The China Monitor - The Centre for Chinese Studies

The China MonitorThe China MonitorNovember 20051

The China MonitorContentsPageEditorial 3Dr. Martyn J. Davies, Centre for Chinese StudiesLetter from China 4Beijing: China at a GlanceLucy Corkin, Marulelo CommunicationsMarket Watch 7China’s Banking ChallengeDr. Martyn J. Davies, Centre for Chinese StudiesBusiness Briefs 10A round-up of China news from the past monthChina & Africa 16News briefs highlighting Chinese relations with AfricaThe China Forum 19Recent and upcoming eventsContact Us 23A Publication of:The Centre for Chinese StudiesFaculty of Arts, University of Stellenbosch2

The China MonitorEditorialDuring the past month an array of China-focused events have taken place across South Africa. TheCentre for Chinese Studies participated in a number of these including co-hosting with the WesternCape Provincial Government’s Trade and Investment Promotion Agency (WESGRO) a BusinessSeminar focusing on China.The reaction from the local manufacturing sector toward China is often not positive. South Africanemployers and organized labour fear hollowing out in the face of price competition from China. Whilstrecognizing the extent of China’s manufacturing competitiveness, the business seminar served tohighlight the market entry strategies employed by businesses that aresuccessfully accessing the Chinese market. These companies includedUnilever, Namakwa Sands, the Citrus Growers Association and MCMWines.China’s increasing engagement with Africa was the theme at aJohannesburg event. The Centre contributed to a joint conference heldby the Institute for Global Dialogue, South African Institute ofInternational Affairs and the Friedrich Ebert Stiftung entitled “China inAfrica: Mercantilist Predator or Partner in Development?” The eventbrought together academics from Benin, Sudan, Tanzania, UK, US andZambia. The divergence of academic views on China-Africa relationswas at times stark. It is this subject that the Centre for Chinese Studies has as its mission.Stellenbosch University and the Centre will be sending a delegation to China later this monthaccompanying the South African Minister of Education, H.E. Naledi Pandor. Stellenbosch will besigning exchange agreements with Beijing University and Tsinghua University, China’s foremostinstitutions of higher learning. We are confident that these ties will further deepen educational cooperationbetween our two countries and respective institutions.Dr Martyn J. DaviesDirector, Centre for Chinese Studies3

The China MonitorLetter from ChinaBeijing: China at a GlanceBy Lucy CorkinHaving recently returned from a three-week Mandarin course atBeijing Capital Normal University in June this year, I was affordedan insider’s glimpse of the waking giant. Staying in the capitalcity, the seat of political power in what is still very much acentralised economy, it seems that what I experienced as anoutsider on a micro-level is being manifested in national trends.China is vast; a world in itself. Although approximately 93% of the Chinese population are part of theHan nation, China is home to 56 minority groups. Furthermore, the idea of a common tongue is, at“The idea of acommontongue is, atpresent, nonexistent”present, non-existent. Mandarin Chinese owes its status as the officiallanguage of China to the fact that it is merely the dialect spoken by those inBeijing. It is still the case that Chinese dialects are numerous and diverse,especially in the more rural areas. Mandarin Chinese, following China’sopening up to the West, has now become the business lingua franca,especially in preparation for the Beijing 2008 Olympics. It is the official school language medium inorder to standardise communication.Of the Western nations that have realised the politico-economic expediency of learning Mandarin, theUnited States and, interestingly, France, seemed to be in the majority. According to Professor Liu ofBeijing Capital Normal University’s Foreign Students’ Mandarin Programme, who had been teachingMandarin to foreign students for 15 years, Western students grasp the pronunciation (although notnecessarily the tones) of the spoken language fairly easily incomparison to their Eastern counterparts. Westerners displayineptitude in the writing of characters, an aspect of the languagethat Korean and Japanese students excel in, since much of theirown languages’ modern written form is derived from Chinesetraditional script.An informal survey conducted among Beijing taxi drivers confirmed that the number of foreigners thatpour into Beijing annually has increased exponentially over the years,and a yangguize (foreign devil) will not draw too much attention in thecapital city anymore. While the most entrepreneurial of peddlers andsalespeople will have a smattering of English, or at least a few setphrases learnt by rote, English is still not widely spoken. Academics anduniversity graduates will competently read English field-specific journals“A yangguize(foreign devil) willnot draw toomuch attention inthe capital cityanymore”4

