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For notices inquiries, please contact:Peter Chung Tel: 2565 2390Carol Chau Tel: 2565 2355Fax: 2565 2320
Today, HK: Australian Chamber ofCommerce training workshop II:“Cross-cultural issues in theworkplace”. Lucky Building, 39Wellington Street.
Tomorrow, HK: American Chamberof Commerce breakfast: “WTOMinisterial Conference: Just why areall those trade ministers cominghere anyway?”.
American Chamber of Commercebreakfast: “An entrepreneurialapproach to conservation: Investingin the stewardship of China’snatural and cultural heritage”.
American Chamber of Commerceluncheon: “Visibility and trademanagement: Technologicaladvances in supply-chain integrationand cost-effectiveness”.
Asia Society luncheon: “Asean andregional co-ordination”. JW MarriottHotel.
Entrepreneurs’ Club meeting:“Designing a successful retailbusiness”. Speaker: GOD founderDouglas Young. The Edge.
Today Interim: Era Information &Entertainment
Tomorrow Interim: Lenovo Group
November 2 Interim: GalileoCapital Group
November 3 3rd Quarter: ManulifeFinancial Corporation
November 4 Interim: InfoCommunication Holdings, ShanxiChangcheng Microlight Equipment,Sunevision Holdings, Tai ShingInternational (Holdings), ValueConvergence HoldingsQuarter: ProSticks InternationalHoldingsAGM: SmarToneTelecommunications Holdings
November 7 Interim:DIGITALHONGKONG.COM, ExcelTechnology International Holdings,Jiangsu Nandasoft, Launch Tech,Lee & Man Holding, Lee & ManPaper Manufacturing, MP LogisticsInternational Holdings, PineTechnology Holdings3rd Interim: Argos Enterprise(Holdings), Hang Seng Bank, HSBCHoldings3rd Quarter: Shenzhen NeptunusInterlong Bio-Technique
EVENTS DIARY
RESULTS DIARY
IN THIS ISSUE
ANNOUNCEMENTS
ATV 4B’jing Z’guang 7Baosteel 7BOCHK 3BP 10Ch United Tel 4Cheung Kong 3Chevron 10China Mobile 4China Unicom 4CIMB 12ConocoPhillips 10CPA Australia 9Dubai Ports 7East West 2Eastman Kodak 24Emirates Tel 10Esprit 23Exxon Mobil 10Guoco Gp 23
Hang Seng Bk 3HSBC 3Leeport 7Link Reit 3Matsunichi 23Mindshare 4P&O 7Pakistan Tel 10Prosperity Reit 3S’zhen Express 7Shell 10SHKP 3Siem Reap Air 4Southern Bank 12StanChart 7Suntec Reit 3Tiger Air 10TVB 4Wal-Mart 10Wing Tai Hold 3
Yes, to get rich is glorious. Buteven more glorious is to get richunseen and unheralded.
That, no doubt, is what YanJiehe is thinking, a man unknownto the public until October 12when the annual Hurun list ofChina’s richest 400 people waspublished.
The 45-year-old must bewishing it had never appeared.
From being a comparativenobody, he was catapulted intosecond place in China’s new“Croesus class”, with a personalfortune estimated at US$1.5 billionamassed from building roads,railways and bridges andacquiring state firms at rock-bottom prices. This year, hisworth grew eight times from a notinsignificant US$180 million lastyear and he became China’sbiggest private employer with100,000 workers, most of themfrom the ailing state firms.
After Mr Yan was crowned a
billionaire, two strange thingshappened. The governments ofJilin province and Jingdezhen, thehome of some of the country’smost beautiful porcelain,suddenly cancelled negotiationsalready well advanced to sell him14 state companies.
Many see this as a bad omen,expecting that Mr Yan may soonreceive the unwelcome attentionof regulators over the suddengrowth of his wealth with thepossible charge that he acquiredthe state firms at below marketprices. It was fear of investigation
and possible prison for the seriouscrime of “loss of state assets” thatmade the officials in Jilin andJingdezhen drop the contracts.
Mr Yan responded quickly tothese suspicions. “We havecommitted no original sin. Wehave done nothing illegal. Ourfirst fortune was very clean.”
The moral of this story is thateven after 10 years of one of thebiggest privatisation campaignson the planet, buying state assetsin China is still politicallydangerous. The secrecy and theunclear and arbitrary rulessurrounding most sales leave bothbuyers and sellers vulnerable tolegal and political punishment“for stealing state assets”.
Official policy for the past 10years has been to encourage localgovernments to sell the firms theyown, except in strategic sectorssuch as cars, telecommunications,energy, metals, petrochemicals,finance and defence.
The definition of “strategic”,though, has been shrinking.
