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ShanghaiDaily.com

4 2009
Indepth Business Reporting

World woes dampen

China GDP rise

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Cover Story Air

P9
3  World woes dampen China GDP rise 32  Private airlines face nationalization
4  Retail sales in Q1 jump by 15% as incomes 35  Hedging blamed for airlines’ losses
rise
6  Slower pace of drop for consumer prices
7  Urban FAI sees massive increase Technology
38  China’s chip makers struggle in downturn
Finance 40  Click away to plan that dream vacation
43  China Mobile gears up for 3G battle
9  City slated as global financial center
11  Guidelines to help city grow into financial
hub
P45
13  Exchange promises innovation Energy
13  Plain sailing toward 2020 45  Grids need to tap wind power
15  Rules set stage for China’s ‘Nasdaq’ 48  Bright future for solar power sector
16  New board ‘no threat to liquidity’
18  Investors give index a hearty welcome
19  Pricing system for IPOs to be revamped
20  A place at the table Conference
23  Gold continues to rise and sparkle even as 51  Downturn hits the conference circuit
other asset values decline
P54
Property Auto
26  Upbeat over business despite slump 54  China gears up for green cars push
58  Car makers bullish on China auto sales for
2009
Health Care 59  Drive to recovery
62  Domestic car brands gaining ground
29  Health care reforms are a shot in the arm

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Contents Cover Story Finance
Cover Story World woes dampen China GDP rise
World woes dampen
China GDP rise
Zhang Fengming
CHINA’S economy grew 6.1 percent in the
first quarter from a year earlier, expanding at
the slowest pace on record as it was reined
in by the global downturn.
But analysts said the GDP figure and
other recently released economic data
spark hope that China’s slowdown may be
bottoming out, although they were divided
on how long it will take before a recovery
might kick in.
And some continued to caution that
China’s return to double-digit growth can’t
come until the global recession runs its
course and the country’s exports pick up
again.
China’s gross domestic product
amounted to 6.57 trillion yuan (US$939
billion) in the first three months, posting a
percentage rise that was the weakest since
1992 when quarterly figures began to be
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released. The country’s economy grew 9
percent last year, although it tailed off to a
rise of only 6.8 percent in the final quarter.
The central government is targeting
what it calls a “challenging but manageable”
growth rate of 8 percent this year.
Meanwhile, the World Bank forecasts 6.5
percent expansion.
The global financial crisis has led to
deteriorating external demand and a drop in
China’s exports, slumping corporate profits
and worsening unemployment, Li Xiaochao,
spokesman for the National Bureau of
Statistics, told a briefing in Beijing as the
GDP figure was released.
The agricultural sector grew 3.5 percent
in the first quarter, the industrial sector
expanded 5.3 percent, and service industries
rose 7.4 percent.
Ken Peng, a Citibank economist in
Shanghai, was among those striking an
optimistic tone.
“Despite the new low in year-on-
year GDP growth, data at the end of the
first quarter showed renewed strength
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in production, investment and consumer
demand, as stimulus efforts kicked into
higher gear,” he said.
Shape of future
Li Huiyong, a Shenyin and Wanguo
Securities Co economist, said the GDP
slowdown was within expectations.
“The worst time is passed, and a
V-shaped recovery is very likely in the
second quarter, based on a raft of positive
economic indicators,” Li said.
Li said he expects China’s economy to
grow 8.3 percent this year as it picks up
pace.
Some economists took a more
conservative view, noting that it is still
too early to declare a revival and that the
recovery may be more U- or even W-shaped.
Lu Zhengwei, Industrial Bank’s chief
economist, said he expects full-year
growth of 7.6 percent due to still-lukewarm
private investment and weak exports.
Investment in the first quarter was driven
mainly by government-funded projects,
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Cover Story Retail sales in Q1 jump by 15% as incomes rise Click above to jump sections

and enthusiasm from the private sector is
necessary for a sustainable recovery, he
said.
“The 8 percent growth target can’t
be reached without fresh new stimulus
measures,” Lu said.
Stephen Green, Standard Chartered
Bank’s chief economist in China, said the
government has to do two main things —
trigger private investment and encourage
consumers to spend — to sustain recovery.
Sherman Chan, a Moody’s Economy.com
economist, said China appears “on track to
reach or at least get very close” to its growth
target but added that export prospects won’t
improve until the US and Europe emerge
from recession.
“Exports will perhaps be the only drag on
growth for the rest of the year, as this is the
only area the Chinese government cannot
revive,” Chan said.
Premier Wen Jiabao said yesterday
that the latest economic reports show that
government stimulus moves have begun to
produce results and the economy was now
in “better-than-expected” shape.
He cited rises in investment, consumption
and industrial output, abundant liquidity in
the banking system and improved market
expectations as signs of those “positive
changes.” The signs indicated that the
government’s macroeconomic policies since
the second half of last year have been “timely,
powerful, and effective,” Wen said.

Retail sales in Q1 jump by 15% as incomes rise

Zhang Fengming
The growth in China’s retail sales in the
first quarter is better than expected and
the country should continue to stimulate
demand and also use the financial crisis to
improve its economic structure, economists
said.
of 3.6 percentage points from a year ago. It
was 1.1 percentage points higher than the
growth in all of last year.
Breaking the data down to month by
month growth, the rise in retail sales waned
from January’s 18.5 percent to February’s
15.2 percent and March’s 14.7 percent.

In the first quarter, retail sales jumped But the consumption is expected to
15 percent to 2.94 trillion yuan (US$430 maintain a strong growth, backed by an
billion). Eliminating pricing factors, retail increase in residents’ incomes and China’s
sales grew 15.9 percent in real terms, a rise rising household savings, Li Xiaochao, Li Xiaochao

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Cover Story Retail sales in Q1 jump by 15% as incomes rise Click above to jump sections

a spokesman of the National Bureau of
Statistics, said in Beijing.
Li gave an example of urban income
increase of 11.2 percent and a climb in
rural income of 8.6 percent in the first
quarter as proof that retail growth can be
sustained.
China’s strong savings can also help
to shore up demand potential as Chinese
residents have money to spend unlike
consumers in Western countries who
depend on credit, he said.
“The retail sales figure is one of the
indicators that has slightly exceeded
expectations,” said Daniel Melser, a
Moody’s Economy.com economist.
“Nevertheless growth is getting perilously
low relative to the country’s growth
capacity and the expectations of the
populace.”
The central government has for years
tried to improve its economic structure
by trimming the reliance on exports and
boosting domestic consumption.
Household savings rose to 24.3
trillion yuan by the end of the first quarter,
indicating that Chinese consumers have the
purchasing power but authorities have to
find ways to ignite spending.
The central government has increased
subsidies for farmers and low-income
groups to improve the social welfare
system to boost domestic consumption.
Retail sales in rural areas outpaced the
pick-up in urban areas as the consumption
growth in the former topped 17 percent
in the first quarter, faster than the
14.1-percent expansion in the latter, the
bureau disclosed.

" The retail sales

figure is one of the

GDP
Consumption

Investment indicators that has

slightly exceeded
expectations. "

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Contents Cover Story Finance
Cover Story Slower pace of drop for consumer prices
Slower pace of drop for consumer prices
Winny Wang
China’s consumer prices in March fell for
the second consecutive month at a slower
pace when compared with February, easing
concerns about deflation and an immediate
interest rate cut.
Economists predicted consumer prices
to continue its decline in the second quarter
as the drop in producer prices widened in
March but said consumers should not fret
too much about deflation as the Chinese
economy is set to recover.
The Consumer Price Index, a main
gauge of inflation, fell 1.2 percent in March,
against a decline of 1.6 percent in February
which was the first monthly drop since
December 2002, the National Bureau of
Statistics said.
“The biggest risk of deflation happened
in the fourth quarter last year but the central
government’s stimulus policies have helped
warm up the economy,” said Dong Xian’an,
an analyst at Southwest Securities Co. He
said prospects of launching more stimulus
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" Securing economic
growth and boosting
domestic demand can
help fight against deflation.
We expect the CPI to
rebound in the fourth
quarter of this year. "
policies and slashing interest rates are slim
in the short term.
In the first quarter, the CPI shed
0.6 percent, with urban areas seeing a
0.9-percent drop while it was unchanged in
rural areas, the bureau said. Food prices,
which make up a third of the consumer
basket, inched up 0.5 percent in the first
quarter and housing prices dropped 2.9
percent.
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Prices of cigarettes, wine, home
appliances and health-care products rose in
the quarter, the bureau said.
“Securing economic growth and
boosting domestic demand can help fight
against deflation,” said Yao Jingyuan, chief
economist of the bureau. “We expect the
CPI to rebound in the fourth quarter of this
year.”
Deflation, a persistent drop in prices,
can hurt consumption as consumers wait
for prices to fall further which in turn reduce
economic activities, squeeze corporate
margins and prompt wage cuts.
The Producer Price Index, the chief
gauge of factory-gate inflation, fell 4.6
percent in the first quarter, the bureau said.
Bureau spokesman Li Xiaochao told
reporters that the PPI fell 6 percent in
March, worse than the 4.5-percent annual
drop in February, led by declining prices of
raw materials and fuel.
The global economic downturn has
sharply reduced prices of commodities like
crude oil and ore.
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Cover Story Urban FAI sees massive increase
Urban FAI sees
massive increase
Fu Chenghao
China’s urban fixed-asset investment
soared 30.3 percent in March from a
year earlier, official data showed, as the
government’s stimulus package and a
substantial rise in loans boosted spending.
Merrill Lynch economists said real growth
for March could be as high as 35 percent
due to negative producer price inflation.
For the first quarter, urban FAI in projects
such as railways and factories rose 28.6
percent to 2.36 trillion yuan (US$346 billion),
the National Bureau of Statistics said. It was
up 25.9 percent in the first quarter last year.
By region, urban FAI jumped 46.1
percent in the west in the first quarter and
34.3 percent in central areas, against 19.8
percent in the east, said Li Xiaochao, a
spokesman for the bureau.
The total FAI for the quarter climbed 28.8
percent to 2.81 trillion yuan.
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China in November unveiled a 4-trillion-
yuan stimulus package, largely focusing on
year, but the rise is 11.3 percentage points
lower from the first three months of last year.
infrastructure projects, to sustain economic
growth and offset the sluggish export sector
China’s industrial output rose 12.9
percent last year.
amid a global recession.
Li said the first-quarter output of heavy
“As we can see from the first-quarter
industry grew 4.5 percent from a year earlier
data, the fiscal stimulus and the highly
and that of light industry 6.8 percent.
expansionary monetary policy have already
led to a rebound in growth and should lead East China posted a year-on-year
to a continued rise in investment, reducing industrial output growth of 3.7 percent,
the need for a second stimulus package central areas 5.2 percent and western
or further interest rate cuts,” said UBS regions 11.8 percent.
economist Wang Tao.
China International Capital Corp
economist Ha Jiming agreed FAI would keep
rising in the second quarter and the third, but
noted spending in the property and export- 2.81t yuan
related manufacturing sectors could remain
weak. China’s total fixed asset
Meanwhile, growth in China’s industrial
investment climbed
production rebounded to 8.3 percent 28.8 percent to 2.81
in March from 3.8 percent for the first
trillion yuan in the first
two months, the bureau said, amid a
rapid investment increase and a smaller quarter this year.
contraction in exports. In the first quarter,
the industrial output rose 5.1 percent year on
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Cover Story Urban FAI sees massive increase Click above to jump sections

Industrial Output & Retail Chinese Inflation

(y-o-y changes %)
25 12
Retail
10 CPI
20 8
14.7% 6
15 PPI
Industrial 4
output 2
10
8.3% 0
-2
5 2008 -1.2%
-4 2008 -6%
0 -6
J M M J S N J M J M M J S N J M

Chinese Foreign Trade (y-o-y changes %)

Imports
40
" As we can see from the first-quarter
30
20 data, the fiscal stimulus and the highly
10
expansionary monetary policy have already
0
-10
Exports
-17.1% led to a rebound in growth and should
-20 lead to a continued rise in investment,
-30 -25.1%
-40 2008 reducing the need for a second stimulus
-50
J M M J S N J M
package or further interest rate cuts. "

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Finance City slated as global financial center Click above to jump sections

2020
Shipping Hub
Financial Hub

Four passenger liners dock at the Shanghai Port International Cruise Terminal on the Huangpu River near the north Bund. The city’s frontier authorities handled more than
12,000 passengers on March 25 at the terminal, the first time that arrivals exceeded 10,000 in a single day since the facility opened last August. — Zhao Yun

City slated as global an indication of China’s intention to place

financial center
Zhang Fengming
SHANGHAI will be built into a major
international financial center and shipping
hub by 2020, the State Council has said,
greater reliance on the city as it refines its
strategy for battling the global economic
downturn.
Shanghai will create “a multi-layered
financial market system, promote the
opening of financial services and ensure
financial stability in the coming years to
achieve this goal,” the Cabinet said in
guidelines listed on the central government’s
Website.
“Shanghai’s economy and social
development have made great achievements
during the past 30 years of opening-up. Now
it has come to a key transition point,” the
Cabinet said.

