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Editorial Editor Jamshed Ullah News Editors Summer Wong Ji Long Mike Lincoln Jenny Alvin Research & Analysis Wang Aiguo He Cheng Shi Chengwei leon Ludwig Uzma Zafar
Designing & Layout Asmat Ullah Khan Awais Shehzad Raja Pervaiz Technical Support Sultan Haroon Iqbal Bukhari Co-ordination Sobia Noreen Internet Edition John Nelson Rehmat Chughtai
FM’s amazing move
A
ccording to news reports, China’sForeign Minister Wang Yi has turned to a Hongqi H7 sedan as his official car, instead of using any luxurious foreign
model. The Hongqi H7 sedan, priced at between 299,800 Yuan ($48,950) and 479,800 Yuan, is a newly developed sedan of the First Automobile Works Group Corp, marketed to officials at the ministerial level or above. at a time when China's domestic automobile industry was going relatively weak, the decision by the Chinese Foreign Minister to use local car for his official use appears to be not merely a patriotic move but a bid to promote country’s Auto sector and to restore local and international confidence in abilities and capabilities of Chinese carmakers despite the fact that the Chinese government has already been introducing different ways and means to promote the production of the local Auto industry. it remains a fact that most of China's official cars are foreign made, despite the 2002 Government Procurement Law stipulating that domestic brands should be purchased. In 2012, the Ministry of Industry and Information Technology published an official car procurement manual, which included more than 400 different Chinesemade cars. We believe that the decision that the Chinese FM has taken and is being followed by his other colleagues from the government is an amazing example to be followed by the world leaders to promote their respective local industries. We also believe that such decisions would have a great impact on china’s economy in coming years and it would come as a great booster for the local industry.
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Editor
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in this issue 08, 14 July 2013 04
Cover Story
Beijing to have own real Rubber Duck 06
Go, dance, to get stress relief
China's leaders seem to be bracing for painful therapy in return for sustainable growth, as they are determined to tame liquidity risks rather than pacify cash-strapped banks, which are the major driver of an investment-oriented economy.
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in this issue 09
PBOC ends credit crunch, to go further
3G subscribers top 300 million in China
12
China begins shift to sustainable growth
New Canal a lifeline for energy
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Society
Beijing to have own real Rubber Duck
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“We can show China that the originality and creativity must be supported and also it’s the aim of culture. Without being creative and original, culture and humanity may stay stagnant. So I’m very happy that the Rubber Duck as a catalyst can show to people if you are original, if you are creative and if you have a joyful mind, you will come to create yourself CED Monitoring BEIJING -- Besides the homemade roast duck, Beijing will greet another well-known duck this autumn. Dutch artist, “papa” of the giant yellow Rubber Duck, Florentijin Hofman signed an agreement with Beijing Design Week (BJDW) on the advent of real and original yellow duck in Beijing. As a great gift from BJDW’s guest city Amsterdam, the Rubber Duck will make its Beijing debut in this September. The BJDW organizer said the size of Beijing’s duck may be 10 meters high, shorter than the one showcased in Hong Kong. Another mission of Hofman’s Beijing visit is to find a suitable place to show the duck. Zeng Hui, vice director of BJDW Organizing Committee, said the exhibition site is still under discussion but it may be at the heart of Beijing so duck admirers can have an easy access. Hofman created his first duck in 2007, which is also
the world’s largest rubber duck. Since 2007, several Hofman’s ducks of various sizes have visited 13 cities of 10 countries. Before Beijing, Hong Kong is the first Chinese city that hosts the duck. About eight millions of Hong Kong locals and visitors flocked to Victoria Harbor to view the duck during its one-month stay. An abrupt and dramatic deflation incident of the duck captured more Chinese people’s eyes, thanks to weibo, a twitter-like Chinese service. “I always call it yellow catalyst. It has different meanings and layers and you can all project on it,” said Hofman. The popularity of Hofman’s duck catalyzed an array of duck knockoffs in China. It’s reported that the copycat ducks have appeared in many cities around China such as Tianjin, Hangzhou, Foshan, Wuhu, and Wuxi. “It’s a surprise to me, what happened in Hong
Kong and cheap copies around China. To be honest, I don’t want to put many words about the issue, copies and copycats. The only thing I would like to say is Beijing will get the real, original Rubber Duck,” Hofman responded after signing with BJDW. BJDW said they have made anti-piracy measures for the duck. The organizer said they have confidence to make the rubber duck artist feel resolution and action of Beijing for copyright and creativity protection. “We can show China that the originality and creativity must be supported and also it’s the aim of culture. Without being creative and original, culture and humanity may stay stagnant. So I’m very happy that the Rubber Duck as a catalyst can show to people if you are original, if you are creative and if you have a joyful mind, you will come to create yourself,” said Hofman. 05
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Society
Go, dance, to get stress relief 06
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CED Monitoring GUNANGZHOU-In the Oscar-winning movie Silver Linings Playbook, Pat, a monomaniac who refuses to face the breakup with his ex-wife, and Tiffany, a widow whose life is a mess after her husband's death, heal their wounds by preparing for a dancing competition together. They forget their troubles when they focus on practicing the jumps and lifts. They build up trust and love for each other with silent touches rather than flashy words. Dancing turns out to be a miracle drug for the two mentally ill people. And it also has become a trendy antidote to stress among young Chinese, especially urban female white-collar workers, in the past three years. After a day of exhausting work, they go to "dance therapy" studios, which are usually in or near their cities' central business districts and thus not far from their offices; take off their high heels; and put on sportswear to learn about their own bodies so as to release the emotions locked in the shells. Wang Yuchi is the first dance therapist in Guangzhou, capital of Guangdong province, and has been offering the service at the Sun Flower Counseling Center since 2010. She has given dance therapy courses to about 50 people, each 10-week course carried out among a group of only five or six people. A weekly class begins with participants relaxing their bodies by doing whatever movements they want to do. They are asked to put aside rational thinking and
