NEWS   China Telecom, Qualcomm in CDMA tie-up Telecom and strategy      China Telecom has formed a strategic partnership with Qualcomm to use the latter's CDMA technology for the mobile network it is acquiring from China Unicom, the South China Morning Post reported. Qualcomm, which was the developer of the CDMA mobile standard, will charge China Telecom royalty fees for its use of the technology, though neither party has disclosed how much. As part of nationwide telecom industry restructuring plans, China Telecom's parent company will pay an estimated US$12.9-14.9 billion for China Unicom's CDMA network assets, subscriber base and business operations. China Telecom has not said whether it will continue China Unicom's CDMA partnership with Korea-based SK Telecom.   New securities rules could expose trading scandals securities      New rules aimed at cleaning up the stock market are being seen as opening the door to uncovering commercial scandals, the South China Morning Post reported. The rules, announced Monday by the top prosecution office of the Ministry of Public Safety in consultation with China's securities regulator, the CSRC, expand legal actions allowed to be taken by investors and creditors over financial crimes. The newspaper cited a source close to the CSRC as saying the new rules would likely result in more lawsuits brought against "unethical company bosses and fund managers." The regulator has been criticized for not doing more to protect retail investors in the wake of the punishments of two fund managers who engaged in insider trading.   Weak export growth holds down manufacturing Macroeconomics      Weaker export growth dampened manufacturing growth in May, Bloomberg reported, citing a statement from the China Federation of Logistics and Purchasing. The Purchasing Managers' Index fell to 53.3, from a high of 59.2 in April. A reading above 50 indicates expansion, while under 50 indicates contraction. The slowing came as China's economy grew 10.6% year-on-year in the first quarter of 2008. Last week, People's Bank of China forecasted a "moderate" slowing of economic growth in 2008 due to weaker economic expansion worldwide and less demand for Chinese exports.   LG Display to Create R&D Center in China China and R&D      Yeo Sang-deog, executive vice President of LG Display’s TV business unit, shakes hands with Zang Xuebin, chairman of Skyworth Digital Holdings, after signing a contract to buy a stake in LG Display’s Guangzhou subsidiary. LG Display plans to jointly set up a research and development (R&D) center in Shenzhen, China, with Skyworth Digital Holdings, a Chinese TV set manufacturer. ``Our company and Skyworth have agreed to set up the 50-50 joint venture to create the `Guangzhou New Vision Display Technology Research and Development’ center,’’ an LG Display spokesperson said Monday, adding that the total 7 billion won cluster will operate in May. LG Display, the world’s No. 2 manufacturer of large-sized liquid crystal display (LCD) panels after Samsung Electronics, said Skyworth bought small stakes of its subsidiary in Guangzhou in early January, which the South Korean company claims is a move to secure stable demand channels for LCD panels amid the market boom. Separately, the Chinese company said it will build a TV manufacturing plant near LG Display’s module plant in Guangzhou, attracted by advantages of cost cuts and efficient sales channels. ``The strategic partnership will pave the way for LG Display to nurture our business in China,’’ the spokesperson added. The announcement came a month after the LG was seeking alliances with Taiwan’s Amtran Technology and other companies as part of its strategy to expand its client base after its Dutch joint venture Philips had gradually dumped its stakes in the South Korean company. Even some industry experts say the Korean company could probably enter the LCD TV business as Amtran makes LCD TV sets under the Vizio brand in the United States. Amtran later said it is in talks with LG Display for ``further cooperation.’’ The Korean firm hopes that its share of China’s flat-screen TV panel market will rise to 40 percent in 2009 from 35 percent this year as millions of Chinese are buying new TV sets, particularly 42-inch ones, which are the company’s main product. To meet surging demand for such TV sets, LG Display will expand the production capacity of its assembly lines for LCD panels and PC monitors in the southern city of Guangzhou to 20 million units by 2010. Research firm Display Search expects LCD TV shipments in China to jump 70 percent this year to nearly 15 million units. It also sees the global flat-screen TV market growing 30 percent this year. LG Display, formerly LG.Philips LCD, is expected to post 720 billion won in net profit in the first quarter of this year due to a weaker local currency and rising production yields.   Analysts: Quake's economic impact will likely be 'limited' ! Macroeconomics      The economic aftereffects of the earthquake that struck near Chengdu, Sichuan province on Monday will likely be "limited," AP reported, citing experts. The Shanghai Composite Index fell 1.8% on Tuesday, a drop partially attributed to fears that the disaster would disrupt supplies around Chengdu as Cyclone Nargis has done in Myanmar. Sixty-six Sichuan- and Chongqing-based companies have suspended trading on mainland stock exchanges. However, the quake, which registered 7.9 on the Richter scale and has caused more than 13,000 deaths so far, was "confined to one area" and lasted "a very brief time" unlike the severe winter storms in February that have had a lasting impact on inflation, said Feng Yuming, an analyst at Oriental Securities in Shanghai. Roads, power supplies and communication links to the area have been disrupted, and the government has suspended operations at damaged coal mines, factories, gas wells and chemical plants until safety inspections can be conducted.   Labor contract rules draft released China and regulatory      China has released a draft of the implementation rules for the country's labor contract law, state media reported. The Legislative Affairs Office of the State Council issued the draft, which outlines regulations on employee termination and compensation, to solicit opinions from experts and the public. The labor contract law came into effect on January 1, but has encountered some resistance from employers. Vice-Minister of Labor and Social Security Sun Baoshu said in March that objections were due to misinterpretation of the law.   China Mobile still eyeing Africa China and telecom      China Mobile said it is still interested in the African market despite not bidding for a stake in African telecom operator MTN Group, the South China Morning Post reported. After China Mobile's annual general meeting, the company's chairman, Wang Jianzhou, said that his company was "exploring opportunities to make investments on that continent," while denying that it had made a bid for MTN, which is up for sale. Some analysts have said that a failure to buy a stake in MTN, which has a market capitalization of US$40 billion and operations in 20 African markets, represents a lost opportunity for China Mobile. China Mobile, which has been expanding its operations overseas, recently posted a 37% jump in first-quarter profits over a year earlier.   Microsoft builds new Beijing R&D center, plans to double research staff China and R & D      Microsoft will spend US$280 million on a Beijing research and development center and double its full-time R&D staff in China to 3,000 over the next few years, the Wall Street Journal reported. Microsoft China's chairman, Zhang Ya-Qin, said during the center's groundbreaking ceremony that China is the company's largest R&D area outside the US. The center will be finished in 2010. In 2006, the firm agreed to spend US$31 million on R&D labs in China, and it entered into an R&D joint venture with Lenovo last year. Microsoft's decision to focus R&D on China indicates the country's importance, the Journal said. China is the world's second-largest personal computer market by number of units sold.   Quick Glance China's economic decisionmakers      1.China's new economic team will influence economic and trade policies for the next five years and beyond. 2.China's economic decisionmakers are generally former provincial-level party secretaries—with limited leadership experience in finance or banking—or former economic technocrats in central government ministries. 3.The different priorities held by Xi Jinping and Li Keqiang, the two contenders for top leadership posts in 2012, may cause conflict—or may result in more balanced leadership.   Nike sees 'gaps' in China's labor laws China and regulatory      Nike has said workers at its 180 factories in China do not enjoy the same protection as its employees in other countries due to "gaps" in the country's labor laws, the Financial Times reported. In the company's inaugural report on corporate social responsibility initiatives in China, it commended the Chinese government for steps taken to increase protection of workers' rights, but said that Chinese law still fell short of "basic protections outlined under the [International Labor Organization] Convention." The effectiveness of the country's new labor contract law, effective January 1 of this year, was recently defended by Sun Baoshu, vice-minister of labor and social security, who said that resistance to the law was due to misinterpretation on the part of employers.   Draft of food safety law released China and law      China has released a draft of a food safety law that would introduce financial and criminal penalties, including possible life sentences, on makers of unsafe food products, the Christian Science Monitor reported, citing state media. The draft law, which is aimed at improving standards in an industry that has come under fire internationally, was welcomed by the World Health Organization, though a representative of the health body noted that it does not cover basic agricultural products. Other commentators have said that China should concentrate on education about food safety standards in addition to imposing penalties. The draft will be submitted to the legislature for consideration on May 20.   BMW to increase auto parts sourcing from China China and automotive      Bayerische Motoren Werke AG wants to increase its production capacity in China and is considering to do this by either building a new manufacturing facility or use intensively the existing plant in Shenyang, management board member Frank-Peter Arndt said in an interview with trade magazine Automobil-Produktion. The report, without citing anyone, said BMW plans to increase its production in China up to 60,000 units annually, or up 50 percent compared with 2007. A spokesman for BMW told the magazine that 60,000 'is a possible volume' but that nothing concrete has been planned as yet.   