N E W S L E T T E R

May 2007

 

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Story of the Month

NAROS Update

US/China/Shenzhen Business News

Doing Business in China

Shenzhen Facts

 

Story of the Month

 

China to Buy Stake in Blackstone

The State Investment Company, a State foreign exchange investment company soon to be established in China and The Blackstone Group LP announced recently that the State Investment Company has agreed to make a US$3 billion investment in Blackstone.

The deal is in an effort to diversify its US$1.2 trillion in foreign-exchange reserves beyond United States Treasury bills and into commercial assets. 

The deal, which is set to coincide with Blackstone's US$4 billion initial public offering (IPO) this year,
will give China a roughly eight percent stake in Blackstone, which owns companies that have 375,000 employees and US$83 billion in annual sales.

It would also represent a watershed for the booming private equity industry as it tries to gain a foothold in China .

(Photo: Blackstone's headquarters in New York City )

The purchase price per common unit will be 95.5 percent of the public offering price in Blackstone's planned IPO. The number of non-voting common units purchased by the State Investment Company will be reduced if necessary so that the State Investment Company's equity interest in Blackstone immediately following the planned initial public offering remains under 10 percent.

The State Investment Company has agreed to hold its investment in Blackstone for at least four years.

Lou Jiwei, head of the working group of the State Investment Company, said: ˇ°We are very pleased to be able to make the State Investment Company's very first investment in such a well-respected firm as Blackstone.ˇ±

ˇ°It's a historic change. It's a paradigm shift in global capital flows,ˇ± Stephen A. Schwarzman, chairman, chief executive officer and co-founder of Blackstone, said in an interview.  He called the Chinese government's decision ˇ°hugeˇ± and even ˇ°surprisingˇ± to him.

ˇ°We are pleased to welcome the State Investment Company as an equity owner of our firm.  We are proud to be part of such a significant transaction for both of our organizations,ˇ± added the chairman.

China will invest in the Blackstone firm itself, not in its funds, which invests in companies. However, the relationship opens the door for China to invest in Blackstone's funds in the future.  China has also promised not to invest in a competing private equity firm for a year.

Blackstone has been moving aggressively in recent months to find investments in China .  Blackstone is trying to catch up to the Carlyle Group, which has a large operation in China .

In January, Blackstone hired Anthony Leung, the former Hong Kong financial secretary, to run the group's business in the Chinese mainland, Hong Kong and Taiwan .  And last month, Reuters reported that Blackstone was seeking to acquire a stake in the Guofeng Group, one of China 's largest makers of plastic products.

Blackstone is planning to open offices in Hong Kong and Beijing this year.

 

NAROS Update

 

Shenzhen Delegation Concludes Visit to Los Angeles , Houston , and Atlanta

 

(Photo: Shenzhen delegation after private networking mixer in Los Angeles .)

A major Shenzhen business and government delegation has completed its visit to the United States , after stops in Los Angeles , Houston , and Atlanta .  This group was comprised of more than nine companies headquartered in the city of Shenzhen , each looking for investment opportunities in North America from April 15-27, 2007. In Los Angeles , the group was treated to a private matchmaking mixer in Downtown Los Angeles, sponsored by NAROS, the LA Chamber of Commerce, and the Los Angeles Economic Development Corporation/World Trade Center Association LA-Long Beach.  The delegation was also hosted for a private breakfast briefing by East West Bank in Pasadena .
They were then joined in Houston by a high-level Shenzhen government delegation led by Vice Mayor Zhuo Qinrui, there to take part in the activities celebrating the 20th anniversary of the Houston- Shenzhen Sister
City relationship.  This combined group paid visits to a luncheon hosted by the Chinese business community, NASA's Houston Space Center, a black-tie gala hosted by Houston Mayor Bill White, a major business conference sponsored by the Shell Oil Company and the Greater Houston Partnership, a private reception sponsored by the Houston Citizens and Asian Chambers of Commerce, as well as the annual Houston International Festival, where NAROS sponsored a booth to promote trade and tourism.

The group then split, with the Vice Mayor headed to Brazil , and the business delegation headed to Atlanta .  The business group was briefed on Georgia 's investment environment and incentives by the Georgia State Economic Development Department (EDD), as well as representatives from Womble Carlyle and KPMG.  A major event was held in Atlanta to promote bilateral business exchange between Georgia and Shenzhen, at which

(Photo: Houston International Festival)

(Photo: Atlanta seminar)

Ken Stewart, Georgia EDD Commissioner and Wang Xiaochun had the opportunity to introduce their respective regions before an audience of 150 members of the Georgia business community.  This event was sponsored by the Shenzhen Bureau of Trade and Industry , Georgia -China Alliance, and NAROS.

Additional speakers included representatives from two Shenzhen-based companies, ZTE and Hangsheng Electronics, as well as three Atlanta-based companies, East-West Manufacturing, ARRIS New Business Ventures Group, and UPS.  Luncheon and one-to-one meetings were held in order for the Shenzhen companies to gain more exposure to their Georgia counterparts.