to just follow what they feel. Then Wang will guide participants to observe and imitate each other's movements and share what they guess their teammates are feeling. "Remarks from others can help a self-restrained person to crack open the body to feel the emotions inside," Wang said. Only when trust is built within a group will Wang start individual case studies. During a case study, the therapist designs movements for a particular participant to follow based on previous in-depth personal interviews in order to put the person in a situation similar to the one where he or she got the emotional scar. The other members in the group surround their teammate to offer a sense of security, holding the person's hand when he or she gets too emotional and thus shakes and tumbles. They also listen to the person baring the old wound. "The team's support is vital for dance therapy's effect," Wang said. "I shut down newcomers outside a group. Otherwise it will harm the trust within the group. And I will suspend the class if any member is absent." Wang said dance therapy is more than stress relief. It can help bridge people's physical movement and mental activity to root out the source of emotional problems. It is also an effective adjunctive therapy for mental illnesses. Tony Zhou, co-founder and CEO of Inspirees Institute of Creative Arts Therapy which offers training programs to professionals in China to help them become dance therapists, points out some common misunderstandings about dance therapy. 07
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Finance
"Some people think that only professional dancers are able to do the course. But dance therapy is not dancing performance. It doesn't require participants to strike a ballet pose. How you move your body is up to you. Self-expression is what matters," Zhou said. On the contrary, some people take dance therapy superficially for the purpose of physical relaxation similar to yoga. "What makes dance therapy special is its combination of art and science. Besides modern dance, it also involves psychotherapy and Laban Movement Analysis," said Zhou, a member of an international advisory board for the UK journal Body, Movement and Dance in Psychotherapy. LMA is a method and language for describing, vi08
sualizing, interpreting and documenting all varieties of human movement. "Dance therapy cures people's emotional problems by bridging their physical movement and mental activity. The inconsistency of the two is the cause of emotional problems." Dance therapist Wang further explains this kind of creative arts therapy with a metaphor: If a person is a tree, then his brain is the crown, reaching out all the time for sunlight and raindrops that can nurture the tree's growth. The roots are the person's emotions closely related to his inner self. What is between the crown and the root is the trunk — the person's body. "A tree won't survive if the trunk, the passageway through which the crown and the roots
exchange the nutrition they've got, is blocked. Dance therapy aims at relaxing the excessive restrictions on a person's body to connect his rational thinking and emotional feeling," Wang said. She added that dance therapy also aims at clearing the "rotted roots", referring to the old wounds that the person ignores. Chinese people's keen interest in dance therapy is also shown in the upsurge of workshops across the country where experts from the US and Europe are invited to teach local dancetherapists-to-be the theories and skills. For example, IICAT scheduled four such workshops and training courses in Beijing, Shanghai and Hong Kong from April 25 to June 16. Faced with fast economic growth and social transitions,
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many Chinese are exhausted keeping up with hectic urban life or feel lost in handling the social changes. Therefore, mental problems are becoming a common health challenge in the country nowadays. "China lacks a well-developed psychotherapy system, so people don't have many options for therapy. They will try on various ways to reduce their pressure, such as yoga and medication. When dance therapy appeared as a new option, they were quickly attracted," Zhou said. Those pioneers who are promoting dance therapy in China are optimistic about its prospects in the country. Hu Shenzhi, founder of Sun Flower Counseling Center, of-
fered Wang the opportunity to carry out dance therapy at his center in 2010 because Hu believed it is a tradition in Chinese culture for people to achieve physical and mental health through moving their body. "The tradition can be seen in tai chi and wuqinxi, a physical exercise that imitates the movements of five animals and is said to be created by noted physician Hua Tuo nearly 2,000 years ago. But at that time, people didn't realize the connection between body movement and mental activity yet," Hu said. Zhou from IICAT points out that dance therapy, if carried out in groups, fits in with Chinese people's need to blend
into society. "Chinese society is suffering a credibility crisis, with people mentally isolating themselves and lacking a sense of belonging," Zhou said. "Divided into groups to undergo dance therapy, patients can learn how to blend into society through learning to blend into the small groups first." The advocate of dance therapy hopes people can see its potential of being applied in a wider range of social groups besides stressed urban white-collars. "For those who have difficulty in verbal communication, for example, autistic children and senile old people, dancing is a better way of self-expression than struggling for words and sentences," Zhou said. 09
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Finance
PBOC ends credit crunch, to go further 10