How To Work with China and PYA -- Protect Your Assets China and M&A      The biggest error companies make is that with familiarity comes a false sense of security. Getting quality products made in China is not a mystery. Nor is it difficult. But the proper amount of planning, relating well to the culture and diligent controls are required. Plus there are other specific tactics that are needed to achieve success. The keys are straightforward: Identify your need and micromanage it. Qualify your factory partner in China by visiting personally. Do not 'assign' the project to an unknown friend, family member or broker. Be forever vigilant. Never relinquish hands-on control. Build on your relationship with your partner in China. The biggest error companies make is that with familiarity comes a false sense of security. That's when you get recalls -- when the reins are loosened. All is fine in the beginning. Products are delivered on time and within spec. The U.S. company is saving money and growing because it smartly moved labor-intensive manufacturing to a company in China. But then they become overconfident, and loose track of the products. Maybe some key people have moved. Maybe the product is actually being made in a different factory. You have to have a presence. It's the only way to protect your assets. What we call PYA. The benefit is that by outsourcing a project to China, a company can develop new products, which fulfill a customer's desires and needs. For example, if a molder who makes small parts for appliances has a customer who wants them to make a large part that requires different equipment, it makes sense to outsource rather than make a capital investment of millions of dollars. It's the practical way to grow a business without any downside risk -- as long as you PYA. While toys made in China have been prominent in the news as recall targets, the situation affects all products, many in the B2B area. We know from our clients that there is a strong concern for all products coming out of China. Matter of fact, a recent Harris Interactive poll found that a negative attitude extends to all products being made in China. We also know that many recalls are due to a design problem or a manufacturing error. This is all because no one is watching the store. The solution is to have a true hands-on approach on each factory floor. Allen Field Co., a manufacturer of proprietary and custom fittings for the packaging, woodworking and textile industries, found that delegating production to an overseas resource lowered costs and enable its business to expand by adding to and diversifying its product line. Robert Ahearn, vice president of sales and marketing for Allen Field has an interesting story. "We needed full-time support because of the large number of products we offer. The only way we were able to succeed is because we were assigned a dedicated, U.S.-based project engineer to help us. Outsourcing to China gave us a competitive edge in price and freed up internal resources so we were able to focus more on sales, marketing and new product development." Our company, Smart Sourcing, is actually an outgrowth of necessity. Electronic Hardware Corp. manufactures custom plastic knobs for a variety of industries and in the late 1990s had exhausted all internal resources trying to cut, trim and slash operating costs. So it started a whole new business called Smart Sourcing, Inc. to help itself and others facing the same challenges. Electronic Hardware was facing steep overseas competition, and was in the throes of near collapse. To overcome this, it had to find a practical way to maintain quality while reducing costs. The decision was made to find a plant overseas. The goals were to reduce costs, increase quality and maintain delivery performance. So in 1998 Electronic Hardware went to China, found and qualified a manufacturing plant and kept a close eye on its assets. In two years, profits increased 48% and product rejection dropped to just 0.41%, which saved the company. This move also made it possible for capital and staff resources to be allocated to other areas, which created new markets and products. When looking for an outsourcing firm, it comes down to experience, knowledge, planning, finding good partners and diligent work -- that is the formula for protecting your assets. David Hale is President of Smart Sourcing, Inc., is a New York-based firm that enables clients to reduce the cost of product manufacturing . From assistance with product design and development for optimum manufacturability to shipping of the quality-approved part, the SSI support staff in China includes some 26 project engineers, quality control specialists and logistics coordinators who provide oversight throughout the entire manufacturing process. www.smart-sourcing.com By David Hale, President, Smart Sourcing, Inc. IndustryWeek   Trend: Manufacturing co-develops with logistics sector China and logistics      Not long ago, the cooperation between Shanghai Automotive Industry Corporation (Group) (SAIC) and Anji-TNT Automotive Logistics Co., Ltd. began to evolve in depth and Anji-TNT's service competence covered SAIC's core businesses including the supply of parts, the assembly of complete motor vehicles, and the distribution of complete motor vehicles. Examples do not come singly but in pairs. Not long ago, Baosteel Group Corporation (Baosteel) signed three long-term contracts of transportation with China Ocean Shipping Companies Group (COSCO Group) and COSCO Group became the largest cooperation partner of Baosteel's 300,000-ton vessels in the world. "Such events are of symbolic significance and mean that the trend of manufacturing and logistics developing together with each other begin to present." said He Dengcai, Deputy Secretary General and Director of the Research Chamber of China Federation of Logistics & Purchasing (CFLP). He Dengcai said, "Analyzed in terms of industries, the trend of separating out-sourcing logistic operations from manufacturing has stretched out from enterprises of household electric appliances, electronics, and fast moving consumer goods several years ago to enterprises in the upper stream in such industries as iron and steel, building materials, and motor vehicles." Under the background that the profit margin in various industries tends to reduce continuously, quite a lot of enterprises engaged in household electric appliances, electronics, and fast moving consumer goods in China took logistics as a major source to tap the profiting potentials in early days: either incorporating a logistic company by itself as Haier Group once did or outsourcing logistic businesses to a third-party logistic company. "Under pressures due to the enlarging demands for logistics and the increasing costs, more and more manufacturing enterprises begin to attach importance to the integration of logistic functionality, conduct flow restructuring, and separate and outsource logistic businesses strategically so as to get more absorbed in the cultivation of the core competitiveness. " said He Dengcai. He Dengcai noted that "As modern logistic modes have accelerated their expansion towards purchasing, supply chain management has been developing fairly rapidly in China recently." In recent years, quite many multinationals have been gradually strengthening their purchases in China and they have set up their network for the production and purchase of parts and assemblies, thus bringing Chinese enterprises into their global supply chains. Such multinational as General Electric, Hewlette-Packard, Olympus, Motorola, Dell, International Business Machine (IBM), Kodak and Wal-mart have set up their purchasing centers in China successively. The rapid expansion of domestic chain retailing industry has made it possible for the end near to consumers in the supply chains to appear more important, and large chain enterprises consider optimizing their own supply chains as a key step to improve their competitiveness. A batch of manufacturing enterprises with strong brands, like Haier, Lenovo, and Shineway Group, have all set up large quantities of chain specialty shops while developing their own logistic delivery capacity correspondingly. In the meantime, manufacturing enterprises have proposed demands for logistic services targeted at the high end to the third party logistic enterprises and require that logistic enterprises can provide integrated solutions and operational models. "Such a trend of integration is also represented in the fact that manufacturing enterprises and logistic enterprises strengthen their in-depth cooperation." expressed He Dengcai. In 2007, Baosteel and COSCO Group signed a 20-year contract on the transportation of iron ore; Sinochem Corporation signed an agreement with China National Foreign Trade Transportation (Group) Corporation (SINOTRANS) on their strategic logistic cooperation in which it was prescribed that SINOTRANS would provide outsourcing logistic services for Sinochem Corporation. All manufacturing enterprises, including Shenhua Group Corporation Limited (Shenhua Group) and Zhuhai Gree Group Corporation (Gree Group), take logistics as one of their core businesses. Even more manufacturing enterprises join hand in hand with logistic enterprises to get the logistic activities of enterprises on the upstream and downstream of various supply chains from the perspective of supply chains; and the trend of integration and penetration as well as linkage and development is getting gradually stronger. In September 2007, SAIC's principal expressed on the National Conference on the Linkage Between Manufacturing and Logistics and Their Development convoked and organized by the National Reform and Development Commission that by outsourcing logistic businesses in the traditional manufacturing businesses, SAIC had had its competitive advantage in the manufacturing field greatly improved, and such a kind of outsourcing of logistic businesses had facilitated the information flow, accelerated the enterprise's response to the market and cut down the logistic costs as a whole by over 35 percent. In many places, people are exerting themselves to drive the development of logistics in the manufacturing industry; and the very reason is that the huge potentials of the integration between manufacturing and logistics have been realized. In Shanghai, the planning has been specially developed and an overall objective has been brought forth: by 2010, the important status of modern logistics as a mainstay industry of Shanghai shall be established and Shanghai shall be preliminarily built into an important international logistic terminal and one of logistic centers in Asia and the Pacific. Surveys show that in the evolvement of general commodities from raw materials to complete products, only less than 10 percent of the time used is spent on processing and manufacturing while over 90 percent of the time used is spent on logistic parts including storage, transportation, conveyance, packing, and delivery. In 2006, the proportion of the total value of industrial product logistics in the total value of social logistics goods was as high as 86.7 percent in China. Nevertheless, the main body of the industrial structure in developed countries has actually shifted from the original manufacturing to the service industry and the trend that the secondary and tertiary industries get integrated for development, which has accelerated the rapid development of the production-oriented service industry, is becoming increasingly obvious. In developed countries, the proportion of the tertiary industry has amounted to over 70 percent and the production-oriented service industry accounts for over 70 percent of the tertiary industry. In return, the rapid development of the production-oriented service industry has penetrated into the manufacturing industry and driven the connotative promotion and structural upgrading in the manufacturing industry. He Dengcai noted, "It can be thus seen that there really are great potentials to be tapped in the integration between manufacturing and logistics as well as their development. And logistics in the manufacturing industry has an important role to play in developing the service industry, transforming the economic growth pattern, and driving the optimization and upgrading of the industrial structure." Nevertheless, for the time being, there still exist a good many weak parts for development in China's manufacturing logistics. On the one hand, logistic demands of manufacturing enterprises are disperse in various departments and enterprises; they have not been converted into social demands, and logistic operations tend to have high costs but are inefficient. On the other hand, the capability to provide logistic services to meet the demands of manufacturing enterprises is insufficient as there lack socialized demands and the development of professional logistics is under restrictions   Wal-Mart says 2008 procurement steady ! Foreign trade      Wal-Mart vice chairman Michael Duke announced the company's China procurement for 2008 would remain steady at 2007’s US$9 billion despite a rising yuan, higher inflation and product safety concerns, AP reported. Duke also told reporters in Beijing Monday that China would remain a major source of Wal-Mart goods "for a long time," adding that concerns would be offset by improved productivity. The announcement was seen as good news for Chinese exporters as the yuan's rise against the dollar and higher inflation on the mainland has made their goods more expensive in the US. China's trade surplus with the US shrank by 6.7% to US$12.1 billion in January on weak US demand. The head of the Asia Footwear Association said rising costs have forced about 15% of China's shoe manufacturers to shut down or relocate in the past year.   