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Editorial Editor Jamshed Ullah News Editors Summer Wong Ji Long Mike Lincoln Jenny Alvin Research & Analysis Wang Aiguo He Cheng Shi Chengwei leon Ludwig Uzma Zafar

Designing & Layout Asmat Ullah Khan Awais Shehzad Raja Pervaiz Technical Support Sultan Haroon Iqbal Bukhari Co-ordination Sobia Noreen Internet Edition John Nelson Rehmat Chughtai Contact Head office:

A Powerful financial indicator

A

ccording to a globally credible survey report, China has emerged as the most financially secure country in an index jointly launched by PICC Property and Casualty Co Ltd, the largest non-life insurance company in the Chinese mainland, and Genworth Financial Inc, a Fortune 500 insurance holding company. The report that surveyed 13,000 households in 14 European countries, and five Latin American countries and China. China scored 78 out of 100, the highest score of any country and the highest since the index was launched in 2007. Only 3 percent of Chinese households are financially vulnerable, whereas the same figure for Germany is 22 percent and 26 percent for France, according to the report. Of more than 1,000 households surveyed in Beijing, Guangzhou, Shanghai and Wuhan, only 1 percent said their financial situation will worsen over the next 12 months. Only 3 percent believed they were financially vulnerable, while 97 percent said that they have rarely experienced financial problems or had a positive outlook for the future. Digging deeper into the survey's underlying results, some 39 percent said they had seen their total household income fall due to several factors. Forty-eight percent reported it was due to a drop in level of income, 20 percent reported it was due to stopping work for health reasons, and 12 percent said it was due to job loss. The majority of Chinese household assets were in property. PICC and Genworth's report cautioned that Chinese households were too focused on property investments, and said their investment portfolio should be diversified. We believe that this report is a very powerful indicator with regard to future of China’s economy and foreign investments in this emerging financial capital of the world.

CASH Mass Media, 1102-1103 11th Floor, Longhang No 555, Nathan Road, Mongkok, Kowloon, Hong Kong

Islamabad Office: Shakeel Chambers 01 Khayban-e-Soharwardy, Islamabad Email: editor@ccedigest.com newseditor@ccedigest.com webeditor@ccedigest.com ads@ccedigest.com

Editor


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in this issue 16, 23 June 2013 04

Cover Story

Beijing to expand out to 7th Ring Road 06

Ministries campaign to save street children

Chinese airlines' first Boeing 787 Dreamliner jetliner arrived at Guangzhou on Sunday, almost five years behind schedule amid production delays including an international grounding of the planes earlier this year after two battery fires.


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in this issue 09

Shandong, Hk pledge to accelerat e growth

ANDROID CApTuRES HALf Of CHINA'S SMART pHONE MARkET

12

The 'Chengdu phenomenon' becomes new model for growth

China Mobile launches new App, subscribers top 1 billion


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Society

Beijing to expand out to 7th Ring Road

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CED Monitoring BEIJING-Beijing, the Capital city of China, is planning to build its 7th Ring Road jointly with neighboring Hebei province to ease the traffic and environment stress caused by massive traffic from other provinces. The 940-kilometer highway is expected to be inaugurated in 2015. Beijing would only cover 90 kilometers, linking the city’s distant districts, and the rest will extend into Hebei province. It will be connected to many existing highways, including the Beijing-Shenyang Line and Daqing-Guangzhou Line. The highway is designed to encircle Beijing, as its predecessors do, and therefore will be called the city's 7th Ring Road. Beijing is a busy traffic hub as the transit center for China's northwestern cargos going to the coast and northeastern cargos going to the South. Passing cars from outside provinces worsen the city's already terrible traffic and air pollution. The highway, devised to shift part of southwest Beijing's inter-city traffic, is expected to ease the strain. 05


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Society

Ministries campaign to save street children CED Monitoring BEIJING-Government organizations have pledged to undertake joint efforts to help street children get back to a normal life with special attention given to guarantee their right to education. Civil affairs authorities must evaluate every street child they work with and determine the child's individual needs and family background before deciding on the best way to help, said a notice jointly released by 10 ministerial-level departments, including the Ministry of Civil Affairs and Ministry of Education. "Previous efforts focused on sending street children home, while the children's individual needs, the ability of their families 06

to take them back and the emotional impact of their lives on the street were not given enough attention," said Dou Yupei, ViceMinister of Civil Affairs, "As a result, some of those children soon returned to the street." Because many children who live on the street are running away from unbearable situations at home, government departments should provide financial support and family counseling to help the parents to raise their children, the notice said. Some guardians who have difficulties fulfilling their responsibilities can give up custody, and civil affairs authorities should appoint a temporary guardian for the children or send them to foster families, it said.

