consideration. In addition, in the light of related State regulations, tender invitation will be adopted to issue basic telecom service operating licenses.
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The Export-Import Bank of China (China Exim Bank), the country's export-oriented policy bank, has decided to increase support for Chinese companies which invest in foreign countries or sell products overseas. The country's impending accession to the WTO means China will become more involved in economic globalization. Export credit will play an increasingly important role during this process. It is predicted that exports of China's machinery, electronics and high-tech products will grow at an annual rate of more than 10% in the coming years. This means Chinese companies will demand more financial support for their exports. China Exim Bank will continue to give key support to large companies which sell their products abroad. It will also help small and medium-sized high-tech companies increase exports. The bank will issue 42 billion yuan (¡ç5.1 billion) in various kinds of loans for Chinese exporters in 2001. By the end of 2001, outstanding loans is expected to total 73.5 billion yuan (¡ç8.9 billion).
While continuing to support the country's export of electronics, machinery and high-tech products, China Exim Bank will focus on providing quality financial services for Chinese companies which invest in foreign countries. The bank will expand loan services to these companies which engage in processing trade or contract projects in foreign countries. The bank will also support Chinese companies to contract projects or engage in resource exploration and manufacturing in countries to which the Chinese Government provides preferential loans. Industrial experts noted that the ¡°going outward" strategy will play an important role in China's economic development and the co-operation between China and foreign countries. The central government has already carried out a series of encouraging policies to support Chinese companies setting up subsidiaries overseas.
China had set up about 6,000 investment companies in 160 countries and regions by the end of 1999, which involved investments of ¡ç7 billion. In 1999 alone, the Chinese Government approved 50 processing trade projects in foreign countries, involving investments of ¡ç258 million from Chinese companies. But China's investment business in foreign countries was still in its initial stage. Chinese companies' overseas investments only accounted for 0.15% of the world's total.
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Northwest China's Ningxia Hui Autonomous Region plans to extend its policy of opening-up, not only to other countries, but also to all the provinces, especially coastal ones, in China. The Region has decided to take effective measures to promote opening up in all areas. At the same time, Ningxia is hoping to attract more overseas investment and advanced technology in the areas of infrastructure, energy, environmental protection, finance, commerce, insurance and tourism.
Rich resources, an improved business climate and steady economic growth have made the Region an attractive place for foreign investment. Ningxia is one of the richest agricultural regions along the Yellow River Basin. Taking advantage of its proximity to the river, the Region has constructed an advanced irrigation network that has made much of its land suitable for farming. Per capita arable land in Ningxia is 0.16 hectares, ranking the fourth in China. It has 2.67 million hectares of natural grassland. And the Region's output and sales volume of wheat, rice, beans and sugar beets take the lead in Northwest China. Ningxia has bounteous natural resources. Proven coal reserves in the Region are 31 billion tons and potential reserves have been estimated at 200 billion tons, ranking the fifth in China. Anthracite produced in Ningxia is renowned throughout the world for its high quality. In addition to all these, the Yellow River also provides the Region with rich hydro-power resources. To date, Ningxia has constructed five large and medium-sized hydro-power and thermal power stations. The total installed capacity of these stations is 2.35 million kilowatts.
But Ningxia isn't just rich in resources. A rich cultural and historical heritage and a beautiful landscape have made Ningxia one of the major tourist attractions in Northwestern China. Among the numerous cultural relics contained in the Region are the Shuidonggou Relic of Pre-history Human Being in Lingwu County, rock paintings in the Helan Mountain and the imperial mausoleum of the Western Xia Dynasty (1038-1227). Ningxia's natural scenic spots like Shahu Lake, Shapotou in Zhongwei, Gunzhongkou in the Helan Mountain, Laolongtan and the Bird Island in Qingtongxia Reservoir are well known throughout the country. Ningxia is the largest dwelling place for China's Muslim population. Mosques built in both the Arabic and ancient Chinese styles can be seen everywhere in the Region.
