THE

THE
CHINA
CHINA ANALYST
ANALYST
A knowledge tool by THE BEIJING AXIS for executives with a China agenda OctoberJuly
20082008

China Inc. Goes Global p.6

Features
China Inc. Goes Global: The Long Road Ahead 6
Taking a Step Into Latin America 10

Regulars
China Sourcing Strategy 14
China Facts, Figures & Forecasts 20
China Business News Highlights 30
China’s International Relations 33
Advertisement
 Congratulations China
Congratulations Beijing
祝贺中国,祝贺北京

On the successful hosting of the

Games of the 29th Olympiad
成功举办第二十九届
奥林匹克运动会
4
At the Highest Level
China’s economy is slowing down—the question is by how much, and for how long. The answer de-
pends very much on the severity of the unfolding global financial crisis and the extent to which the
corporate sector and the real economy will adjust in the US, Europe, Japan, and the rest of the
world. Indications are not good for the short and medium term, and it is necessary to anticipate risks
and develop contingencies. But it is also necessary to bear in mind that medium to long term
China’s prospects remain sound.
China stepped out in August and
September and through its hosting
of a spectacular Beijing 2008 Olym-
pics and Paralympics showed the
world that a ‘new’ force has arrived
on the world stage. During Septem-
ber China also did its first ‘space-
walk’ and announced that its own
domestically designed regional jet
will undertake its first maiden test
flight in the next 2 months. The list
of accomplishments is growing and
becoming more impressive. All this
reminds us of China’s long term
rise and its relentless trajectory of
rapid social, economic, technologi-
cal and capacity development. We
should not lose sight of the ongoing
glacial changes that this implies for
international relations, global com-
petitiveness and the re-ranking of
industries, players, opportunities
and risks on an international basis.
But the Beijing Olympics are behind
us and a new set of issues has
shifted to center-stage: China’s
economy is slowing and the verdict
is still out on how much, for how
long and with what implications.
Following average GDP growth of
10.4% in the first half of 2008 (after
11.9% for full-year 2007) the econ-
omy has now dipped into single
digits for the second half of 2008.
Full-year 2008 growth will still be
close to 10%, but for 2009 the pros-
pects are for growth below 9%. At
this stage a range of 8.5-9% looks
probable but the degree of global
fallout could push that lower.
The outlook for a rebound in 2010 is
also still unclear while global turbu-
lence appears to be getting worse,
potentially much worse. So,
a key question is how the global
economy will look in 3, 6 or 12
months from now. Our view is that
most of the real economic adjust-
ment in the US, Western Europe and
elsewhere still lies ahead and this
will hit not only Asian exporters but
also the general corporate sector in
the region hard. China will not be
excluded from these effects. Slower
corporate earnings growth, a weak
property sector, a slumping stock
market and weaker business senti-
ment mark China’s current business
landscape. Meanwhile, a measure-
ment of the macro economy shows
weaker industrial production growth,
modest private consumption growth
and lower export and import growth.
Trends in these aggregates provide
a backdrop that will see headline
economic statistics reported in China
over the next 2 to 3 quarters contrast
sharply with those of the past 5
years.
In this context, for executives with a
China agenda, a number of pertinent
issues emerge:
● How severe will the worldwide real
economic fallout from the unfolding
global financial crisis be?
● How and for how long will China be
affected in terms of financial sector
contagion (i.e. reduced liquidity),
real economic impact (i.e. via re-
duced exports), deteriorating busi-
ness sentiment (i.e. financial asset
values) and weaker consumer con-
fidence (i.e. consumption)?
● What are the likely policy re-
sponses from Beijing and what are
the corresponding areas or risk
that must be anticipated and miti-
gated?
● What are the strategic priorities for
managers, and what action should
be taken over the short term?
● How to ensure an adequate focus
on long term strategic initiatives
while shadows and short term cri-
sis management dominate all
thinking and all agendas?
● How will China’s slowdown affect
international sentiment and indus-
tries (i.e. resources/raw materials
or commodity prices) over the
short, medium and long term?
The list of questions goes on, but
what is certain is that we are shifting
into an era of sustained financial
turbulence, severe real economic
adjustment and potentially a funda-
mentally new period for many in
terms of their economic lives. In-
deed, how these areas of change
will unfold for those of us that are
managing in China now deserve
serious and urgent consideration.
However, lets not forget that longer
term China’s prospect remain
sound and it will add many more
accomplishments as it continues on
its relentless trajectory.
May we live in interesting times… I
trust that our readers will enjoy this
edition of The China Analyst—and
as always we welcome all feedback.
Kobus van der Wath
Group Managing Director
THE BEIJING AXIS
China Business Solutions
kobus@thebeijingaxis.com
 5