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Finance City slated as global financial center
“Accelerating Shanghai’s development in
modern services, manufacturing, financing
and shipping will be of great significance
to the Yangtze River Delta and the whole
nation,” it said.
Premier Wen Jiabao presided over the
meeting granting Shanghai more state-level
support to develop into a global financial
powerhouse that draws on the strength
of the Chinese economy and the growing
importance of the national currency.
“Amid the ongoing financial crisis, this
decision is most encouraging and gives us
great confidence,” Richard Yorke, president
and chief executive officer of HSBC Bank
(China) Co, said.
“The current crisis will cause an
acceleration in the shift of capital markets
from the West to the East. Against this
backdrop, Shanghai as an international
financial center will play a key role in the
long-term economic growth of China and the
world,” he said.
Zheng Xin, president of the Shanghai
branch of the Agricultural Bank of China,
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" Shanghai’s economy and
social development have
made great achievements
during the past 30 years of
opening-up. Now it has come
to a key transition point. "
said the timing of the guidelines shows the
central government is moving firmly ahead
on reform and globalization.
“It also means more room for the
financial institutions in Shanghai, including
players like us,” Zheng said.
Established financial centers such as
New York and London have been hit hard
by the worst financial crisis since the Great
Depression, and emerging markets like
Shanghai now have a chance to catch up
with the competition. China is a rare major
economy that is still expanding while other
major powers are in recession.
The Cabinet announcement was light
on details. But sources said the guidelines
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may encompass features such as allowing
Shanghai to begin trial operations on using
the yuan for international trade settlement,
encouraging private equity and developing a
re-insurance market.
The state guidelines give Shanghai
general goals to move toward, and detailed
policy will be implemented by the city
government.
Shanghai is already China’s financial
hub, home to the country’s largest stock
market, its major futures market for metals
and energy, its gold bourse and foreign
exchange center.
Looking ahead, Lam Chi Man, executive
vice president of the Bank of East Asia
(China), said Shanghai needs to improve
its accounting, legal services and rating
services as part of the efforts to move
forward as a global leader in the financial
industry.
On the shipping front, the premier urged
an integration of port resources within the
Yangtze River Delta, with Shanghai as the
hub.
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Contents Cover Story Finance
Finance Guidelines to help city grow into financial hub
Guidelines to help
city grow into
financial hub
Zhang Fengming
China’s State Council has mapped out
guidelines for Shanghai to step up building
into a major international financial center
and shipping hub by 2020.
Shanghai has been preparing to
introduce more innovative financial policies
for years, including using the yuan for trade
settlement and tax breaks to encourage
locals to buy pension products. The
guidelines will allow Shanghai to be bold in
implementing these moves.
“Shanghai will encourage innovation
on a trial basis to improve the financial
environment,” said Xiao Lin, the deputy
director of the city government’s research
department.
China began efforts to turn Shanghai
into a financial hub in the 1990s. However,
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the city lacked concrete national-level
backup, and few detailed policies were
issued to help it make major breakthroughs.
These guidelines should fill that need.
Shanghai is already China’s financial
hub, home to the country’s largest stock
market, its major futures market for metals
and energy, its gold bourse and the foreign
exchange center, while Pudong is emerging
as the Chinese Wall Street.
However, the city is still lagging behind
markets such as Wall Street and the City
of London because of a lack of financial
talent, an immature legal system and a lack
of sophisticated investment products.
The city has been trying to attract more
financial companies to set up offices in
Shanghai, using municipal-level initiatives
such as favorable tax policies and helping
executives set themselves up in the city
and find schools for their children.
Individual income tax is higher on the
Chinese mainland than in surrounding
financial hubs such as Singapore and
Hong Kong, which makes Shanghai less
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Contents Cover Story Finance
Finance Guidelines to help city grow into financial hub
attractive for financial professionals.
“What Shanghai lacks most is the
soft power,” said Sun Lijian, professor
of finance and executive vice dean
of the School of Economics at Fudan
University.
Sun said improved government
efficiency and a national
understanding of financial risk and
wealth accumulation will help shape
Shanghai as a major financial hub.
More ideas include enabling
overseas corporations to issue yuan
bonds onshore, enabling overseas
companies to issue yuan-backed
shares, and encouraging the set-up
of one-stop financial supermarkets
— financial companies that offer
banking, insurance and asset
management under one umbrella.
The Shanghai Bureau of the China
Insurance Regulatory Commission
has started studying the feasibility
of individual income tax extension
periods on pension products. This
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“ Shanghai will
encourage innovation
on a trial basis to
improve the financial
environment. ”
would mean residents could defer
their tax payments if they spend the
money on pension products.
Yan Qingmin, head of the
Shanghai Bureau of the China
Banking Regulatory Commission,
said the central government’s target
of making Shanghai a shipping
center could play an important role
in making Shanghai a global financial
hub.
“In any financial hub, such as
London, shipping and the financial
industries feed into and strengthen
each other,” he said.
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Key measures to support Shanghai’s
development as an international financial hub
1. Conduct trade settlement in yuan on a trial basis
2. Fully tap the financial market in Shanghai in
terms of clearing in yuan
3. Develop over-the-counter markets for non-listed
companies in the Yangtze River Delta region
4. Study a mechanism to help companies traded
on the OTC markets to be transferred to the main
stock boards
5. Develop pension products that offer tax breaks
to encourage people to pay into pensions
6. Encourage more international development
institutions to issue yuan-denominated bonds
7. Study plans to allow overseas enterprises to
issue yuan-denominated bonds in China
8. Find a good time to allow qualified overseas
companies to issue yuan-denominated shares
9. Step up development of the re-insurance market
10. Give priority in terms of business expansion to
Sino-foreign securities and fund-management joint
ventures
11. Encourage financial institutions to cover a full
range of businesses
12. Encourage the development of private equity
and venture capital companies
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Contents Cover Story Finance
Finance Exchange promises innovation
Exchange promises innovation
Winny Wang
The Shanghai Stock Exchange said it will
innovate and offer new products to help
make the city a major international financial
center.
A successful international financial
center can’t be built without an international
equities market that should comprise a top
stock exchange, world-leading financial
institutions, various financial services
Shipping Hub
Plain sailing toward 2020
Fu Chenghao
With the central government’s backing,
Shanghai is on a fast track to become an
international shipping center by 2020.
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and innovative financial products to lure
institutional investors, said the world’s sixth-
largest bourse in a statement.
The Shanghai exchange will seize this
opportunity to launch a new-generation
trading system, enhance the development
of the blue chip market, encourage mergers
between listed companies, promote the
bond market and block-trading system, and
develop exchange-traded funds based on
The effort will include integrating port
resources in neighboring Jiangsu and
Zhejiang provinces and the development of
financial services for the shipping sector,
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the key CSI 300 Index, the statement said.
Exchange-traded funds, also called
index-based products, enable investors to
buy or sell shares in an entire benchmark
portfolio. China’s mainland is planning to
unveil ETFs to track the nation’s broadest
blue-chip stock index, with the ETF based
on the CSI 300 Index, which groups the
biggest 300 mainland-traded firms by value,
set to launch this year.
Financial Hub
said the State Council, China’s Cabinet.
This means Shanghai, which has
become the world’s No. 1 cargo port
and No. 2 container port thanks to the
Yangshan Deep-Water Port, must focus
more on quality than quantity for future
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Contents Cover Story
Finance Plain sailing toward 2020
growth.
The Cabinet called on
Shanghai to develop more
high-end financial services,
such as ship financing, leasing,
marine insurance and capital
settlement, all sectors in which
the city lags far behind other
major shipping hubs.
“It’s not sustainable to put
all the emphasis on being the
world’s No. 1 in cargo traffic
or infrastructure while not
considering added value and
the impact on the environment
and traffic levels,” Li Xiaonian,
a maritime law researcher at the
Shanghai Academy of Social
Sciences, wrote recently.
Li wrote transport companies
are relying too much on roads
to move containers from local
terminals to the point, causing
congestion and pollution, which
calls for the construction of
more railways and better river
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connections.
Shipping lines, badly hit by
the global financial crisis, said
the government endorsement
could bring benefits for their
long-term development.
Optimized port resources
and services could improve
efficiency, lowering logistics
costs for shipping firms, said Li
Shaode, chairman of Shanghai-
based China Shipping Container
Lines Co.
“This will create a ‘cluster
effect’ for the shipping
business in Shanghai and the
Yangtze River Delta region,
attracting more volume and in
turn increasing business and
profitability,” Li said.
The Chinese mainland had
five of the world’s top 10 ports
by volume in 2008, and analysts
said there is a need for Shanghai
to become a global hub to
reflect this situation.
Air Technology
Cruises are key to tourism
Dong Zhen
Shanghai will try to attract
more overseas cruise lines
and visitors by improving its
port and its facilities as the
State Council called on the
city to boost the development
of its cruise economy.
The State Council said
Shanghai should regulate its
cruise industry and encourage
overseas cruise companies to
launch routes to the city.
More than 150,000 cruise
passengers and 112 Chinese
and foreign cruise ships
crossed local ports last year,
up 17 and 10 percent from a
year earlier, respectively.
Shanghai Port International
Cruise Terminal, which opened
last August, contributed to
the growth, said the local port
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authority.
The cruise terminal on
the north Bund in Hongkou
District now handles 80
percent of the city’s cruise
liners. The district said
yesterday it is hoping to
expand the terminal. Officials
said they hoped to boost
consumption by cruise visitors
by offering better commercial
facilities close to the port.
A survey conducted last
year claimed foreign cruise
tourists spend 30 percent
more on shopping when they
come ashore compared to
visitors who arrive by air and
land.
A second cruise terminal
under construction in Baoshan
District is due to open in April
2010.
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Contents Cover Story Finance
Finance Rules set stage for China’s ‘Nasdaq’
Rules set stage for China’s ‘Nasdaq’
Winny Wang
CHINA’S securities watchdog has issued
guidelines that pave the way for the launch
of a new financing platform for innovative
startup companies.
Based in Shenzhen, the Growth
Enterprise Market is being patterned on
New York’s Nasdaq, with an emphasis
on smaller, cash-strapped technology
companies that show solid growth
potential.
It will seek to attract those companies
with lower listing thresholds than the main
boards in Shanghai and Shenzhen.
Fears that the GEM might set the stage
for destructive competition against the
Chinese mainland’s primary stock markets
are overblown, analysts told Shanghai Daily.
“The introduction of the new board
won’t drain much capital from the main
boards, but it may dampen interest in some
of those markets’ smaller chips that have
high valuations,” said Xu Yan, an analyst at
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Growth Enterprise
Market will provide
funding for startups.
Shenyin & Wanguo Securities Co.
Investors seemed to agree. The
Shanghai Composite Index, which tracks
yuan-denominated A shares and hard-
currency B shares, inched up 0.64 percent
to 2,373.21 points yesterday after the
announcement of the GEM guidelines by
China Securities Regulatory Commission.
Companies seeking a listing on the
GEM must have been in business for more
than three years and hold net assets of at
least 20 million yuan (US$2.9 million), the
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commission said on its Website.
GEM listing candidates also need to
show profits for two consecutive years, with
combined earnings of at least 10 million
yuan, or have revenue of at least 50 million
yuan and a profit of at least 5 million yuan
for the latest fiscal year.
And share capital must exceed 30
million yuan after listing. (See table on
B3 for a comparison with main-board
requirements.)
A securities commission spokesperson
said that the GEM in an important measure
to help China build multi-level capital
markets and promote the development of
innovative companies with high growth
potential.
Financial institutions have become more
cautious to provide loans to startups since
the world financial downturn begin; so the
GEM will offer a new financing channel for
smaller companies trying to survive tough
times, TX Investment Consulting Co said in
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Finance New board ‘no threat to liquidity’
a report.
The board is a key measure in
promoting China’s economic growth as
smaller firms account for 99 percent of all
companies in the country and provide 75
percent of all jobs, the report said.
The guidelines also highlighted the
supervision functions of the new board
such as ordering companies to publish their
prospectuses on Websites appointed by the
commission, inform investors about risks
and receive punishment for faulty profit
forecasts.
The regulator will begin accepting
applications from candidates after issuing
related rules and setting up a review
committee, the spokesperson said, without
revealing the launch date of the new board.
Despite the lack of a specified startup date,
the regulator said the guidelines will go into
effect on May 1.
China began planning for the GEM
more than 10 years ago, but the process
was halted after the global dot-com bubble
burst in 2000.
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Feeding the startups
New board ‘no
threat to liquidity’
Winny Wang
China’s launch of the Growth-Enterprise
Market won’t exert pressure on liquidity in the
main stock markets or lead to panic selling,
industry analysts said.
“Experience from overseas growth
enterprise markets, such as in the United
States, Britain and Hong Kong, shows the
GEM will have little impact on prices and
turnovers on the main boards,” said Xu Yan,
an analyst of Shenyin and Wanguo Securities
Co.
“But investors should still be cautious
about investing in smaller stocks with a high
valuation on the main boards, as the GEM
may have a negative impact on these stocks
in the short term,” Xu said.
“The fundraising size of the new board is
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about 20 billion yuan (US$2.93 billion) in its
initial stage, which won’t threaten the liquidity
of the main boards,” said Ma Jiaying, an
analyst at Cinda Securities Co.
“In the long run, the board can help the
country set up a multi-level capital market
and enrich investment products to enable
various types of companies to raise funds,”
Ma said.
Chen Dongzheng, chairman of Shenzhen
Stock Exchange, has said there will be more
than eight companies listed on the new board
in the first batch.
Sherman Chan, an economist at Moody’s
Economy.com, expected that aversion to risk
may prompt investors to stick with relatively
more stable companies such as banks as the
economic outlook is still gloomy.
“One additional step that may significantly
improve the effectiveness of this initiative is
to allow foreign funds to invest on the new
trading board, as Chinese firms have been
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Finance New board ‘no threat to liquidity’ Click above to jump sections

attractive to overseas investors hungry for

he Ma king
high-yield opportunities,” Chan said. s I n T es
r ecuriti
10 Yea The C
h i n a S
orward
1 9 9 9   p u t f
n
An individual investor, surnamed Lu, said March m missio in
u l a t or y C o
i n g a board y
he expected the regulator to widen the daily Re g
f e s tablis h
r t e c hnolog
a o nf o
trading limits on the board to 20 percent in an ide r S h enzhe
hai o
either direction but stressed it must conduct Shang . o uncil s
aid
an i e s ta t e C p.
comp 4   The S e p by ste
strict reviews of candidates. ry 2 0 0 ard s t
Janua t u p the bo ouncil
u l d s e t a t e C
Caijing Magazine quoted a source close it wo 7  Th
eS
t a blish a
t 2 0 0 o e s
Augus al t
to the securities regulator as saying that d a p ropos e t to he
lp
v e a r k
app ro
t e r p rise M i t a l m arket.
companies on the new board will be delisted h-E n cap
Growt i - tiered ao
directly, rather than receive special trading l o p a m u l t
r W e n Jiab
deve 8   Premi
e
f t h e GEM.
limits, if found to have seriously broken any 20 0 nt o
March l ishme es
d t h e e s t a b
i n a S ecuriti ft
rules and that there will be no backdoor urge h ed dra
0 8   The C e l e a s
20 nr
listings. March C o m missio
atory
Regul e G E M. r p u b lished
or t h lat o
The GEM is just part of China’s efforts to rules f   T h e regu M ay 1.
2 0 0 9 t o n
March fec
facilitate fundraising by small businesses as
w i l l t ake ef
hat
banks focus on lending to big companies. rules t
The country is expected to introduce more
measures against a backdrop of sharply on the direction of an entire index rather than
slowing economic growth. individual stocks.

The commission said it would work on Margin trading is the practice of

establishing China’s first equity index futures, borrowing money from a broker to purchase
as well as margin trading and short selling. stock. Short selling permits people who
believe share prices will drop to sell borrowed
Index futures, often used as hedging tools securities and buy them back at a lower price
by investors, allow an investor to make bets to repay the lender.

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Finance Investors give index a hearty welcome Click above to jump sections

Investors give index Last year, Chinese firms raised US$21.83

a hearty welcome
Zhu Shenshen
Venture capital and private equity
investors welcomed the new Chinese
Growth-Enterprise Market, which will
probably debut on May 1. The long-awaited
board was regarded as another exit channel
for investors to reclaim stakes.
“It’s definitely a good message for the
industry and a milestone in the Chinese
capital market,” said Zheng Xingguo,
research director of Zero2IPO Inc, a Beijing-
based investment consulting company.
billion through IPOs, a 79.2-percent drop
from the year before, and a three-year-low,
according to Zero2IPO.
Bao Fan, chairman and chief executive of
financial consulting firm China Renaissance,
also welcomed the new board.
“In the long term, it will attract not only
domestic firms but overseas-registered
Chinese firms. In this tough environment,
Growth-Enterprise Market
Total stock At least 30 million yuan
capital (US$4.39 million) of stock
capital after IPO
China’s capital liquidity will make them return
to be listed on the mainland market,” Bao
said.
VC firms will benefit directly from the
new policy as the invested firms are able to
float shares in the domestic market, which is
relatively stable.
Comparatively, PE firms often choose
large-scale enterprises, which can list on the
main boards, according to industry officials.
Main Boards
At least 30 million yuan of
stock capital before IPO and
at least 50 million yuan of
stock capital after IPO

Key • Business running for more • Three consecutive years

“We’ve been waiting for it for a decade,
thresholds than three years and having net of profits with combined
now here it is.” assets of at least 20 million yuan earnings of at least 30 million
• Combined earnings of at least yuan
In the past, China’s startups, mainly high- 10 million yuan in the last two • Cash flow exceeding 50
tech companies, had to issue initial public years; or sales of at least 50 million yuan or combined
offerings on overseas markets such as the million yuan and a net profit of revenue exceeding 300 million
Nasdaq, or on Singapore’s or Hong Kong’s at least 5 million yuan for the yuan in the past three fiscal
growth board, because they couldn’t meet last fiscal year, and an annual years.
sales growth of at least 30
the main board requirements on the Chinese
percent in the last two years.
mainland.

