Report 2 on Four of China's Tier-3 Cities: Foshan

The second in our series of tier-3 cities, Foshan is on the rise. It recently broke the 300 billion RMB GDP mark (for FY2007), and along with 5 tier-2 cities for 2007. Hence, it is probably fair to call Foshan a tier-2 city at this point, but because it flies so low on the radar, we will keep it in the tier-3 grouping for now. Once again, if not otherwise noted, the information comes from Wikipedia.

Foshan (Chinese: 佛山; pinyin: Fóshān) is a prefecture-level city in central Guangdong province, People's Republic of China. The city has jurisdiction over an area of about 3,840 km² and a population of 5.4 million of which 1.1 million reside in the city proper (2000 census figures).

Total GDP ¥292.67 billion; Per Capita GDP ¥50,207 (2006)

Administration

The prefecture-level city of Foshan administers 5 county-level divisions, all of which are districts.

• Chancheng District (禅城区)
• Nanhai District (南海区)
• Sanshui District (三水区)
• Gaoming District (高明区)
• Shunde District (顺德区)

These are further divided into 64 township-level divisions, including 37 towns and 27 subdistricts.

Transportation and Infrastructure

External links

-Foshan Airport was once a regional airport with mixed usage (both military and domestic transport) since January 22, 1987, as it became a base of China United Airlines (CUA) in Guangdong Province. When CUA ceased domestic flights in November 1, 2002, Foshan Airport remained military service only. The airport resumed its regional airport status in 2005 when the regrouped CUA, which was partly purchased by Shanghai Airlines, resumed domestic flight service. It is expected domestic flight linkages between Foshan and at least 10 Chinese cities including Beijing, Nanjing, Hangzhou, Yinchuan will begin in the near future.

-Foshan is close to Guangzhou and considers its link with Guangzhou very important. A Guangzhou-Foshan metropolitan region is being formed as well as the 37-km Guangfo subway line linking the two cities.

-Foshan is a main interchange for railway routes linking Guangzhou, Hong Kong, western Guangdong Province and Guangxi Province. It is connected with Hong Kong via the KCRC Guangdong Through Train service from Foshan railway station. The inter-city through train service was extended from Guangzhous to Foshan in the late 90s.

- China's Ministry of Communications and the Communications Administration of Guangdong Province have jointly approved the planning of constructing Foshan Port in Guangdong in mid-July 2007. The Foshan Port under planning will have a cargo flow of 110 million tonnes by 2010 and 150 million tonnes by 2020. The Foshan authority plans to bring Hong Kong's logistics industry to the port. (NewsTrak D-(Jan. 16, 2008)- Construction on the second phase project of Foshan Aomei Aluminum Co., Ltd., the Southeast Asia's largest aluminum material enterprise, has been completed, bringing the company's annual production capacity to 200,000t. According to a source, Aomei Aluminum is the largest aluminum processing enterprise and largest production base funded and established by Qili Industry Group, it is headquatered in Malaysia's Kuala Lumpur and has large production or sales bases in Great Britain, Australia, Hong Kong and Dubai.( www.chinainfoworld.com )

-The first phase of the first specialized logistics distribution base in Foshan City's Sanshui District formally began operations on December 12th, according to the latest news released by Foshan Automobile Transportation Group. The base occupies an area of more than 6.67ha (100mu) and was funded by Foshan Automobile Transportation Group with RMB40M. The base will provide modern logistics services such as storage, distribution, freight forwarding, third party logistics and value-added services of the supply chain, with the designed monthly cargo transportation volume at 60,000t and the truck handling volume exceeding 3,000 units. (China Industry Daily News, 12/14/07)

Economy

Agriculture

There are Agricultural Model Districts (AMD) around the prefecture, such as Shunde Chencun AMD, and AMDs in Daili Town, Shatou Town and Locun Town in Nanhai, with a total area of about 9.4 km². The AMDs aims at providing an all-round environment for modern agriculture. Agricultural process is upgraded through technology, and sale service is incorporated with a new style tourism, that attracts target clients. The modern integrated practice mode resulted in the reputation of the largest base for wholesale, food production, storage and logistics of agricultural products in Guangdong Province.

Manufacturing industries

Following Shenzhen and Guangzhou, Foshan is the third largest manufacturing base in the Pearl River Delta. Once home to a strong State-Owned Enterprises sector, its current economic strength lies in private firms and Township and Village Enterprises in Shunde and Nanhai. In 2002, private firms contributed 56.12% of the industrial output and firms from Hong Kong, Macau, and Taiwan contributed 63.44% in exports.

Key industries in Foshan include:

• household electrical appliance and tool manufacturing
• furniture
• non-metal ore and manufacturing
• ceramics
• garments
• chemicals
• electronic information
• medicine
• food and beverages
• building materials
• automobile parts
• high technologies
• electronics and communications
• stainless steel products
• Plastic products

Towns in Foshan specializing in pillar industries are as follows:

• Beijiao Town, Shunde (顺德北滘) - household electrical appliances
• Chencun Town, Shunde (顺德陈村) - flowers and horticulture
• Dali Town, Nanhai (南海大沥) - aluminium products
• Lecong Town, Shunde (顺德乐从) - furniture production and distribution
• Nanzhuang Town, Nanhai (南海南庄) - building materials
• Xiqiao Town, Nanhai (南海西樵) - tourism and textiles
• Yanbu Town, Nanhai (南海盐步) - underclothes

Several well-known brands to come out of these pillar industries include Midea, Kelon (before its 2005 bankrupcy), Jianlibao, and Galanz Group (Galanz Group and Midea Group jointly hold more than 80% of China's microwave oven market, according to a report by China Market Monitor Co., Ltd.). Foshan's furniture and lighting industry is known as the world's largest, including the world’s largest furniture wholesale market and the world's largest lighting wholesale market.

Development strategy

Foshan aims to become a manufacturing giant and the third largest city in Guangdong. To do this, it has pledged to make large-scale investments in the construction of transportation and energy infrastructure. Urban development will focus on the Central Urban Group and Shunde Urban Group, each with more than one million inhabitants.

-China Development Bank, a policy bank in the country, has granted more than CNY 2 billion loan to Nanhai district, Foshan city, China's southern Guangdong province. The local government used the capital to finish the preliminary construction of Qiandeng Lake and planned to set up a financial business zone there. Guangdong, a developed province in China, wants to build Qiandeng Lake to be a financial high-tech development zone, which covers an area of some 4.5 square kilometers. Chen Yunxian, mayor of Foshan, said that Qiandeng Lake was positioned as a financial logistics base for the province, containing data processing center, call center, disaster recovery center, training center as well as innovation and R&D center.