Table of Contents October 2008

6 China Inc. Goes Global: The Long Road Ahead

While Chinese companies are making headlines with audacious foreign acquisitions, China remains a minnow in the
league of foreign investors. What are the drivers of this trend, and how will it play out over the next decade?

10 Taking a Step Into Latin America

The more China increases its demand for natural resources, the more its commercial and investment relationships with
Latin American countries are intensifying. We examine the current critical juncture between these two regions.

14 China Sourcing Strategy

Outlining strategic imperatives in identifying suppliers and managing the engagement, we explore some of the planning
issues in an global environment characterised by financial and economic turmoil.

18 China Sourcing Blog Highlights

Highlights from pages of The China Sourcing Blog, THE BEIJING AXIS’ online information portal and discussion forum on
issues relevant to sourcing from China.

19 Macroeconomic Monitor
In this edition we examine China’s slowdown and warn that there could be a significant impact on policy, RMB strength
and resource demand.

20 China Facts, Figures & Forecasts

A selection of data and forecasts illustrating growth, transformations and trends in Chinese commerce and industry,
focusing on trade and foreign investment.

22 China Trade Roundup

To illustrate the main trends in the growth and transformation of Chinese commerce and industry, the Roundup summa-
rizes the latest available Chinese trade statistics.

Financial Markets
24 Tracking the dynamics of China’s Shanghai and Shenzhen Composite Index indicators and benchmark interest rates,
Financial Markets also illustrates recent trends and transformations in China’s exchange rate regime.

25 China OFDI and M&A

With Chinese companies increasingly ‘Going Global’, this page summarizes the major Outbound Foreign Direct Invest-
ments and Mergers & Acquisitions involving Chinese companies since 2007.

26 The C in BRICS
Using recent economic statistics from Brazil, Russia, India, China and South Africa, The C in BRICS is a comparative
segment that evaluates and contrasts China with the other leading developing economies.

30 China Business News Highlights

A roundup of the main business stories coming out of China during the third quarter, including China’s first legal defeat at
the WTO, a new high for China’s trade surplus, and the halting of all coal-to-liquid projects in China.

33 China’s International Relations

A summary of the main stories related to China’s gradual emergence as a world power, including China’s role in trade
talks at the latest Doha round and tense negotiations at the Nuclear Suppliers Group.

36 Upcoming Events
A schedule of all the major upcoming fairs, exhibitions and conferences in China, with a focus on resources & industrial
sourcing.

38 THE BEIJING AXIS China Mining Delegation

Join a group of international senior executives that will travel to China in November to meet with carefully researched and
briefed Chinese targets, and to attend China Mining 2008. Places are limited so contact us as soon as possible.

39 Careers at THE BEIJING AXIS

THE BEIJING AXIS is currently looking for dynamic, creative, performance-driven individuals to assist us in meeting our
present and future business challenges.

THE BEIJING AXIS News

40 Company news for the third quarter, including attendance of the Excellence in Mining and Exploration Conference in
Sydney and the 2008 International Sourcing Fair in Shanghai; new hires and other developments.