For older street children who prefer to work, labor authorities should provide free vocational training and offer work opportunities in public sectors for those aged 16 or above. Teachers and school administrative staffs should improve communication with families to prevent students leaving school because of poverty and ending up living on the street. Educational authorities should establish a system of monitoring of school dropouts, according to the notice. China has seen growing rates of divorce, crime and violence within families and massive migration of the rural population to urban areas. Amid these conditions, "it is often children who


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suffer the worst", said Christian Voumard, former China representative of the United Nations Children's Fund. Street children are "all at risk, not only of physical harm through contact with drugs, child labor, gangs and trafficking, but they are also excluded from society, discriminated against and liable to come in conflict with the law", he said. The Ministry of Civil Affairs arranged for seven street children rescue centers in major cities, including Beijing, Zhengzhou and Wuhan, to send out leaflets about their work and together to exhibit artwork by street children in Beijing's Xidan

Cultural Square on Saturday to mark International Children's Day. Throughout June, activities will be held across he nation to raise public awareness of the plight of street children. The ministry also announced on Saturday that each June 19 will be an "Open Day" at all Chinese rescue centers for homeless people, to help the public to supervise rescue institutions' work. There are 261 rescue centers for minors across China and they helped about 1.36 million street children from 2003 to 2012, according to the ministry. Zhang Li - not his real name a hairdresser with a decent income in Zhengzhou, capital of

Henan province, was rescued as a child from a life on the streets. At age 11, Zhang was abandoned by his divorced father at a train station, and he had to live on the street. The 19-year-old said his life got back on track after workers in a mobile rescue van met him on the street and persuaded him to go to the Zhengzhou Street Children Protection Center in 2008. Zhang received some informal education at the center and he later went to live with a foster family. The center sponsored him to study haircutting at a vocational school and helped him to land a job in a salon two years ago. 07


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Finance

Shandong, Hk pledge to accelerate growth

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HONG kONG-Guo Shuqing, acting governor of Shandong, has emphasized the province's determination to promote the service sector, especially its financial services industry..

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Finance

"Shandong's future needs financial support," said Guo in a roundtable breakfast meeting with Executives of leading finance companies including Blackstone Group and Goldman Sachs (Asia) in Hong Kong. "Shandong will treat developing its service industry as the major means to changing its growth model and adjusting economic structure, and the finance industry will be the top priority," he added. The meeting was one important event of the 2013 Shandong-Hong Kong Trade and Investment Week. The province has achieved satisfactory results in its finance industry. In 2012, the sector's valueadded output reached 201.8 billion Yuan ($33 billion), up by 19 percent, taking 4 percent of GDP. Total social financing was 928.4 billion Yuan, an increase of 118.2 billion Yuan. There were 237 listed companies in Shandong by the end of 2012, which raised 304.8 billion Yuan. Up to now, 91 companies are listed overseas, with total financing of 80.6 billion Yuan. Guo said that the current number for listed companies is comparatively smaller, given the large number of companies, and he expects more communication in the financial sectors. 10

"We expect more investment in Shandong's financial institutions, commercial banks, insurance companies and industry funds," he said, adding that other investment instruments, such as equity and debt, are also needed in the real economy, including transportation and energy. In 2012, Shandong invested 1.52 trillion Yuan in the service industry, up by 13 percent from 2007. The

province aims to increase the service industry's GDP contribution from 40 percent in 2012 to more than 50 percent by 2020. Antony Leung Kamchung, chairman of Blackstone Group in Greater China, and former financial secretary of Hong Kong, said there could be more room for further cooperation between the company and Shandong in the service sector. "We hope the province can


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provide preferential policies for private equity (PE) firms." As an international financial center with strong financing capability and unobstructed channels to overseas markets, Hong Kong has already provided a sound platform for Shandong-based businesses to raise money and go international. By the end of 2012, 39 Shandong companies had listed on the Hong Kong stock market, raising capital of $7.13 billion. Charles Li Xiaojia, chief executive of Hong Kong Exchanges & Clearing Ltd, says the procedure is comparatively simple and more standardized for companies to get listed in Hong Kong. "There has been benign business interaction between Hong Kong and mainland companies. And I hope we will see more in the future," said Li. On the same day, a total of 81 major deals with a combined investment of $26 billion were agreed at the 2013 Shandong-Hong Kong Trade and Investment Week. The deals, including $11 billion in contractual foreign capital, cover sectors ranging from advanced manufacturing, urban construction, modern services, clean energy, logistics, emerging and high-tech industries, to culture as well as tourism. 11


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Finance

The 'Chengdu phenomenon' becomes new model for growth 12


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CED Monitoring CHENGDU-China's fastest-growing inland city Chengdu will host the largest Fortune Global Forum ever this month with representatives from 442 of the magazine's Global 500 companies slated to attend, according to local media reports. Against the backdrop of a sluggish world economy, many coastal cities have been severely challenged by falling exports and rising labor costs. But Chengdu's advantages in geography, industrial structure and urban planning have helped boost exports and the inflow of foreign capital, talent and big international companies, said a leading Chinese expert.