Energy ministry plans may be delayed Energy      The creation of an energy ministry for China is likely to be delayed, as the passage of a new energy law at next month's session of the National People's Congress is meeting resistance from some state ministries and big state enterprises, according to an adviser helping to draft the law, the Financial Times reported. Xiao Guoxing said energy monopolies, like PetroChina and the State Grid, would come under legal supervision, which is "a little bit difficult ... to adapt to this requirement." Two bodies, the National Development and Reform Commission and an energy office reporting to the State Council, control energy policy. Establishing a ministry of energy is seen as necessary for securing energy supplies while managing pollution levels.   Party members meet for personnel changes! China and politics      Communist Party leaders met in Beijing Monday to begin a three-day session to discuss personnel changes and plans to restructure China's cabinet ahead of the March 5 National People's Congress (NPC), Reuters reported, citing state media. The meeting is the first time the party's 204-member Central Committee has convened since last October. Xi Jinping and Li Keqiang, who were both promoted to the party’s nine-member Politburo Standing Committee in October, are expected to be appointed vice-president and first vice-premier respectively, according to sources familiar with the matter. China’s four highest-ranking leaders - President Hu Jintao, NPC Standing Committee Chairman Wu Bangguo, Premier Wen Jiabao and Chinese People's Political Consultative Congress Chairman Jia Qinglin - are all widely expected to retain their positions come March 5.   China still first choice of multinationals for R&D ! China and R & D      China still first choice of multinationals for R&D Multinationals have set up 1,160 research institutions in China by the end of 2007, according to figures with the Ministry of Commerce. Given its huge market, large number of qualified staff and competitive costs, 62 percent of the global companies rated China as the most attractive location for prospective R&D, said a ministry official, citing a survey conducted by the UNCTAD (United Nations Conference on Trade and Development). "China welcomes more international hi-tech companies to set up regional headquarters, R&D centers, procurement centers and training centers in China," said Zhang Xiaoqiang, vice minister of the National Development and Reform Commission. China's hi-tech industry in the three coastal regions of the Yangtze River Delta, the Pearl River Delta and Bohai Bay accounts for more than 80 percent of the national total in terms of scale of industry. Major industries include bio-medicine, aviation and aerospace, micro-electronics, photoelectron and software. In 2006, the total revenue of the hi-tech industry exceeded 5.3 trillion yuan (706 billion U.S. dollars), with its added-value contributing 8 percent of GDP growth. Meanwhile, experts warn China remains highly dependent on foreign input and lacks core technologies. Zhang Weixing, an official from the Chinese Science and Technology Ministry, said this January that China's invention patent applications amounted to 210,000 in 2006, the fourth largest in the world. More than 40 percent of these applications came from foreign companies.   In Chinese factories, lost fingers & low pay !      In the Pearl River Delta region near Hong Kong, factory workers lose or break 40,000 fingers on the job annually. Nearly a decade after some of the most powerful companies in the world began an effort to eliminate sweatshop labour conditions in Asia, worker abuse is still commonplace in many of the Chinese factories that supply Western companies, according to labour rights groups. The groups say some Chinese companies routinely shortchange their employees on wages, withhold health benefits and expose their workers to dangerous machinery and harmful chemicals, like lead, cadmium and mercury. “If these things are so dangerous for the consumer, then how about the workers?” said Anita Chan, a labour rights advocate who teaches at the Australian National University. “We may be dealing with these things for a short time, but they deal with them every day.” And so while Western consumers worry about exposing their children to Chinese-made toys coated in lead, Chinese workers, often as young as 16, face far more serious hazards. In the Pearl River Delta region near Hong Kong, for example, factory workers lose or break about 40,000 fingers on the job every year, according to a study published a few years ago by the Shanghai Academy of Social Sciences. Pushing to keep big corporations honest, labour groups regularly smuggle photographs, videos, pay stubs, shipping records and other evidence out of factories that they say violate local law and international worker standards. In 2007, factories that supplied more than a dozen corporations, including Wal-Mart, Disney and Dell, were accused of unfair labour practices, including using child labour, forcing employees to work 16-hour days on fast-moving assembly lines and paying workers less than minimum wage. In recent weeks, a flood of reports detailing labour abuse have been released, at a time when China is still coping with last year’s wave of made-in-China product safety recalls, and as it tries to change workplace rules with a new labour law that took effect on January 1, 2008. No company has come under as harsh a spotlight as Wal-Mart, the world’s biggest retailer, which sourced about $9 billion in goods from China in 2006, everything from hammers and toys to high-definition televisions.   China's Tangled New Labor Law legal      China's new employment law effective Jan. 1 attempts to provide greater protection and benefits for more workers. But what we are already seeing is the creativity of employers to find ways to circumvent the new rules to avoid being saddled with higher costs. Over the last 12 years, in an avalanche of economic opportunity, about 200 million farmers in China have migrated to the cities, taking manufacturing, trade and construction jobs. (Incidentally, there are about 300 million more of these workers ready, willing and able to migrate over the next 20 years). This mass migration has overwhelmed the regulatory authorities who are trying to make working conditions safe and sane, and assure that compensation and benefits are provided that China thinks are reasonable. In China, market powers only go so far. China's always lax regulatory regime has not been up to the job as the many pay and working-conditions horror stories can attest to. The result is that China has a new law to try to redress the balance of power between workers and employers. According to the new law, employer and employee must enter into a written contract of one of three types: a fixed-term contract, an open-term contract (read "tenure") or a contract whose term is linked to the completion of a specific task. Social insurance must be paid by the employer. At present, most private companies don't pay social insurance for their employees. Many workers sign no labor contracts of any type. Under the new law, employees can leave the firm with 30 days' notice. Employees can be terminated only under very strict conditions--bankruptcy of the company, operational difficulties, proven employee incompetence. When a labor contract is rescinded, employers must pay what is akin to severance--even when the termination is for cause. If requested by an employee, an employer must enter into an open-term contract with the employee if the employee has been working for the employer for 10 consecutive years. At present, most contracts are renewed annually. The thrust of this is somewhere between scary and encouraging. Working conditions in China are just awful for literally tens of millions of workers, as they are in most emerging economies. China is certainly still an emerging economy despite the skyscrapers, trade growth and the upcoming Olympic Games. But I believe the new law goes too far, giving more protection than is healthy for an economy as dynamic and fast-changing as China. The ability for businesses to adjust to changes is crucial. While there are many pluses in the new law, hiring and firing flexibility is sharply curtailed, hiking labor costs and potentially becoming a drag on innovation and productivity. The law dramatically shifts the employer-employee balance of power to the employee. Small firms would be hardest hit--in principle. Labor-intensive sectors like textiles, food processing, construction, trade and basic materials might see up to 20% labor-cost hikes if the law were to be strictly enforced. However, we know of few incidents of big labor cutbacks before Dec. 31 designed to circumvent the new rules. While some are concerned, my China experience tells me that the cost increases and inflation impacts will be small as firm managements find many creative ways to avoid the new rules. China's regulatory structure is just not robust enough to actually turn the labor-management relationship around very quickly. Think a decade or more--not quarters or years. Certainly, a growing number of labor-intensive industries are looking to Vietnam and elsewhere to lower their costs. China's new labor law may accelerate that process somewhat, but this is not a new phenomenon. Cross-border manufacturing movement is expensive and complicated, takes time and involves very fundamental business decisions (infrastructure, management, etc.). Ironically, such a movement would feed China's long-term strategy of emphasizing manufacturing "up the value chain" to higher-tech products. Many firms are actively adjusting hiring and employment practices and establishing relationships with new suppliers that circumvent the labor statute. It will take the authorities, in China's lax regulatory environment, awhile to catch up. There was no evidence of a late-2007 disruption in labor markets. We are seeing new labor contracts, two half-time shifts, the use of outside "staffing companies," the creation of "new companies" to do the same work, so-called voluntary resignations before year-end 2007 only to be rehired on Jan. 1, 2008, and the like. Talk about creativity. Not surprisingly, employers have more power than workers--even in China. One other important distinction: Most state-owned enterprises (which still dominate China's economy) and large foreign firms already provide good worker protection and benefits, and would not be affected much. So for them, this is a minor matter. China is still attractive to foreign companies even under the new law, with few countries having the combination of abundant labor, an improving infrastructure and a government committed to growth. I foresee an abundance of creativity in how to frustrate the law. That is a lesson for the writers of China's laws to tighten up their act, and a commentary on China's inventive employers--both more encouraging than discouraging.   