Companies

- Chi Mei Optoelectronics Corp. (CMO), the No. 2 manufacturer of thin film transistor-liquid crystal display (TFT-LCD) panels, plans to set up a LCD module (LCM) production plant in northern Vietnam in 2008 and form a panel-industry cluster in the region, according to company president Ho Chao-yang. Ho said CMO's two LCM plants in mainland China have effectively solved the labor-shortage problem at his company's facilities in Taiwan and cut costs.

- Shanghai. October 16. INTERFAX-CHINA - The Guangdong provincial government announced yesterday that the province's largest LCD module manufacturing line, established by Taiwan-based Chi MeiOptoelectronics in the city of Foshan, has started operation and is expected to produce more than 200,000 units of LCD modules by the end of this year. The line was established with an investment of $480 million and is expected to produce more than 10 million units of LCD modules next year, according to the Guangdong government. Guangdong Province plans to build Foshan into a TFT-LCD TV center by establishing a sound supply chain for the TFT LCD TV industry, including the supply of LCD modules, displays and TV components. Chinese TV giant Hisense also started construction of a flat panel TV manufacturing center in Foshan at the end of September, planning to produce 1 million units of flat panel TVs after completion.

-HSBC opened its thirteenth Global Service Centre in Foshan, Guangdong province on December 3. Vincent Cheng, chairman of HSBC Asia-Pacific, says Foshan is the perfect location to set up a global logistics centre thanks to its outstanding investment environment and urban planning. The new centre is situated at the National High-tech Development Zone in Foshan and is equipped with the most advanced communication and information technology facilities. (NewsTrak Daily, 12/4/07)

- In Guangdong, the home province for Belle International, Foshan-based Saturday Shoe Co., Ltd. has also secured VC investments from Lenovo Capital and is preparing to go public in 2008. "From 2006 on, the prices of raw materials like leather have been on the rise, but our shoe products have to remain where they are now, otherwise we'll lose our competitiveness," explains Wu. Saturday, along with other Chinese shoe brands such as Aokang, Kangnai and Fuguiniao, are also grappling with rising prices for raw materials. "The current net profit margin of the leather shoe industry is about 8%," claims Wu. Despite the rise of raw materials and labor costs, Saturday still has a bigger net profit margin than the industrial average with its higher brand value… Saturday shares the idea of Belle International: maintenance of the department store channel is a part of the brand management, because it gives an opportunity to contact the consumers and to deliver the brand value. Saturday now has over 1,000 sales outlets, 70% of which are self-operated stores and 30% franchised stores. (11/8/07 China Business Feature)

- Zhang Shuhong, a 52-year-old businessman, had apparently committed suicide, just days after Mattel blamed his company, Lee Der Industrial, in Foshan, in southern China, for the recall of one million toys coated in toxic lead paint. In a summer of high-profile recalls of Chinese exports -- pet food, shellfish, tires -- Mr. Zhang's suicide read like the latest twist in a morality play. Each week, it seemed, brought news of another faulty Chinese product; and with it, growing concerns about unscrupulous Chinese businessmen: cutting corners; pouring cheap, sometimes lethal, ingredients into their products; endangering consumers around the world, even children, to make a bigger profit. But at the Lee Der factory in Foshan, an industrial city 140 miles northwest of Hong Kong, Mr. Zhang's colleagues and workers tell a less familiar narrative. They say that Mr. Zhang was a victim, too -- of his own duplicitous suppliers, of China's faulty supply chains, and of the pressures of its loosely regulated brand of capitalism, where Chinese entrepreneurs feel squeezed between Western companies' appetite for cheap goods and the fierce local competition to satisfy it. (8/23/07 New York Times)

- The Sanshui District Bureau of Economy and Trade revealed that Tsingtao Beer Sanshui Company will improve its production capacity in 2007 and Budweiser Beer will begin operations in this district at the end of 2008, thus the District's beverage industrial output value is expected to soar in the next one to two years.(China Industry Daily News, 1/14/08)

- Beiqi Foton Motor Co., Ltd. an SOE holding company mainly involved in car manufacturing in China, plans to increase the production capacity of its factory in Nanhai District, Foshan in southern Chinese province of Guangdong. Construction of the new factory is planned to start from May or June 2008. The phase I project is expected to be finished in 2009 and the whole project will be finished in 2015. By then, the new factory, which mainly produces SUVs, pickups, small MPVs and the like, will be four times larger than the old one. It aims to seek sales of more than CNY 5 billion by 2010. (Sinocast, 1/10/08)

- Guangdong Foshan Glanz Co., Ltd., a leading home appliances manufacturer in China, planned to sell 6 million air-conditioners in 2008, with 70% of them sold at home. The company intends to export 30% of output in 2008, higher than 20% in 2007. A report by Boston Consulting Group tells that more and more Chinese people are interested in high-end and expensive products and five times more consumers tends to increase spending than those to reduce. (Sinocast, 1/9/08)

Labor

- More workers in Guangdong Province will be able to negotiate with their employers and fight for higher wages, according to the provincial labor and social security department. The wage negotiation system was first launched in Guangzhou in 2001, and has covered 44,000 enterprises and benefited 2.4 million workers up to June this year. Workers have signed more than 14,000 collective wage agreements with various employers… Workers can nominate representatives or the labor union of their factories to negotiate on their behalf with employers. They can even hire professionals, such as lawyers or consultants, as long as they are familiar with the labor law. (8/15/07, China Daily)

-Guangdong is on the verge of finalizing details of a labor law that will place about 20 million factory workers under better welfare protection but add to the burden of manufacturers already reeling from rising production costs. As a nationwide policy to be promulgated on January 1, the law will set welfare standards and responsibilities of employers and employees by binding the two parties to a labor contract. Welfare protection such as work hours, extra shift compensation, commission and wages, holidays, arrangement for parting and other benefits are expected to be key conditions on a contract, according to some manufacturers in Guangdong. The Guangdong Labor and Social Security Bureau was studying the feasibility of regulating wages such as distribution of wages and setting up a mechanism to lift salaries by engaging about 10 enterprises in Foshan, Guangzhou media reported. (11/19/07 South China Morning Post)

Tax

-(Jan. 14, 2008)- The tax payments by Sanshui District's beverage industry surged by nearly 30% in 2007 and accounted for 12% of the District's total, revealed Foshan City's Sanshui District Office of the State Administration of Taxation. In 2007, Tsingtao Beer Sanshui Company paid more than RMB103M in tax, the highest among Sanshui's tax payers, while the tax payments generated from Jianlibao drink products increased over 2006 and exceeded RMB56M last year. (1/14/08 China Industry Daily News)