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SHANGHAI - China's central bank has taken a sharp turn as it has promised to inject money into a temporary liquidity shortage after rejecting banks' pleas for cash over the past two weeks. The move has been interpreted as regulators' decision to end the credit crunch that caused interbank rates to surge to double digits and pounded the stock market into bearish territory. The People's Bank of China (PBOC) has changed its stance, as starving the financial system of cash has been crippling the economy in a broader scope. The Shanghai Composite Index reported its biggest slump in four years on Monday, after the PBOC published an internal notice implying tight liquidity. The benchmark further tumbled 6 percent Tuesday before reversing the retreat on ru-
mors of a declaration of support, which was issued by the bank earlier. "The market is full of fear and rumors, and that let the government smell financial risks," said Zhang Zhiwei, chief China economist at Nomura Securities Co., Ltd. The benchmark seven-day fixing repo dipped 78 base points to 7.22 percent as of 11:30 a.m. Wednesday, and the Shanghai Interbank Offered Rate (SHIBOR) overnight rate slid 18 base points to 5.55 percent at the same time. The SHIBOR overnight rate shot up to 25 percent last week, when banks rushed to each other for money. Banks with aggressive off-thebalance-sheet lending felt the pain of the cash squeeze when they borrowed money at exorbitant rates while watching stock
prices plummet. "Regulators have successfully warned the market," said Li Xunlei, chief economist with Haitong Securities. "Changing the stance is the right decision. After all, the central bank has an obligation keep the financial system afloat with liquidity." China Minsheng Banking Group, a mid-sized bank, promised to clear all excessive nonstandard assets in an investor meeting held after its stock price plunged 10 percent. In a report, Barclays warned that medium and small banks have higher interbank assets as a percentage of their total assets than large banks. Another factor forcing the PBOC to dial back its tight liquidity stance was that the market reacted to regulators' call in a way that was the opposite of what reg11
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Finance
ulators had hoped for. In desperate need of cash, banks rolled out massive wealth management products (WMPs) to attract deposits, and the yields of these investments grew much higher than previous ones, thus posing greater risks. The average yield of WMPs has been climbing for four weeks, according to Bankrate, a WMP aggregating website. Citic Bank issued a four-month WMP with an 12
interest rate of 6 percent, while Huaxia Bank produced a 72-day WMP with a rate of 7 percent, which doubled China's benchmark deposit rate. The central bank relented on its stance of a tightened credit crunch, as economists warned that a prolonged credit crunch would put the brakes on the economy, which is already facing mounting downward pressures. Some banking executives told
the press that they will have to raise interest rates if interbank lending remains high. A rising interest rate would be the last thing Chinese companies want to see during their battle with growing overcapacity. Goldman Sachs trimmed its forecast on China's GDP growth from 7.8 percent to 7.4 percent due to the recent monetary tightening. Meanwhile, Moody's warned that keeping the banking
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system short of liquidity would entail risks that could have credit negative implications. "If liquidity tightening continues, the possibility of an economic hard-landing will increase," said Liu Ligang, chief China economist at ANZ. The stand-off in the money market is believed to be part of the PBOC's commitment to containing runaway credit growth and reducing financial risks accumulated in
shadow banking. They have not finished the job, but the battle is nearing an end. However, there will be more rounds for regulators wrestling with shadow banking. Analysts say regulators must be prepared to defuse the fundamental catalysts for the explosive growth of shadow banking, which would mean liberalizing interest rates, curbing local governments' wild investments and improving
the transparency of WMP sales. Chinese banks are only allowed to offer PBOC-guided rates to depositors, and those interest rates are flat with the rate of inflation, which has bolstered Chinese depositors' readiness to turn to WMPs that offer higher returns. Meanwhile, banks are banned from lending money to certain industries beset by overcapacity as well as local government financing vehicles (LGFVs). So, 13
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Finance
when borrowers from these categories knock on a bank's door for money, they will be asked to get a loan with a high interest rate from money raised in WMP sales. This is where risks creep in. A huge proportion of local government investments have not generated any cash flow, and the only reason China has not seen massive defaults is that the projects received either fiscal support or took on new debts to repay the old ones. Investors, on the other hand, have little information about where 14
their money goes when they buy WMPs, and because the products are sold over banks' counters, many believe these purchases are as harmless as putting money into a savings account. As the medium, banks further complicate the issue by selling short-term WMPs to finance longterm projects, as longer maturity yields higher returns. When the WMPs are due, banks just go to the interbank market and borrow money to repay investors. The interbank borrowing costs before the credit crunch were around 3
percent, but banks can charge 10 percent interest on a loan to an LGFV. "To squeeze the pimple of over-leverage, we need an overhaul of the current fiscal system," said a well-respected researcher at a think tank of the State Council, who requested anonymity in discussing the matter. "As the financing vehicles of some governments in western China can take on interest rates as high as 18 percent, how can the money go to the real economy?" the researcher asked.(Agencies)
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Finance
China begins shift to sustainable growth BEIJING-China's leaders seem to be bracing for painful therapy in return for sustainable growth, as they are determined to tame liquidity risks rather than pacify cashstrapped banks, which are the major driver of an investment-oriented economy. Economists have interpreted the move as evidence that a policy shift from rapid growth to quality growth has made the central government less sensitive to lower GDP growth and more focused on adjusting the country's overall imbalances. The authorities showed little willingness to pump fresh funds into the financial markets despite a worsening cash crunch that squeezed banks and prompted the country's key stock index to record its biggest daily loss in nearly four years on Monday. The Shanghai Composite Index sank 5.3 percent to 1,963.24, the largest single-day loss since September 2009. Hong Kong's Hang Seng Index slid 2.2 percent, extending six weeks of losses. However, the People's Bank of China, or central bank, reiterated on Monday its intention to main16