"Last year, the actual use of foreign capital flowing into China decreased by 3.7 percent but it rose 31.1 percent in Chengdu," said Fan Jianping, chief economist at the State Information Center, a government think tank. Fan said the "Chengdu phenomenon" is mainly driven by IT products that dominated its 32.4 percent growth in exports last year. "Modernization of the city's industrial structure is very obvious. On the global IT industrial chain, Chengdu has become a very important base for both manufacturing and R&D," he noted. Over the last 10 years, Chengdu has risen to be the fourth center for IT products fol-

lowing the Yangtze and Pearl River deltas and the Bohai Economic Rim. Industrial transfer As well, the city's geographical advantage has brought benefits at the same time coastal areas are challenged by soaring costs. Manufacturers are seeking opportunities in inland cities, which provides a big chance for Chengdu, said Yi Xianrong, an economist and former researcher at the Chinese Academy of Social Sciences. "The trend is coastal producers moving some manufacturing industries to Central and West China, which soon will become new growth points for the nation's economy," he says. Some of those migrating 13


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Finance

businesses enable Chengdu to compete with developed cities worldwide in cutting-edge technology and emerging industries, said Yi. "Worldwide, a new wave of global economic structural transformation and technological innovation has started - the same opportunities brought to Chengdu by industry transfer and technological innovation," he said. The opportunities are alluring, but how to sustain development after Chengdu receives transferred industries is crucial. Lu Suiqi, a finance profes14

sor at the School of Economics at Peking University, said that if the city wants to find new development space, it first has to grow to be a leader in those key industries. To realize sustainable growth, Chengdu needs to continually upgrade its industrial structure and choose industries rationally. "The most privileged industry is IT, but I hope Chengdu will not confine itself to it," Lu says. And the city does have many other advantages including agriculture and tourism. Lu said Chengdu should also transform traditional indus-

tries. One way is to combine development with its abundant resources, but over-exploitation should be avoided, he said. It also has more trump cards. The home of giant pandas is famous for its agreeable living environment, which has gradually become an increasingly important element for a city to attract talent and companies. By the end of last year, 233 Global 500 companies had branches or plants in Chengdu. The local government has plans to develop a new urbanization mode - a harmonious relationship between the countryside and town, and a


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pastoral living style for residents. Jia Kang, director of the Research Institute of Fiscal Science at the Ministry of Finance, says that as the development leader of West China, Chengdu not only represents the west, but has gained more attention from around the country due to its people-oriented urban planning. "It is unfortunate that too many Chinese cities look similar after urban planning," he said. "Chengdu is a city rich in culture and history, which should not be cast away during development.

"Urban planning and development should avoid excessive expansion. Sometimes being small but fine can be even more attractive," Jia said. He said that if Chengdu is to lead the regional economy, it must have its own characteristics and advantages brought through innovation of institutions. An outstanding policy that Chengdu should continue is the space it has left for the development of farms, Jia added. Chen Bingcai, a researcher with the National School of Administration,

stresses the building of "soft p ow er" i n a ci ty . H e s a y s Chengd u s houl d take the development of transportation as a priority, whether inside the city or outside connected to other cities. It will not only offset Chengdu's disadvantage as an inland city, but also will improve the city's operati ona l effi ci ency . He added that the city should also pay more attention to the development of tourism and education, and try to offer more support for the elderly, which all are elements that can attract multinationals. 15


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IT

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ANDROID CApTuRES HALf Of CHINA'S SMART pHONE MARkET

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IT

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CED Monitoring SHANGHAI-Google's mobile OS reached a milestone at the end of the first quarter as it gobbled up a 51.4 percent slice of all smartphones owned in China, Kantar Worldpanel ComTech said on Friday. That figure showed a gain of 2.8 percent over the fourth quarter of 2012. Among all Android vendors, Samsung proved the fastest growing with a 15.2 percent share among Chinese smartphone owners. And Kantar expects more growth on the way. "Samsung has recently launched the Galaxy S4, selling over 10 million units globally in less than one month," Craig Yu, consumer insight director at Kantar Worldpanel ComTech, said in a statement. "We predict the launch of Galaxy S4 Mini in the not too distant future will greatly increase its product reach in urban China." Nokia's Symbian took the No. 2 spot in China last quarter with a market share of 23 percent, down 2 percent from the prior quarter. As Nokia phases out its older mobile OS, Kantar expects Symbian to drop to third place sometime in the next two quarters. Apple's iOS came in third with a 19.9 percent share. Smartphones in general continue to see heavier demand among Chinese buyers. Smartphone ownership reached 42 percent in China last quarter, up 1.2 percent from the prior quarter. Much of that growth came from owners of feature phones upgrading to smartphones. Almost half of feature phone owners who changed their devices last quarter opted for a smartphone.\ "Feature phones are losing their price advantage as Android smartphones are rapidly becoming more affordable and delivering better value," Yu said. "We expect to see accelerated smartphone adoption in China in the coming months." 19


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IT

China Mobile launches new App, subscribers top 1 billion

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IT

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HONG KONG-Market research firm Infonetics Research released excerpts from its latest 2G, 3G, 4G Mobile Infrastructure and Subscribers in Japan and China market share and forecast report, which tracks GSM, W-CDMA, TD-SCDMA, CDMA2000, and LTE equipment and subscribers in Japan and China.

