U.S. Commercial Service - American Embassy, Beijing
Vol. 2 No. 151
To subscribe to the China Commercial Brief,
send a blank email to subscribe-china-commercial-brief@list.xianzai.com .
For additional CS China news and events including past issues of the China Commercial Brief, visit our News & Events Archives.
Editor: Matthew Gettman
Contributors: CS Guangzhou, Bai Ying, Mei Baochun, Wang Jianhong, Xu Ye
News Briefs
In addition to the article summaries CS Beijing provides , our four China branch offices - Chengdu, Guangzhou, Shanghai and Shenyang - submit summaries of commercial articles from their local press to the CCB on a rotating schedule. This week we are pleased to feature a contribution from our Guangzhou post.
1. Guangzhou Plans $84.7 Million to Build Six New Sewage Plants
2. Auto Financing Firms Entered Chinese Market
3. China Starts Trial Operation of its First Regional Electricity Market
4. China Railcom Becomes an Independent Telecom Carrier
5. High Demand for Steel for the Heavy-Duty Machinery Industry
1. Guangzhou Plans $84.7 Million to Build Six New Sewage Plants
Guangzhou has planned to invest $84.7 million (about RMB 7 billion) to build six new sewage treatment plants in the next three years. The plan is part of the efforts to achieve the goal of treating 100% of domestic sewage by the end of 2006. The six new wastewater treatment plants are expected to treat nearly one million tons of wastewater per day.
Currently four sewage treatment systems are being built in Guangzhou and are scheduled to be in operation by the end of 2004. By then, Guangzhou will be able to treat 1.42 million tons of wastewater a day, or 70% of the total daily discharged wastewater. The six additional plants are expected to treat the remaining 30% wastewater.
The six new sewage treatment plants are the expansion of Lijiao Sewage Treatment Plant, Phase I of Shijin Sewage Treatment Plant, Longgui Sewage Treatment Plant, Jiufo Sewage Treatment Plant, Phase III of Liede Sewage Treatment Plant, and Phase I of Dashadi Sewage Treatment Plant.
(Source: Nanfang Metropolitan, 01/30/2004, - Translated by CS Guangzhou)
2. Auto Financing Firms Entered Chinese Market
According to industry analysts, auto sales in China will exceed three million units by 2005. Coupled with strong growth in commercial vehicle sales, this will also drive strong demand for auto financing. The explosion in demand for family sedan vehicles in China shows no signs of abating. In just the last three years, sedans have risen from 30 percent of the motor vehicle market in
2002, reaching a projected 50 percent for 2004. In addition to the percentage, the overall market has also grown so that the number of sedans produced in 2004 will approximately equal the entire motor vehicle production for 2002. Just the simple math for Beijing means that 1,100 new cars are sold here each day in 2003.
The China Banking Regulatory Commission (CBRC) approved applications from Volkswagen Auto Group, Toyota Motor Corporation and General Motors Acceptance Corporation to provide auto financing in December 2003. These three companies will be the first non-bank institutions to provide auto financing in China.
Volkswagen Auto Group, Toyota Motor Corp will establish their own auto financing subsidiaries in Beijing, and General Motors Acceptance Corporation will form a joint venture with the Shanghai Automotive Industry Corporation (SAIC). The three groups are scheduled to complete preparation works within the first half of 2004.
China has become one of the world’s fast growing automotive market. The total output of motor vehicles in China exceeded 4.3 million this year. Since 2001, China’s quota for components and completed vehicles has increased 15 percent to USD9 million in 2003. China imported 180,000 complete cars in 2003, an
increased more than 200 percent over 2002. Since 2001, the percentage of family sedan automobiles has grown from roughly 30 percent, and should reach
almost 50 percent of production in 2004.
Chinese commercial banks started to provide auto loans in 1998. However, still less than 20 percent of cars in China are sold by loans in 2003, while more than 70 percent in developed countries are sold by loans.
China published the regulations on auto financing in October 2003 to fulfill the nation’s World Trade Organization commitments. Volkswagen, Toyota and General Motor filed applications for auto financing in early December. The approval process has been much faster than industrial estimation.