43 Strategy & Implementation Workshop with PriceWaterhouseCoopers & THE BEIJING AXIS
Topic: Managing in China and Asia—Strategic Imperatives in Times of Financial and Economic Turbulence
For Companies that are Managing International Exposures (Wednesday, 26 November 2008, Johannesburg)
THE CHINA ANALYST is published and distributed by THE BEIJING AXIS Ltd. For information on services please see page 42.
6
China Inc. Goes Global: The Long Road Ahead
While Chinese companies are making headlines with audacious foreign acquisitions, China remains
a minnow in the league of foreign investors. What are the drivers of this trend, and how will it play
out over the next decade?
When Lakshmi Mittal announced his
bid for Arcelor, some French parlia-
mentarians had to be told that Mittal
Steel was an Indian company, not
an American one. Similarly, ten
years ago one would have been
hard-pressed to find anyone in the
Western world that had ever heard
about a car manufacturer called
Tata. This would have been be-
cause Tata only produced its first
car in 2000, yet today it is the owner
of the Jaguar and Land Rover
brands.
The rise of developing country multi-
nationals has been one of the big
business stories of the past decade,
and in the midst of this trend lies
China. The almost doubling of
China’s economy from 2003 to 2008
has spawned a generation of com-
panies eager to venture into the un-
known, yet most of these compa-
nies have existed in their current
guise for no more than 10 or 15
years. This contrasts sharply with
the histories of entities such as the
Tata empire, Brazilian aircraft
manufacturer Embraer or South Af-
rica’s SABMiller, currently the
world’s second largest brewer.
These companies are really excep-
tions to their economic environment:
First world companies that happen
to hail from developing markets
without representing their hosts’
economic characteristics. In the
case of Chinese companies, how-
ever, the situation is quite the oppo-
site. Companies such as Lenovo,
CNOOC and Sinosteel were created
in their current form because of gov-
ernment involvement, not despite it.
And this is where the wave of Chi-
nese companies going abroad will
look dramatically different from ear-
lier expansions of developing coun-
try multinationals.
Imperatives
The imperative for Chinese compa-
nies expanding abroad has been
different from that of other develop-
ing countries.
Firstly, the path followed differed
from convention. Whereas various
emerging economies over the last
60 years, notably Japan and Korea,
had coordinated programs to build
strong national brands (Sony, Sam-
sung, LG), China has been lacking
in this regard. In fact, China never
had to capture an international mar-
ket by itself—the market came to
China in the shape of foreign in-
vested manufacturing enterprises.
Thus, in a space of a mere 20 years,
Chinese-made products became
ubiquitous the world over, albeit un-
der the flag of foreign brands and
leaving Chinese manufacturers with
razor-thin margins.
China Outgoing Foreign Direct Investment (2000 - 2007) in USD, Billions
30
20
10
0
2000 2001 2002 2003
Source: UNCTAD
Secondly, technology transfers that
took place during this process had a
profound effect on Chinese industry,
allowing for the emergence of com-
panies that could be technologically
competitive in foreign markets. Chi-
nese companies have thus grown a
technical and financial ability on
home soil before setting out to con-
quer foreign markets. This is con-
trasted by smaller developing
economies that saw their multina-
tionals step piecemeal into foreign
markets to gradually learn the ropes
of doing business in developed
economies. Chinese companies
have not gone through this learning
curve yet, but are launching into
foreign markets as if they have. The
consequences of this experience
deficit will be one of the defining
features of Chinese outgoing invest-
ments over the early parts of the
coming decade.
But the defining difference between
China’s foreign forays and that of
other developing economies is the
2004 2005 2006 2007
 7