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IT

CED Monitoring “As we predicted, 2012 was THE LTE year in Japan following a year marked by 3G reconstruction efforts after the great earthquake and tsunami. LTE revenue in Japan soared 188% and will keep its momentum this year, driven by accelerated rollouts and the increasing willingness of service providers to shut down 3G,” notes Stéphane Téral, principal analyst for mobile infrastructure and carrier economics at Infonetics Research. Nokia Siemens Networks is #1 in LTE infrastructure revenue market share in Japan, followed by NEC and Ericsson Infonetics expects the Japanese mobile infrastructure market to stay positive this year, plateau in 2014, and eventually decline by 2017 as LTE deployments wind down “Mobile infrastructure sagged in China in 2012, but we expect the market to bounce back nicely as the Chinese government gears up to award 4G licenses and China Mobile prepares for a massive TD-LTE rollout with potential commercial service by year’s end,” says Téral. The mobile infrastructure (2G, 3G, 4G) market in China fell 4% year-over-year in 2012, dragged down by GSM, WCDMA, and CDMA2000 China Mobile’s rollout of 20,000 TD-LTE eNodeBs during 4Q12 prevented the whole market from falling farther China is home to the world’s largest mobile sub24

scriber base, with a total of 1.1 billion subscribers Huawei entered the Beijing market for the 1st time in 2012, winning ? of China Mobile’s 13city TD-LTE network project Infonetics forecasts LTE in China to grow at a 38% CAGR from 2012 to 2017. Meanwhile, China Mobile has developed a new application called Jego to challenge rivals such as Microsoft Corp's Skype service. The app mainly targets overseas customers, allowing them to make free or low-cost calls to mobile phones and landlines. Jego was launched on June 1 and can be used on mobile devices running Apple Inc's iOS operating system or Google Inc's Android platform. Analysts see China Mobile's move as "a necessary step to explore the international market". Because of the prices of long-distance calls, an increasing number of customers have switched to voice over Internet protocol, or VoIP services, thanks to the efforts of companies such as Skype, said Fu Liang, an IT industry insider in Beijing. Due to their huge number of users and sound networks, Chinese telecom carriers have a chance to grab market share from existing market players, Fu said. China Mobile International Ltd, a China Mobile fully owned subsidiary based in Hong Kong, is responsible for operating the Jego service.


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Industry

China remains a magnet for foreign investment

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CHENGDU - Wearing staff badges, workers are grabbing a bite to eat at a McDonald's restaurant in the center of Tianfu Software Park in Chengdu, provincial capital of Southwest China's Sichuan province. They are a small portion of the 40,000 people working in the industrial park, home to more than 400 Chinese and overseas companies. "Many companies followed the footsteps of Intel and came to Chengdu. But ten years have passed. We no longer attach such great importance to one single company's relocation," said Yuan Xin, secretary general of Chengdu Associa-

tion of Enterprises with Foreign Investment. To help further boost local development, the Fortune Global Forum will be held from June 6 to 8 in Chengdu. "The forum can mark the start of a new decade," Yuan said. Yuan said Chengdu's municipal government hosts the forum four times a year with top executives of foreign-funded firms in the city, in order to answer their needs and fix any problems. The forum has been held 52 times. "It has proved to be a good invention of the local government for serving investors," said Yuan. Official data showed that

western and central China used 19.21 billion U.S. dollars of foreign investment in 2012, accounting for 17.2 percent of the country's total. Chengdu alone had $8.59 billion of foreign investment paid in, up 31.1 percent year on year. According to Yuan, companies in information technology, automobile, engineering machinery and aviation now have a strong presence in his 204-member association. Companies are already seeing the benefits of being located in Chengdu. "Many Chinese cities can generate huge demand but we selected Chengdu because of its business environment, help27


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Industry

ful to the shop's daily operation and good for long-term development," said Zhang Lianlian, local market manager at IKEA's Chengdu outlet, the Swedish furniture giant's only shop in west China. According to Zhang, the outlet topped 300 IKEA stores worldwide with a 135percent growth rate in the fiscal year 2010. Its robust growth has prompted the retailer to consider opening a shop in Chongqing, the municipality bordering Sichuan Province. Local and central government are taking active steps to keep attracting investment in a sustainable way. Amit Midha, president of Dell Asia Pacific and Japan Region, said the local government is committed to establishing a world-class supply chain ecosystem. Midha said Dell's Chengdu global operations site will help attract worldwide suppliers and help local suppliers grow and expand. As part of its overall layout in west China, the IT giant's own manufacturing line will be put into operation in Chengdu on June 7. Jens Eskelund, Maersk China Ltd. senior director, said the logistics industry is comparatively open in China and foreign companies have benefited since the country's accession to the World Trade Organization (WTO). "The Chinese government is recognizing the value foreign logistics companies can bring to the development in China and that is a great basis for discussing collaboration to mutual benefit," said Eskelund, whose company 28

