China remains key to multinationals' future strategy

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Last updated at: (Beijing Time) Thursday, January 15, 2004

China remains key to multinationals' future strategy

China has taken considerable steps in the past two years to honour its commitments to the World Trade Organization (WTO). In fulfilling its promises to the world trade body, China opened more markets and increased imports, providing enormous business opportunities for the world. Multinationals have agreed that China has become and will remain the key to multinationals' future development strategies.

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Premier Wen visits General Electric Company

Significant increase in level of "transparency"

China's market is opening up to foreign companies faster than changes in rules and regulations may suggest, according to Steve Schneider, chairman and chief executive officer of GE China, a unit of the US industrial and financial conglomerate the General Electric Company.

The bureaucratic machinery is often seen to be moving too slowly in certain areas of market opening in accordance with China's WTO commitments . But "the WTO commitment is a culture, the willingness to open to the outside,"Schneider says. "It's the spirit that counts,"he says. That spirit is prevalent in many provinces, cities and counties throughout the country, he says.

Such openness has been manifested in many areas in many different ways of which "transparency"is considered to be among the most notable by Schneider. He explains that there has been a significant increase in the level of "transparency"in the way business is done in China. This "transparency of process"has helped greatly in minimizing the uncertainties and risks in operations as simple as moving goods from one location in China to another, Schneider says.

Undoubtedly, China has taken concrete action in opening its market to foreign participation, especially in the industrial, trade, energy and distribution sectors, Schneider says. The opening of the financial markets is, understandably, taking a bit longer as the Chinese banking sector is working hard to solve bad debt problems.

Looking ahead, Schneider says the company's strategy for 2004 is to build on and expedite the development in the past couple of years when it has greatly expanded its presence in China through joint ventures and new acquisitions.

"Many people have suggested that the opening (of China's financial sector) should be faster,"he says. "But we don't agree because we understand that if the government is moving too fast with the opening, the market can hardly handle the impact."

Despite the slow pace of the opening, GE has already gained a foothold in China's financial market through its involvement in the disposal of non-performing loans. "We are here at the right pace, and we are patient,"Schneider says. "It is the long-term commitment not the one-time investment."

"Do our utmost to safeguard our leadership"

FAW-Volkswagen turns out one million cars

Volkswagen China has shifted into top gear in the race to meet the seemingly insatiable demand for new cars in the Chinese market. In an exclusive interview with China Daily, Zhang Suixin, managing director of Volkswagen (China) Investment Co Ltd, says that the rapid growth in the demand for new cars in the past several years has been spectacular.

In 2003, new car sales in China jumped a whopping 80 percent from the previous year to 2 million units, Zhang says.

There is no indication that the car buying fever is losing steam. "China's car market is in disorder and I expect the new governmental policy for the industry will make it orderly," Zhang says.

"However, we will do our utmost to safeguard our leadership in China in the coming years amid fierce competition and we have confidence in our business for the long term," Zhang says. "We will depend on increasing our capacity in China, introducing new models and strengthening sales and service networks instead of price wars."

Volkswagen, the first foreign automaker producing cars in China, plans to invest 6 billion euros (US$7.4 billion) to increase its annual production capacity in China to 1.6 million cars within the next five years.

"Volkswagen has made a new product plan for the Chinese market within the next 5 to 10 years," Zhang says of the company that launched its exports to China in 2002.

The company produces around 10 models, such as the Golf, Passat, Polo, Bora and Audi A4, at its two joint ventures with First Automotive Works Corp in Changchun and Shanghai Automotive Industry Corp " two of China's biggest automakers.

"Late birds may be catching a lot more worms"

Ernst Behrens, head of Siemens China Co Ltd, is one of the early pioneers in the China market who feels that being first may have its price. "We have to make sure that we are not being disadvantaged, just because we came earlier than others,'' said Behrens in an interview.

"We are igniting the second stage of our China rocket," said Behrens, who has been doing business in China since 1981 and took the post of Siemens China president in 1997.

"We must keep our early established companies competitive," said the Siemens China boss. He said that in the past years, Siemens China has boosted its stakes in many of its joint ventures to a majority or wholly owned.

It also cut the number of its ventures from 59 in 1999 to about 50 this year.

While consolidating its businesses in China, Siemens also began to build a complete industrial chain.

"We will invest more on high-level technological development facilities," said Behrens.

He said Siemens China would open a software centre this year. Meanwhile, the company will recruit local engineers for its research and development facilities.

The electric and electronic firm will also build a 120-metre-tall China headquarters this year to satisfy the demand for business expansion.

