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CIEC ECONOMIC
BRIEF
VOL.171
Nov. 12, 2001
C a t a l o g
China's revised version of the Interim Provisions on Guidance for Foreign Investment and the Industrial Catalog Guiding Foreign Investment are expected to be released around the time of the country's accession to the WTO, officials from the Ministry of Foreign Trade and Economic Cooperation said recently. The two documents have been revised in accordance with China's economic situation and promises made for WTO membership. The latest revision mainly involves rescinding or relaxing restrictions on stock options, relaxing restrictions on the requirement that the Chinese side should command the controlling or leading position, and other items closely linked to the country's WTO pledges. China will continue to encourage overseas investment in high-tech and export-oriented enterprises.
The country still has a long way to go in the restructuring of its government networks and in the updating of its thinking patterns before it enters the WTO. A highly efficient and well-coordinated mechanism is the prerequisite for its economic take-off, and in order to accomplish this goal, the construction of a government network is one of the most important things, that is, the construction of an efficient information platform to guide foreign investors, as well as provide information on relevant laws and regulations. The original Interim Provisions on Guidance for Foreign Investment and the Industrial Catalog Guiding Foreign Investment were issued in June 1995, dividing the industries into those to encouraged, allowed, restricted and banned. The latter was revised in late 1997, which encourage foreign investors to expand their range of investment, especially in central and western China.
China's securities authorities released recently regulations establishing an independent director system for listed companies, a major move to improve corporate governance in public firms. The move announced earlier this year but formalized in August, requires all domestically listed companies to hire at least two independent board directors by next June 30. By June 30, 2003, no less than one-third of the boards of directors of listed companies should have independent directors who take no position other than as a board director and have no relationship with the company or its major shareholders that may affect independent and objective decision-making. At least one of the independent directors should be a professional accountant.
It is of key importance for the independent director to maintain a status relatively independent of the shareholders and the management. Independent directors should commit their responsibilities and obligations in the nomination committees and auditing committees of the listed companies. They should also be responsible for the companies' transactions in securities and derivatives. As to qualifications for the nomination of independent directors, scholars from research institutions, university professors and professional managers without business connections with the listed companies can all serve as independent directors of listed companies, but serious training has to be given to them.
A system of independent directors will improve corporate governance, protect the interests of small and medium shareholders and enhance transparency in listed companies. The new regulation came just weeks after a major market scandal worsened long-standing worries about poor corporate governance among China's listed companies. In the new regulation, the independent directors are authorized to submit proposals to assemble shareholders meetings, recruit or dismiss accounting firms, invite in independent auditors and offer independent financial reports apart from their normal duties as board members. They also are free to give independent opinions on major transactions with affiliated institutions, on assignment and payment of the managerial staff and to object in cases where the interests of the smaller shareholders might be hurt.
But economists warn that an independent director system alone cannot make China's wayward listed firms clean up their acts. China still lacks a qualified pool of candidates to be independent directors. In other nations, many of these are company executives, but China's independent directors are often scholars.
Foreign head-hunting firms are allowed to do business in China starting from October 1, opening a new front for overseas business. The prohibition is only being lifted partly with foreign firms required to form joint ventures with domestic counterparts and to have provincial licensing. The new rules are a step by the government to adjust its personnel policy and follow the principles of the WTO, said Hou Jianliang, vice-minister of personnel. Under the rules, the government will approve qualified domestic companies to work with foreign ones in the personnel services field. The government also will intensify its supervision and administration over the employment services market by probing companies found to advertise false information. Unlicensed firms could face fines of up to 30,000 yuan (¡ç3,600).
China's job market is big enough for more players. The ministry's statistics show that more than 3,700 personnel services companies operate in the country. They held more than 10,000 job fairs last year participated by 480,000 organizations and visited by 12 million people. The industry's opening-up will benefit both domestic and foreign head-hunting firms. Hou said he hopes the access of overseas investors to China's personnel sector will bring in advanced management expertise and force domestic companies to improve their services. This will help China create a much better environment for fostering professionals and other badly needed specialists, particularly those having senior professional titles above associate professors. Attracted by China's huge market potential, some overseas job agencies have already begun carrying out business in China without official approval. More are waiting to rush in when it is permitted by law. Some domestic agencies are concerned the foreign firms will run them out of business. Among the fears is the foreign head-hunters who are of the same nationality as foreign firm chiefs may enjoy an advantages in landing contracts.