Ningxia has recently improved its infrastructure. The Baotou-Lanzhou and Baoji-Zhongwei railways and several national highways now connect the Region to other parts of the country. An expressway network that runs through the whole Region is currently under construction. And the newly built Yinchuan Hedong Airport accommodates flights to more than 10 major cities in China. Meanwhile, the Region has built a telecommunications system consisting of an optical fiber transmission network, a digital macro-wave network and a mobile network. Authorities have also made great efforts to improve business climate by stipulating preferential policies, simplifying registration procedures and offering good services. To attract overseas funds, technology and talented workers, the Region has just issued a 17-point regulation. Among its highlights are promises about the gradual opening up of the service sector, preferential royalties on land use and tax cuts or exemptions.
Ningxia's economy has achieved a steady and sustainable stage, laying down a more solid foundation for investors to open business. In 2000, it realized a GDP of 26.2 billion yuan (¡ç3.16 billion), increasing by 9.8% over the previous year. In the foreign trade sector, Ningxia earned ¡ç355 million from exports in 2000. Its products were exported to more than 70 countries and regions. To date, Ningxia has approved 656 foreign-funded projects with a total pledged investment of ¡ç940.9 million and actual investment of ¡ç507.6 million. Foreign investors from more than 30 countries and regions have established 542 businesses in the Region. As China pursues plans to develop its western regions, Ningxia hopes more foreign investors will do businesses there.
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East China's Shandong Province, one of the country's economic powerhouses, generated some 854.3 billion yuan (¡ç103.3 billion) in GDP last year, up 10.5% from the previous year. The province has maintained an annual growth of at least 10% for 10 consecutive years. The double-digit growth was attributed to Shandong's efforts to restructure the economy. Over the last decade, the province has carried out a comprehensive upgrading scheme in its traditional industries of textiles, paper making, machinery and chemicals, bringing nearly half of the province's production lines up to advanced national or international standards. Groups based in Shandong have invested in 86 countries and regions, involving a total investment of ¡ç373 million. By the end of last year, Shandong investors had established 553 enterprises and branches overseas. Haier Group, one of China's key home appliance producers based in Qingdao, leads the province in foreign investment funding 17 programs overseas. Its US-based refrigerator operation, with an investment of ¡ç28.9 million, has become a famous supplier in local US markets.
As agriculture expands, Shandong farmers are paying more attention to foreign tables. More than 170 kinds of local produce have been exported to 165 countries and regions. In 1999 exports brought in ¡ç2.7 billion. From January to August last year, the figure rose to ¡ç2.13 billion, 34.6% higher than the same period the previous year. Export profit greatly motivated overall provincial agriculture. More than 300 breeds and 400 advanced agricultural technologies from other countries have been introduced to the sector over the past five years. In 1999 Yeji Village in Longkou City cooperated with a US firm to graft or plant various pear varieties on their 6,000 mu (400 hectares) of lands. Last year the pears were exported at very good prices. Shandong has set up 270 agricultural products export bases, covering more than 10 million mu (666,667 hectares) among the province's 107 counties. 57% of the exported agricultural products and their processed products are from the bases. To date, more than 1,300 agricultural products processing enterprises have been established in the province, which have introduced Shandong farmers to the world. Some 120 local farmers have reached an annual export value of more than ¡ç1 million. In 1999, ¡ç2.7 billion worth of products were exported, up 17.4% over 1998, covering 23.3% of the total provincial exports. It is expected that the number will surpass ¡ç3 billion in 2000. Exports of vegetables, sea-food, meat, peanuts and processed peanut products lead the country, accounting for 25%, 30%, 40% and 62% of the country's total.
Problems still trouble the sector. Sales of vegetables, fruit and meat outside of the province account for 60% to 70% of the total output. However, in some European countries such as Holland and Denmark, with a much smaller area than Shandong, annual agriculture export value soars to tens of billions or even hundreds of billions of US dollars. With China's pending entry into the WTO, Shandong's agriculture faces both opportunities and challenges. An official from the provincial foreign trade and economic department said Shandong can expect many advantages in developing vegetable and fruit processing and domestic animal raising with the opening to the world market. The province plans to continue developing export agriculture. Shandong is trying to raise the export value of agricultural products for total agricultural production value from the current 8% to 15% by 2005.
