The China Analyst - April 2008

THE CHINA ANALYST April 2008

A knowledge tool by THE BEIJING AXIS for executives with a China agenda

Taking a fresh look at the China-Africa link p.6

Features: China’s Urban Population Boom

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Africa-China Relations Revisited

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Regulars: China Business News Highlights

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China Perspectives

12

China Sourcing Blog Highlights

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Upcoming Events

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Table of Contents April 2008 4

Putting China’s Urban Billion into Perspective To the business community, China’s population of 1.3 billion is most often portrayed as an unprecedented opportunity. To a government, however, this is a significant challenge, as a new report by McKinsey illustrates.

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Africa and China: How Long will the Honeymoon Last? With Chinese involvement in Africa growing by leaps and bounds, questions are being asked about the sustainability of the relationship. The benefit to Africa is being called into doubt by the Western media, with China being accused of displaying colonial attitudes. Is there reason to be concerned?

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China in Statistics Breakdown of China’s trade with other BRICS countries; China import & export figures; China’s largest trade surplus destinations; actual use of foreign investment; Shanghai composite index performance; China’s foreign exchange reserves..

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Statistics in the News Sovereign wealth funds; Shanghai’s air pollution index; and inflation.

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China Business News Highlights A selection of the biggest business stories coming out of China in December.

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China Perspectives A summary of high level debates and trends in the Chinese media, including coverage of the January snowstorms, Taiwan’s election, the opening of the new Beijing Airport and more...

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China Sourcing Blog Highlights Highlights from pages of The China Sourcing Blog, an online information portal and discussion forum on issues relevant to sourcing from China.

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Upcoming Events A list of upcoming fairs, exhibitions and conferences in China, with particular focus on sourcing from China.

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THE BEIJING AXIS News Company news for December, including the Macquarie China Day in South Africa and sourcing summits held in Shanghai, Moscow and Ukraine...

THE CHINA ANALYST is published and distributed by THE BEIJING AXIS Ltd. For more information on services, please contact any of the following persons: Beijing Dirk Kotze Tel: +86 10 6440 2347 [email protected]

Shanghai Julian Hewitt Tel: +86 21 5882 0048 [email protected]

Johannesburg Jackie Li Tel: +27 11 201 2318 [email protected]

Russia and Eastern Europe Lilian Luca Tel: +86 10 6440 2106 [email protected]

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Putting China’s Urban Billion into Perspective To the business community, China’s population of 1.3 billion is most often portrayed as an unprecedented opportunity. To a government, however, this is a significant challenge, as a new report by McKinsey illustrates. Julian Hewitt puts it into perspective.

McKinsey Global Institute’s latest report titled ‘Preparing for China’s Urban Millions’ is a fascinating insight into the China of the future. In some ways, it reads like a science fiction novel. Within 17 years, China will have 221 cities with million strong populations (Europe has 35 today) and the urban population will have reached a billion by 2030, with a population the size of USA descending on China’s urban areas between today and the year 2025. To deal with this, China will need to consider building 170 mass transit systems – twice the current European number. The country will have to build 20 000 – 50 000 skyscrapers, amounting to around 10 New York cities being added to China’s already crowded skylines.

All this is necessary to contain a sharp rise in urbanization from 44% in 2005 to a projected 66% two decades into the future.

reminder that the largest industrialization in history is being accompanied by a similarly great human migration.

Furthermore, if McKinsey’s recommendations are taken to heart, the Chinese Government needs to look at a path of concentrated urbanization that will result in the development of 15 mega cities each with a population in excess of a massive 25 million people.

Creating Context To really appreciate the implications of China’s urban billion from a business context, let us take a step back and understand things as they are before we look at what the future holds.

Economically, by 2025 China’s cities will generate 95% of Chinese GDP and consume a quarter of the world’s energy, while it is estimated that urban consumption of GDP will rise to 33% of GDP. McKinsey’s projections are phenomenal, and serve as a stark

China is Moving towards an Urban Billion by 2030

To date, China has made the most sense for two kinds of business interests. The easiest equation is that China is the world’s industrial hub and second largest exporter. Walk through any African market or USA strip mall and more often than not the manufactured goods will carry a ‘Made in China’ label. It is this ubiquitous trade that pushed China’s exports to USD1.22 trillion in 2007 and, according to the WTO, will result in China surpassing Germany as the world’s largest exporter by 2009.