GDP

- Calculating based on the data for the third quarter of 2007, Foshan, Ningbo, Nanjing, Chengdu, Dongguan, Wuhan and Dalian have joined the "300-billion-yuan GDP Club" for Chinese cities in 2007. 300 billion yuan is equivalent to US$41 billion. From 2006 to the first three quarters of 2007, annual economic growth in Foshan was 19.2 per cent, 19.3 per cent and 19.2 per cent. (1/2/08, Asia Pulse)

Real Estate

- Shui On Land Limited (" Shui On Land", Stock Code: 0272) today has successfully acquired by auction the development right and land use rights of the land in Zumiao Donghua Lane, Foshan City, Guangdong Province. Shui On Land will capitalise on the huge potential and rapid growth of Foshan to develop an integrated project, aiming to facilitate the transformation of the city into a major economic and cultural hub in Southern China. The site has a planned net developable area of approximately 517,471 square metres with a gross floor area of approximately 1.5 million square metres. The new integrated project will include residential and office buildings, as well as retail, restaurant, entertainment, tourism and cultural facilities. (11/30/07 irasia.com)

Report 1 on Four China Tier-3 Cities: Shijiazhuang

Today is the first of four posts on tier-3 cities. We will feature Shijiazhuang, Changzhou, Wuhu, and Foshan (which at this point is actually a tier 2 city, but we'll still group it with these other Tier 3 cities). The common theme among them is lots of money, not a lot of recognition among us in the west. They are all hot spots for investment among the Chinese themselves and other Asian investors. There is no set paradigm for the reports and they are really a collection of articles from various media sources over the last year to highlight major industries, infrastructure, real estate, and the economy at large in each city. Please think of this as a clipboard of media on each city that should shed some light on what is going on in each area for those looking for a general overview of what is going on beyond the borders of China's international cities. Each report is infused with a little bit of background from Wikipedia to set the stage. So, without further ado, we give you Shijiazhuang:

Shijiazhuang (simplified Chinese: 石家庄; traditional Chinese: 石家莊; pinyin: Shíjiāzhuāng, literally, "The Stones' Village") is a prefecture-level city about 320 kilometers south of Beijing and the capital of Hebei province. Shijiazhuang was established in the Second Sino-Japanese War as a communication outpost. Shijiazhuang is China's first big city that allows immigration population settles in it without paying any fees. (Wikipedia on Shijiazhuang)

Administration

-Shijiazhuang has direct jurisdiction over 23 districts, counties, and cities.

Sister cities

• Bielsko-Biala, Poland
• Cheonan, South Korea
• Des Moines, Iowa, United States
• Edison, New Jersey, United States
• Saskatoon, Saskatchewan, Canada
• Soria, Castilla y León, Spain

Infrastructure and Transportation

-Shijiazhuang is a transportation hub: it is at the intersection point of the Beijing-Guangzhou, Taiyuan-Dezhou, and Shuozhou-Huanghua railroads and many expressways, including the Beijing-Shenzhen and Taiyuan-Cangzhou Expressways. The Shijiazhuang Daguocun International Airport has flight connections to major cities in China.

-The Industrial and Commercial Union of Shijiazhuang city in Hebei province of China set up a logistics association in the middle of December 2007. The association will perform as a communication platform between enterprises and the government. It encourages local logistics enterprises to unite and to share resources. The logistics industry is a major growth momentum of the local economy. It covers cargo transportation, loading and unloading, storage and distribution related to construction, electronics and clothing businesses. (NewsTrak Daily, 1/3/08)

-Shijiazhuang High and New Technology Industrial Development Zone was established in March, 1991. It is among the state band high-tech zones approved by State Council. At the beginning, the zone is located at the west wing of the present one. For meeting the needs of development, the CPC Committee and People's Government of Shijiazhuang City decided to join Shijiazhuang Economic & Technical Development Zone and Liangcun Economic & Technical Development Zone with Shijiazhuang New and High-tech. Development zone from the year 1991, which has formed the frame of "One zone and three Gardens." The zone has the designed area of 18sq.km., with 40,000 staff. (http://www.21sjzg.com/)

-Taihang Mountain Tunnel, the key project of Shijiazhuang ¨C Taiyuan Railway, was completed on December 22nd. The passenger railway is a key project in the Eleventh Five-Year Plan period (2006-2010), and is China's first passenger railway project, on which construction began, totaling 189.93km in length. Construction on the railway project began on June 11th, 2005, and is expected to be completed at the end of 2008. The 27.8km-long double-hole Taihang Mountain Tunnel has established one entrance, one exit, nine slope mines and eleven construction routes. (12/27/07, China Industry Daily News)

- The construction of an express passenger railway which links Beijing with Shijiazhuang, capital of north China's Hebei province, will begin in June and finish in four years. The National Development and Reform Commission has approved the project, and a ground breaking will be done on June 1, said a source with the city government of Shijiazhuang, adding a special company will be set up to take charge of the construction. The new line is planned to alleviate transport pressure on the northern end of Beijing-Guangzhou railway, a north-south trunk route, and boost the development of areas around Beijing. The projected route will stretch 281 km starting from Beijing West Railway Station and ending at Shijiazhuang South Railway Station. Trains can run at a speed of 350 km per hour. Speed in the initial stage can be 300 km per hour, cutting the transit time to just over an hour. The investment of 43.87 billion yuan (about 6.01 billion U.S. dollars), will be shared by the Ministry of Railways and the governments of Beijing Municipality and Hebei Province. (Xinhua, 1/12/08)

-Shijiazhuang Public Transportation Company increased the number of natural gas buses in 2007 on the basis of environmental protection principles, according to the latest news released by Shijiazhuang City's Public Transportation Department. The City purchased 371 buses in 2007, with natural gas buses accounting for 150 units, thus bringing the total number of its natural gas buses to 748. Shijiazhuang City presently has 2,210 public buses, with natural gas buses accounting for 33.8% of the total. (1/29/08 China Industrial Daily News)

- The main route of Shijiazhuang City's Loop Highway (Shihuan Highway) was opened to traffic on a trial basis on November 11th. Construction on the Shihuan Highway began on September 30th, 2005. The first phase of the project, involving a total investment of RMB4.77bn, is 79.9km long, with the length of the first-grade bi-directional six-lane highway accounting for 46.1km. A total of 62 bridges and culverts have been established. The main body of the 74.2km-long main route of the Shihuan Highway has been completed, while the other projects are under construction.(11/13/07 China Industrial Daily News)

- Shijiazhuang Customs and Qingdao Customs formally signed a cooperation MOU on customs reform on May 22nd. This is the second cooperation agreement on customs reform between inland areas and coastal areas, following the agreement between Shanxi and Tianjin Customs.