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Strong trade figures and industrial reforms will carry the robust economy of Guangzhou, capital of Guangdong Province, through the coming five years. The city vowed to duplicate the double-digit economic growth achieved during the past five years. Guangzhou's GDP reached 238.3 billion yuan (¡ç28.7 billion) last year. The city set a target of annual GDP growth of 12% over the next five years. Per capita GDP is expected to exceed 64,000 yuan (¡ç7,700) by 2005. The information industry may account for at least 15% of GDP in 2005. Other main growth engines will be foreign trade, which exceeded ¡ç23.38 billion last year and has risen 21.7% year-on-year and the lucrative services sector which is expected to soon account for 55% of the GDP. In order to prepare for the impending entry into the WTO, improvement are predicted to take place in the industrial sector, the social security system, the legal system and government administration. In five years, the city aims to cover 35% of its urban areas with parkland, offer at least 10 square meters of parkland for each resident, and control air and water pollution. The focus will move from material benefits to people's living quality. This shows the progress in the administrative ideology of the municipal government. From 1995 to 2000, Guangzhou had taken a lead among China's cities in increasing its GDP by an average annual rate of 13.1%. The city has pumped 61 billion yuan (¡ç7.35 billion) into roads, railways and other city facilities to ease the pressure caused by the ballooning population.
Guangzhou has started a series of initiatives in science and technology. It is renovating its own technological sector diversifying cooperation and exchanges in science and technology fortifying its scientific and technological infrastructure, as well as building up its team of science and technology professionals. And the city has been focusing on new and high-tech industries to make its overall strength in science and technology more powerful. Guangzhou has set up a special zone and several parks in a bid to beef up its high and new technology industry. They include Guangzhou High and New Technology Development Zone, Guangzhou Science Park, Tianhe Science and Technology Park, Nansha 1T Science and Technology Park and the Huanghuagang Information Park. The city's key focus includes information technology, biological technology, new materials, modernization of traditional Chinese medicine, high-tech agriculture and high-tech tertiary industry.
According to its plan, Guangzhou will move ahead of other cities and open seven service trades following China's entry of WTO. Insurance, bank, tourism, legal service, value-added telecom service, basic telecom service and retailing will all be opened. The city will readjust its policies relating to the introduction of foreign investment in foreign trade, open its market wider and the investment environment will be further improved. There will be six major re-adjustments including: 1. lowering the average import tariff by a large margin, gradually to the level of developing countries in two years after China's entry of WTO; 2. reducing import regulation tariff; 3. narrowing the scope of application of the system of active norms and license; 4. gradually opening the right of operation in foreign trade, abolishing the proxy of foreign trade companies, abolishing the application of foreign-funded enterprises for export and the system of foreign exchange balance, and opening the right of operation for 99% of the commodities; 5. enlarging market access to foreign businesses and foreign investment; 6. allowing national treatment for foreign-funded enterprises, and making the foreign trade policy more transparent, and placing the formulation and implementation of the policies under the supervision of the Ministry of Foreign Trade and Economic Cooperation. Following these readjustments, Guangzhou is expected to be opened wider, market access and investment trade will be more liberal. As a result, the city will gradually undertake multinational affairs such as buying and incorporation, as well as joint, cooperative and solely foreign-owned ventures.
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The Changchun Economic and Technological Development Zone (CETDZ) was set up in 1993. Since then, 2.76 billion yuan has been invested, building basic facilities. By the end of 2000, 2,705 domestic and foreign companies had been approved to establish enterprises in the zone. Good infrastructure is a magnet for investors. Many distinguished multinational companies including Pepsi Cola of the United States, Pilkington Company of Britain, Gold lion Group of Malaysia and Chia Tai Group of Thailand have already settled in the zone. Some pillar industries have taken shape, including car parts, electronics, photoelectronics, food processing, biomedicine and building materials. With a total planned area of 30 square kilometers, the zone is located in the southeast part of Changchun, the capital city of Jilin Province, the cradle of China's car industry and the powerhouse of the country's grain production. The zone is 5 kilometers from the city center, 7.9 kilometers from the airport. Adjacent to the Jingyuetan Forest Park in the east and the Yitong River in the west, the zone has two motorways passing through it.