China will allow foreign companies to set up joint ventures in the domestic railway cargo transportation market from 2002 to 2003 as the first step towards totally opening the business, the Ministry of Railways announced last month. But Chinese firms will hold a majority stake in all joint ventures during the period. Foreign companies will be allowed to control major shares in the joint ventures from 2004 to 2006. After 2006, all the restrictions imposed on foreign firms will be lifted and all companies will compete in a fair and open market. The ministry revealed the plan in October during a national conference for the fourth enhancement of railway transportation since 1997. The plan follows China's promise to open the market to foreign companies after it joins the WTO.
Currently, railway transportation is one of the most tightly controlled sectors in China. The ministry has had a monopoly over the business for five decades. Railway passenger transportation will not be affected by WTO entry because the Chinese Government did not make any commitments in this regard. Minister Fu Zhihuan said the ministry would separate the cargo and passenger transportation operations as soon as possible in preparation for opening the cargo division to foreign investors. The ministry must quickly reform the cargo sector according to the rules of the game in a market-driven economy, although there is a five-year buffer period before complete opening.
Analysts say the industry is unlikely to get out of its financial straits if the ministry does not loosen restrictions on the market access for non-state investors. The industry saw its first financial balance in 1999 and made a profit of 500 million yuan (¡ç60 million) last year. The ministry itself lacks an adequate mechanism to stimulate competition among its directly controlled companies. The problems are compounded by increasing competition from the road and aviation sectors. The railway industry was driven into financial deficits for consecutive years in the past. The ministry has recognized the urgency of the reforms. Fu said the reforms would be based on a program to separate the ownership and management of the domestic railways over the next five years. The ministry would retain ownership of railways and would open the transportation business to non-state investors, especially in some well-developed regions.
The China Insurance Regulatory Commission (CIRC) shall within the year issue regulations on the Administration of Insurance Agencies, regulations on the Administration of Insurance Brokerages, revise the Current Regulations on the Administration of Insurance Loss Assessors, according to an official with the CIRC. It will also formulate and promulgate Regulations on the Administration of Insurance Loss Accessing Companies.
CIRC is stepping up the formulation of regulations for a better monitoring and control of the insurance intermediaries market with the increase of the country's insurance intermediary institutions and the imminent accession of the country to WTO. The CIRC earlier formulated regulations on the supervision and administration of insurance loss assessors and companies that are engaged in insurance as part of their business activities. Its regulations on the administration of insurance agencies and insurance brokerages were formulated in reference to similar regulations of the country's central bank. This is why the regulations on the administration of insurance intermediaries need to be further consolidated and improved.
China's insurance intermediaries market is now in shape. The country now has 43 insurance agencies, 8 insurance brokerages, 5 insurance loss assessing companies, and over 70,000 companies that are engaged in insurance as part of their business activities. The government has instituted a qualifications test system for its insurance intermediary professionals. By the end of last June, about l million people have passed l3 tests for insurance agents, l,900 people have passed 5 tests for insurance brokers; and 800 have passed a test for insurance loss assessors.
China's economy grew by 7.6% during the first three quarters of this year compared with the same time last year, according to the National Bureau of Statistics. Preliminary figures suggest that the country's GDP rose to 6.7 trillion yuan (¡ç810 billion) from January to September. China's economy continued to develop at a fast pace due to a series of policies designed to stimulate domestic demand in light of the global economic slowdown. During the first nine months, fixed asset investment reached 2.1 trillion yuan (¡ç255.7 billion), an increase of 15.8%. Retail sales of consumer goods totaled 2.7 trillion yuan (¡ç322.8 billion), an increase of 10.1% year-on-year. Consumer prices also rose 1% during the first nine months of the year compared with the same time last year. The country's foreign exchange reserves had reached ¡ç195.76 billion by the end of September. In the first three quarters of this year, China's forex reserves increased by ¡ç30.19 billion.
Despite these increases, overall economic growth is slowing. That is partly because the stagnating US economy is having a rippling effect on China and the rest of the world. Since much of the country's goods are exported to the United States, China's export system, in particular, is starting to suffer. China's exports rose 11.3% in the first half of the year, but only 7% when looking at the first three quarters. China's trade surplus amounted to ¡ç13.6 billion, a decrease of ¡ç5.6 billion from the same time last year. And China's third-quarter GDP growth was just 7%, compared with the 7.8% growth it experienced in the second quarter and the whopping 8.1% it recorded in the first quarter.