focus on resources. In the early

19th century Britain put around 20
million people through an industrial
revolution drawing resources from a
large colonial empire. After the
American Civil War the US put 70
million people through an industrial
revolution with help of its own rich
endowment of resources. Now
China is busy industrializing a coun-
try of 1.3 billion without colonies or
significant resources. The immedi-
ate solution is to buy these re-
sources on open markets that are
much more efficient than those in
the 19th century, but this has long
been considered as only a short-
term solution. Strategically, China
has no intention of seeing its eco-
nomic growth tempered by its grow-
ing influence. The possible results
of such a dependence was illus-
trated in 2005 and 2006 when acri-
monious exchanges between iron
ore producers and Chinese govern-
ment bodies were followed by China
having to swallow large rises in iron
ore benchmark prices. And in 2008 Leading the Charge: Sinosteel has successfully taken over Australia’s Midwest
China was powerless to avoid a Corporation and have acquired up to 49.9% of Murchison Metals, also from Aus-
doubling of the benchmark price - tralia.
the biggest rise ever. In the case of
oil, the imperative is equally strong. Going Abroad or Bust experience will in some cases cer-
In 2006 China was the world’s sec- tainly yield returns well below ex-
ond largest oil consumer after the The urgent nature of this trend sets it pectations. Risk is also com-
US, and the third largest oil im- apart from the globalization efforts of pounded by the fact that many of
porter, after the US and Japan. Also other developing economies. Japan these companies are state-owned
in 2006, China imported 145 million and Korea meticulously nurtured enterprises that are used to playing
tons of crude oil, up 14.5% from national champions whose venturing by rules very different from conven-
2005. China’s industrial expansion into foreign markets was carefully tional commercial wisdom.
will see oil imports grow annually by coordinated and implemented when Whereas any culturally monoga-
4.3% up to 2020 to eventually rep- the time was deemed most appropri- mous company would have difficul-
resent 70% of national oil consump- ate. In a similar fashion, Brazilian, ties operating in foreign climes, Chi-
tion, up from today’s 40%. South African and Indian multination- nese SOEs are also hierarchical
als went abroad as soon as they and unable to make quick, informed
In order to avoid such dependence, considered themselves to be ready decisions. Furthermore, SOEs are
China has no choice but to acquire for the challenge. China, on the used to settling disputes on an ad-
and develop foreign reserves of other hand, is venturing abroad be- ministrative level, thus regarding
natural resources. This process has cause it is compelled to do so by the use of lawyers and other advi-
been picking up speed since the circumstances. sors in a remedial capacity rather
earlier years of this decade, and but than in a preventive capacity. Chi-
for a few exceptions, China’s outgo- This phenomenon of multi-billion nese SOEs regard public relations
ing foreign direct investment has dollar foreign investments made by to be of much less importance than
been dominated by this need. companies with little international in the West, while community rela-
8
Major Recent Foreign Resource Investments by Chinese Companies
Date Announced Target
Jan 2006 NNPC-OML130
Aug 2006 OAO Udmurtneft
Feb 2007 Monterrico
Aug 2007 Peru Copper
Jan 2008 North Peru Copper
Feb 2008 Rio Tinto
Jun 2008 AED Oil
July 2008 Midwest
Sep 2008 Awilco
tions are taken care of by local gov-
ernment and other organs of state.
Tried and tested Chinese templates
will almost certainly be applied to
environments where they are bound
to fail, yet this will not be due to in-
tent as much as inexperience. Chi-
nese companies have suffered from
avoidable labour disruptions in Peru
and Zambia among other places, a
consequence of a general percep-
tion that if you have the govern-
ment’s support, the project needs
no more selling to anyone. In many
African countries mining and con-
struction projects are carried out
with a fully imported Chinese labour
force, leading to little if any transfer
of skills. This formula is admittedly
often ascribed to a general lack of
local skills, yet it can also attributed
to a lack of integration skills on the
part of Chinese SOEs who have
always only had to deal with Chi-
nese employees in a Chinese envi-
ronment.
So what does this reality mean for
the rest of the world?
● Firstly, that the trend of Chinese
companies going abroad is not
likely to stop anytime soon be-
cause of difficulties. Chinese
companies will merely learn to
cope with difficulties since the
Acquirer
CNOOC
Sinopec
Zijin
Chinalco
Minmetals/Jiangxi Copper
Chinalco-Alcoa
Sinopec
Sinosteel
China Oilfield Services Limited
globalizing of China Inc. is in large
part not out of choice.
● Secondly, since Chinese resource
players have little choice but to
work in often inhospitable environ-
ments, this unique knowledge will
be passed on to other parts of
China Inc. As the DRC starts de-
veloping a middle class, expect
people to buy fridges and washing
machines manufactured at Haier
plants in Africa, or Lenovo com-
puters serviced in Lubumbashi.
● Furthermore, Chinese companies’
foreign acquisitions are bound to
remain politically contentious for
some time into the future. Con-
cerns about environmental con-
duct and labour relations will be
fertile political soil for alarmists,
while China’s own restrictions on
foreign investments in its own
economy will become ever more
untenable as its companies ven-
ture into First World economies
eager to get a slice of the China
pie. In Australia questions have
already been raised on whether
Australia is really getting a fair
deal as China’s quarry master,
while the attempted acquisition by
Minmetals of Canada’s Noranda
raised the question of whether a
Chinese state-owned entity could
actually own a Canadian
‘strategic’ asset.
Value
USD2.7bn
USD3.5bn
USD200m
USD860m
USD470m
USD14.1bn
USD561m
USD1.31bn
USD2.5 bn
● In the developing country arena
Chinese interest is bound to be
seen as a welcome source of
investment that will erode West-
ern influence. This is especially
the case in a region like Africa
that has been abandoned by
Western powers after the end of
the Cold War, leaving it as the
last great strategic beachhead. In
investing large amounts of
money in Africa China is both
gaining access to resources and
quietly building diplomatic influ-
ence in a region where its invest-
ment may eventually spur long-
awaited economic growth.
● Chinese foreign acquisitions are
bound to be made on different
criteria than would be considered
acceptable among Western in-
vestors. With Sudan’s political
situation, most Western compa-
nies would not invest there, yet
Chinese companies have moved
in since they do not have the
same constraints in terms of pub-
lic opinion. Haier made a bid for
Maytag that was aimed at its in-
tellectual property and distribu-
tion network, not based on
whether it is actually a good buy.
Yet because Haier has a large
home market and can offer
cheaper manufactures to the
American market, Maytag was
 9

