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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
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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 15 to 22 July 2013 04
Cover Story
New filial law sparks debate 06
Government drafts child welfare system
SHANGHAI-Honda Motor Co plans to more than double its annual sales in China to 1.3 million units by 2015 through an aggressive new model offensive.
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in this issue 09
Massive debt plagues local governments
China's telecom firms reveal 4G strategies
12
China Mobile Pakistan not interested in buying Warid
Chinese company looks to take a bite out of Apple
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Society
New filial law sparks debate
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A student from Wangji Primary School in Jiangsu province chats with an elderly man on Sunday. More than thirty students visited the home for the elderly as part of the "filial morality comes first" program. According to a law on protecting the rights and interests of the elderly, which came into effect on Monday, family members should care about the psychological needs of their older relatives, and should visit them or send greetings on a regular basis. CED Monitoring BEIJING-An amended law that requires children to regularly visit their aging parents has been welcomed by many, but some said it will be just symbolic. Family members should care about the psychological needs of their older relatives, and should visit them or send greetings on a regular basis, according to the law on protecting the rights and interests of the elderly, which came into effect on Monday last. The law was passed to protect the lawful rights and interests of parents aged 60 and older, and to carry on the Chinese virtue of filial piety, according to the law. To highlight the implementation of the law, a court in Wuxi, Jiangsu province, held a public hearing on Monday and passed judgement that the two defendants must visit their aging mother at least once every two months after both failed to provide support to the 77year-old.
Filial piety, considered a key virtue of traditional Chinese culture, generally means respect for one's parents and ancestors, including being good to one's parents and fulfilling one's duty to take care of them. The law also states that China will cope with an aging population as part of its long-term national strategy, and will improve social security for old people. "It is a great policy and I am very happy to see the government release such a policy to encourage children to fulfill their obligations to their parents," said Huang Kesheng, a 20-year-old student at the University of International Business and Economics. Some people, however, doubt whether the law can be applied effectively. "The policy may be good, but I think it is difficult to carry out," said a security guard for Yinghua Hotel in Beijing, surnamed Shen. "As a temporary worker I seldom have holidays, and I even have to work on Labor
Day and National Day." Shen, who is from the neighboring Hebei province, said he is only able to go home to see his parents twice a year, as he cannot always get leave from his employer. Yuan Xin, a professor of population studies at Nankai University in Tianjin, supported the law but also highlighted the difficulty of putting it into force. "In China, traditionally the responsibility of taking care of the elderly lies in family units. As a good traditional virtue, it should not be abandoned," he said. Parents whose children live apart from them and fail to visit regularly can ask for mediation or file a lawsuit, according to the law. The law didn't give an exact definition of how often children should go back to see their elders, however, and lacks mandatory force, Yuan said. zIt is primarily aimed at urging all of society to pay more attention to elders," he said. 05
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Society
A major challenge facing the country in taking care of its elderly comes from the rapidly aging society, Yuan said. The number of elderly parents living alone is increasing fast, while the number of traditional families with several generations living together has decreased dramatically, he said. In 2010, an 83-year-old man in Beijing filed a lawsuit against his six children for failing to take care of him. The man said he was not short of money but he was
06
very lonely. Yuan said, "Despite improvements in social security for the old, the social security system still lags behind the needs of the old." The number of people aged 60 or older in China reached 185 million by the end of 2011, accounting for 13.7 percent of the population, and that number will exceed 200 million this year, according to the Ministry of Civil Affairs. That age group will number 480 million in 2050, Yuan said. "Compared with some
other countries, where the government takes almost all responsibility to take care of the old, China's aging population is developing much faster and the number of elderly people is too big, which means it is impossible to totally rely on the government to care for all the elderly," Yuan said. Family members, society and the elderly themselves must work together to cope with the challenges that come with the aging population, Yuan said.