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  US/China/Shenzhen Business News

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U.S. Firms Anticipate Further Growth in China

Despite worries about restrictive government policies and a possible economic slowdown, a survey shows that U.S. companies operating in China are becoming more profitable. ˇ° U.S. firms must grapple with the fact that their global competitiveness depends increasingly on how they fare in China ,ˇ± the American Chamber of Commerce (AmCham China ) said in the report following the annual survey.

Also during this time, the Chinese government is focusing more on promoting local industry and is eliminating some preferential treatment for foreign companies, thus the environment for foreign companies in China is becoming more complex.  Most companies that were surveyed, 73% said that their China operations are profitable, up from 64% in the previous annual survey.  Most companies also said that their operating margins in China increased in 2006.

Due to China 's increasingly significant and growing economy, China is becoming and even more important market for companies world-wide.  The country is growing at three times the rate of the U.S. economy. With China attracting $69.5 billion in foreign investment last year, U.S. companies are continuing to invest in an attempt to gain market share.  83% of respondents said they are likely to expand capacity in their own China operations.  Even though, for many U.S. companies, China is a relatively small market at the moment, a majority of the respondents said that China is their top priority globally, with more than half of the companies generating 10% or less in their global revenue.

Survey respondents said that their biggest challenges in China were a lack of transparency, inconsistent and unclear regulations, and bureaucracy.  The chamber urged the Chinese government to continue to embrace market competition and to make the process by which it develops regulations and standards more transparent.

 

ICBC Applies to Establish New York Branch

 

Industrial & Commercial Bank of China Ltd. (ICBC), China 's largest lender, applied last month to establish a branch in New York as part of a plan to accelerate overseas expansion and become a global player.

ICBC is awaiting approval to upgrade its representative office to a branch, which can offer lending and deposit services, according to a statement by the U.S. Federal Reserve on its website.

ICBC in October raised US$22 billion in the world's largest initial public offering to date, and local rivals are seeking to expand globally as international banks enter China , threatening to erode margins on lending.  The bank agreed to buy 90 percent of PT Bank Halim Indonesia , marking its first overseas purchase, in January 2007.

 

Bank of America and China Construction Bank Join in New Credit Card Business

 

Bank of America and China Construction Bank (CCB) are joining to unveil a new credit card collaboration aimed at providing innovative card products for the rapidly growing Chinese market.  Credit card volumes in China increased more than 70% in 2006 and as credit cards become more available and accepted by both consumers and retail outlets, further growth is anticipated for future years.  The two companies are planning a collaboration to leverage China Construction Bank's market strength and Bank of America's leading credit card expertise.  The compressing of the two companies will be executed in two stages.

(Photo: China Construction Bank Chairman Guo Shuqing shakes hands with Bank of America Board Chairman Kenneth D. Lewis)

The first stage would involve CCB creating a stand-alone credit card unit, along with the margining of its current card operations into this new unit.  They will also form an advisory committee, which Bank of America would serve on, to determine and develop the unit's business structure.  In the second stage, a conversion of the credit card unit into a Chinese-foreign credit card joint venture would need to take place in China .  Bank of America would obtain 37% of the joint venture and would begin launching co-branded credit cards.  This stage would occur after new joint venture regulations are enacted by the Chinese government and subsequent regulatory approvals are obtained.

With a 20% market share, CCB is the second largest credit card issuer in China , issuing a total of 6.34 million credit cards, of which 3.22 were issued in 2006.  Following the successful launch of the two banks free ATM withdrawal and remittance services last year, this is the third customer program offered jointly by

the two banks.  In 2005, Bank of America became 9% shareholder of CCB and began providing assistance and advice to CCB designed to enhance the Chinese bank's performance.

 

AT&T Opens New Office in Shenzhen
In orderto further strengthen sales support and customer care services, AT&T announced the opening of an office in Shenzhen.  This will help with the increasing number of multinational enterprise customers in the southern region of China .  The new office will join AT&T's three other offices in Beijing , Shanghai and Guangzhou .

With more than 20 years of communications services to China Telecom and China Netcom, AT&T has national coverage in more than 135 cities and serves more than 300 multinational customers in China .  The creation of the Shenzhen office allows AT&T to leverage business opportunities presented by the

growing number of multinational customers expanding into the China market.  The new office will continue to provide the customers with AT&T's key enterprise networking solutions, including Remote Access Services, Virtual Private Network Tunneling Services, and Virtual Private Network Services.

 

Google and MySpace Increasing Efforts to Establish in China

 

Google and MySpace are increasing their efforts to expand in China , the second-largest internet market behind the United States .  MySpace also announced the premiere of MySpace China .  Both these moves highlight the continued push by U.S. internet companies to tap into China 's booming internet market.   China has 137 million people online, and is on its way to surpassing the U.S. as the largest online population in two years.

Although Google has 22 percent of China 's search market, which is well behind industry leader Baidu.com Inc., with 55 percent, it is slowly gaining greater market share.  Chief executive officer Eric Scmidt, of Google, said that the company plans to give its China operation greater autonomy to develop products and respond to the local market.  In an effort to make up for its late entry, MySpace, number one in world's online blog market, is also investing more in China .