Domestic auto companies are also preparing to establish auto financing businesses, but none have obtained permission so far. Chinese regulations require that auto financing companies should have at least an asset of RMB 4 billion (USD 483 million), which would be too high for most local companies. The auto financing companies are also required to have a ten percent capital adequacy ratio, which is higher than the eight percent of commercial banks.
(Source: China Auto News, 1/12/2004 - Translated by Bai Ying)
3. China Starts Trial Operation of its First Regional Electricity Market
In a groundbreaking move to liberalize the electricity generation market and introduce market mechanism into it, China put into trial operation the first regional power market in its northeastern provinces on January 15, 2004.
The Northeast China Regional Electricity Market covers an area of 1.2 million square kilometers, involving 100 million residents. More than 20 power generation companies will compete with each other to supply electricity to local grids there. All the power trade will be conducted in an electricity-trading center in Shenyang, capital city of Liaoning Province. Payments will be made through local settlement centers in Liaoning, Jilin and Heilongjiang provinces. As the first step, the Northeast China Regional Electricity Market will begin with power trade on monthly basis. In consequence, the market will gradually adopt other forms of trade, including real time trade and trade of electricity generation rights. As the market matures and the pricing system perfects, the regional electricity market will be fully open to market competition.
SERC Chairman Chai Songyue said the establishment of the Northeast China Regional Electricity Market marked a concrete step forward in China's power reform, and the establishment of competitive and open regional electricity markets will help meet the economy's growing demand for power. The ultimate goal is to set up six regional electricity markets in the next two to three years in China.
(Source : China Electric Power News, 01/20/2004 - Translated by Mei Baochun)
4. China Railcom Becomes an Independent Telecom Carrier
China's State-owned Assets Supervision and Administration Commission (SASAC) announced that as of January 20, 2004, China Railcom officially became a wholly state-owned enterprise under its supervision. This change indicates that China Railcom is separated from the Ministry of Railways (MOR) and will operate independently as one of the six basic telecom carriers. The SASAC also oversees China's five other telecom operators, China Mobile, China Unicom, China Telecom, China Netcom, and China Satcom.
•Background
China Railcom was established on December 20, 2000 out of the Telecommunications Division of the MOR. The company has a registered capital of RMB10.3 billion, about US$1.25 billion, 51% of which was owned by MOR and 49% by another 15 investors. China Railcom is licensed to provide all telecom services except mobile communications. By the end of 2003, the total assets of the company stood at RMB 35 billion, about US$ 4.23 billion. China Railcom has 150,000 kilometers of transmission lines, which includes 100,000 kilometers of optical fiber cables, and a total switching capacity of 18 million lines. It has 31 provincial branch companies and operates in 316 Chinese cities. At present, China Railcom has 70,000 staff.
The Chinese government created China Railcom with an attempt to break the monopoly by China Telecom in the fixed line telecom service sector. However, because of the lack of investment to upgrade its networks in order to provide services to the general public, internal disputes on whether the company should remain under the control of MOR or operate independently, and lack of expertise, China Railcom remains the smallest telecom operator in China though it recorded US$ 845 million in revenues. According to statistics released by the Ministry of Information Industry (MII), China Railcom, together with China Satcom, held only 1.6% market share in 2003 while China Mobile held 37%, China Mobile held 30.7%, China Netcom held16.2% and China Unicom held 14.5%.
•The Next Step
After becoming an independent telecom operator, China Railcom will focus its efforts on the following aspects in 2004:
Structural Change – With limited influence from MOR after becoming an independent telecom operator, China Railcom will be able to carry out the restructure of the company in a way to operate effectively so as to compete against China Telecom and China Netcom. This structural change may take 6-8 months.
Development Strategy – China Railcom has not challenged China Telecom and Netcom in the fixed line telecom service sector in the past three years due to the lack of a clear-cut market strategy, in addition to its weakness in infrastructure, e.g., unavailability of an access network. After becoming an independent operator, China Railcom will develop a strategy to differentiate itself from its competitors. It will well maintain the private network along the rail lines and provide better services to MOR; upgrade and expand its existing networks; tap opportunities in niche markets in less developed areas such as western provinces, rural areas and suburbs of large and medium-sized cities; lease access networks from cable television operators or build its own access network by using wireless technologies. China Railcom expects to become a competitive player in three to five years’ time.