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1. Electronic radiation display technology. Electronic radiation display technology is the combination of micro-electronics, photoelectrons, macro-molecule chemistry, pellicle, material science. Production scale: 1 million square meters per year. Source of raw material:. Home and abroad. Form: Joint venture or cooperation. Total investment: ¡ç3.85 million. Foreign investment preferred: Capital or equipment.
2. Laser medical treatment apparatus. The market of cosmetology has a great prospect. Laser medical treatment and cosmetology have better results compared with some traditional treatment. Production scale: 400 sets per year. Form: Joint venture or cooperation. Total investment: ¡ç3.6 million. Foreign investment preferred: Capital or equipment.
3. Laser processing equipment. The domestic market needs about 100-200 sets of laser processing equipment per year and the demand will dramatically increase in the future. Production scale: 30 sets of laser cutting machine per year. Form; JV or cooperation. Investment: ¡ç3.6 million. Foreign investment preferred: Capital or equipment.
4. Industrial weighing apparatus and weighing sensors. There is a huge market for industrial apparatus. Production scale: 1,000 sets of each kind of weighing apparatus per year and 5,000 weighing sensors per year. Form: Joint venture or cooperation. Total investment: ¡ç5 million. Foreign investment preferred: Capital, technology and equipment.
5. Beef product. The demand for high quality beef products increases rapidly. Production scale: 5,000 tons of beef products per year. Form: Joint venture or cooperation. Total investment: ¡ç6.8 million.
6. Powder metal products. The Chinese automobile market has great potential, providing development opportunities for auto parts manufacturers both at home and abroad. Production scale: Annual sales income of 114 million yuan. Form: Joint venture or cooperation. Total investment: ¡ç10.4 million. Foreign investment preferred: Capital, technology and equipment.
7. Soybeans processing. A production line will be established with the capacity of processing 1,000 tons of soybean per day, including workshops of pretreatment, refined oil, filling and concentrating lecithin. Production scale: 1,000 tons per day. Form: JV or cooperation. Investment: ¡ç12.8 million. Foreign investment preferred: Capital or equipment.
8. D.C. etectromotor. Changchun is one of China's most famous auto industry bases. Important auto manufacturing enterprises FAW and FAW-Volkswagen are located there. D.C. electromotor is an important part of a car. Production scale: Annual output is 500,000 sets. Form: Joint venture or cooperation. Total investment: ¡ç8.3 million.
9. LCD Polaroid. LCD Polaroid, a high-tech product developed in recent years, is the most important part of the LCD panel. Since LCD is small, light and energy efficient, it is widely used for electrical devices, house-hold appliances, office equipment and laptop computers. Production scale: 1 million square-meters LCD Polaroid. Form: JV or cooperation. Investment: ¡ç22.8 million. Foreign investment preferred: Capital, equipment and technology.
10. Biopharmacy. The project aims at making full use of fresh viscera from 1.2 million pigs to produce a variety of high-quality biomedicine, to develop and produce gene-engineering products and to upgrade the production process of traditional Chinese medicine through the application of high technology. Form: Joint venture or cooperation. Total investment: ¡ç81 million. Foreign investment expected: Technology, equipment and capital.
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The Ministry of Railways plans to invest 350 billion yuan (¡ç42 billion) in railway construction during the 10th Five-Year Plan period (2001-05). Cai Qinghua, vice minister of railway said recently that his ministry would build 6,000 kilometers of railways across China during the five years, extending the total network to 75,000 kilometers. The Ministry also plans to pave 3,000-kilometer-long dualline railways, and renovate 5,000-kilometer-long existing lines for electricity-powered trains. Among the 6,000 kilometers of new railways, some 2,000 kilometers would be built in the west. Most of those new railways in the region will be fit for high-speed operation.