The China Monitorand articles, but their oral ability is remarkably poor. With time, however, this is set to change. Thegovernment is on a huge educational drive, especially where language is concerned, and pre-schoolchildren are learning their first English words barely before they can recognise characters in their ownlanguage.The government is not the only force behind intensivelearning however. The infamous one-child policy of theChinese government, started in the 1970s to curb theburgeoning population, has given rise to what is known as“Little Emperor Syndrome”. In keeping with the traditionalimportance of family, the youngest generation ischerished. With a growing middle-class of dual-incomehouseholds and increasing disposable income, moremoney and attention from both parents is concentrated on the single child. Thus Chinese children are,from an extremely young age, encouraged to engage in a host of extra-mural activities, ranging frompainting and dancing classes to extra English tuition.Consumer trends are increasingly affected by modernisation. In Beijing at least, supermarket chains“Supermarket chainsand shopping mallshave become vastlymore popular thanthe traditionalChinese market”and shopping malls have become vastly more popular than thetraditional Chinese market, for those who can afford it. Within thesecommercial centres, which seem to be mushrooming all overurbanised areas, quality is guaranteed and the price is fixed,especially if the store is state-owned. Being able to shop at chainstores such as French-owned Carrefour ensures that shoppers payfor quality; something that cannot be guaranteed at the street market, even for the more savvy locals.On the street the price of market goods, whatever their nature, is negotiable. Vendors assess thepotential buyer in terms of whether he or she is a foreigner, an out-of-towner, or a local, and marks theprice up accordingly. It is taken for granted that one will bargain.Interestingly, Beijing’s cost of living on the whole is reportedlycheaper than other city centres such as Shanghai andGuanzhou, perhaps because goods don’t have such hightransportation costs, or through other interventions such asgovernment subsidies.Political commentary in China is no longer uniform, nor blindly approving of the government. It isrecognized that the Party has achieved much progress in the few short decades since Deng XiaoPeng’s “Open Door Policy” of 1978. Public works are rapidly erected at a speed that would put thebureaucracy of most other nations to shame. The Olympics are to be held in less than three years andthe infrastructure the Chinese require to host such an event is not nearly completed. A professor at theBeijing Capital Normal University remarked that this is not problematic, as the government would5

The China Monitordefinitely meet its deadlines. Aside from the vast workforce at its disposal, the government canunilaterally sweep away all the bureaucratic red-tape that usually hampers such projects. ConsideringChina’s undisputed growth rate, this makes for an interesting lacuna in the theory that democraticcountries rank highest globally in economic prosperity.Anecdotally, freedom of speech and its expected practice orlack thereof held some surprises. I noted with interest that theacademics I interacted with freely expressed criticism of localgovernment administration where they felt it was due. Incontrast however, it seems that media, especially foreignmedia based in China, are strictly state-censored.National heroes, such as Chairman Mao, are still very much revered as partof the heritage of which the Chinese are fiercely proud. Street vendors areprolific with Mao souvenirs, but one gets the distinct impression that they wereeager to display these Mao trinkets because they seem popular with“Capitalism, itseems, hasindeedarrived.”Westerners, rather than due to nationalistic fervour. Capitalism, it seems, has indeed arrived.In its essence, Beijing seems to be a city in transformation. What is undoubtedly the most strikingaspect of the city is that the old is juxtaposed with the new. With a reported 800 000 new internetusers a week and over 368 million cell phone users, China is undisputedly one of the fastest growingcountries in the world. But its 5000 year old culture, having survived the 20 th century, is not to bedismissed by the 21 st .With a nod at Wallerstein, it seems that China has learnt from historical precedent. In the sixteenthcentury, China, the most advanced country in the known world, was poised to become a global power.The Middle Kingdom instead chose to maintain its isolation and walled the ‘barbarians’ out, eventuallyfalling into decline. Now, five hundred years later, with one of the highest rates of Foreign DirectInvestment in the world, China is welcoming the global influx withopen arms and an opening economy, ready to learn othertechnologies. In addition, a recent study conducted by the WorldBank and the International Finance Corporation ranked China (withHong Kong) at seventh place in terms of ease of doing business.China is stronger for it.The inevitable conclusion is that Beijing, one of the hubs of this dynamic developing country, is acomplex environment with many contradictory forces. A few shorts weeks served only to offer aglimpse of the bustle and energy at China’s core as the old learns to embrace the new.6

The China MonitorLucy Corkin is a communications consultant with a Masters' degree in International Politics fromStellenbosch University. She recently attended a short-term Mandarin course for foreign students atBeijing Capital Normal University.Market WatchChina’s Banking ChallengeBy Dr Martyn J. DaviesChina’s economic growth continues unabated. It is an important source ofglobal growth and foreign economies are rapidly becoming reliant on itsexpanding market. Undoubtedly this offers great opportunity for multinationals operating in China. Butin the event of an economic slump, it also heightens the risk of contagion as China becomes part ofthe global market economy.The greatest reform challenge faced by China is that of its moribund banking sector. Financialmanagement will determine the growth scenario of China in the decades to come.Managing financial reformThe Chinese Government’s greatest management challenge in itseconomy is the domestic banking sector. The challenge is totransform a moribund state-owned sector into an efficient capitalallocating and competitive financial services sector. A major movetoward this is the pending listing of the Bank of China (BOC) and theIndustrial Commercial Bank of China (ICBC) on the internationalmarket.“The ChineseGovernment’sgreatest managementchallenge in itseconomy is thedomestic bankingsector”Going to the international market will have a range of dramatic impacts upon China’s banking sector.Its access to international markets will improve the capital competitiveness of its multinationals;foreigners will gain footholds and lend strategic direction to China’s domestic financial servicesdevelopment; risk management in lending will become more prevalent; and the implementation – orimposition for that matter – of measures promoting corporate governance by foreign interests will havethe greatest impact of all.The move of China’s largest lenders to the stock market willhave profound implications for lending in the domesticeconomy as well as to Chinese firms in the internationalmarket, including Africa. The changing rules of China’scapital market will impact on the state’s foreign commercialstrategies. Chinese firms will no longer be able to “cheat on7