US watchdog warns of high-tech trade with China China and foreign trade      An American watchdog group called for the suspension of a new US trade program on the grounds that it would make it easier for Chinese firms to put high-tech products to military use, Reuters reported. The Wisconsin Project on Nuclear Arms Control said two of the five Chinese companies selected in October to receive high-tech goods under the Validated End-User (VEU) program have close times "to China's military industrial complex or to companies that have been punished by the US government for proliferation or other improper export behavior." The VEU program, which allows approved Chinese companies to import certain products for civilian uses without obtaining individual export licenses, was created to address US firms' concerns about being shut out of China's fast growing economy. A Bush administration spokesmen said all five Chinese companies had been approved after a rigorous security investigation.   Fiat to build first R&D center in Shanghai China and R&D      Fiat Powertrain Technologies SpA announced yesterday it will invest 22 million euros (32.2 U.S. dollars million) to build its first Chinese research and development center in Shanghai. The wholly-owned Fiat Powertrain Technology Shanghai R&D Co Ltd, located in Jiading District in west Shanghai, will focus on the development of engines, both gasoline and diesel, and transmissions for cars and commercial vehicles, the subsidiary of Italy's Fiat Group said yesterday. FPT Shanghai, covering a total of 37,000 square meters, will employ 100 engineers by the end of next year when it officially starts operation. "Developing anti-pollution engines would be one of the top priorities for FPT Shanghai as environmental protection is emphasized by the state government," said Paolo Emanuele Ferrero, vice president of FPT, product engineering, at the ground-breaking ceremony for the center yesterday. FPT has established 12 R&D centers worldwide with a major coverage in Europe. The Shanghai center is the first in Asia, a step ahead for the company to fulfill its target to serve local demands. "The new engineering center will not only be part of FPT's global network, but also allow us to join the steady growth in China's auto industry," Ferrero added. New engines and transmissions will be developed for Fiat's models in addition to supplying other car makers in China. Overseas car makers have been setting up R&D centers in China to meet the demand for eco-friendly and fuel efficient technologies. At the end of October, General Motors Corp said it would spend 250 U.S. dollars million to build a campus in Shanghai, including a research and development center for alternative fuels.   Nokia Siemens expands R&D in China ! China and R&D      Nokia Siemens has opened a second research centre in China, focusing on technologies including 3G, WiMax and Internet HSPA. The lab is located in a technology zone near to the eastern city of Hangzhou, about 200km from Shanghai. David Ho, regional president of Nokia Siemens, told the government-controlled Xinhua news agency that more than 600 staff will work at the new facility. The company is also expanding its existing Chinese R&D facility near Chengdu in western China which develops mobile browsing, messaging and rich communication applications. The company has smaller labs in four other Chinese cities. Nokia Siemens signed GSM network expansion contracts valued at $650m in China in the first half of 2007, according to company data. "The number of subscribers increases very fast in China, and mobile voice and data bandwidth need to be expanded," said Zhang Zhiqiang, head of Greater China Region at Nokia Siemens, earlier this year. Nokia Siemens' net revenues in China for the third quarter increased 26 per cent quarter-on-quarter to reach $548m, Xinhua reported, based on company sources. The company also has major R&D centres in Finland, Germany, India and the US.   After China, Vietnam Will Be World's Factory ! Globalisation      The 4 million motorcycles on the streets of Ho Chi Minh City offer a remarkable -- if somewhat noisy -- testimony to the prosperity that beckons Vietnam. A $900 Honda may not be everyone's idea of affluence. However, it has the same pride of place in this rapidly industrializing nation as a bullock cart in an agrarian society. Young men and women -- many of them migrants from rural areas -- commute to large, modern factories on the outskirts of the city on bikes they are proud to own and scared to lose. This mobility is so crucial to the workers' productivity that some employers in the city formerly known as Saigon have even begun buying insurance, at their own expense, against the risk of bikes being stolen from their factory premises. Investors who take the boom in Vietnam's two-wheeler market as a harbinger of a burgeoning mass market may be disappointed for a few years. Those who see the lust for bike ownership as a sign of Vietnam's young labor force yearning for the tools it needs to plug into a global supply chain will win. After China, Vietnam is emerging as the world's next factory of choice for labor-intensive goods. One can see that in the changing composition of the country's exports. Rice and coffee -- two of Vietnam's biggest agricultural exports -- are now becoming less significant to the $61 billion economy than textiles. Footwear shipments are gaining prominence over seafood. Furniture Capital The other fast-growing export industry is furniture. Exports of wood-based products have grown 24 percent from last year to more than $2 billion. James Koh, a Singapore businessman, makes dining tables and chairs in Vietnam for customers around the world, including Williams-Sonoma Inc.'s Pottery Barn stores in the U.S. Koda Ltd., of which Koh is the managing director, also has factories in Malaysia and China. Yet, it's Vietnam's lower costs that are prompting the company to expand capacity here by 25 percent. ``The labor cost in Vietnam is half that of China, while worker productivity is about the same,' says Koh. Starting next year, the government will increase the mandated minimum wage for foreign-funded companies in Ho Chi Minh City and Hanoi, the national capital, by 13 percent to 1 million Vietnamese dong ($62), a level that is still affordable, Koh says. Ready to Compete Chinese-made goods have become increasingly expensive in the U.S. for the past six months. That gives Vietnamese manufacturers an opportunity to win a bigger share in their largest export market. The ingredients are in place. Vietnam's accession to the World Trade Organization in January has provided its textile industry with quota-free access to the U.S. Joining the WTO regime has also caused a 37 percent surge this year in overseas investment commitments to $13 billion. The biggest draw of the country is clearly its labor. The median age in Vietnam is 25 years. The workforce isn't just young, but also literate and healthy: The proportion of people who are undernourished has been cut in half over the past three decades. The risk for Vietnam is inflation, which accelerated to 10 percent last month, the fastest pace in three years. Inflation Risk In the short run, Vietnam must stand ready to sacrifice some economic growth to halt the increase in prices, especially of construction material. If left unchecked, inflation will become a drag on Vietnam's competitiveness even if the central bank doesn't allow the dong's nominal exchange rate to appreciate. On the whole, though, Vietnam is on the road to prosperity. The swanky Louis Vuitton and Gucci showrooms that have sprung up in Ho Chi Minh City may be a bit premature in a country where the annual per-capita income was $723 last year. The time for the Vietnamese consumer will undoubtedly come. With a population of 85 million, and an economy that the International Monetary Fund forecasts to grow more than 8 percent this year and next, the Southeast Asian country will soon represent a sizable domestic market. For now, the Vietnamese producer is the bigger opportunity. There is, however, no room for complacency. Cheap labor makes it relatively easy for a country to enter the global supply chain, but it has to work hard to stay in. Increasingly Complex Especially now, when a seemingly simple task like attaching four legs to a rectangular piece of American poplar wood and shipping it back to the U.S. has become too complex to undertake without overseas capital and expertise. First, there is a minimum investment in technology without which large orders from retailers are impossible to win. Each of the Taiwanese-built assembly lines that Koda is installing in its new Vietnam factory costs $300,000. Second, buyers in Europe are demanding more exacting environmental standards from their vendors, such as minimum use of packaging material, Koh says. Americans, meanwhile, are getting fussy about making all shipments terror-proof. Most importantly, no retail store -- European or American -- wants a sweatshop scandal at any of its suppliers' units. Like most developing countries, Vietnam is dogged by corruption and red tape. It must strive to improve its record now that it's getting the investments it needs for the workers to graduate from motorcycles today to cars in the future.   GlaxoSmithKline Invests in Move from 'Made in China' to 'Discovered in China' China and R&D      GlaxoSmithKline (GSK) announced it would invest $40 million to establish a neurological R&D center in Shanghai’s Zhangjiang Hi-Tech Park (see story). GSK is now even more committed to its China R&D efforts: the company says it will spend $100 million by the end of 2008 on this same facility, which will have 1,000 staff members in place by the end of 2010. The news came as GSK reviewed its neurological pipeline to analysts in New York. Glaxo said it will build its future around four pillars: neurology, vaccines, oncology and biopharmaceuticals. In neurology, GSK will concentrate on neurological degeneration (Alzheimer's, Parkinson's disease) and neurological inflammation (multiple sclerosis). Moncef Slaoui, the Chairman of R&D for GSK, said the Shanghai facility will be a “one-stop shop” that does all the research on neurodegenerative drugs. Interestingly, Slaoui said the efforts of the Shanghai center will build on ongoing work in neural stem cell research and natural product compound libraries, which presumably means traditional Chinese medicines. Slaoui was emphatic about the importance of China to GSK. "For us, China is not about outsourcing and cheap labor. We don't want to give them the crumbs. It's about different science. We will link our fate to their fate. Within five to ten years we will be moving from 'made in China' to discovered in China," he said. When GSK looked around the world to see where the best R&D talent was, “China came out on top, especially in oncology and neurology,” according to Slaoui. In the New York presentation to analysts, GSK gave details of its neurological pipeline, which includes 25 innovative compounds in 13 different disease areas. Fifteen of the drug candidates offer new mechanisms of action. Like other big pharmas, GSK has been restructuring as its pipeline failed to replace big-selling drugs that went off patent. In addition, Avandia, its drug for type 2 diabetes, has lost a large percentage of sales after studies showed the drug caused cardiovascular side effects. GSK has responded by outsourcing a greater amount of its manufacturing while attempting to streamline its R&D efforts, getting more and better results while curtailing its R&D spend.   