 

Doing Business in China

 

China 's Top Legislature Approves Landmark Property Law

 

 

China 's parliament, the National People's Congress (NPC), concluded its annual session on March 16th, with the adoption of landmark property law.

Based on the report, the new property law protects ownership of property regardless of whether it is owned by government or private owners.

The property law demonstrates China 's spirit of reform since it protects the Chinese ˇ°socialistˇ± market economy while granting equal protection to public and private property owners, said Wang Shengming, Vice Chairman of the Commission of Legislative Affairs of the NPC standing Committee.

 (Source: PricewaterhouseCoopers)

China to Consider Raising Cap on Foreign Stake in Trust Firms

 

China regulators are considering increasing the ceiling on overseas investment in local trust firms from 25 percent to 49 percent, said an official close to the State Council.  The aim is to attract foreign strategic investors to help restructure trust firms into professional wealth management institutions, the official said.  At September 2006, China had 54 trust firms, managing a combined asset of 317.8 billion Yuan.

 

YICT: Serving Shenzhen

 

Yantian International Container Terminals Limited (YICT), a joint venture established by the Hutchison Port Holdings (HPH) Group and Shenzhen Yantian Port Group (YPG), commenced operations in mid-1994.  The company is responsible for operating and managing Phase I, II, III and Expansion Project at Yantian Terminal of Shenzhen Port.  YICT has seen a double-digit growth rate in its annual handling over the past years.  In 2006, YICT handled a total of 8.865 million TEU.

Yantian is a preferred port of call for mega-container vessels in South China .  Shipping lines, including Maersk, Evergreen, Hyundai and OOCL, have become some of YICT's major clients.  A total of 36 shipping lines have opened over 80 weekly shipping services at Yantian, thus establishing an extensive shipping network throughout the world.

To meet the ever-increasing requirements of the market, YICT has equipped the terminal with state-of-the-art operational equipment and computer systems.  As a result, YICT's average quay crane rate remains above 35 moves per hour at present.  Such a high rate already surpasses world levels, thereby cutting down operating costs and winning pre-emptive opportunities in markets for its customers.  Meanwhile, YICT has applied Six Sigma methodology to promote Process Innovation Initiatives (PII), enhance staff qualification and training, thus increasing customer service standards as a whole.

The YICT expansion project is currently under construction.  This project includes six container berths involving an investment of over RMB10 billion.  It is scheduled to be completed by 2010.  By then, the additional handling capacity will provide local importers and exporters with a convenient and efficient trading gateway, as well as satisfying the ever-increasing needs of shipping lines and shippers.

Both YICT and Shenzhen grow together economically, with the company providing a convenient and efficient gateway for imports to and exports from South China , and also facilitating global connections to the world's markets for the manufacturing sector in Shenzhen and the Pearl River Delta as a whole.YICT also has an influence on the local community, both economically and socially.  According to statistics provided by CCCC Fourth Harbor Consultants, in 2005, economic activity through Yantian Terminal benefited its associated companies and the nation's economy by some RMB22.2 billion, of which about RMB18.1 billion went directly into the local Shenzhen economy.

 

Shenzhen Facts

 

  • According to officials with the municipal government, an ˇ°all-in-oneˇ± call center is expected to be formally launched around October and November this year, providing 24-hour service for the public.  The citizens will be able to 12345 to deal with any of the 44 bureaus or departments run by the city government for inquiries or complaints.
  • Foreigners can't teach in Shenzhen unless they have a bachelor's degree, plus a minimum of two years' teaching experience, according to a local regulation passed recently by the Shenzhen Municipal Personnel Bureau.
  • Shenzhen Airlines will launch the first commercial flight from Shenzhen to Tibet this year, after a successful trial flight to Lhasa on August 4, 2006.  The trial flight took three hours and 20 minutes to reach the 3,570-meter high Lhasa Airport and included a stopover in Chongqing .
  • Diwan Dasha ( Shun Hing Tower ) - Shenzhen's tallest building has an observation deck that - if the weather is fine - offer stunning views on Shenzhen and the northern Part of Hong Kong's New Territories .

 

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North American Representative Office Of Shenzhen, P. R. China
350 S. Figueroa Street, Ste 288 , Los Angeles , CA 90071
Tel: (213) 628-9888 Fax: (213) 628-8383
Email: info@shenzhenoffice.org Website: www.shenzhenoffice.org
If you have any questions or would like to subscribe/unsubscribe to the newsletter, please contact Armine Asatryan at newsletter@shenzhenoffice.org  or 213-628-9888.

 

 This newsletter is provided by the North American Representative Office of Shenzhen, P. R. China (NAROS) for general guidance and information only, and does not constitute the provision of legal advice, investment advice, or professional consulting of any kind. The information is provided ˇ®as is', with no assurance or guarantee of completeness, accuracy, or timeliness of the information, without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

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