The China Monitorcapital” as they are often accused of doing. Thus with marketisation, Chinese firms will lose their“capital competitiveness”.For China’s listed banks, a capital “behavioural change” will develop. Lending based on the calculationof risk rather than the traditional relationship-based model will emerge. This will, however, take anumber of years before becoming apparent. For the first time in modern China, an apolitical creditculture will emerge. Chinese banks will start to act like banks rather than mere vehicles to distributestate-directed capital.RMB value as a competitive driverThere is now an international obsession over the value of China’scurrency, the RMB. However, its revaluation poses no risk to theinternational financial system. There was no impact on globalfinancial markets following its July revaluation. The recent attentionand media speculation that followed with the RMB revaluation wasunfounded.“Westerngovernmentslobbying China fora free float currencywill continue to bedisappointed.”Due to the new (narrow) trading band of the RMB of just 0.3%, theperception - and possibly even the practical reality - is that China hasmerely re-pegged the RMB. With such little volatility, the market hasalmost zero influence on RMB value. Despite Beijing’s claims of aliberalised monetary policy, the actual reality is somewhat different andremains more State than market-influenced. Western governmentslobbying China for a free float currency will continue to be disappointed.Last year the PBOC spent US$210 billion to contain the upward pressure on the RMB. This year thePBOC will spend between US$150-200 billion doing the same. So much for Chinese monetary policyreform!But the recognised trend over the long term is that the currency will move upwards, forcingcompetitiveness upon Chinese firms. It is forecast that in the event of a 10% appreciation in the valueof the RMB, the growth in exports of textiles and garment will decline by 8-9%.A strengthening currency environment will undoubtedly facilitate the process of Chinese firmsbecoming multinationals. Their increased exposure to the market, their ability to compete on processrather than rely upon a cheap currency and their ability to acquire international assets at a lower priceall drive this trend. But different industries will internationalise at different paces.8

The China MonitorAspirant multinationalsChinese firms are rapidly seeking to move toward multinational status. The establishment of China’smultinationals is often compared to that of Japan and Korea. But at comparative stages ofdevelopment, China’s economy is far more open to foreign involvement than its neighbours.Considering this, Chinese firms are rapidly integrating into the global supply chain. Chinese brandformation may, however, lag that of its Asian competitors.Chinese players seek to fast track their international market entry through the purchase of establishedforeign brands. Recent examples include Lenovo’s acquisition of IBM’s PC business and Haier’sattempted purchase of white goods company Maytag in the US. But Chinese brands are battling togain traction in the international market, a task made more difficult by the negative publicity Chineseexports are receiving from protectionist manufacturing lobbies.A Chinese Enron?The motivation of Chinese partners in Sino-foreign joint ventures is most often to obtain managementprocess, not capital. When speaking with the top management of Chinese banks, it is apparent thatthey do not lack money but rather seek management best practice.But corporate governance is very difficult to institute in Chinese state-owned enterprises, no matterwhat the size of foreign equity stake. Ownership structuredetermines the corporate governance practice in China.Typically, in state-owned or state-invested enterprises,relationships determine outcomes rather than managementprocesses. Poor standards of corporate governance in Chinesestate owned companies compounds investing in the country’sstock markets.China’s Shanghai and Shenzhen stock markets continue to perform poorly. The paradox of China’s“Until corporategovernanceimproves, China’sstock markets willserve littlepurpose”development is that stock markets as vehicles for raising andallocating private capital cannot function in an environment whereinformation is not free flowing. The State’s monopoly on informationprevents efficient capital allocation in China. Until corporategovernance improves, China’s stock markets will serve little purpose.Sustainable growth or market correction?China’s government has embarked upon an irreversible program of economic reform. But no singledeveloping economy has ever enjoyed a smooth transition to the market. Without commensuratereturns in productivity, China’s growth will not be sustainable.9

The China MonitorWill the Government be able to manage this reform to its market conclusion? This remains to be seen.As the system “marketises”, the Government will increasingly have less centralised control and policylevers available to manipulate the domestic financial system. Investors both domestic and foreign arebecoming “drunk on growth” in China. This abrogates risk. Similar factors present in Southeast Asia inthe mid 1990s are emerging in China today.A market correction is undoubtedly coming. China’s government, undoubtedly powerful, is not biggerthan the market. The trigger of a market correction will be the failure of a significant domesticcommercial bank or alternatively an international energy price shock that the Government will nolonger be able to afford to subsidise.Whether China can emulate Korea’s emergence from crisis or flounder like Japan after the bursting ofits bubble economy in 1989 is the key scenario question.Dr Martyn J. Davies is Director of the Centre for Chinese StudiesBusiness BriefsSignificant business developments in China over the past monthBeijing Media shares plummet. Shares inBeijing Media Corp., which sells advertisingspace in the Beijing Youth Daily newspaper,fell by 27% after six employees were taken intocustody following an investigation intocorruption in the company. The company, inwhich Singapore Investment Corp. has an 8%stake, announced to the Hong Kong stockexchange that it had suspended theemployees and is planning to conduct aninternal investigation. Beijing Media Corp.reported a 99.7% decrease in its first-half profitas advertising sales declined, with sharesfalling by 52% this year. The detainees includetwo Vice Presidents and heads of theadvertising departments. Naspers Ltd, SouthAfrica’s largest media company, and theGovernment of Singapore Corp. were bothinvestors in Beijing Media. Naspers holds a9.9% stake in the Beijing Media, while theSingapore agency holds 8% as of August.China’s foreign acquisitions surge.According to the latest published statistics fromthe Chinese Ministry of Commerce(MOFCOM), Chinese companies’ overseasacquisitions increased 182.5% year-on-year involume in the first 6 months of 2005. Accordingto the MOFCOM’s cooperation department,acquisitions made up 80% of China’s totalexternal investment, which in the first sevenmonths of 2005 reached US$2.5 billion. Asiawas the top destination for Chinese investmentfrom January to July, with 75% of China’sinvestments going to that region, followed byinvestments in Latin America, North Americaand Africa.10