opened a global service center in Chengdu three years ago. The central government has revised an industry catalogue to encourage foreign firms investing in labor-intensive industries in central and western China while conforming to requirements of environmental protection. That may bring new opportunities for the local government and foreign firms to deepen cooperation and achieve win-win results. China's economic growth slowed to 7.8 percent in 2012, the lowest level since 1999. But a latest AmCham China business climate report showed that over two-thirds of its respondents still listed China as at least a top-three destination for global investment. Cui Wei, director and CEO of Sino-Singapore (Chengdu) Innovation Park Development Co., Ltd. said political stability and a steady Chinese currency a p p ea l to gl ob a l i nvestors, as well as an improved rule of law and civil servants with an increa s i ngl y gl ob a l v i s i on. Midha said Dell has not witnessed bias or obstacles in China's market, especially after the country's WTO entry. Industrial regulations are being completed and the government is using good practices from developed industries, he said. "Trade barriers and discrimination against foreign companies -- whether in China, the U.S. or in Europe - is poison for trade," said Eskelund, who also urged China to continue focusing on creating transparency, eliminating barriers and remaining cost competitive. (XINHUA)


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Industry

Boeing delivers country's first

787

Dreamliner

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Industry

CED Monitoring GUANGZHOU-Chinese airlines' first Boeing 787 Dreamliner jetliner arrived at Guangzhou on Sunday, almost five years behind schedule amid production delays - including an international grounding of the planes earlier this year after two battery fires. China Southern Airlines Co Ltd, the largest airline in China by fleet size, is the first Chinese carrier and 10th in the world to use the 787 Dreamliner. China Southern ordered 10 Dreamliners, eight of which will be delivered by the end of

32

2013, said Tan Wangeng, general manager of China Southern Air Holding Co. "All 10 new aircraft are slated for delivery to our fleet by the close of 2014," he added. The first Dreamliner will get three days of test flights before being put into service on the airline's Guangzhou-to-Beijing route. The carrier also plans to fly its Dreamliner fleet from Guangzhou to international destinations - including Paris, Vancouver, London and Auckland, New Zealand - after the

aircraft and air crews are prepared for long-haul routes, Tan said. The Dreamliner, with about 250 seats, uses new, fuel-efficient engines, and 50 percent of the craft is made of composite material, reducing the weight of the jetliner and adding to its fuel efficiency. The aircraft is suitable for long-distance routes, and Boeing Co predicts that about 700 aircraft will be sold in China for that purpose over the next 20 years. China Southern now is the world's only airline with both


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the Dreamliner and Airbus SAS' A380, the world's largest jetliner. The carrier pins its hope on the two advanced aircraft to grow on the international market, but some aviation analysts suggested the carrier should make a choice. China Southern already uses the A380 on its Guangzhou-to-Los-Angeles route, but the new aircraft may be more suitable for that flight, said Su Baoliang, an analyst at CITIC Securities. "The Boeing 787 is definitely a better choice for the carrier

on the route from Guangzhou," Su said. Su said the Dreamliner, with fewer seats, can meet the demand of non-hub airports, and the A380 is too large for Guangzhou's. The superjumbo can be profitable in the hub airports with a huge passenger flow, such as Beijing and Paris, but China Southern would have difficulty entering those markets, he said. China Southern is negotiating with Air China Co Ltd on using an A380 on the Beijing-toParis route. Those talks haven't

yet yielded a deal. Meanwhile, other Chinese airlines waiting for the Dreamliner are also preparing routes for their jetliners. Hainan Airlines Co Ltd, the fourth-largest airline in China, also will get its Dreamliner by the end of June, Boeing China President Marc Allen said. The carrier made 10 orders and plans to put the aircraft on its Beijing-to-Chicago route, which will be launched in September. The Dreamliner had 41 orders in China from four airlines by the end of 2012, although

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Industry

A Boeing 787 Dreamliner flight lands at Baiyun International Airport in the South China city of Guangzhou on Sunday morning. China Southern Airlines marks the country's first airline to operate the flight. 34


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some Chinese airlines switched their orders to other airplanes due to the delivery delays. The US aircraft manufacturer delivered the first Dreamliner in September 2011 to All Nippon Airways Co Ltd, the largest airline of Japan, after a

delay of three years. The aircraft was grounded globally in January after a lithium-ion battery caught fire in an empty, parked Dreamliner in Boston, and after smoke from the same type of battery led to an emergency landing

of another Dreamliner in Japan. Boeing announced in April that the battery problem had been fixed. Boeing plans to improve the production rate of the new jetliner to 10 per month by the end of 2013.