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Finance
Government drafts child welfare system CED Monitoring BEIJING-China will gradually build a comprehensive child welfare system to provide universal welfare protection to children, who are categorized into four types depending on their living circumstances, under a draft plan from the Ministry of Civil Affairs. Children will be identified as orphans, in plight, from underprivileged families or from ordinary families. Each will be offered different standards of welfare services, the plan said. More specifically, children in plight include those who are homeless, disabled or have serious illness. Children from underprivileged families are those whose parents are povertystricken, seriously disabled or ill, serving long prison sentences, 08
are in compulsory drug rehabilitation or single parents unable to raise the child alone. There has been much concern about child welfare after a recent case in Nanjing, Jiangsu province — in which two toddlers left home alone by their drug addict mother were found starved to death — shocked the nation. A pilot program will be launched in Kunshan, Jiangsu province; Haining, Zhejiang province; Luoning county, Henan province; and Shenzhen, Guangdong province, according to the plan. Tang Rongsheng, director of the Shenzhen Social Welfare Center, welcomed the policy as the issue of children from problematic families has bothered him for years. "Shenzhen implemented the
policy for abandoned babies and orphans last year so that the local government could take good care of them under existing regulations — our current policy even makes it plain how foreigners can adopt a child in Shenzhen," Tang said. "But a system regulating the temporary takeover of custody from problematic families is still desperately needed." He said the policy should be as detailed as possible and issues such as how to define a "problematic family" and how to support them should be noted. "It's a ticklish question for those children whose parents are still alive and there's no court in China that can guarantee me our welfare house will get custody after raising them for 10 and even 15 years," Tang said,
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adding his current solution is to sign an agreement with parents who aren't capable of raising their children and have the document notarized. Yang Ping, a staff member at Shenzhen's non-government organization Min Ai Disabled Children's Welfare Center, said she hopes the policy would help children regardless of their place of residence. She is also concerned about how the policy is implemented because its details would be decided by local governments. Experts say the system could bring more children under pro-
tection but it is still not comprehensive enough to cover all those who need help. "The categorization missed at least two kinds of children — those whose parents are drug addicts but are not under compulsory drug rehabilitation, and who are mistreated by their parents," said Tong Xiaojun, a professor at China Social Work Research Center in the China Youth University for Political Sciences. Tong suggested an effective method would be to establish a team of child welfare workers responsible for tracking the situa-
tion of every child. Ultimately, China needs to push forward child welfare legislation to safeguard all children, she said. China still faces numerous challenges in improving child welfare. Figures show 628,000 orphans were registered in 2012, a sharp rise from 2011, according to the China Child Welfare Policy Report released early this month by United Nations Children's Fund. The report also said 2.8 million children are not receiving the compulsory education they are entitled to. 09
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Finance
Massive debt plagues local governments 10
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CED Monitoring BEIJING-How much have China's local governments borrowed? The answer has always been shrouded in mystery. The last official update was released by the National Audit Office in mid 2011. It put the nationwide figure at 10.7 trillion Yuan ($1.75 trillion) by the end of 2010. Last week, the audit office issued a new report, a much less comprehensive one covering only 36 local governments at different levels. This said debt in the selected areas had grown 13 percent in the last three years. Extrapolating the audit office's report's 13 percent rise in local government debt across the entire
country, Moody's Investors Service estimates the direct and guaranteed debt of local governments could have been 12.1 trillion Yuan at the end of 2012. "However, such an estimate assumes the remaining jurisdictions not included in the NAO report had a similar rate of debt accumulation, which we do not know for sure was the case," said Debra Roane, vice-president and senior credit officer of the sovereign risk group with Moody's. Selected local governments in the new report comprise 15 provinces and the 15 provincial capital cities, as well as three municipalities and three districts. Some Chinese officials have also made their estimates: Dong
Dasheng, deputy minister of the National Audit Office, said in May the latest debt scale for governments at all levels was between 15 to 18 trillion Yuan, while Xiang Huaicheng, a former finance minister, said in April China's local governments might have already borrowed more than 20 trillion Yuan. "I personally agree with former minister Xiang's estimate of 20 trillion Yuan stock in local debts," said Zhao Quanhou, head of financial research with the Fiscal Science Research Center at the Ministry of Finance. Zhao said the figure might vary because of different statistics criteria. Xiang's estimate has taken into consideration all the off-bal11
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Finance
ance sheet financings of local authorities. China's local governments are not allowed to borrow directly so a series of government-guaranteed investment companies known as local government financing vehicles - have been established to handle the issue. However, Zhao said because the central government tightened regulation of the financing vehicles last year, other State-owned 12
enterprises under the supervision of local State-owned assets watchdogs were also asked to raise money on behalf of local authorities. However, such borrowings would not appear on local government balance sheets. Additionally, local authorities have also been relying on "irregular financing channels" to raise money, such as wealth management products issued by local commercial banks, as well as de-
laying payments on construction projects, the audit office's report said. "This development also poses a risk because a portion of these transactions is not recorded as debt obligation on balance sheets and, therefore, adds a further layer of complexity in determining local government debt levels," Roane said. "Some of these products bear interest rates as high as 17.5 per-
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cent. The People's Bank of China has a 5.6 percent benchmark loan rate. This adds to the debt burden and creates budget pressure for some entities." As for the surveyed local governments, bank loans remain the largest source of financing for local governments, accounting for 78 percent of the total balance by the end of 2012, but their share has decreased by 5.6 percentage points since 2010.