The China MonitorChina sends twoastronauts on spacemission. Chinasuccessfully launchedits second mannedspaceship into orbit on12 October 2005. The launch is part of aproject to establish a permanent orbitinglaboratory and land an unmanned spaceshipon the moon by 2010. The Shenzhou VIlanded back on earth on 17 October in InnerMongolia, after orbiting the earth 76 times infive days.France’s PNB Paribas buys stake inChinese bank. French PNB Paribas bank hasbought a 19.7% stake in China’s Nanjing CityCommercial Bank. PNB Paribas invested lessthan 100 million euros.China to hasten reforms during next fiveyear-plan.A key plenum of the ChineseCommunist Party decided on Tuesday 5October to speed up the pace of reforms andachieve breakthroughs in major structuralchanges during 2006 - 2011. It was decided atthe plenum that China will augment the reformof its administrative system, adhere to andadvance its basic economic system, expandthe reform of its fiscal and taxation systems,step up the reform of the banking system, andprogress in the creation of a modern marketsystem.China proposes new DVDformat. China has, for thesecond time in two years,pronounced its plan todevelop a new DVDstandard in order to breakthe monopoly of foreign companies andescape hefty licensing fees. According to theXinhua News Agency, the new format will bebased on HD DVD, but will not be compatiblewith that standard.Railway to Tibet completed. China hascompleted the construction of the first railwayto Tibet. This is one of the highest railways inthe world, climbing to 5072m above sea level.Passengertrips willcommencenext year;however,passengercarriages will be sealed to protect passengersfrom altitude sickness. The line, which links theTibetan capital Lhasa with the north-westernprovince of Qinghai, is expected to promotedevelopment in Tibet.Fitch – China’s debt ratings improve. Fitchratings raised China’s debt ratings one leveldue to increasing foreign exchange reservesand fewer bad bank loans. China’s long-termforeign currency rating was increased from A-minus to A, the sixth highest grading accordingto Fitch. China’s long-term local currencyrating was also raised, from A to A-plus.According to Fitch, the upgrade is based onChina’s good balance of paymentsperformance.Rumsfeld visitsChina. The USSecretary ofDefence, DonaldRumsfeld, left forBeijing on 17 October. This is Rumsfeld’s firstofficial visit to China. During his eight-day visit,Rumsfeld met with military leaders in China to11

The China Monitordiscuss military relations between the twocountries, as well as military issues of mutualconcern.180 Insurers operating in Hong Kong. HongKong’s Chief Executive, Donald Tsang, saidthat there are 180 insurers currently operatingin Hong Kong, making it the largestconcentration of insurers in Asia. Thestatement was made at the AIG Asia Regionalheadquarters on 6 October. Hong Kong’s totalgross premium rose to US$16 billion in 2004.Insurance penetration in Hong Kong nowshares the same ranking as the US, and is oneof the highest in the world. Hong Kong’sinsurance industry has maintained double-digitannual growth for the past decade.Ericsson Chinese GSM contracts. Ericssonannounced on 18 October that it was grantedGSM expansioncontracts by Chineseoperators GuandongMobile and GuanxiMobile, worth US$290million. According to theagreement, the Swedish vendor will supplycore and radio access network equipment,including hardware and software, and telecomrelated services. Following completion of thedeals, Guandong Mobile's network will have anincreased capacity of over 60 million andGuangxi Mobile to nearly 10 million. Thecontract with Guangdong also covers theinstallation of Ericsson EDGE solutions.China-US textile talks make headway.China’s textile sector is hoping to advance inthe latest round of discussions with the USover continued access to their market. The twocountries are meeting for their sixth round ofnegotiations aimed at decreasing massexports of Chinese manufactured clothing andtextiles to the US. The talks concluded on 13October and the US Committee for theImplementation of Textile Agreements has thismonth decided to postpone the 30 Novemberdeadline for the decision on setting limits onfour categories of knit-cloth imports.Death toll rises in Chinese mines. Despitegovernment efforts to improve mine safety, thedeath tollin China’scoal mineindustry issteadilyrising.Accordingto government statistics, there were 2 337accidents killing 4 228 people betweenJanuary and September this year. This monththere were 43 coal mine accidents that killed atleast 10 people.China to up investments in oil sector.PetroChina, the largest oil company in China,is set to invest 26.2 billion yuan in Xinjiang untilSeptember 2007, in a bid to boost its refiningcapacity to 10 million tonnes. The project willbe built to process oil imported fromKazakhstan, and will start producing ethyleneas early as 2008. The company plans toincrease refining capacity at the DushanziPetrochemical plant in Xinjiang to 10 milliontonnes by 2008 from its current level of sixmillion tonnes.Chinese, Scott and English firms to formalliance. DRB-HICOM Bhd’s wholly ownedsubsidiary, Scott and English Electronics SdnBhd, has formed a strategic alliance with two12