The US aircraft manufacturer delivered the first Dreamliner in September 2011 to All Nippon Airways Co Ltd, the largest airline of Japan, after a delay of three years. 35


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Automobile

fAW aims to revive iconic Chinese brand

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"The model is still what I remembered from many years ago, indicating its prestige as a car for national leaders CED Monitoring SHANGHAI-China's First Automobile Works Group Corp hopes to revive the flagging fortunes of its iconic Hongqi brand with Thursday's launch of its newly developed H7 model. The Hongqi H7 sedan, priced at between 299,800 Yuan ($49,000) and 479,800 Yuan with two choices of engine displacements, a turbocharged 2.0L and 3.0L, will initially target officials at the ministerial level or above, competing with German luxury brand Audi's A6L, said the company. FAW said this was due to limited production capacity. "Focusing on fleet customers is a correct strategy to revive such an iconic brand," said Yale Zhang, director of automobile consulting company AutoForesight (Shanghai) Co Ltd. Moreover, Zhang said the "central government's strong support for the development of domestically branded vehicles and calling for domestic brands to be used as official cars provide an opportunity for Hongqi's revival". FAW's Beijing showroom for its Hongqi brand will open to the public in June. The 500-square-meter

showroom is located on Jinbao Street, China's most eye-catching shopping street, which is crowded with stores from world's most expensive luxury brands especially car brands, including Rolls-Royce, Lamborghini, and Aston Martin. Hongqi's store is next to Italian super sports car brands Ferrari and Maserati, and opposite luxury brands Gucci and Burberry. "The model is still what I remembered from many years ago, indicating its prestige as a car for national leaders," said a passerby. "It's hard to imagine who, as an individual consumer, would purchase such an official car." Zhang said: "With only one model, it's still too early to set up a distribution channel for individual customers. After reaching a certain level of sales in the official car sector, Hongqi should develop more smaller and cheaper models for the private market." According to FAW Chairman Xu Jianyi, over the next five years, the State-owned automaker will invest 10.5 billon yuan to improve Hongqi's research and development capability and launch two SUV models, a multi-purpose vehi-

cle for business use and a midsized limousine coach for ceremonies and parades. Born in 1958 as China's prime protocol car, Hongqi made its name thanks to its use by top national leaders such as Mao Zedong and Deng Xiaoping, as well as important foreign political guests including then US President Richard Nixon during his icebreaking visit to China in 1972. However, the brand became a memory when production was halted in the 1980s because of high costs. FAW tried to revive the brand in the 1990s by resuming production using foreign technology, but this bid failed as a result of poor sales. Hongqi's major competitor Audi, which has dominated China's official car sector since 1996, said that no more than 10 percent of its total sales came from government purchases. However, analysts said that its image as an official car has driven its sales to business leaders and for private use. "Hongqi is finding it hard to compete with Audi in the private market at the moment. So it needs to focus on official use and gradually improve its quality and brand," said Zhang. 37


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Automobile

LEADING LIGHTS IN NORTHERN REvIvAL

The BMW plant in Shenyang has rejuvenated the city, which 30 years ago was a hub of heavy industries in China. 38


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CED Monitoring SHANGHAI-From being a tattered notch on China's rust belt not so long ago, Shenyang today is polishing itself up to become one of the brightest buttons of the nation's development program. The capital of the northeastern province of Liaoning was once a titan of heavy industry. At its peak in the 1970s it was among the top three industrial centers with Shanghai and Tianjin, before declining rapidly the following decade, when it found it difficult to adapt to the structural reforms of the new market economy. The city of 8 million was decimated by factory closures and suffered unemployment as heavy as its main industries steel and machinery.

Rejuvenation only began to be seen this century when in 2003 the central government launched its "Revitalize Northeast China" campaign. This covered the three northernmost provinces and part of Inner Mongolia, and was largely aimed at taking advantage of the region's strategic position neighboring Russia, Mongolia and the Korean Peninsula. More importantly, as far as Shenyang was concerned, the city's character and identity, and its old heavy industries, would be revitalized too. Crucial to the transformation, however, was the need to attract foreign investment. American and German companies in particular had been interested in the city in the

1990s because it aligned with the needs of their own changing heavy industries. But it was mainly the Germans who lasted the course, and one company in particular saw the mutual benefits to be gained by Shenyang and China's rapid economic and technological development BMW. The same year the Chinese government announced its northeast revitalization plan, the German luxury car maker and Brilliance China Automotive Holdings Ltd formed a joint venture. BMW Brilliance Automotive Ltd (BBA) built a plant in the city's Dadong district to produce BMW 3 and 5 Series models, with production capacity set at 10,000 units per year. In 39