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Finance Pricing system for IPOs to be revamped Click above to jump sections

Pricing system for IPOs to be revamped

Staff Reporter
China’s securities regulator has stressed
the importance of supervising companies
preparing to list on the Growth-Enterprise
Market and is likely to revamp the pricing
mechanism of new stock sales before they
are offered on the board.

Sponsors of IPOs must offer specific

views on the potential for growth and
innovation of any company they are
backing, as well as oversee the companies’
operations and offer follow-up reports with
regular statements, the China Securities
Regulatory Commission said in its guidelines
on the new platform.
Companies preparing to raise money
on the GEM can’t have changed their core
business, their board directors, senior
executives or controlling shareholders in the
past two years, it said.
“Tightening the supervision of listed
companies is a key measure to help protect
investors and enhance the quality of the
board,” said Chen Siyu, an analyst at Guotai
Jun’an Securities.
Risk-management measures also
include publishing a prospectus of the IPO
on Websites appointed by the commission,
informing investors about risks of the board
and punishments when a company fails to
meet its estimated profits.
IPO price is another concern among
investors as the market is filled with
speculation that the watchdog will launch
a new price-setting mechanism before
resuming IPOs. China’s mainland suspended
IPOs in September last year due to the
sagging stock market.
The regulator is very likely to issue a new
price-setting mechanism before launching
the new board, Caijing Magazine quoted a
source close to the commission as saying.
The commission introduced the current
price-setting mechanism in 2005. Prices of
IPO shares are fixed based on demand for
the shares and market sentiment.
Fan Fuchun, vice chairman of the
commission, last month said the resumption
of IPOs will be closely related to a new price-
setting mechanism.

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Contents Cover Story Finance Property Health Care Air Technology
Finance A place at the table
A place at the table of power is changing,” said Gerard Lyons,
chief economist at Standard Chartered
Bank. “One thing is clear: the need for China
As world leaders meet to and other large countries from outside the
discuss the financial crisis, we advanced economies to step up to the plate
analyze China’s changing role in and play an active role.”
the global economy
Jeffrey D. Sachs, director of the Earth
Institute at Columbia University, told
Zhang Fengming
Shanghai Daily that he thinks China should
China, the biggest global economy to skirt
host its own G20 summit as a sign of its
recession, will be seeking a bigger voice
growing influence in the global economic
in the repair and regulation of international
arena.
finance at Group of 20 summit in London,
flexing its muscle as the possible linchpin of The focus of London’s summit may be
a world recovery.
summarized in three words: jobs, trade and
trust.
“The very fact that all eyes are on the G20
summit is already a sign of how the balance British Prime Minister Gordon Brown, in
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advance of the meeting, said “the 40-year-
old prevalent orthodoxy known as the
‘Washington consensus’ in favor of free
markets has come to an end.”
Leaders of the world’s biggest economies
are expected to discuss global stimulus
measures, the reform of financial institutions,
fight against trade protectionism and talk
about new regulatory mechanisms for
international financial institutions such as the
International Monetary Fund and the World
Bank.
China is emerging as a major player in the
transition from the old order.
The People’s Bank of China, the nation’s
central bank, has issued statements setting
out China’s views on these major issues. The
statements were released both in English and
Chinese in a rare move clearly designed to
reach an international audience.
Central bank Governor Zhou Xiaochuan
called for a global currency based on the
IMF’s special drawing rights to supplant
the United States dollar, the first time that
a major central bank governor has publicly
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Finance A place at the table
suggested that the costs of keeping the
current system outweigh the benefits.
Balanced system
“The proposal is an excellent advance,”
said Sachs, an economist renown for his
work as an adviser to developing countries
and the author of the “Shock Treatment
Therapy” used to help Poland and other
former Soviet Union countries transition into
a market economy. “A more balanced world
requires a more balanced monetary system,
rather than one based largely on the US
dollar.”
Ma Jun, Deutsche Bank’s chief economist
in China, agreed with Sachs.
“China is demonstrating its growing
influence in reshaping the global monetary
system, and is now on the offensive in the
debate about who is responsible for global
imbalances,” said Ma.
Zhou’s statement reflected the fact that
China’s massive purchase of US debt, which
finances the US current-­account deficit, is
an inevitable result of the existing reserve
currency system rather than a deliberate
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choice by China.
Ma said the greenback’s dominant
position as a global reserve currency is
“clearly a reason, if not the only one,”
for the ongoing financial crisis. The US’s
global reserve currency status allows easy
borrowing from other nations and has
encouraged excessive spending by the US
government and its consumers due to very
low interest rates.
Economists acknowledged that monetary
reform won’t be easy.
“Of course, it’s not the kind of change
achieved from one day to the next. It now
requires careful study,” Sachs said.
Tommy Xie, an OCBC Bank economist,
said a consensus may not be reached on
the reform of reserve currency at London’s
summit.
President Barack Obama has already
rebuffed the idea of a new global currency
standard, calling the dollar “extraordinarily
strong.”
Ma remains optimistic: “Technically,
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it would be enormously complicated to
implement the idea,” he said of replacing the
dollar as the world’s currency. “Nevertheless,
it will likely be one of the eye-catching
proposals at the summit and may receive
support from many emerging countries
and at least a few developed nations.” He
added, “It has the potential to lead to one
of the most profound reforms of the global
monetary system in the coming decades.”
Zhou also explained the cultural and
historic reasons for China’s burgeoning
reserves and said changing China’s foreign-
­exchange regime is not the sole therapy for
its high savings.
He said the Chinese have a tradition of
saving for the future, not just because of
China’s social welfare system.
While China is pressing for reforms in the
international monetary and financial systems,
it is also implementing its own stimulus
programs to boost the domestic economy.
“Led by China, emerging economies need
to rise to the challenge and commit to saving
less and spending more. Signs from China in
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Finance A place at the table
this regard are positive,” said Lyons.
China, among major emerging markets,
is expected to help lift the world out of the
“Great Recession,” as the IMF has dubbed
the current crisis.
China is targeting what it calls
“challenging but achievable” economic
growth of 8 percent this year and is spending
4 trillion yuan (US$585 billion) on a two-year
stimulus package. The World Bank on March
18 lowered its forecast for China’s 2009
economy growth to 6.5 percent from 7.5
percent.
“The main contribution of China should
be a quick recovery from the slowdown,
through the implementation of the bold
stimulus program,” said Sachs. “China really
should shift to domestic-led growth for its
own good, but also for the world’s good.”
Sachs said it is also important that China
focuses on its investment commitment on
sustainability.
“We need a green recovery, emphasizing
climate change, biodiversity conservation, and
sustainable water management,” he said.
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Q: What is the G20?
A: The Group of 20 countries account
for 85 percent of the world’s output. The
group is made up of Argentina, Australia,
Brazil, Canada, China, France, Germany,
India, Indonesia, Italy, Japan, Mexico,
Russia, Saudi Arabia, South Africa, South
Korea, Turkey, UK, USA and the country
that currently holds the EU Presidency (the
Czech Republic).
Q: What’s the purpose of the G20?
A: Although the G20 ­assembled for the first
time as a world forum in 1999, its meetings
have rarely grabbed the headlines. But the
G20 now is seen as the body best suited to
address the global financial crisis.
World leaders are expected to make three
commitments:
1. To take whatever actions are necessary
to stabilize financial markets and to enable
families and businesses to weather the
recession.
2. To strengthen and reform the global
economy and financial s ­ ystem to restore
confidence and trust.
3. To put the global economy on track for
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sustainable growth.
Q: What has China been doing in the
run-up to the summit?
A: March 23
The Ministry of Foreign Affairs, the Ministry
of Finance and the People’s Bank of
China held a briefing on China’s role at the
summit. Zhou Xiao­chuan, the governor of
the People’s Bank of China, called for a
new global currency to supplant the US
dollar.
March 24
Zhou argued that changing China’s foreign-
exchange regime is not the sole solution in
trimming China’s high savings.
March 25
The State Council adopted guidelines to
build Shanghai into a leading financial hub
by 2020 with more power to innovate and
compete in the global arena.
March 26
Zhou, in a third announcement, called for a
new global financial regulatory system.
The G20 London Summit Website and
Shanghai Daily research.
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Contents Cover Story Finance
Finance Gold continues to rise and sparkle even as other asset values decline
Gold continues to
rise and sparkle
even as other asset
values decline
Zhang Fengming
Gold sellers in China are basking in the
yellow metal’s sheen, profiting from its
reputation as a safe haven in the world
when other asset values are crumbling.
The Shanghai branch of China National
Gold Group Corp teamed up with Bailian
Group this month to expand its outlets from
one to six to sell bullion bars in new ways.
“We want to grab a golden opportunity,
riding on gold’s strong momentum, to
penetrate deeper into the Shanghai
market,” said Li Qingfei, general manager
of China National Gold’s Shanghai branch.
The company, which holds about 30
percent of China’s gold mining reserves,
already accounted for half of all the gold
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bars sold in the city before it teamed
up with the Shanghai-based retail
conglomerate.
As well as expanding, the company is
testing the waters in Shanghai as the first
in China to sell gold bullion using three
different pricing schemes based on delivery
times. Buyers willing to wait the longest
pay the smallest premium.
Investors can pay a 10-yuan (US$1.46)
per gram premium over spot prices at the
Shanghai Gold Exchange with immediate
delivery. Under the second option they
can choose to pay a premium of 8 yuan
per gram and take delivery a month later.
The third option allows a buyer to pay a
premium of 5 yuan and wait a year for
delivery.
China National Gold, which accounts
for about a fifth of gold output in China, is
also offering buyers at least a 2-percent
return in gold products to encourage them
to wait a year for delivery. For instance,
buyers can get a small 25-gram bar by
buying 1,000 grams of bars for delivery in
12 months.
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The company said it will introduce the
pricing schemes nationwide if they are
successful in Shanghai.
“Sales are extraordinarily hot, giving us
full confidence that we will be extending
this program to Beijing and other markets,”
Li said. “We are satisfied with our
decision to use delivery times as a pricing
innovation.”
But what Li calls a golden opportunity
comes at a tough time for most other
industries, which are facing slumping
demand, squeezed corporate margins and
a steeper economic global contraction that
the International Monetary Fund has called
the “Great Recession.”
Global recession
Both the World Bank and the IMF
forecast a recession in the world economy
this year, the first global contraction since
World War II.
Developed markets like the United
States, the United Kingdom and Japan
are all projected to sink deeper into
recession. China, the biggest economy
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Finance Gold continues to rise and sparkle even as other asset values decline Click above to jump sections

to have avoided recession to date, is also

confronting slower growth, with the World
Gold demand in selected countries
Bank this month lowering its forecast 2008 (tons) Y-o-y change (%)
for the nation’s economic growth to 6.5 Net retail Net retail
Jewelry Total Jewelry Total
percent. investment investment
India 469.7 190.5 660.2 -15 -12 -14
Gold enthusiasts predict the yellow
China 353.5 78.6 432.1 7 131 18
metal will be one glittering spot in a flat
commodities market. Prices of energy, China’s mainland 326.7 68.9 395.6 8 169 21
agricultural and base metals have all nose- Hong Kong 14.7 1.0 15.7 3 -2 3
dived since the commodity bubble burst in
Taiwan 12.1 8.7 20.8 -17 18 -6
the second half of 2008, along with a slump
USA 179.1 77.8 256.9 -31 370 -6
in stock markets.
Source: GFMS/WGC Shanghai Daily
Gold, however, has seesawed, chalking
up gains in the fourth quarter of 2008 as
investors bet that massive government
Five-year daily gold price (per oz) in US dollars
1,600
spending programs throughout the world
would fan inflation. 1,400

1,200
Gold is considered a hedge against
inflation and during bad economic times. 1,000

800
Gold on the New York Mercantile
Exchange hit an 11-month intraday high of 600
US$1,007.70 in February but failed to hold
400
the key technical level of US$1,000.
200
Gold tumbled to about US$890 on Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09