IEA: China, India demand to drive up oil prices Energy      Long-term oil prices will rise and disruptions to supply will become more of a danger on the back of soaring demand from China and India, the International Energy Agency (IEA) warned on Wednesday. In its annual World Energy Outlook, the IEA said that, despite an expected rise in oil industry investment over the next five years, "it is uncertain whether [it] will be sufficient to offset both the decline in output at existing fields and the projected increase in demand." This, together with uncertainty as to how big Chinese and Indian demand will be, could result in a supply-side crunch before 2015. The IEA also suggested that by 2030 China and India could be importing as much oil as the US and Japan do today, the Financial Times reported.   Tesco helps 'made in China' crisis China and policy      The Chinese government is rallying support from Tesco and other multinational retail groups as it tries to head off the deepening crisis over the reputation of the country's consumer products. Tesco growth weakest since 2000 Executives from Tesco are understood to have attended a meeting in Beijing last month with officials from China's Ministry of Commerce, at which issues such as sourcing and product safety were discussed. A separate meeting the following day saw representatives from Wal-Mart, Carrefour, the French retailer, and Metro of Germany gather to discuss similar issues. Tesco is understood to have been asked for advice relating to its sourcing practices amid signs that foreign chains operating in the world's most populous country have enjoyed a boost to sales from the "Made in China" crisis as Chinese consumers turn to reliable multinational brands. The issue has been most pronounced in the toy industry, where Mattel, the world's biggest toy maker, has been forced to withdraw millions of toys from sale around the world in recent months. While some of the recalled products had been coated with potentially dangerous lead paint, Mattel conceded in an extraordinary public admission earlier this month that the bulk of the problems had been the result of a design flaw in many of the toys. A string of other products emanating from China, including car tyres, seafood, pyjamas and jewellery, have also been recalled, prompting Beijing to set up a powerful government task force led by Wu Yi, the vice-premier. Tesco is the latest British company to have been enlisted by the Chinese government in its efforts to restore the reputation of its exports juggernaut. WPP, the marketing services group headed by Sir Martin Sorrell, has also been lending support through Ogilvy Public Relations, one of its subsidiaries, which has been working with officials from the State Food & Drug Administration on its response to the crisis.   Chinese firms' R&D spending rises the highest China and R & D      The growth rate of R&D spending by companies in China and India led all geographic regions last year though they lagged behind in actual spending, a study by global management consultancy Booz Allen Hamilton found. The company's third annual study of the world's 1,000 largest corporate R&D spenders, titled "Global Innovation 1000", found that these corporations increased their research and development spending last year by twice the amount in 2005. The study found that Chinese companies are racing to catch up with R&D spending in developed markets, showing they have taken the cue from the government to ratchet up their efforts to make China a knowledge-based economy. According to a previous report by Booz Allen Hamilton, China's R&D expenditure in terms of gross domestic product rose from 0.69 percent in 1998 to 1.42 percent last year. The government aims to lift the figure by 2010 to 2 percent, closer to the levels of 2.5-3 percent in developed countries. R&D spending by the Global Innovation 1000 companies rose last year by $40 billion to $447 billion, a 10 percent increase. For the first time in four years, the pace of R&D spending in 2006 caught up with the rate of sales growth among these companies. PetroChina and China Petroleum & Chemical were the top R&D spenders among the mainland companies. The top 10 global R&D spenders were Toyota, Pfizer, Ford, Johnson & Johnson, DaimlerChrysler, General Motors, Microsoft, GlaxoSmithKline, Siemens and IBM. China, India and the rest of the developing world represented just 5 percent of overall corporate spending on R&D in 2006, but their five-year average growth rate shows their drive to catch up with the big players. The Asian neighbors' R&D spending last year grew by 25.7 percent over the previous year, in keeping with a five-year average rate of growth of 25 percent, whereas the rest of the developing world increased spending by 14.4 percent. While the total R&D spending in China amounted to $1.96 billion, that in India stood at $208 million last year. The study identified 118 companies from the list of 1,000 as high-leverage innovators, who consistently reap greater financial reward for every dollar spent on R&D. These companies regularly outperformed their peers over the five-year period, while simultaneously spending less on R&D as a percentage of sales than their industry medians.   Beijing plans strategic minor metal reserves commodoties      A strategic stockpile system for minor metals will be set up in China, the South China Morning Post reported. The mainland is rich in minor metals such as tungsten and tin, but growing production for export has resulted in more pollution and low utilization of the resources. The government is working out details on the stockpiles, but the China Nonferrous Metals Industry Association is lobbying for legal status over the use of the metals so it can set up a conservation system tp strengthen import and export management. The proposed metal reserve will become China's third strategic reserve after grain and oil.   EU official: Stop product safety finger-pointing Foreign trade      China should pay more attention to its product safety supervision network rather than apportioning blame for recent problems, European Commission director general for enterprise and industry Heinz Zourek told deputy quality inspection chief Wei Chuanzhong on Wednesday. Zourek, on an official visit to Beijing, said that efforts should be made in improving safety, efficient communication and safety alert systems rather than allocating blame, the South China Morning Post reported. Wei assured Zourek that the government was taking the issue seriously. The Chinese government, has suggested that the product safety controversy has been driven by opportunist foreign media and protectionist agendas in some countries.   Polluting exporters banned from trade Environmont      China's State Environmental Protection Agency (SEPA) has frozen all foreign trade applications for exporters whose environmental standards are not in line with government regulations, according to state media. The trade bans, which last from one to three years, will only be lifted when SEPA can confirm that the company in question has taken steps to sufficiently reduce its environmental impact, the agency said. Many exporters have ignored these regulations in order to save costs, a practice that has added to the country's environmental troubles. The recent crackdown comes after allegations from other other countries that China's exports are cheap because of lax enforcement of environmental and labor standards.   Hu's economic model on the table at Party Congress Politics      President Hu's economic model is expected to be endorsed by the Communist Party at this week's Party Congress, AFP reported. His plan includes further emphasis on dealing with environmental concerns as well as reducing the economic inequalities, which have been growing in the past few years. The wealth gap is currently one of the key causes of social unrest across China, in addition to governmental corruption. Hu's economic ideology of a "scientific outlook on development" is expected to be incorporated into the constitution.   Leadership changes expected at party congress Politics      The Chinese Communist Party will make changes to its leadership by the end of the 17th party congress, which opened today, the Financial Times reported. Xi Jinping, Shanghai's party secretary, and Li Keqiang, party boss of Liaoning province, were promoted to the standing committee of the politburo. The two men are expected to be promoted to the positions of party secretary and premier, respectively, when President Hu Jintao steps down in 2012. Hu's inability to place Li as his definite successor was seen as an example of the growing necessity of compromise and consensus in party politics. Former finance minister Jin Renqing was dismissed from the congress because of "serious disciplinary violations," including involvement in a sex scandal. The congress' spokesman, Li Dongsheng, responded to recent calls for democratic reforms, saying that "China will never copy Western political systems," and affirming the necessity of reform adhering to party doctrine.   Chinese investors turn to Vietnam for outsourcing      For years, the Chinese motorcycle boom was good for companies like Chongqing Dongli Manufacturing Ltd, but by the late 1990s, the Chinese clamor for motorbikes was giving way to automobiles. So the company, which has four factories in southern China, made the decision in 2001 to go south of the border into Vietnam. The move has paid dividends. Since investing US$10.3 million to build its first factory outside China, the Chongqing Dongli factory near Hanoi has become one of Vietnam's leading suppliers of motorbike assembly kits. "Doing business here is pretty much the same as in China, except for the language difference," says Yang Dewei, the 42-year-old manager of the factory known as United Motor Vietnam Co. Yang's company was one of the early Chinese companies to invest in Vietnam, but hundreds more have followed. Chinese investment in its southern neighbor has soared from US$66 million in 2005 to US$312 million last year. Chinese companies invested in 57 projects in Vietnam last year, up from 40 the previous year. "Chinese investment is increasing fast," said Jonathon Pincus, lead economist for the UN Development Program in Vietnam. At least 250 Chinese investment projects have been established in the last five years, the Vietnamese Ministry of Planning and Investment said. China is still a relatively small investor in Vietnam -- ranking 13th behind top investors South Korea, Singapore, Taiwan and Japan. What's interesting, Pincus said, is where the Chinese money is going. China is still known as the "factory of the world," but Chinese companies are now building factories in places like northern Vietnam -- where wages are up to 30 percent cheaper than in China's Pearl River Delta -- to tap into the growing Vietnamese market. In essence, China is outsourcing its own manufacturing success to its southern neighbor. There are also Chinese-owned plants in Vietnam, mostly garment factories, that export to Western countries. For Chinese businespeople, Vietnam's economic climate has the advantage of familiarity -- a fellow communist country implementing economic reforms and an emerging middle class eager to consume basic and luxury goods. While China's newly monied middle class is now moving into cars, in Vietnam the motorbike is still king, and that's good news for kit-makers such as Chongqing Dongli. In 1992, Vietnam had only 500,000 registered motorbikes. Fifteen years later, thanks to increased prosperity from economic reforms, that number is 20 million and growing by more than 1 million per year. "The economy is growing much like China's was 10 years ago," Yang said. In 2005, the last year for which detailed figures were available, about 35 percent of Chinese investment in Vietnam was in manufacturing, although during the previous year that sector represented 83 percent of Chinese investments. The balance of investment -- and the other pillar of China's move into Vietnam -- reflects its priorities elsewhere in the world: natural resources. Investment in projects such as coal extraction and bauxite mining made up 44 percent of Chinese investment in 2005, up from just 3 percent the previous year. Still, for Chinese manufacturers, Vietnam's low wages, geographical proximity and cultural similarity make the country an attractive place to export factories, according to Yang. "Its not exactly the same -- for instance, in my province [Sichuan], the people eat spicy food and I have a hard time finding good food here," Yang said.   