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Automobile

A worker at a BMW assembly line installs tires to the body of a car. 40


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2004, it sold 8,661. But with sales continuing to grow rapidly, production would rise to 100,000 a year by 2010. Realizing the huge potential, with increasingly affluent Chinese taking to the roads in droves, BBA that year raised its investment from 560 million Euros ($722 million) to 1.5 billion Euros to build its second factory in Shenyang's Tiexi district, the old industrial heart where many factories were built during the state's first five-year plan (195156). This time, it has added a test center, more manufacturing facilities, warehouses and production lines for the SAV X1. The Tiexi plant opened in 2012, and is gearing up to produce 200,000 units per year. This year BBA is building a new engine factory nearby with a planned production capacity of 400,000 engines in 2015. More significantly for Shenyang, BMW's success has revved up many other companies from Europe looking to invest in the city. There are now 53 German companies operating in Shenyang, 21 of them dealing in automotive parts or in related businesses. German companies such as Draexlmaier Group, ZF Friedrichshafen AG and Wurth Group have all moved production lines to Shenyang to supply automobile parts to BBA. ZF Lemoore Automotive Systems (Shinnying) Co Ltd operates an independent workshop supplying gearboxes to BBA's Tiexi plant. German conglomerates such as Siemens, chemical giant BASF and steel heavyweight Heraeus have already built a strong presence in Shenyang, with Siemens electronic components also being largely used in BBA's plants. "Shenyang used to be one of China's hubs for domestic

production 30 years ago, producing a huge amount of machinery," says Gu Shaoqing, director of Shenyang municipal bureau of foreign trade and economic cooperation. "In today's global economic environment, the new government now wants to focus on domestic consumption again, so this is the time for Shenyang to take the opportunity to move on." Consequently, with this major industrial gear change from reverse to top over that period, and a change as to who is in the driving seat, BMW through BBA recognizes the need to improve its localization strategy. B B A's Ti exi p l a nt ha s p romoted more than 70 Chinese staff from assistant managers to section managers in the past year, responsible for production, logistics, communication, and training of the 4,000-strong workforce. BBA has a total of 12,500 emp l oy ees i n Chi na . "Another important step of accelerating localization is that BBA announced a new brand, the Zinoro, which will be the first stage of a new-energy vehicle," says Olaf Kastner, president and CEO of BBA. Produced at the Tiexi plant, the electric-drive vehicle is scheduled to be unveiled at the Guangzhou Motor Show in November, with a market launch planned for early 2014. BBA becoming a major player in Shenyang also benefits Chinese companies, of course. Chinese parts suppliers and business partners increased to 320 in 2012, with BBA purchasing 12.5 billion Yuan (1.58 billion Euros, $2 billion) worth of auto accessories and services from local companies. Not so much on the back of, as rolling underneath BBA's success, foreign tire producers,

such as Japan's Bridgestone and France's Michelin, also hope to turn China into their biggest market by making more investment in Shenyang. Michelin spent $1.45 billion (1.18 million Euros) to build a tire factory last year, and Bridgestone has enlarged its manufacturing facilities. Huang Taiyan, president of Liaoning University, says building up the automobile and related industries means a lot to Shenyang in transforming its traditional heavy industries into high-tech machinery manufacturing. The city's service sector will also be improved significantly along with its long-term goal of becoming a top-tier city in China, he says. "The growth of BMW in Shenyang reflects that more German companies are optimizing their resources to China, which hasn't been severely hit by the global debt crisis," says Yan Bingzhe, director of Shenyang's Tiexi district. "We are negotiating investment details with four other German companies which want to build an auto parts plant, representative offices and a hotel in Shenyang over the next two years." Yan says China's other major trade partners South Korea and Japan also benefit from growing German influence in Shenyang because of their close proximity to the region. "While China, Japan and South Korea increase cooperation to expand investment, facilitate trade flows and reduce trade tariffs among the three neighboring nations, South Korean and Japanese consumers can purchase BMW cars from Shenyang, which could be relatively cheaper than buying the same type of vehicle in their home markets." 41


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Construction

SHANGHAI DISNEy RESORT TO GO ENvIRONMENT fRIENDLy 42


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CED Monitoring SHANGHAI-The under-construction Shanghai Disney Resort will adopt a new green technology to supply some of its energy, boosting the resort's environment friendly credentials, the Shanghai Disney Resort Management Company has announced. The new technology using natural gas as the primary energy source will supply the resort with heating, power, cooling and compressed air via distributed energy systems, thereby increasing the overall energy efďŹ ciency of the resort three-fold, according to sources with the company. The utilities will be co-generated by a combined cooling and heating plant, to be built and operated on the resort site by the Shanghai International Tourism and Resort Zone New Energy Company Limited, a joint-venture company owned by Huadian Fuxin Energy Corporation Limited;

Shanghai Shendi (Group) Co,. Ltd; and Shanghai Yiliu Energy Group Co., Ltd. The plant is a grid-tied, gasďŹ red power facility which co-generates cooling and heating via engine waste heat, and produces compressed air by self-generated electricity. With a total investment of 520 million yuan (84.8 million U.S. dollars), the project will supply hot water and chilled water for heating and cooling, domestic hot water, and all compressed air needs for Shanghai Disney Resort's daily operation in the most energyefďŹ cient and environmentally friendly way. The project is designed, constructed and operated by the Shanghai International Tourism and Resort Zone New Energy Company Limited, and will become operational in time to support the resort's opening, scheduled for the end of 2015.

