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China Food Prices: Still on the Rise 11/22/2010

China Food Prices- Farmers Market in BeijingThis morning, an article out of the Sydney Morning Herald in Australia reports on the climbing food prices that continue to be seen in China. Farmers Markets throughout China have seen a spike in prices this year.

Some say the rise in feed and seed costs are responsible, starting a chain reaction: farmers must charge the suppliers more for the raw commodities,  who then turn around and truck it to the markets on trucks fueled with highly priced diesel, who pass on their costs on to the merchants, who then pass it on to the customers.

This food price inflation can be seen across the board, from the cost of a dozen eggs , that has risen almost 50% since the summer months, to the price of leeks that has doubled in the past year, according to one shopkeeper in Beijing. The annual food-price inflation hit 10.1% in October compared to 2009.

Causes? Economists worry that the economy is now starting to overheat as a result of the two year stimulus and the excess money floating through the economy.

Last week Premier Wen Jiabao announced food price controls on certain commodities including cotton, grain, oil and sugar and has introduced subsidies to some low-income families. Although some analysts believe these actions are designed to be symbolic, as a way to reassure the poor, they do reflect the government’s efforts to combat inflation.

The question looming in many boardrooms this month is what the impact these price increases will have on importer’s supply chains.  With China exporting billions of dollars a year of food products to companies in the United States, these increases could present an interesting challenge to this industry as a whole.  I’d be very interested in hearing what food importers are seeing out there and welcome any additional insight….

Full Article

Picture Source: AFP

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Suzhou Industrial Park (SIP) Overview: Investment in Suzhou 11/18/2010

The China-Singapore Suzhou Industrial Park is located in Suzhou, China – approximately a 2 hour drive from Shanghai.  I had never been to Suzhou before, but I was working on a project for one of our firm’s customers who is looking at setting up a greenfield facility there.  To be honest, I had spent little time in Jiangsu province for the last 5 years and was blown away at the development that had taken place since my last visit. The number of foreign companies invested in the SIP region is quite impressive.  Check out the list below that I pulled from the SIP Website:

Suzhou Industrial Park Quick Facts:

  • Suzhou Industrial Park covers an area larger than 288 sq km
  • More than 75 Fortune 500 companies have invested there
  • Infrastructure in SIP rivals all major modern industrial parks in China
  • SIP is easily accessed via the Shanghai – Nanjing High Speed Train, by car via Shanghai. Closest airports are the Shanghai Hongqiao International Airport, Wuxi Airport and Shanghai Pudong International Airport.

I also found a great video about SIP on youtube.  Check it out!

Last but not least, if you are considering investing in China, you might find this page on Incorporating a Business in China helpful.

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China Jet Battle 11/16/2010

China Airplane industry

Today there was an article in the Wall Street Journal announcing China’s newest big jet orders. The first 100 orders were announced for a jetliner set to compete with Boeing and Airbus. The C919 was unveiled at the Zhuhai air show in Southern China.

The C919’s maker Commercial Aircraft Corp. has not released exactly how many planes have been ordered nor the price of the single aisle, 160 aisle jetliner. This project marks a long-time coming initiative that China has been working towards. Beijing rates the development of a large passenger jet up there with its space program in terms of pride.

Both the United States and other countries’ suppliers are working on the C919. GE and Safran SA won a $10 Billion deal to make the engines.

Fun Number Facts I thought I would throw in:
-Passenger stats through 2010 are up 18% from 2009 to  200.7 million passengers.
-Boeing estimates that China will need 4,330 new planes over the next 20 years.
-China is set to be the 2nd largest plane market in the near future.
100– the number of announced orders thus far for the C919
2014– the expected year for the C919’s 1st flight
2016– The expected year of delivery for the first C919’s (only mock ups at this point)
$480 Billion- Estimated market size for the aircraft manufacturing marketing in China over the next 20 years
102 – The number of planes ordered from a C919 competitor, Airbus, this month in China

Full Article

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China and the Wine Industry 11/12/2010

china wine auction chateau lafite rothschild 1869As an avid wine enthusiast, I think it is necessary to write a post about China’s growing position in the wine world. It may be surprising for some of us to hear that Hong Kong is now the world’s 2nd largest center for Wine Auctions in the world. It has surpassed London and is second only to New York. In fact, a world record was set this year at an auction in Hong Kong with the most expensive bottles of wine ever sold on record. Three bottles of 1869 Château Lafite-Rothschild (world famous French wine from the Bordeaux region) were sold for an astounding, $232,692 USD…each! The one auction sold $8.4 million worth of wine!

