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Publisher & Chief Editor Jamshed Ullah

Editor Makhdoom Babar

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in this issue 29 Sep - 05 Oct 2013

08

Cover Story

HK, Shanghai among top financial hubs 30

SHANGHAI-Foreign automakers may be subjected to closer scrutiny over their pricing as demand for luxury vehicles remains robust in China, experts say. Prices of imported cars have been a hot topic recently following a series of investigations launched by the government over pricing by foreign companies in various sectors. The China Automobile Dealers Association had last month indicated that it had been asked by the National Development and Reform Commission to collect information on whether foreign car makers were setting a minimum retail price for dealers in China.

Illegal vehicle imports hurt Chinese Auto Industry


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in this issue 24

06

Nokia s sale Microsoft shocks many

22

China vaults to world's 3rd-largest investor

36

3G subscribers top 300 million in China

New Canal a lifeline for energy


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Finance

China vaults to World's 3rd largest investor 06


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CED Monitoring

BEIJING-China's outbound FDI rose 17.6 percent year-on-year in 2012 to a record high of $87.8 billion, according to the 2012 Statistical Bulletin of China's Outward Foreign Direct Investment, which was released by the Ministry of Commerce, the National Bureau of Statistics and the State Administration of Foreign Exchange. The report was released during the 17th China International Fair for Investment and Trade, held in Xiamen, Fujian province, which closed on Sept 11. Global ODI slid 17 percent last year, amid uncertainties confronting the world economy. China's increase made the nation the world's third-largest investor last year after the United States and Japan, for the first time since the country began to release the data a decade ago. China was the world's sixthlargest investor in 2011, with an outward FDI flow of $74.65 billion, according to last year's report. "The Chinese government introduced measures to encourage outbound direct investment in pursuit of the 'going abroad' strategy, and the country's outward FDI maintained robust growth in recent years," says Zhou Zhencheng of the department of outward investment and economic cooperation of the Ministry of Commerce. Huo Jianguo, president of the Chinese Academy of International Trade and Economic Cooperation, a think tank at the ministry, says that the surge in outward FDI was mainly driven by domestic enterprises eager to tap overseas markets and profit from using global resources. "Debt crises and slowing growth in developed economies opened up great opportunities for Chinese enterprises to invest

abroad, and the renminbi's appreciation helped the process," Huo says. The nation's non-financial ODI went up 13.3 percent last year to $77.73 billion, accounting for 88.5 percent of the total. Financial ODI surged 65.9 percent to $10.07 billion, according to the bulletin. Flows to the US jumped 123.5 percent to $4.05 billion, making the nation the second-largest destination for China's ODI. Total ODI to developed economies, at about $13.51 billion, was virtually flat year-onyear at $13.42 billion, according to the bulletin. Hong Kong received 58.4 percent - $51.24 billion - of the mainland's ODI. The city, with its well-developed services in finance, accounting and consulting, serves as a gateway for domestic enterprises to explore international markets, according to Victoria Tang, associate director-general of Invest Hong Kong, a body under the special administrative region's government charged with promoting investment. Outward FDI to the British Virgin Islands and Cayman Islands, where Chinese investors set up businesses to bypass investment restrictions in developed economies, slid 72.5 percent to $3.07 billion in 2012. Developed economies where growth has been weak since the 2008 financial crisis have welcomed ODI from China, which has huge foreign-exchange reserves and cash-rich enterprises, Zhou says. "The fast increase in China's outward FDI also showed that the country's manufacturing is significantly gaining international competitiveness. "Further, the country is eager to establish transnational cooperation through mergers and acquisitions in international markets," Huo adds.

In 2012, Chinese enterprises completed 457 outward M&A transactions valued at $43.4 billion. Those were record highs for both numbers and value. These M&As covered 10 sectors, including mining, electricity, culture, manufacturing and transportation. China's ODI grew 41.6 percent annually between 2002 and 2012. The government has set a goal of increasing ODI at an average annual rate of 17 percent through 2015, when it is forecast to reach $150 billion. The full-year figure this year "is likely to see China's outward investment grow more than 15 percent", Zhou says. He added that the robust growth will be maintained in the near future, in view of the country's economic restructuring and the move by its industries to shed excess capital and invest their cash. By the end of 2012, China's total outstanding ODI was $531.94 billion, the 13thlargest in the world, says the report. The amount was small compared with the US outward FDI stock of $5.19 trillion and the United Kingdom's $1.8 trillion, the report says, because "China's outbound direct investment took off rather late". Chinese investors have established about 22,000 overseas enterprises in 179 countries and regions, "and about 79.2 percent of them made profits or maintained a balance", Zhou says. He adds that Chinese enterprises are facing rising risks and challenges, including political unrest in Africa and Southeast Asia. Other challenges include increasing competition from developed economies and restrictions in those markets.

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Finance

HK, Shanghai among top financial hubs

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CED Monitoring SHANGHAI-Shanghai remains the world's sixth most influential financial center, according to a new index of 45 cities, while Hong Kong moved up the ranks to third place. Shanghai has made significant improvements in the services it provides and in the regulatory conditions it has in place, according to the fourth Xinhua-Dow Jones International Financial Centers Development Index released here in Shanghai. Shanghai has been at the top in the development and growth indicator for four consecutive years, showing an impressive performance and great potential for further growth, the report said. "Shanghai's pilot free trade zone will benefit the city's growth as a financial center and support its aspirations to become a more influential international financial center," said Shen Haixiong, deputy editor-in-chief of Xinhua News Agency. Analysts said Shanghai's pilot FTZ program will also upgrade the city's core competitiveness and boost its status as a global financial trade, shipping and logistics hub. "While the initial set of detailed policies and rules have yet to be unveiled, we

