For anyone who thought consutructing a JV in China was difficult, here is a story for you.

With the NPC now half complete, the curtain was brought up and 5 new super ministries have been unveiled:

• Ministry of Industry and Information
• Ministry of Human Resources and Social Security
• Ministry of Environmental Protection
• Ministry of Housing and Urban-Rural Construction
• Ministry of Transport

and according to this AFP article:

Under the new system, China’s cabinet, or State Council, will have 27 ministries and commissions, one less than before. No time line was given for when the reformed cabinet would come into effect.

With that in mind, I would like to prepare every reader who is invested in, or looking to invest in, that what we are going to witness is pure gridlock as these groups come together. When we met last month to discuss the draft Energy Law, we looked at the structure of it, and there were 13 ministries/ 2 committees involved.. and even if it were pass tomorrow, it would still take years for the organization to come together. YEARS

It is still too early to really predict the level of chaos these integrations will create, and it is going to be hard to judge what the products of the integration will look like, but I have a strong suspicion that once integrated we will see a much higher level of enforcement on many fronts…. especially when it comes to the environment

One ministry I would like to pull out in a later post (once I get my hands on more information), will be with the Ministry of Transport. China’s Logistics industry is currently running at 20% GDP, double the U.S. or E.U. markets… so reducing will be a priority as planning of networks can be centralized…. theoretically.

With that, the only value I can really add is just for everyone to push their projects through as soon as possible.  If your project is caught up in the middle of the integration, it will create issues…. people will move, standards/ regulations may conflict, etc.

An area that I have been working more and more on is sustainability, and for those of you who are following Crossroads, you will know that water is a HUGE area of concern for me.. and for China.

Well, apparently, while I have been writing there are others who have been discussing the real threat of China’s water problems in the Central Party, and if you believe everything that you read then there is only 22 years left on China’s water supply.

China says water supplies exploited by 2030 written by Chris Bukley reports:

China will have exploited all available water supplies to the limit by 2030, the government has warned, ordering officials to prepare for worse to come as global warming and economic expansion drain lakes and rivers

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Of all the The China Daily headlines I have seen, none were as important to me than Locals oppose Xiamen chemical plant at public hearings

Following my previous post on the changing environment in China’s environment, it is clear to me that unlike many previous dog and pony shows we have seen before, that there is a real change occurring.

From the perspective of the government, I see three major changes:

1. SEPA and environmental NGOs are being granted a lot of power. There have been public praises by various officials of each, and I expect this to continue.
2. Local officials are now looking for clean investments. 5 years ago, all money was good money, but now officials are very clear about one thing. New investments must pass environmental impacts surveys, and existing investments must clean up
3. NRDC Beijing is no longer just rubber stamping deals. they are now reversing local decisions on projects, and will continue to.

That the two events in Wuxi and Xiamen had a systemic impact, that they were not just a dog and pony show or had been swept under the carpet. Xiamen government officials were for the first time giving their residents a voice… and residents took up the opportunity.

One woman - “No. 35″ - said the existence of the plant would prompt her to reassess her living situation. “I came to Xiamen from Guangzhou with my husband a few years ago just for its clean air and beautiful scenery. I think I’ll have to leave if the plant is built,” she said.

another resident said

a local lawmaker and also a law professor at Xiamen University, said, “It’s not whether the city should build it or not, it’s that the project must be stopped immediately. It’s time to make a decision now.”

Where I see the greatest change and WHERE MNCs NEED TO PAY ATTENTION is that the general masses have changed. Gone are the days where the public is wiling to accept what they are given. there is active public debate, healthy debate, on the costs of development, and that signals the biggest change.

As someone active in NGOs in china, the history of civil society in China has really been government directed. Name an issue, and you will see where the general populace thought the government was responsible for managing it. That resulted in many top down directives….a system counter to the US where consumers really drive civil society.However, this summer changed all that, and where MNCs need to be careful is that more and more we are beginning to see where the top down approach is being bolstered by the bottom up.

It is a dynamic situation, one that will only gain momentum as flare ups occur, and it is one that companies operating in China need to be aware of as another recent article in the WSJ shows.

China Finally Gives Teeth To Environmental Agency

The summer of 2007, will be shown as a turning point in China’s development.

Everyday there was news that brought to light many of the issues China is having to address when managing when managing this economy. There were high profile cases in areas of the environment, manufacturing, labor, health, and so on.

One of these events, the green algae blooms in Taihu lake (and others), rocked China. . For years, chemical factories in the area had been dumping untreated waste into the lake, and when mother nature provided drought conditions in the area, lake levels dropped. When these two elements came together, the chemicals activated natural bacterias. Wuxi residents couldn’t shower in their city’s water, much less drink it. Firms were trucking in water from Shanghai, and overnight the prices of water spiked. It was a nightmare situation for the central government, who have been working on many levels to prevent this issues.

This event, more than any other in China, put government approved environmental activism on the map. Chemical factories were put squarely into the cross hairs of angry citizens and a frustrated central party. In a post entitled, , address how this event impacted a project I was working on and what firms could expect going forward.

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If you believe all the stories you hear in China, then investing in a factory in China used to be easy.