China Urban Populations 2025: 926 Million

Total Populations in millions (2005) 2005: 572 Million European Union United States

Large City (5-10M)

Brazil Russia 298

Nigeria South Africa Australia 20

186 132

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Megacity (10M+) 493

The higher one goes up the value chain, the more cost savings China can offer your company. As China focuses more heavily on research and development and high tech products, the attractiveness of seeing China as a sourcing destination for high value industrial machinery and equipment will only increase.

Midsized City (1.5-5M)

Small City (0.5-1.5M)

143

Large Town (<0.5M)

Source: McKinsey Global Institute China All City Model; McKinsey Global Institute analysis

The next step is to view China as a long-term manufacturing base, not only in order to save costs, but to have access to a huge market. From a labour cost perspective China is by no means the cheapest destination anymore, but it still

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offers a good deal when looking at a suite of factors, ranging from political stability to investment incentives to access to suppliers. This situation is not bound to change any time soon, and even though India and Vietnam may displace China in terms of competitiveness in some manufacturing areas, these countries will struggle to match the consumer wealth that China is bound to generate. The final step in this equation is to see China not as a source of imports or manufacturing base, but as a market in its own right. While this is an ideal for many companies with a Chinese agenda, the further along the line of importing, sourcing and manufacturing from China you go, the more the complexity of doing business increases. The bigger your China ambitions, the greater your need for foresight, time, large investment, strong networks and good local knowledge. Ultimately, having a strong presence in the Chinese market will be essential in leveraging opportunities as China’s urban population moves steadily towards 1 billion. The Biggest Winners Based on McKinsey’s findings, urbanization trends will give rise to two major growth areas – infrastructural demand to support city development and a general increase in urban household spending. The obvious business opportunities are areas that will be tightly contested not from foreign companies, but most probably with Chinese companies that have already entrenched themselves in dominant market positions.

On the move: On one day in December 2007, 58 new stations were opened on the Shanghai Metro system.

The smarter people will look at spending patterns in places like Japan and South Korea whose growth spurts have preceded China’s and whose cultural and consumer tendencies more closely resemble potential Chinese patterns. Areas such as consumer electronics, high quality foodstuffs, insurance, healthcare, financial services, entertainment, international travel, luxury goods, private education and vehicles are just a few sectors that stand to benefit from increased household spending. The other approach is to look at what the pressure points will be amidst all this growth. Assuming massive congestion, would it pay to invest in small cars, parking garages or mass transit companies? Will health risks from pollution warrant looking at healthcare solutions or is investment in cleaner emission technology a more worthy option? Coal-to-electricity or solar power? The answer is all of the above! All of these factors are pushing China into a position of long term though tightly contested opportunities. If your company pursues a global agenda, can if

feasibly afford not to have a concrete Chinese strategy? If not, you are signing your company up for fringe side seats on one of the greatest economic booms of our time. The following are the highlights of the McKinsey’s study: ●

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●

●

●

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350 million will be added to China’s urban population by 2025 - more than the present population of the US 1 billion people will live in China’s cities by 2030 221 Chinese cities will have one million or more people living in them compared to Europe’s 35 today 5 Billion square meters of road will be paved and 170 mass-transit systems could be built GDP will have multiplied by 5 times from now until 2025 50 000 of these buildings could be skyscrapers – the equivalent to constructing up to 10 New York cities

Julian Hewitt Manager, Shanghai Office [email protected]

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Africa and China: How Long will the Honeymoon Last? With Chinese involvement in Africa growing by leaps and bounds, questions are being asked about the sustainability of the relationship. The benefit to Africa is called into doubt by the Western media, with China being accused of displaying colonial attitudes. Is there reason to be concerned?

When looking at imports of minerals and metals, China’s focus on Africa seems even more puzzling. Chinese companies have made fewer successful investments in Africa than any other region in the world. A copper investment at Chambishi in the Zambian copperbelt is the flagship Chinese mining investment in Africa, with around thirty other investments dotting the continent. Of these, however, only about a third are operational, and only about five major projects represent ventures that were brought onto its feet with Chinese capital.