think the areas related to financial innovation, reducing investment controls and approvals, simplifying customs procedures and internationally competitive tax regimes are worth watching," said Jian Chang, an analyst with Barclays Research. "Shanghai has been through hard times. Its stable position in the financial center list in the last four years is evidence of that," said Jiao Ran, director of the economic information department at Xinhua. A report that accompanied the index said that while European financial centers are still recovering from the euro zone’s sovereign debt crisis, financial centers in Asia have gained increased influence as a result. The traditional financial powerhouses of New York, London and Hong Kong hold the top three spots, followed by Tokyo and Singapore. Peter Roffman, vice-president of Standard & Poor's, said he believed that the results clearly reflect Shanghai's growing influence in the financial services arena and China's overall economic global strength. Among the financial centers of the BRICS countries, Shanghai ranked top in various indicators, including appeal to investors, talent,

innovation and convenience. The report said that as some financial markets have suffered, the conditions that are important to customers within them have changed too. Inevitably, some key European financial centers have seen their rankings drop, reflecting their troubles in recent years. The index was comprehensive in its coverage: More than 60 different indicators were considered and more than 4,000 questionnaires sent out. The indicator system rated international financial centers on five key aspects - financial markets, growth and development, industrial support, services and their general business environment. The other cities on the top 10 are Paris, Frankfurt, Chicago and Sydney. Beijing kept its 11th place on the list, while Shenzhen moved up four spots to 15th. Pan Yingli, a finance professor at Shanghai Jiao Tong University, said that top financial centers such as New York, London and Hong Kong have a long tradition of providing quality financial services and still have resources that Shanghai lacks and will not be able to get in the short term. 09


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Industry

US tops China’s Carpet manufacturing Industry

BEIJING-Berkshire Hathaway's Shaw Industries Group, the world's largest carpet manufacturer, will open a 210,000square-foot carpet tile plant in the port city of Nantong, 105 km outside of Shanghai. Offering the company's trademark recyclable, high-quality products, the plant will produce carpet tiles to a market that is already serviced by existing showrooms in Beijing, Shanghai, Chengdu, Guangzhou, Hong Kong and other Asian cities. "We believe in manufacturing close to the customer, with the efficient service times customers expect," said Brenda Knowles, a vice-president atShawIndustries. "We believe the same for the domestic market in the US, and we see this as a big step in our global growth plan, which will also help us to continue expansion in the US." Headquartered in Dalton, Georgia, Shaw, a wholly owned subsidiary of Berkshire Hathaway, Inc, makes more than $4 billion in annual sales. The company 10

also has locations in India, Mexico, Australia, the UK and elsewhere. Shaw recently announced plans to open a new manufacturing facility in Adairsville, Georgia, and does not plan to import or export carpet tiles between the US and China. "Two thirds of the world's carpet tile is sold outside of North America - the majority in Asia," said Shaw Industries Chairman and CEO Vance Bell, in an official statement. "Sales in China, in particular, have grown 20 percent annually, making it the world's third largest carpet-tilepurchasing country. Our new plant expands our opportunity to serve this growing market." Shaw Industries chose the city of Nantong for its rich history of textile weaving and production, which has produced a labor force familiar with the process. The city's proximity to major ports and national highway infrastructure make it a perfect fit for the company's goals, Knowles said. "Nantong's woven textile her-

itage mirrors the communities in which we've manufactured flooring in the southeastern US for more than half a century," said Shaw Industries vice president for Asia Pacific Jeff Galloway, in an official statement. "The feeling of being at home in China is due in even larger part to the reception and cooperation we've enjoyed from the Nantong government, the officials in the Nantong Suzhou Science and Industrial Park, and all those with whom we've done business in China, including our newest Shaw associates." The company has already hired 100 employees for the Nantong facility, with two from the US offices. Eventually, the plant will employ 250 at all levels of management and manufacturing, Knowles said. The new Nantong factory was built from scratch, designed and constructed to meet the particular needs of carpet tile operations, including a specific flow of operations and equipment.


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Industry

Mooncake and mitten-crab eclipsed in luxury ban BEIJING - Mooncake is being snubbed in China for the first time anyone can remember, despite of the forthcoming Mid-Autumn Festival, while the fate of crabs is only a little bit better - or worse, depending on your point of view. Luxury Mooncakes - a form of tribute - used to be sold at staggering prices, easily more than 1,000 Yuan

12

($162), but such prices are rare this year, ahead of the September 19 festival. At the Walmart in Beijing's Xuanwu Men Wai Street, Xinhua reporters found price tags on mooncakes mostly marked with numbers ranging from 49 to 300. "The highest price is 888 Yuan and only two boxes of Mooncakes at such price

have been sold so far," a seller told reporters. According to He Yikui, executive deputy head of south China's Guangxi Restaurants Cuisine Association, most local Mooncake manufacturers are operating at output of around 50 percent. On China's leading online shopping platform Taobao.com, almost