The new regional customs-passing system will provide companies in Hebei Province, especially in central and southern areas, a more convenient way of passing customs. (5/24/07, Xinhua)

- Shanghai Juneyao Airlines opened two air routes on July 10th, namely Shanghai (Hongqiao) ¨C Shijiazhuang and Shanghai (Pudong) ¨C Baotou. Round-trip flights will operate on the Shanghai ¨C Shijiazhuang route on Tuesdays, Wednesdays, Fridays and Sundays, and a weekly round-trip flight will operate on the Shanghai ¨C Baotou route. (7/11/07 Xinhua)

-Relevant sources from Shijiazhuang Government revealed on May 29th that the first phase of the Runfeng Logistics Center project opened on May 27th. The first phase of the center projected is located at the intersection of the city's South Second Ring Road and Jianshe Street. Construction of the logistics center was divided into two phases, with a total area of 13.33ha (200mu) and an investment of RMB20M. 180 logistics enterprises are now settled in the center, including eight of China's top ten logistics companies, such as Guangda Logistics and Chengxin Logistics. Once the center goes fully into operation, it will transport and distribute over 10,000 tons of cargo daily. (5/30/07 Xinhua)

- Tianjin Port is confident about achieving its target of handling 300 million tons of cargo by 2010. With its seamless cargo transport operation, Tianjin Port has brought in efficiency to its port economy. To reduce transport cost and time, it has formed a literally "waterless port" or seamless operation with Zhengzhou and Shijiazhuang. The waterless port arranges effective logistics from the source of cargo, to custom clearance, ship order booking, storage, and to packaging all in one effective sequence. (8/20/07 NewsTrak Daily)

-Hebei Province in Central China aims to see its ports be capable of handling 592 million tons of cargo, including 1.2 million containers (TEU), in 2010. (1/8/08 Sinocast)

- SHIJIAZHUANG - Several petrochemical projects will be launched at Shijiazhuang Petrochemical Base in Hebei province, the nearest province to Chinese capital Beijing. (8/24/07 Asia Pulse)

-Shijiazhuang Section of the South-to-North Water Diversion project will be completed at the end of 2007, and after the trial period, it will be able to transmit water before April 2008, according to the news released by the Beijing Water Affairs Bureau on November 5th. Hebei Province will transmit 300 million cbm of water to Beijing annually. (11/6/07 Xinhua)

Human Resources

-Shijiazhuang Railway Institute is a prestigious university of applied engineering science as well as the specialties for Arts Science, Economy, Management and Law. It has formed a closed educational system, including graduate students, undergraduates, specialty students and the adult education. More than 40,000 students, famous academies and experts in engineering technology and advanced management have been cultivated. The institute has been enrolling students from the whole country. Now the institute has established 12 schools and 6 departments including 45 majors with more than 16,000 full-time students. We have 13 specialized approved accredited master degree programs such as the Civil Engineering, Construction Engineering, Bridge and Tunnel Engineering, Mechanical Design and Theory, Transport Tools Application Engineering, Managing Science and Engineering. Road and Railway Engineering, Materials, Electric Power Electronics and Electronic Conveying, Computer Application, Solid Mechanics, Disaster Prevention and Reduction Engineering and so on. At the same time, it was authorized to enroll doctor degree students, award master degree to those who have reached the required level. The institute possesses a faculty of 1,500, in which 700 people specialize in educational science, 270 professors, associate professors or senior engineers, 74 teachers have got the doctor degree. 46 young experts have made outstanding contributions to Hebei province even to the nation. Meanwhile, academician from academy of science, academy of engineering or famous professors were appointed as our part-time professors. (http://knows.jongo.com/res/article/3344)

-Hebei Medical University is located in Shijiazhuang, Hebei Province, North China Plain. It consists of the original Hebei Medical College, Hebei Provincial College of Traditional Medicine and Shijiazhuang Medical College, which were combined in 1995. Of them the original Hebei Medical College was established the earliest and grew out of the Hebei Medical School which was set up in 1915. Hebei Medical University has become a comprehensive medical university composed of western medicine, traditional medicine, pharmacy and other subjects. It has 14 colleges, and 15 specialities. The university has Basic Medicine, Clinical Medicine and Integrated Traditional and Western Medicine Postdoctoral Research Institutions. It has been authorized in conferring Ph.D. degree in 14 and master degree in 47 specialities. There are 9781 full-time students in school, 6728 adult students, and nearly 50 foreign students from South Korea and Japan and so on. Now it has been qualified to enroll students from Taiwan, Hongkong and Macao. (http://knows.jongo.com/res/article/3270)

-Hebei University of Economics and Business is a multi-subject and Comprehensive university offering a wide range of courses in Economics, Administration, Laws, Literature, Engineering and Science, with emphasis on the study of Economics. HUEB is privileged to confer Master's and Bachelor's degrees on qualified students. At present the university has 13 master degree programs and 39 bachelor degree programs. The students of the university come from 16 Provinces, cities and self-governing municipality. The student population is more than 18000. Besides the full time students, the College of Continuing Education of the university has more than 13000 part-time students. (Website:http://www.heuet.edu.cn/)

-The Institute of Genetics and Developmental Biology (IGDB) of the Chinese Academy of Sciences (CAS) was founded in 2001 by merging of three former Institutes of CAS, the Institute of Genetics, the Institute of Developmental Biology and the Shijiazhuang Agricultural Mordernization lnstitute. The Institute has a strong and young scientific community. Among 614 employees, 469 persons are directly involved in research activities. Scientists in the Institute work with plant and animal models to address fundamental questions in life sciences, such as genetic control of growth and development, gene expression, signal transduction, structural and functional genomics, and bioinformatics. (Website: http://www.genetics.ac.cn)


-Shijiazhuang City in Hebei province held the 5th Overseas Chinese Professionals Economy and Technology Discussion Fair on 26 June, 2007. The theme of the fair was to increase communication and cooperation with overseas Chinese businessmen. The fair is organized by Shijiazhuang City Government with support from the State Council. Over 100 overseas Chinese from the US, Canada, Singapore, Australia, France, Japan and other countries attended and participated in the fair. Among the participants, there were professionals in medicine, new material, electronic information and financial investment services. Successful entrepreneurs and businessmen were also invited to the fair that aimed to promote innovative power. (7/18/07, News Trak Daily)

Economy

- Shijiazhuang's history tied to medical sector In 1953, the Ministry of Chemical Industry and the Ministry of Light Industry decided to construct a large-scale pharmaceutical base in Shijiazhuang, one of 156 prioritized projects of China's first-ever Five-Year Plan. In the early 21st century, the National Development and Reform Commission approved Shijiazhuang as the first national biological medicine production base. In 2004, Hebei's provincial government said it would build a biological medicine industry belt beginning in Shijiazhuang and covering neighboring cities. Shijiazhuang's government said it plans to transform the city into China's "medicine capital" in the next five to 10 years. (6/19/07 China Daily)