For a country with well over a trillion dollars in foreign reserves, China is showing an inordinately large amount of interest in a continent that is hardly seen as the hottest investment destination around. As China is bailing out Wall Street investment banks and pursuing such prize assets as Rio Tinto, one could be forgiven for thinking that the much-vaunted China-Africa friendship of the socialist era is something from which China can now comfortably move on. And when deeper analysis is made of the present reality behind China’s pursuit of resources in Africa, one might wonder whether China’s renewed interest in Africa should be categorized along with some other investments made by China’s recently created sovereign fund - a dud investment made by a sovereign rather than a commercial entity. While western reporting on the China-Africa relationship centers on China’s “hunger for African resources”, China is at present, with the exception of oil,

Yet, China’s engagement of Africa is inviting increasingly alarmist parallels, especially in the western media. Talk of a new Scramble for Africa often mentions China as the protagonist in a new era of colonialism, even as China imports only about a quarter as much oil from Africa as the United States. In a way investors in Africa are all tarred with this brush - everyone from oil companies to NGO’s to the World Bank have been accused of

getting precious little resources from Africa. Even then, imported oil in 2007 satisfied only about 12% of Chinese energy needs, and of that about a third came from Africa. And for all China’s diplomatic maneuvering on the continent, around two thirds of African oil was imported from just two countries, Angola and Sudan, with Congo and Equatorial Guinea making up most of the rest.

African Oil Exports to China (million tons, 1992-2005) Angola

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

370

1,000

1,660

3,840

1,110

2,880

8,640

3,800

5,710

10,100

16,210

17,460

Sudan

…

…

…

0

270

3,310

4,970

6,430

6,260

5,770

6,620

Congo-Brazzaville

…

…

…

980

380

380

1,450

640

1,050

3,390

4,780

5,530

E. Guinea

…

…

…

200

240

810

920

2,150

1,780

1,460

3,480

3,840

70

140

130

130

130

1,340

2,260

120

1,370

1,190

120

1,490

1,310

130

680

820

830

550

Libya Nigeria

210 …

Algeria Chad

10 …

140

250 …

390 …

…

130 …

…

…

…

…

…

…

…

…

…

…

…

…

…

…

770

490 …

Others

120

120

130

1,030

440

1,510

2,200

1,930

700

600

730

80

Total

500

1,840

1,930

5,910

2,190

7,250

16,950

13,550

15,800

22,180

35,300

38,470

% of imports

4%

11%

9%

17%

8%

20%

24%

22%

23%

24%

29%

30%

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neo-colonialism - but in the case of China this allegation has been brought about by the unique nature of China’s embrace of Africa. For the first time since the end of the cold war Africa is being engaged by a country, instead of a collection of companies or other organizations. While Chinese mining companies are scouring the continent for opportunities, Chinese state-owned companies are building related infrastructure on the back of massive credit lines supplied by Chinese banks. In late March Chinese insurer Sinosure offered export credit guarantees of USD 40 to 50 billion for Chinese investments in Nigeria, while the DRC has been promised up to USD 9 billion worth of Chinese assistance in rebuilding the shattered economy through resource investments. There is a sense of urgency in China’s engagement of Africa - in 2002 a mere 16 Chinese government delegations visited Africa, while that number had risen to 64 by 2005. Certainly a scramble by most definitions. But to typify China as a colonizer is to look at the situation through a very narrow historical prism. Chinese involvement in Africa goes back to the earlier years of the post-colonial era when Chinese railway engineers completed the spectacular feat of linking the Zambian copperbelt to the Indian Ocean port of Dar-es Salaam. Besides, China’s engagement of Africa is to bring it little material benefit for a substantial time into the future, and most investments are made in countries that carry considerable risk. From the African perspective, Chinese investment arguably carries even more risk. Chinese parties are known for driving a hard bargain, and the habit of importing Chinese labourers and service providers

Making the connection: Zambian and Chinese railway engineers working on the Tanzam Railway, ca. 1970 (courtesy ChinaRail)

labourers and service providers carry local political risk - just ask the Zambian government who had to fend off a challenge from a politician that built an entire political campaign on exploiting antiChinese sentiment. The central theme here is the major strategic synergies that exist between these two regions. China regards Africa as geo-political beachhead that has been abandoned, politically at least, by western governments. Africa’s industrial revolution holds the promise of great markets, while its resource wealth acts as a political hedge in a world where China’s economic expansion will move commodity scarcity ever higher up the global political agenda. If China can actually, ten or twenty years from now, obtain significant resources from Africa, that would be a handy bonus. For African governments, China’s interest hands it unprecedented power on the international stage: China offers commercial ties with little or no political strings attached, while