In comparison, debt issuance and other borrowings have rocketed by 62 percent and 125 percent respectively during the same period. "Such figures are also representative of other local governments across the country," Zhao said. He said bank loans and bond issuance together account for approximately 90 percent of the debt on local government balance sheets, while the other 10 percent
consists of private equity funds and default on construction payments. According to a calculation by The Economic Observer, local governments will face two trillion Yuan in debts due this year. That accounts for nearly 20 percent of their fiscal revenue and more than half of the fees from land sales. "Such a large amount of payments would definitely hinder local governments' investment ability and, therefore, add pressure on 13
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Finance
local economic growth," said Wang Yongjun, director of the Institute for Finance and Economics Research at Central University of 14
Finance and Economics. To deal with the problem, experts are calling for an increase in local government revenues by up
to 2 trillion Yuan a year by means of a series of reforms in taxation and income division between local and central government.
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"The challenge of the local government debt issue will definitely push forward further reform in the fiscal system but such reform
is not restricted to simply seeking more revenue for local governments," Zhao said. He added that 85 percent of
the fiscal revenue in 2012 ended up in the pockets of local authorities so there will not be much room for improvement. 15
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Finance
China Mobile Pakistan not interested in buying Warid CED Monitoring ISLAMABAD-The China Mobile Pakistan (CMPak) or Zong is not interested in purchasing one of the Pakistan’s telecom giants Warid Telecom as the company is preparing to get 3G and Long Distance International (LDI) licenses, it was learnt from internal sources on Wednesday. In a bit to quash the raging rumors that CMPak is interested in buying Warid, the former rebuffed such news saying that it’s absolutely un substantive as Zong is not considering any such move. Internal sources from Zong told media that there are no facts behind such news reported in a section of the press. They ruled out any possibility or any policy to acquire Warid Telecom saying that there are no such plans as currently Zong is scheduling to participate in 3G license auction, for which billions are required. They, while quoting 16
Zong Chief Executive Officer Fan Yun Jun, said that the company is ready to participate in auction of 3G technology as Zong has already invested in the required infrastructure to participate in auction for 3G technology and now waiting for the government’s progress. Pakistan Telecommunications Company Limited’s (PTCL) official replying to our query in this regard said that at present he is not in a position to deny or admit the news that PTCL is interested to buy Warid as he is unaware of such circumstances adding that he will be able to comment after discussion with the president. Despite several attempts, no media relation officer of Warid was available for comment. Sources said that Zong as well has planned to provide international outgoing and incoming calls facility through its own network by acquiring a LDI license in the com-
ing months with a million-dollar investment. Earlier, it was reported in media by international news agency that Pakistan mobile operator Warid Telecom has been put up for sale by its Abu Dhabi owners and is likely to draw interest from CMPak and Etisalat, the Abu Dhabi Group, a conglomerate led by a ruling family member in the oil-rich emirate, who is seeking to sell all 100 percent shares in Warid Telecom, however, the agency also claimed that the company would also be prepared to sell a smaller controlling stake Zong is the first foreign subsidiary of China Mobile Communications Corporation, the biggest telecom giant of the world. It has invested more than $2 billion so far in Pakistan since 2008 and it has planned to further expand its network along with network upgradation and 3G licence acquisitions in the future.
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Finance
China's telecom firms reveal 4G strategies
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CED Monitoring BEIJING-China's three telecom operators have laid out their strategies on the development of fourth-generation, or 4G, mobile networks, as the official issuance of 4G licenses is expected to happen soon. China Mobile Ltd - the world's biggest telecom operator by subscribers - has always been an aggressive promoter of the domestic Time Division-Long Term Evolution, or TD-LTE, 4G technology. Xi Guohua, its chairman, briefed the press on the company's latest progress on TD-LTE network deployment at Shanghai's Mobile Asia Expo on Wednesday. Xi said that China Mobile has
built more than 22,000 4G base stations in 15 Chinese cities, but that it plans to set up 200,000 base stations in 100 cities by the yearend. However, the other two smaller Chinese telecom operators - China Unicom (Hong Kong) Ltd and China Telecom Corp Ltd have expressed their willingness to adopt the Frequency Division Duplex-Long Term Evolution, or FDDLTE, technology, or at least to build a converged network under both standards. TD-LTE and FDD-LTE are the two major 4G international standards, but the latter has gained more popularity across the globe and has stronger industry support. Lu Yimin, general manager of
China Unicom, said the company is conducting tests for 4G wireless networks with mixed technologies. It is the first time that China Unicom has admitted that it is actively preparing to launch 4G services. However, Lu added that because the Chinese government has not yet awarded the 4G licenses, China Unicom's final strategy is still "uncertain." Lu also made the remarks at Shanghai's Mobile Asia Expo. Last weekend, Wang Xiaochu, China Telecom's chairman, confirmed that the company is stepping up efforts for its LTE network trials. "It's inevitable (for China Telecom) to adopt a converged network, since the spectrum is at the
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IT
core of every carrier's resources," Wang said. Even though Chinese authorities have not said exactly when they plan to issue the 4G licenses, industry experts expect the licenses to be awarded shortly. He Shiyou, executive vicepresident of ZTE, expressed an optimistic view on TD-LTE's prospects 20
in China. "I think that all the three Chinese telecom carriers will get TDLTE 4G licenses because the rich TD-LTE spectrum resources in China allow the government to do so," he said. Shang Bing, vice-minister of the Ministry of Industry and Information Technology, said the de-
velopment of the TD-LTE technology has entered a fast-track phase. "The Chinese government will firmly support TD-LTE industry development, and help create a favorable policy and market environment," he said on Wednesday. The moves by the three Chi-
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nese carriers will help to further back the development of 4G technology globally, said Anne Bouverot, director-general of the GSM Association, an industry alliance of mobile operators and related companies. "In general, what matters is not to have the absolutely best technology, but that everybody
agrees to deploy it. That's where you get the economy of scale, and get the equipment for networks and handsets to improve each time there is a new release," she said. Analysts have said that LTE 4G technology will usher in a society much more connected and convenient for people.