Upon completion, the primary energy utilization rate of the project will be up to over 80 percent, much higher than that of conventional energy resources, which stands at around 45 percent, said Huo Guangzhao, vice president of the Huadian Fuxin Energy Corporation Limited. It is expected to generate 170 million kilowatt-hours of on-grid energy annually, which can save about 20,000 tones of standard coal and reduce 75,000 tones of carbon dioxide emissions, according to Huo. "Shanghai Disney Resort has been devoted to seeking new technology and business solutions which reduce our impact on the environment, save resources, and promote sustainable technology, and to supporting all kinds of cooperation with our local partners," said Howard Brown, senior vice president overseeing development of the resort. 43


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Construction

SINO-SINGApOREAN pARk MAkING HEADWAy

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The first 20 projects under construction include facilities like substations, an investment center and schools. CED Monitoring BEIJING-Construction has already begun on the first 20 projects of the Singapore-Sichuan Hi-Tech Innovation Park, leaders of the park announced recently. These projects include 10 trunk roads and local roads. Some of the roads in the park opened to traffic at the end of May. According to Chengdu Hi-Tech Investment Group Co Ltd, which is responsible for the construction of the park, investments in infrastructure are expected to exceed 970 million Yuan this year. The first 20 projects under construction include facilities like substations, an investment center and schools. According to the group, there will be a hospital, 13 kindergartens, seven primary schools, two middle schools, two police stations and four gas stations in the park. And 17.5 percent of its area will be covered by grass and trees.

An executive with the company said asphalt paving on a 2.8-kilometer road connected to the park was completed at the end of May. Three other roads will be open to traffic in the first half of this year, with another 10 set to open in the second half. In addition, there are also plans to construct a further of 720,000 square meters of trunk, secondary and local roads in the park. So far, nearly 260,000 sq m of roads have already been put on the agenda for construction. A park official said that as of the end of April, nearly 30 companies had shown an interest in settling in the park. Currently, companies are in talks with the park's management about their plans to launch commercial property projects and set up R&D centers there. Located inside Tianfu New Area in Zhonghe township, the park has a total area of 10.34 square kilometers and its total 45


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Construction

planned investment is 100 billion Yuan. About 20 billion Yuan will be provided by Sino-Singapore (Chengdu) Innovation Park Development Co Ltd, the developer of this joint program between Chengdu and Singapore. These funds will be used for infrastructure construction and public amenities, and the project will span eight years. Cui Wei, board director and CEO of the company, said the

46

park will focus on developing eight pillar industries, including IT, service outsourcing and new digital media. "Upon completion, the park should have a modern urban lifestyle in addition to modern industries," Cui said. "It should be an innovative model city where industry, culture and nature all co-exist in perfect harmony with on Cui said there are seven autonomous clusters within

the park - the Tianfu Gateway, the High-Tech Area, the B us i nes s Center, the B i omed ical Center, R&D Showcase, Service Outsourcing and Innovation, and Xinchuan H ea rtb ea t. Chengdu Metro Line 1 and Line 6, which are currently still being planned, will pass through the park and have eight stations located within. A looping tram service will provide seamless connections between the various clus-


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ter cores. Additionally, intelligent infrastructure and public amenities will be available in the park to make sure people residing and working there have convenient access to living, leisure and s tud y fa ci l i ti es . The park also lies within the core startup zone of the Tianfu New Area, a special economic zone approved by the Chinese government that has preferential

policies in terms of taxation, talent recruitment and land use. The 2013 Fortune Global Forum, which will take place in Chengdu from June 6 to 8 under the theme of "China's New Future", will offer a new opportunity to develop the park. To date, senior executives of more than 200 leading international companies, including some Fortune Global 500 companies, have conďŹ rmed their participation in the forum.

D uri ng the forum, executives from some of the Fortune 500 companies will be invited to visit the Tianfu New Area a nd the p a rk. The park can use the event as an opportunity to attract more Fortune 500 companies to settle there in order to form a cluster of topnotch companies from the biomedical sector and other advanced industries and to make the park a benchmark for industry clusters in western China.

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Real Estate

SALE Of HIGH-END ApARTMENTS SOARS IN BEIjING

CED Monitoring BEIJING-Sales of up market residential apartments in Beijing soared after the government launched tightening measures in March to cool the market, a report found. Sales valued at more than 10 million Yuan ($1.61 million) 48

accounted for 39 percent of high-end sales in April, much higher than the same period for last year, according to a report by Yahao Real Estate Selling and Consulting Solution Agency. The Beijing municipal government said it will not grant sales licenses to projects priced

“much higher� than the average rate in the region. The price limit is one of reasons for high-end projects attracting higher prices as most of them are completed apartments that are not subject to the new regulations, according to the report.

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