tain a prudent monetary stance and strengthen liquidity management to prevent excessive debt growth. "Currently, overall liquidity in the domestic banking system is at a reasonable level," it said in a statement. The statement came a day after a commentary from the official Xinhua News Agency that indicated the government is unlikely to pump cash into the banking system to contain financial risks. It blamed speculation and non-bank lending, often called "shadow finance", for the problem. The cash squeeze has seen banks put the brakes on new lending, which has in turn dragged on the economy. Economists say there is a likelihood that the new cabinet, led by Premier Li Keqiang, may tolerate a lower growth rate in the remainder of 2013 while preparing to launch new development programs and policies. Over the past few weeks, nearly all major investment institutions have cut back their forecasts for China's 2013 GDP, in some cases below the government's tar-
get of 7.5 percent. Most international investors were confident of 8 percent-plus growth three months earlier "Liquidity tightening can be very damaging to a highly leveraged economy," said Zhang Zhiwei, chief economist in China with Nomura Securities. It can lead to rising financing costs and a slowdown in fixed-asset investment, which is seen as the strongest driving force of China's economy. "While we expect GDP growth to slow only moderately to 7.4 percent in the third quarter and 7.2 percent in the fourth, we now attach a 30 percent probability to a scenario in which growth falls below 7 percent in either of the two quarters," Zhang said. Chang Jian, a senior economist with Barclays Bank, said unexpectedly weak industrial production and an "export collapse" in May were among the factors that could suggest a slowdown. Downside risks were seen to grow when investment and output of the industrial sector, which accounts for about 40 percent of China's GDP, gave negative sig-
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Finance
nals in May and June. HSBC Holdings Plc released its preliminary June Purchasing Managers' Index last Thursday. The index declined to 48.3 from 49.2 in May, the lowest level in nine months and indicative of a contraction in the manufacturing sector. Industrial output growth weakened to 9.2 percent year-onyear last month, compared with 9.3 percent in April. Exports in May increased only 18
1 percent from a year earlier, the slowest pace in 10 months, said the General Administration of Customs. Chang said that as the medium-term outlook for China's potential growth has dropped to 7-8 percent, the new leaders are increasingly aware of this, and may tolerate a growth rate of as low as 7 percent. She and other economists believe that China should take the unavoidable pain of a period of
structural economic transition, with challenges from a deflating of global demand and domestic investment bubbles. No aggressive stimulus is expected to prop up growth in the short term. The National Bureau of Statistics will release figures for secondquarter GDP growth on July 15. The world's second-largest economy, a driver of global growth, expanded 7.8 percent in 2012, its slowest pace in 13 years. GDP grew a surprisingly weak
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7.7 percent in the first quarter, well below forecasts. Duncan Freeman, a researcher at the Brussels Institute of Contemporary China Studies, suggested "the only way to sustain long-term growth is through a reform dividend", which has been adopted by the government. As any reform dividend will take time to materialize, there are short-term risks that could reduce growth. This situation may force the government to use traditional
means to boost growth and weaken reform efforts, Freeman said.He stressed that easing administrative burdens of the government can boost businesses and jobs and sustain GDP growth. Zhu Haibin, the chief Chinese economist at JPMorgan, is confident about local governments' ability to repay debt even as economic growth further decelerates, as "the current debt level is within a healthy range". "But we have more concern
about large companies with high debt ratios. Once the economy continues to slow, non-performing loans will rise and that may trigger a financial crisis," Zhu added. In the short term, a relatively more efficient way to keep up growth is to promote infrastructure construction and increase property investment. However, pursuing that course will present a deep dilemma for policymakers who need to monitor systemic risks, he added.(Agencies) 19
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IT
3G subscribers top 20
3
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300 million in China 21
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IT
CED Monitoring BEIJING-According to the Ministry of Industry and Information Technology’s report: from January to May this year, the number of mobile phone users kept the trend of increasing ten million per month. By the end of May, the number of 3G subscribers in China reached 304 million. The 3G penetration rate reached 26.1% and increased 1 percent per month. From January to May, both telecom business volume and revenue remained steady growth. The growth rates were 7.9% and 8.7% respectively. 22
From January to May, Mobile phone users increased by 53.082 million and reached a sum of 1.165 billion, which account for about 81% of the total number of telephone users. The development of 3G users is rushing into the fast lane. In May, China added 15.63 million total net new 3G subscribers, the TD-SCDMA subscribers contributed 59.9% of the new subscribers’ growth, and the rate was twice as the same period last year. During January to May, China added 71.569 million total net new 3G subscribers and the figure
of total 3G subscribers reached 304 million. From January to May, internet broadband users increased by 9.477 million and reached a total of 179 million. The broadband speed effect is still obvious. From January to May, the proportion of 4M broadband users reached 70.7%. 8M broadband subscribers increased by 8.037 million and reached a total of 30.237 million, the ratio of 8M broadband subscribers accounted for the proportion of the total broadband users reached 16.9% from 16.0% in the end of 2012.