The State also plans to renovate 14,000 kilometers of railways for high-speed operation nationwide by the end of 2005. Cai admitted the Ministry still had a 200-billion-yuan (¡ç24 billion) fiscal gap in its budget, but said they would actively pool construction funds through various market measures. An investment of 55 billion yuan (¡ç6.6 billion) had already been pledged on railway construction this year, and 2,183 kilometers of railways are expected to be built in 2001. Based on major cities like Beijing, Shanghai and Guangzhou, a high-speed railway network will be formed over the next five years, and most provincial capital cities in the west will be connected to it. Trains will run at 140 to 160 kilometers an hour along major railways by 2005, and most cities in China would be reachable within 24 hours. The Ministry has arranged 3.5 billion yuan (¡ç420 million) to renovate obsolete routes and upgrade supervision and communication systems next year. China experienced three upgrades to its railway in 1997, 1998, and 2000, when some 10,000 kilometers of track were primed for faster trains. Experts reckon China still has some 10,000 kilometers of railway in need of renovation.
The Ministry plans to invest some 100 billion yuan (¡ç12.1 billion) on railway construction in western China over the next five years. 2,000 kilometers of railways are expected to be added to the existing 16,000 kilometers in western China by 2005. The Ministry indicated that work on the first railway on ¡°the roof of the world"--the Qinghai-Tibet Plateau--is expected to start soon. Details of the plan will be revealed early this year. The Ministry has planned another 27 rail projects in the region, which will make up 40% of the total railway construction nationwide. The central government has decided to accelerate the development of the relatively underdeveloped western parts of the country in the new century. The Ministry will also renovate the existing railway networks there, especially those that connect to Central Asian countries. Main railways connecting Baoji and Lanzhou, Zhuzhou and Liupanshui, Nanjing and Xi'an, Neijiang and Kunming, and Shenmu and Xi'an will be priority projects.
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Hangzhou High-Tech Industry Development Zone is poised to become the most vigorous engine for growth in the next five years in Hangzhou, capital city of Zhejiang Province. About 35% of the newly increased gross domestic product in the 10th Five-Year Plan period (2001-05) in the city will come from the zone. During the period, the zone is expected to witness an average annual growth rate of 40% in total income from technology industry and trade. By 2002, the zone is expected to lead the country's 53 high-tech zone in terms of innovative capability business climate, industrial development, scientific contribution and degree of globalization. Five backbone industries have already been built up including information electronics, biological pharmaceuticals, new materials, integrations of optical-mechanic-electronic technologies and computer and software development.
The zone plans to adopt a series of preferential policies to attract more fortune-seeking business people. Chinese students studying abroad are included in the desired-investors list, and the zone is keeping in close contact with more than 150 such students. Returned students have already invested ¡ç37 million to set up 45 companies in the zone engaged in software development and telecommunications. The firms were expected to generate 2 billion yuan (¡ç240.9 million) in revenue in 2000, accounting for 12% of the zone's total. While seeking to accommodate more firms, the zone will pay more attention to the growth of large enterprises and groups. The number of firms is the base and large firms will be the pillars. To back up its ambitions, the administration committee of the zone has made great efforts to attract high-quality human resources. Among the 20,200 people employed in the zone, 726 have master's degrees and 121 have received doctorates.
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China is expected to become one of the largest flowers and plants providers for the international market in the new century as well as a consumer with huge potential. Statistics from the China Flowers and Plants Industry Association revealed that the planting area for flowers and plants reached 120,000 hectares in 1999, ranking first in the world and hitting a 39.5% increase over that of 1997. Output value and export volume for flowers and plants amounted to 54 billion yuan (¡ç6.51 million) and ¡ç260 million in 1999, 5.6-fold and double the 1997 figures. Experts said, due to the limitation of land resources and pressure of labor costs, several key flower and plant producing nations have slid in recent years, which should inevitably shift manufacturing around the world. The core problem hindering domestic agriculture products' entry into the world market is pollution levels during cultivation. Moreover, based on its comparatively rich labor resources, labor-intensive industries, including flowers and plants, may develop faster after China's expected entry into the WTO.