However, experts remain confident that China will achieve its targeted economic growth rate of 7% for the entire year. The faster growth seen in the first three quarters has laid a solid foundation for achieving that target. The country also will take other measures to reach that goal, including raising civil servants¬ð salaries to encourage domestic demand in the fourth quarter of this year.
The l5 energy projects include project for transferring the operation rights of the Yangzonghai Power Plant in Yunnan; projects of the Zhouba Hydropower Station in Sichuan, of the Diandong Power Plant in Yunnan, of the Xigu gas power plant in Gansu; a project for the third phase expansion of the Hami No.2 Power Plant in Xinjiang, a coalbed methane development project in the Huainan Mineral Area in Anhui, a crude coal development project of the Linhu Coal Mine in Guizhou, and a coal indirect liquefying project in Ningxia.
The 79 raw materials engineering projects include a light cold-rolled sheet project of the Baotou Iron and Steel Plant in Inner Mongolia, a straight hidden arc welding steel pipe construction project in BaoSteel in Shanghai, a light hot-rolled sheet project in Jiangsu, the first phase construction project of the Baima mine in Sichuan, the phosphorus ore project in Guizhou, the epoxy resin project in Tianjin, the acetal project in Shanxi, the acetic ethylene project in Heilongjiang, the butyl rubber project in Jiangsu, the application project of organic silicon in Jiangxi, an acetate project in Shaanxi, an acetate project in Gansu, a liquid vinegar project in Xinjiang, the BOPP film production line project of the China National Petroleum and Natural Gas Corporation, the PBT production installation project of Sinopec, the PVC chemical building materials project in Tianjin, an all coated functional glass production line project of the China Yaohua Glass Group, a rare earth development project in Jiangxi, and the second phase continuous construction project of the silver and aluminum plant in Gansu.
The l8 machinery and electronic industry projects include the paper making machine project in Shanghai, the Luoyang Tractor project in Henan, the automotive ABS engineering project in Chongqing, the Shougang TFT liquid crystal display project in Beijing, the plasma display project in Jiangsu, the semiconductor production project in Henan, and the IC post-sealing project of the Guangdong Fenghua Gaoxin Group.
The 3 urban public facilities projects include an environment-friendly garbage cremating power plant in Sichuan, the No. l metro line project in Tianjin, and the Sanwayao sewage treatment project in Chengdu of Sichuan.
The 6 tourism projects include a project for construction of the Guilin Kesite World Fairs Garden in Guangxi, a Guiyang five-star hotel project in Guizhou, an expansion project of the Dongba cultural corridor in Yunnan, the ¡°Chama (Tea and Horse)" ancient road development project in Tibet, the expansion project of Basongcuo tourism zone in Tibet, and an ecological protection project and a project for comprehensive development of Shahu Lake tourism zone in Ningxia.
Northeast China's Heilongjiang Province has been beefing up its economic growth by making full use of its advantageous location, bountiful resources and a solid industrial foundation. In 2000, the province's gross domestic product was 325.5 billion yuan (¡ç39.4 billion), an increase of 8.2% compared with the previous year. The ratio for agriculture, industry and tertiary industry was 10.9:58.6:30.5. In 2000, the province's total export and import volume reached ¡ç2,990 million. Export commodities fell into 4,000 categories. Major exports included soybean, foodstuff, edible oil, timber, petroleum, coal and flax. By the end of last year, Heilongjiang's pledged foreign investment reached ¡ç7.3 billion and actual foreign investment was ¡ç4.7 billion. Business people from 58 countries and regions have invested in the province so far. Last year the province's total industrial output value topped 125.5 billion yuan (¡ç15.2 billion), up 11.8% compared to 1999. That growth rate climbed above the national average for the first time in the past 22 years. Industrial development was given priority in Heilongjiang after the founding of New China, turning the province into one of the country's main industrial bases. In recent years, technological upgrades have helped revitalize the province's traditional industries, which include power, heavy duty machinery, agricultural machinery, machine tools, airplane manufacturing and petrochemicals. Newer industries including information, bio-medicine and building materials are also thriving.
