Biz weekly highlights: the game begins in the sky

United Airlines will open direct flights between Chicago and Shanghai. This is a blow to its arch rival, American Airlines which competed hard against UA to grab the business. AA still has chance to win other China routes. And the competition will be as hot as this one.

According to a Sino-US deal on extension of air services, airlines operating flights between the two countries will increase to 9 from each side respectively, from only 4 now. And the number of flights will rise to 249 from 54 in six years. In addition, an extra 84 cargo flights in a week are also allowed. US Department of Transportation will approve to add 14 flights between China and US this year.

And the next field for hottest competition may happen in air cargo service in the future. UPS has a plan to have a cargo hub in Shanghai after its arch rival Fedex applies to the US Department of Transportation for adding 12 flights to its existing schedule.

In China, the first three private airlines have got nod from Civil Aviation of China, which is widely regarded as an ¡°ice-breaking¡± event. In fact, China¡¯s aviation industry will be open wider to foreign investment---either in the sky or on the land. On July 8, Civil Aviation Administration of China transfer the authority of management of four civil airports in Gansu Province, Lanzhou, Dunhuang, Jiayuguan and Qingyang, to the provincial government. This marks a successful completion of China' aviation system reform which has lasted two years. As a result, a new civil aviation administration system has been basically established

Aviation sector opened to foreign investment

Because we are perfectly complementary to each other
There is no reason ¡°for the negotiations not to proceed very well and smoothly¡±, said Al-Ghais, current chairman of the Council of the Gulf Co-operation Council Ambassadors in Beijing. By ¡°negotiations¡±, he refers to the talks about a free trade agreement between China and GCC. This is the first time that economic ministers and financial ministers of all the six countries of GCC have visited one country in its history.

China can provide every thing to the wealthiest countries in the Middle East, except oil which happens to be very rich in GCC. But that is not all. 40 to 45 percent of Asian-Pacific business of SABIC from Saudi Arabia, the largest petro-chemical giant in the Middle East, comes from China market. Talks with a Chinese partner about a joint venture in China are reported to be underway. And how about a marriage between our hi-tech projects and your capital, asked Bo Xilai, Chinese Minister of Commerce. China GCC agree to start FTA talks

No relaxation
The Chinese currency, RMB, still has a long way to go before it is fully convertible under capital account. The convertibility of local currencies is one of the criteria for market economy set by US. RMB¡¯s long-term convertibility ¡°long-term target¡±

Zhou Xiaochuan, Governor of China¡¯s central bank, warned that the equity-debts ratio in China was seriously irrational and tremendous risks were looming behind it. He refuted complaints from enterprises that their liquidity was weakened by the tightening credit grants. He said Chinese commercial banks have become the biggest liquid capital suppliers in the world. Chinese enterprises always bear one thing in mind: liquidity can all come from loans. He also suggested that the reform and opening-up are the best solution to loans resources allocation. In another occasion, his vice governor gave a warning to financial institutions in severe trouble that they would face a forced overhaul or shut-down. China¡¯s central bank not to loosen control on loans: governor

Let¡¯s go to court---if even those guys fail. They are leading professionals. They are well-trained. They are Chinese and American. And your case will be subject to their joint efforts. Sino-US center training mediators

¡°Stop any probing into my company, or I¡¯ll move.¡± Some foreign-funded enterprises under the investigation of tax evasion in China threatened local governments. But the State Administration of Taxation shows no compromise. Tax offices will watch closely those foreign-funded businesses who claim they are ¡°losing money¡±. And books of 55 percent foreign funded enterprises are bleeding deficit, which ironically contrasts with the influx of foreign capital.