As more and more Chinese have started to enjoy the wonderful world of wine and wine collecting, entrepreneurs have been finding ways to capitalize. A number of abandoned factories in Hong Kong have been converted into wine storage units complete with motion detectors, chiller rooms, humidity monitors and automated temperature controls: all the necessary precautions for storing world class wine. If only I could have a wine cellar that big!

You can only imagine the importance for the different wine makers of the world to take advantage of the already huge, and growing market for wine consumption and sales in China. As for producing wine? I think that will be left  to the professionals.

Want to attend a huge food and wine expo? The China International Foodstuff Exposition (CIFE). The 7th annual expo held in Guangzhou, in the same facility as the Canton fair, is going to be held from June 2-June 4th, 2011. The expo this past year had over 25,000 visitors , 523 exhibitors from 23 countries/regions. CIFE is known to be the largest trade fair for the food and beverage industry in South China.

Full Article
World Record china Wine Auction

Photo: Reuters

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Panjiva’s Trade Data in for Month of October 11/12/2010

U.S. October Trade Shipments ChartPanjiva, an online trade platform used by sourcing and supply chain professionals to screen US import data, posted in a recent blog post that global trade activity saw a 2% decrease in global manufacturers shipping to the United States from September to October this year. This decrease marks a noticeable difference from the 3% increase that Panjiva reported during the same period in 2009.

What’s driving this decline? Most likely the weakened US dollar. As the US dollar continues to weaken against other global currencies like the Chinese Yuan, it makes it significantly more costly to import products from countries with strong currencies.

The positive result however, is that as the US dollar weakens, US exports become significantly more attractive to foreign buyers. I think we are going to see a dramatic increase in US exports over the next 12 months as the dollar doesn’t look like it’s poised to gain strength any time soon.

See Panjiva’s Post

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Representative Office or WFOE in China? 11/8/2010

Most of the links below are to the various resources available from Understand-China.com.

Setting up a Representative Office always sounds like the easiest way to establish a business in China.  Years ago it may very well have been, but these days, largely due to Chinese government crackdown, it may make more sense to set up a WFOE or Wholly Foreign Owned Enterprise – especially if China is part of your company’s long term strategy.  Let me tell you why….

Rep Office Restrictions

Rep Offices in China are intended for the sole purpose of promoting a business in China.  Thats it.  And while the initial investment may be more attractive compared to the registered capital requirements involved with setting up a WFOE, there are still a number of other costs and limitations to consider.

  • You cannot conduct any kind of profit generating activity of any kind.
  • You are not allowed to hire employees directly – the Chinese Government forces you to use approved HR firms.
  • You are required to have a Chief Representative that is responsible for managing the day-to-day operation.
  • An Office is REQUIRED.  (usually you will need to sign a 12 month lease in a Chinese government approved building)
  • You will be subjected to annual audits, which means you will either a) need a bookkeeper, or b) need to hire an accounting firm to reconcile your books.
  • Last but not least – You are required to pay taxes……10% on all expenses.  If your annual operating budget is $200,000 your annual tax bill will be $20,000.

Wholly Foreign Owned Enterprises (WFOE) a.k.a. Foreign Invested Commercial Enterprises (FICE)

WFOE’s allow for maximum flexibility.  When you set up a WFOE in China, you essentially have the same incorporation status as any Chinese domestically owned company.  In addition, as a legal entity, you are permitted to conduct business transactions (as long as it is within the scope of your business license of course), hire employees, etc.  You also have the flexibility to setup your office in the building of your choosing.

See also:  Incorporating a Business in China

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Harman expands China Operations by $100 Million 10/27/2010

Harman Expands in ChinaThe global audio and entertainment product manufacturer based in Stamford, Connecticut announced their plans to expand their China manufacturing and research capabilities by $100 Million USD this Monday. The new operation is set to be built in Dandong in the Liaoning Province in Northern China. They currently have operations in Shanghai, Suzhou and Shenzhen. Harman will be able to take advantage of some of the investment incentives provided to foreign investors by the city of Dandong.

Harman provides automotive electronics and audio systems for global automotive brands such as Audi, BMW, Chrysler, FIAT, Ferrari, General Motors and many more. Harman’s plan to expand in China seems like a logical step; last year China surpassed the U.S. as the leading automotive market in the world. Harman already has over 120 employees in China and has set a $1 Billion China sales objective to work towards.

