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Shanghai Hosts CeBIT Asia for the first time
Asian economies, suffering from the global hangover caused by exaggerated hopes and overblown
investments of the IT, internet and telecom sectors, remain fiercely determined to harness new
technologies and improve their competitiveness. Many companies now regard China as one of their
prime markets for the future, and came to test the water at CeBIT Asia 2001, which took place
from the 8th -11th of August in Shanghai. This is a spin-off exhibition of CeBIT, the world's
largest IT show in Hanover.
China has become the world's fastest growing information technology market, and is expected to
remain the most dynamic market in the years to come. Sales of IT hardware, software and services
have jumped from US$ 11 billion in 1996 to around US$ 25 billion last year, and according to
Chinese government forecasts, China will become the second largest IT market after the US in
five year's time. On the domestic front, the Chinese PC giant Legend Holdings has been consolidating
growth and beaten first quarter profit predictions by a considerable 40%.
As for the prospects for foreign companies, China's accession to the WTO will mean the elimination
of import tariffs on IT products, the removal of export subsidies, quotas and import restrictions within
five years, and the gradual relaxation of rules restricting foreign ownership of telecom services.
Despite this positivity, there was much skepticism about the success of CeBIT Asia prior to the
event. Not only do famous exhibitions have a habit of failing in China, but this time technology
companies were also reluctant to spend money in view of the global IT hangover. In the event,
despite appearing busy and glitzy, the fair did get mixed reactions. Organization was a point
of contention, particularly the handling of customs clearance for exhibition items, leaving one
exhibitor sitting in an empty stand for three out of the four days. With some of the big
American names like Lucent and Microsoft missing, many visitors were disappointed. The visitors
themselves were also a subject of complaint, namely the high number of end-consumers and the
scarcity of distributors, no doubt exacerbated by the free admission. Finally, however, exhibitors
were optimistic about an improved event next year.
Ownership Structure and Corporate Performance
As everybody talks about the mismanagement and high deficits in Chinese state-owned
enterprises, it is interesting to examine the relationship between ownership structure
and profitability. Recently, the National University of Singapore conducted a study
on how the ownership structure of publicly listed firms in China affects their
performance. The results are summarized below:
Institutional shareholders seem to have a positive impact on corporate governance
and performance; state ownership seems to lead to inefficiency; and an overly dispersed
ownership structure can create problems in the Chinese setting.
A typical listed stock company in China has a mixed ownership structure,
with three predominant groups of shareholders - the state, legal persons
(institutions), and individuals - each holding about 30% of the stock.
Employees and foreign investors together hold less than 10%.
Ownership is heavily concentrated. The five largest shareholders typically account
for 59% of outstanding shares, very high compared with the USA, where the top 5
shareholders typically account for 24.8% top 20 for 37.7%.
The mix and concentration of stock ownership affects a company's performance as follows:
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The increase of ownership concentration helps improve the corporate performance.
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The effect of concentrated ownership is greater with companies dominated by
institutions than with those dominated by the state.
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The firms' profitability is positively correlated with the fraction of
legal person (institutional) shares; it is either negatively correlated or
uncorrelated with the fraction of state shares and with tradable A-shares (held mostly by individuals).
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Labor productivity tends to increase as the proportion of state shares
declines.
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The dual function of shareholder and CEO or Chairman of the Board relate
positively to corporate performance, whilst the share ownership of other senior managers
or board directors has an insignificant or negative impact on corporate performance.
This phenomenon could be due to the Chinese culture of centralized management where
one key person controls all major decisions.
A new Expo Center for Shanghai
Shanghai will finally get an Exhibition Center that meets international standards:
The Shanghai New International Expo Center (SNIEC) is a joint venture between Shanghai
Pudong Land Development (Holding) Corporation and the German Exposition Corporation
International (GEC). GEC's partners are the leading trade fair companies in Düsseldorf,
Hanover and Munich providing their extensive exhibition know how. Incidentally this is
the first ever-collaborative venture by Germany's three largest trade fair companies,
who are actually competitors in their home markets.
Phase I of the SNIEC is due to open in November 2001 comprising of four halls with
an area of 65.000 m2 and an investment of US$ 99 million.
The eye-catching Exposition Halls, designed by the Chicago Architects Murphy/Jahn,
are state of the art offering high functionality and efficiency, making it the best
center in China.
For example: The entire exhibition area is on ground floor level and
column free giving flexibility to the exhibitors. Services like electricity,
gas and water are provided through underground supply shafts - a novelty in China.
A distinct advantage is that SNIEC is qualified to act as a local partner for foreign
exhibition companies. As it is mandatory to have a partner these are welcome news - such
partnerships have been a constraint in the past as the local company may have
had a different agenda.
SNIEC provides sufficient space for larger events doing away with the split up
into various smaller facilities in Shanghai.
The Center already has lined up several big events when opening in mid November
starting with an exhibition for Power Transmission & Controls, followed by a
Transport and Logistics Show, the Shanghai Industrial Fair (China's only comprehensive
Industrial Fair) and the Shanghai Motor Show. International organizers like Adsale, Hong Kong
with its Rubber & Plastics Show; Miller Freeman, USA with a Furniture Exhibition and
Montgomery, UK with a Packaging & Processing Show will follow next year.
"We have a good chance to attract shows from other cities like Beijing and Guangzhou
to move to our Center" emphasized Mr. Waldkirch, General Manager of the Center.
Well, competition is healthy.