This privatisation has beenlargely conducted in secret withwidespread scepticism over howbuyers and sellers haveestablished the value of the assetsand suspicion of collusionbetween the two with factorymanagers taking bribes frombuyers in exchange for loweringthe price. Often the manager, whoknows the true value of thebusiness that he or she heads,buys it for a song.
In 2003, Beijing ordered thatsuch sales had to be public, withcertain exceptions. But localofficials ignored the order and inMay this year, Beijing issued aninternal (neibu) instruction that allsales had to be public auctions. Itwas probably this instruction thatscared the Jilin and Jiangxigovernments into cancelling thesale after Mr Yan’s nameappeared so prominently.
Mr Yan’s history is typical ofmany of China’s millionaires.Born in 1960, he could not attenduniversity because of his lowsocial class but was able to attendteacher training college after theCultural Revolution and became ateacher. He took business coursesat People’s University and in 1992set up his own construction andengineering company in Huaian,Jiangsu province.
Lacking the politicalconnections of his rivals, Mr Yantook on his first road-building
contract at a loss to gain afoothold in the market. From1993, he joined the constructionboom in eastern China, workingon the Beijing-Shanghaiexpressway, the Nanjing railwayand bridges over the Yangtze.
He made himself popular withcash-strapped local governmentsby giving them build-and-transfercontracts and it was these goodguanxi (connections) on which MrYan traded for the next phase ofhis empire-building – buying fromthe governments state companiesthat they wanted to dispose of.
His company forecast revenuethis year of 30 billion yuan withorders over the next 10 years of200 billion yuan. Its target forrevenue in 2010 is 60 billion yuan.
But his story shows howquickly local officials pull the rugfrom under a private entrepreneurat the first sign of trouble from theemperor in [email protected]
Predators risk it all in the mainland’s privatisation jungle
MarkO’Neill
ON CHINAO’Neill
“Often the manager,who knows the true value of thebusiness that he orshe heads, buys itfor a song”
ping and the customs duty im-posed by the destination country.Folding chairs, tables or anythingthat can be disassembled are “KD”– knock down – which is good be-cause buyers can fit more per ship-ping container when “collapsed”,cutting freight costs.
Large products such as a gardenswing are considered “club items”.That is because they are typicallysold by large warehouse-sized re-tail clubs such as Sam’s Club orCostco. For department stores andother traditional retailers, displayspace is often too precious to ac-commodate bulky products. Mark-ups also vary, depending on wheth-er the ultimate buyer is a club ortraditional retailer.
There is a staggering array ofseemingly useless items on display,much of them destined to clutterhomes across the American heart-land. Several booths feature varia-tions on a popular decorative item:a metal sculpture of a cat in sun-glasses dressed in a neon cloth out-fit and playing a musical instru-ment, usually a saxophone. “No-body needs this [stuff],” Mr Ronansays.
From a retailing perspective, themerchandise is sometimes less im-portant than its price. That is espe-
More than a few supply chains startwith Jim Leonard. Lunching on ahamburger and fries inside a busyGuangzhou McDonald’s oppositethe hulking Canton Fair building,the Boston native describes a re-cent shopping trip he and his wifetook to a chain store in Massachu-setts that put things in perspective.
“My wife’s standing in the aisle,staring at some thing on the shelfthat costs US$7.99,” he recalls. “So Isay: ‘What are you doing?’ And shesays: ‘I’m trying to decide if it’sworth US$7.99.’
“So I say to her: ‘Eighteenmonths ago, some guy got on aplane somewhere in the UnitedStates, flew to China and went tosome trade show where he walkedfor five days, eight hours a day, andfound this thing.”
He explains how “the thing”went from factory to truck to port toboat to port to US Customs in LongIsland, New York.
“Then it got trucked to a distri-bution centre somewhere, sorted,and put back on a truck until itreached this store, where somestock boy dragged it down this aisleand put it on this shelf,” he contin-ues. “And you think US$7.99 is tooexpensive?”
Mr Leonard, the director of USsourcing firm East West Basics, andhis colleagues Jack Ardington andJohn Ronan are among thousandsof businessmen that regularly takethe long flight to China to seek outnew merchandise and suppliers forlarge US retailers. Like traders on amodern-day silk route, these sea-soned middlemen have helped tobroker, trinket by trinket, the mostexplosive growth story in globaltrade in decades.
The world’s workshop needs apretty big showroom and the big-gest of all is the semi-annual Chi-nese Export Commodities Fair. TheCanton Fair, as it is better known,closed yesterday after a two-weekautumn session.
Mr Leonard, a 20-year fair veter-an, says that with the possible ex-ception of a rival show in Frankfurt,the Guangzhou event is the world’s“only truly global trade fair”.