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public funds has eroded the Party and social atmosphere," said China's anticorruption tsar Wang Qishan. On Tuesday, China's courts were told that there would be no Mooncakes on the public dime for elimination of the four "evil winds" -- formalism, bureaucracy, hedonism and extravagance -- a beefing up of CPC leadership's "eight-point" rules issued for bureaucratic reform late last year. "It seems that the Mooncake has returned to its essence of being a pastry for common families," said He Yikui. He blamed the soaring price in past years on excessive packaging and tie-in sales. For instance, a bulky Mooncake gift box

none of the Mooncakes priced over 2,000 Yuan have been sold in the past month, compared with hundreds of thousands of sales for those priced at or below 300 Yuan. Sales for Mooncakes priced between 1,000 to 2,000 Yuan are also less than 20 on Taobao. Prices of the Chinese mitten crabs, another autumn delicacy for Chinese foodies, have also declined from the same period last year, but the fall is not so precipitous as for their Mooncake companions. The Suzhou Yangcheng Lake Crab Association predicts an average of 20 percent lower prices from last

year. Size of human palm, the crabs generally live in the fresh waters of East China's Jiangsu and Zhejiang provinces and are rich in protein and amino acids. The price of a single crab was once driven up to over $100. Since August 21, about one month before the festival, disciplinary authorities of the Communist Party of China (CPC) have repeatedly barred officials from gifting mooncakes and other presents using public money. Giving gifts like costly Mooncakes and crabs has deviated from the traditional virtue of frugality, "and buying them with

quoted at 5,000 Yuan might include a combo of pastries, red wine and even watches. He said the authorities' extravagance crackdown will spur the official-oriented Mooncake industry to turn back to the ordinary people, which is, in fact, conducive to the longterm development of the industry. The demise of superluxury Mooncakes and crabs following the austerity order reveals their relations with public spending, according to Xia Xinping, associate researcher with the Guangxi University of Science and Technology. Xia warned of some "covert" gift-giving using public funds, such as buying other things instead of Mooncakes, or buying lux-

ury gifts online and giving them via express delivery. Indeed, gifts are not only Mooncakes and crabs. Searching key words like "high-end gifts, mid-autumn" on Taobao.com, thousands of commodities popped up including diamonds, mink coats and teas with prices varying from 50 to about 28,000 Yuan. At a booming online tea shop, the vendor said his 297-yuan "Tie Guanyin," a popular variety of oolong tea, is packaged in a porcelain box decorated with red gold thread. After purchase, he will seal the gifts in a carton and mail them to the exact addresses the customers offered. "That's 'safe' and low-profile," he said.(XINHUA)

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Constraction

China to help install lithium battery plant in Bolivia 14


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LA PAZ -- A group of Chinese technicians are expected in Bolivia to help install the country's first lithium battery plant, said an official. Construction work on the pilot plant, located in the Uyuni salt field in the southern department of Potosi, will conclude in October, and the assembling phase of the plant will begin in November and end in January 2014, said Luis Alberto Echazu, head of the National Evaporite Resources Management Office.

"We hope to calibrate (the plant) in January and put it into operation surely by April, when we will have the first pilot production samples of batteries," he said. Some 2.9 million U.S. dollars have been invested in the plant, whose construction will be carried out by China's Linyi Gelon New Battery Materials Co., said Echazu. "We are waiting for the arrival of the Chinese technicians to begin installing the machinery... and later training the Bolivian

workers who will be in charge of the plant," he said. According to Echazu, the pilot plant's output is not for sale on the market. Bolivia is looking for a partner for its lithium battery industrialization project, one that can bring not just the technology, but also guarantee the commercialization of a certain percentage of the production. Bolivia and its neighbors Chile and Argentina hold 85 percent of the world's lithium reserves.

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China, Tajikistan agree to lift Gas Pipeline project

Construction

BEIJING-Chinese President Xi Jinping and his Tajik counterpart Emomali Rakhmon met recently and agreed to accelerate the construction of Line D of the China-Central Asia gas pipeline. Recalling that the two countries established a strategic partnership during Rakhmon's visit to China in May, Xi urged both countries to continue to be each other's good neighbors, good friends and good partners. The two countries should work together to safeguard security, stability and promote cooperation in the border areas, strengthen mutual trust and support each other on core-interest issues, and expand win-win cooperation to bring more benefits to the two peoples, said Xi. The Chinese president hoped both sides will launch the construction of Line D of 16

the China-Central Asia gas pipeline as soon as possible, expand cooperation in such fields as mineral resources exploitation, agriculture and transport infrastructure, and make new breakthroughs in relevant cooperation projects. Moreover, the two countries' defense and law-enforcement agencies should push forward cooperation in counter-terrorism, drug control and border defense, said Xi. Both countries, Xi added, should strengthen cooperation under the framework of the Shanghai Cooperation Organization (SCO) to achieve long-term stability and common development and prosperity in the region. Rakhmon, for his part, said Tajikistan has great expectations for future relations with China. Tajikistan will sincerely work with China on the gas

pipeline construction, which bears great significance for boosting the Tajik economy, Rakhmon said. The Tajik president also wished for an early signing of a long-term economic and trade cooperation agreement to boost bilateral trade. Meanwhile, the two countries should jointly combat the "three evil forces" of terrorism, extremism and separatism and maintain common peace and development, he said, adding that his country is ready to enhance coordination with China within the framework of the SCO. The two presidents also exchanged views on Afghanistan and presided over the signing of an agreement on the construction and operation of the natural gas pipeline.(XINHUA)


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Science & Tech

China, UK to up science co-op CED Monitoring BEIJING-National science academies in China and the UK published a joint statement for further cooperation on Friday. Royal Society President Paul Nurse visited Beijing in September. To encourage Chinese and Britain scientists to strengthen their cooperation, the Chinese Academy of Sciences and the Royal Society took the occasion as an opportunity to publish the statement. 18

As scientific nations, committed to fostering world leading research, China and the UK are ideally placed to collaborate closely on scientific issues, to share ideas, skills, resources and practices — and to both work together and learn from each other in applying knowledge-based innovations to our economies and societies, the statement said. The world is facing challenges such as a growing population, energy ex-

haustion and pollution, for which science may provide solutions, so there is a need to increase China-UK cooperation. The Chinese Academy of Sciences and Royal Society have already experienced 30 years of cooperation. CAS President Bai Chunli said both sides had benefited from the cooperation, so CAS was willing for more comprehensive communication and cooperation at a higher level.