The China Monitorelectronics companies from China to serve astheir sole distributor of consumer electricalproducts in Malaysia. The two companies areTCL Group and Midea Air-Conditioning &Refrigeration Group. The three companiessigned a partnership agreement on 20October. The TCL Group, in Huizhou ofGuangdong Province, Southern China,manufactures multimedia products, mobilephones, personal computers, homeappliances, electric lighting and digitalproducts.Dongfeng Motor plans US$500 million IPO.China’s third largest automaker, DongfengMotor Group Co. Ltd., intends to raiseapproximately US$500 million in a Hong Konginitial public offering. The stock is expected totrade at the beginning of November this year.Dongfeng manufactures vehicles in China withKia Motor Corp., Honda Motor Co., NissanMotor Co. and PSA Peugeot Citroen. Thecompany has 15% of China's auto market. Thesale is arranged by China International CapitalCorp., Deutsche Bank AG and Merrill Lynch &Co.Alibaba acquires Yahoo. China’s largest e-commerce website,Alibaba announcedon 25 October that ithas successfullyacquired the entireassets of Yahoo! China. The deal is the largestmerger and acquisition in China’s Internetbusiness. The combined companies willexpand their internet searching services toChinese users, creating one of the largestinternet companies in China, with a leadingposition in the growing sectors of business-tobusinesse-commerce (B2B) and consumer e-commerce (C2C), online payments, andcommunications. Alibaba is China’s foremoste-commerce company, and has a large shareof global and domestic online markets. Thecompany has China’s most popular onlinepayment system, AliPay, and Alibaba websiteshave more than 15 million registered users inover 200 countries.Wen Jiabao and Putin meet. ChinesePremier Wen Jiabaomet with RussianPresident VladimirPutin in Moscow on26 October todiscuss bilateralrelations and mutually relevant internationalissues. The Chinese Premier arrived in Russiato attend the Fourth Meeting of Prime Ministersof the Member States of the ShanghaiCooperation Organisation (SCO). The twocountries have initiated a consultationmechanism on strategic security, approved aborder agreement, issued a joint statement oninternational order in a new century and stagedjoint military exercises. Premier Wen Jiabaosaid that he hoped to expand areas ofcooperation, fully optimise trade structures,increase two-way investment and regulatetrade. The Premier said he also hopes to signan investment protection agreement at anearly date.China bid for PetroKazakhstan successful.China National Petroleum Corp. (CNPC) hassuccessfully won Canadian court approval forits bid for a US$4.18 billion takeover ofPetroKazakhstan Inc. as announced on 26October. Rivals for PetroKazakhstan includedRussian Lukoil and Oil & Natural Gas Corp of13

The China MonitorIndia. Kazakhstan's government has signalledits approval of the CNPC deal and has agreedto buy 33% of PetroKazakhstan for US$1.4billion. The government and CNPC will alsoshare the firm's Shymkent refinery.Koizumi visits war shrine. Japanese PrimeMinisterJunichiroKoizumi paid avisit to theYasukunishrine on 17October, drawing much criticism from Chinaover the visit to the war shrine. The movecaused China to cancel some official contractswith Japan, including a scheduled visit byJapanese Foreign Minister NobutakaMachimura. Koizumi declared on 26 Octoberthat he would like to hold summit talks withChina prior to impending internationalmeetings. Chinese Vice Foreign Minister WuDawei, said that Koizumi’s numerous visits tothe war shrine would make it difficult forleaders of the respective countries to holdmeetings, and that it would be impossible forChina to support Japan’s bid for a permanentseat on the United Nations Security Council.Japan accounts for about 10 percent of foreigndirect investment in China and as much as 15percent of China's foreign trade.Chinese President to visit Europe. PresidentHu Jintao is set to visit Britain, Germany andSpain from 8-17 November this year. ThePresident will follow his European tour with avisit to the Republic of Korea, where he willattend the APEC forum in Busan fromNovember 18-19. Hu's last official visit to thethree European countries was in November2001.China seeks to reduce energyconsumption. China intends to reduce itsenergy consumption per GDP until the 11 thfive-year (2006-2010) programme period. Thegovernment is looking to cut energyconsumption by 4.4% annually within the nextfive years. China consumed 1.97 billion tonsstandard coal in 2004, ranking second in theworld. However, the country’s energy reserveper capita is far lower than the world average,with oil reserve per capita accounting formerely 11% of the world average. China hasimplemented measures to decreaseconsumption by 4% annually over the pastyears, and authorities are confident that a4.4% reduction rate is achievable.Another bird flu outbreak in China. Chinahas had a fresh outbreak of bird flu, which hasthus far been free from any human infections.In China's new outbreak of the virulent H5N1strain of avian flu, its third case this month,hundreds of chickens and ducks died in avillage in central Hunan province. Themainland notified theUnited Nations on 25October. China saidall outbreaks havebeen contained, andthat there are nohuman cases of human infection to date.However, three suspicious cases ofpneumonia are being investigated, sinceauthorities fear that they might be related tobird flu.China lifts income tax threshold. As part ofthe government’s efforts to decrease incomeinequality, the Chinese government hasproposed to double the personal income taxthreshold level from a monthly income of 80014