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Triple Play stepped to the promotion stage from pilot project this year. From January to May, IPTV business users increased by 3.108 million and reached a total of 24.851 million, with year-onyear growth of 46.4% . Mobile TV subscribers grew by 11.1%, reached 55.907 million. The figure of the Internet of things end device and mobile phone payment users reached 26.601 million and 2.777 million respectively. The user scale of converged services brought fast growth of revenue. From January to
May, IPTV business revenue grew by 42.9% and reached RMB 1.58 billion Yuan. Mobile TV services revenue grew by 30% and reached RMB 1.03 billion Yuan. The contribution rate of data service growth was close to 80%. The contribution ratio of fixed and mobile data services came to 1/5.6. The revenue of data service and Internet business reached RMB 13.114 billion Yuan, with year-on-year growth of 29.4% , its contribution rate throughout the whole industry reached 79.5%, 18.6 percent-
age increased over the same period last year. The revenue proportion of data and Internet business in the whole industry reached 28.1%, 4.4% increased over the same period last year. The revenue of mobile data and internet business reached 69.76 billion Yuan, with year-on-year growth of 56.8%. The growth contribution rate of fixed and mobile date services to the whole data business were respectively 15.1% and 84.9%. The ratio between them increased to 1/5.6 from 1/2.4 in the same period last year. 23
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IT
China’s Smartphone shipments to exceed 460 Mln Units 24
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CED Monitoring BEIJING-China’s mobile phone shipments registered at 97 million units in Q1 2013, up 15% compared with the same period in 2012, while China’s smartphone shipments totaled 78 million units in Q1 2013, with a growth of 117% compared with the same period in 2012. International Data Corporation (IDC) believes such a high-speed growth of China’s smartphone market would not be possible without China Mobile’s efforts. According to IDC’s 2013 Q1 China Mobile Phone Quarterly Tracker, shipments of TDMCbased (Time Division Multiple Access) smartphones reached 28 million units in Q1 2013, with a year-on-year growth of 390%. This resulted in the share of smartphones in China’s mobile phone market reaching a new high of 79%. From the perspective of vendors, in terms of smartphone shipments, Samsung continues to rank as No. 1 with a market share of 19% and a link relative ratio of 34%. Its shipments of products under USD 200 grew by 47%. In Q1 2013, Apple ranked
the fifth with a market share of 9% and a link relative ratio of 21%. The shipments of iPhone4 (8G), which is an excellent performer, grew by 211% over the previous quarter. Except Huawei, despite the recent release of their operator-subsidized products, other large domestic mobile phone vendors have not experienced a prominent increase in their Q1 shipments. Antonio Wang, Associate Director of Computing Systems Research Group of IDC China, says, “In China’s smartphone market, Samsung has switched its marketing focus from competing with Apple for high-end market to maintaining its highend market share, and is starting to strive for market for products under USD 200, which has so far been dominated by domestic brands. However, Apple leverages the incentive policies for channels to inspire the shipments of iPhone4, further expanding its user base.” IDC predicts that, thanks to operator subsidies and robust consumer demands for new phones, China’s smartphone shipments will increase sharply in 2013; in 2017, smartphone
shipments will exceed 460 million units to reach a market size of RMB 740.5 billion (USD 117.8 billion). IDC research indicates that the development of smartphones will inevitably drive the innovation of the entire industry chain, further promoting the perfection of mobile communications and mobile internet ecosystem. James Yan, senior analyst of IDC China, who is responsible for mobile phone market research, predicts that the development trends of China’s mobile phone industry chain will manifest in the following aspects in the next five years: By 2017, 4G mobile phone shipments will outnumber 3G mobile phone shipments. IDC predicts that, with an increasing share of upstream 4G chip vendors engaging in mass production, the push by China’s three major operators, and the support from terminal vendors, the shipments of 4G mobile phones will outnumber those of 3G mobile phones in 2017.That will further promote the development of the entire mobile communications and mobile internet industry. 25
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Industry
New Canal a
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l
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lifeline for energy
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Industry
CED Monitoring BEIJING-The Chinese businessman behind an ambitious plan to build a waterway across Nicaragua to rival the Panama Canal has stressed that the new canal will serve as a lifeline for global energy trade when completed in 2020. Wang Jing, 40, a Beijing native, said at a news conference that the $40 billion project would break ground in late 2014 and complete construction within six years. Hong Kong-based HKND Group, an infrastructure development company wholly owned by Wang, will be responsible for financing the project before construction begins. But Wang said the project would also introduce global investors, and he has also been in touch with energy companies. The new canal is expected to generate annual revenue of at least $5.5 billion, according to an initial estimate, because of the increasing Chinese demand for coal and oil in the region and the shift of US energy policy to more exports, Wang said. Although the Panama Canal has invested $5.3 billion in an expansion project since 2007, Wang said it couldn't meet the growing maritime trade between East and West. "The Nicaragua canal will be broader, deeper and will allow larger vessels to pass," Wang said, adding that the canal is designed for 400,000ton-class vessels, compared with the Panama Canal, which only allows vessels with capacities below 150,000 tons. "The canal will accommodate large LNG carriers and oil 28