-Shijiazhuang City's prices for packaged chicken, aquatic products, eggs and sugar dropped in December 2007, while the prices for meat, vegetables, fruits and edible oil increased, according to the monitoring data of daily necessities released by the Municipal Bureau of Industry and Commerce. (1/8/08 China Industry Daily News)

- Shijiazhuang is also quickly becoming a consumer market that pursued by both domestic and foreign enterprises. In 2006, the city's per capita disposable income reached RMB11,250 (US$1,486), up 12% from 2005. ;On Zhongshan Road, the major business street in Shijiazhuang, you'll spot "2,999" emblazoned on passing buses. A closer look will reveal the numbers are an advertisement for RMB2,999 HP computers. The computer maker rarely launches advertising campaigns of this size in larger cities. "The changes started in the second half of 2006," says Xing Kai, a local HP distributor. "People here had a vague idea about HP, but now, it has dropped its airs, and released a spectrum of medium to low-end products. We're delighted with it. You know, the supply of the RMB2,999 (US$396) model can hardly meet demands." (8/6/07 CEO CIO China)

-The total foreign trade value of Shijiazhuang City in Hebei Province exceeded US$ 5bn and hit US$ 5.13bn in 2007, up by 22.62% year-on-year, with exports accounting for US$ 4.149bn, rising by 21.98% year-on-year. More specifically, Shijiazhuang's exports of steel products soared in 2007, while exports of fur and leather garments dropped sharply. In addition, exports of hi-tech and electromechanical products increased rapidly, while antibiotics exports surged.(China Industry Daily News, 1/23/08)

- In the first seven months of 2007, the traditional Chinese medicine export value was US$ 3,265,777 in Shijiazhuang City of Hebei Province, down 3.73% year-on-year, according to the latest statistics released by the China Chamber of Commerce for Import and Export of Medicines and Health Products on September 17th. Of the total, the export value of traditional

Chinese medicinal materials and medicines in ready-to-use form reached US$ 2,332,197, down 7.06% year-on-year, the export value of traditional Chinese medicinal extracts was US$ 226,588, down 1.37% year-on-year, the health product export value was US$ 3,748, down 91.28% year-on-year, and the export value of Chinese patented medicines was US$ 703,244, up 15.19% year-on-year. (9/21/07 Xinhua)

- A total of 14.35 million overseas and domestic tourists visited Hebei Province's Shijiazhuang City in the first eight months of 2007, with the tourism income reaching RMB7.2bn, rising 9% and 16% year-on-year respectively, according to the latest statistics released by Shijiazhuang City's Bureau of Tourism. (9/21/07 Xinhua)

-Shijiazhuang - Nearly 7,000 hectares of biodiesel forest will take shape in the north China province of Hebei this year, part of a national campaign to fuel the fast growing economy in a green way. In no more than five years, the Pistacia chinensis Bunge, whose seeds have an oil content of up to 40 per cent, will yield five tons of fruit and contribute about two tons of high-quality biological diesel oil, according to the provincial forestry administration. (1/17/08 Asia in Focus) Hebei is among seven regions designated by the State Forestry Administration (SFA) in 2006 to develop biofuel demonstration forests.

Companies

-Shijiazhuang Listed Companies:

1	Changjiang Securities Co Ltd	China	Listed	000783.SZ	Petrochemicals
2	Huda Technology & Education Development Co Ltd	China	Listed	600892.SS	Wires/Cables
3	Jointo Energy Investment Co., Ltd. Hebei.	China	Listed	000600.SZ	Real Estate Transactions
4	Shijiazhuang Baoshi Electronic Glass Co Ltd	China	Listed	000413.SZ	Components for Electronic Goods
5	Shijiazhuang Changshan Textile Company Ltd	China	Listed	000158.SZ	Textiles
6	Shijiazhuang Dongfang Thermoelectric Co Ltd	China	Listed	000958.SZ	Electricity/Gas Utilities
7	Shijiazhuang Aircraft Industry Co.,ltd	China	Unlisted		Aerospace Products/Parts
8	SHIJIAZHUANG BAOSHI GLASS	China	Unlisted

-Shijiazhuang Pharmaceutical Group Ltd., one of China's largest antibiotic producers, is planning to launch an antibiotic production technology development project in the near future, a company official said today. "The feasibility of the project, Key Technology Innovation for Mass Producing Antibiotics, has recently passed expert appraisal," said Zhang Heming, vice director of the general affairs office of the company, adding that the project will receive government investment, though he declined to specify the amount. The project will focus on creating technology capable of producing antibiotics on top of developing fermentation technology and equipment, as well as separation engineering technology and equipment… Shijiazhuang Pharmaceutical Group Co. Ltd., Harbin Pharmaceutical Group Co. Ltd., North China Pharmaceutical Group Co. Ltd., Shandong Lukang Pharmaceutical Group Co. Ltd. are the four largest antibiotic manufactures in China. (10/17/07 China Pharmaceuticals and Health Technologies Newswire)

-Legend Holding, the parent company of Lenovo Group (HK:0992, LNVGY.PK) has finally concluded its buyout negotiation with Shijiazhuang Municipal State-owned Assets Supervision and Administration Commission, the owner of Shijiazhuang Pharmaceutical Group Co., Ltd. The two sides on June 16 formally signed an agreement to transfer the 100 percent stake in the drug maker to Legend Holding for 870 million yuan, 30 million yuan higher than the bottom price originally set for auction. (6/18/07 Xinhua)

-Shijiazhuang - North China Pharmaceutical Group Corporation (NCPC), one of the largest pharmaceutical manufacturers in China, has entered into a strategic contact with the Institute of Microbiology, Chinese Academy of Sciences (IMCAS) to march into the field of biomass as well as the bio-based chemicals, said local media at the 1st China Bioindustry Convention. Butylalcohol, the biofuel NCPC and the IMCAS focused on, is expected to tart production in August. In September, the biofuel will receive an automobile-oriented testing in the UK, revealed a senior executive of the pharmaceutical giant. Presently, the company has gained several thousand tons orders. The btylalcohol product can be distributed soon provided that the result of concerned testing is satisfactory by then. (6/21/07 Sinocast)

-Guodian Power Development Co (GPDC), a publicly listed company, said it will buy a 20 percent stake in Shijiazhuang City Commercial Bank. GPDC, a subsidiary of China Guodian Corporation (CGC), one of the country's top three power generating firms, will acquire the bank's 313 million shares for 1.2 yuan apiece. GPDC will become the bank's largest shareholder with the 375 million yuan capital investment, it said yesterday. The cash injection from the issue of new shares will lift the bank's capital adequacy ratio to above 10 percent, paving the way for the bank to hold an initial public offering (IPO) on the mainland A-share market in the future. (11/22/07 China Daily)