political strings attached, while China’s interest allows African governments to drive a better bargain with western parties. Mining projects, oil concessions, construction credit or votes at the UN currently serve to develop this overarching synergy, not to bluntly pursue short or medium term profits. Chinese resource investments in Africa don’t yield immediate resources, but rather immediate political clout with the add-on benefit of future material yields. A promise of a USD 9 billion loan doesn’t mean money in the bank for an African government, but rather immediate political clout with the add-on benefit of future flows of investment. Governments in Africa may change, but their geopolitical weaknesses won’t; the commodity boom may end, but China will still have very few resources. The courting has only Dirk Kotze China General Manager [email protected]

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China in Statistics The China in Statistics page contains recently released data that best illustrate the main trends in the growth and transformation of Chinese commerce and industry, with an emphasis on trade and foreign investment. Share of BRI(C)S Total Trade with China (Jan-Dec 07)

120

South Africa 11%

Brazil 23%

China Total Trade (12 month historical data, USD bn)

Imports

Exports

100 80 60 40

Russia 36%

India 30%

20

Ja n Fe b M ar Ap r M ay Ju n Ju l Au g Se p O ct No v De c

0

Source: PRC Ministry of Commerce

Source: PRC Ministry of Commerce

10 Largest Trade Deficits with China (Jan-Nov 07)

Actual Use of Foreign Investment (2007, USD bn)

Hong Kong

USD 172 bn

United States

USD 163 bn

USD 6.6 bn

8

Holland Britain

5

United Arab Emirates Singapore

3

Spain Italy India

100

150

200

Source: PRC Ministry of Commerce

Shanghai Composite Index (12 month historical avg.)

7,500

Ju l A ug Se p O ct N ov D ec

50

Ja n Fe b M ar A pr M ay

0

Source: PRC Ministry of Commerce

Ju n

0

Turkey

16 Oct 07 6,092

China’s Foreign Exchange Reserves (2007-08, USD bn)

2,000

21 Mar 08 3,796

USD1647 bn

1,500 5,000 1,000 500

2,500

Jan 07

Mar

Source: Shanghai Stock Exchange

Jul

Oct

Jan 08

Source: China State Administration of Foreign Exchange

Ja n Fe b

0

M ar A pr M ay Ju n Ju l A ug Se p O ct N ov D ec

0

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Statistics in the News China’s rise is best described in numbers, whether population, economic growth or the fact that in 2007 its crude steel output was the same as the total for the entire three decades after the 1949 revolution. Statistics in the News is a selection of the most interesting statistics released this month. Sovereign wealth funds are making their force felt in the global investment arena

The China Investment Corporation (CIC) is the newest member of the “Super Seven” USD100+ billion stateowned sovereign wealth funds. Morgan Stanley recently published a report saying that up to USD2.9 trillion is under sovereign wealth control and this could grow to USD12 trillion by the year 2015 making it the world’s largest global investment pool. The largest, UAE’s Abu Dhabi Investment Authority, was established in 1976 and has an asset base of USD875 billion. While China Investment Corporation is only valued at USD200 billion, it could soon become the largest on the back of China’s USD1.6 trillion foreign reserves.

UAE Norw ay Singapore 7 Largest Sovereign Wealth Funds (USD bn)

Kuw ait China Singapore (TH*) Russia

0

200

400

600

800

1000

* Singapore’s Temasek Holdings does not consider itself a SWF

Shanghai’s air pollution statistics offer some cause for concern

The Chinese Ministry of Environmental Protection ranks 84 Chinese cities on a daily Air Pollution Indices (API) basis according to three major air pollutants - sulphur dioxide, nitrogen dioxide and inhaleable pollutants. The API scale goes from 1 to 300 with anything in excess of 300 being heavily polluted. According to these statistics, Shanghai had an Air Pollution Index (API) average of 68 (qualified as ‘Not affecting daily activities’) for 2007 compared with Beijing’s average of over 90. However, Shanghai did have two days for serious concern in 2007. On 19th January, the API was 412 while a staggering 500 was recorded on 2nd April.