Heilongjiang is the country's largest grain producer. Its soybean export accounts for two-thirds of the country's total. The province's organic food output ranks first in the country. Last year 3.8 million tons of organic food were produced, accounting for 28% of the country's total output. Up to date, 165 of Heilongjiang's agricultural products are certified organic, accounting for 12.1% of the country's total. The province's organically produced food items have gained nationwide recognition. At last year's organic foods trade fairs held in Beijing, Shanghai and Kunming, food producers from Heilongjiang signed a total of 6.3 billion yuan (¡ç761.7 million) in contracts. The province is rich in natural resources. Altogether 110 minerals have been discovered, the reserves of 75 proved and 39 explored. Boasting a total area of 456,000 square kilometers and a population of 36.9 million, the province also has fertile soil, abundant water supplies, and 4.3 million hectares of grassland.
The province's forest coverage of 42% ranks the first in the country. It has a wide range of fauna. Sixteen species are on the state's first class list of protected animals, including Manchurian tigers, red-crowned cranes and white cranes. Heilongjiang is also home to 57 second class species. The province has rich human resources and a strong scientific research tradition. Heilongjiang boasts 902 research institutes and 37 institutes of higher learning. Harbin Institute of Technology is one of the country's most prestigious universities, conducting top research in a wide range of sectors including shipbuilding, welding and robotics. In addition, Heilongjiang is one of China's top tourist destinations in winter. An ice festival in Harbin, the provincial capital, attracts thousands with elaborate ice and snow sculptures, ice skating and skiing. In 2000, the province received 552,000 overseas visitors, an increase of 40% compared with 1999. Last year the tourism industry saw turnover of 12.1 billion yuan (¡ç1.5 billion), an increase of 20.3% over 1999. In an attempt to maintain high economic growth, the province has been taking measures to improve its investment environment. A series of policies aimed at protecting investors' legitimate rights have been outlined and promulgated. Examination and approval procedures have been greatly simplified.
1. Telemetering system. The system has a wide application in heating, water supply and gas networks and environmental monitoring. Investment: 41.5 million yuan (¡ç5 million). Form: Joint venture or co-operation.
2. Meridian tires with annual production of 700,000 meridian tires for heavy duty trucks and 2 million tires for buses and cars. Total investment: 1.8 billion yuan (¡ç217.6 million).
3. Development of Chinese medicine. The annual production and processing capacity will be improved. Investment: 16.9 million yuan (¡ç2 million). Form: Joint venture.
4. Pills to alleviate harm from drinking alcohol. The pills, made from extractions of plants, help remove alcohol from the body and thus minimize the harm to the liver. Investment: 9.1 million yuan (¡ç1.1 million). Form: Joint venture or cooperation.
5. Harbin International Convention, Exhibition and Sports Center. The center will be the largest in the province. Investment: 2 billion yuan (¡ç241.8 million). Form: Joint venture or cooperation.
6. High polymer water absorption resin with annual production of 1,000 tons. Investment: 44.7 million yuan (¡ç5.4 million). Form: Joint venture, cooperation or other forms.
7. Mineral water plant with annual production of 12,000 tons. Investment: 35.9 million yuan (¡ç4.4 million). Form: JV or cooperation.
8. Art paper. The equipment is imported from Sweden, France, the UK and Austria. Investment: 1.9 billion yuan (¡ç229.7 million). Form: Joint venture or cooperation.
9. A 63-kilometer highway around the city of Harbin. Investment: 2.14 billion yuan (¡ç258.7 million).
10. Expansion of a highway from Jiamusi to Harbin. Investment: 3.1 billion yuan (¡ç374.8 million). Form: Cooperation or BOT.
11. The first phase of a 24.6-kilometer subway. Investment: 9.96 billion yuan (¡ç1.2 billion). Form: Joint venture or cooperation.
12. The second phase of the Yabuli Skiing Center. The ski runs will be increased to 20 and five cables will be newly built. Investment: 5.64 billion yuan (¡ç681,9 million).
13. The second phase of the Erlongshan Ski Field. The field will be built in accordance with the international standards. Investment: l40.8 mil-lion yuan (¡çl7 million). Form: Joint venture or cooperation.
14. Liquidized coal. The annual processing capacity will be 2.85 million tons, and 1 million tons of diesel oil and gasoline will be produced per year. Investment: 9.4 billion yuan (¡çl.1 billion). Form: Joint venture or cooperation.
15. Harbin International Convention, Exhibition and Sports Center. The center will be the largest in the province. Investment: 2 billion yuan (¡ç241.8 million). Form: Joint venture or cooperation.