March 18 before spiking to US$942 after the Source: WGC Shanghai Daily

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Finance Gold continues to rise and sparkle even as other asset values decline
United States Federal Reserve announced it
would buy as much as US$1.5 trillion in US
mortgage bonds and Treasuries.
In the past year, by contrast, New York
benchmark oil futures plunged to US$40 a
barrel from a record US$140.
“Gold’s support is less fundamental and
more sentimental,” said Sean Mulhearn,
global head of origination and structuring
of commodity derivatives at Standard
Chartered Bank. “People buy gold because
of a lack of confidence in other assets and
in the economy.”
Climbing price
Judy Zhu, a Standard Chartered
commodity analyst in Shanghai, said
gold will move even higher, mainly on an
expected weakening of the US dollar.
Zhu said she forecasts an average price
of US$975 an ounce for gold this year and
an average of US$1,100 an ounce in 2010.
Chen Jiu, general manager of Shanghai
Lao Miao Jewelry Co, said the higher gold
price reinforces the perception that the
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metal has “lasting value.”
Indeed, China Gold Coin Inc sold out
bullion bars earmarked for the Lunar New
Year in January within months.
Gold jewelers like Shanghai
Laofengxiang Co and Lao Miao expanded
into bullion sales years ago, anticipating a
sharp rise in demand.
China was the world’s second biggest
gold market in sales in 2008.
It’s not really surprising in a country
where people have been gold lovers for
centuries. In ancient times, rich families
squirreled away gold bars, called “yellow
fish” as a hedge against tough, uncertain
times.
Today, many Chinese investors prefer to
buy physical gold rather than invest in less
expensive paper futures because they still
want the bars in hand.
Shoppers and investors in China,
including the Chinese mainland, Taiwan and
Hong Kong, purchased gold jewelry, coins
and bars totaling 432.1 tons in 2008, up 18
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percent from a year earlier, the World Gold
Council said.
The annual 66-ton increase easily
exceeded the sales of the next two largest
gold markets — Vietnam and Thailand,
which each posted a rise of about 38 tons.
In the fourth quarter, Chinese shoppers
still bought gold jewelry, even as consumers
in the US, Italy and UK curbed their
expenditures amid the economic downturn.
In contrast to those markets, Chinese
gold jewelry sales are predominately high-
grade 24-carat gold. The World Gold
Council said sales of 18-carat gold in China
actually declined last year.
Wang Lixin, general manager of
the World Gold Council China, said the
prospects for gold jewelry this year are
hard to predict. If the domestic economic
slowdown deepens, sales could be
adversely affected, he said.
But on one point he has no doubts.
“Investment gold bars will sustain their
strong growth this year against the backdrop
of a gloomy economy,” Wang said.
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Property Upbeat over business despite slump
Upbeat over business despite slump
Cao Qian
CHINA’S hotel industry officials remain
upbeat about their prospects despite a
global recession that is weighing on the
national economic growth rate and on the
tourism trade.
They are pinning their hopes on an
expanded network of airports across the
country, growth in domestic travel, increased
convention business and next year’s World
Expo in Shanghai.
“We’ve been hearing bad news from
time to time over the past few months that
hotels are suffering from cuts in room rates
and falling occupancies, particularly in major
cities such as Shanghai and Beijing,” Zhao
Huanyang, chief knowledge management
expert at Hotelsolution Consulting Co, told
an industry forum in Shanghai. “However,
I believe all the difficulties we have at the
moment should be temporary and the long-
term prospects of the industry still remain
promising.’’
Upmarket hotels catering to business
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travelers and more wealthy tourists are
feeling the brunt of the economic downturn.
“Reduced trips and tighter budgets by
business and leisure travelers from both
home and abroad have slashed the average
occupancy rate at the city’s star-rated hotels
to 55 percent in 2008 and that’s dropped to
about 37 percent at present, the lowest since
2000,” said Huang Chenggang, secretary-
general of the Shanghai Municipal Tourism
Administration.
Meanwhile, the average daily rate fell to
538 yuan (US$78) from 658 yuan in 2008, the
first drop in eight years, he said.
At the top end, the situation is even
more dire as a recent survey conducted by
the China Tourist Hotels Association and
Hotelsolution Consulting Co Ltd found the
average occupancy rate at the country’s five-
star hotels plunged by 12 percentage points
year on year between September 2008 and
January 2009, against a drop of 7 points at
four-star hotels and 3 points at three-star
accommodations.
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The average daily rate at five-star hotels
fell to 767 yuan, while the rate at four-star
and three-star hotels were little changed at
410 yuan and 241 yuan.
Shot in the arm
The hotel industry is eagerly anticipating
the World Expo to be held in Shanghai
between May and October next year, seeing
it as a shot in the arm to boost sales.
The event is expected to attract more
than 70 million visitors to the city, including
about 5.5 million from overseas. About
630,000 hotel beds will be needed to
accommodate as many as 700,000 people a
day during some peak days.
The six-month event, which is expected
to be a big draw for domestic tourists, is also
expected to benefit other Chinese provinces,
with Jiangsu, Zhejiang, Anhui, Fujian, Jiangxi
and Shandong benefiting most, Hotelsolution
Consulting said.
The domestic market is being viewed
positively by hoteliers.
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Property Upbeat over business despite slump Click above to jump sections

“We’ve seen opportunities in an

extended network of airports across the
country, and rapid rise in domestic travelers,”
said Qian Jin, senior vice president for China
operations at Starwood Hotels and Resorts.

More airports
The General Administration of Civil
Aviation of China said earlier on its Website
that the country will have 192 airports by
2010 and 244 by 2020, up from 147 at the
end of 2006.

Starwood, which now runs 47 hotels

across the country with another 64 in the
pipeline, said it plans to open 15 new hotels
in 13 Chinese cities this year alone.

Across the country, the proportion of

domestic travelers at Starwood has already
soared to 58 percent of the total, versus 42
percent before the global financial turmoil
started to cool the hospitality industry, Qian
said.

The convention business is a growing

industry for hoteliers. More than 4,000
meetings and exhibitions are held in China The newly opened MGallery label hotel by Accor in Yunnan Province. Both domestic and overseas firms in the
every year. In Shanghai alone, more than industry are upbeat despite the global recession.

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Property Upbeat over business despite slump Click above to jump sections

1,000 international conferences and over 500 large exhibitions

are expected to be held in 2010, according to Hotelsolution Nationwide survey conducted among star-rated hotels
Consulting’s Zhao. 2007/9-2008/1 2008/9-2009/1

Starwood is not alone in being bullish. Paris-based Accor

Average Occupancy
unveiled its MGallery label in China with the opening of the 75- 65% 53%
room Songtsam Retreat at Shangri-la in Yunnan Province, the
68% 61%
latest addition to the company’s China portfolio.
59% 56%
Europe’s largest hotel group said earlier it will more than
double its presence in China in the next three years, focusing Average Daily Rate (yuan)
largely on middle-income travelers in second and third-tier cities. 786 767

Budget hoteliers are even more upbeat. 414 410

David Sun, chief executive officer of Nasdaq-listed Home

243 241
Inns & Hotels Management Inc, operator of China’s largest International hotels 1,190 1,126
budget hotel chain, said the company plans to expand its stable Domestic hotels 789 787
of inns to 1,000 in the next three years.
Revenue Per Available Room (yuan)
Established in 2003, the company now operates 520 hotels 516 416
in about 100 cities across the country.
282 260
The company also launched its first H Hotel in Shanghai, a
135 133
brand which mainly targets mid to high-end Chinese business
travelers. International hotels 791 546
Domestic hotels 540 400
The new upmarket brand, positioned between three-star
and four-stars hotels, will be expanded to more gateway cities, Source: China Tourist Hotels Association/Ho- Shanghai Daily
including Beijing, the company said. telsolution Consulting Co

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Health Care Health care reforms are a shot in the arm Click above to jump sections

Health care reforms

are a shot in the arm
Ding Yining
Health care reforms in China are expected
to fuel the rapid growth in the pharmaceutical
industry and both domestic and multinational
companies are positioning themselves to
benefit from the changes, according to
industry analysts.
“More than one-third of the global growth
in the pharmaceutical sector in 2009 will come
from emerging markets, including China,
India, Mexico and Turkey,” said Lin Yuechen,
head of IMS China Health Market Research
Consulting.
The pharmaceutical market in China
expanded 26 percent last year and will
continue to grow by more than 20 percent this
year, the market research firm said in a report.
Minister of Health Chen Zhu has said
that a new health care insurance policy will
be launched soon in the country and the
reimbursement charges for essential drugs
would also be raised.
“ The new policy will
expand the domestic
pharmaceutical market
because the new list
will push drug makers
to shift production to
meet the government’s
essential medical list.
program. ”
Insurance cover
“The top limit for health insurance will be
According to the most recent version of
raised to six times the average urban income,”
Shanghai’s medical care policies, published
Chen told the China Central Television on
in March last year, an average employee
March 5. The current limit is set at four times.
aged between 35 and 44 years old will have
In Shanghai, 1,624 Western medicines 50 percent of medical expenses covered by
and 1,443 Chinese patented drugs are on an insurance, after paying a deductible 1,500

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yuan (US$219) incurred at a hospital or drug systems. reduced 550 sales positions in the United
store. States in October as sales there dropped 2
“The potential of China’s market comes percent in the past year, in contrast with a
The top limit for reimbursement for from the huge demand in suburban areas 10-percent global growth rate.
coverage is now at 70,000 yuan, a figure that as well as the government’s commitment to
varies from city to city in the country. Above continue with establishing a better medical The company is taking a different tack in
that limit, an individual is required to pay 20 insurance system,” IMS’s Lin said. “Other China because it has announced that it will
percent of the costs. countries currently don’t have plans to boost double its number of employees in the country
their pharmaceutical sectors, and under in five years.
People can also choose to pay by using adverse economic environments, they may cut
their personal accounts for ordinary non- “Investing during a time of economic
medical care spending.”
prescription drugs at designated pharmacies. downturn will give us a cutting edge against
Drugs on the essential list fall into three Joseph Jimenez, chief
categories, and individuals pay varying executive officer of Novartis Government spending on medical care
portions of the costs according to the different Pharmaceuticals Division,
said that the reform of the 30%
categories. Billion yuan Y-o-y growth 318.4
medical and health care 281.8 25%
“The new policy will expand the domestic system “will bring huge 249.3
pharmaceutical market significantly because benefits for domestic 220.7 20%
the new essential drug list will push drug 198.8
companies, but that doesn’t 177.8
makers to shift production in order to meet the mean overseas firms will be 155.2 15%
129.4
demands of the government’s program,” said shut out of the market.” 111.8 10%
Luo Jing, an analyst at Shenyin and Wanguo 90.9
80.1
Securities. Swiss-based
5%
Novartis Pharma AG is
Minister Chen also said during the National among the multinational 0%
People’s Congress that 850 billion yuan will pharmaceutical giants 2001 02 03 04 05 06 07 08E 09E 10E 11E
be spent in the next three years to expand cutting spending in other Source: Ministry of Finance, Ministry of Health, Bank of China
the coverage of the medical and health care parts of the world. It Shanghai Daily

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Health Care Health care reforms are a shot in the arm
our competitors at the end of the recession,”
Jimenez said.
Bayer HealthCare introduced Yasmin,
the best selling product of its pharmaceutical
subsidy Bayer Schering Pharma, into the
Chinese market last month as the firm planned
to expand its women health care business in
China.
Big contributor
Yasmin contributed more than 13 billion
yuan of sales to Bayer around the globe last
year. Bayer has also announced it would invest
100 million euros (US$135 million) in China
to build a global research and development
center. The Beijing-based R&D center will be
Bayer’s fourth-largest and it will become partly
operational in September this year.
The current turmoil in international financial
markets is pushing pharmaceutical giants to
look at mergers and acquisitions.
Following the US$68-billion purchase of
Wyeth by Pfizer, Merck & Co announced on
March 9 that it will acquire Schering-Plough
for US$41 billion.
ShanghaiDaily.com
Property Health Care Air Technology
Lipitor, Pfizer’s popular-selling
cholesterol drug, contributed US$12.5 billion
of sales globally to the firm in the past year,
nearly one-fourth of total sales.
The patent on Lipitor is due to expire in
2011, and non-generic production of the
drug by other manufacturers is expected to
cut into Pfizer’s earnings.
“We need to further expand our pipeline
in innovative drugs and that’s our strategy
regarding the expiration of patent drugs,”
said Jimenez. “By that way we can assure
profits in the future.” Currently about 20
percent of Novartis Pharma’s sales are
allocated for R&D spending.
Novartis Pharma also sees opportunities
in China’s health care reforms.
“We’re looking for potential partners in
China’s generic drug industry so that we can
get into the business more quickly,” Jimenez
said.
Lin said many multinational
pharmaceutical companies are turning
their focus to other regions in China and
smaller cities because they see the markets
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as untapped. Domestic pharmaceutical
companies are also seeking opportunities to
expand.
CNTIC Trading Co, the pharmaceutical
subsidy of China General Technology
(Group) Holding Ltd, announced on March
12 that it would acquire Beijing Holley
Pharmaceutical Co for 80 million yuan.
The acquisition will strengthen CNITC’s
sales network, which includes Beijing and
Guangzhou, and the company will expand
its operations in the over-the-counter
market.
Shanghai Pharmaceutical Co, China’s
second-largest pharmaceutical distributor, in
December announced it would increase its
stake in its subsidiary, Huashi Pharmacy Co,
to 92.02 percent as the firm is seeking to
strengthen its retail sales network.
“The government’s new medical care
policies will accelerate the focus on the
domestic pharmaceutical business and that
will help Shanghai Pharmaceutical increase its
profit,” Qu Yi, an analyst at Donghai Securities,
wrote in a recent research report.
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Contents Cover Story Finance
Air Private airlines face nationalization
Private airlines face
nationalization
Winny Wang
Privately-owned Chinese airlines that
sprouted up during an industry deregulation
are now facing nationalization as they
suffer a cash crunch and their state-owned
counterparts got cash injections to weather the
global economic downturn.
State-run Sichuan Airlines Co in March
took over United Eagle Airlines Co, the first
private airline on the Chinese mainland, by
injecting 200 million yuan (US$29.24 million)
to expand its stake to 76 percent from 20
percent.
“The nationalization of private carriers will
be an increasing trend during the economic
downturn,” said Yao Jun, an analyst at
Merchants Securities Co. “The move will lead
to a pricing monopoly and hurt consumer
interests.”
The Civil Aviation Administration of China
approved the startup of the nation’s first
ShanghaiDaily.com
Property Health Care Air
" The nationalization
of private carriers will
be an increasing trend
during the economic
downturn. "
private carrier in 2004 as part of its market-
oriented development strategy to promote
competition.
The outbreak of the financial crisis has
amplified their primary weakness — a shortage
of capital.
Wuhan-based East Star Airlines Co,
another privately-owned airline, was on the
brink of bankruptcy after rejecting a takeover
by Air China’s parent. The Wuhan Intermediate
People’s Court in Hubei Province on Monday
received applications from six creditors
seeking the wind-up of the carrier..
East Star, which suspended operations on
March 15, lost about 500 million yuan, owes
60 million yuan to Wuhan’s airport and has
defaulted on staff salaries, according to auditor
Ernst & Young.
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Another private carrier, OK Airways Co,
was ordered earlier this year by China’s
aviation authority to suspend flights for two
months because of prolonged financial and
management problems.
“The aviation industry involves huge
investments, high risks, low profits and slow
returns, which means that private capital faces
tough challenges when entering the industry,”
said Li Yanhua, vice director of economic and
management department at Civil Aviation
University of China.
“Taking the United States as an example,
hundreds of smaller startup carriers emerged
when the country deregulated its skies, but few
of them have survived. The knockout punch
for China’s private carriers has just begun,” Li
said.
China has about 20 private carriers.
Most have stumbled as a cooling economy
slows demand. The country’s aviation market
reported single digit growth in air traffic last
year for the first time in five years.
Passenger volume rose 3.3 percent to 192
million last year, compared with a rise of 16
percent in 2007, and cargo volume edged up
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Air Private airlines face nationalization Click above to jump sections

Spring Airlines receives its first purchased jet from Airbus on Monday. The budget carrier, one of only two
private carriers to be profitable on the Chinese mainland last year, has ordered 16 A320 jets from Airbus
despite the economic downturn. — Gong Si

0.3 percent to 4 million tons after a 13-percent
jump in 2007.
Lack of support
The problem for private carriers is the lack
of any government financial support while their
state-owned rivals are receiving billions of yuan
in cash injections.
The parent of China Eastern Airlines Corp
got 7 billion yuan from the central government
and Vice General Manager Li Jun said another
2 billion yuan is in the pipeline.
The state-owned parent of China Southern
Airlines Co received a 3-billion-yuan cash
injection, and Shanghai Airlines Co got 1 billion
yuan.
Wang Zhenghua, chairman of China’s
first budget carrier, Spring Airlines, said bailing
out the industry will disrupt the market. The
government, he said, should seek more
market-oriented measures to help cash-
strapped carriers.
For example, the government could grant
subsidies only to carriers that fly international
routes because they are suffering the most
from the slump in global demand, Wang said.

