Important Announcement
Major shipping, aviation funds to boost reforms
Wal-Mart, Carrefour Spur Local Logistics Alliance
China Eastern Airlines to post ’significant loss’ for 2008
China railways: Slowing economy means flat rail cargo volume for 2009
Read the rest of the news after the break.
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Following my post last week, the UN released the 30 page report Advancing Food Safety in China. PDF Here
Primarily written in response to, and as a study of, the recent milk contamination cases, this paper is an excellent guide for those who are looking to understand more about the regulatory environment, the agencies, and the processes that monitor food quality and addresses problems that arise.
With the highline being: China has made a lot of progress over the last 5 years, but it still has a long way to go, the authors have taken a very logical approach:
For me, the first two pieces were the most interesting as (1) I know what the current system is and (2) if you know the first 3, you can work out the 4th.
for me, the only real surprise was seeing that less than 1% of exported food was found to be substandard, whereas that number jumped to 15% locally. Errors in statistics aside, this is a stunning difference and I would further be interested in knowing what the rates look like in terms of 1st tier, 2nd tier, and others…. my gut feeling is that Shanghai and Beijing are 95%+, where on the farm is a whole other story.
In the end, the following recommendations were made:
In Foreign Affairs this month comes a piece by US Treasury Secretary Henry Paulson called A Strategic Economic Engagement Strengthening U.S.-Chinese Ties .
A state of affairs piece, the message throughout the article is clear.
Regardless of who will be the next President of the United States, the SED needs to remain in place.
With one of his major mandates to improve the economic relationship between the two countries, a large part of Paulson’s legacy will be tied to the SED (US China Strategic Economic Dialogue). He was questioned by many in the early days, but as the dialogues between himself and his counterparts continued it became clear that there was real progress coming through the platform (there were some misses as well).
He had hurdles to overcome, one of the largest was to sell in the US the Chinese position:
To be effective, however, Washington must first understand Beijing’s interests and the challenges it faces. The Chinese see economic growth as essential to their stability. Three decades of economic development have transformed their country, bringing it peace and stability and lifting hundreds of millions of people out of poverty. The Chinese are deeply proud of these accomplishments yet are concerned about their ability to sustain them. Their leaders, meanwhile, realize that China’s future growth depends on its increasing integration into global trade, investment, and financial markets.
and to build the relationships and trust between the two parties
U.S. officials are more effective when they understand the Chinese people’s perspective. This is one reason why I travel to China so often; nothing can substitute for personal interactions with top decision-makers, especially in China, where respect and friendship are particularly prized. My counterparts in the SED, Vice Premier Wang Qishan and, before him, then Vice Premier Wu, have emphasized the importance of mutual trust. Establishing relationships at the top of the Chinese government has been key to the U.S. government’s success with the SED.
and through this process:
I have come to understand the basic fact of China that the less you know about China, and China’s laws are no exception to this. It is something that applies to those looking to enter (or expand) when making investment decisions and when looking at joint venture partners at the highest level, and how firms hire employees and pay taxes on the everyday operational level.
Where this is important, is that while there are plenty of examples showing the importance of this (McDonald’s wage, P&G recall, Danone’s trademark case, etc), there are still those who are operating at times by the seat of their pants… and it comes back to haunt them in ways that they never planned for.
A recent example of this comes from a close friend who has a small firm here. It is a start-up, and like many entrepreneurial efforts – the firm really was in “go go” stage from day one and doing little on the framework side. Initially, many employees operated under the honor code, and then they were brought onto 1 year contracts that met the old labor law… but, when he had a problem with an employee recently, all hell broke lose and a price was paid.
The basic scenario was that an employee was essentially stealing some IP for his own use, and violated his contract. My friend confiscated his computer, and then had him leave… and that was when the problem started.
ProLogis, a company I have written about on several occasions, has just released a very interesting report entitled China’s Special Economic Zones and National Industrial Parks —
Door Openers to Economic Reform that I would recommend anyone interested in understanding the background behind China’s EDTZ and SEZs.
This report is really strong on the history of the zones and their contribution to the China story, and the story is an interesting one.
Note – the report does not address the recent policy changes (VAT, environment, labor, and other) and their impact going forward, so if interested in these impacts you can review:
6 months after I started reporting on the clampdown on visas, it is now a full blown party with major newspapers and blogs all reporting pretty thoroughly on the issue.