"We see a very strong 2004 coming," said Behrens. He believed that although the telecom business, the biggest one of his company in China, might slow down a little due to China's delay of the launch of the third generation mobile communications system, other business segments would maintain a good momentum.

Wal-Mart opened a store in Nanjing

Wal-Mart makes moves to expand its stores

Having introduced a new shopping style to Chinese consumers in several major cities, Wal-Mart, the US-based leading global chain retailer, is stepping up its expansion plan in 2004 as the opening of the retail market under the WTO commitments gathers momentum.

Bill Zhang, general manager of Beijing Wal-Mart Sam's Club, says that his company's target consumer groups are small- to medium-sized companies and car-owners with above-average income. "We are after a segment of the market that is different from that of our competitors,'' Zhang says. "Their supermarkets are located in the city because they are in the mass-consumer market,'' he adds.

Wal-Mart has adopted a bidding system to ensure that it buys only from domestic suppliers quoting the lowest prices.

Wu Jianzhong, vice-president of Wumei, says that Wal-Mart's clear market orientation is helping it to gain a foothold in the retail business in the country.

Encouraged by the initial success of its stores in Shenzhen, Beijing and 13 other cities, Wal-Mart is planning to vastly increase its outlets thoughout the nation this year and beyond to establish a strong presence before the full opening of the retail market under WTO agreements.

Standard Chartered wants to strengthen foothold

Standard Chartered issues new banknote of HK Dollars

Standard Chartered Bank is making a big push to expand its business on the mainland as many overseas banks, including some of its major Hong Kong competitors, jockey for position in preparation for the opening up of the financial market in 2006.

Although the full opening in accordance to World Trade Organization (WTO) commitments is two years away, bankers predict that the process of liberalization will gather steam in 2004.

In a telephone interview with China Daily recently, Standard Chartered's China Chief Executive Officer (CEO) Martin Fish says his bank, which has already gained a foothold in China's financial market, will seize the opportunities arising from the gradual liberalization process.

It is hoping to upgrade its Guangzhou representative office into a branch in 2004 and is applying for a licence to do renminbi business with companies in Shanghai and Shenzhen, Fish says. It will also apply for a renminbi licence in Beijing, when that is available at the end of 2004 as scheduled.

Mary Kay eyes glossy cosmetics future

The question now perplexing the Dallas-based cosmetics company " which holds a 7-8 percent share of China's 14-billion-yuan (US$1.7-billion) annual cosmetics market " is how it can maintain its rapid growth.

Mary Kay's sales last year in China rose 30 percent from 2002, to reach 1 billion yuan (US$120 million), according to Paul Mak, president of Mary Kay Greater China. "We expect similar high sales growth for 2004," Mak said.

Mary Kay entered China's market in 1998. It has been profitable since 2001, making it one of the few money-making foreign consumer goods vendors in China's tough market.

The business environment in China will improve significantly, as China accelerates its market-opening process in accordance with its commitments to the World Trade Organization, Mak said. "I believe China is serious about meeting those commitments," Mak added.

Mary Kay is most interested in how China will liberalize import restrictions on foreign vendors. That would ensure Mary Kay has access to more suppliers.

China will begin granting trading rights to foreign companies this year, Mak predicted. Before that happens, "we are keeping our China manufacturing plans on hold," he added.

Highlights of China's opening of its foreign trade sector

* Foreign-invested enterprises in China have been allowed to import machinery, equipment and raw materials for self-manufacturing and export their own products since the nation began its reform and opening up process in 1978.

* In September, 1996, China allowed the pilot establishment of Chinese-foreign joint trade companies. Foreign investors should have an annual turnover exceeding US$5 billion, and average annual trade volumes exceeding US$30 million for three consecutive years. And they are required to have established representative offices in China for three years or have invested more than US$30 million in China. Six pilot Sino-foreign joint venture trading firms were established in Shanghai and Shenzhen by March 2003.

* In 1999, private Chinese enterprises were allowed to enter the trade sector.

* In March, 2003, foreign investors with average annual trade volumes exceeding US$30 million for three consecutive years were allowed to apply to establish joint venture trading firms. The annual trade volume requirement was lowered to US$20 million, for three consecutive years, for foreign investors who register their joint ventures in China's central and western regions. Only minority foreign owned trade companies can apply for trading rights.

* In September, 2003, China further lowered the threshold of its foreign trading rights and relaxed controls on right approvals for domestic companies. The bottom line of registered capital for professional foreign trading companies is lowered from 5 million yuan (US$604,000) to 1 million yuan (US$120,000).

* According to WTO commitments, China will grant trading rights to majority foreign owned joint ventures after December 11, 2003.

* Under the commitments, full trading rights will be granted to all enterprises in China after December 11, 2004.

Source: China Daily

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