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Air Private airlines face nationalization
Or the government could waive
business taxes for airlines, he said.
“Such moves would enable
carriers to compete in a fair market,”
he said. He insisted that Spring
Airlines won’t be turned into a state-
run carrier.
Spring Airlines, one of only two
private carriers to earn a profit last
year on the mainland, is targeting to
double its net income this year from
20 million yuan in 2008, despite the
economic downturn.
Wang said private carriers still
have advantages over their larger
state-owned peers, such as more
innovative operational flexibility to
ShanghaiDaily.com
Finance Property Health Care
cope with changing markets and
rising costs.
“Private carriers should seek
diversified markets and develop
their own clients,” said Zeng Xu, an
analyst with Guojin Securities Co.
Spring Air has kept its load factor
at 95 percent on average, higher
than the 75 percent in the industry,
by lowering ticket prices and
affiliating with a tourism company
that provides a reliable stream of
customers.
JuneYao Airlines, another
profitable private carrier, has loyal
clients in Wenzhou businessmen by
offering them chartered flights.
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Plan for Wuhan air hub
Winny Wang
The parent of Air China is considering to set up a unit in
Wuhan, capital of Hubei Province, and to acquire assets from
East Star Airlines Co to enhance its presence in central China.
“We are still studying the plans and haven’t set a
timetable,” a spokesman of China National Aviation Holding
Co told Shanghai Daily yesterday. “Our intention of building
a hub in Hubei Province has not changed.”
Wuhan-based East Star was on the verge of bankruptcy
due to its inability to pay debts. The Wuhan Intermediate
People’s Court on Monday received applications from six
creditors of the private carrier.
Caijing Magazine quoted an unidentified source as
saying yesterday that Air China’s parent has applied to
the regulator about setting up a Wuhan unit, which will be
operational as early as May. The group may take over East
Star’s resources, including routes and more than 1,000 staff
members, for the new unit to speed up growth in the market,
the source said.
China Southern Airlines Co and its affiliate, Xiamen Airlines
Co, have more than 48 percent of the aviation market in
Wuhan. China Eastern Airlines Corp has 18 percent, East Star
has 11 percent and Air China occupies 5 percent.
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Air Hedging blamed for airlines’ losses
Hedging blamed for airlines’ losses
Winny Wang
Hedging, a tool used by airlines to stabilize
jet fuel costs, has been blamed as the culprit
behind huge losses for China’s biggest
airlines.
Its three largest carriers reported 2008
losses totaling 28 billion yuan (US$4.09
billion), almost half of which was attributed to
fuel hedging.
Air China lost 7.5 billion yuan on fuel-
hedging contracts, and China Eastern Airlines
said wrong-way bets on hedging dragged its
revenue down 6.4 billion yuan. China Southern
Airlines bucked the trend, however, reporting
a profit of US$6.28 million after ending its
hedging last June.
“The more you hedge, the more you
lose when betting the wrong way,” said
Theo Panagiotoulias, American Airlines vice
president for Asia-Pacific. He said hedging
should be used as a tool to stabilize exposure
to rising fuel prices, not a gambling devise in
hopes of making bigger profit.
ShanghaiDaily.com
Property Health Care Air Technology
Indeed, the revenue fiasco for some
Chinese airlines has triggered discussions
about the advisability of fuel hedging.
A hedge is a financial contract that allows
investors to lock in certain prices as insurance
against the possibility that the spot price will
rise. If the price does rise, the hedger gets a
payoff that cushions the blow of higher prices.
Last year, global crude oil plummeted from
a record US$147 a barrel to as low as US$34,
leaving many airlines committed to paying
far more than spot prices for fuel. That came
after a year when many airlines benefited from
hedging as oil prices were on the upswing. Jet
fuel prices normally track the price of crude.
China Eastern earned 586 million yuan
from hedging in 2007, which encouraged
the carrier to hedge 36 percent of its fuel
purchases last year. Air China, which
operates the largest international network of
any Chinese carrier, set an upper limit of 50
percent on its hedging.
Hedging by Chinese airlines involves
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fuel purchases only for overseas flights,
since domestic fuel prices are fixed by the
government.
The problem with hedging any commodity
is the acumen needed to manage the
risks and correctly anticipate future prices
movements, analysts said.
Foreign carriers are very cautious about
fuel hedging and keep their exposure to about
20 percent.
“We hedged no more than 30 percent of
fuel and usually signed three-month contracts,
not like some carriers that signed one-year
or even three-year contracts,” Panagiotoulias
said.
Savings for carrier
American Airlines saved US$380 million on
fuel expenses last year by hedging, he said.
Still, despite the bad hedging bets,
industry analysts said they are confident about
the performance of China’s airline industry
this year because the market may have hit its
bottom.
In the first quarter of this year, Air China
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Air Hedging blamed for airlines’ losses Click above to jump sections

posted a net income of 880 million yuan after

grab market share while they (competitors)
reducing paper losses on fuel hedging by 990
million yuan.
Jeffery A. Smisek keep a low profile during the crisis.”

Continental offers special discounts

“The rising oil price will help the carriers
cut hedging losses, and the aviation industry
is expected to recover this year,” said Yao Jun,
an analyst with Merchants Securities Co.
Oil prices in recent weeks have hovered
around US$50 or lower, enabling carriers to
reduce fuel costs.
3 major airlines see Chinese
market as quickest to recover
Wang Weini
President of
Traveler numbers may be down amid a
Continental Airlines
global slowdown, but that hasn’t damped
the zeal of foreign airlines itching to
expand business in China.
Senior executives from three major
airlines gave the Chinese market the
thumbs up recently, predicting it will be
among the fastest to recover in the world.
They also shared with Shanghai Daily
some of their strategies for coping with
the fall-out from the global financial crisis.
The United States carrier launched its
daily direct flights from Shanghai to New
York on March 26, a new service it has
been promoting aggressively since last
year.
“We focus on future development
rather than on the present situation, and
we have strong cash flow to support our
expansion,” Smisek said. “We are trying to
on tickets and services tailored to Chinese
consumers. The airline has invested
US$150 million to launch the new route.
“Our carrier prepared for the new route
for years, and even the financial crisis
can’t dampen our confidence,” he said.
“A long-haul route is hard-pressed to earn
money in the short term, but we believe
that it will be profitable in the future.”
The carrier will leave the SkyTeam
alliance, which includes Delta and
Northwest, in October and join the more
extensive Star Alliance grouping.
“Star Alliance covers more than 1,000
destinations and 20,000 flights, which
can facilitate our connection with other
carriers,” Smisek said.
“We look forward to setting up a joint
venture with United, Lufthansa and Air
Canada to deal in trans-Atlantic flights,” he
said.

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Air Hedging blamed for airlines’ losses Click above to jump sections

3. Prudent financial management.

Theo Panagiotoulias
Last year, American raised nearly US$2 “If you look at the aviation industry,
billion in spite of tighter capital and credit we have had a lot of crises, starting
markets. It also reduced and refinanced with the Gulf War through to SARS,
its debt, while accumulating more than September 11 (2001), the Iraq war
US$3 billion in cash and short-term and the spike in oil prices,” he said.
investments. These steps have put the “We have learned how to deal with
airline on strong financial footing. crises, and even how to generate good
numbers during difficult times.”
4. Customer service because the
carrier is committed to improving He said the German flag carrier
products and services. stresses efficiency and a focus on
customers. Lufthansa, Europe’s
second-biggest airline, will invest 150
American Airlines’ vice
president for Asia-Pacific
Arved von zur Muehlen million euros (US$194 million) in new
lounges and spend 14 billion euros on
“We are the only US airline since 1978 to new aircraft in the next three years.
have never declared bankruptcy,” he told
“The crisis will end at some point,
Shanghai Daily.
and customer demand will go up again,
He cited four successful strategies: so we have to focus on long-term
development,” he said.
1. Continuously keeping the supply-
demand equation in balance by adjusting Lufthansa has boosted its flights
capacity. from Shanghai to Frankfurt from seven
to 10 weekly in the summer.
2. Fuel hedging, which cut costs by
US$380 million last year.
Managing Director of Lufthansa China

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Technology China’s chip makers struggle in downturn
China’s chip makers struggle in downturn
Zhu Shenshen
China’s fledgling semiconductor industry
is withering amid a global economic
downturn that has slashed consumer
demand for televisions, computers and
other electronics products that use chips.
“It’s a tough time,” said David Chang,
chief executive of Semiconductor
Manufacture International Corp, the biggest
chip maker in China. “I believe the domestic
industry will rebound before its overseas
counterparts but, first, you have to survive
until then.”
China’s integrated circuit industry is at
risk of losing its footing after little more than
a decade in operation.
Semiconductor Manufacturing,
popularly known as SMIC, lost US$124
million in the fourth quarter of 2008,
compared with a loss of US$21 million a
year earlier. Plant utilization in December
dropped 15 percentage points to 75
percent.
ShanghaiDaily.com
Property Health Care Air
“ The domestic industry
will rebound before its
overseas counterparts
but, first, you have to
survive until then. ”
SMIC was not alone in the industry’s
winter of discontent. Many smaller chip
makers and designers have gone belly-up
or merged.
“It’s the most difficult year in the
history of the industry,” research firm CCID
Consulting said in a recent report.
The industry’s problems are mirrored
in export data. In the first two months of
this year, China’s electronics exports fell by
about a quarter to US$53.6 billion, while
overall shipments abroad slid about a fifth,
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the Ministry of Industry and Information
Technology said.
Computer exports fell 21.1 percent and
TVs were down 17.4 percent, according to
the ministry.
In 2009, technology spending globally
is forecast to drop 3.8 percent to US$323
million, the lowest since 2001 when
the Internet bubble burst, according to
Gartner Inc, a US-based IT consulting firm.
Computer sales are expected to be the
hardest hit, forecast to tumble almost 10
percent.
Chips are widely used in electronics,
from TVs, computers and music players to
game consoles, mobile phones and even
automobiles. Chips, which control systems,
store data and do calculations, are often
called the brains within electronic gadgets.
Global decline
In 2008, China earned revenue of 610.17
billion yuan (US$89.7 billion) from sales
of integrated circuits. That is expected to
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Technology China’s chip makers struggle in downturn
grow 5 percent in 2009, the first single-digit
growth in a decade, according to CCID.
The domestic market for chips is
forecast to expand only 3 percent while the
global market is expected to decrease 10
percent this year, said SMIC’s Chang.
Advanced Semiconductor
Manufacturing, a smaller Shanghai-based
semiconductor manufacturer, posted a
loss of 237 million yuan last year. Shanghai
Belling, which is owned by the government,
has sold its semiconductor arm to its parent
Huahong Group to refocus on chip design.
State-owned Huahong, in turn,
will merge with Grace Semiconductor
Manufacturing Corp to build a 12-inch
wafer plant, incorporating the most
advanced technology in the Chinese
mainland.
Huahong and Grace declined to
comment on the merger. Fu Wenbiao,
former director of the Shanghai Economy
and Information Technology Development
Commission, has been appointed Grace’s
chairman.
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Property Health Care Air
More than 100 Chinese chip design
firms, 20 percent of the total, are expected
to disappear within the next two years,
according to iSuppli, a US-based IT
consulting firm.
“They are struggling in the global
economic crisis,” said Vincent Gu, a
Shanghai-based analyst at iSuppli. “China’s
young fabless (chip design) industry faces
rigorous challenges such as reduced
customer demand, poor cash flow and a
flight of venture capital.”
Commit, a Shanghai-based 3G chip
designer, closed it doors in April last
year, citing a shortage of capital and the
reluctance of investors to supply more
funds.
In 2008, the semiconductor industry
attracted investment of US$16.9 billion,
almost half as much as a year earlier,
according to Gartner.
The government is not turning a deaf
ear to the industry’s plight.
In its 4 trillion yuan economic stimulus
package, the government has earmarked
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funds to support technology industries,
including semiconductors, flat-panel
displays and next-generation mobile
phones, according to Xiao Hua, an official
with the Ministry of Industry and Information
Technology.
The government is also encouraging
consolidation in the industry to form larger
companies more resilient to the economic
slump.
The growing third-generation phone
market and a government scheme to
provide subsidies for rural households
to buy home and electronic appliances
will help boost the chip market, industry
insiders said.
Indeed, SMIC’s Chang said most of
his company’s recent orders are related to
products that will benefit under the rural
stimulus plan.
Expansion in the mobile phone market,
underwritten by a government investment
of 280 billion yuan, may also help underpin
information technology sectors, including
chip makers and designers.
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Technology Click away to plan that dream vacation Click above to jump sections

Click away to plan The Germany-based Hotel

that dream vacation
Ding Yining
When Chen Jie and her new husband Xu
Hang decided to take their honeymoon in
Australia, they began their holiday planning
at their home computer rather than in a travel
agency.
“We checked flight prices at some of the
Chinese tourism Websites and also looked
at the previous experiences posted by other
visitors, which can provide many useful tips,”
said Chen, a Shanghai journalist.
“We had more freedom and tailored
our own holiday instead of going with the
standard itineraries at travel agents,” she
said.
Chen is just one of a rapidly growing
number of Chinese who have started to plan
their outbound travel on their own, thanks
to the convenience of online tourism service
providers. Those operators are keen to tap
demand and expand their services.
Reservation Service (HRS.
com) recently launched
an updated version of
its Chinese Website
that boasts links
to 230,000 hotels
in more than 180
countries. It will also
offer discount deals
on its own reservation
portal.
“As more and more people in China are
becoming familiar with online booking and
more residents are willing to travel overseas,
this is a good time to tap further into the
market,” said Tobias Ragge, chief executive
officer of HRS.com. “We’ll also focus on
providing information about overseas
restaurants to Chinese travelers and
business people.”
Of the 230,000 hotels it has signed up,
about 5,000 are local ones.
Operating in Germany since 1972 and
enjoying more than 50 percent of Europe’s
online booking market, HRS is now shifting

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Technology Click away to plan that dream vacation Click above to jump sections

its focus to China, an underdeveloped

market that is holding up amid the global
China’s online booking population*
economic downturn. 96.1% 63.6%
41% 33.3%
60% 71.9%
More than 550,000 people in Shanghai 33.3% 30% 36.4%
traveled to foreign countries for vacations in
the past year, up 8 percent from the previous Total number of China’s online
20
year, according to a research report released
booking population (million)
by the World Tourism Organization. The Growth rate of China’s online
report, released on the Outbound Tourism 15
booking population year on year
Forum at the sixth World Travel Fair in
Shanghai in April, also said more people 11
are going online to plan holidays, forgoing
traditional bookings through travel agencies.
7.8
6
Qunar.com, established four years ago 4.5
in Beijing, is among the leading online travel 2.75
1 1.6
sites in China. 0.51

Unlike traditional online booking

platforms, such as Nasdaq-listed Ctrip and
Elong, Qunar provides its own search engine
to lead users to flight or hotel-booking
Websites, enabling them to compare prices.
The company reports nearly 30 million
visitor hits a month, and boasts a search
engine covering 400 booking Websites with
information on 3,000 flights and 30,000
hotels, all in China.
2003 2004 2005 2006 2007 2008e 2009e 2010e 2011e 2012e
Source: iResearch Inc Shanghai Daily
More opportunities 21 percent of Internet users check travel
information or book tickets online in the
Qunar is ranked third behind Expedia
Asia-Pacific region, the report said.
Inc and Yahoo! Travel among Asian online
tourism sites, according to the latest data Internet users in China reached 298
from comScore, a United States-based million at the end of last year, up 42 percent
market research company. More than from 2007, according to the 23rd Internet

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Technology Click away to plan that dream vacation Click above to jump sections

Development Report cited by the China

Internet Network Information Center.
Online booking population of the total number of
About 2 percent of Internet users booked Internet users in China (2003-2012)
travel services online, iResearch Inc said 4%
in its annual report. Six million Web users 3.3%
utilized online booking services in the past 3%
year, up a third from a year earlier. However, 2.3% 2.7%
2.1%
when taking new Internet users into account,
2% 2%
the proportion was little changed, the report 2% 2%
1.4%
noted.
1% 1.1%
“The development of travel information-
oriented search engines will give more 0.6%
opportunities to small and medium-
0%
2003 04 05 06 07 08e 09e 10e 11e 12e
sized operators to market their services,”
iResearch said in the report. Source: iResearch Inc Shanghai Daily

“Qunar has attracted a considerable

number of customers to online booking
platforms and other direct marketing
Websites for tickets and hotels,” Fritz
Demopoulos, CEO of Qunar, told a press
briefing in Guangzhou late in March. He co-
founded the company with Douglas Khoo
and Zhuang Chenchao with venture capital
provided by investors such as Mayfield,
Teneya Capitals and GSR Ventures.
“We’ll continue to provide services
enabling customers to compare prices and
make better choices when planning their
vacations,” he added.
Online booking platforms, particularly
community sites, still have a way to go in
providing services to attract more users,
iResearch said.
“It’s a pity local Websites still have limited
content about overseas restaurants and
international flights,” Chen Jie said. “The
prices they offer are not attractive compared
with the deals offered by international
Websites or carriers.
Still, she said she’s very happy with the
way her holiday plans have come together.