seen as a good buy. The same
goes for why Shanghai Automo-
tive Industries Corporation (SAIC)
bought Rover when no-one else
wanted to touch it.
● This then ties into the last major
characteristic of Chinese foreign
investment, namely that it will be
done with a long-term framework
in mind, much in the same way
as Japanese companies oper-
ated in the 1970’s and 1980’s.
China knows that it is a latecomer
to global markets and that the
learning process will be long and
at times expensive. Chinese in-
vestment patterns may change
over time, but volumes will not be
affected by disappointments.
The Equity Path
Over the past several years, how-
ever, China has learned that the
hard way is not the only way to
learn. Instead of making invest-
ments that may fail due to a lack of
operational and managerial experi-
ence, the equity route has become
ever more popular. In 2006 Zijin
Mining bought a 20% stake in Ridge
Mining plc, a London registered
company mining for platinum in
South Africa. In the financial arena a
Chinese sovereign fund, the China
Investment Corporation (CIC) in De-
cember 2007 took a 9.9% stake in
Morgan Stanley as the latter be-
came an early victim of the sub-
prime crisis. Indeed, the establish-
ment of the CIC with an initial capital
allocation of USD200 billion was
partially aimed at securing better
returns from China’s massive for-
eign exchange reserves (approach-
ing USD2 trillion), most of which is
presently held in low yield US treas-
ury bonds. This is indicative of a
stronger focus on extracting more
universal value from investments,
i.e. ones that are valuable in a non-
Chinese context as well. Yet this
process will not be smooth either, as
CIC found with an ill-timed invest-
ment in private equity giant Black-
stone - the USD3 billion investment
was soon followed by a 19% plunge.
Future trends
For the size of China’s economy, its
outward foreign investment is still
miniscule. The hype around China
‘Going Abroad’ has its origins in big-
ticket deals and the reality that any
economic trend in the world’s third
largest economy will be news. Yet
in 2006 China ranked only 18th in
terms of FDI outflows and was re-
sponsible for only 1.3% of the global
total outward flows of FDI. Still, in
the five years from 2002 to 2006
China’s outward FDI flows in-
creased eight-fold in absolute
terms, and trebled in terms of the
world’s total flows. And whereas
Chinese outgoing investment is still
focused on resources and con-
ducted by state-owned entities,
China’s economic clout and size will
really be reflected in its foreign in-
vestment flow once the non-
resource private economy gets into
the game. Home-grown retailers,
insurers, manufacturers and a host
of other sectors will soon feel that
their dominance in a complex, large
market has equipped them to func-
tion successfully in foreign markets,
and that is when the true effect of
China’s emergence will be felt in
foreign boardrooms.
Kobus van der Wath
Group Managing Director
kobus@thebeijingaxis.com

China and Japan Foreign Direct Investment Comparison (Current USD, Billions)