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Science & Tech

China vows commitment to int'l space co-op

The country will cooperate with the United Nations Office for Outer Space Affairs (UNOOSA) and space agencies of other nations and regions, Wang said at the annual seminar on manned spaceflight, co-hosted by the UNOOSA.BEIJING -- China's manned space program is committed to international 20

cooperation in the fields of technology, space application and astronaut training, a senior official said here. China will consistently adhere to the principle of peaceful use, equality, mutual benefit and common development in the construction of its manned space station, due to

be completed around 2020, Wang Zhaoyao, director of the country's manned space program office, told an international seminar in Beijing.Collaboration should be conducted either in research components and modules, or in subsystem and cabin, or in , or in subsystem and cabin


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development, he said. According to the official, joint studies and onboard experiments should be conducted with foreign counterparts in aerospace science and medicine. China will also select and train astronauts for other countries "at a proper time" and these astronauts will jointly conduct spaceflights with Chinese counterparts, he said, adding exchanges will be conducted with other countries in this field. China will actively share technological achievements of the manned space program with other countries, especially with developing nations, in order to boost common development, Wang vowed. "Cooperation should be either bilateral or multilateral, with diversified and flexible models based on peace and a win-win

cooperation," he said. China has established sound cooperative relations with the UNOOSA, European Space Agency and space organizations of countries including Russia, France and Germany. It has also begun dialogue and exchanges with U.S. organizations. China and Russia have conducted active cooperation in astronaut training and extravehicular spacesuit research, according to Wang. Chinese scientists also conducted a joint biological experiment aboard the Shenzhou-8 spacecraft with German counterparts in 2011. And China and France jointly researched space life sciences and gained substantial results, he said. The five-day seminar, which opened on Monday, will be attended by more than 120

manned space experts from more than 20 countries and regions. China will mark the 10th anniversary of its first manned spaceflight during the seminar. Six Chinese and foreign astronauts will talk to students of Tsinghua University at a sub-forum. China is the third country after the United States and Russia to acquire the technologies and skills necessary for space rendezvous and docking procedures, as well as supply manpower and materials for an orbiting module via different docking methods, key steps toward the country's goal of building a permanent manned space station by 2020. Since its first manned space mission in 2003, China has sent 10 astronauts and six spacecraft into space. (Agencies) 21


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IT

Samsung enhances investment in Xi'an

CED Monitoring BEIJING-Samsung Electronics Co Ltd will invest $500 million in Xi'an, Shaanxi province, to set up a packaging and testing facility. The move comes one year after the South Korean company invested $7 billion to build a memory-chip plant in the Xi'an Hi-tech Industry Development Zone. The company has just recently signed an agreement with the Xi'an hi-tech development zone, one of the largest industrial zones in central and western China, for the $500 million project. With Samsung's new investment, local officials said that Xi'an now has a good chance of becoming a cluster for the semiconductor industry in the next few years with an annual output value of more than 100 billion 22

Yuan ($16.25 billion).Kwon Ohhyun, Samsung Electronics' chief executive officer and vicechairman, said the new project will help the company build a complete industrial chain in Xi'an, covering areas ranging from the production of memory chips to hard disk manufacturing. The project, which will comprise assembly lines for the packaging and testing of flash memory chips and solid-state disks, is a supporting project to Samsung's chip facility. Kim Chang-yeong, director of Samsung Electronics' R&D center, said the investment will help provide support to areas such as the production of mobile phones and tablet PCs. The total floor area of the new facility will be 70,000 square meters. Construction is expected to start in January 2014,

and the factory will be completed by the end of next year, according to An Jianli, director of the administration committee of the Xi'an Hi-tech Industry Development Zone. The project is also expected to attract about 20 more companies engaging in supporting businesses to the development zone, An said. Meanwhile, also on Thursday, Samsung Electronics' new R&D and data centers were put into operation in the development zone. The two facilities will mainly conduct R&D activities for highlevel software, which will further upgrade the level of local software research and development, as well as outsourcing businesses, Kim said. Samsung Electronics' R&D center will develop products, including mobile phones,


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smart televisions and semiconductors, and it will research cloud computing and medical projects. The data center was developed by Samsung Data System and will be the second-largest global data development center after the company's existing data center in Beijing. The Xi'an data center will mainly engage in SDS' global outsourcing business and provide IT solutions for the company's projects in Xi'an. According to Zhao Hongzhuan, Party chief of the Xi'an hi-tech development zone, Samsung's chip project is expected to attract more than 100 supporting companies with an output value of

more than 60 billion Yuan, and it will create more than 13,000 new jobs. Other semiconductor companies operating in Xi'an's development zone include Micron Technology Inc, Applied Materials Inc, Huajing Electronics Co Ltd and Huaxun Micro Electronics Co Ltd, said An, the official with the development zone. He added that the construction of the main plant for Samsung's memorychip project has already been completed and further work is in progress. The factory is expected to become fully operational by the end of the year. It will have a monthly output of 100,000 chips with annual sales worth 66 billion Yuan, An said.