Jin Lee, senior managing director at Accenture's mobility department in South Korea, said that LTE will provide speeds about 50 percent higher than current Wi-Fi networks. "Once consumers get to taste that speed, they will never go back," Lee said.
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Industry
Chinese company looks to take a bite out of Apple CED Monitoring BEIJING-Representatives of US electronics giant Apple Inc appeared in a Shanghai court on Tuesday for an intellectual property rights case involving the software for Siri, its voice-activated digital assistant. Siri responds to a user's commands through voice recognition software. Shanghai Zhizhen Network Technology Co, the developer of a voice technology called Xiao i Robot, alleged that Apple's Siri had infringed the patent they hold relating to "a type of instant messaging chat robot system". "We noticed iPhone 4S' digital assistance Siri copied Xiao i Robot's artificial intelligence technology when it came out in 2011. As a national enterprise, we have enough reason to protect our own rights,"said Zhizhen's chairman Yuan Hui. Zhizhen had filed for a patent for its software with China's State Intellectual 22
Property Office in 2004, and received approval in 2006, Yuan said. According to Zhizhen's marketing department, Xiao i Robot now has 100 million users across China. Siri Inc, essentially a startup company Apple acquired in 2010, started producing the mobile virtual assistant in 2007. Apple later bundled the technology into their iPhone 4S smart phone in 2011. Yuan from Zhizhen said his company had asked Apple to stop the infringement, and requested no further financial compensation. That would mean Apple and its local subsidiary would have to stop manufacturing, selling and using products with Siri technology in any system higher than Apple IOS 6, including the iPhone 4S, iPhone 5, iPad 3, iPad 4 and iPod touch 5, said Zhizhen's attorney Yuan Yang, from DeBund Law Offices. Apple, however, said it had already applied to the State Intellectual Property Of-
fice of China for the invalidation of Xiao i Robot's patent and that the result would come out soon. The ruling from the State Intellectual Property Office will have a great impact on the case, according to lawyers from both sides. "We filed for the invalidation as an immediate and normal response to being sued,"said Tao Xinliang, Apple's attorney from Dacheng Law Offices. Si Weijiang, another lawyer representing Zhizhen, said the result from the State Intellectual Property Office would be available in August and that the court would probably wait for the ruling. Zhizhen filed the lawsuit on June 21, 2012, only a few days after Apple paid $60 million to Proview Technology (Shenzhen) to end a protracted legal dispute over the iPad trademark in China. This is the third time Apple has been sued in China for patent infringements. Jiangsu Xuebao Daily Chemical Co
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Ltd had previously alleged the Chinese translation of
Mac OS X Snow Leopard infringed its trademark rights.
The case is still ongoing.