70 China FDI Inflows

60
50 Japan FDI Outflows
40
30
20
China FDI Outflows
10
0
Japan FDI Inflows
-10
-20
0
1
2
3
4
5
6
7
8
9
0
1
2
3
4
5
6
7
8
9
0
1
2
3
4
5
6
'8
'8
'8
'8
'8
'8
'8
'8
'8
'8
'9
'9
'9
'9
'9
'9
'9
'9
'9
'9
'0
'0
'0
'0
'0
'0
'0

This graph illustrates the marked difference between the economic rise of China during this decade and the rise of Japan in the
1980’s. Whereas Japan saw huge investment outflows and very few inflows, China experienced the opposite, welcoming extraordi-
nary levels of foreign capital, while only recently starting to send investment beyond its own borders.
10
Taking a Step Into Latin America
The more China increases its demand for natural resources, the more its commercial and invest-
ment relationships with Latin American countries are intensifying. In the last few years, metals and
minerals have been the strategic engine of this trend, opening a new stage of increased Chinese
investment in the region. We examine the current critical juncture between these two regions.
After the visit of Chinese President
Hu Jintao to Latin America in No-
vember 2004, the importance of the
region’s natural resources for the
future of China was assured. Presi-
dent Hu made use of his speech to
the Brazilian Congress to announce
that China would invest USD100
billion in Latin America during the
next 10 years. Many analysts date
the start of the ‘Long March’ to eco-
nomic integration between the two
economic blocks from this an-
nouncement.
The phenomenal rise of Chinese
imports of natural resources has
brought with it a windfall of growth
and economic opportunities for Latin
America. Increased demand from
China has triggered a rise in raw
material prices, creating significant
revenues for Latin American compa-
nies. For example, with only a mod-
est increase in output, between
2002 and 2006 revenues for the
Chilean copper giant Codelco in-
creased five-fold. Bearing in mind
this dynamic, while China secures
its supply of raw materials in the
short and medium term, Latin
American companies will have more
financial resources at their disposal
for further exploration, mining and
acquisitions, both regionally and
abroad. In recent years, to increas-
ing their bargaining power in the
supply chain, Chinese companies
have expanded their role from sim-
ply buying natural resources to actu-
ally owning the assets. In making
the transition from trade to invest-
ment, China is steadily strengthen-
ing its strategic relationships with
countries in Latin America, thereby
achieving a more influential role in
setting global market prices.
The best moment in history
According to UN sources, bilateral
trade between China and Latin
America reached USD87.2 billion in
2007. In effect, Chinese imports
from the region have increased by
an annual average of 40% in the last
eight years, contributing to countries
like Brazil, Argentina, Chile, Peru
and Venezuela enjoying notable
trade surpluses with China. In the
case of Chile, for instance, China
has overtaken the United States as
the largest destination of exports in
2007. At the same time, the share of
Latin American exports to China has
increased two-fold in the last decade
and China has now become Latin
America’s 3rd largest trading partner
and the biggest consumer of several
commodities from the region.
This substantial increase in trade
between the two regions has primar-
ily been propelled by iron ore and
copper ore exports to China, whose
trade values have experienced spec-
tacular growth rates of more than
1000% in the past 5 years. In 2007,
China Most Imported Goods from Latin America (USD bn, 2000-07)
18
16 Ores
14 Oil Seeds
Mineral Fuels
12 Copper
10 Electronic Equipment
8
6
4
2
0
2000 2001 2002
Source: UN Comtrade Statistics Division
one-third of China’s total ore imports
came from Latin America, mainly
from Brazil, Chile and Peru. This
has occurred despite the increased
transportation costs and extended
distance between the two regions.
(The proximity factor is a compara-
tive advantage of the main suppliers
of metals and minerals to China
such as Australia, India and other
Asian countries.)
The protagonists
The trade boom between Latin
America and China has coincided
with a time of extraordinary liquidity
for Chinese mining companies.
China Minmetals Corporation, a
Fortune 500 company, declared net
profits of USD939 million in 2007, a
two-fold increase on the previous
year. Similarly, Chalco, the world's
fourth largest aluminium producer,
has increased its revenues by
17.5% from 2006, reaching a net
profit of USD1.4 billion last year.
Zijin Mining Group not only regis-
tered a net profit increase of 49.7%
to USD370 million in 2007, but also
2003 2004 2005 2006 2007