Students use Samsung computers at a school in Xi'an, Shanxi province. 23


Nokia’s sale to Microsoft shocks many

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IT

CED Monitoring The sale of Nokia - once the world's largest mobile phone brand - to Microsoft for $7.2 billion came as a surprise to people of Nokia and Finland as it has long been a major growth driver of the Finnish economy. Its demise signifies a changing era in the global information industry and market, the benchmark of the new economy of the 21st century. Nokia's descent has accompanied the decline of the traditional computer industry's core technology parts and components. Smartphones represent the integration of computer and telecommunication industries that are not dominated by Wintelism (Microsoft OS and Intel chips supported by Japanese key parts and components, and Taiwanese assembling capabilities), which had controlled the development success of personal computers since birth. Instead, the success of Apple's 24

iPads and iPhones suggests a smart integration of communication and computing functions plus design and marketing, are more important than technology monopolies and manufacturing excellence. 'Soft' capabilities overtake 'hard' technologies as the determining factor in global competition. Wintelism may be collapsing, but no new regime has emerged to replace it in the new mobile devices world. Apple is being challenged by Samsung and competitors are disappearing in the process. Blackberry and HTC are under threat from hostile takeover or waiting for friendly merger. Microsoft's Windows phones have failed to gain market share as its propertied OS is no challenge to the opensource Android, used by most others. Smartphones and their variants (like WiFi or 3G enabled tablets) are set to eliminate personal computers and will start the evolution of a new

generation of integrated devices and technologies. The other era change is the rise of China. Though China has been long viewed as the manufacturing base for the US, Japanese and Korean computer firms, the Chinese computer manufacturer Lenovo replaced Hewlett Packard as the largest personal computer brand in 2012. The same year, China's smartphone market exceeded the US market. In the second quarter of 2013, according to market researcher Canalys, five Chinese companies (Lenovo, Yulong, Huawei, ZTE and Xiaomi) made up the top-10 positions in the global smartphone market and made up 20 percent of its total market, up from less than 15 percent a year ago. Market leaders Samsung and Apple both lost market share to Chinese competitors. The size of the Chinese smartphone market was 88.1 million users in the second quarter of 2013,


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almost triple the US market. Chinese companies excel in the low-end market segments, and as smartphones spread to developing countries, with India already the third-largest market in the world, they look set to expand into the overseas markets and dominate there. The immediate future in the global integrated information market will belong to Chinese firms. Both Huawei and ZTE are Shenzhen-based and have benefited greatly from proximity to Hong Kong. The industrial ecosystem in Shenzhen and the Pearl River Delta (PRD) region has been conducive to entrepreneurial development in various segments of the information industry value chain. The emergence in the past of many lowcost imitations of popular notebooks, mobile phones and even iPads and iPhones, testifies to the incubation ability of the local system. Shenzhen and the PRD-at-large, have in-store skill, knowledge, experiences, innovative ideas and manufacturing ability to turn these ideas into products cost-effectively.

Many of the entrepreneurs and factories involved are from Hong Kong and given the intimate business connections of its firms in the region, it would not be difficult for them to set up their own small innovative factories or do sourcing from other indigenous firms. It is a pity that with such business and spatial proximity to the region, Hong Kong has not developed together with the region into the production and service base for all these electronic information products from computers to smartphones. Probably the firms, banks and government have been too preoccupied with the low-cost production of labor intensive industries to have noticed the rapid evolution of the information industry that may have been utilized to their advantage. Hong Kong needs a serious structural upgrade to escape from the trap of low-valueadded services industries. This would be an appropriate time for the city to use its established business connections in the

PRD and jump on the bandwagon. Hong Kong could be a global showroom and distribution center for mainland smartphones and their variant products; it could encourage designers - of semiconductors, software, products and content - for products and services; it could create firms to promote services offered by the new generation; it could attract venture capital and other private funds for investment into such industries; it could serve as headquarters for these aggressive mainland firms and their global businesses, and much else. Opportunities are there and Hong Kong must invest in and indulge them with determination. What irony and misfortune if Hong Kong misses this new "Made in China" and "Made for China" mobile electronic information age. The author is the director of the Public Policy Research Institute and head of the China Business Centre at Hong Kong Polytechnic University. 25


China to follow sustainable urbanization path

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Real Estate

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BEIJING -- With massive city construction and rising urbanization rate over the past decades, the Chinese government should focus more on a human-oriented and sustainable path, experts say. On the back of galloping economic growth since the implementation of the reform and opening up policy in 1978, China has become more urbanized. Data showed that the country's urbanization rate increased from 17.92 percent in 1978 to 52.57 percent in 2012, an annual growth of 1 percent. However, local governments have favored a campaign of city construction, as their local finances rely largely on revenue from land sales, mostly for real estate development. The sheer focus on construction of real estate has created many cities with very few inhabitants, such as Erdos city in Inner Mongolia autonomous region, which is known for its sparse residential communities. According to the Beijing News on September 2, permanent residents in Erdos is just above 100,000. Since last year many construction sites have suspended operation and many workers have left, Liu Yao, a taxi driver, said. "Local governments should abandon the mentality of pursuing urbanization for driving up investment and stabilizing growth in the short term," according to

Wang Xiaoguang, an expert with the Chinese Academy of Governance. Last year, the 18th National Congress of the Communist Party of China said that the nation will pursue a new kind of urbanization with Chinese characteristics. A major task of the government's economic work in 2013 is to actively promote urbanization and strive to enhance its quality, according to a central economic work conference held in December. Since the beginning of the year, the government has emphasized efforts that puts people first, using the potential of urbanization to support growth in the coming decade. Government plans on how to do this should be released later this year. Wang said the new urbanization drive should not be about investment, but about the future direction of related reforms, including "hukou", or the household registration system, the land system and pushing for equal public services. Hundreds of millions of migrant rural workers in Chinese cities cannot enjoy the same public services and social benefits as urban residents do partly due to the country's household registration system. Xia Bin, a counselor for the State Council and a former member of the monetary policy committee of China's central bank, believed the old pattern of urbanization is not sustainable in the