tankers from the United States and Venezuela heading toward China," said Lin Boqiang, director of the China Center for Energy Economic Research at Xiamen University. US shale gas exports to China have little price advantage because of the high cost of getting around Cape Horn — the southernmost tip of South America — but a shortcut will boost the volume, he said. "The new canal will become a lifeline in global energy trade," Lin said, adding that more imports from the Americas is also in line with China's strategy to diversify its foreign energy dependence on the Middle East. "The canal will bring significant change to the global maritime trade. There will be vessels tailored for the Nicaragua Canal, and harbors renovated for these vessels," Wang said. On June 13, Nicaragua's Congress granted HKND Group exclusive rights in developing and managing the Nicaragua Canal and other potential projects, including port projects, free trade zones, airports and other infrastructure projects for up to 100 years. Wang said he was given "a lot of guarantees and a lot of benefits" by the Nicaraguan government in land use and tax incentives. The Ministry of Foreign Affairs said last week the canal development was the "independent behavior of a company", after the Ministry of Commerce warned of the potential risks of getting involved in local political disputes. "We're grateful for the warning of the Ministry of Commerce — this is what a responsible government should do,"
Wang said, adding that the original blueprint of the canal has been altered to avoid potential territorial disputes. But Liu Hui, an expert of American studies with the Chinese Academy of Social Sciences, said that the investment in the Latin American country should pay attention to local legal and political risks. He gave an example of China's oil and railway investment in Venezuela, which met strong resistance from local unions. Wang admitted that the project has political, financing and engineering risks, but said the fact that HKND Group stands out from other competitors was evidence of its thorough preparation. HKND Group is working on the feasibility report with leading firms such as US-based McKinsey & Co, UK-based environmental consulting services provider ERM Group Inc and China Railway Construction Corp, China's biggest construction company. "Legal papers are also being formulated, and there are no risks of violation at this stage," Wang said. Besides his 40 percent stake in the Beijing Xinwei Telecom Technology Co, Wang said he also has mining investments with 100-ton gold reserves worth about $5 billion in two Southeast Asian countries. Wang's investment also involves an aerospace company, which is expected to be a future partner in the canal project. Wang's canal investment may fulfill a century-old dream for Nicaragua, which has attempted to construct an interoceanic channel on several occasions since the mid-1800s.
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Wang said the canal project will create more than 40,000 local jobs, and a jobtraining program has already
begun. "It is no longer a pure investment, it has become a milestone," Wang told re-
porters. "So I don't want it to become an international joke or an example of a failed overseas Chinese enterprise." 29
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Industry
Profiting out of Africa comes with risks
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CED Monitoring BEIJING-A Hangzhouproduced TV series will soon be broadcast in Africa so the locals can get a better understanding of the city, thereby nurturing an interest in products made in the Jiangsu province lakeside metropolis. The Desire of the Old Daddy was shortlisted in the international promotion plan co-organized by China Radio International and local authorities of Zhejiang province. CRI will recommend celebrated actors in Africa to dub voiceovers for the TV series which will later be broadcast on mainstream TV stations in Tanzania. In the meantime, makers of Hangzhou brands that are being exported to Africa and meet the needs of local customers will make TV commercials to go with the TV series, said Lyu Bingkui, office director of the Hangzhou Municipal Foreign Trade and Economic Cooperation Bureau. "At present, three Hangzhou companies have made direct investments in Tanzania and two in Zambia. The total investment amounted to $15.75 million," said Lyu. Fu Yang Jin Ding Non-ferrous Metal Material Co Ltd of Hangzhou started to test the market in Tanzania in 2007 with an initial investment of $500,000. The amount rose to $9.95 million in the following year. "Usually, private
Hangzhou companies won't start their investment with huge sums of money in their capacity as State-owned enterprises," said Lyu. "President Xi Jinping's recent visit to African countries is expected to help improve the investment environment in Africa, which is definitely good news for private companies," said Lyu. Statistics provided by Lyu's bureau show the city's exports to Africa reached $1.6 billion in 2012, up 11 percent yearon-year. The growth was even more rapid in the first two months of this year, with the export volume reaching $320 million, up 42.09 percent year-on-year and accounting for 5.88 percent of the city's exports as a whole. Although most Hangzhou companies started by exploiting mines in Africa, there has been little success so far and no mineral products have been brought back to China, said Wu Jian, director of the foreign economic relations office of the bureau, adding that there are also high risks in the mining industry. "Therefore, most newcomers now are engaged in building power plants, road works, water treatment and other infrastructure projects. It can be seen as part of the economic restructuring of Hangzhou's private companies," said Wu. Hangzhou Liangliang Electronic Lighting Co Ltd 31
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Industry
set up a sales office in Dar es Salaam, capital of Tanzania, in 2009. "We have five Chinese management executives and three local staff working at the 32
Tanzania branch that mostly sell energy-saving lights and cables," said Wang Zuping, chairman of the company. The company set up its Kenya representative office last
year. It generated sales of more than 40 million yuan ($6.53 million) in Africa in 2012. "Products made in China are especially popular in Africa. We do mainly wholesale
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business there and managed to achieve an average annual sales growth rate of 30 percent in the past five years," said Wang. Wu of the foreign eco-
nomic relations office added that Hangzhou companies are trying to build their brands in Africa. "Automobile brands, such as Geely, and some pharma-
ceutical products are expected to find a market in Africa. Some garment companies are also seeking opportunities there," he added.
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Automobile
GM eyes 10% of China's luxury car market
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CED Monitoring SHANGHAI--General Motors Co has said that it aims to quadruple its share of China's luxury auto market to 10 percent by 2020 as the US automaker launches new Cadillac models and expands its distribution network in the world's largest car market.