-Chang An Bus, a subsidiary of Chang An Auto Group, reported heartening performances for the first nine months of the year. In Jan-Sept, the company, based in Dingzhou, Hebei province in north China, produced 94,320 vehicles and sold 84,830 of them. Established in end-2002, Chang An Bus is the sole base of Chang An Auto Group to produce mall passenger and export-oriented vehicles. Over the nine months, the company gained overseas orders totaling 6,000 vehicles while its products were marketed to more than a dozen of countries and regions, with both export-oriented production and sales reaching respective historical highs. By end-September, the company realized sales revenue of 2.61 billion yuan and contributed 106 million yuan of tax to the state coffer. (10/29/07, Xinhua)

-Hebei Huadan Complete Biodegradation Plastics Company Limited (HHCBP) signed an agreement with Hong Kong Tianhao (Chinese phonetic alphabet) Development Company Ltd. on June 17th, on jointly constructing a new bio-degradation plastics particles project in Yuhua Biology Industry Zone, Shijiazhuang, Hebei province. The facility will produce 150 000 tons of bio-degradation plastics particles per year for shopping bags, one-off dinner bucket, one-off water cups, one-off medical goods and rubbish bags, with a total investment of approximately RMB400 million. Its first phase is scheduled for startup at the end of 2007, with a capacity of 20 000 t/a. (China Chemical Reporter, 7/6/07)

-TTCM China, Inc. (TTCH) announced the acquisition of ShiJiaZhuang HuaTeng Technology Company who is engaged in the design and manufacturing of IC-based smart card water-meters as a strategic acquisition related to the water supply industry. The Company is expected to complete the audit and evaluation of the IC-based smart card water-meter company within this month. The acquired company has the annual production capacity of 300,000 units of such high-technology water-meters. (Knobias, 1/22/08)

-Shijiazhuang Sanlu Group plans to let its subsidiary, Shijiazhuang Sanlu Group Co., Ltd., offer Chinese yuan-denominated A shares in 2008, the Chinese milk powder maker announced on October 10, 2007. The subsidiary is a joint venture founded by Sanlu Group and New Zealand-based Fonterra Cooperative Group Ltd. in June 2006 and was designed to get listed since its foundation. Fonterra Cooperative Group, the world's biggest dairy exporter, became the second largest shareholder of the Sanlu Group by acquiring a 43% stake in it with CNY 864 million in June 2006. Situated in the north Chinese province of Hebei, Sanlu Group is devoted to providing dairy products in China. It targets a CNY 10 billion revenue for 2007 and a CNY 30 billion by 2010, and the number was CNY 8.6 billion in 2006, said its chairman Tian Wenhua. (10/16/07, SinoCast)

Real Estate

-The Shijiazhuang Municipal Government recently announced the housing construction and guarantee plan for the period 2008-2010. In the next three years, the City will provide 2,530 low-rent apartments to low-income families with housing problems, and will also construct 123,700 apartments of different types, with 103,600 units of 90sq.m-and-below apartments, accounting for 77% of the total residential floor area. Furthermore, the City will design and construct 33,900 units of affordable housing with floor area of 2.05 million sq.m. (12/13/07, China Industry Daily News)

- Hong Kong contractor Chun Wo Holdings will become a mainland property developer with a two billion yuan investment in Shijiazhuang, the capital of Hebei province. The company, founded in 1968, will be renamed Chun Wo Development Holdings as part of the change. "The mainland will become the company's major profit contributor over the next few years, especially from the project in Shijiazhuang," said Dominic Pang Yat-ting, managing director of Chun Wo's mainland unit, Chun Wo (China). The company is the sole non-mainland property developer in the city. Its residential and retail project, known as Arc De Royal, covers a total gross floor area of 400,000 square metres and accounts for 85 per cent of the company's land bank. (9/28/07 South China Morning Post)

China, Oil, and Africa's Role

Two articles over the past two days have really caught my attention and wonder unlike many in a long time. The first one comes from Canada's Global Mail in which journalist Geoggrey York describes the situation of China securing Alberta's tar sands oil reserves as follows:"Iris Evans was in an upbeat mood when she walked into the Canadian embassy in Beijing last fall to pitch the Alberta oil sands to a high-powered group of Chinese investors. Ms. Evans, the Alberta Minister of Employment, Immigration and Industry, was expecting a smooth ride. But she was quickly ambushed by a hostile question from a Chinese journalist...'You say Chinese investment is welcome, but we feel a negative attitude from the Canadian government,' the reporter told her at a news conference. 'The Canadian media makes a big story about Chinese spies in Canada, and it seems the Canadian government does not trust Chinese people much.' Ms. Evans said she knew nothing about the spy issue. But the skeptical question was one example of China's doubts about Canada as an oil supplier. Beijing wants a relationship of trust with its oil suppliers - and that means it usually prefers to buy from authoritarian regimes in Africa, Latin America or the former Soviet Union, where there are no complications about democracy or minority rights."

The next article came from the Macau Daily Times, where the journalist, Christopher Cottrell, described a small block in Guangzhou known as "Little Africa." Here's an excerpt:
"Barbecued chicken smoke and Senegalese pop music fills one hallway. On another floor, mosquito coil incense and the odour of new leather bean-bags bound for Angola commingle. Welcome to the Tianxiu building, the home of China’s largest African enclave and a microcosm for the billion dollar trade boom taking place between African nations and China.Located along the bustling Xiao Bei Road in downtown Guangzhou, tens of thousands of Africans flock to Tianxiu to purchase everything from school erasers for Darfur to hair-weaves for Kinshasa’s beauty parlours. Whilst at least 2,000 make it their own, thousands more are just here for export shopping runs.“It is hard to get hair like this in the Congo,” comments Alice Clarisse as she peruses a Tianxiu shop specialising in hair extensions. “I come here about twice a year to Guangzhou for a week, the prices are very good.” Clarisse, whose home-town is Kinshasa, adds, “This city of markets is becoming famous all over Africa.” Indeed, since China opened in 1979, African students and merchants have been flocking to both Beijing and Guangzhou in droves. However, whilst Africans number into the thousands in Beijing, there are no areas that are considered to be wholly African in the capital. Not so in Guangzhou. The Tianxiu building began seeing hundreds of Africans move into the apartments above the lower shopping mall in the late 1990s. As more Africans moved in, more Chinese moved out to rent to them. By 2001, when China entered the WTO and the Beijing 2008 Olympics were announced, the building was considered Guangzhou’s answer to Chungking Mansions in Hong Kong."
What should the impression of a young voter in the United States of America be to the combination of these two articles?
Number 1 is that China is making moves in international energy strategy that clearly demonstrates its desire to get the job done, no matter how it needs to. Secondly, that there is a power circle growing around China that is in direct conflict with the United States on the status of almost every major conflict country in Africa and the Middle East.
I find it terribly ironic that China does not want to secure oil from CANADA because of political concerns that could lead to supply issues in the future. Yet the so-called 'rogue states', deemed so because of their political bent, are in China's eyes, in fact the more stable supplier economy. This is a huge gamble by Beijing, but it is paying off in more ways than even they had imagined. According to the evidence of so many African traders taking up at least periodic residence in Guangzhou, China is springing economic growth in Africa on a scale and in a paradigm that the Europeans never would have fathomed. Why? Because the 19th century European 'traders' in Africa were more 'raiders' than anything else. China is not only taking natural resources out of the continent, but also giving back in the form of cheap goods, political favor, and international markets beyond China.
The latter is what I find most interesting. I posted a trade lead recently on a well-known edible oil site for sunflower oil. Sure enough, half of the responses came from Africa. And a couple of those responses were Chinese names. Now, I had no interest in buying from Africa, but if I were so inclined, I would absolutely have negotiated with the Chinese broker above the other brokers, because I would feel comfortable negotiating with the Chinese anywhere in the world. This may be the exception today, but do not be surprised if in 10 years it is the rule that the Chinese communities of Africa take dominant positions in Africa's burgeoning international trade.