IPOed A-shares of USD1.5 billion in
April the same year, which the com-
pany intends to invest in assets in
China as well as abroad.
With such a solid financial position,
strong Chinese demand, public
funding and an active ‘going global’
policy promoted by the Chinese
government, companies like Zijin
Mining are in good shape to further
expand abroad.
We have therefore reached a critical
juncture for Chinese enterprises
and resource-rich Latin American
countries that are set to profit from
China’s increasing role in the global
mining industry. Some of the most
important Chinese mining compa-
nies have already started to acquire
assets and to develop infrastructure
Major Chinese Mining Investments in Latin America & the Caribbean
by Level of Completion (September 2008)
MEXICO
JAMAICA
PERU
Mining
Operational
Under Construction
CHILE
Feasibility Study
Announcement / MOU
Processing
Operational
Under Construction
Feasibility Study
Announcement / MOU
in the region, while others have
formed strategic relationships di-
rectly linked to the supply of metals
and minerals.
The last 18 months have witnessed
a substantial increase in Chinese
mining acquisitions in Latin America,
especially Peru. The acquisitions in
Peru by Chinalco (34% of Peru Cop-
per Inc.), China Minmetals and Ji-
angxi Copper (100% of Northern Per
Copper), and Zijin Mining (89.9% of
Monterrico Metals) will eventually
amount to USD4 billion.
In neighbouring Chile, by means of a
strategic alliance with Codelco (the
world’s largest copper producer),
China Minmetals has ensured the
supply of 836,000 tons of copper for
the next 15 years and the option of
GUYANA
BRAZIL
BOLIVIA
ARGENTINA
11
buying 25-49% of the copper mine
Gaby. In addition, the two state-
owned enterprises are currently
considering the possibility of jointly
mining uranium and copper in
Chile, and of cooperating in explo-
ration in Africa and some Asian
countries. The strategic partnership
is a sign of the complementarities of
the Chinese and Chilean econo-
mies as the leading consumer and
producer of copper respectively,
which subsequently provided strate-
gic impetus to the Free Trade
Agreement signed between the two
countries.
In Brazil, Chalco has signed an
agreement worth about USD 1 bil-
lion with the multinational Brazilian
mining company (and world’s larg-
est producer and exporter of iron
ore) Vale for the construction of an
aluminium refinery as well as local
infrastructure in the state of Bar-
carena. The solid relationship be-
tween the two mining giants is
founded on the growing demand for
aluminium in China, as well as the
rich reserves of bauxite in Brazil.
China Minmetals is also in the proc-
ess of negotiating a joint venture
with Brazil’s Companhia Siderur-
gica do Para (Cosipar) to develop a
steel mill in Brazil. Minmetals, which
is expected to invest USD2 billion,
has in its favour the precedent of a
previous joint venture between
Baosteel and Vale to construct a
similar industrial plant in Brazil.
Joint investments have been a pe-
culiar part of Chinese mining invest-
ments in Latin America. The frag-
mented nature of the Chinese min-
ing industry and the inherent na-
tional interest involved have driven
Chinese companies to invest in
groups. This tactic has enabled
them to diversify the risk, increase
purchasing power and spread their
corporate presence in the region.
Inspired by China's appetite for
12

Summary of Chinese Investments in Latin America's Mining Sector

Type of Investment
Chinese Investor Country Company/Mine Resource Stake
(Stage)
China Metallurgical Group. Argentina Minera Sierra Grande S.A. Iron 70% Acquisition
Shandong Luneng Hengyuan Bolivia El Mutun Iron Ore 100% Acquisition (Bidding)
China Minmetals Corp. Brazil Cosipar Steel >50% JV (In discussion)
Baosteel Group Brazil Vale Steel 60% JV
Baosteel & Shougang Group Brazil CSN (Namisa) Iron Ore 100% Acquisition (Bidding)
China Minmetals Corp. Chile Codelco Copper 50% JV
China Minmetals Corp. Chile Codelco/Gaby Mine Copper 25-49% Acquisition (In discussion)
Bosai Minerals Group Guyana Cambior Inc. Bauxite 70% Acquisition
Jinchuan Group Mexico Bahuerachi Deposit Copper 100% Acquisition
Shaanxi Dongling Group Mexico Reyna del Cobre Various 100% Acquisition
Shaanxi Dongling Group Mexico Andreas Various 100% Acquisition
Shanghai Spirited Int. Trading Co. Mexico Los Vasitos Iron 100% Acquisition
China Minmetals & Jiangxi Copper Peru Northern Peru Copper C. Copper 100% Acquisition
Shougang Corporation Peru Shougang Hierro Peru SA Iron 100% Acquisition
Chinalco Aluminium Corp. of China Peru Peru Copper SA Copper 34% Acquisition
Zijin Mining & Tongling Nonferrous Peru Monterrico Metals Copper 89.9% Acquisition