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Industry
Bank regulator calms market fears CED Monitoring BEIJING-China's chief banking regulator Shang Fulin soothed a jittery market on Saturday, saying there is more than "sufficient" liquidity in the interbank market. He also pledged to strengthen debt risk control. The statement by the chairman of the Chinese Banking Regulatory Commission again reiterated the "credit crunch" that pushed money market rates to historical heights recently is not due to insufficient capital supply. It was more a matter of liquidity management problems among Chinese banks, analysts commented. "Liquidity tightening appeared over the last few days because of many factors. But, overall, liquidity in our banking system is not a problem," Shang said in a speech at the Lujiazui Forum in Shanghai. Total excess reserves in China's banking system have reached 1.5 trillion Yuan ($240 million), more than twice the amount necessary for normal payment and settlement needs, Shang said. "There are some defects in the liquidity management in commercial banks, as well as their business structure. It must 24
be treated carefully," he stressed. Many analysts believe the central bank's refusal to inject liquidity into the market in midJune when the interbank interest rate was spiking was a punitive measure to contain banks' carrying trades that created potential risks. Bank-issued wealth management products totaled 8.2 trillion Yuan by the end of the first quarter, of which 70 percent went into the real economy, Shang said. He noted that the authorities will prevent arbitrage activities by controlling the gross volume of WMPs and strictly supervising investment schemes and accounts, based on regulations issued in March. However, it is still unclear how much of it was to regulate the banks, since some have rolled out massive amounts of WMPs to replenish liquidity after the recent credit squeeze. The average yield of WMPs has been climbing for four weeks, according to Bankrate, a WMP aggregate site, and some are now double China's benchmark deposit rate. "It has been three months since the March regulation was introduced, but there has been hardly any bank in China that
has actively implemented what it requires," said Jimmy Leung, banking and capital markets leading partner of PwC China. Shang said there would also be regulations targeting local government financing vehicles and real estate financing, but risks in these sectors are under control. He pledged that local borrowing would be closely monitored and controlled to "alleviate hidden risks". Outstanding bank loans to local government financing vehicles totaled 9.59 trillion Yuan at the end of the first quarter, Shang said. According to JPMorgan Chase, the shadow banking sector in China, which is vaguely defined but mainly includes trust companies and WMPs' investment with clients' capital, is now as much as 36 trillion Yuan. To prevent and reduce financial risks, Shang said, the authorities should simplify the structure of the finance sector, carry out reform based on the real economy, strengthen supervision over related-party transactions, control leverage and enhance information disclosure.
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Automobile
Women, young men eye fancy cars CED Monitoring SHANGHAI-Many customers are entrepreneurs who have overseas exposure and prefer to drive themselves "Let me guess. I bet it belongs to a Chinese lady," says Nigel Lofkin, factory tour guide and former leather trimmer of British premium brand Bentley, when he stops by a woman who was stitching a small blooming orchid onto a piece of garnet leather for a car seat. He bends over to check the information on the back of the leather and chuckles. "Bingo! It's for a Bentley Continental GT going to China. And I think the flower represents the name of the owner, a woman," says Lofkin. "Actually, my colleagues and I, in every department here (at Bentley's headquarters in Crewe, in the United Kingdom), are quite familiar with Chinese elements and some representative characters, because almost every day we prepare cars for Chinese customers. "And we realized from 26
some interesting tailor-made requirements that more of them will be delivered to female and younger customers than to any other groups in any corner of the globe," he adds. China has become an attractive market not only for the surging sales of ultra premium vehicles in recent years. "We do see many interesting characteristics among our Chinese customers," says Torsten Muller-Otvos, CEO of British royal family-favored luxury automaker Rolls-Royce Motor Cars. "Our Rolls-Royce car owners in China are 5 to 10 years younger than the average age globally. They are young, wealthy and trendy Chinese. And 10 percent are women," he says. "What impressed us more in recent years is the change in our Chinese customers. More of them have started to drive their Rolls-Royce cars by themselves at the weekend, touring with their families," he says. "It's different from the original chauf-
feur-driven image for the Spirit of Ecstasy." According to Muller-Otvos, most of his Chinese clients are motivated young entrepreneurs. "Most of them have overseas study experience," he says. The younger and self-driving trend of Chinese customers in recent years has even influenced Rolls Royce's marketing and product strategy for China, its secondlargest market, which contributes around 30 percent of total sales. Rolls-Royce celebrated the Asia-Pacific debut of Wraith, the most powerful, dynamic two-door sports car in the ultra luxury brand's 109-year history, at AutoChina Shanghai in April. "We have taken great pleasure in introducing the new generation of successful Asian entrepreneurs to Rolls-Royce ownership in recent years. Wraith promises to build on this success, forming a key part of our plans for sustainable growth in the region," says Muller-
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Automobile
Otvos. "I have every confidence the car's marriage of dynamism, bold styling and luxury will broaden the marque's appeal further, attracting even more successful and confident Asian younger men and women to Rolls-Royce in the future, satisfying their requirement for dynamic driving." Although the first deliveries of Wraith to Chinese customers are expected in the fourth quarter, Muller-Otvos says he is 28
confident there will be an increasing number of rich young entrepreneurs in China, a highly important market for the marque. "We are cautiously optimistic about our business in China in 2013. I would not be surprised to see China as our No 1 market this year." Bentley also says the average age of its Chinese customers is 35, compared with the global average of 45 and the US average of 61. "We have many fans of our