500

Shanghai's Air Pollution Index (2007)

400 300 200 100 0 Jan

Apr

Jul

Oct

Dec

Heavy snowfalls add to China’s inflation woes

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China's Inflation (CPI core YoY)

5

3

20 08

20 07

0 20 06

China’s inflation rate soared to an 11 year high of 8.7% in February 2008, adding calls for the central bank to increase interest rates to ease inflationary pressures. Food prices comprise of a third of China’s CPI basket and have seen significant price increases in recent times. The pork price was up 63% year on year while cooking oil jumped 41% over the same period. The latest inflation figures come on the back of a disastrous cold weather spell that swept through China over Chinese New Year. Heavy snow falls disrupted supply lines and caused severe damage to agricultural produce.

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China Business News Highlights First quarter business developments in China saw Chinalco take a stake in Rio Tinto, while the Shanghai stock market continued its slide. Snowstorms further pushed up an already high inflation rate, just as the release of 2007 statistics showed no slowdown in GDP growth.

In early January Chinese authorities slapped export tariffs on grains, ranging from 5 to 25%. The move came a mere two weeks after exports rebates on grains were scrapped, and echoes similar measures by governments in India and Vietnam to deal with food inflation.

In late January central China was lashed by severe snowstorms that were described as the worst in memory. According to government estimates some USD15 billion of damage was done, with 350,000 homes destroyed, along with 24 million hectares of farm production. The storms hit at the worst time just as 200 million migrant workers were making their way home for the Lunar New Year festival - and at the worst place - in parts of China that straddle most of the important transport routes. The National People’s Congress (NPC) and Chinese People’s Political Consultative Conference (CPPCC) had its annual sitting 5 to 18 March. China’s main legislative and political bodies respectively, this year’s sessions placed special emphasis on inflation, given the almost doubling in 2007 of the price for pork, a popular part of the Chinese diet. The government further promised to strive to reduce energy consumption while promoting sustainable development. Events also saw the creation of five new super-ministries, including one for environmental protection. Taiwan’s presidential elections yielded a result palatable to China or the first time since the introduction of democracy to the island in the early 90’s. The election of Ma Ying-jeou, the charismatic former mayor of Taipei, returned the Kuomintang to the presidency for the first time since 2000, thus raising hopes for better cross-strait relations. Although the Kuomintang is the Communists’ traditional adversary, the two parties made

The fresh new face of China Going Abroad: Chinalco President Xiao Yaqing.

peace in 2005, and the Kuomintang is generally regarded favourably, especially after the erratic 8-year presidency of Chen Shui-bian Chinalco, holding company of Chinese aluminium giant Chalco, on 1 February announced that it had partnered with US based Alcoa to buy a 12% stake in Rio Tinto, thereby wishing to block BHP Billiton’s attempt to acquire the Anglo-Australian iron ore miner. China’s GDP grew by 11.9% in 2007, according to National Bureau of Statistics released at the end of January and adjusted in March. This is the highest annual rate in 13 years. Over the last 6 years the Chinese economy grew by 65.5%.

China had issued 1.5 billion bank cards by the end of 2007, a growth of 32.6 percent on the same period of the previous year, according to the People's Bank of China, the central bank. The total included 1.41 billion debit cards, up 30.4 percent, and 90.26 million credit cards, up 82 percent. Last year witnessed bank card-based consumption account for 21.9 percent of China's total annual retail sales, up 4.9 percentage points year-on-year. In March the Shanghai Composite Index fell by more than 20%, and recorded its lowest level since April 2007. The index had lost more than 40% in the 5 months since November. PetroChina, who in October 2007 was responsible for China’s largest ever IPO, saw its stock sink back to close to its listing price of around 16 yuan. That after the stock surged by 163% on its opening day. In late March the Industrial and Commercial Bank of China (ICBC) and Standard Bank of South Africa announced the creation of a USD1 billion global resources fund. The fund would focus on China and Africa, especially in the fields of preliminary mining, and resources.