Harman has seen reason to continue China expansion after the success of their participation as a sponsor and supplier to the Shanghai World Expo this year and record results at the 2008 Beijing Olympics as well.

Bloomberg Newsweek’s full article
Harman’s website & Picture Source

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Outsourcing Creates American Jobs Too 10/27/2010

outsourcing globeAn article published on October 12 in the Wall Street Journal reports on the recent whirlwind of events surrounding outsourcing policy development in America. Author William Cohen believes that for every job America outsources, nearly two jobs are created on our own turf; jobs that are pay more and require a higher skill-set, like engineers, scientists and managers. Cohen references studies that have found that when a company expands overseas, they have a higher need to expand management at the American parent company to support their expansion.

The study, published by an economist out of Dartmouth’s Tuck School of Business studied the hiring practices of 2,500 U.S. based multinational companies. He found that when U.S. companies hired lower-cost labor at their foreign subsidiary companies, the U.S. parent companies expanded their teams as well. Meaning that the 2.6 million outsourced jobs helped to create 5.5 million jobs here. And, the jobs created here were often that of management level, created to help support the overseas efforts. Sounds like good news for both countries.

To read the full article please visit:

Wall Street Journal
(sometimes it only gives you a summary, searching the name of the article “Obama and the Politics of Outsourcing” will also work)

Picture Source

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China Raises Gas Prices 10/25/2010

Bloomberg Business Week Reports: Today China has increased gas prices by 3 percent. According to the National Development and Reform Commission, the ceiling for gas prices will increase by 230 yuan or $34.50 USD per metric ton. Diesel prices will also go up by 220 yuan.

The increase is said to be in part to help China reach its energy goals (cut energy consumption per unit of gross domestic product 20% by 2020.) It is also a way to help slow down China’s economy and focus on its green energy efforts.

The price hike is also reported to affect inflation, although it is predicted that the overall affect on prices will not be much. Picture Source

Bloomberg’s Full article

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Guangzhou and Guangdong: What is the difference? 10/21/2010

Guangzhou and Guangdong: What is the difference?

In today’s post I will demystify the difference between two similar-looking words, with two very different meanings. Guangdong (pronounced Gwong-dong) is Southern China’s economic center and one of the wealthiest provinces in China.  Guangzhou (pronounced Gwong-jhoe) is the largest city in the Guangdong province and has been China’s leading international commercial port for over 2,000 years. Guangzhou is the political, economic and cultural center of the province. (See map below)

Guangdong Guangzhou
Type Province City
Location Southeastern China Coast Guangdong Province
Population 95.44 Million USD (2008) 7.6072 Million (2006)
GDP 572.12 Billion USD(2009) 133.5 Billion USD (2009)
FDI 19.2 Billion USD (2009) 11.244 Billion USD (2009)


How did Guangzhou become so strong?

Guangzhou, also called Canton or Kwangchow, is one of the biggest economic zones in China (3rd to be exact), thanks to its proximity to the extremely successful regions of Hong Kong, Macau and its premier access to the Pearl River Delta. The success of these regions began spilling over into Guangdong when labor rates began to increase with the cost of living in Hong Kong. Guangdong’s labor wages are about half of the average monthly wage in Hong Kong.

Guangzhou has grown quickly by offering investment incentives that have helped to attract over 170 of the world’s top 500 multinational companies. The foreign enterprises contributed 11.244 Billion (USD) in foreign capital in 2009; which is over half of the entire province’s FDI. Guangzhou is now the main manufacturing core of the Pearl River Delta region.

Building strength over time, Guangzhou earned 133.5 Billion (USD) GDP in 2009. That is nearly 25% of the entire province’s gross domestic product! With this accomplishment, Guangzhou became the first city in Mainland China to have a per capita GDP of over 10,000 USD.

There is so much going on there!

Guangzhou is also home to the China Import and Export Fair (aka the Canton Fair) which takes place every October and April. The Canton Fair is by far China’s largest and oldest trade fair that been running for over 50 years. Each fair now stretches over three days in order to fit in all of the participants and exhibitors.

Some impressive stats about the Canton Fair:

>200,000 Buyers
>200 countries in attendance
>23,000 Exhibitors
>55,000 Booths
>200 Football Fields in Area (>1.1 Million Sq. Meters)

Some helpful resources I found:

Guangdong Manufacturing & Investment Guide

Guangzhou Government Resource

Invest Guangzhou

Canton Fair Resource

Another China Resource

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