“China has become the world’s second biggest economy according to data released on Monday August 16th.”  This is the latest from The Economist.  Read more about China’s climb and see an interesting chart about world gross domestic product (GDP).

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Canadian beef producers will be pleased that Hong Kong is once again open to their products.  Hong Kong represents a sizable market for beef producers as was emphasized in January when the Minister of Agriculture spent some time in Hong Kong. 

Also on the Prime Minister’s agenda, an address to the Canada China Business Council where he spoke about investments in clean technology and new Canadian commercial offices,

The Prime Minister emphasized in today’s speech the importance of Canada and China working together on energy and clean technology and working with other G-20 partners to help ensure global economic recovery. He stressed the need to remain committed to sustained economic stimulus, coordinated exit strategies and to fighting protectionism given the role trade plays in creating new opportunities for both countries.

“Pacific nations like Canada and China have much to gain by increased cooperation as the centre of gravity of the world economy swings toward the Pacific,” said the Prime Minister. “Now is the time to enhance and expand our relationship, to build upon our mutual successes, and to use the authority those successes have afforded us to set an example for others in the world.”

Read more about the Prime Minister’s mission.

Nevertheless, this is not stopping Geely.  The company aims at selling 1.3 million cars abroad by 2015 (30,000 foreign cars were sold in 2008).  Geely has not only increased employment levels, but has created its own university, the Zhejiang Automotive Engineering Institute, and has assets abroad as well.  It also plans to build factories in South Africa and Mexico.  And, according to the article, Geely might be in the game to buy a European car company. 

So Geely has big plans, we’ll just have to wait and see what develops.

Click here to read the full article from The Economist.

You might also want to visit Geely’s website and view some of their videos.

Using the renimbi is expected to bolster trade transactions between Hong Kong and China, as well as promote economic development, provide flexibility in their operations, and enhance Hong Kong’s financial system.  John Tsang, Hong Kong’s Financial Secretary was quoted in a HKMA press release: 

“Allowing trade transactions between the Mainland and Hong Kong to be settled in renminbi will not only strengthen the role of Hong Kong as a testing ground for the use of renminbi outside the Mainland, but is also conducive to trade activities and economic development in the two places.” 

This move can be seen as one stage in a long-term goal to make the renminbi convertible into other currencies, and as an alternative to western currencies, especially the US dollar.  The business community will need to take time to adjust.  For now, however, they will start small and aim for its dominance in Asia.  This is a lofty goal and will not happen over night of course.  An article from the New York Times has hinted that China might want convertibility to coincide with the government’s goal to make Shanghai a financial center by 2020.

Photo by  amy-wong.com

Stockwell Day, Canada’s Minister of International Trade and Minister of Asia-Pacific Gateway, has just concluded a 10 day trade mission to China and Japan where he got quite a lot accomplished.  The mission’s purpose was to promote Canadian businesses in building systems (wood frame and light steel construction), and energy-efficient construction (building products, technologies and design, including retrofitting, energy and water conservation, heating and cooling equipment, new building materials, cold climate building technologies, and architectural services).  While there, he also participated in four separate trade missions covering a variety of sectors: 1) transportation firms and organizations promoting the Asia-Pacific Gateway as a key North American corridor; 2) information and communications technology companies; 3) construction companies with expertise in energy-efficient products and building designs; and 4) a medical devices delegation. 

For China specifically, Minister Day signed a new trade logistics agreement to further support trade and transportation between countries, an action plan for collaboration in the transportation sector, and also an agreement on cooperation in civil aviation industries.  He wasn’t done there however, as it was also announced that Canada will open two new trade offices in Chengdu and Shenzhen by July 1, with four others to be open by year’s end. These six new offices will complement Canada’s four existing offices in Beijing, Shanghai, Guangzhou and Chongqing.

Chengdu is a vital economic, transportation and communication center in the southwest, and according to the US Commerical Service, the most important commercial center in West China.  Its key manufacturing sectors are electronics, machinery, pharmaceuticals, chemicals, metallurgy and food processing industries.  Shenzhen on the other hand is noted as being China’s first and so far, most successful Special Economic Zone.  It attracts a lot of foreign investment, is the second busiest port in mainland China (following Shanghai), is where quite a few of China’s high-tech companies are headquartered, and is considered one of the fastest growing cities in the world.  The Shenzhen Stock Exchange as well is located there.

Photo from http://www.international.gc.ca/commerce/visit-visite/jap-chi-2009-photos2.aspx

Over the past 30 years, Coke has invested $1.6 billion in the Chinese Market and has good reasons for doing so.  China is Coca-Cola’s fastest growth market and its third biggest market (after the US and Mexico) says Muthar Kent, Coca-Cola’s chief executive officer in the article “Coca-Cola to invest more than $2 bln in China over next three years” from SINA English.  The article noted globally, Coke posted a five per cent growth in the fourth quarter of 2008 with both sparkling and still beverages, but in China, it posted a 29 per cent gain (19 per cent for the year as a whole).  This represents the largest percentage increase in more than five years (21 consecutive quarters).  Compared to Coke’s North American market, their annual report showed that sales declined by 1 per cent in 2008.  