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CITIC Securities announced in mid-March that it was pulling out of a seemingly ill-advised USD1 billion investment in Bear Stearns, after JP Morgan announced that it was taking over the company. China’s consumer prices rose 8.7% year-on-year in February after gaining 7.1 percent in January. This was the highest figure since May 1996, when it stood at 8.9 percent. Food prices surged 23.3 percent in February, with pork prices up 63.4 percent and vegetable prices up 46 percent, contributing more than 80 percent of the increase. Ping An Insurance Group, China's second largest insurer, announced during March that it had agreed to buy half of Belgian financial service provider Fortis's asset-management unit for 2.15 billion euro (3.4 billion U.S. dollars). The deal is expected to help Ping An establish a global business platform for its asset-management and QDII (Qualified Domestic Institutional Investor). A court in China’s Southern Guangdong Province has ruled in favour of Louis Vuitton in a case brought against a local hotel that leased floorspace to a seller of knock-off Louis Vuitton (LV) products. However, the Intermediate People's Court in Dongguan City awarded only 100,000 yuan (around USD13,500) to the French luxury producer. Significantly, most of China’s large knock-off markets have up to now escaped lawsuits on the grounds that they only lease space to small vendors, and thus are not themselves responsible for any IP infringement. Whether the ruling is applied nationwide remains to be seen.

The prices they are ‘a changing: A sign outside at a rural food vendor announces a rise in price for mutton skewers.

The first two months of the year saw a spectacular 75% rise in China’s inwards FDI figure, reaching some USD18 billion. This is on the back of several large projects and a strong yuan, and despite a unification in the tax codes for foreign and local companies by which foreign companies will pay tax at a higher rate. In 2007 China received foreign direct investment to the tune of USD74.8 billion. In the first two months of the year Chinese retail sales grew by 20.2% year-on-year, an 11-year high. When accounting for inflation, sales were still up 12.6%, a figure stimulated by high income growth and the growing financial security of Chinese consumers. China has relatively weak domestic consumption, a situation that the government is eager to remedy as the country tries to shift the source of its spectacular growth from investment and foreign demand for goods to domestic consumption.

Housing prices in China continue to rise. In February yearon-year growth of 10.9% was recorded, with second tier cities leading the charge. Whereas the property boom in the large coastal cities have tapered off, Urumqi in Xinjiang, Ningbo in Zhejiang and Haikou in Hainan saw growth of 24.2%, 18.3% and 18.9% respectively. In early March the president of Minmetals, a Chinese diversified metals giant, implored the Chinese government to establish a fund through which Chinese companies could acquire foreign metals assets. He said that capital could be raised from the China Investment Corporation (CIC), the Chinese sovereign fund. In late 2007 BHP Billiton sent a shudder through China when it attempted a takeover of Rio Tinto, thereby raising the possibility of three quarters of the world’s iron ore production coming into the hands of only two companies.

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China Perspective Taking a look at the issues discussed in the Chinese media, China Perspectives aims to track the opinions and criticisms of the very people that are driving and living China’s breakneck transformation.

In January the Chinese media was dominated by the chaos that ensued when the annual Lunar New Year migration of 200 million workers coincided with the worst snowstorms in memory in central China. Disrupted train schedules saw crowds of up to 150,000 stranded at railway stations, while key staff were recalled from their vacations to repair infrastructure. Premier Wen Jiabao made a muchpublicized visit to a railway station to apologise over a megaphone, while a group of electricity utility workers who died while repairing pylons in freezing temperatures were lionized by state media. The annual sitting of China’s legislative body, the National People’s Congress and the political advisory body, the Chinese People’s Political Consultative Conference, took place from 5 to 18 March. As is usual, official news coverage focused on the positive and agenda aspects of the meetings, but this was by no means where the story ended. The Chinese internet was alive with independent commentary, and the favourite punching bags seemed to be the Ministers for Railways and for Education. The former gave his ministry a 90% score for their performance during January’s Lunar New Year transportation chaos. The Education minister drew ridicule for making Beijing Opera and some revolutionary opera part of the elementary curriculum, a move that seemed entirely out of tune with the times. Significantly, such unflattering comments were generally not deleted by chatroom moderators or other censors.

Chinese media reacted indignantly to perceived western bias in the coverage of the “Lhasa Riots”. A picture that appeared on CNN was shown by state media to have been cropped in order to exclude rioting Tibetans, while a widely distributed photo of monks being beaten up by soldiers was actually taken in Nepal - Chinese riot police do not wear blue camouflage. However, state media was selective in its own coverage too: when the Olympic torch-lighting ceremony in Greece was disrupted by Tibet activists, state television carefully avoided showing any of the protesters.