Continental GT V8 two-door grand touring coupe who are Chinese women, as well as young men in their 20s," says Lofkin. However, "A Bentley is always the choice as the last car in life of a US rich person. "The large number of female customers from China made us pay a lot of attention to their different habits and requirements." Lofkin tells China Daily that although the headquarters are in the UK, Bentley engineers
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have researched and then designed special colors for Chinese women, including pearl pink and dragon red. In 2012, Bentley for the first time designed a special course for female drivers as part of its driving experience marketing initiatives in China, encouraging more women customers to try out the pleasure of driving the powerful sports car. Italian sports car producer Ferrari SpA CEO Amedeo Felisa also recognizes the younger
ages of Chinese customers and the different gender ratios. "We noticed our Chinese customers' ages are 10 years less than the world average. And 25 percent of them are no more than 30. Moreover, the share of women owners is larger than other markets in the world," he says. According to Felisa, 20 percent of the Prancing Horse model's customers are female in its second-largest market in the world, while the global av-
erage percentage is only seven. "We see more female entrepreneurs, celebrities and artists here in China who are greatly attracted by the dynamism and style of Ferrari sports cars," says Felisa. Luca di Montezemolo, chairman of the Italian sports car brand also says Ferrari will put more effort into China sales, seeking to attract the country's growing new rich. He expects China and the 29
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Automobile
United States together will contribute 12 percent more to the company's turnover over the next five years, to weather the waning European market, which is still suffering from economic crisis. Another Italian sports car brand, Lamborghini, has also enjoyed huge success in the world's largest automobile market, thanks to the enthusiasm of China's younger new rich for luxury cars. "It's very interesting that our 30
Chinese customers are much younger than the average in other countries," says Stephan Winkelmann, president and CEO of Lamborghini. The Raging Bull model had a more than tenfold sales rise in five years in China - from 28 in 2007 to 320 in 2012. "The trend for Chinese super sports car customers to be younger is one of the key factors driving the boom. Nothing is better than that for us," says Winkelmann. "The more
younger customers become aware of and accept our brand, the longer they maintain their loyalty to Lamborghini." Global information and consulting company Nielsen Co divided China's luxury car buyers in its research into five segments, which explains in detail the young age of the premium vehicle customers. Brand enthusiasts, the largest group, accounting for 27 percent of luxury car sales, are mainly male and between
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30 and 39 years old. They have a stronger brand preference, prioritizing brand originality and functional performance in their consideration of vehicles. Technology upgrades follow with a 24 percent share, typically in the same age group and male. They see themselves as trend leaders and are most willing to pay for advanced features and technology in their car choices. Business leaders, making up 18 percent of luxury car
sales, are mature and accomplished business owners and executives, aged between 35 and 45 and look for cars that provide social recognition and better comfort. The youngest group, representing value seekers, accounts for 18 percent of luxury car sales and tend to be aged 25 to 35. They are usually firsttime luxury car buyers and many of them are female. "These customers want a car with a luxurious image, but
what really drives their decision is how much value it offers in terms of feature diversity and price competitiveness," says Ganesh Relekar, director of automotive research at Nielsen China. The fifth segment is image pursuers, who make up around 13 percent of buyers and are aged 30 to 39. These luxury car buyers look for a car that makes a personal statement and enhances their social image. 31
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Industry
Honda looks to get back in the game
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Automobile
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SHANGHAI-Honda Motor Co plans to more than double its annual sales in China to 1.3 million units by 2015 through an aggressive new model offensive. 35
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Automobile
The Japanese carmaker announced in a recent press conference in Beijing that it will introduce 12 new models to China from this year to 2015, and ďŹ ve of them will be developed specially for Chinese customers. Six of the new cars will be produced at its joint venture with Guangzhou Automobile Group Co, and the other half will be made at its partnership with Dongfeng Motor Corp, according to the company. 36
Honda also plans to equip its latest Earth Dreams powertrain technology on the new models in China to improve competitiveness in the nation's increasingly crowded car market. The Earth Dreams technology contains a whole new range of engines with displacements ranging from 1.5 liters to 3.5 liters as well as two new CVT transmissions for small and midsized cars. The latest powertrain will ďŹ rst be
equipped on the ninth-generation Accord, which is set to hit the market in September this year. Later, it will be applied on more Honda models in China. To further improve the fuel efďŹ ciency of its local lineup, Honda also plans to produce hybrid vehicles in China in three years. The company said it will reduce the price of such vehicles to attract more customers by locally sourcing core components like batteries and
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electric motors. Since Honda started production in China 15 years ago, the local content of its products has increased to about 90 percent. The company hopes to gain ground after two consecutive years of declining sales partially brought on by unexpected factors, such as interruptions to its supply chain from the earthquake in 2011 and a boycott of Japanese brands over diplomatic tensions. In 2011, its sales decreased
by more than 4 percent to about 620,000 vehicles and in 2012, the number decreased 3.1 percent to about 599,000 units. This is contrasted with an overall market that is growing. Analysts have also said that the unsatisfying performance should be in part attributed to Honda's failure to release as many new models in China as its competitors. They said that Honda has to change its relatively conservative strategy to keep an edge amid