China price hikes affecting global food chain China and logistics      Food and ingredient prices are growing at a faster pace in China than anywhere else in the world, having serious repercussions for business both domestically and on an international field. For several years Western economies have regarded China as a source of cheap materials, labour and inexpensive food imports. However, food companies around the world now have to deal with the effects that Westernised eating habits, a booming population and higher consumer prices in China are having on the rest of the world. The country's booming population is currently gobbling up massive amounts of the world's food supply, and the country's grain demand will rise to 550m tonnes by 2010, compared to an output of 490m tonnes in 2006, according to the White Book of China's Grain Issues, released by the State Council. China will therefore have to increase its annual grain output by at least 2.5m tonnes every year until 2010 to cope with the growing population, or try to import it from elsewhere. In an article written for the Financial Times, Dow Jones financial expert Tracy Zheng said that the government has already started selling off its limited reserves. "It sold 200,000 tons of vegetable oil offered at an auction. The oil went at the high end of market prices, indicating that there is a strong domestic demand," she said. "What's more, China will hold auctions to sell imported wheat from reserves once or twice a month." To compound matters, drought weather conditions, attributed to global warming are currently affecting several grain growing nations, reducing the amount of available imports. For example, grain value is expected to undergo about a 21 per cent rise over the year to AUS$273 (€166) due to drought conditions brought on by global warming, according to the Australian Bureau of Agricultural and Resource Economics (ABARE). In the EU's 27 member countries, a lower than expected harvest in 2006 of 265.5m tonnes has led to tightening supplies at the end of the growing season in 2007. Another factor putting pressure on China's food supply is increasingly Westernised eating habits. In the past, a large part of the Chinese diet was based on fish, rice and vegetables, all available in large supplies in and around the region, whereas now the Chinese have acquired a taste for meat, eggs and dairy products. While no-one could begrudge any nation the right to decide whatever they so choose to put on their plates, certain sectors are feeling their supplies are starting to dwindle. In the dairy sector, for example, the US Department of Agriculture (USDA) last month reported that the price of milk is up 98 per cent from last year, setting the highest price on record at $21 per 100 pounds of farm milk. The US is not the only country having to pay for China's demand for dairy products, as the price of cream in the UK has jumped by 23 per cent this year, and in Australia consumers are paying 60 per cent more for skimmed milk than they did six months ago. We live in an increasingly globalised economy, and we are certainly fed thanks to a globalised food chain, (and) so no-one could pretend that these events in China will not have an effect on the rest of the world. Consumers in China are now experiencing some of the highest food prices in years, prompting fears these higher costs will now spread to the rest of the world. According to Philip Bowring writing for the Asia Sentinel, in August consumer price inflation hit a 10 year high of 5.6 per cent. "This comes on the feels of declining imports from China," he said. "It can not be regarded as a one-off event, as it is likely to be the beginning of a sustained rise fuelled by several factors." Bowring argues that the Westernisation of China, resulting in a demand for higher wages, consumer spending power and richer diets, will result in food companies paying the price in the future. "Taking all factors into account it seems very likely that the China effect will contribute significantly to keeping prices, and inflation, high," he said. Bowring and thousand of other experts who predict "agri-flation" have had their opinions validated by the financial statements of many companies all over the world. Only last week, New Zealand Woolworth's boss Michael Luscombe warned that the company's target will be a 40 per cent reduction by 2015 against business as usual performance because of the crushing combination of export demand from China and India as well as drought weather conditions. While company bosses such as Luscombe do try to keep prices low, many companies have admitted in recent months that consumers will have to pay more. US dairy giant Dean Foods have this month been forced to up the price of milk, cream and yoghurts, "as a result of this extreme commodity environment," while ingredients company Purac has announced it is increasing its prices increases for lactic acid, lactates, gluconic acid and gluconates because of the higher commodity prices. In the wealthier West, no-one envisages riots breaking out just yet, as almost happened in China last year when the price of noodles went up, but with the threat of high inflation hanging over the US and the UK, companies are certainly fearing a consumer backlash over extra costs. All is not doom and gloom, however, as some companies are still managing to make a healthy profit despite the global repercussions that China is having on the food industry. Many companies have diversified operations in recent years, turning from traditionally popular products towards processed or easily exportable brands. Russian dairy producer Will-Bill-Dann has been particularly profitable this year, with shares rocketing 132 per cent in 2007. The company's success could be due diversifying into areas such as the beauty food market, with its antioxidant drink, or the functional dairy foods arena. Many experts also believe that another way to survive is indeed to market products specifically made for Asian consumers, such as dried milk powder hot chocolate mix and certain brands of processed cheese. Mergers and acquisitions have also been popular this year, as companies reposition themselves in a complex market, either to enter into growth areas such as health and nutritional products, or to have a stronger food hold in the high growth regions of Asia and Eastern Europe. This year Nestlé, Cadbury, Diageo, Heineken, Intersnack in Germany, Unilever and Frutarom have all been in M&A deals in recent months, or are thought to be on the prowl for suitable investments. Peter Waumans ELM NV Brussels Beijing ShenZhen Shanghai   Value added logistics comes to China China and logistics      Hongxun Logistics, a third party logistics (3PL) provider based in Beijing, had just selected HighJump to implement a WMS, a warehouse management system. Hongxun manages more than 30 warehouses in China, offering logistics services to mobile communications manufacturers in China, including some of the best-known names in the cell phone business. Simon Sun, Hongxun’s logistics manager said Hongxun is implementing the WMS along with wireless communications and RF-based bar code scanning to capture and communicate tracking and tracing information, to manage warehouse operations, and to manage the transfer of goods between warehouses. The system will be up and running in 2008. National Retail Systems along with a Chinese partner is launching SinoNRS to build and operate highly-automated western-style distribution centers to do value-added services and direct-to-store delivery from China to retail stores in the United States. In August Catalyst said that it planned to market WMS systems in China after noticing high volumes of Chinese traffic on its website. A few weeks later, Catalyst was acquired by CDC Software, a subsidiary of CDC Corporation, a Chinese-owned provider of enterprise software solutions.   First African logistics center in Tianjin      China’s first African logistics terminal, which is seen as an important development in Sino-Africa trade relations, has opened in Tianjin, seen here, north China’s biggest port city. The Tianjin Port GMT Africa International Logistics Terminal, located in the Tianjin Port Free Trade Zone, covers an area of 60,000 square meters including a 5,500-square-meter warehouse. The terminal will deal with Sino-Africa imports and exports. Trade between China and Africa has witnessed rapid development in recent years. Statistics show Sino-Africa trade volume brought in $55.5 billion in 2006, up 40% over the same period of 2005. Sino-African trade volume through Tianjin port reached 3.36 million tons in 2006, up 63.3%.   RFID Strategy -- RFID Developments in China .      