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Contents Cover Story Finance Property
Technology China Mobile gears up for 3G battle
China Mobile gears
up for 3G battle
Zhu Shenshen
China Mobile outlets have begun selling small
laptops equipped with 3G chipsets for Internet
access, and to entice customers, the country’s
largest mobile phone company is also offering
a discount of up to half the cost if consumers
subscribe to the carrier’s mobile broadband
services.
The strategy, aimed at increasing the
company’s customer base in a highly
competitive domestic market, is also expected
to benefit computer makers, who have been
hurt by a slowing economy, industry analysts
said.
“It’s a nice combination,” Wang Yong, ZTE
Corp’s 3G division market director, said of
the coupling of netbooks and 3G. “The super
mobility improves the experience for 3G users
and expand China Mobile’s portfolio.”
China issued 3G licenses to three mobile
carriers in January.
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nationwide. But only 500,000 of that huge base
are 3G users now and China Mobile expects to
boost the number to 50 million within one year.
C hin a ’s 3G
“In m o st China Mobile’s new marketing campaign
, th e o n is offers 29 netbook models made by 17
wa r ea p
tive w e
personal computer vendors, including Dell
f fe c h on Inc, Lenovo Group Ltd, Acer Inc and Hewlett-
e
o b ile p
the m ook. ”
Packard Inc.
r n e tb The netbooks, with 3G chipsets, are
o viewed as the mobile-end of China Mobile’s
TD-SCDMA (time division-synchronous code
division multiple access) portfolio.
The netbooks, which cost between 3,000
yuan and 5,000 yuan (US$439 and US$732),
feature 10-inch screens and Intel ATOM CPUs
supporting basic functions and the Internet.
The next-generation mobile
Intel defines the netbook as any model with a
communications networks allow users access
screen smaller than 12 inches.
to high-speed Internet, 100 times faster than
2G. They enable consumers to access the Subsidy offer
Internet anytime and anywhere with a mobile China Mobile provides users subsidies
signal. of more than 1,000 yuan on data services
capacity if consumers agree to subscribe to
China Mobile has attracted 470 million the mobile broadband package for one or two
users by the end of March, accounting for 70 years. It now charges users 50 yuan for 500
percent of the total mobile subscriber base megabytes of data capacity monthly, and 100
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Technology China Mobile gears up for 3G battle
yuan for 2 gigabytes — its two most popular
packages.
“The idea of 3G netbooks is impressive
but China Mobile had better adapt its business
model,” said Guan Dai, an analyst at In-
Stat, a United States-based research firm.
“Multimedia content is widely spread online,
and it’s hard to imagine a film (with the size of
400Mb to 700Mb on the Internet) costing users
50 yuan — too expensive for Chinese users.”
Carriers should charge users based on time
online instead of using data traffic in 3G, Guan
said.
In Shanghai, the netbooks debuted last
Monday in 19 China Mobile outlets, and they
will also be sold by retailers such as Gome
and Yongle later, according to China Mobile’s
Shanghai branch.
In overseas markets, carriers like AT&T are
penetrating into the PC retailing business.
On April 1, AT&T began selling netbooks
in Atlanta and Philadelphia for as little as
US$50 to users who also signed up for
mobile broadband services for two years.
Rival Verizon Wireless plans to offer small
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and inexpensive netbooks to customers this
quarter.
In Western Europe, wireless service
providers are already emerging as big PC
vendors, where companies like Vodafone and
Deutsche Telekom’s T-Mobile began selling
netbooks last fall.
25 percent
Wireless carriers already account for up to
25 percent of all small laptops sold in Western
Europe, according to Richard Shim, a research
manager at International Data Corp.
Shenzhen-listed ZTE, the country’s biggest
public telecommunications equipment maker,
is one of the two major providers of 3G
components and chipsets for China Mobile’s
netbooks. China Mobile is using domestically
developed TD-SCDMA technology. Rival
China Unicom will operate its network on
the European WCDMA (wideband CDMA)
model, while China Telecom has chosen US-
developed CDMA 2000 technology.
China Unicom and China Telecom are
using more mature 3G technologies, which
means that China Mobile entered the market
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lacking the same range of products such as
the iPhone 3G and HTC G1 which are popular
cell phones.
Analysts said the netbook-3G linkup is the
most efficient way for China Mobile to partner
with PC vendors and provide itself with mature
TD-SCDMA products. Compared with the
adoption of chipsets on PCs, it costs much
more time and money to develop a new TD-
SCDMA phone model, said a PC official who
declined to be identified.
“In China’s 3G war, the most effective
weapon is the attractive mobile phone or
netbook,” said Sandy Shen, an analyst at
Gartner Inc, a US-based research firm.
China Telecom and China Unicom haven’t
announced plans yet to launch 3G netbooks.
China Unicom will get into that market by
the end of this year, with Acer as one of its
partners, J.T. Wang, Acer’s chairman, said in
Beijing three weeks ago.
The PC market is a channel for telcos
to get more users to buy monthly wireless
Internet-access service plans. The user can
buy wireless Web access to save money on
the upfront purchase price of PC.
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Energy Grids need to tap wind power Click above to jump sections

China’s total installed wind capacity

15,000 (Unit: Megawatts) 12,210
12,000

9,000
5,910
6,000
2,599
3,000
Grids need to 0
346 402 469 567 764 1,260

2000 01 02 03 04 05 06 07 08

tap wind power Source: Global Wind Energy Council Shanghai Daily

New entrants gaining market share

Domestic wind power equipment market breakdown in 2008

Mingyang 2.8% Others

15.4%
Shanghai Electric 2.9%
Sinovel
Windey 3.7% 22.5%

Gamesa (Spain)
8.1%
Goldwind
Vestas 18.1%
(Denmark)
9.6% Dongfang
Electric
16.9%

Source: KGI Securities Shanghai Daily

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Energy Grids need to tap wind power
Fu Chenghao
China’s rapidly expanding wind power
industry is far outstripping the capacity
of grids to distribute renewable energy to
power users, with planners urging a more
systematic approach to development of the
industry.
Installed wind capacity in China more
than doubled to 12,210 megawatts in 2008,
according to the Belgium-based Global
Wind Energy Council.
However, the China Electricity Council
says grids handled only 8,940MW of wind-
generated electricity last year, pointing
to an untapped energy gap of about
3,270MW. Worse, that gap doubled in one
year.
“China’s wind power sector is now like
a highway crowded with vehicles,” said Dai
Huizhu, a professor at China Electric Power
Research Institute. “The number of cars
keeps increasing, but there aren’t enough
lanes to handle them.”
Dai said more investment is needed to
strengthen the ability of China’s grid system
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to incorporate wind-generated electricity
if the fledgling sector is to help reduce the
nation’s dependence on polluting fuels.
China’s installed wind capacity has
been doubling annually for the past four
years, underpinned by an aggressive
government policy supporting renewable
energy.
New capacity could double again this
year, with China overtaking the United
States as the world’s largest market for
new installations, said Li Junfeng, secretary
general of the Chinese Renewable Energy
Industry Association and deputy head of
the energy research institute of the National
Development and Reform Commission, the
top planner.
Priority access
At that pace, China could have
30,000MW in installed wind capacity
in 2010, 10 years ahead of an earlier
government target.
China’s renewable energy law requires
that renewable energy should be given
priority access to the grid, yet the rule is
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not being followed due to the physical
constraints of grid capacity.
Wind is now considered one of the most
competitive forms of renewable energy in
terms of costs, although falling raw material
prices and rising production have reduced
the prices for solar cells.
Grid operators, who still rely on coal-
fired power, have been reluctant to connect
their grids to windmill farms because they
say supply is unstable, requiring additional
services and back-up sources during days
when winds aren’t blowing.
Another problem is that the most prime
regions for new wind farms are located
in remote northern, northwestern and
southeastern parts of the country where
grid coverage is weakest.
“The problem is serious,’’ Dai told a
symposium in Beihai in Guangxi Zhuang
Autonomous Region. “Wind farms cannot
fully release their potential if grid capacity
can’t handle their output.”
She said the government needs to
adopt more detailed technical standards for
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Energy Grids need to tap wind power
the industry and implement management
rules to handle the gap.
At a state energy meeting earlier
this year, Zhang Guobao, director of the
National Energy Administration, pledged
that China will do more studies on how to
connect wind farms to grids to optimize
long-distance transmission of power and its
allocation.
China plans to build mega-windmill
farms in Gansu, Hebei and Jiangsu
provinces and in Inner Mongolia
Autonomous Region and connect them
to grids on a large scale, according to the
state plan.
Qi Hesheng, secretary general of the
wind power machinery branch of the China
Association of Agricultural Machinery
Manufacturers, said wind farms can’t be
built willy-nilly but must be concentrated in
areas where adequate grids are installed.
Long-term plan vital
“We need to have a long-term plan,”
Qi stressed, speaking at the same Beihai
symposium.
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" China’s wind power
sector is now like a
highway crowded
with vehicles. "
The government has set a goal
to generate 15 percent of its power
consumption from renewable sources
by 2020, though most will come from
hydropower projects.
Wind is nonetheless considered critical
to achieving the overall target, as other
renewable sources such as solar and
bio-energy are expected to be only small
players in that strategy, industry officials
have said.
Power equipment manufacturing
companies face increased competition from
domestic and overseas rivals in the race to
supply the wind power industry.
“It’s crystal clear that competition is
just starting,” Qi said. “There are a lot of
players angling for a piece of the action. I
fear supply has exceeded demand. At the
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same time, foreign manufacturers have also
turned their attention to China after the
financial crisis hurt demand in Europe.”
Domestic companies claimed 73
percent of the domestic market in 2008,
up from 56 percent in 2007, according
to a KGI Securities report. That rise was
credited to their low-priced and high-
efficiency equipment.
But the combined market share
of China’s top five wind turbine
manufacturers, including Sinovel Wind
Co, Xinjiang Goldwind Sci & Tech Co and
Dongfang Electric Corp, shrank to 75
percent last year from 91 percent in 2006,
KGI said, suggesting the higher role of
new industry entrants, such as Shanghai
Electric Group.
Shanghai Electric, a traditional maker of
heavy machinery and transport equipment,
is building a 143-million-yuan (US$20.9
million) manufacturing base in Lingang,
Pudong New Area for wind turbines, which
will join its existing one in Minhang District.
It aims to generate 14 billion yuan in annual
sales in five years from the wind sector.
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Energy Bright future for solar power sector Click above to jump sections

Bright future for Global market of solar photovoltaic

cells in 2008 (estimated)

solar power sector Spain and Germany are the dominant markets.
Though China is the world leader in the
manufacture of PV cells, the domestic demand
Fu Chenghao accounts for less than 1% of the global market.

China’s aim to become a major global

Japan Rest of
player in solar power has been boosted by the world
3%
a new subsidy program that will help cut the 19%
Italy Spain
cost of attaching cells to rooftops and fill a 3%
USA 5% 45%
manufacturing gap from declining demand
Germany
from abroad.
25%

The government announced last month

Source: UBS WMR estimates,
that solar power attached to buildings in 2008 Shanghai Daily

projects involving more than 50 kilowatts

would be eligible for a subsidy of 20 yuan
(US$2.90) per watt.

China is the world leader in the

manufacture of photovoltaic (PV) cells, or
panels that covert sunlight into electricity.
The surging cost of polysilicon, a key
ingredient, in recent years had forced
Chinese manufacturers to rely on demand
from countries that offered subsidies for
solar use.
But now, with a substantial increase
in supply, the price of polysilicon has
plummeted.
“With the bursting of the price bubble
for polysilicon, the timing is right to
subsidize solar power development,” said
Wei Qidong, secretary general of the PV
industry association in Jiangsu Province.
“That will encourage domestic use, create a
stronger market for Chinese manufacturers
and advance the nation’s efforts to promote
alternative, clean energy sources.”
Jiangsu is China’s major solar-cell