The China Monitoryuan to that of 1 600 yuan as of 1 January2006.ChinaConstructionBank’s holdsworld’s largest IPO. China ConstructionBank’s Initial Public Offering (IPO) held onThursday 27 October was China’s largest IPOever, and the world’s largest since 2001. Theshares closed unchanged at the listing price ofHK$2.35 (30 US cents). The IPO raised $8billion for the bank. The IPO has been hailedas a watershed in the transformation ofChina’s financial markets and the reform of thebanking sector.ADP, IFC gain approval for yuan bondissues. The Asian Development Bank and theInternational Finance Corp. received finalapproval from China on 9 October to issuemore than $260 million worth of yuan bonds.This is the first time that foreign issuers havebeen admitted onto China’s fledgling debtmarkets.China’s electro-mechanical exportsexpected to top $400 million. China expectsthe value of its electro-mechanical exports toreach more than US$400 million by the end ofthis year. Statistics from the ElectromechanicalProducts Import and ExportAssociation of China show that the China’selectro-mechanical exports reachedUS$298.98 billion in the first 9 months of thisyear.China’s trade surplus to swell threefold.China’s trade surplus is expected to rise fromUS$32 billion in 2004 to US$90 billion in 2005.This widening of China’s trade surplus is aresult of this year’s massive surge in Chineseexports. According to China’s Ministry ofCommerce, exports are expected to rise 20%this year to US$745 billion.WTO process initiated to investigate antipiracymeasures in China. Switzerland,Japan and the USA have initiated a WorldTrade Organisation process to accessinformation regarding China’s enforcement andprotection of intellectual property rights. Thethree countries have submitted writtenrequests to China for information. A responseis expected by January 23 2006.Sourced from: China View, New York Times, Reuters, Bloomberg, Xinhua15

The China MonitorChina & AfricaThe latest updates on Chinese activity on the African continent.African trade unions call for coordinatedsafeguards against Chinese textiles.Unionists from thetextiles andclothing industriesacross Africa havedemanded‘coordinated action’ amongst Africangovernments to implement temporarymeasures that will safeguard against importsof Chinese textiles and clothing. The demandfollows a meeting of the International TextileGarment and Leather Workers Federation’sAfrica region.China not interested in Zimbabwean farms.China has turned down an offer from theZimbabwean government to appropriate farmsseized from previous white owners. Accordingto sources, the Chinese government does notbelieve it to be a worthwhile investmentbecause there is no assurance of security inthe long term. The Zimbabwean governmentproposed a joint venture with China that wouldallow farmers from China to enter intoagreements with the Zimbabwean governmentto farm land seized from white farmers in orderto assist in reviving Zimbabwe’s agriculturalsector. Zimbabwe’s new laws regarding thenationalising of farmland have contributedtowards China’s reluctance to enter into such adeal.China looks to South Africa for coal miningsafety. The Conference on South African CoalMining Safety Technology and Equipment washeld in Beijing on Thursday, October 13. Coalmining safety has been a topic of controversyin China of late. The conference provided anopportunity for Chinese coal mine productionworkers to learn from the coal mining safetyprocedures in South Africa. South African coalmining experts exhibited their safetyequipment and technology, and sharedvaluable insights into coal mine management.50 Chinese Firms in Kenya, Investmentsrise to US$4 million. More than 50 Chineseinvestors have established businesses inKenya within the past two years. The KenyanInvestment Promotion Centre has the numberof Chinese investment projects in the countrycurrently at 96, with a workforce of 6 700Kenyans and investment capital of US$54million. China views Kenya as a gateway to theregion and it has become a key focus ofChina’s trade and economic strategy in Africa.Kenya to sign deal with China’s CNOOC.Kenya announced on 13 October that it willsign an agreement with China’s CNOOC Ltd.in November this year, to prospect for oil andgas in six blocks of the country.Sasol probed over butanol dumping. Chinais to investigate Sasol’s sales of butanol inChina, following complaints by three Chinesecompanies accusing the South Africancompany of dumping the product in Chinesemarkets. The mainland could imposeantidumping duties on Sasol if it transpires thatthe accusations are founded. Sasol has been16

The China Monitorselling butanol for 24.8% less in China than inSouth Africa. Sasol has said that it wouldoppose the applicationto begin investigations.If Sasol is found guilty,the company will not beable to operate inChina for five years.TheChinesegovernment can also impose punitiveantidumping duties on the price of Sasol’sbutanol exports. The dumping allegations werebrought by China Petroleum & ChemicalCorporation, Jilin Chemical Industrial Companyand Beijing Dongfang Petroleum & ChemicalCorporation. The Chinese investigation alsoincludes suppliers of butanol in Japan, theEuropean Union, the US, Malaysia andRussia. Mitsubishi Chemical, Dow ChemicalUSA and BASF Petronas Chemicals areamong these.Kenya Airways to fly to China. KenyaAirways has begun operating scheduled flightsto China. TheGuangzhouCity route was introduced due to the increasedpopularity of China as a business destination.The airline will fly to Guangzhou three days aweek.Equatorial Guinea looks east. The Presidentof Equatorial Guinea, Teodoro ObiangNguema, has called for greater Chineseinvestment in his country. The President, in avisit to China, met with the mayor of Shanghaion 23 October. Equatorial Guinea establisheddiplomatic relations with China 36 years ago.The country aims to increase cooperation withChina in economic and scientific fields and innatural resource exploration. Obiang also metwith Chinese President Hu Jintao, andexpressed a mutual desire to maintain highlevelexchanges and strengthen cooperation,particularly in oil exploration, infrastructuredevelopment, agriculture and forestry andfishery.BEE telecoms group in business withChinese firm. BlackEconomic Empowerment(BEE) group, NulaneInvestment, has purchased31% of Chinese telecommunicationsmultinational Huawei Technologies Africa, andplans on setting up a manufacturing plant andtraining centre in SA. The deal will be effectivefrom November. The firm applauds Huawei’sapproach in using local skills in the countriesthey are supplying products to, and in investingin building technical skills and capacity. Nulaneplans further expansion, and is set toannounce two more deals. Huawei operates in90 countries, and in Africa has a presence inAngola, Nigeria, Kenya, DRC, Zimbabwe,Egypt, Algeria, Tunisia and Morocco. NulaneInvestments is a broad-based consortiumrepresenting entrepreneurs, women and youthformations.Chinese delegation visits Zimbabwe. Thedeputy governor of the China DevelopmentBank (CDB) and the president of Star, aChinese communications company, landed inZimbabwe on 22 October on a business trip,set to supply Zimbabwe with US$63 millionworth of transmitters. The China DevelopmentBank intends to underwrite Chineseinvestments in Zimbabwe. Cooperationbetween Zimbabwean Transmedia, asubsidiary of Zimbabwe Broadcasting Holdingsand China’s Star will serve as a pilot project17