Recent announcements could mean big things for UHF RFID. August is usually a slow news month, and the technical trade press is no exception. In the RFID market, most of the buzz comes from corporate initiatives in the U.S. and Europe. This month, however, saw a few announcements from China with interesting potential for long-term growth of supply-chain RFID technology -- particularly the EPC Global UHF tags. But before we get to that, a little background information is necessary to describe the current situation. Background -- Three RFID Technical Specifications Since the early days of radio, the nations of the world have recognized that radio waves cannot be contained within the borders of any particular country. In fact, the early history of radio is filled with stories of significant chaos as one station interfered with another. The ultimate solution to this problem was the formation of The International Telecommunications Union (ITU) to govern how the radio spectrum is divided up according to use in the different areas of the world. For our purposes, the relevant information is that the ITU defines the frequencies in the UHF spectrum that are available for RFID tags, but it doesn't specify how any given country should implement an RFID technology standard. That task is left to national and international standards bodies. The UHF spectrum that is available for RFID ranges from 860MHz to 960MHz, but it is not a continuous allocation. In Europe, for example, the EU regulations restrict UHF RFID tags to 865 - 868MHz. North America uses the 902 to 928 MHz portion of the spectrum. Since RFID is a new technology, initial efforts to standardize the tag communications protocols originated in the U.S. at the MIT Auto-ID center (which formed the basis of what we now call EPC Global). China has historically been reluctant to work to "foreign" standards. The Chinese government does not want Chinese manufacturers to pay license fees to foreign companies based upon a foreign technology standard. Up until this year, this has stalled adoption of an RFID standard in China and thus put a limit on the ultimate growth of the RFID supply-chain initiative. But China is willing to work to ISO standards. I don't know if an ISO standard makes the royalty situation different, or if it simply places additional weight behind a technical approach. In 2006, the ISO issued an update to standard 18000-6 to define the bandwidth and communication protocol of EPC Gen 2 Class 1 UHF tags throughout the world. It essentially incorporates the earlier EPC standard. This has led, in May of 2007, to China's State Radio Regulation Committee (SRRC) issuing a ruling to approve bandwidth in the 840.25 to 844.75 MHz and 920.25 to 924.75 MHz ranges for use by UHF RFID tags and readers in that country. These two bands allow the use of North American tags as well as European tags within China. The higher band overlaps the North American Standard, whereas the lower band is close enough to the European standard to allow tags to be read. As things currently stand, China continues to work on its own version of an RFID communication standard. But the three standards that are now in place (EPC Gen 2 Class 1, ISO18000-6, and the Chinese bandwidth standing) effectively open the Chinese market to the technical leaders in supply-chain RFID. The Chinese have been working on their RFID spec for years; articles on the subject date back to 2003 and earlier. The industry expected previous announcements from China (that never came to fruition) in 2005 and 2006. The question surrounding the SRRC ruling is, "why now?" The answer may be found in an announcement from yet another Chinese ministry. Chinese Certification and Pilot Locations In early August, China's Ministry of Information Industries (MII) announced the creation of RFID pilot programs in several regions, notably including the six Olympic host cities of Beijing, Shanghai, Tianjin, Shenzhen, Dalian, Chengdu and Nanjing. As reported by Chinatechnews.com, the areas chosen will be used to pilot RFID use in agriculture, public security, manufacturing management, supply-chain management and "modern service industry." The timing of the SRRC and MII announcements suggest intent to make the 2008 Olympics a technological showcase for modern Chinese logistics practices. Chinese and foreign organizations involved in the massive logistics effort for the Olympics now have the technological leverage needed to use off-the-shelf UHF RFID hardware to manage their supply chain. Regardless of the government motivation, the May announcement of the Chinese spectrum standard kicked off efforts by existing manufacturers to get certified to the new standard. In late August, Intermec announced that it was the first to achieve China State Radio Regulation Committee certification for their hardware --specifically their truck-mounted, fixed, and handheld readers for EPC Gen 2 tags. We can expect other manufacturers to quickly follow suit. Market Outlook and Conclusions for China According to research firm ITTechEx, the total size of the Chinese RFID market in 2007 will be $1.9 billion. Of this, $1.65 billion is for one program: electronic national ID cards. The remainder includes all other RFID uses, including UHF supply-chain RFID. The UHF market is obviously undersized given the position of China in the consumer supply chain worldwide. The technology announcements and Olympics announcement discussed above lay the groundwork for significant new work in UHF RFID logistics within that country. Keep your eyes peeled for something big around RFID logistics in 2008 in China. Paul Faber is a Principal with Raleigh, N.C.-based Tompkins Associates, a supply-chain-solutions consulting firm. As the chief manager of RFID equipment implementation at Tompkins Emerging Technology Center, he possesses extensive experience in material handling solutions, systems integration, and installation. Paul has managed field integration and operations activities at material handling sites around the world.   China leads world in IPOs so far this year Securities      Mainland Chinese companies have raised more through initial public offerings so far this year than any other country in the world, according to Thomson Financial. Beijing-based Sino-Ocean Land's US$1.5 billion offering earlier this week helped China pass the US, with US$30 billion raised from 132 deals, up 56.6% on last year, the South China Morning Post reported. US-based companies have raised US$29.78 billion from 129 deals, which represents a 16.2% share of the global IPO market to China's 19.3. The Chinese figures do not include the recent A-share offerings by China Construction Bank and China Shenhua Energy, which raised US$7.72 billion and US$8.9 billion respectively. The mainland is said to have a further 54 deals in the pipeline for 2007, which could generate as much as US$26.7 billion.   Oil imports up 18% in first half Energy      China's net crude oil imports reached 108.2 million metric tons during the first half of this year, up 18% year-on-year, according to data from the General Administration of Customs, AFP reported. Domestic crude production rose 1.3% to 124.7 million tons over the same period. Industry observers warned that China's oil imports might account for more than 50% of China's petroleum needs within a year or two due to rapid economic growth. Last year, oil imports made up 47% of the country's overall consumption at 138.8 million tons of crude, up 16.9% from the previous year. China is currently the world's second-largest oil importer after the US.   European steel group may file antidumping complaint Foreign trade      The European steel industry association EUROFER is currently acquiring information to prove that China is exporting steel at prices below production costs to Europe, and may file an antidumping complaint against China with the European Commission by the end October, Reuters reported. If the commission is convinced of EUROFER's antidumping claims, it would then notify the World Trade Organization, which could impose measures such as protective import tariffs. China is expected to export 10 million tons of steel into the EU this year, twice the amount sent last year   GM Mulls Opening the Sixth Global R&D Center in China. China and automotive      General Motors is studying the feasibility of seting up its new R&D center in China, while attempting to enter the Chinese commercial vehicle market, China Business News reported recently. "We are now studying all possibilities," said Kevin E. Wale, chairman and managing director of GM China, who confirmed GM had interests in exploring the untapped commercial vehicle market after long cooperation with SAIC in the passenger vehicle sector. Currently GM has five global R&D centers in the U.S., Germany, S. Korea, Australia and Brazil. The projected research center, if founded, would be its sixth one. Chinese media said that GM China has bought a piece of land for the new center. In China, GM has already set up a R&D center along with its Chinese partner SAIC, in which each controls a 50 percent stake. The center, established in 1997 and named Pan Asia Technical Automotive Centers (PATAC), serves Shanghai GM and SAIC-GM-Wuling, GM's two joint ventures in China. The upcoming R&D center will be solely financed by GM, which analysts say could meet GM's ambition in China. It could also be a sore point between GM and SAIC, as the latter wants to create its independent brand and have more say in PATAC, said China Business News. An unnamed source who is involved in GM's commercial vehicle project said that GM is assessing possibilities to partner with FAW, a leading commercial vehicle maker in China.   Bayer Sign Contracts to Provide Long Term Logistics Service for China’s Cargo Distribution China Petrochemicals and logistics      Bayer Material Tech, Sinotrans, and China Cosco Logistics-SIPG Logistics signed a letter of intent today, aiming to provide long term integrated logistics service for packaged cargo distributed in China. As is known by China Coating Online, this contract can improve the efficiency and mobility of the distribution network of Bayer Material Tech. Meanwhile, the two logistics service provide can benefit from the long term business. Koenig, President of Bayer Group and Bayer Material Tech Greater China, Zhang Jianwei, President of Sinotrans, Ye Weilong, Vice President of China Cosco Logistics, and Zhang Jiali, Vice President of SIPG Logistics together attended the ceremony. Koenig said:”The strategy of Bayer Material Tech is to search for long term reliable logistics partners, who can grow with us and become first class service provider. ” He mentioned that as a leader in chemical industry, Bayer Material Tech has very strict requirements to ensure the safety and reliability of its products in transportation and storage. He said:”In our opinion, the safety of distribution in China is equally important as our business in China, and we believe Sinotrans, and China Cosco Logistics-SIPG Logistics have rich resources and experience in processing chemical materials.” In order to satisfy the fast growing demand for polymer materials in China and Asia-Pacific region, Bayer Material Tech will, by the year 2012, invest 18 billion Euro to establish advanced world-class production facilities in its integrated base in Shanghai. These facilities will be used to produce polyurethane prepolymer, polycarbonate and coating materials. If the facilities are put into production all together, the annual total production will be beyond 1 million ton, a large portion of which will be sold to various places in China. According to this letter of content, two suppliers will provide long term distribution service for Bayer Material Tech’s packaged goods. Zhang Jianwei, President of Sinotrans, said:”Bayer is a famous international enterprise with a strong sense of social responsibility, and Sinotrans is an innovative and venturous company which focus on customers. Over the years it has been dedicated to become the leader in Chinese chemical logistics field, through constant strategic investment and specialized managing team. We feel pleasant, and are satisfied with our past cooperation, and honored with the more complete and deeper cooperation with Bayer Material Tec this time. We firmly believe that by persistent effort on both sides, not only a win-win result can be produced, the chemical logistics technology in China can also be developed.” Ye Weilong, Vice President of China Cosco Logistics firmly believes that his company’s cooperation with Bayer Material Tec will bring practical benefits to both sides. He said:”The cooperation between us and Bayer Material Tec dates back to 2005. Now, we’ve established good cooperation relationship, cooperating in all logistics business from transportation and warehousing to the total service chain. The premise of the strategic cooperation is mutual benefit and development. We believe the cooperation this time is win-win, as long as we keep a long term cooperation with Bayer.” Zhang Jiali, Vice President of SIPG Logistics, said:”Once Bayer’s integrated base in Shanghai is put into production, we establish a business cooperation relationship with Bayer Company. Our cooperation ranges from import and export to multi-modal transport for internal trade and main line distribution. We have already been the most reliable logistics supplier of Bayer Company. We’ll continue provide the best logistics guarantee for Bayer Company with our specialized service in our future business coopreration.” The final contract will be signed in the end of September, expected to be valid in October.   