sharp competition because rivals are all already investing heavily in new products, technologies and capacity for the Chinese market. In May this year, the company regained some momentum. Its deliveries in the country grew by 4.6 percent from the same month last year. Its sales in the ďŹ rst ďŹ ve months totaled 256,000 vehicles, a slight decrease of 2.4 percent from the same period last year. 37
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Construction
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New high-speed railways open to promote intercity uplift
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Automobile
HANGZHOU -- The Ninghang and Hangyong highspeed railways went into operation on Monday, marking new progress in efforts to energize the regional economy of the Yangtze River Delta in east China. The Ninghang railway, which links Nanjing and Hangzhou, the capitals of Jiangsu and Zhejiang provinces, respectively, is expected to become a crucial part of the delta's intercity transport system. With a length of 256 km, the railway will cut travel time between Nanjing and Hangzhou 40
from 140 minutes to 70 minutes. The Hangyong high-speed railway, which links Hangzhou and Ningbo, a port city in Zhejiang, also went into operation Monday morning, cutting travel time between the two cities to 50 minutes. The Hangyong railway is expected to become an important transportation link in southeast China's coastal areas. The Yangtze River Delta, which includes Shanghai, Jiangsu and Zhejiang, is one of the most important economic centers in China. Official statistics indicate that 16 of the delta's major cities had a com-
bined economic output of 2.09 trillion yuan (341 billion U.S. dollars) in the first quarter of 2013, equivalent to 17.56 percent of the country's GDP from January to March. Yang Yuming, director of the railway construction and management office of Deqing County in Zhejiang, said small counties like Deqing have had a hard time attracting talent and investment. However, with the arrival of the high-speed railways, an increasing number of enterprises are setting up shop in Deqing. "The traffic circle will speed up the development of small-
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and medium-sized cities in the western areas of the delta, while lower investment, logistics and manpower costs in those places will change the delta's industrial pattern," said Chen Hongyi, secretary of the Urban Development Research Institute of the Yangtze River Delta. Development and communication between different cities will lead to homogenization, as travel time has been shortened between the cities, Chen said. The opening of the two railways will not only bring benefits for cities and residents along
the railway, but also make the traffic network more perfect and smooth," said Yang Weidong, principal of the Communications Planning, Design and Research Institute of Jiangsu. After the railways are connected with other lines, people from north China cities will be able to travel south more quickly, allowing more capital to flow into the area. Liu Guoxin, a resident of the city of Liyang in Jiangsu, took the high-speed train from his hometown to Nanjing on Monday morning. "Liyang had no train stations before and we could only
take buses if we wanted to travel. It was inconvenient. But now we have bullet trains, so my family can to travel to Beijing in July," he said. Lu Fei, a manager at a software company in Hangzhou, tried the new railway on Monday as well. "Time is money for businessmen. It would take more than two hours to travel to Nanjing from Hangzhou before, but the time has been halved and the tickets are cheaper than before, which is good news for me," he said
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Construction
AIRPORT CONSTRUCTION STIRS ENVIRONMENTAL CONCERNS
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WUHAN -- An airport that is under construction in a primitive forest in central China's Hubei Province has provoked the ire of environmentalists, although others believe the airport will improve local living standards. The Shennongjia Nature Reserve is home to more than 3,700 species of plants and at least 1,050 kinds of animals. At least 40 of its plant species and 70 of its animal species are under state protection. The United Nations Educational, ScientiďŹ c and Cultural Organization (UNESCO) added Shennongjia to its World Network of Biosphere Reserves in 1990. However, local media reports in
the provincial capital of Wuhan indicate that the area's mountains and karst caves have been destroyed to make way for the airport. People are divided as to whether it is more important to boost the local economy or preserve the region's ecological environment. Those responsible for building the airport said it is located in Hongping Township, 16 km away from the nature reserve. Construction began in April 2011 and the airport is expected to go into service in October. Some critics believe the construction will almost certainly harm the nature reserve, voicing doubts as to whether the airport was prop-
erly approved by authorities. "The project has been permitted by national and local forestry, land and resources and environmental departments after eight years of research and preparation. Compared with two other alternatives, the site of the airport has the best conditions and will result in minimal damage," said Zhong Xiuguo, head of the airport construction ofďŹ ce. Zhong admitted that some mountains and caves had to be destroyed to make way for the airport. Tang Zhaozi, a senior engineer at the College of Life Science at Wuhan University who has been conducting research in Shennongjia
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Construction
since 1977, said any kind of exploitation will do harm to the local environment. "But the airport won't bring too much harm to the animals there as long as they realize that the planes 44
ying above won't hurt them," he said. Supporters believe the airport will boost the local tourism industry and make the region more accessible in general. Highways are cur-
rently the only way to access the area. "When a road connecting to the outside ďŹ nally became available, people from Shennongjia were very happy," said local resident Wei
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Qun. It is crucial for local residents to develop their tourism industry and improve their living standards, a fact which may not be understood by people from developed cities, Tang
said.