First-time attendees can be for-given for thinking they havestepped into the world’s largest fleamarket, staged in two separateexhibition centres spanning about560,000 square metres. Manufac-turers and trading firms from allcorners of China show off productsranging from industrial equipmentto nylon kites to internet servers.Buyers from around the world fillthe air with a Babel of languages.
This past spring, about 12,000exhibitors occupying 28,000 boothsshowed off their wares to 195,000visitors from 210 countries. Accord-ing to official figures, deals worthUS$57.1 billion were signed at theCanton Fair’s spring and autumnsessions last year, equal to about 9per cent of China’s exports.Chances are very good that youown something sourced here.
The merchants on the tradingfloor also speak a common tongue– the pidgin of today’s supplychain. Sellers quote prices of goods“FOB” or freight-on-board, mean-ing the factory gets the goods to aChinese port. But for buyers, thereal consideration is the overseas“landed” cost, which includes ship-
cially true for decorative items.Goods that retail just below theUS$20 mark are considered “dis-cretionary purchases” or “impulsebuys” – spending typical consum-ers do not have to think about.
Begun in 1957, the Canton Fairserved for years as the country’sprimary window for trade with theoutside world. The fair originallywas limited to state-owned trading
companies as a forum for them tofill quotas on the purchase and saleof basic commodities and produce,as well as some regional manufac-tured wares.
During the Cultural Revolution,former premier Zhou Enlai inter-vened to ensure the fair remainedopen despite Red Guard protests.Turnout in those years was low butorders still were placed. As US busi-nessman-turned rights activistJohn Kamm writes in Ezra Vogel’sOne Step Ahead in China, Guang-dong Under Reform: “The autumnfair of 1967 opened a month lateand there were ugly ‘struggle ses-sions’ against British traders … for-eign traders noticed the replace-ment of older, experienced Chinesenegotiators with young ideologues,ignorant of world markets but wellversed in Mao [Zedong]’sthoughts.”
Today, the old ideologues havebeen replaced by young, techno-logy-savvy entrepreneurs that for-eign traders say are among thesharpest merchants anywhere.
Management of the fair remains astate venture under the Ministry ofCommerce and the Guangzhoumunicipal government but busi-ness has more than tripled since itfully opened to private and foreign-invested manufacturers in 1993.According to Xu Bing, the fair’sdeputy secretary-general, non-state companies account for morethan 60 per cent of exhibitors.
For traders on the ground, to-day’s fair is more about makingcontacts than signing contracts.Winding their way up and down thehalls, Mr Leonard, Mr Ardingtonand Mr Ronan spend most of theirtime catching up with old suppliersand searching for new ones. Theyhave not placed an order at the fair
in years but instead use the oppor-tunity to see what new products arecoming to market. For sellers, too,the idea is to see and be seen. Askedfor a quote on a set of wooden ta-bles, one exhibitor says: “They’renew. They don’t have a price yet.”
Sifting through the goods is anart in its own right and few, if any,buyers will visit every stall. For theteam from East West Basics, it is aquest to find those few items thatare new and unique but can still re-tail at the crucial price points –US$19.99 or US$99.99 – that drivediscretionary purchases in the US.Spotting the next must-have itemcan bring a windfall that lasts a re-tail cycle or longer. Sorting througha stack of ornamental plates madeof a plastic composite, Mr Arding-ton studies the colours, design andfinish quality. “He has a great eyefor product,” Mr Ronan says.
They note the serial numberand FOB cost of each item thatcatches their eye, along with thenumber that will fit in a 40-footcontainer. The exhibitors note theitems East West Basics is interestedin and the price they were quotedas a starting point for later talks.
Finally, the items are tagged for thephotographers that trail EastWest’s buyers. A “book” is builtfrom the pictures they take to facili-tate pitches to US buyers.
Increasingly, mega-retailerssuch as Wal-Mart and Home Depotare bypassing middlemen by set-ting up in-house sourcing opera-tions in China, which cover eventssuch as the Canton Fair. But eventhose well-honed buying teamscannot spot every potential hotitem. And not many US-based re-tailers have the energy or time tovisit Chinese factories several timesa year and rummage through thecountless products at trade shows.For now, modern-day China trad-ers remain a crucial link in the glob-al supply chain. As Mr Ardingtonputs it: “We prey on other people’slaziness.”
● Till tally: This year’s fair had salesof US$29.43 billion – an increase of0.7 per cent. About 177,000 busi-nesspeople from 210 countries at-tended, according to a Reutersreport. [email protected]@scmp.com
Neil Gough and Tom Mitchell in Guangzhou meet the men who form the link with China’s countless goods and our shelves
Chains that tie East and West trade
SCMP Graphic
POSTCARDS FROM THE FAIR
“Some guy ... went to some trade showwhere he walked for five days, eight hoursa day, and found this thing”
Jim LeonardEast West Basics director