Bob Socia, head of GM's China operation, shared Cadillac's China growth target in a roundtable with reporters ahead of a ground-breaking ceremony for GM's new Cadillac plant on the outskirts of Shanghai. "We are not only expanding in tier-one and tier-two cities, which would be pretty logical to Cadillac, but ... China's high-growth areas could be in tierthree or even four," he said. GM, which sells brands including Buick and Chevrolet in China, has prioritized Cadillac sales in China as it battles for market share with other luxury brands such as BMW, Mercedes and Audi. But the Cadillac's sharp styling with influences from US stealth fighter aircraft has failed to ignite Chinese buyers' passions, according to analysts and Cadillac marketers' themselves. GM sold 30,010 Cadillacs in China last year compared with 149,782 in the United States. It is targeting about 250,000 luxury car sales in China by the end of the decade. GM has been toning down the look of Cadillac cars as part of an effort woo buyers in China, which CEO Dan Akerson told reporters would account for up to 40 35
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Automobile
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percent of the world's total luxury auto market by the end of this decade. With a refreshed version of the top-selling Cadillac SRX crossover and local production of the Cadillac XTS sedan this year, GM aims to triple Cadillac sales in China to 100,000 units within two years. Cadillac's China sales jumped 74 percent year-onyear by volume in May, after nearly doubling during the previous month, making Cadillac the fastest-growing among GM's brands in the country. China has become a crucial market for makers of luxury cars, with 2.7 million expected to be sold there each year by 2020, overtaking the United States as the world's leader in the segment. GM plans to introduce more than 10 new or upgraded products in China on average each year through 2016. GM and its joint ventures sold a record 2.8 million vehicles in China in 2012, up 11.3 percent from a year earlier. 37
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Automobile
Chinese Auto brands 38
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looking overseas 39
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Automobile
CED Monitoring SHANGHAI-Car exports from China rose more than 40 percent last year and were an excellent antidote for the slowing market for domestic carmakers. Some local firms are showing incredibly high levels of reliance on exports. Lifan, for example, exported 67,000 passenger vehicles, 43 percent of its total sales. Chinese automakers currently focus on markets in South America, the Middle East, Russia and Eastern Europe. Some have tried to tap mature markets. MG, originally a British brand now owned by SAIC, is an example. But it only man40
aged to sell 782 cars in the UK in 2012. Yet many local brands have announced ambitious strategies for overseas development, even for mature markets including countries in Western Europe. The new Chinese brand Qoros has scheduled plans to launch its products in Europe and China simultaneously, catching the eye of journalists both at home and abroad. In 2012, Geely announced plans to enter Western European markets including Britain and Italy. But after failing crash tests in 2005, early attempts by Chinese brands in the EU market proved to be nothing more than wild goose chases.
Since then, Chinese carmakers have made great efforts to improve their safety standards. In 2011, both SAIC and Geely won high ratings in crash tests by the European safety agency, leading to more people to believe that Chinese brands have now eased some of the barriers to entering the EU market. The real bottleneck has turned out to be the sluggish economy in Europe. The auto markets in Western Europe enjoyed a 10-year golden era from 1998 to 2007 when annual sales reached a historical peak of 150 million. Although the financial crisis in 1993 caused a 36 percent
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decline in the market, it took only five years to recover, and soon surpassed previous levels. However, the impact of the financial crisis in 2008 has proven more profound. Western European countries launched massive incentive plans to encourage new car sales, which stabilized the market temporarily in 2009. But car sales shortly after declined dramatically by more than 40 percent due to a stagnant market and Europe's sovereign debt crisis. The market is not expected to recover to its 1998 level until at least 2020. Italy seems to be the first stop for many Chinese brands, but the market is also slumping.
Following declines of 11 and 12 percent in 2011 and 2012, the car market is expected to shrink a further 9 percent in this year. Annual sales this year are likely to drop to less than 1.3 million units, from 2.5 million units in 2007. In fact, all Western European countries, with the exception of the UK, will experience significant downturns again in 2013. On the other hand, the European car industry is facing tremendous redundant capacity. According to data from the first quarter in 2013, nearly 40 percent of production capacity in Europe remains idle.
With a shrinking market and hungry automobile giants in Europe, it is obvious a tough battle for China's indigenous firms to grab a slice of the cake in this sluggish Western European market. In comparison to the gloomy market in the EU, China's passenger vehicle market is still booming with a nearly 20 percent increase in the first quarter. By 2020, we expect new car sales in China to hit 25 million units, 11 million more than in 2012. So it is unrealistic for indigenous firms to rely on exports to relieve their difficult positions at home. It would appear that after all, the next gold mine is still in the East, not the West. 41
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Construction
URBAN PLANNERS EYEING CHINA'S CITIES CED Monitoring BEIJING-China's rapidly growing built environment is inspiring urban planners to develop new ways of thinking, said Mark Harrison, head of urban planning in Asia PaciďŹ c at the United Kingdom's engineering consultancy Atkins. "I think there are so many new ideas being developed and tested out in China, because China is urbanizing at such a rapid speed," Harrison said. Harrison said one example is the incorporation of environmental sustainability considerations into a new city or town at the point of construction, as opposed to introducing measures to reduce environmental damage after it has occurred, which was the case in many European cities. This is because Europe industrialized early and the environmental impact of the built environment was sometimes not properly considered, 42
whereas China's newly built cities have the advantage of learning from Europe's mistakes, Harrison said. "As climate change becomes more of a problem, it is increasingly important to consider factors like trafďŹ c, energy use, water use and waste in new cities at the beginning," he said. Harrison's team, which comprises 150 urban planners, has completed more than 800 projects in China, in more than 100 cities. One project is master planning for Songjiang New City, an area rich in history and culture near Shanghai, which was being turned into a new city under the Shanghai government's One City, Nine Towns plan, passed by the Shanghai Planning Commission in 2001. "Songjiang has been developed using the garden city concept, which originated from England," Harrison said. "But different from England, Songjiang has higher
density, which needed to be taken into account in the master planning process. "Songjiang also has many aspects of traditional heritage and culture which we have integrated into our overall design." The garden city concept, ďŹ rst proposed by the UK's urban planner Ebenezer Howard in 1898, emphasizes self-contained communities allowing residents to live harmoniously with their surroundings. In the city plan Harrison's team created, modern leisure and recreational features such as a golf course co-exist with traditional landscape in a coherent manner "through careful consideration", he said. The traditional landscape features have been incorporated into tourism locations, whereas more modern facilities are mostly used by the city's residents in their everyday lives.