One Reason REITs are Slow to Develop in China

One headline this morning that is sure to keep the CSRC from accelerating any plans to put out any legislation on REIT formation on the mainland comes to us from Hong Kong. Apparently former Link Chairman Paul Cheng-Ming-fun affirmed what many believed was the reason he left China's most famous REIT, the Link REIT. He said that indeed, the motion by Link's largest shareholder, The Children's Investment Management (TCI) to accelerate rent increases on smaller shareholders went against Mr. Cheng's ethical standards of conduct and he refused. So, the REIT ousted him and the Chief Executive officer Victor So in favor or two westerners.

Mr. Cheng's reasoning was that the majority of the rents would affect smaller retailers. Indeed, Hong Kong's democratic-style government did not disrupt these retailers when they protested the steep rental increases.

A year later, the protest seems meaningless in monetary terms as the rents are going up steeply as Hong Kong's commercial real estate vacancy rates dipped to a five-year low at under 3% (and the boom has also prompted a five-year high of over 400,000 square meters of planned commercial office space to come on market in 2008 (CBRE)).
There is no doubt that the regulators in Beijing understand that REITs are a very sophisticated type of fund. Sam Zell's goal when he created REITs in the 1960s, other than to make colossal returns, was to "enable to average investor to enjoy returns from the country's most prime office buildings." That's fair. The only problem is that this is land - not factories, not energy, not widgets, not commodities, not foreign exchange. How can the government possibly enact legislature for packagin 10 buildings together when it still has not figured out how ownership for even one building plus the land underneath is to be clearly defined? Furthermore, there is such tremendous pressure on the central government to keep speculators from buying up and building on more land, that the very last thing they need to worry about is greedy fund managers cornering 10 buildings in Lujiazui and then unilaterally forcing up rents and wrestling away what little control the government still has over rental rates. They already have the protests to worry about all over the countryside. Center-urban protests would just add insult to injury.

Volatile Stock Markets and China Still Rocking

Let's take a quick look at the daily headlines regarding China's stock market over the last four days:

Asian stocks rise on hopes worst is over (January 24, Agence France Presse)
Asian Markets Rebound After Fed Cut(January 23, AP)
Chinese shares follow world markets down, sink 4 pct at middday(January 22, Xinhua)
Asian Stocks Plunge In Global Selloff On US Recession Fears(January 21, Market News International)

In an article from two days ago, Kevin Rudd, a journalist for Australia's popular "The Advertiser" wrote the following, "It may be the Chinese and Indian economies and their demand for Australian minerals, meat and grain, which determine the direction of the world economy, not Wall Street."

China's Statistics Bureau today released figures for 2007 National GDP growth - not surpisingly it was a whopping 11.4%! The breakdown by level of industry was primary (agriculture) 3.7%, secondary (manufacturing) 13.5%, and tertiary (service) 11.2%. However, the real growth in manufacturing is closer to 18.5% (stats.gov.cn). The latter represents what is known as the "Total Value-added Industrial Growth" (全年规模以上工业增加值比上年增长18.5%)

So, despite all the rhetoric that China (and India) are the new centers of the global economy, the outright economic shift to Asia has still not taken full effect. However, the effects of the recession we are headed for are bound to influence the shift and in my mind it will only expedite it.
There are three major factors that contribute to this convergence:

1) Lowered interest rates in the US
2) Higher commodity prices
3) Appreciating RMB
4) Higher bank reserve ratio in China


1) Lowering the interest rates in the US is traditionally done for one reason: increase consumer spending. The problem with this logic in January of 2008 is that 2) Higher commodity prices have forced consumers into high levels of debt and spending based on increasingly higher cost goods. Since the last time the Fed cut rates in the early part of this decade, gas is up from an average of $1.40 (some points as low as $1.20) to $3.09 in December of 2007. 500 Kilowatt Hours (KWH) of Electricity cost you $48 in 2001. It's now up to $60 as of December 2007. Even the cost of 1 dozen eggs has jumped from $1 to $2 in that time period. (data.bls.gov) While many other commodities, such as fruits and bread have grown in step with inflation, the energy shocks are enough to wreak havoc on our economy.

3) The steadily appreciating RMB is causing China to make leaps and bounds in two related ways: A) Slowly the Chinese are able to buy more heavy equipment from Europe, the US, Taiwan, and Japan. Simultaneously, they are quickly building new roads, infrastructure, and factories in the hinterland to keep their economy relatively competitive with poorer development manufacturing countries in south Asia (India, Pakistan, Bangladesh), Mexico, Africa, and South America. This will offset many of the price pressures that they are facing. Here's an example. We know of a factory in the western part of Shandong where they are paying workers $0.40 an hour to do the same labor that was being done 10 years ago in Shanghai or Guangzhou for an even higher hourly wage. How can this be? It is because that region is so poor, that the workers can accept that low wage and still live comfortably. Meanwhile, the central and local governments have dramatically increased the port and road infrastructure at Rizhao Port and Lianyungang Port, a mere 3 hours drive from the factory.