A new piece of information that I have to add at what I have already seen at the other sites, that no one else has covered, is that I recently was sitting in a clients office when their HR person gave us some bad news
Anyone born after 1983 can no longer get a Z visa.
What struck me about this was that if true this would represent the first real change in policy. After all, working on an F visa was always outside the rules, and even extending a Z visa to rep office employees was a poorly enforced rule… but but restricting Z visas to those older than 25… THAT IS NEW
Under normal circumstances, I would post an environmentally related post like this only on Crossroads, but this is no normal post.
For regular readers, you will know that one of the things that I follow closely, and one of the things that I worry about more frequently, is sustainability of resources in China… particularly water (see previous posts: China is RUNNING OUT OF WATER, People May Think I am Overreacting, Why China’s Recent Drought Matters to YOU, Water: What if, What Else, & What are the Odds)
Recently, PBS has been running a series called China from the Inside that covers a range of topics focused on hot button or social issues, and this week’s episode – Shifting Nature – the focus is on the impact of China’s growth on its environment.
If I could somehow enforce a requirement for every reader to watch it I would (especially given algae blooms are already showing in three of China’s largest lakes). It is simply one of the best journalistic pieces I have seen on the topic, and the access that this team got is simply amazing.
Split into 6 clips (I posted the 1st on main site, and last 5 after the break) of about 8-9 minutes each, so give yourself some time to watch this at one go…
Part 1:
Last year, specifically last summer, was an inflection point.. some say a tipping point.. for China. news stories surrounding Taihu, Slave labor, product safety, and cardboard dumplings had a huge effect on China’s policy makers.
It is something that I have covered on a number posts on All Roads (Summer 2007: A Catalyst for Environment Change in China and The Real Meaning of Public Hearings in Xiamen), on Crossroads (Xiamen PX: A Turning Point?, and The Relationship Between Pollution and Unrest) , and in presentations
and the Xinhua article Making all draft laws public, a new step to improve legislation quality is in my mind another step in the right direction for China, and China’s policy making mechanism.
More than anything else, when speaking to investors who know China well, it is China’s ability to seemingly care little about them when releasing regulations that tends to frustrate, irritate, and be of concern to them.
It is something that we saw on perhaps the largest scale last week when thousands of residents and visitors learned to the new visa regulations the hard way. Without warning. It is something that I have seen in action while working in the banking, real estate, and logistics industries.
One of my favorite conversations was with a real estate investor on June 2, 2006 while we were closing in on our deal. he was really shocked by the new taxation rules (5 year over/ under and 70% of new homes must be 97m or less), and essentially said “don’t they realize that they just made our model impossible?”. and the answer was easy for me.. “yeah, they know that, and when they stack our model up to the “China” model.. .they made the right decision”. Even though I personally lost out on the deal, I still stand by that.
After all, the regulations themselves were mature/ strong on their own, and we all knew that changes would be made to take the end off the first round (the 70% rule was eventually looked over by nearly everyone).
Usually, one of the first responses to a change in regulation, is to cry “its not fair”, and this is particularly true when someone has a bit of skin in the game. The regulations rarely offer any grandfathering, can sometimes come without warning, and that can hurt. there is a LOT of room for improvement on how the regulations themselves are released, and last week was just one case of many where someone made the decision without consideration of those who would be most directly impacted.. and how that impact would be felt.
In the case of the recent changes in visa regulations, there were two primary drivers that I think were in play:
Just received the below in an email. Comes from British Chamber of Commerce, and if true, then it looks like I was right… going forward it is going to be much more difficult to get F visas.
Visa Situation Update
The British Embassy lobbied the Ministry of Foreign Affairs in Beijing and have now secured confirmation from them that 12 month multiple-entry business visas will continue to be available to all qualifying UK applicants.Chinese Embassy websites now makes clear that the following documents should be supplied:
i) invitation letter issued by the relevant department of Chinese government (e.g. MOFCOM, local Chamber of Commerce) – an invitation from a Chinese company will no longer suffice;
ii) a copy of a Chinese hotel reservation;
iii) a copy of outward and return flight ticket booking (one way ticket will not be sufficient).
Note: The HK Website previously sourced has yet to change, and it appears that non-residents are still unable to get visas in HK.
Note 2: AMCHAM Shanghai will be offering members a chance to learn about the new rules next Tuesday (Given the implications of this, this is coming a bit late…) at the Portman. Details here
Note 3: I am hearing more and more stories of people being stopped and asked for credentials. If you are not carrying them, they will be happy to follow you home to get them. So, best pack your passport for the next few months
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