"Shennongjia needs development, so the airport is necessary. But more speciďŹ c research and policies need to be completed by relevant departments. The airport will not only
meet the demands of tourists from home and abroad, but also aid in forest protection and disaster relief," said Zhou Yunqing, a professor at Wuhan University.(XINHUA)
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Real estate
SPECULATORS NOT WITHOUT MERITS
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CED Monitoring HONG KONG-Governments on the mainland and in Hong Kong have taken many measures to rein in the runaway property markets and invariably targeted speculative investment activities as the main culprit. As a matter of fact, whenever housing prices go up the public always blames speculative investment and hates it like capital sin. But, seriously, do speculative investors really
deserve that "unforgivable" label? Let's discuss the more "deserved" speculators ďŹ rst. By speculator we generally refer to a person who invests in assets that are likely to appreciate. Meanwhile, relatively brief investments are generally seen as speculation. Speculation gives people a bad impression because it seldom, if ever, contributes to society's generation of real value. As far as the housing
market is concerned, the government's stand on speculation is absolutely clear because it is politically correct and conducive to its efforts to strengthen governance. I wonder if any reader has noticed the Hong Kong Exchanges & Clearing (HKEx) recently introduced a series of measures (including reducing handling fees, more choices in investment duration, fee waiver and improving the quotation procedure) to
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Construction
boost the options market. Some analysts believe these measures are meant to attract investors from warrants to options trading, because the two are similar in nature. Although both are designed to offer investors more tools to hedge risks in the stock exchange, most investors see warrants and/or options simply as ways to make some quick cash. Isn't that the common attitude of small investors? The fact is financial markets are full of speculative activities and in Hong Kong, an international financial center no less, neither the government nor local residents have thumbed down speculative behavior. As for the investor, the term is more general than the speculator but both refer to persons who aim for asset value appreciation, even though the duration of investment varies and may benefit from dividend earnings and rents. Individual investments are usually savings from one's salary or inherited from older generations of the family. Unfortunately, at a time when quantitative easing is so widespread around the world, such hard-earned capital is losing value as a result of excessive money supply and inflation. Should people be treated like the bad guy just because they buy properties and rent them out for some regular earnings? In fact, speculators and investors are not without merits. Their activities boost liquidity of asset markets, offer more choices in trading, take 48
less time to complete transactions and help even out sharp rises and falls of asset markets. Some people may think that speculators tend to fuel soaring market prices, but they do not see that more players in the market naturally increase the diversity of investment decisions and make it harder for a few to dictate market behavior. Apart from helping even out steep rises and falls of asset markets their presence also reduces the likelihood of the market only rising or falling, unless it is caused by imbalance between supply and demand. A market without investors, speculative or not, may not be a good thing for users. Take pre-sale of unfinished properties by developers for example, it is more often than not investors or speculators who snatch up flats still under construction and later resell them to actual buyers. If there are few individual investors in a property market it will naturally take longer for the developer to sell units before they are completed. That will put lesser developers in a really bad place while the bigger ones can take the opportunity to increase their market share. We all know what market monopoly means to consumers in the long run. The laymen tend to blame speculative investment activities for soaring property prices, but the reality is that investors, speculative or not, merely respond to changes in supply and demand situation. If there are
more sellers than buyers on the market, will it help the sellers to keep raising prices? In this sense investors and speculators all have to live with risks and take the blame for them at the same time. They are victims of market whims, too, but not many people know it. Needless to say, when market speculation gets too hot and becomes irrational economic behavior, the government can intervene with administrative measures to cool the market down, but such intervention must be aimed at the real cause of the problem. In mainland property markets, for instance, the main reason behind rising property prices is that there are few investment options for people who want their savings to gain value instead of losing it to inflation. Mainland authorities need to open more channels for capital flow if they want to tame the crazy real estate market. As for Hong Kong, the root of the problem is short supply of land for housing development in recent years, and previous governments are to blame for failure to build up designated land reserves. To fix this problem for good it is necessary to not only increase land supply but also rationalize the long-term relationship between land supply and property market demand, which cannot be achieved by restraining the free market. Admittedly the SAR government had to take the recent market-cooling measures.