4) China raised the central reserve ratio for its banks to 14% last week. That's high, but not high enough. According to experts, the prediction is that they will continue to raise it until it reaches 19% later this year. What this does is reduce the amount of money that banks can loan out to their customers. This in turn reduces the amount of money to start new businesses, buy homes, and get credit cards. It makes the economy much tighter and more secure. They are doing this to prevent a meltdown in their banking system. Given the amount of cash they have in the central bank, it is going to be possible that they will not need banks to lend to continue building roads and creating factories. The central government will effectively "fill in" as projects are short on cash.


All of this has led to not only predictions of a stronger China, but as you will see in the following quotation from George Soros' speech to the World Economic Forum in Davos, Switzerland, the dollar's day as king has passed us by...



“ 'The current crisis is not only the bust that follows the housing boom, it's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency,' Mr. Soros said in a debate today at the World Economic Forum in Davos, Switzerland. 'Now the rest of the world is increasingly unwilling to accumulate dollars.' The dollar's share of global foreign-exchange reserves fell to a record low of 63.8 percent in the third quarter as demand for U.S. assets waned after the collapse of the U.S. housing market, according to International Monetary Fund data. The greenback accounted for 65 percent three months earlier. The euro's share rose to 26.4 percent from 25.5 percent. IMF quarterly figures go back to 1999, the year the euro was introduced..." (Bloomberg)

Update on China Real Estate Investment

Before I get into a succint analysis of the latest data on China's real estate market, let me first begin by saying that it is astonishing how quickly Dubai has stolen Shanghai's (and all of China's for that matter) thunder. I recently received an email from my brother that was entitled "This is what $100 Oil Can Do: Why Steel and Construction are Correlated to Oil." Lest you be scared off by that pretentious and academic-sounding title, this was no economics paper abstract. Rather, the email blasted off 25 pictures of Dubai then, now, and in the future. They included renderings of the Burj Al Ajam, a 480-meter hotel, the Burj Dubai, expected to be over 800 meters and 140 stories upon completion, the Al Burj, expected to be over 1200 meters and approach 200 stories upon completion, the Palm, the World, Trump International Hotel and Tower, Dubailand, and (in my opinion the coolest of them all), Hydropolis - the world's first underwater hotel. How they emergency exits in that are going to work is far beyond me, but hopefully the civil engineers have consulted with...I don't know - who would you consult on that? The old deep water submarine engineers?

Anyways, the bottom line is that now that much of the international real estate world's rapt attention has been taken away from Shanghai and shifted toward the Middle East, it is time for China's major markets to mature and pave the way for the second and third-tier markets to really take off.

With that, a quick comment on the first 2008 report by a major real estate broker and consultancy, none other than Colliers International (www.colliers.com/Markets/China). For those of you reading this that are not familiar with the landscape in China, almost all of the major international consultancies are there. CBRichard Ellis, Jones Lang Lasalle, Cushman & Wakefield, Colliers, Savills, and Knight Frank Petty are the six majors that really dominate the foreign corporate world. There are hundreds of local brokers as is to be expected in such a major market, but the international companies really rely on this six brokerages unless they are going in with their independent real estate advisors, who no doubt will have relationships with one of these companies at least.

Now, let's tackle some of the more interesting stats that appeared in this report.

1) Beijing's office rental vacancy rate is 14.63%! That seems quite high in the buildup to the Olympics and on top of this, over 1,000,000 square feet were added in the fourth quarter alone! Maybe all of that action going on next door in Tianjin is keeping vacancy rates higher than they should be. What's more, there is another 1,200,000 square feet to come on market next year and that should lift the vacancy rate to a near 20%! By comparison, Shanghai's office vacancy rate is peaked at 7.5% in 2004 hit a nadir of below 3% in 2006, and is on the rise again and scheduled to hit 6% for 2008.

2) New residential supply in Shanghai in 2007 was estimated at a shade over 2000 units, well below 2005 and 2006 totals. However, 2008 is poised to see that total jump to nearly 4,000 units. Vacancy will remain steady around 20%.

3) Guangzhou office supply in nearly quadrupled from approximately 180,000 square meters in 2006 to over 650,000 in 2007. Although vacancy rates followed suit and approached 20% from 10% in 2006, the experts at Colliers predict a return to 12% vacancy in 2008. It only occurs in developmental years of a young economy that such gross fluctuations in capacity can be absorbed so quickly from one year to the next. That where the tremendous opportunity is.

4) The Shenzhen migration from Hong Kong continues. Shenzhen OFFICE supply is continuing to surge. In 2006, nearly 350,000 square meters of new supply can on line nearly double 2005. In 2007, supply was up another 33% to 460,000 square meters. 2008 growth should cool, but the prediction is for still another 520,000 square meters. Shenzhen RESIDENTIAL capital values also continued their surge that started in 2006. Midway through 2006, the average per square meter value of housing in Shenzhen was $1500. By the end of 2007, it was nearly $4000! Unbelievable! Colliers predicts it will level off in 2008.

5) Chengdu residential supply and demand were about even in 2006 and it looks like the same occurred in 2007 at 900 new units in each. The vacancy rate there remains quite low at 3% and should not rise above 4.5% in 2008. Average prices there are still quite modest at 13,570 per square meter.

6) Finally, it looks like Hong Kong is in for a huge increase in office supply in 2008 after a very modest 120,000 square meter increase in 2007. This year, nearly 450,000 square meters are due to come online, almost quadruple the total for 2007. Consequently, the vacancy rate is expected to more than double to 7%.


So, where would I suggest putting your money (even though my opinion for you is totally irrelevant given the clamp on foreign investment into the real estate market in China)? Of the majors mentioned here, no doubt Chengdu is the best market to be in for long-term appreciation. As for cap rates, well, most cap rates across China are quite low, averaging in the 1 - 6%, but there are great deals to be had in the Lianyungang and Rizhao Port facilities for industrial space as well as the Nanhui area of Shanghai. Finally, Tianjin is going to boom for years to come so whether you invest in one of the old houses there, new office space, or industrial, you'll do well.

Finally, I think the rush to the third tier cities is on and I have stated before that Nantong, Wuhu (Anhui Province), and Qingdao are all places you want to be looking. Finally, it is still so early to invest in Sanya, which is incredible given how nicely they've built out Yalong Bay and other parts of the city. However, the key factors there are population and employment. There are not even 1,000,000 full time residents in Sanya. In 1950, the population in Florida was 2.77 million (Floridians for Sustainable Population). Today, there are over 17 million. By 2030, there are expected to be 30 million (Census Bureau). In 1940, there were 7 million people in California. Today, there are over 35 million. And in Arizona, in 1950 the population was 750,000. Today, it's nearly 5.5 million. What those numbers show are a minimum population increase of five times over a fifty year period in warm weather climates in the United States. Now, what do you think it would take much for the population to reach 2 million in Sanya? How about 5 million? 10 million? But this is a much longer debate for a different post.

Make it a great week!



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