Throw the carrot of FDI in front of park, and the rest will take care of itself. Land will be cleared, chops chopped, labor arranged, etc. For many parks mixing industries was not seen as a problem (i.e. food processing next to chemicals) as long as the clients did not mind. It was about bringing in registered capital and taxes pure and simple.

Oh, how things have changed.

Investment parks like Suzhou’s Investment PArk and Tianjin’s Economic Development ARea have done very well at bringing in investment, and as such they are able to get a bit more picky. Proper zoning has begun, and as recently announced, these parks are looking to move up the value chain.

However, it is the recent news , as well as a general increased awareness at the local level, related to the negative environmental impact some industries have that is now catalyzing parks to look at projects with more care, and it is here that things have changed dramatically.

Rather than just accepting any manufacturer who walks off the street, the major parks 0 SIP for example - are now requiring that environmental impact reports be completed prior to final visits. In fact, during one of my current programs, this was actually required before one park would even send the available land specs for my client to approve.

The long and short of it is, before investing in China manufacturers are going to have to start proving that the environmental impact of their facility is at the acceptable level for that park.
If you are interested in learning more, I suggest you take a look at the attached. SIP’s form is quite comprehensive

Further to my post , I was forwarded the full text of the New Binhai Plan and thought it would be of interest.

Suggestion of the State Council of the People’s Republic of China on the Related Issues of Promoting the Development and Opening –up of Tianjin Binhai New Area

Promoting the development and opening-up of Tianjin Binhai New Area (TBNA) is an important strategic arrangement made by the Central Committee of the CPC and the State Council, based on the overall situation of China’s economic and social development at the new stage of the new century. In order to better advance the development and opening-up of the TBNA, hereby the following suggestions about the related issues are made.

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Are you a chemical company looking to enter China? If so, this post is for you.

While recently working on behalf of a light chemical company to identify their China site, we visited Tianjin to see what opportunities exist within their parks, to understand the macroeconomic developments, and catch up with old friends (to get the real story)..

With one of China’s longest histories in industry (Tianjin, Qingdao, and Shanghai have long histories of foreign investment), Tianjin has a number of advantages that make it an attractive place to invest. a large pool of skilled labor, a long history of working with foreign companies, a concentration of investment zones, the largest port in northern China, and so on.

Like Xi’an, Wuhan, and Chongqing, Tianjin is one of China’s strongest second tier cities, and being within an hour and a half of Beijing (soon to be 27 minutes by bullet train), it is becoming more and more attractive to firms who are looking to move out of Beijing for lower costs of production.

During our initial preparations for the trip, we began speaking with all of the parks to get the latest on their parks to see what plots were available, what policies were coming down (especially related to environmental conditions), and see what interest they would have in our client… and in the end, we chose to visit three parks (one on our own, and 2 with the assistance of a member of Tianjin’s foreign investment department)… and here are a few notes that we thought you the readers would find interesting:

TEDA: The Tianjin Economic development zone is actually 5 separate zones, and like SIP (Suzhou Investment Park), is the primary zone for Tianjin and is well established in the foreign community (Motorola invested roughly 1.2 billion in a handset factory there). The “Motherzone” is about 45 minutes outside of downtown, the west zone is 45 minutes to the southwest from there, and the chemical park (CIP) is 45 minutes from the mother zone near the port.

CIP is nearly full, and during the recent New Binhai planning CIP officials decided to turn away further chemical company investment once the north zone is full… The name will be changed from CIP to TEDA North Zone, and investment in electrical, food, and pharmaceutical will be encouraged.

Just a minor shift in industry focuses…. that will be bad for chemical companies, but good for others.

Dagang: South of the port, Dagang has been open for several years, and they have been successful at attracting a wide variety of manufacturers (construction materials, paint, petrochemical derivatives, etc). The park is split into a north and south zone where the north zone is anchored by Sinopec, and the south Petro China.

Land availability is quite good, and as they have a few phases yet to complete expansion will not bean issue. Where Dagang is different than the other zones is that their surrounding area has expat quality housing and some good restaurants (The Wrong Door hotpot restaurant gets 2 thumbs up from me).

Lingang: Just south of the port, Lingang is the newest of the three parks, and has a LOT of land left. During our tour, you could see that much of the peripheral infrastructure is still under construction… but what they were building (220KVA power station, fire station, pipe racks, etc) were very impressive.

Unlike CIP, Lingang’s companies are large gas and petrochem facilities (LG and Airliquid investments were both near the billion dollar level and have come online in the last 6 months). For smaller projects (under 100 Million USD), I am not sure I would recommend investing in this park over Dagang, however for large LPG or petrochem projects, this is the place to invest. The staff was very knowledgeable of the various environmental standards, and were very blunt… it will take 3-4 months to pass EPA. no exceptions.

Wrap-up:

Tianjin has a lot of appeal for manufacturers, but investors will be wise to update their materials on Tianjin. The New Binhai planning will affect a number of incentives, park focuses, and other infrastructural items that should be considered. for chemical investments, CIP is really going to be difficult… but for food producers, there is now a new option.

Make sure the New Binhai planning is part of your reading list, and bring it on your trip..the traffic is horrendous in Tianjin…