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Construction
"The key thing is to respect the heritage, and not to destroy it, and also to integrate them with the needs of modern life, transport and facilities," Harrison said. Another feature in Songjiang in which Atkins helped with the architectural, structural and civil engineering work is the Shimao Wonderland InterContinental hotel, being built on the site of a 90-meterdeep abandoned quarry. The ďŹ ve-star hotel is striking be44
cause it uses the existing landscape in an innovative way. As water already existed in the old quarry, Atkins has kept water as a main theme, turning the lowest level of the hotel into a venue for water sports, with a spa and a swimming pool. The underwater level is designed to host an aquarium. "Because of the location, we couldn't build a tall tower, so we went down into the quarry and built an interesting design."
Apart from new construction projects, Harrison said his team is heavily involved in many regeneration projects to help cities cope with a growing urban population and give them a new look. "Urban areas often just need a new look and refresh. Maybe they suffer from transport problems as car ownership increases rapidly. There may be other concerns such as water quality or the quality of the urban environment."
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Harrison said one of his team's projects is providing guidelines on the regeneration work for Chengdu, capital of Sichuan province, a city known for its relaxed lifestyle but which has been transformed in recent years as a result of its fast-growing high-tech industries. Features of the regeneration included increasing greenery and building more low-speed roads in the city center, adding central islands to pedestrian crossings to en-
sure safety, adding more leisure facilities such as shops and restaurants around big community parks, and increasing the use of green material for important public sector buildings. "The key is to identify the real character of the area," Harrison said. "Chengdu has many lively areas, especially its markets. It also has many natural landscape features, like river courses. It is important to make sure they are retained and not destroyed.
"So regeneration is about identifying and building on the character of a city to make it livable." Harrison said one clear advantage Atkins has in the field of regeneration is its engineering expertise in brownfield development. As the official engineering design services provider to the London Olympics last year, Atkins demonstrated its brownfield site regeneration expertise by turning an old industrial site into a vibrant, safe sports venue. 45
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Construction
CHINA TO INVEST BIG ON ROAD CONSTRUCTION CED Monitoring BEIJING-China will invest 4.7 trillion Yuan ($767 billion) in road projects by 2030, strongly boosting the domestic economy, a senior official said here. The country will have more than 400,000 kilometers of national roads and highways by 2030, compared with 173,000 km by 2012, Dai Dongchang, chief planner of the Ministry of Transport, said at a news conference. The conference released a national plan for the country's road network from 2013 to 2030, approved by the State Council in May. Dai said that about 2.5 trillion Yuan would be allocated to highway construction, with the remainder going to nontoll roads. He added that the funds would mainly come from government coffers, while diversi46
fied investment will also be encouraged in highway construction. According to the ministry, every 1,000 km of highway requires around 1 million metric tons of steel, 9 million tons of cement and 800,000 tons of asphalt. "Road projects play a significant role in guaranteeing the country's steady economic growth," Dai said. When the global economic crisis erupted in 2008, around 1.5 trillion Yuan was allocated to building railways and roads, accounting for 37.5 percent of the government's 4 trillion Yuan economic stimulus package. Huang Min, director of the basic industry department of the National Development and Reform Commission, said: "One obstacle confronting the nation's urbanization plan is that road coverage in China is far from sufficient and
fails to meet the needs of rapid economic development and urbanization," Huang said. Premier Li Keqiang has called for people-oriented urbanization, which is not simply about building larger cities, but the balanced development of small, medium and large cities across the country, which requires more infrastructure projects, especially roads. Studies by the ministry showed that the country's urbanization program and economic development would drive people's demand for roads by three to four times the current level. "The pressure that China faces in its road construction is unprecedented globally due to its large area and population," Dai said. So far, around 900 of the nation's 2,800 counties are not linked to national level roads,
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which have a negative impact on their economic development, according to the ministry. Huang said the national plan would prioritize road projects in those areas, mainly in western regions, and poor or remote areas of the country. Dai said that the road 48
construction projects would respect the environment and avoid ecologically fragile areas. "Every road project will have to pass a strict environmental impact assessment prior to construction," Dai said. As of the end of 2012, China had 173,000 km of na-
tional-level roads, including 105,000 km of common roads and 68,000 km of expressways. The national-level roads accounted for 4 percent of China's road network at all levels, including nationallevel, provincial and rural roads. The plan calls for the road network to reach a size of 5.8 million km by 2030.