longer term. Apart from providing equal public services, the government should also promote the development of the service sector and encourage small enterprises to offer more job opportunities for migrant workers, said Zhang Yansheng, secretarygeneral of the Academic Committee of the National Development and Reform Commission. The country must provide necessary vocational education and technical training for rural workers, Zhang said. "The central issue in seeking new-type urbanization is quality and efficiency, instead of scale," according to Zhang. Urbanization should also focus on energy-saving, green and efficient development of cities and make scientific plans when it comes to layouts so that land resources can be used with minimum waste, Xia said. Urbanization needs to explore a new pattern that fits the next 35 years, instead of becoming an extension of the old mode seen in the past three-and-a-half decades, according to Zhang. The secretary-general added that China should take an urbanization path that meets high international standards, incorporates the ideas of green and intelligent growth and also features values including frugality, love of the environment and social harmony.(XINHUA) 27


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Real Estate

Real Estate PEs need clear rules

CED Monitoring BEIJING-As China urbanizes, more domestic private equity real estate funds have 28

emerged, but the absence of strong institutional investors and the lack of a regulatory framework pose challenges to their

development, the Zero2IPO Group and China Minsheng Banking Co said in a report. As of the end of 2012, the nation's


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urban population was 711.8 million, accounting for 52.6 percent of the population - 1.3 percentage points higher than in 2011, government figures show. As of that point, there were 141 Chinese PE real estate fund management companies, along with 31 foreign ones and six joint ventures. The report said that 94 PE real estate funds that are investable in the Chinese mainland market finished financing in 2012 and the amount totaled $5.96 billion, showing that Chinese PE real estate investment was becoming popular. The funds' founders were property developers, independent fund managers or professional PE firms. But Chinese PE real estate

funds face the dual challenges of a lack of institutional investors and the absence of relevant laws and regulations. The main institutional investors in the Chinese property market are trust companies and foreign industry-based investment funds. No securities firms, insurance companies or social security funds in China may directly participate in property investment. That's a marked difference from the PE real estate market in the United States, where insurers and pension funds are the main investors. The major investors in Chinese PE real estate funds are affluent households and individuals, but they invest relatively small amounts and they aren't sophis-

ticated long-term investors. Thus, cultivating institutional investors in China is urgent. Enterprise annuity funds pension funds should be allowed into the market, said Ni Zhengdong, chairman of the Zero2IPO Group. Ni added that the return on investment of real estate investment funds in China in the first half of 2013 was as high as 19.6 percent. No law in China has authorized PE real estate investment funds, so it is difficult for them to operate. The report said that the scale of PE real estate funds in China has become large, and it urged regulators to enact related laws and rules soon. 29


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Automobile

Illegal vehicle imports hurt Chinese Auto Industry BEIJING-It was "like a student cheating on a test to get a better score". And, in the end, undermining everyone involved. That's how a US auto industry analyst described a vehiclecertification scam which sought to help makers of recreational vehicles in China get around US emissions laws. Tim Dunne, director of global automotive operations at marketing-consulting firm JD Power and Associates in California, made his comments to China Daily in connection with an agreement last week by two California companies to pay more than $3.5 million to settle allegations that they falsely certified more than 24,000 all-terrain recreational vehicles exported to the US from China. The accused issued certificates without testing the ATVs' ability to meet US emissions standards in the pollutionplagued Golden State. Back in 2011, the US Environmental Protection Agency and the state of California filed separate lawsuits in a Los Angeles federal court, accusing the companies, MotorScience Inc and MotorScience Enterprise Inc, and their founder, Chi Zheng, of using false or incomplete data to obtain paperwork needed under the Clean Air Act to permit customers to import ATVs. Under the settlement, the state will receive 20 percent of the penalties and the federal government 80 percent. For the next 15 years, MotorScience, of 30

City of Industry, near Los Angeles, and Zheng must undergo strict monitoring before they do any work involving off-road vehicles and engines, according to the agreement. The case underscores the need to "vigorously enforce" environmental standards, California Air Resources Board Chief James Ryden said in a press release. "When a manufacturer circumvents" these laws, "they not only cheat their customers and competitors, but they also shortchange every citizen of our state who relies upon our shared actions to clean the air," the airquality official said. Dunne said that the vehicles were presumably sold means "a competitor that played by the rules lost out on 24,000 sales. It's unfair competition – you can't have that in a free market". MotorScience and Zheng started helping overseas vehicle makers and importers in 2006 get the correct EPA certifications to allow them to sell their goods in the US, according to the lawsuit. Zheng filed paperwork with the agency stating that such vehicles and engines "meet or exceed the minimum requirements" for federal airquality-control emissions, according to the complaint. MotorScience allegedly would test a small number of vehicles for import and then use those results repeatedly to get certificates for other vehicles. In at least three instances, those vehicles exceeded the federal

limits for hydrocarbons and nitrogen oxides. But, according to the complaint, the company failed to keep a detailed history of how or when such tests had taken place. MotorScience also failed to meet the federal requirement to get copies of that and other data to its customers, according to the lawsuit. MotorScience has been in trouble with the EPA before. In 2010, the agency voided 12 certificates held by four US-based importers of Chinese recreational vehicles who were clients of MotorScience. Neither Zheng nor MotorScience could be reached for comment. There are two issues here. One, air pollution has long been a major challenge in California, partly due to having one of the world's largest automobile markets. Local air districts in Southern California and the San Francisco Bay Area have attempted to limit fine particulate matter and ozone emissions. The state's target is to get 1.5 million zero-emission vehicles on the road by 2025. "California has taken a lot of public chastisement for its tough stance on vehicle emissions, but few could argue with the results," Dunne said. "In urban areas, the air is much cleaner today than it was 20 years ago, and could provide a blueprint for emerging countries that are caught up with endemic smog and pollution." The second issue deals with the notion of keeping a free market free — free of corruption.