Dalian shipping center of NE Asia !      Chinese Premier Wen Jiabao, seen in our illustration, said in Dalian that the aim is to make Dalian not only a major harbor along China’s northeast coast but also a shipping center of Northeast Asia. He said that all projects under construction should be carefully designed and planned and lead the way in the region. The premier urged the city to take a scientific approach to development and balance the economic development with environmental protection to turn Dalian into a well-developed, harmonious and ecologically beautiful city. He had just attended the Summer Davos meeting in Dalian and said, ‘Good environment is one of the reasons why Summer Davos was held here. Some 1,000 foreign participants could not only visit local enterprises but also enjoy the blue sky with white clouds and experience Dalian’s efforts in energy-saving and sustainable development.’ While in Dalian, the premier visited Datyaowan bonded zone and the new harbor under construction. Source: China Daily   SMEs allowed to enter key industries Regulatory      Chinese small and medium-sized of enterprises (SMEs) have be allowed to enter the mineral resource exploration and military defense technology sectors, Xinhua reported (in Chinese). The news comes from a summit on the fourth China International Small and Medium Enterprise Fair in Guangzhou, Guangdong province. Since the implementation of new regulations on encouraging and promoting SMEs' development, the government has gradually opened its monopolistic sectors to SMEs, said Zhong Youping, vice director of State Administration of Industry and Commerce. Ou Xinqian, vice director of the National Development and Reform Commission, said the government will further clarify market-entry standards and revise relevant rules to expand the business range for SMEs in the future.   Crackdown on illegal land transfers Property      Chinese officials said Monday they are cracking down on householders illegally transferring land to property developers, AP reported. During the last six years 8,698 officials were penalized within the Communist Party and 1,221 others criminally punished over illegal land title transfers. Corrupt officials have typically seized land transfered title from individuals or families to sell to real estate developers for industrial, residential or commercial use, a practice that has led to numerous protests around the country. Chinese officials are also turning their attention to unregulated loss of farmland, which threatens the country's food security.   China to raise oil reserves 500% byt 2010 ! Energy      China will need to increase its strategic oil reserves by 10 million metric tons over the next three years to reach its goal of 12 million metric tons in 2010, said Chen Deming, vice director of the National Development and Reform Commission, Economic Observer reported (in Chinese). China is in the second phase of construction of its four oil reserve bases, which began initial construction in 2003. The bases are located in Zhenhai and Zhoushan in Zhejiang province, Huangdao in Shandong and Dalian in Liaoning, and have a total designed capacity of 14 million metric tons.   ELM planed a second succesful raid against Chinese infringers of IP products in China Target companies in trouble ! 27 augustus 2007 and 3 september 2007      比利時一公司致函感謝紹興工商公正執法 -------------------------------------------------------------------------------- 2007-09-07 　　 8月31日，比利時漢克工業公司（BELGIUM HENCO INDUSTRIAL NV）代表Peter Waumans致函紹興市工商局，對該局下屬的諸暨市工商局經檢大隊公正執法表示感謝，併為該隊高超的專業水準、認真的工作態度和無畏的敬業精神所深深感動。 8月27日下午，漢克公司委派律師到諸暨追查該市某管業公司倣冒該公司的註冊商標HENCO一案。諸暨市局經檢大隊受理此案後，在詹飛大隊長的帶隊下，立即會同店口鎮工商所執法人員到該管業公司進行實地檢查。執法人員通過細緻檢查，不僅查到了隱藏在各個角落的侵權商品共計470多卷，還找到了正準備使用的侵權商標卷30多卷。經過連續4小時現場執法，至晚上8點，工商執法人員查扣了全部涉嫌假冒管材，完成了現場取證檢查。該局隨即對此立案作進一步調查處理。 感謝信中，漢克公司高度讚揚了諸暨工商執法人員在整個執法過程中，冒著廠房內40度的高溫，認真細緻執法，而且沒喝該公司的一滴水，沒抽一支煙，甚至也婉言謝絕了該公司安排的工作晚餐。同時，也高度評價了諸暨市的執法環境和工商人員的執法素質，表示如果今後來華投資，諸暨市將是該公司的最佳選擇。 Source: http://www.sx.gov.cn:82/gate/big5/www.sx.gov.cn/portal/articletemplate/qy_display.jsp?contentID=7435 Peter Waumans CEO Brussels Beijing Shanghai Shenzhen   Carrefour Contends With Bribery In China China and battle against corruption      French hypermarket Carrefour is facing a peculiar kind of growing pain for its breakneck growth in China: systemic corruption among its management ranks at the local levels. As many as eight managerial staff at Carrefour China have been detained by Chinese police in a wide-ranging probe initiated by the company itself over bribe taking by its managers at its city procurement center in Beijing and seven other outlets, including one in Shenzhen. Their detention is seen as part of radical shakeout precipitated by Eric Legros, the new executive director of Carrefour China. Legros is looking to rein in wayward local managers and tighten up a decentralized procurement system that has set Carrefour on a high-growth path in China but that appears to be outgrowing its usefulness. The police summoned 22 suspects for questioning between June 25th and August 1, including 12 local suppliers, according to two major publications, Shanghai Securities News and China Business News. The investigation netted an unidentified number of corrupt managers working at the fresh produce department who requested kickbacks in the form of promotional fees from suppliers. Carrefour did not dispute the reports’ accounts. Unlike the centralized system in procurement and coordinating logistics employed by its top competitor in China, Wal-Mart, Carrefour has been racing ahead in China through a model that empowers local managers at each outlet to manage pricing, choose suppliers and conduct negotiations on promotional campaigns, as well as arranging store displays. This high degree of flexibility gave ample room for managers to expand fast in the early stages of building the chain, but the wide leeway it allowed also encouraged endemic bribe taking at the local level and, over time, exacted higher operating costs than would a centralized system. Under Legros, Carrefour has been moving to consolidate power since late last year by creating several new regional units directly controlled by the head office to reduce costs and reap efficiencies, for which corruption at the local level constitutes a major stumbling block. A report published by China Business News in February last year revealed the value of kickbacks for a procurement manager working at a Carrefour outlet, who earned a monthly salary of 3,000 yen ($397) but managed to top this up to more than a million yuan ($132,000) every year by devising some innovative forms of bribery such as the acceptance of credit cards, lottery prizes and payments made in exchange for hosting promotional campaigns. Carrefour (other-otc: CRERF - news - people ) has been the most profitable mass retailer in China, far ahead of Wal-Mart (nyse: WMT - news - people ). China is also the French retailer’s main engine of growth, providing a turnover of 2.482 billion euros ($3.395 billion) for the full year 2006, representing an 18.6% yearly increase in sales. After opening more than 101 outlets in China, Legros recently said Carrefour would grow at an even faster clip than before, opening as many as 25 stores a year, up from the 20 forecast earlier. With 40,000 employees, 98% of whom are locally hired, Carrefour has been adopting far more features of the local culture than most foreign companies operating in China. Perhaps too many, as evidenced by the bribe-taking scandal.   Young Chinese to drive luxury demand. Consumer/Retail/F&B      Young, well-off Chinese are expected to consume more than US$26.4 billion worth of luxury consumer goods by 2016, according to a recent MasterCard Worldwide luxury product marketing report released in Hong Kong, Xinhua reported (in Chinese). China will continue to lead worldwide demand of consumption of luxury goods and services, said the report. Luxury consumption will be driven mainly by the generation of wealthy Chinese born after the Cultural Revolution, who save less of their income than older generations as they have been less affected by the large-scale social and economic transformations China has undergone, according to the report.   Beijing creates anti-corruption agency Policy      China has set up its first agency to deal with corruption, AP reported, citing state media. The newly formed National Corruption Prevention Bureau will be headed by Ma Wen, the newly appointed minister of supervision. No details were given as to how it will function. The establishment of the bureau, which is the responsibility of the State Council, comes as the Chinese Communist Party prepares for its five-yearly summit in October. Corruption is regarded by the leadership as a threat to party rule. More than 97,200 officials were disciplined last year, according to the party's Central Commission for Discipline Inspection. The majority failed to carry out their duties, took bribes or violated party financial rules. The most well-known offenders were Chen Liangyu, former party secretary of Shanghai, and Zheng Xiaoyu, the former head of the State Food and Drug Administration who was executed in July.   Chinese product recall systems in place Regulatory      Product recall systems were officially installed in China on August 31, AP reported. The systems will recall unsafe food and toys, and they follow a system for defective cars set up in 2005. The systems were put in place by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), and will be used to track domestic and export products. The new mechanism means AQSIQ can force a food product recall and issue a consumer alert if producers are negligent or if a food safety incident occurs. Toy manufacturers must stop making and selling toys that are unsafe by other countries' standards, even if they abide by Chinese laws and regulations. The recall systems are some of the most concrete steps Beijing has taken so far to address the ongoing product safety crisis.   WTO investigates China's export subsidies. China and foreign trade      The WTO started investigating claims that China is unfairly subsidizing exports on August 31, the Financial Times reported. The US and Mexico have alleged that China is competing unfairly using tax refunds, reductions and exemptions across a range of industries. The US filed the complaint in February, and Mexico joined it soon after. The US Trade Representative Susan Schwab said at the time that China subsidized steel, wood products, information technology and other industries at the expense of the US. China has removed one subsidy program the complainers said was unfair, but it also passed an amended income tax law that the US says provides new subsidies. An independent dispute panel will rule on the allegations. An initial ruling will take at least six months to issue, and a final judgment will probably come in late 2008. Another WTO panel was set up last year after the US, the EU and Canada requested investigations into China's import tariffs on foreign car parts.

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