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Energy Bright future for solar power sector
manufacturing base, home to such big
names such as Suntech Power Holdings Co
and Canadian Solar Inc.
The 20-yuan subsidy, which equates
to what’s offered in California and is three
times that of Japan, will cover nearly half the
cost of solar power conversion, including
equipment and installation, the government
said.
The subsidy translates to a drop in power
generation cost to about 1 yuan per kilowatt
hour, only a quarter of some domestic pilot
solar projects though still more than double
the domestic grid prices for conventional
coal-fired power.
Gao Jifan, chairman and chief executive
of Trina Solar Ltd, called the subsidy plan,
jointly unveiled by the Ministry of Finance
and the Ministry of Housing and Urban-Rural
Development, a “precursor” of longer-term
state support. He believes that the rooftop
plan is a good starting point before subsidies
are extended to larger utility-scale projects,
which will require a tariff regime to make
solar electricity commercially viable.
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Germany, for example, passed a law
in 2000 obligating grid operators to pay
set prices, or feed-in tariffs, for renewable
electricity sources. As a result, Germany
has become one of the world’s largest PV
markets.
Tariff system
China does have a renewable energy
law requiring distributors to buy renewable
energy from generators, but it lacks a tariff
system to boost the viability of solar power.
At present, pricing is at the discretion of the
National Development Reform Commission,
based on the principle of reasonable cost
plus reasonable return.
“If we are to have a feed-in tariff system
like Europe’s, it has to win approval from
the National People’s Congress, and that
may take more time,” Gao said. “So the
government has decided to start up the
domestic market as soon as possible by
going after the rooftop market first,” he said
from his office in Changzhou, Jiangsu. Gao
said China could account for 10 percent of
the global PV market in three years to five
years, up from less than 1 percent now.
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The new subsidy comes as Chinese
solar companies are struggling with reduced
access to credit and a drop-off in demand
from countries such as Spain because of the
recession.
In addition to fighting climate change
and boosting energy conservation, China’s
subsidy program is aimed at helping
domestic PV makers by activating a largely
untapped home market, the ministries said.
“The financial crisis is benefiting
domestic PV makers because it has
brought down polysilicon prices and drawn
government attention to the needs of an
increasingly mature industry,” Wei said.
Sha Xiaolin, chairman of Qiangsheng
Photovoltaic Technology Co (QS Solar),
said he was optimistic about the large-scale
use of solar power, saying “an energy crisis
would be much more frightening than the
financial crisis.”
QS Solar, unlike most solar cell makers
that rely on polysilicon, is developing the
emerging technology of thin film. Although
it has a lower conversion efficiency, thin film
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Energy Bright future for solar power sector
is cheaper and can be manufactured with
higher throughput.
Investors have welcomed the
government’s subsidy plan, with solar stocks
surging in China and the United States,
where many Chinese solar companies are
listed.
Shares in Hebei Province-based
Tianwei Baobian Electric Co have soared
44.5 percent in Shanghai trading since
the subsidy announcement. The Shanghai
Industry’s Shanghai showcase
Richard Fu
SNEC PV Power Expo 2009, a major show
for the solar power industry, is to be held
in Shanghai in May.
Almost 1,000 solar cell companies will
participate in the event, with 35 percent
of them coming from overseas, making it
the largest such show in Asia, according
to the Shanghai New Energy Industry
Association, which is the leading host for
the event.
The three-day event opens on May 6 at the
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Composite Index rose 9.3 percent in the
same period.
Analysts said the subsidy program
won’t necessarily have a big impact this
year because it will take time to get up and
running.
Based on the central government’s
subsidy budget of 400 million yuan on
renewable energy this year, at most 20
megawatts of solar capacity could be
subsidized in 2009, the China Securities
Shanghai New International Expo Center.
The following are some of the highlights:
• ENN Solar Energy Co, based in
Langfang, Hebei Province, will debut
its solar modules measuring 5.7 square
meters, four times larger than today’s
typical solar panels, from the production
lines of its United States partner Applied
Materials Inc;
• Suntech Power Holdings Co is to display
a model of its headquarters building in
Wuxi, Jiangsu. The building incorporates
the world’s largest on-grid photovoltaic
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Journal reported, citing Ping An Securities
analyst Wang Fan.
That amount is a fifth of China’s total
installed solar capacity in 2007, or 5 percent
of Trina Solar’s planned shipment of 400MW
this year.
But the domestic industry is on the verge
of a big leap forward.
“I believe there will be an explosive
growth in the domestic PV market, not just
double-digit growth,” Sha said.
facade system with more than 2,552 semi-
transparent solar panels and an annual
power output of over 1 million kilowatt
hours of electricity;
• Nanjing, Jiangsu-based China Sunergy
Co will unveil solar cells it claims could
have the world’s highest conversion
efficiency;
• and Shanghai Aerospace Automobile
Electromechanical Co will display a range
of products in the PV cell industry chain,
as the company aims to build up an
integrated PV business.
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Conference Downturn hits the conference circuit Click above to jump sections

Downturn hits the conference circuit

Pan Xiaoyi
Pacific Coast International Co, a leading
bedding manufacturer, took part in the five-
day Hotelex Shanghai 2009 exhibition, which
ended on April 4, to display its products and
see existing clients such as Paris-based Accor
SA, InterContinental Hotels Group and the
Jinjiang Hotels chain.

“Exhibitions remain a vital way for us to

meet new customers,” said Joanna Zhang,
vice president and general manager for Pacific
Coast’s Asian operations. “We usually go to
four or five exhibitions every year.’’
But something’s different this year. Fewer
customers than usual attended Hotelex
Shanghai and even some of Pacific Coast’s
rivals failed to show, Zhang said. The company
is considering canceling plans to exhibit in
Beijing this year, she said.
China’s exhibitions industry, which
flourished in the heyday of double-digit
economic expansion and burgeoning trade, is
feeling the pinch of the global financial crisis
and belt-tightening that’s going on across
corporate sectors.
Many of those who have for years attended
every exhibition on the circuit are now getting
choosy about which trade fairs they attend.
Some prefer to spend their money on
exhibitions in places such as Hong Kong and
Macau, because those events tend to attract
the bigger, international buyers.
“We prefer fairs that have a long history,
a good reputation, big industry names,
diversified products portfolios and a large
number of new products,” said He Wei, a
purchasing specialist at a Guangdong-based
trading company.
Some exhibitors are getting cold feet as
overseas orders plummet and the reliability of
suppliers has been clouded by the failure of
some Chinese export companies. Companies
that are surviving are cutting back production
to conserve profit margins and cash.
“Companies are more cautious in choosing
exhibitions,’’ said Preecha Chen, president
of Reed Exhibition Greater China. “They are
opting for big, well-known exhibitions.’’

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Conference Downturn hits the conference circuit
Exhibition revenue is expected to fall up
to 15 percent this year from a year earlier,
said Fang Peiying, general manager of Intex
Shanghai Co, an exhibitions company.
According to the China Council for the
Promotion of International Trade, among all
1,881 exhibitions approved by the council to
be held abroad in 2008, only 59 percent went
ahead, down 4 percentage points from the
previous year.
The figure for the second half of 2008 was
56 percent, as many exhibitors who signed up
for offshore fairs canceled their plans.
Further falls likely
More of these kinds of exhibitions will
fall through, be postponed or be reduced in
size, experts say. Exports brought by offshore
exhibitions will fall by nearly US$8 billion, said
Wan Jifei, chairman of the promotion council.
Growth in the industry will slow this year,
and it might need two to three years to recover
and return to its former 20 percent annual
growth, said Zhang Dingguo, general manager
of the World Expo (Group) Shanghai Modern
International Exhibition Co.
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Many entrepreneurs view the credit crunch
as both a crisis and an opportunity, leading
analysts to suggest that it’s time for the
exhibition industry to restructure itself to take
advantage of changing times.
Smaller, less well-known fairs may have
to be scrapped to make room for big-name
shows to succeed.
China may boast the most fairs in the
world, but Germany has the most popular
exhibitions, attracting big-name buyers and
sellers from across the globe.
China needs to learn from those successes
as it recasts its own exhibition industry to
weather the economic storm.
“The crisis is conducive to consolidation
within the industry,” said Reed Exhibition’s
Chen. “Smaller fairs will either have to fold or
be merged into larger ones.’’
Chen said his company expects to expand
through mergers and acquisitions. The goal
this year is to maintain growth after a 20
percent expansion last year.
Brands and image
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Reed has signed an agreement with a
subsidiary of Shanghai World Expo (Group)
Co to host exhibitions in the city’s World
Expo facilities to enhance its brand and
image.
“A good exhibition mainly helps exhibitors
display the company’s image, present its
latest products and demonstrate its enterprise
culture to as many customers as possible,”
said Zhu Liwen, secretary-general of the Asia
Events Forum, an organization that focuses
on the conventions and exhibitions sector,
festivals and sporting events.
Companies on the exhibitions circuit
are keen to keep their corporate image in
the public eye so they can emerge from the
downturn with their name and brands intact.
“To build up our company image is a main
purpose for us to attend,” said Pacific Coast’s
Zhang. “Seeing us at Hotelex gives clients
more confidence in us and helps us sign
contracts.’’
Li Zhe, managing director of Wuxi S Star
Jinlin Uniform Co, agrees.
“Hotelex is the only exhibition we attend
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Conference Downturn hits the conference circuit Click above to jump sections

Development of the exhibition

regularly every year because it’s conducive to
building our professional image.”

Shanghai CMP Sinoexpo International

and convention industry in China
Exhibition Co, the organizer of Hotelex, has 14,000
stepped up efforts to appease participants Number of exhibitions
during these strapped times. The organizer Revenue (million yuan)
integrated Expo Build, Hotelex Shanghai and
China Clean into one exhibition of relevant
10,000
industries to give participants a one-stop shop, 8,600
and heavily advertised the event.

The company has never before invested

so much in marketing, advertising, inviting 4,500 4,400
3,298 3,800
industry experts to speak at the show, or
offering visitors competition prizes, said
2,387
Wang Ming­liang, managing director of CMP
Sinoexpo.

“My hands begin to shake when I sign

a bill for 300,000 yuan (US$43,900),” said
Wang. “But we have to make the investment
to secure high-quality buyers against the
background of a sluggish global market.”
China’s exhibitions industry is taking a
cue from international players such as Messe
Frankfurt. The German exhibitions company
provides an online service after the close of
2001 2003 2005 2007
Source: Shanghai Daily research
an exhibition that allows buyers and sellers to and has sought closer ties with chambers of
make post-fair deals. commerce in foreign countries to let buyers
know of fairs they might attend.
In China, the Shanghai Commission for
Commerce, which sponsors the East China It also sent personal invitations to a
Fair, has translated its Website into Arabic number of Japanese firms, traditionally the
to cater to customers from the Middle East biggest buyers at the fair.

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Auto China gears up for green cars push Click above to jump sections

China gears up for green cars push

Jin Jing
Chinese auto makers
have accelerated efforts to
develop electric cars and
take a leadership role in the
next generation of vehicle
technology after last year’s
record high oil prices and
concerns about climate
change fueled a global
push toward green cars.
Still, analysts
don’t expect a rapid
transformation in the
world’s second-largest
auto-making market in the
next 10 years because
battery technology,
supplier chain and
infrastructure need
upgrading.
“The Chinese
government has adopted
aggressive plans to boost
new energy vehicles,” said
Wang Aiping, an analyst at
automotive consulting firm,
Global Insight. “But within
the next 10 years, large-
scale production will still
remain a great challenge.”

Efforts: State allocates

extra funds for hybrids
The development of electric vehicles has been
powered by increased investment from the
government.

China has said it will allocate 10 billion

yuan (US$1.46 billion) in the next five years to
upgrade car-making technology and engineer
the development of fuel-efficient, clean-burning

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Auto China gears up for green cars push
vehicles. That’s more than 12 times the
investment in the industry in the five years
ended 2005.
The additional spending is targeted at
200 auto makers, suppliers and research
institutes across the nation.
On the consumer front, the government
has launched a trial program in 13 cities,
providing public transport and government
offices a subsidy of as much as 60,000 yuan
toward the purchase of electric vehicles. A
subsidy of 50,000 yuan is provided for the
purchase of hybrid vehicles, and 250,000
yuan is available to those buying fuel-cell
buses.
The government is targeting an annual
production capacity of 500,000 new energy
vehicles by 2011, including plug-in hybrid
and electric cars. That goal includes 20,000
all-electric cars.
Alternative fuel energy vehicles are
expected to account for 5 percent of China’s
total passenger car sales, according to the
government’s blueprint.
China’s promotion of clean energy
ShanghaiDaily.com
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500,000
The government is
targeting annual production
capacity of 500,000 new
energy vehicles by 2011,
including plug-in hybrid
and electric cars.
vehicles is the result of increasing pressure
for more stringent environmental protection
and the nation’s need to protect its energy
security amid rapidly expanding vehicle use
among its population.
China is also keen to catapult its auto
industry to be more competitive against
global rivals.
The nation has rapidly embraced the
automobile in the past six years as personal
incomes rose and the industry expanded
rapidly.
There are now an estimated 56.97 million
Technology Energy Conference Auto
Click above to jump sections
vehicles in China, or about 50 cars for every
1000 people. New car sales have maintained
a more than 20-percent growth since 2005
before the onset of a global financial crisis
last year.
There are expected to be an additional
10 million vehicles on the roads in China this
year.
Clean energy vehicles are the latest buzz
in the auto industry.
Chinese auto maker BYD Co launched
the world’s first mass-produced hybrid
electric vehicle, the F3 Dual Mode sedan, at
the end of last year.
Chery Automobile Co rolled out its first
self-engineered electric car, the S18, in
February.
The Jie Xun hybrid vehicle developed
by Chang’an Auto Group rolled off the
assembly line in early 2008, and Shanghai
Automotive Industry Corp test ran its fuel cell
and electric vehicles during the Challenge
Bibendum in 2007, a competition featuring
alternative fuel vehicles.
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Auto China gears up for green cars push Click above to jump sections

Obstacles: Bottlenecks restrain market demand

Obstacles are still throttling the industry’s
rapid advance.

“Among bottlenecks holding the industry Outlook for light-vehicle usage

back are weak battery technologies, battery
charging networks, electricity supply and Battery Electric Vehicle
recycling of used batteries,” said Zhao Plug-in Hybrid Electric Vehicle
Junhua, general manager of the powertrain
100%
system at CSM Corp, an automotive
consulting firm. Hybrid
80%
Dealers said individual buyers may not
take to BYD’s F3DM hybrid vehicle because
no battery-charging network has been set up Gasoline Multipoint 60%
yet. The weak infrastructure also prevented Fuel Injection
overseas car makers, including General 40%
Motors Corp, from adopting large-scale
testing of electric vehicles in China. Gasoline Direct Injection 20%
The auto parts industry is yet another
hurdle. Overseas auto parts suppliers,
Diesel
0%
including Delphi Corp, Johnson Controls
Inc and Continental Auto Parts, have set 2005 2010 2015 2020 2025
up manufacturing bases in China to supply
Chinese-made electric vehicles, but prices Source: Global Insight Shanghai Daily
of the components are usually expensive,