Branding
With the growing trend in China for companies to go global, image has become very
important. FutureBrand, which specializes in brand development and is part of the
McCann-Erickson World Group, believes that China can overtake their Western counterparts
when it comes to brand recognition in China.
Developing a brand is a challenge in shaping the market, for where
advertising creates a corporate image, branding is about managing customer
relationships. Chinese companies have begun to understand that branding is
something that can't be copied, and thus China is developing into a big market
for companies like FutureBrand, which help domestic companies position themselves better.
Hong Kong is a case in point. With the SAR competing against the financial and business
centers of Singapore and Shanghai, the SAR's government has looked to professionals to
develop the Hong Kong brand. The result is a new campaign entitled: "Hong Kong - Asia's World City",
a slogan accompanied by adverts and a new logo.
FIE's new trade opportunities
Foreign invested companies can now export other than their own products. The legal
change was announced on July 2nd by the Ministry of Foreign Trade and Economic
Cooperation (MOFTEC), part of China's reform to address the upcoming accession into
the World Trade Organization (WTO). Foreign manufactures, which up till now could only
export their own products, can effectively become trading companies.
However, there are some limitations: FIE's should have an annual export
volume of at least US$ 10 million, should have a clean record with the authorities,
and should employ professional staff engaged in international trade. Products that
are subject to quota or license control are exempt from this arrangement, and
restrictions on domestic sales remain.
Companies can apply with MOFTEC or one of the local bureaus to apply for
a change in business scope.
China Brings Good News in Troubled Times
When the hi-tech bubble was rapidly expanding in the US, Asia followed right behind.
Dotcoms multiplied rapidly, technical talent became much sought after, and valuations
soared. But whilst the fairy tale has ended with redundancies in the US and Europe,
China has shown a remarkable degree of resilience.
One of the first reasons given for the softer landing in China is the cost structure,
that is, labour takes up a relatively low percentage of overall operating costs.
As such, multi-national companies, rather than risking damage to their reputations
in China without affecting their bottom lines, are actually shifting operations there.
Ericsson, whilst cutting 3,300 jobs in Sweden and Britain, has announced the relocation
of most of its production to China. Philips Electronics Group has pledged to move its
entire production capability for its mobile phones to its joint venture in Shenzhen.
However, there is a more fundamental reason for China's resilience, namely the strength of
the domestic market. Whilst the fall in US imports has meant that many other Asian countries
have seen their incomes plummet and inventories soar, the Chinese economy has managed to
weather the economic slowdown relatively well. Of particular note, the Government's
emphasis on infrastructure development requires plenty of IT investment, and the public's
demand for mobile phones is expected to reach 100 million this year. IT multinationals,
which are downsizing elsewhere, are now focussing their attention on the Chinese market.
Although Siemens Business Services (SBS), the IT arm of Siemens, has considered cutting 10%
of its German workforce, Siemens will increase its investment in marketing, production and
research in the Mainland this year to US$ 1.5 billion. Cisco System's might be slashing 8,000
jobs globally, but its President and CEO, John Chambers, believes China is highly likely to stay
a reasonable distance from the slowdown in the future. He concluded: "we're very optimistic about
the Chinese market place".
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Invest Beijing
Beijing's success in capturing the 2008 Olympics is attracting more foreign
investments to the city.
At least 600 foreign companies have said they
intend to invest, contacting local government departments and institutions
to inquire about investment opportunities, particularly with regard to
infrastructure, high-tech and environmental protection projects.
Both Chinese and international
investors will be on an equal footing when it comes to competing for contracts
worth US$ 14 billion, as an open bidding system will be used by the Beijing
Olympic Games Organizing Committee (BOGOC).
In order to achieve wide publicity,
the Beijing Municipal People's Government is sponsoring the "Beijing Investment
Platform"
(www.bjinvest.gov.cn), a website detailing planned development
and construction projects.
Letters of Credit and the Euro
HSBC and other banks have recommended that Letters of Credit denominated in EU
currencies, e.g. the German Mark, should be completed within the year.
Alternatively, they should be amended to Euros now. The reason is that the currency
switch may cause insecurity, ranging from delays to refusal to pay, partly due to
the lack of awareness of the Chinese banks.
Hong Kong doesn't care about health
According to a recent study, 72% of Hong Kong residents aged between 15-60
don't consider health to be of importance. This compares with 24% in China,
28% in Malaysia, 49% in Singapore and 56% in Taiwan.
This lack of health
consciousness in Hong Kong could result in financial problems for the Hong Kong
health-care system.
Typical answers to the question "how do you relieve stress?"
were shopping sports, sleeping and watching television.
Taiwan - Economic unification making progress
Taiwan's flagship carrier, China Airlines, is to buy a 25% stake in China Eastern
Airlines cargo operations, based in Shanghai, according to its chairman Ye Yigan.
This is a big step towards closer cross-straits aviation links. Analysts said the
impending investment paves the way for a Shanghai-Taipei cargo route via Hong Kong.
This may later change to a direct route and possibly be extended to passenger services.
At the same time, Credit Suisse First Boston was blacklisted by Beijing after organizing
a roadshow for Taiwan in the United States and Europe and inviting Taiwan's finance
minister to address a business conference in Hong Kong. China objected as these
activities were "not purely commercial", suggesting a fine line between business and
politics which the Government encourages companies to observe when doing business in China.
A quotation
"Many of the things we are now doing, in time, China will do better and
cheaper. We will have to stay one step ahead, and move on to new activities."
Prime Minister Goh Chok Tong of Singapore declared in a national address last month.
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