This $2 billion investment is not the only big move Coke is pursuing in China.  Last September, Coke announced its intention to purchase China Huiyuan Juice Group Ltd, China’s leading pure juice maker. China Huiyuan captures about 42 per cent of China’s fruit juice market. The offer is not final, as according to Anti-Monopoly laws, the deal has to be approved by the Ministry of Commerce.  While there are some tensions rising due to nationalistic pride, because if this deal goes through, it would be the largest acquisition of a domestic company by a foreign firm, a decision is expected by the end of the month.

Coke is not the only beverage giant to show an interest in China.Pepsico announced plans in a November 2008 press release to invest $1 billion in China over the next four years.  As well, Japan’s Asahi Breweries, Ltd. paid $667 million for an almost 20 per cent stake in Tsingtao Brewery Co., China’s biggest beer company in January.  Of the two beverage giants, in China, Coca-Cola represents 54 per cent of the soda market, and Pepsico 31 per cent, this is according to Euromonitor International, a research firm.

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Many sectors offer opportunities for Canadian firms, in Hong Kong as well as mainland China, but perhaps none more exciting as the environmental technology sector.

Bruce Hicks was born in Canada but his career took him to Hong Kong in 1984.  Having experience in the telecom industry, Hicks is now Managing Director of TPIZ Resources, an environmental services and investment company.  Operating through two joint ventures, the company provides expertise to small and medium sized companies on how to maximize energy efficiency, indoor air quality and water resources among others, in a way that will improve their environmental record while maximizing the financial returns.  It also funds and develops large scale energy efficiency projects through Asia.

Hicks says that the green technology sector in China offers outstanding opportunities for Canadian firms who have good technology and extensive experience in the sector.  In China, he explains, the sector is fragmented with many small companies yet there is huge domestic demand for techology and services in China. 

Ironically, Hicks says that Canada was very helpful on the policy development side about five years ago.  China now has well developed policies which have created enormous demands for green technology solutions.  Canada was there to help develop the framework, but Canadian firms are nowhere in sight to reap the benefits.   Australians have been quick to capitalize on these opportunities by putting good people in China and spending time to develop relationships.

Canada is commonly compared to Australia in Hong Kong with Australians described as more aggressive and with greater staying power.

“Canadians should just get off the stick and go do it,” says Hicks.

In the next story in this series, find out what one Canadian professional hockey player is doing in Hong Kong to introduce inner city kids to Canada’s game.

With the mutual fondness between Hong Kong and Canada as the foundation, Hong Kong provides fertile ground for Canadian business ventures.   

Business owner Bruce Hicks, a resident in Hong Kong since 1984, says the suggestion that Canadian companies use Hong Kong as their gateway into Asia, “makes absolute sense”.  Building on the strong affinity between Canada and Hong Kong, Hicks explains that it’s possible to get work done in Hong Kong quickly.  The labour force offers a key advantage.  Hicks is the managing director of a green technology company called TPIZ Resources but has had experience in other sectors as well.  Finding trained workers who speak English is much easier in Hong Kong than in Beijing where there is an intense demand on people with technical skills who speak English.   

Hicks also praises the service attitude in Hong Kong explaining that, “there’s still pride in doing a good job in Hong Kong.”   

In the environmental sector in particular, Hicks believes there is a great deal of opportunity for Canadian firms.  Read more about that in the next story in this series.

Canada’s Trade Commissioner in Hong Kong, John Zimmerman, agrees that setting up in Hong Kong can help Canadian firms accelerate the process of breaking into the market in mainland China.  “It’s not the only entry into China but it’s an easy one,” says Zimmerman. 

In fact, according to Invest HK’s Simon Galpin, it takes just over a week to set up a business in Hong Kong.  Business start up is very straight forward with few companies requiring licenses.  Add to that low taxes, (many sources of income are tax free like capital gains, investment and sales) and duty free entry of products like wine and beer, and Hong Kong provides a low risk option.  Invest HK offers unparalleled support and advice which will be the topic of a later article on Ventures.

Hong Kong is a lucrative market with seven million residents as well as 29.5 million visitors each year, mostly from mainland China.  It’s a test market for many other Asian markets and is in fact, the largest Asian market for Canadian beef and pork. 

Zimmerman says that the Hong Kong Airport handles the highest volume of cargo of any airport in the world and provides duty free entry to China.  He points out that if a Canadian company wants to ship fruit into China, Hong Kong is the way to go since logistical challenges including customs clearance and integration to mainland China, are reduced to zero. 