The China Monitorand model for future cooperation. Under theagreement, China would provide US$63 millionworth of equipment to Transmedia in the formof transmitters. The agreement will allow forthe payment of the debt to be offset throughproceeds from a joint venture miningagreement between Chinese investors and theZimbabwe Mining Development Co-operation,as the Chinese are interested in miningchrome, nickel and other base metals. Theagreements form part of the Zimbabweangovernment’s strategy to improve the country’stelecommunications systems.China and Senegal resume ties. China andSenegal haveresumed diplomaticties at theambassadorial levelas of 25 October. The two countries signed ajoint communiqué on the resumption ofdiplomatic relations with Senegal announcingits affirmation of the ‘One China’ policy.SA will not invoke safeguards againstChinese textiles. South Africa’s trade andindustry minister announced on Sunday 30October that the South African government willnot invoke World Trade Organisationmeasures to limit the import of cheap textilesfrom China. The trade and industry ministerstated that the South African government is notconvinced that invoking safeguards is the bestaction to take, considering the totality of SouthAfrica’s relationship with China.China-Cameroon business cooperationexpanded. A business delegation from Chinavisited Cameroon in October. The delegationmet with a Cameroonian business delegationat the Yaounde Conference Centre. Themeeting was coordinated by the Ministry ofcommerce. The meeting aimed to identifyareas of cooperation, and focused specificallyon the potential for joint ventures.China donates military equipment toNigeria. The Nigerian Minister of Defensereceived $3 million worth of military equipmentfrom the Chinese government on 27 October2005. A 21-member training team from Chinais expected to visit Nigeria in order to trainpersonnel of the Nigerian Armed Forces in thehandling and use of the sophisticated militaryequipment. According to the Chineseambassador to Nigeria, Mr. Wang Yongqio, thedonation was in part to facilitate Nigeria’speacekeeping role in Africa.Sourced from: China View, New York Times, Reuters, Bloomberg, Xinhua, Allafrica18

The China MonitorThe China ForumChina Business Seminar - 13th October 2005The Centre for Chinese Studies co-hosted the "China Business Seminar" with the WesternCape Government’s Trade and Investment Promotion body, Wesgro. The one-day eventbrought together senior-level Western Cape business-people evaluating commercial ties withChina - from both an opportunity and threat point of view.For copies and summaries of the presentations please e-mail the Centre for Chinese Studiesat ccsinfo@sun.ac.zaA Review of the WESGRO-CCS China Business SeminarBy Justin M. ShieldsOn 13 October 2005, WESGRO, the Western Cape’s trade and investment promotion agency, incooperation with the Centre for Chinese Studies at Stellenbosch University, hosted a seminar forSouth African businesses on the opportunities and challenges of doing business with China. Theevent was unique because it featured representatives from several different economic sectors,including mining and minerals, textiles as well as consumer goods. The seminar featuredpresentations through which speakers shared their experiences in working with China; furthermore,time was set aside for questions and discussion.Mr. Shi Weigiang poses withDr Martyn DaviesChina’s rise has impacted Sino-South African relations.Moderator Dr. Martyn J. Davies kicked off the event by welcomingthe participants and discussing the relevance of Sino-South Africanrelations within the context of recent domestic politicaldevelopments. After providing context to the seminar, Dr. Daviesintroduced the opening speaker, Mr. Shi Weiqiang, Consul-Generalof the People’s Republic of China. The Consul-General highlightedrecent developments in China, including the problems andchallenges of continued economic growth in addition to howThe remainder of the seminar was divided in to three sessions withthree speakers presenting in each session. Dr. Martyn J. Davies beganthe first session posing the question, “What makes China competitive?”Dr. Davies explained that it is not a reservoir of cheap unskilled labour“It is not areservoir of cheapunskilled labourthat has madeChina’s economyso competitive”19