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Automobile

Over-pricing Automakers in 32


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debate puts hot seat 33


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Automobile

SHANGHAI-Foreign automakers may be subjected to closer scrutiny over their pricing as demand for luxury vehicles remains robust in China, experts say. Prices of imported cars have been a hot topic recently following a series of investigations launched by the government over pricing by foreign companies in various sectors. The China Automobile Dealers Association had last month indicated that it had been asked by the National Development and Reform Commission to collect information on whether foreign car makers were setting a minimum retail price for dealers in China. Chinese customers are expecting a fall in prices following the announcement of the inquiry. However, industry experts maintain that premium prices will continue to remain unchanged, as demand continues 34

to increase. Luo Lei, deputy secretary-general of the association, says it plans to collect data on the prices of foreign cars and the profit margin made to ascertain whether price manipulation has taken place and whether prices in China are higher than in the home markets of the car companies. Debate about foreign cars gathered further steam after China Central Television aired a program that came down heavily on what it said are exorbitant prices and huge profit margins enjoyed by foreign auto brands in China. Citing the example of a popular imported foreign car with a price tag of 1.89 million Yuan ($310,000; 235,000 Euros), the program said the profit enjoyed by the automaker on that model was about 470,000 Yuan. Since dealers are not allowed to adjust the retail prices without ap-

proval of the manufacturer, it is also an instance of a price monopoly in the Chinese market, CCTV says. Tao Jingzhou, managing partner of Dechert LLP, an international law firm, says the planned investigations are a welcome step as it shows China's "increasing attention to the laws and regulations in the global market", and the government's intention to create a level-playing field for all companies in China. "These kinds of investigations happen from time to time in developed countries, so it is normal to see them in China," Tao says. "Once a company violates the law, whether it be a foreign company or a Chinese company, it is subject to punishment. "Thirty years ago we treated multinationals as 'super-citizens', but now we should treat them as equal market players,


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with no special favors or discrimination." "This excessive margin problem has existed for more than 10 years," says Su Hui, vice-chairman of the dealers' association. "We have raised proposals before on looking into this price manipulation, but there was no real result." "I think people who buy luxury cars in China know about the price disparity very well," says John Zeng, Asia-Pacific forecasting director for LMC Automotive Consulting, an industry consultancy. "It is obvious that pricing is not an issue for these customers, as their wealth and social status is often measured in the high price they pay for the cars." However, most of the foreign automakers, speaking on condition of anonymity, blamed high import tariffs and other taxes for the high prices. Some lawyers insist that brands

setting the lowest pricing violates China's anti-monopoly law, while others think imported cars are far from achieving a monopoly status in China. They cite legal precedents stipulating that a market participant is deemed a monopoly if its market share exceeds 50 percent, or if the combined market share of two participants exceeds two-thirds. The domestic market is highly competitive, and importers are vying with domestic companies to grab market share. So it is far-fetched to suggest that foreign companies have colluded on price or achieved a price monopoly, Tao of Dechert says. The China Association of Automobile Manufacturers says 19.3 million cars were delivered in China last year, while the output value of the industry was more than 5.3 trillion yuan. To address the price problem, the government has to strike out

some inappropriate regulations, says Zeng of LMC. The first regulation to amend, he says, would be the brand management method imposed by the government in 2005, which requires auto dealers to get authorization from manufacturers before they can sell cars. "In the US market, it is just the opposite," Zeng says. "If a brand wants to enter a regional market, they have to get approved by the dealers association. "In China, automakers, or brands, have a much bigger say than in other countries. Brands want to maintain the profit margin and the premium profile, so dealers have very little power to lower the prices." "Only when this outdated regulation is phased out will we see the results of fair competition," Zeng says. "Free competition is the most important."

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Agriculture

Chengdu holds int’l Kiwi fruit festival CED Monitoring CHENGDUThe 2013 China. Chengdu International Kiwi Fruit Festival and the First China Kiwi Fruit Trade Fair has been oinaugurated in Chengdu,

capital of Sichuan province and will continue until December. The event, which is jointly sponsored by the Chengdu Municipal People's Government, the Sichuan Agricul-

ture Department and the China Fruit Marketing Association, aims to promote the kiwi fruit industry of Chengdu and also to promote the city's kiwi fruit internationally.

The opening ceremony of the 2013 China - Chengdu International Kiwi Fruit Festival and the First China Kiwi Fruit Trade Fair, in Dujiangyan, Chengdu, The event includes a photo exhibition, an exhibition of agricultural products and kiwi fruit picking. The organizing committee is also expected to invite Chengdu's kiwi fruit enterprises, cooperatives and major producers to tour other big cities like Shang36

hai, Shenzhen and Fuzhou.The city's kiwi fruit producers have won several top prizes in national and provincial quality evaluations, and they sell their produce to a dozen countries and regions including Japan, South Korea, the United States and the Euro-

pean Union. Dujiangyan, a county-level city under the jurisdiction of Chengdu, is one of Chengdu's most important areas concerning the production of kiwi fruit, and it has become one of China's largest production and export bases of kiwi fruit.