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Auto China gears up for green cars push
making it hard to attract interest.
There’s little help from domestic
suppliers, who are struggling with weak
technological capability in an industry that is
highly fragmented.
“Chinese battery makers have their own
specialties, but none of them is able to start
mass production and their products lag
behind foreign brands in terms of durability,
recharging speed, safety and overall cost,”
ShanghaiDaily.com
Property Health Care Air
“ Only after 2020 do we
expect electrically powered
vehicles to attract more
market demand. ”
Zhao noted.
According to CSM, sales of passenger
vehicles using hybrid and electric
technologies will surpass 100,000 units by
2015, accounting for 1 percent of China’s
total passenger car sales. Sales of the all-
electrical vehicle will be about 20,000 units.
Automotive consulting firm Global
Insight is also taking a conservative view on
expansion of electric vehicles.
“The market share of electric vehicles
is not expected to grow significantly unless
the industry gets financial subsidies,” said
Wang Aiping, an analyst at Global Insight.
“Only after 2020 do we expect electrically
powered vehicles to attract more market
demand, both in public transport and in
the private auto market. We think electric
vehicles will be mainly used in cities for daily
Technology Energy Conference Auto
Click above to jump sections
commuting.”
The relatively higher prices of electric
vehicles make them unattractive to cost-
conscious consumers, particular after fuel
prices dropped at the end of last year.
“Compared with gasoline, electric
vehicles suffer the disadvantage of high
prices, safety concerns and inconvenience in
after-sale servicing,” Wang said.
“It’s time to offer subsidies to individual
consumers too,” he said.
The United States offers incentives for
consumers to buy Toyota’s hybrid Prius
model but China gives no tax breaks or other
carrots to entice private buyers to purchase
green cars.
Japan’s Nissan Motor Corp said last
week it would offer a comprehensive plan
to the Chinese government to develop and
market electric vehicles in China.
The firm also said that it will help in
building battery-charging networks with the
intention to sell its first electric cars in China
in 2011.
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Auto Car makers bullish on China auto sales for 2009
Car makers bullish on China auto sales for 2009
Jin Jing
INTERNATIONAL car makers attending a
media day for Auto Shanghai 2009 said
they’re optimistic that gains in China will help
offset the downturn they’re facing in other
parts of the world.
With the launch of new models ranging
from low-priced compacts to luxury vehicles
and new energy concepts, several auto
giants expressed confidence about market
growth in China this year as a result of the
government’s economic stimulus efforts and
special incentives for the industry.
“The government policies have been to
the point and are working quite effectively,”
said Ying Tongyue, chairman of Chery
Automobile Co Ltd, the nation’s leading
homegrown vehicle maker.
“Chinese consumers are gaining
more confidence, and the robust sales
performance may extend to the rest of the
year.”
Yin said Chery forecasts that China sales
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Property Health Care Air
" Chinese consumers are
gaining more confidence,
and the robust sales
performance may extend to
the rest of the year. "
will rise 15 percent this year to 419,000 units.
China’s passenger car sales rebounded
10 percent to hit a monthly high of 1.1 million
in March, outpacing sales in the United
States for the third straight month. Last year,
China’s vehicle sales posted their slowest
growth in a decade at 6.7 percent due to the
financial crisis.
The pick-up in China underlines the
country’s importance to most international
car makers as they strive to ride out the
global recession.
Kevin Wale, president and managing
Technology Energy Conference Auto
Click above to jump sections
director of General Motors, also noted that
the government stimulus effort — backed by
4 trillion yuan (US$585 billion) in spending —
has been swift and effective.
“I think the market will continue to grow,”
he said. “I don’t know whether the growth
will be stronger than the first quarter, but we
still expect the market to grow like 5 to 10
percent for the rest of the year.”
General Motors Corp, which brought 37
vehicles and concept cars to the auto show,
announced earlier it would double sales to 2
million units within five years by introducing
30 models.
Japan’s Honda Motor estimated its China
sales would increase 10 percent to 520,000
units this year.
The Chinese government launched
incentives in mid-January, halving the tax
on vehicles with engine displacements of
1.6-liter or below to 5 percent and offered 5
billion yuan in subsidies to rural residents to
help spur the demand.
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Auto Drive to recovery
Drive to recovery Shanghai Auto Show. “We will continue to
invest in new products for China, in new
facilities and the latest in technology,” he
CEO absent but said.
focus on China While it scales back elsewhere, Detroit-
based GM is aiming to double sales in China
to about 2 million within the next five years,
whether it ends up in bankruptcy protection
or not, said Kevin Wale, president and
managing director of the GM China Group.
“It is very important to understand that
if there is a court-ordered restructuring, it is
different from in some other countries,” Wale
said. “A company continues to trade and
continues its business and can come out of it
stronger than before.”
Success in China, the world’s second
Dealing with the crisis at General Motors
biggest auto market after the United States
Corp kept new CEO Fritz Henderson from
and perhaps soon to be the leading market,
traveling to Shanghai’s auto show, but
is crucial for GM’s future.
executives say the company intends to
continue growing in China regardless of how In China, where total vehicle sales hit
its financial mess is resolved. a monthly high of 1.1 million in March, GM
expects to grow 5 percent to 10 percent this
“Of course, China remains a key market year.
for GM,” Nick Reilly, president of GM’s Asia-
Pacific division, said on the sidelines of the Underscoring China’s importance to
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GM, Henderson had planned to attend the
Shanghai show despite the pressing June 1
deadline for completing restructuring plans
set by the US government. But he canceled
late last week, deeming the US situation his
top priority, the company said.
Shanghai is the location for GM’s decade-
old joint venture with state-owned Shanghai
Automotive Industrial Corp.
Reilly acknowledged that GM’s precarious
financial state makes planning for the future
somewhat uncertain.
“We know, however, that there will be
no disruptions to our operations here in this
region,” he said.
GM has had to scale output back and put
off or slow projects in some Asian markets
due to the impact of the global slowdown,
but it is still looking for chances to grow.
But GM’s China operations do not need
any help from the US or elsewhere, Wale
said.
GM remains profitable here and is able to
reinvest in its facilities, Wale said.
(Agencies)
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Auto Drive to recovery
Chrysler seeks
production plant
Jin Jing
Chrysler LLC, which has until April 30 to
form an alliance with Italy’s Fiat in order to get
United States government aid, plans to have
a manufacturing plant in China to become a
“meaningful player” in the fast growing auto
market, a company executive said.
“Chrysler is going through a viability plan
and that means our capability to move forward
in China has been delayed,” said John Kett,
vice president of Chrysler LLC and chief
executive officer of Chrysler Asia Pacific. “But
we understand that to be a meaningful player
in China, you have to have manufacturing in
China.”
Due to the global financial crisis, Kett said
China, along with the Asia-Pacific region,
plays a key role to offset a sales decline in the
US as customer demand for individualized
products will rise when the market gets
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Click above to jump sections
mature. profitable and give cash reserves over the time
and give us the confidence to move forward
Chrysler sells sport-utility vehicles, multi- the relationship,” the vice president added.
purpose vehicles and sedans under its Jeep,
Dodge and Chrysler brands in China. It
focuses its business in China mainly through
Nissan banks on
imports under the Jeep brands. 15 new models
Last year, sales of Chrysler’s imported
vehicles tripled to around 10,000 units in
China. First quarter sales also accelerated 17
percent from a year earlier. But the car maker
is still trailing far behind other international
rivals.
Detroit-based Chrysler has launched Fu Chenghao
Nissan Motor Co aims to launch 15 new
the higher-end Jeep Wrangler Rubicon to
models in China, more than in any other
complete the Jeep family line-up in China,
market, by 2012 as the prospects for
which also includes the Jeep Commander,
growth in the world’s second-largest auto
Jeep Grand Cherokee and SUV Jeep
market remain bright.
Compass.
Kett said its short-term plan in China will They include 10 passenger cars and
remain focused on imports as it helps to know five light commercial vehicles, Senior Vice
the market and understand the demand of the President Andy Palmer said at the auto
nation’s younger generation. show.
“If we can meet them and understand But Palmer said amid the global
them with small vehicle volume that are economic slowdown Nissan also has
profitable for us, that will build us to be to rein in expenditure in China, which
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Auto Drive to recovery
accounts for about 14 percent of its global
sales volume.
He said some investments may be a
little bit delayed, without elaborating.
“They are all minor adjustments and
overall nothing has changed,” Palmer said.
Nissan’s sales in China rose 9 percent
to 144,603 units in the first quarter from a
year earlier on government efforts to revive
demand.
The car maker has forecast China sales
of 570,000 units this year, up 4.6 percent
from 2008 when sales rose 19 percent.
Palmer said the full-year goal is
conservative because the firm expected
the effect of China’s stimulus measures to
wane later this year.
Nissan sold about 4,000 of its premium
Infiniti models in China last year.
Self-brand cars’
sales accelerate
ShanghaiDaily.com
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Richard Fu
China’s top automobile maker, SAIC Motor
Co, said yesterday it boosted sales of its
own-brand passenger cars by fourfold in
the first quarter to 18,000 units on an annual
basis.
Meanwhile, at the Auto Shanghai 2009
show, the Shanghai-based company unveiled
three new models using new energy sources.
“To build our own brands and develop
new energy vehicles is a historic mission for
SAIC,” Chairman Hu Maoyuan told reporters
at the show.
SAIC, which makes automobiles at joint
ventures with General Motors Corp and
Volkswagen AG, also manufactures the self-
developed MG and Roewe sedans.
The Roewe 550 model, a self-brand
mid-class car launched in June, has
reached almost 5,000 units in monthly
sales to become a main player in the most
Technology Energy Conference Auto
Click above to jump sections
competitive auto market segment in China,
according to Hu.
Sales of self-brand cars could rise to
50,000 units in 2009 from 36,000 last year,
President Chen Hong has said, although
the number was still modest compared with
SAIC’s all-passenger car sales of 1.03 million
units in 2008.
SAIC is also speeding up the
development of new energy vehicles. Its
parent, Shanghai Automotive Industry Corp
Group, signed an accord with the local
government to provide nearly 1,000 new
energy vehicles, including all-electric, fuel cell
and hybrids, for the 2010 World Expo.
One of the new energy models on
display at the show is its Roewe 750 hybrid,
China’s first own-brand hybrid car with mass
production to start by the end of 2010.
Still, SAIC remained “cautiously
optimistic” over the overall domestic auto
market this year, although the market
rebounded strongly in the first quarter of the
year as the central government introduced
stimulus measures.
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Auto Domestic car brands gaining ground Click above to jump sections

Domestic car brands Top International Groups (Sales)

Growth
Month Year to date
Year to date
-25% 0% 25% 50% Volume Share

gaining ground Porsche-VW

Hyundai
163,117
97,422
11%
6%
Jin Jing General Motors 80,571 5%
The expansion of China’s domestic brand car sales, Toyota 76,689 5%
buoyed by the nation’s stimulus measures, may hamper Honda 69,956 5%
the ability of foreign auto makers to make further inroads Renault-Nissan 64,556 4%
in the market. Suzuki 37,767 2%
PSA 31,436 2%
Domestic manufacturers reported that sales in the Ford 31,270 2%
first two months of this year jumped after the central Mazda 21,111 1%
government halved the tax on new cars with engine
capacities of less than 1.6 liters. Top China Groups (Sales) Month Year to date
Growth Year to date
“Mainstream Chinese-brand vehicles have small -40% 0% 40% 80% Volume Share
engines that target price-sensitive consumers,” said SAIC 317,298 21%
Zhang Xin, an analyst with Guotai Jun’an Securities Co FAW 205,940 13%
Ltd. DFM 187,904 12%
Changan 184,818 12%
The government is also granting 5 billion yuan
BAIC 135,781 9%
(US$731 million) to subsidize farmers who replace
Guangzhou 62,614 4%
commercial vehicles.
Chery 57,346 4%
Led by BYD F3 and Chery QQ, sales of Chinese Import 47,676 3%
vehicle brands climbed to 131,700 units in February, Brilliance
135%
43,648 3%
accounting for a record 31 percent of the market, BYD 42,434 3%
130%
according to the China Association of Automobile
Manufacturers. That compared with 25 percent last year Source: Automotive Resources Asia Shanghai Daily

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Auto Domestic car brands gaining ground
for the Chinese vehicles.
Foreign brands took the rest of the market.
Among the top 10 best-selling models,
FAW Group’s Xiali and the Free Cruiser from
Geely Automobile replaced Toyota’s Camry
and Honda’s Accord, two leading models, in
the mid-to-high price segment.
Sales of sub-compact cars surged by 40
percent in February and models of domestic
brands including Geely, Xiali and Zhonghua
outperformed most others, according to a
report from Automotive Resources Asia, a
division of J.D. Power and Associates.
“The international brands are beginning
to lose their grip on the sub-compact
segment.
“Local companies are gaining more
market share as they improve quality but are
still able to keep costs low,” ARA’s report
showed.
“The international brands still dominate
the compact car segment, but similar to the
sub-compact segment, local auto makers
are gaining share on the back of growth in
china’s minor cities, where much of China’s
ShanghaiDaily.com
Property Health Care Air Technology
" Local companies
are gaining more
market share as
they improve quality
but are still able to
keep costs low. "
future growth will originate.”
China wants to help its relatively small
and underdeveloped automotive industry
to grow after they spent most of the past
decade assembling cars for foreign auto
companies. More and more Chinese are
buying their first cars as incomes rise under
the nation’s rapid economic development.
Besides the favorable tax policy, China
also released a detailed blueprint for the auto
industry last week that focuses on expanding
manufacture of home brands and upgrading
the technologies used in the domestic
industry. The nation plans to invest 10 billion
yuan in the domestic market, including
technological innovation and research on
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fuel efficient vehicles.
Fuel efficiency
In the next two years, the strategy
calls for domestic vehicle brands to take
up to 40 percent of the auto market. At
the same time, China wants to improve its
competitiveness in the international market
by increasing the fuel efficiency and safety
standards of the cars it produces. It’s
hoping domestic vehicle brands will gain
a 10-percent share of the country’s overall
vehicle exports.
The government will set an example by
buying official cars from among domestic
brands.
Executives of major domestic car
makers, including Wang Fengying from Great
Wall Motor Corp, proposed that step during
a recent session of the Chinese People’s
Political Consultative Conference.
“Government promotion is just part of
the story,” said Lin Huaibing, an analyst from
consulting firm Global Insight, who estimated
that the market share of domestic brands
would reach 40 percent within 10 years even
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Auto Domestic car brands gaining ground
without strong government backing.
“In the long term, the market share
of China’s domestic brands will continue
to expand as domestic car makers make
progress on brand awareness, design, safety
and fuel economy,” he added.
“Although they still lag far behind foreign
car makers, the gap is narrowing,” Lin said.
The robust sales increase has lead to
aggressive expansion plans.
Chery said it will launch 10 new models
this year and is diversifying into minivan and
light commercial vehicles that are in strong
demand in rural areas. Geely said it will
boost sales by 25 percent to 281,000 units
and eight models will be launched, including
its first mid-to-high price sedan.
BYD, partly owned by Warren Buffett,
aims to sell 400,000 units this year and said
five new models are in the offing.
The emergence of Chinese domestic
brands poses a direct challenge to overseas
car makers, particularly at a time when they
are facing sales slumps and financial losses.
ShanghaiDaily.com
Property Health Care Air
Many Japanese, American and European
car makers are looking at the Chinese
market to help them ride out the recession.
Some, like General Motors, said their
Chinese operations have been a bright spot
in an otherwise gloomy profit environment.
Although China hasn’t been immune to the
global downturn, its auto market is managing
to post gains. With foreign rivals on the
skids, China has surpassed the United
States as the biggest market in the world for
new car sales.
China’s vehicle sales rose 6.7 percent
to 9.38 million units last year, the first single
digit growth rate in a decade. Vehicle sales
in the first two months of 2009 climbed 2.7
percent to 1.56 million units, compared
with a 39-percent drop to 1.35 million units
in the US as consumer credit dried up and
discretionary spending plummeted.
“The market potential in China is so huge
that it can’t be ignored by any international
car makers,” said Lin. “Foreign car
makers, in response to Chinese consumer
preferences, are adopting strategies to be
more competitive on the pricing and styles.
It takes time but it’s definitely worth it for
Technology Energy Conference Auto
Click above to jump sections
them.”
Compared to aggressive Chinese car
makers, most international auto groups,
including General Motors Corp and Ford
Motor Co, have lowered global sales
expectations for this year below 10 percent.
But foreign auto makers say they will
continue to invest in China. Volkswagen has
announced it plans to double sales in China
to 2 million over the next 10 years.
Foreign auto makers are planning new
models and advanced technologies for the
China market, including direct fuel injection
vehicles to improve fuel efficiency.
The Pan Asia Technical Automotive
Center, GM’s automotive engineering
and design joint venture with Shanghai
Automotive Industrial Corp, opened China’s
most advanced vehicle safety testing lab
earlier this month.
GM’s Chevrolet Cruze compact, which
goes on sale in China in the second quarter,
will also get a new 1.6-liter turbocharged
engine.
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