East China's Shandong Province is sparing no effort to introduce more foreign capital into its high-tech industries in an effort to improve its industrial structure and promote the development of its export-oriented economy. The provincial government has set up a database for foreign cooperation on high-tech projects that lists firms involved in sectors including information technology, bionology, electronics and machinery, new materials and ocean resources exploration. To date, related governmental departments are selecting a series of specific projects from the database to attract overseas investors. The projects focus on the innovation of traditional industries, including the textile, machinery, building materials and chemical sectors.
The campaign is taking advantage of the province's strength as a traditional light industry base. Foreign investment will enhance the technological level of such sectors. The province is encouraging international companies to set up joint ventures and cooperative businesses with domestic research and development institutes in Shandong. Local companies are urged to absorb and utilize the technology and management know-how of foreign firms.
So far, 136 key enterprises in Shandong, most of which are state-owned companies and high-tech enterprises, have released details of their cooperation initiatives and projects. Shandong's modern agriculture and aquatic industries will also be key fields for the foreign high-tech investment. Foreign funds will be mainly pooled into the processing of agricultural and aquatic products, agricultural industrialization and the development of the aquaculture industry. The rich aquatic resources of the province are expected to be explored to guarantee their long-term development. In recent years, a group of economic and technological development zones have been set up in Shandong, which have contributed to the province's high-tech development. So far, the zones have helped centralize talents, facilities and capital resources.
Chengdu is located in the hinterland of the West Sichuan Plain and is the capital of Sichuan Province. It is an historically and culturally famous city. In 1999, the State Council designated Chengdu as an important and central city in Southwest China. Its area covers 12,300 square kilometers and its population is over 10 million. Since China adopted reform and open policies in the late 1970s, Chengdu has undergone tremendous changes in terms of its economic growth, social undertakings and its general improvement in living standards.
During the Ninth Five-Year Plan period (1996-2000), Chengdu made breakthroughs in its opening to the outside world and in its drive to modernize itself. In 2000, the city's gross domestic product was 131 billion yuan (¡ç16 billion), with an annual growth rate of 10.8%. With the proportion of its agriculture, industry and service sector adjusted to 9.5:44.9:45.6 at the end of 2000 from 14.6:43.4:42 at the end of 1995, the city's industrial structure is shifting. The socialist market economy system has taken shape in the city and the fundamental role of the market in distribution of resources has been reinforced. The city has made remarkable achievements in infrastructure, energy, transportation and telecommunications, which have all been greatly mitigated. As a metropolis in western China and the State-designated center of science, technology, commerce, trade, finance, transportation and communications in Southwest China, Chengdu has geographical, economic, scientific, technological and market advantages.
Chengdu is a good place to invest. It has been listed amongst China's top 40 cities in terms of its investment environment. The city has three State-level and two provincial-level development zones. During the Ninth Five-Year Plan period (1996-2000), it introduced a total of ¡ç828 million in foreign investment, up 58% over the Eighth Five-Year Plan (1991-95). An increasing number of foreign-funded, large projects and enterprises have set up businesses in Chengdu. Around 500 firms including Toyota have invested in the city and have set-up more than 60 representative offices. In the new century, Chengdu hopes to grasp the opportunity of working with western development, so that it can turn itself into a hot spot arousing both domestic and international interest. To achieve the goal, Chengdu has mapped out a development plan, aimed at building itself into a strategic modern city within 10 years.
Chengdu has formulated its goal for the 10th Five-Year Plan (2001-2005): the annual average growth rate of its GDP surpasses 10%. In 2005, its per capita GDP should reach ¡ç2,500, the proportion of agriculture, industry and service sectors will be adjusted to 7:45.5:47.5, and the urbanization level will surpass 38%. The urban comprehensive services will be enhanced and environment better protected and the framework of a modern city will begin to take shape. Local people will be better off. Chengdu is a dynamic city. With its long history, rich cultural heritage, good ecological environment and scientific and technological environment as well as its tourism resources, Chengdu is a good place for both investors and tourists.
PetroChina, China's largest oil producer, is expected to offer scores of blocks for oil and gas exploration and development for foreign cooper-ation soon. Zhang Xiangning, an official from PetroChina's Foreign Co-operation Administration Department, said on September 20, the company will offer 18 blocks in North China's Ordos Basin, and Northeast China's Songliao Basin for cooperative exploitation. This is the first time for China to offer so many blocks for foreign cooperation on the Chinese soil. And along with 23 pockets that are already under negotiation with foreign companies, the potential production of these areas is expected to account for 20% of the company's total production.