3G License – China Railcom has been lobbying for a 3G mobile communications service license for the past three years without success. Putting it under the supervision of SASAC increases the possibility for China Railcom to obtain a 3G license. In fact, it is allowed to conduct technical trials of 3G systems in Beijing, Shanghai and Chengdu. By now, all six carriers are conducting 3G trials. There comes a very interesting question of how many 3G licenses the Chinese government will issue, four or six? As all the carriers are lobbying hard, the Chinese government may further delay the issuance of 3G licenses.
•Where Is the Money?
Money will be the biggest challenge for China Railcom after becoming an independent carrier. Lack of capital investment has been one of the key reasons for the slow growth of China Railcom in the past three years. Most of its investments were from itself including MOR (RMB 3 billion, about US$400 million from operating the private network along the rail lines) and the State Investment Bank. It tried to raise money from the capital market but failed. The Chinese government arranged MOR to take over China Railcom’s debt of RMB 2.4 billion, about US$ 300 million after the de-link of the two in an attempt to create a better operating environment for China Railcom. It seems that lack of capital investment will continue to be the bottleneck for the growth of China Railcom. For the long run, it will pursue an IPO to raise fund from the stock market. However, it may take 3 to 5 years to do so.
•Good News for Vendors
Putting China Railcom under SASAC is a piece of good news to telecom equipment vendors. When China Railcom tries to upgrade and expand its networks and improve its services, it will buy more equipment and services.
(Sources: China Railcom Online, 02/02/2004, Beijing Youth Daily, 02/03/ 2004, Interfax, edition of January 17-30, 2004- Translated by Wang Jianhong)
5. High Demand for Steel for the Heavy-Duty Machinery Industry
The development of the heavy-duty machinery industry in China brought on high demand for steel. The heavy-duty machinery industry is one of the major end users of steel. Every year, China imports 4,000 to 6,000 excavators. However, locally made excavators’ share of the market is decreasing due to a lack of certain types of steel and poor quality steel that can not meet manufacturing requirement.
It is estimated that in 2005, China’s mining machinery industry will consume 2.6 million tons of steel for steel structures. Moreover, China’s heavy-duty machinery industry will consume more than 3 million tons of steel including steel sheet, steel plate, section materials, high-quality section materials, all types of cold-bend section steel and profiled steel bar.
China is also in high demand for importing special steel bar, as it is hard to find similar products in China and locally made products’ quality is poor.
(Source: Beijing Business Today, 02/04/2004 - Translated by Xu Ye)
Consulate News: Guangzhou
In keeping with our goal of making the CCB a more integrated publication, our four China branch offices - Chengdu, Guangzhou, Shanghai and Shenyang - submit consulate news to the CCB on a rotating schedule. This week, we are pleased to feature a contribution from CS Guangzhou.
U.S. Government Team Advocates for American Businesses in South China
A team of U.S. government officials spent two days in Guangzhou in early February to advocate for American businesses in South China. The team included Bruce Blakeman, Special Counsel to U.S. Secretary of Commerce on China; Dan Bloom, Director of DOC’s Advocacy Center; Consul General Ed Dong; Commercial Consul Eric Zheng, and CS Guangzhou staff. The joint advocacy efforts focused on several major procurement opportunities in South China in energy, environmental protection, and transport. American companies that are pursuing the opportunities range from multinationals to SME’s.
For more information on CS Guangzhou consular region, visit our website at http://www.buyusa.gov/china/en/Guangzhou.html
DISCLAIMER: CS China does not guarantee the veracity of the original sources of our news summaries. While we do our best to report accurate and timely articles and news sources, you should always check the source for further information.
The China Commercial Brief is a free newsletter published by the U.S. Embassy- Beijing.
****************************************************
INTERNATIONAL COPYRIGHT, U.S. COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2003. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.