Even more important perhaps is that many decisions made in Hong Kong affect business in China, according to Zimmerman.  Beijing is supportive of the Hong Kong economy.  Companies in Hong Kong have a great influence on decisions made in Beijing.  The Hong Kong MTR subway has for instance, been contracted to run the subway on the mainland.  There is a good chance that they’ll take their own subcontractors with them including Ontario engineering firms that have been involved in Hong Kong.  

Dr. William Yip is perhaps the most direct in his advice about using Hong Kong as a stepping stone into China.  It has often been said on Ventures that a Hong Kong partner who understands the business culture is a huge asset.  But Dr. Yip adds another layer of complexity by explaining that business operations in China must have the support of senior party officials.  A partner who can liaise with senior officials is essential.  “In Western culture, all roads can lead to the room,” adds Yip, “but in China, there are lots of dead end roads but they tell you all roads lead to the room.”

All agree on one thing:  the fondness between Canada and Hong Kong and China as well, means that half the battle is won for Canadians wishing to do business in Hong Kong and China.  It’s up to Canadians to wage the rest of the battle and just get started.

Learn about the opportunities for Canadian firms in green technology in the next story in this series.

• Stock markets are cyclical by nature.
• Stock markets have shown signs of stabilizing since November.
• There is a need to watch for stock markets to hit bottom as they do so about four to six months before an upturn.
• Like the stock markets, interest rates have been volatile since late 2007, but are also leveling of and can be an indication of stability. Rates are still decreasing, but there is less “stress”, as he puts it.
• Interest rates and stock markets and linked and their stabilization are a positive sign.

His presentation was broken down into five main sections: lessons of history; market outlook; economic outlook; policy and politics; and implications for China.  For the latter, Mullins notes that China has promptly and aggressively taken steps to battle the financial crisis, which he believes lays a good foundation for future growth.  He also outlined from the Institute’s Economic Freedom of the World: 2008 Annual Report, the progress that China has made and needs to make, specifically in regards to their size of government, legal structure of property rights, access to sound money, freedom to trade, and regulation.

Photo by ArtemFinland

“As we strengthen our work on domestic intellectual property rights, we will continue to promote international exchanges and cooperation in order to encourage the healthy development of trade relations.”

This was part of the statement made by Yao Jian from the Chinese Ministry of Commerce after the World Trade Organization (WTO) stated that China must institute more complex laws to battle copyright infringement.  This WTO ruling is the result of a United States suit brought against China in 2007 claiming that certain parts of China’s intellectual property rights (IPR) regime is not compliant with its Trade-Related Aspects of Intellectual Property Rights (TRIPS) arrangement.  This 2007 suit came after seven years of bilateral discussions between the US and China did not resolve the issues.  The International Intellectual Property Alliance (IIPA), a grouping of US music and movie producers, authors and other private sector groups, estimate that China’s IPR regime cost more than $3.7 billion (USD) in lost sales.  The IIPA was formed in 1984 in bilateral and multilateral efforts to improve international protection of copyrighted materials.

In its case, the US brought up three main concerns about China’s IPR enforcement.  First, the US argued that allowing pirated materials (unauthorized trademarked and copyrighted goods) to be sold at auctions is not WTO compliant.  The WTO panel agreed and disapproved of China allowing seized counterfeited goods to be publically auctioned with the stipulation that the fraudulent trademarks, designer labels and brands are removed.  The US has argued that simply removing the labels harms the reputation of the legitimate makers as well as can confuse consumers when in fact, measures should be instituted to deter piracy and copyright infringement. 

A second point brought against China is that it does not provide a venue for copyright holders to file a grievance about copyright infringement until the work has been approved by official censors.  In this case, if a copyright is being violated, the owner does not have a recourse if the product has yet to be cleared.  The US has stated in a press release that this too is inconsistent to TRIPS because the “blanket denial of protection deprives certain copyright owners of vital enforcement tools to prevent unauthorized copies from being produced in China and distributed there or exported to other markets.”     

The third point was that copyright breakers don’t have a fear of Chinese laws because the bar for bringing a case is set too high and therefore counterfeiters are rarely prosecuted.  This was one of the points in a 2006 Report to Congress On China’s WTO Compliance by the United States Trade Representative (USTR).  The WTO panel did not agree with this US claim however, and did recognize Chinese enforcement of its IPR laws. 

Though not focusing on any specific country, the Ontario Chamber of Commerce released the report, Protection of Intellectual Property:  A Case for Ontario in 2007, in which the cost of piracy and counterfeiting to the Canadian economy is estimated to be $22.5 billion.  This then translates into a $9 billion cost for Ontario.  The report also stresses that in order to tackle IPR issues, coordinated action is necessary by all stakeholders, including government, enforcement officials, industry and consumers.

For further reading: USTR’s 2008 Report to Congress On China’s WTO Compliance.

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