The election of the Kuomintang’s Ma Ying-jeou in Taiwan was heralded by the mainland media as the best chance for cross-strait peace, after eight years of often provocative politicking from Taiwan’s pro-independence DPP. The biggest influence will, however, be felt by Taiwanese residents - Mr Ma has promised to allow direct flights to the mainland for the first time in almost 60 years, while allowing more mainland tourists to visit the island. At a time when the China is being lambasted in the Western media, Chinese media was gifted with the

propaganda bonanza of the year: In late March Beijing’s new airport and Heathrow’s Terminal 5 opened on consecutive days, and the contrast couldn’t have been greater. As Terminal 5 sank to its knees, Beijing opened the world’s biggest airport, 17% bigger than all of Heathrow, without a glitch. Yet, the opportunity to ridicule western ineptitude was largely passed over, with only state television comparing the two events in a small report. Was this simply self restraint on an Olympic scale? Compiled by Haiwei Huang and Edward Wang

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China Sourcing Blog Highlights In the past few months the China Sourcing Blog has continued to digest and analyze all parts of the sourcing debate. Investigating familiar issues like sustainable sourcing and quality fade, CSB also gained some new insights from interesting developments involving ‘suspicious liquids’ and ‘hot air.’

Tracking a multi-faceted, dynamic subject, this blog has a big name to live up to. So we carefully scan everything from the mainstream financial media to the more distant corners of the Internet, all to find you the best bits and pieces on China sourcing. Sponsored by the THE BEIJING AXIS, CSB aims to provide an informative channel on China sourcing and give a more holistic perspective on the issues debated. Following are some of the most popular postings over the last three months: Posted: 18 March 2008 In the rush for natural resources, China’s mining industry has undergone rapid expansion, with a headlong new gold rush and a booming building industry that have even led to copper gangs in Australia trying to get in on the lucrative China metals trade. However, for some of China’s migrant workers, as factory-line poet Zheng Xiaoqiong tells us, life as a cog in the machine can have all the qualities of a piece of iron. Posted: 15 March 2008 From terrorist attacks attempted with flammable liquids in an aircraft toilet to quality fade in the form of water-tinged gasoline, China’s had a fair share of problems with suspicious liquids recently. Yet China is having more luck in making the machines that use these liquids as demand for Chinese trucks and motorcycles is steadily increasing… Posted: 1 March 2008 Labour shortages in Guangdong formed the basis for a posting

Vietnam or bust: At the end of 2007 some 10,000 factories in Guangdong Province closed their doors due to rising production costs.

about how China’s economy is dealing with rapid growth and inflation. As some light manufacturers in Guangdong faced closure, increasing labour organization have formed the backdrop for pressures of regulation and rising costs of energy, materials and labour, which have led some to speculate China is about to lose its claim on cheapness. Posted: 28 February 2008 Quality Fade was one of the main issues of 2007, and in a posting analyzing current debates on the subject, CSB investigated the adverse effects of cost-cutting by Chinese factories experiencing pressure. Yet quality fade is also the supplier’s responsibility, and illustrates why trust is such an essential component of sourcing.

Posted: 21 February 2008 Could China be at the forefront of the so-called Third Industrial Revolution? In a posting investigating the outlook for sustainable sourcing in China, CSB presented some ideas for ensuring more ethical supply chains by integrating environmental and labour concerns more fully into companies’ procurement efforts. And finally... In one of the most popular posts, Dealing with hot air - China’s snow storms and reflection, we outline the problems with China’s energy security by means of a novel interpretation for the ‘hot air’ which caused China’s Spring Festival snow storms.

[email protected]

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Upcoming Events THE BEIJING AXIS can assist delegates that wish to attend events such as fairs, exhibitions and conferences in China. Services include research, interpretation, negotiation and travel logistics. For more information: [email protected], or contact one of our offices.