A group of foreign competitors have already dipped their toes into the domestic market, introducing products with high technology or setting up manufacturing bases. Foreign industrialized producing methods, management skills, advanced technology and understanding of the market threatens domestic firms. Along with rapid development of the domestic economy and improving living conditions, demands for flowers and plants have sharply increased in recent years. Major buyers have changed from organizations to individuals. The small-sized, multi-functional, characterized and simple-planted products are preferred in the market. Though both demand and supply for flowers and plants are increasing, average profits for retailers, wholesalers and manufacturers are slipping. Officials from the Association attributed the decline to the redundant construction of manufacturing bases, the emergence of the Internet and direct sales, the import of high-quality low-cost foreign products as well as the inadequate market survey and analysis. Investors are urged to be cool-headed and the government is expected to formulate a sound and comprehensive development strategy for the industry to prevent ¡°blind expansion."
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Pepsi (China) Investment Co Ltd disclosed recently that it has opened more than 20 joint ventures or cooperative firms in China with a total investment of more than ¡ç300 million. The company is confident of China's economic development prospects and huge market potential and will go on expanding its investment. Known as one of the most successful companies in the world, Pepsi reported a business income of ¡ç20.36 billion in l999, taking the 203rd place among Fortune's 2000 Global 500. Statistics show that the Pepsi-Cola Company invested RMB2.9 billion in China in 1999 with a gross profit of RMB340 million in return. While injecting capital, the company has brought its advanced sales and managerial expertise and made great effort to localize its production. For the purpose, it has helped renovate China's state-owned beverage firms in the past 20 years.
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Volvo Truck Corp said it is negotiating with China National Heavy Truck Corp on establishing its first joint venture in the country to expand its presence in the world's potentially largest truck market. China National Heavy Truck Corp is a medium-size truck maker based in Jinan, Shandong Province. Last year, sales nationwide rose 3.23% to 774,901 trucks from a year earlier. Volvo, the world's second-largest truck maker, is not the only foreign company showing interest in China's huge market potential. Daimler Chrysler AG, the world's No.1 truck maker, and Volkswagen AG reportedly have initiated talks with First Automotive Works Group, the nation's largest truck company in Northeast China's Jilin Province, on setting up joint ventures.
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Sundiro Honda Motorcycle Co Ltd, a joint venture of Japan's Honda Technology Research Company, Hainan Sundiro Motorcycle Co Ltd and Tianjin Motorcycle Group Co Ltd was recently established. The newly formed Sundiro Honda Motorcycle Co Ltd adopted assets regrouping and absorbed Sundiro and all of its affiliates operating motorcycles with Tianjin Honda Motorcycle Co Ltd at the core. The registered capital of the new venture is ¡ç99.565 million and the Chinese and Japanese parties each hold 50% shares. The percentages of Honda, Sundiro and Tianjin Motorcycle Group are 50%, 47.33% and 2.67% respectively. The new company has 3 branches in Hainan, Shanghai, and Tianjin, one sales company and a R£¦D center. As China is about to join the WTO, how to face up to the challenges brought along by the WTO accession is vital to the future development of the industry. The regrouping, in this sense, is not only a combination of a domestic and foreign giant producer in this sector but also a useful exploration for a Chinese enterprise to search for its existence.
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In an attempt to transform itself into a production base of China's state-of the-art printing, Shanghai Printing Group Co Ltd has set up its first joint venture as part of its restructuring program. Shanghai Printing announced recently the establishment of Shanghai Times Sanyin Printing Co Ltd, the 50-50 joint venture between its subsidiary Shanghai No. 3 Printing Co and Singapore-based Times Publishing Ltd. The group said it hopes the new company involving a total investment of l65 million yuan (¡çl9.9 million), will help sharpen its competitive edge and raise its profit. The project's first phase valued at 90 million yuan has been completed. Currently an annual profit of the 75-year-old Shanghai No. 3 is marginal due to lack of cutting-edge technology and equipment, and an outmoded management style. Currently the company is a major producer of integrated circuit telephone cards on the Chinese mainland.
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