According to Zhang, the 18 blocks will be offered for public bidding in one or two months. Among these blocks, one is for risk exploration cooperation in which foreign companies will share all the exploration risks and share the discoveries with PetroChina in case of any commercial findings. The remaining blocks include three for gas development, 11 for oil development, and three for production improvement. The opening-up of new blocks is consistent with China's call for speed-up of domestic oil and gas production, which is listed high in the nation's development plan for the next five years. China imported 70 million tons of oil last year. It is predicted that half of the nation's consumption will be imports in not a remote future. To date, PetroChina has signed 49 oil contracts with oil companies from 49 countries and regions. This time, it will be different. Foreign companies will enjoy lots of preferential policies. Earlier on September 17, Zeng Peiyan, minister of the State Development Planning Commission, said foreign companies that invest in the oil industry in the western areas would enjoy a preferential tax of 15%, as against the normal rate of 30%.
The full support of government and enticing customs incentive policies have led to China's export processing zones (EPZs) taking shape and they are now expected to contribute to the growth of the country's imports and exports. A total of 17 export processing zones were approved by the State Council during the past years in an attempt to attract foreign investment and expand the country's exports. All of them are located in economic and technological development zones nationwide. They are Jiangsu Kunshan EPZ, Shanghai Songjiang EPZ, Shanghai Jinqiao EPZ, Shandong Weihai EPZ, Shandong Yantai EPZ, Jiangsu Suzhou Industrial Park EPZ, Jilin Huichun EPZ, Guangdong Guangzhou EPZ, Guangdong Shenzhen EPZ, Liaoning Dalian EPZ, Zhejiang Hangzhou EPZ, Beijing Tianzhu EPZ, Hubei Wuhan EPZ, Sichuan Chengdu EPZ, Tianjin EPZ, Fujian Xiamen EPZ and Chongqing EPZ.
Fourteen of them are already in operation and have attracted ¡ç1.65 billion so far, said recently Zhao Guanghua, Minister of the General Administration of Customs. These EPZs have experienced fast development during the past years and this lays sound foundations for a much prosperous future. They contribute ¡ç1.5 billion to the country's exports this year. In Beijing Tianzhu EPZ, companies from Japan and Switzerland have set up plants with an investment of ¡ç300 million. In the next three years. 30 to 50 companies are expected to come to the zone with an investment of ¡ç500 million. Production will reach ¡ç1.5 billion, two-thirds of which will be exported. Enjoying preferential policies and quick and convenient clearance, the EPZs have attracted large amount of overseas investment.
These EPZs are enjoying the following major preferential policies:
1. Import tariff and circulating tax exemption. Machinery equipment, molding and spare parts used in production are exempt; machinery equipment, construction materials used in production infrastructure and office supplies are also exempt.
2. Value added tax is exempt for shipment abroad of the finished products.
3. Raw materials are exempt.
4. Goods moving between the EPZ and other countries are exempt from quotas or licenses unless otherwise stipulated by existing laws and rules.
5. Raw materials and semi-products can be transferred and traded within the EPZ freely.
6. Rebates on export duty.
7. Flexible foreign exchange management.
The General Administration of Customs also simplified clearance procedures to make it more convenient for companies in the EPZs to import and export. According to the present laws, declarations, examinations and checks are made only once. The computers in the EPZs are linked with the customs network. The processing trade is significant to the foreign trade of the country. In the first seven months of this year, imports and exports reached a total of ¡ç284.8 billion-- nearly half generated by the processing trade.
China has become one of the fastest growing medicine markets In the world. With the natural growth of the population and the sustained growth of the national economy, the medicine industry in the country will enjoy consistent and rapid growth. It's predicted that in the 10th Five-Year Plan period (2001-05), demand for medicines in the country will rise at an annual rate of around l2%. At present, China has over 6,300 medicine producers and more than l7,000 related enterprises.