Date

Event

Location

15 - 17 April

Automotive Logistics Asia Conference

Shanghai

15 - 24 April

Canton Fair - China Export and Import Fair

Guangzhou

17 - 20 April

Chinaplas International Exhibition on Plastics and Rubber Industries

Shanghai

19 - 22 April

China Plywood Trade and Investment Conference

Qingyuan

22 - 24 April

China Power Exhibition

Shanghai

22 - 28 April

Auto China - Beijing International Automotive Industry Exhibition

Beijing

13 - 15 May

CECIA - International China Exhibition & Conference on Instrumental Analysis

Guangzhou

13 - 15 May

Expo Bio - International Biotechnology Exhibition

Guangzhou

14 - 17 May

Beijing Essen International Welding & Cutting Fair

Beijing

19 - 21 May

AES China - International Automotive Electronics Products and Technologies Show

Shanghai

19 - 21 May

ATS China - International Automotive Testing Instruments Expo

Shanghai

23 - 25 May

China International SME Fair & Forum

Suzhou

23 - 25 May

Logistics World Suzhou China - Logistics Technology and Service Exhibition

Suzhou

26 - 29 May

IBCTF - International Building & Construction Trade Fair

Shanghai

28 - 30 May

Aluminium China - Aluminium Industry Event

Guangzhou

28 - 30 May

Biotech China - International Trade Fair & Congress for Biotechnology

Shanghai

4 - 6 June

Optinet China Conference - Optical Networking Conference

Beijing

10 - 13 June

Power Transmission and Automatic Control Expo

Beijing

16 - 19 June

China International Exhibition of Mould Equipment and Technology

Guangzhou

16 - 19 June

China International Hardware Tool Exhibition

Guangzhou

16 - 19 June

International Machine Tools Exhibition

Guangzhou

9 - 12 July

Eastpo Shanghai - International Machine Tool Fair

Shanghai

28 - 31 July

China Industrial Equipment Fair

Qingdao

28 - 31 July

China Machine Tools & Moulds Expo

Qingdao

28 - 31 July

China Industrial Automation & Instruments Expo

Qingdao

28 - 31 July

China Power Transmission & Control Technology Exhibition

Qingdao

28 - 31 July

China Plastics & Rubber Industry Exhibition

Qingdao

15

THE BEIJING AXIS News Danielle Olivier joined The Beijing Axis Johannesburg Office as an Analyst on 1 January. She graduated from the Institute of Marketing Management in Johannesburg in 2007, and has been employed part-time since November 2007. Vladimir Tsiba joined The Beijing Axis Moscow Office as an Analyst on 1 March. Vladimir speaks Russian, English and Mandarin Chinese, and graduated in Mathematics from the Far Eastern National University in Vladivostok. He has worked as a management consultant in Russia for the past two years. Dirk Kotze, The Beijing Axis General Manager for China,

delivered a presentation on ‘Chinese Investment in African Mining’ at the Macquarie First South China Day in South Africa, held in Cape Town on 1 February 2008. In early March Lilian Luca, The Beijing Axis Director for Russia and Eastern Europe, delivered a presentation titled ‘Advantage through Sourcing from China’ at sourcing summits in Moscow and in Donetsk, Ukraine. Kobus van der Wath, Managing Director of The Beijing Axis addressed two events on issues related to sourcing from China. On 3 March a presentation titled ‘China in your Low Cost Country Sourcing World: Strategy, Implementation

and Selected Cases’ was delivered to the Council of Supply Chain Management Professionals (CSCMP) in Johannesburg, while a presentation titled ‘Gaining Advantage through China Sourcing: From Strategy to Implementation’ was delivered to a gathering of the International Purchasing & Supply Education & Research Association (IPSERA) in Perth from 9 to 12 March. Cheryl Tang and Dirk Kotze from the Beijing office and Julain Hewitt from the Shanghai office attended the China Sourcing Summit 2008 in Shanghai on 13 March. Dirk Kotze, General Manager for China, delivered a presentation titled ‘China Sourcing in the Sphere of High-Value Industrial Products’ .

About THE BEIJING AXIS THE BEIJING AXIS serves as a dedicated business bridge to China. Our focus is on two-way China strategy, sourcing and investment. By leveraging sound analytical processes, hands-on experience and strong networks, the firm is positioned to support clients’ divergent needs. Our solutions go beyond market research and we emphasize ‘actions and transactions’. In addition, our cross border experience enables us to bridge information gaps as well as cultural and language barriers in a manner that adds value and mitigates associated risk. We have assisted several international blue chip companies in setting their China ventures on the right strategic course and implementing related initiatives. Similarly, we serve many of China’s most ambitious and prominent companies in realising their ambitions of ‘going abroad’. For more information, please visit our English, Chinese or Russian websites at www.thebeijingaxis.com.

Why THE BEIJING AXIS? Clients turn to us for strategic, operational and transaction support. We offer insight, impact, trust and confidence on the basis of a strong team and:

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Operational (on-the-ground) presence in China

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Extensive local knowledge and experience

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Strategic relationships and networks

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Proven track record