A multinational giant in Beijing had to pay a large amount of tax when it was found to evade tax in an investigation. Listed in US, it just does not know how it can explain all of this to their American investors, securities watchdog, and taxation administrations. What¡¯s more, foreign-funded businesses are enjoying more favorable tax treatment than their Chinese competitors in China.China loses 30 billion yuan annually due to tax avoidance by foreign-funded companies

Chinese enterprises have to fight for their future at two front lines. In foreign markets, they must defend themselves against rising anti-dumping charges against them. At home, they must keep unfair competitors out of door. They are learning to play games by rules set by others. They need information. The government is helping them develop nose for potential risks ahead. They need action. ¡°Glad to be at your service¡±, lawyers say.

Chinese lawyers may find they have as much to learn as their clients. For the first time they have claimed a victory. It was a sunset review. But the challenges they both will have to face, like the sun in the early morning, are rising. It is enterprises that should play the leading role. And don¡¯t get jittery or overestimate the problem, suggested Long Yongtu, Secretary-general of Bo¡¯ao Asia Forum.China moves to fight against unfair competitors

Advisements have great influence on customers¡¯ behaviors in China. Advertising is certainly a big cake here. China¡¯s advertising industry has been growing at a speed of 40 percent annually on average in the last two decades, one of the fastest in the world. All the global top 10 ad companies have joint ventures in China. Foreign investors were allowed to set up holding ad companies at the end of 2003 and they can have solely funded ad businesses by the end of 2005.

As a pioneer landing on this market where TV and newspaper dominate the ad business and Internet is expanding its turf at a staggering pace, Star must hold high hope for its prospect here. But will the Star shine brightly in this new sky? Murdoch¡¯s Star to set up wholly foreign-invested ad company in China

The up and down movement
There will be no negative impact of macro-control on foreign investment in China. Instead, tightening measures targeting industries with heavy pollution, high energy consumption and repeated construction at low level help foreign investors. This is the argument of a Chinese official from China Council for the Promotion of International Trade. What he said is true. Take steel for example. China is cooling down the investment in this sector. The case of Tieben is a typical example. The local project in Jiangsu Province was closed down when the State Council found it had been set up against the law. But world steel giants do not cool down their enthusiasm toward China market, because they offer high-end products China needs. Transnational steel mogul quickens steps into Chinese market

Both the business climate index and entrepreneurs climate index were down in the second quarter. This means that the effect of macro-control measures have extended to enterprises. Confidence of players in ferrous metals sector has been hit the hardest. Those in hi-tech industries basically hold similar outlook as they were in the first quarter. And consumer confidence index was also down.Business climate index drops slightly for Q2

US chip to get cheaper?
After four rounds of talks, on the evening of July 2, China and US finally came to an understanding on the CI dispute between them. Details of the MOU will not be accessible until it is signed ¡°some day¡± recently. But the online press release by China Ministry of Commerce said that the existing tax policy will remain valid till Arpil 1, 2005. The Americans will withdraw their lawsuit against China filed to WTO. According to the press release of the Office of US Trade Representative, the agreement ¡°will ensure full market access and national treatment for US integrated circuits in China¡±.China, US to sign MOU on semiconductor: Ministry of Commerce

Embracing bond
In the international capital market, subordinated bonds have become one of the investment products with the best liquidity. It is foreseeable that more and more such bonds will be issued by commercial banks in China. On July 7, the Bank of China made a hit on the inter-bank bond market. It issued an extra bond of 4.07 billion yuan after its initial 10 billion yuan was all absorbed by investors. The interest rate is 4.87 percent as a result of bidding. China Construction Bank is also planning a 4.8 billion USD subordinated bond issuance in mid-July. Bank of China sells 1.7b USD of 10-year bond

In Hong Kong, more vigor has been injected into its bond market. The Hong Kong SAR government announced on July 7 a sizable government bond issuance program. The 20 billion package, including both USD and HK dollar denominated bonds, is open to retailers and institutional investors. It will help fund HK¡¯s infrastructure construction and has far-reaching impact on the capital market there. Standard & Poor¡¯s assigned A+ ratings to USD bond and AA- to HK dollar bond. Hong Kong kicks off Beijing Roadshow

By People's Daily Online



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