The China Monitorthat has made China’s economy so competitive, but rather the combination of cheap skilled labour,pragmatic leadership and a well managed economy. Eckart Naumann, an associate of Tralac (theTrade Law Centre for Southern Africa) followed with a presentation on “Trade developments, tradenegotiations and issues around rules of origin,” outlining the advantages as well as the potentialimplications of a free-trade agreement with China. The first session ended with Tina Chow, from theshipping company Maersk Sealand Africa Region, who presented a discussion on the recent growth ofE-commerce in China.Following a tea and coffee break, the second session got underway with a presentation from JustinChadwick, CEO of the Citrus Growers Association, on how the citrus growers in the Western Capehave capitalized on the Chinese market. Next, Jack Kipling, Chairman of the Clothing Industry ExportCouncil discussed the issue of competition with Chinese textile and garment imports, showing how SAapparel manufacturers have responded to rising Chinese imports following the expiration of the Multi-Fibre Agreement. The second session concluded with a presentation from Edwin Capendale, ExportManager of Namakwa Sands, on “China’s commodities-led growth and opportunities for South Africa’smining and minerals sector.” Mr. Capendale illustrated how his company has profited from increasedChinese demand for commodities.“Unilever has foundsuccess in theChinese consumergoods market bymarrying traditionalChinese conceptswith Western ones”After lunch, the third and final session opened with a presentation fromHilton Hess, former Commercial Director for Unilever in China, entitled“Understanding the Chinese consumer:China’s FMCG sector.” Mr. Hessexplained that Unilever has foundsuccess in the Chinese consumer goodsmarket by marrying traditional Chineseconcepts with Western ones. Next, Martyn Mills, General Manager forMCM Wines discussed his experiences as a small business entrepreneurexporting to the Chinese market. The final presentation was given by NilsFlaatten, former chairperson of the SA Business Forum in Hong Kong, on the experiences of SAbusiness in Hong Kong. Mr. Flaatten found that although some SA firms have been successful,greater gains could be made through cooperation.Nils Flaatten delivers the finalpresentationWesgro’s Riefqah Jappieconcludes the seminarThe event concluded with remarks from Dr. Davies, as well as WESGROtrade economist Riefqah Jappie thanking everyone involved. Theparticipants of the seminar seemed to agree that the event had beensuccessful in facilitating discussion on Sino-South African businessrelations and providing a forum for SA business cooperation acrosssectors.20

The China MonitorJustin M. Shields is an American post-graduate International Relations student at the University ofStellenbosch and was a participant in the China Business Seminar. His current research concerns theimpact of China's entry into the WTO on the life insurance industry.The Centre participates at the FES-IGD-SAIIA China in Africa Workshop – 17 th to18 th October 2005The Centre recently contributed to a workshop entitled “China in Africa: Mercantilist Predatoror Partner in Development?” in Johannesburg. The event was co-hosted by the FrederichEbert Stiftung, the Institute for Global Dialogue, and the South African Institute of InternationalAffairs. Dr. Martyn Davies, Director of the Centre for Chinese Studies, was a member of apanel discussing sectoral issues, and outlined China’s influence in the construction andinfrastructure industries in Africa.PRC Ambassador Liu Gui-Jin visits the Centre – 21st October 2005Ambassador Liu met with Prof. Walter Claassen, Vice-Rector forResearch, and Prof. Hennie Kotze, Dean of the Arts Faculty, atStellenbosch University, to present a donation to the Centre for ChineseStudies.From L to R: Dr Martyn Davies,Ambassador Liu Gui-Jin, Prof WalterClaassen, and Prof Hennie KotzeRoundtable discussion with China Online – 28 th October 2005The China Forum hosted a discussion with Mr David Hale, foundingChairman of Hale Advisors and China Online. David Hale is a regularvisitor to South Africa. The event was attended by academics from theUniversity of Stellenbosch.From L to R: David Hale, LyricHughes Hale, and Lucy Corkin21

The China MonitorUpcoming EventsRoundtable with the Hon. Richard D’Amato, Chairman of the US-China Economicand Security Review Commission - 18 th November 2005The Centre for Chinese Studies will be hosting Richard D’Amato, Chairman of the US-ChinaEconomic and Security Review Commission, for a roundtable discussion on current issuessurrounding the US-China relationship, as well as China’s impact globally. The purpose of theUS-China Economic and Security Review is to monitor, investigate, and submit to the USCongress an annual report on the national security implications of the bilateral trade andeconomic relationship between the United States and the People’s Republic of China, and toprovide recommendations, where appropriate, to Congress for legislative and administrativeaction.The Roundtable will be held in Room 648, Department of Political Sciences, University ofStellenbosch, from 11:00-12:30 on Friday, 18 th November. For more information, pleasecontact Thomas Bevan at tbevan@sun.ac.za, or (021) 808 2840.Book Launch in conjunction with the South African Institute of International Affairsand the Institute for Global Dialogue - 8 th December 2005The CCS will be hosting a book launch event with SAIIA and the IGD. The book, titled “Enterthe Dragon: Towards a free trade agreement between China and the Southern AfricanCustoms Union” highlights the current trade between SACU and China, and analyses thepotential for a free-trade agreement.Please contact Ilana Botha at ccsinfo@sun.ac.za or (021) 808 2840 for more details.“China and South Africa in 2006: Prospects in Trade and Finance – Crisis orOpportunity?” Panel discussion in conjunction with the South African Institute ofInternational Affairs (SAIIA) - 8 th December 2005The CCS will be participating in a panel discussion in Cape Town hosted by the South AfricanInstitute of International Affairs (SAIIA). The panel will include Michael Power, from Investec,Peter Draper, from the SAIIA Development through Trade Programme, and Dr. MartynDavies, Director of the Centre for Chinese Studies. Discussion will consider the implicationsfor South Africa of China’s emergence on the world scene, including the impact oninternational financial flows, and the proposed China-South Africa negotiations on a FreeTrade Agreement.22

The China MonitorThe event will be held at the Centre for the Book, Queen Victoria Street, Cape Town, at 17:30.Please contact Pat Benbow-Hebbert at pbhebbert@mweb.co.za or (021) 794 5480 for moreinformation.Contact UsCentre for Chinese StudiesTel: +27 21 808 2840Fax: +27 21 808 2841Email: ccsinfo@sun.ac.za© 2005 Centre for Chinese Studies, University of Stellenbosch23

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