However, the industry can by no means be considered as optimistic. For 1. Among the numerous medicine producers, only 314 are in large-scale, and all the rest are small and medium ones with poor efficiency. Total profit of all of the producers can barely match that of a single foreign pharmaceutical giant. For 2. The industry is marred by heavy duplicated low-level productions. For example, over 20 producers have been approved to engage in the production of interferon, more than 10 in EPO and 9 in Il-2. But in the case of EPO, a single factory in Shenyang of Liaoning province can produce the whole part demanded by the country in all. For 3. Little financial input in research and development has resulted in the lack of ability to create new products. In 2000, R£¦D spending by the world's l0 largest pharmaceutical corporations accounted for 169.91% of their earnings. In China, however, such spending for one medicine producer does not exceed 3%, and in some cases, it is as low as 0.5% to l.0%. For 4. Overall quality of the medicine producers remains low, and most of them have not yet passed GMP (good management practice) and GSP (good supply practice) certifications. Six related ministries have released a joint document to regulate and standardize the medicine market. This will force most part of the producers to face a live or death test. The general result will likely lead to large-scale mergers, regroupings, acquisitions and bankruptcies in the industry, which is expected to bring about a restructuring to the industry in the long run.
China's chemical medicines have been gone an imitating road. In the past five decades, 99% of the more than 3,000 western medicines the country produced were imitations. Of the 837 western medicines produced in recent years, 97.4% were imitations. In the wake of China's WTO accession, imitated medicines will be subject to certain restrictions and the further decrease in tariffs will lead to more imported western medicines on the domestic market. At present, some medicinal ingredients become China's strategic export items to command relatively strong competitiveness on the international market in terms of cost. Therefore, China will continue to give priority to their development. Some producers that produce medicinal ingredients, such as the Harbin Pharmaceutical Group Company Ltd, the Shandong Lukang Pharmaceutical Group Company Ltd, the North China Pharmaceuticals Corporation and the Shijiazhuang Pharmaceutical Group Company Ltd, will continue to enjoy a certain degree of advantages in their sizes.
China's bio-technology started quite late, but it has been growing quite rapidly. Of the more than 40 kinds of bio-engineered medicines in the world, China can now produce 12 kinds. On the market, bio-medicines are the most likely to work as a hot speculated item. According to forecasts, China's sale of key medicine equipments and instruments will also witness a rising trend in the next five years. The country's annual sale of medical instruments has reached RMB54.8 billion, in which about RMB10 billion was from high-tech equipment. The sum is still rising at an annual rate of l4%. From the perspective of future development of medical equipment in the world, disposable medical devices, catheter-type devices, function recovery auxiliary devices, lazer devices and chemically synthesized compounds are expected to become new areas of growth for China's medicine industry.
German Electronic giant Siemens won a contract recently from Sichuan Telecom, the local branch of China Telecom, the major fixed-line carrier. According to the contract, Siemens will be the major equipment supplier for the construction of broadband network of Sichuan Telecom. The project will cover 19 cities in the province and become the biggest transmission network in the region. Siemens plans to further increase its investment in China. Siemens mobile phone controls 13% of shares in the Chinese market and is amongst the top three team.
ABB, global technology and engineering company, recently reached an agreement with the Xiamen State Assets Investment Company on acquiring 80% of the shares in the Xiamen Electrical Controlgear Factory, announced ABB in a statement. The acquisition further enhanced ABB's position as a top performer in China's medium voltage switchgear market by further expanding its product portfolio. The newly acquired company will concentrate on the production of outdoor equipment for domestic consumption and export to Southeast Asia.
Canada-based Nortel Networks announced recently that it would supply a new high-speed transmission backbone for China Telecom in central China's Hubei Province, which will provide a solution to the bottle-neck problem in data access and transmission that lnternet users in this area are currently experiencing. The province-wide new high-speed transmission backbone of Hubei, which is worth ¡ç7 million, uses the advanced Nortel Networks 10G (gigabits) network optical solution. With a total length of 1,100 kilometers, the new network will cover 13 cities and countryside towns in Hubei Province.
China's first heavy-duty
truck joint venture is expected to receive government approval as early
as the end of this year. The negotiation between the company and Volvo to
establish the joint venture is going on smoothly and, according to the current
procedure, it hopes to get ap-proval by the year's end. Attempts to set
up the JV were stalled last year when the company experienced a financial
crisis. Negotiations did not resume until the company restructured and cleaned
up its heavy debts earlier this year. The joint venture, worth ¡ç200 million,
is expected to produce 2,000 heavy-duty trucks annually and expand annual
production to about 5,000 within 10 years. The JV will produce Volvo tractor-trailers
and heavy duty trucks with engines larger than 12 liters. The project aims
to sell its products on the domestic market and export to the Southeast
Asian countries as well. Other competitors, such as Dongfeng Motor and Beiqi
Futian Vehicle, are also negotiating with foreign giants to set up joint
ventures producing heavy-duty trucks.
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