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Contestants take part in a kiwi fruit eating competition during the 2013 China • Chengdu International Kiwi Fruit Festival in Dujiangyan, Chengdu, Sichuan province,

Local kiwi fruit producers show some of their produce at the kiwi fruit festival. 37


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Agriculture

Chinese Halal promoted

BEIJING -- The first ChinaArab States Expo was held recently in Yinchuan city of northwest China’s Ningxia Hui Autonomous Region. It featured trade fairs and seminars on agriculture, energy, culture and tourism. Of the enterprises that are attending the expo, China's Halal food producers have been attracting a lot of attention. China and Arab states 38

share a long history of trade and commerce. The Chinese are familiar with Halal food, especially Halal pastry. However, Halal fruit juice is a newcomer to the market. With an eye on Middle Eastern markets, Chinese juice producers are promoting two different types of products, one for domestic consumers and one for Arab markets, with labels and in-

structions written in Arabic. Wang Meng, president of Xiangjuzhai Huiyuan Halai Beverage Company, said, "The processing, storage, logistics and selling of our products are all carried out under Islamic Sharia law, which is approved by the Chinese Islamic Association. We also talk to our Middle Eastern consumers so that we can cater for their needs."


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juice products at Expo

China’s exports to Arab states in 2012 exceeded 90 billion US dollars, while imports reached more than 130 billion dollars, says Li Jinzao, the Vice-Minister of Commerce. Major cooperation areas focus on energy, mechanical equipment and consumer goods. Saudi Arabia merchant said, "China is an influen-

tial country. The Saudi Arabia delegation have visited some Chinese enterprises here. We announced yesterday that we will establish a ChinaSaudi Arabia investment company." The five-day Expo is jointly sponsored by China’s Ministry of Commerce, the China Council for the Promotion of In-

ternational Trade, and the government of Ningxia. The fair draws the participation of more than 7,300 domestic and overseas officials, exhibitors, purchasers and investors from Jordan, the Kingdom of Saudi Arabia, Syria, Kuwait and other Arab countries.(Agencies) 39


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Parents back hard rules for Kids' books Society

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Two students enjoy reading at a bookstore in Nanjing, Jiangsu province. The central government released a circular calling for stricter supervision over childr publications to filter obscene and violent content. CED Monitoring

ation of quality." He is in support of the policy, Zhao gave an examplebut shows concern of how to BEIJING- Both parents of her current project, saying regulate online content, - espe and publishers welcomed athat there are more than 10 cially those targeted at chil government’s notice calling for versions of Charlotte’s Chinese dren. stricter supervision over - Web chil by different publishers. Experts have suggested dren’s publications and looked "The translation quality varies introducing a classification sys forward to more detailed - regu widely," Zhao said. tem. lation and enforcement. Cao Xiaoping, a primary Fang Weiping, a professor with A circular, released by - the cen teacher in Nantong, school Zhejiang University, said that a tral government called for Jiangsu province, echoed classification system for chil stricter supervision to - filter Zhao’sob opinion, saying-that chilpublications could help dren’s scene and violent contentdren’s in literature is now not sort out the chaos. reading material for children, in much different from main In Western countries, both print and digital media. stream literature. efforts to improve book content "The children’s publica Cao said that comic and largely rely on parents’ - organi tions market has been thriving anime books display the worst zations, libraries or schools, with many quality works that content. "There is vulgar - said con Zhao, children’s publishing boost healthy development, tent in them, with cursing, - expert. vio "Government should but problems also exist, such lence and even obscenity," sheencourage civil organiza also as shoddy quality, improper said. tions to discern the quality of content and overly high "It is good to see the children’s readings." prices," said the document, pledge for stricter supervision," In November, the first which was jointly released bysaid. "But we also hope she to International Children’s China five departments, including seethe policies or market-incen Book Fair will be hosted in Ministry of Education. tives to boost quality soShanghai. that The event, with ap Zhao Ping, a children’s - publish the children can really benefit proval of the General Adminis ing industry insider in - Shang from reading." tration of Press and Publication hai, said that the children’s As access to the Inter is dedicated to the copyright book market displays a sharp net is easier than ever before, trading, publishing, printing contrast in quality. children have larger exposure and distribution of books for "The profit in children’sto books unfiltered content online and up to 16 years old. children is still prominent, compared on various digital products, "I hope the book fair will with other types of publica - which has worried parentshelp a improve publishing quality tions," she said. "Print is dying, lot. and introduce more high-qual but children’s books are still"One click could destroy ity literature for Chinese chil popular. Many profit-driven dren," Zhao said. a child’s mind," said Wang publishers rush into the market Fuming, a father with a 7-yearwithout the slightest consider - old son in Beijing. 41


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Society

Girl gets underground job in Desert 42


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CED Monitoring BEIJING-From April to October, 9 am to 9 pm, Li, a researcher in the Gurbantunggut Desert, China's second-largest, monitors an electronic screen buried deep into the scorching earth. She is finishing a thesis for her master's degree at the Fukang National Field Scientific Observation and Research Station. The goal of her experiments is to observe the carbon flux of the desert plant Haloxylon ammodendron, better known as sacsaoul."The growing season is the busiest time for me," Li said. To protect equipment from the baking earth, where the temperature sometimes reaches 80 C, Li buries them. Li had a close call in August."I felt sick in the hole, so I climbed out. But I still felt like I was going to faint. You know, if I had fainted it would have been very dangerous. No one would know before 9 pm." She had her wits about her, found shade nearby under a shrub, and managed to call the station. Once a month she has to stay in the desert overnight for data observation."Normally, somebody comes to join me to share the experience of being in the desert at night under a blanket of stars." Li confessed that she did not know the working conditions would be so tough. Some of Li's fellow students have a more cosmopolitan life with plenty of time spent traveling and attending lectures. "I used to admire them, but the longer I do research, the more I find that I like it here," she said. Getting back to normal could be hard, she admits. After she earns her master's degree, Li plans to continue to study and work in the Gurbantunggut Desert.

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