iron, copper and steel, Chinese en-
terprises have focused their invest-
ments on countries like Brazil, Chile
and Peru, with stable political envi-
ronments and sound regulatory
structures. Yet Chinese enterprises
have also shown interest in tradi-
tional ideological allies such as
Cuba (nickel) and Bolivia (iron ore).
Two different challenges, the
same opportunity
In order to profit from the invest-
ment deals in a sustainable manner,
both sides will have to face severe
challenges, yet of a different nature.
The forming of joint ventures in
Latin America has the potential of
not only guaranteeing the supply of
basic raw materials over the long
term, but also to enhance the tech-
nological capabilities and know-how
of Chinese companies. With this
aim, they will have to adapt their
management methodologies and
quality standards, and integrate
their corporate culture with joint
venture partners. At the same time,
however, Chinese companies will
also have to consider the social and
environmental impact of their invest-
ments. In many Latin American
countries, most of the mines are an
essential source of livelihood for lo-
cal communities. Therefore, the es-
tablishment of sustainable relations
with labour unions as well as the
implementation of environmentally-
friendly developments are essential
for improving the public image of
Chinese investors in Latin America
and for facilitating continuously prof-
itable mining operations.
Instead of concentrating solely on
short term profits, Latin American
companies will have to utilize invest-
ment flows to upgrade the endow-
ment factors of their national econo-
mies and to increase their competi-
tiveness in global markets. The in-
vestment in research, development
and innovation seems to be a more
profitable strategy than merely ex-
porting resources. Driving part of the
investment to the processing of met-
als and minerals in the region will
assist with the development of the
industrial base, especially infrastruc-
ture, enhance the productivity of the
companies, and encourage the ex-
port of more value-added products.
China is an opportunity to Latin
America as much as Latin America
is to China. Traditionally dependent
on investments from the First
World, Latin America has a new
offer from China as an engine for
the economic growth and interna-
tional expansion of its domestic
companies. In the emerging econo-
mies of Latin America, Chinese
companies have been better re-
ceived than in developed countries,
and have therefore found a more
profitable destination for their in-
vestments. As a whole, and if the
challenges can be overcome in a
mutually beneficial manner, both
sides are set to gain from a promis-
ing opportunity for further trade and
investment between developing
economies.
China has taken a step towards
Latin America and as long as China
requires an increasing amount of
natural resources, these two antipo-
des will grow closer together.
Javier Cuñat
Consultant (LatAm Desk)
javiercunat@thebeijingaxis.com
Advertisement
14

China Sourcing Strategy

Strategic Imperatives in Identifying Suitable Suppliers and Managing the Engagement.
With a global financial crisis unfolding, the question arises how developing countries, Asia in particu-
lar, and even more specifically China, will hold up as pre-eminent supply-bases. For procurement
managers it is necessary to anticipate the risks that will envelope low cost country (LCC) sourcing
and manage the global sourcing portfolio. We examine some of the associated planning issues.

The unfolding financial crisis in the
US, Europe, Russia and other parts
of the world has redefined the finan-
cial and economic landscape. The
road ahead looks set to be filled
with further financial and corporate
fallout and it is likely that few parts
of the world will be left unscathed.
But how should views on global
sourcing and LCC sourcing in par-
ticular be adjusted to mitigate risk?
The key to this question lies in the
extent of dislocation that will be ex-
perienced at a systemic level across
the global economy, within specific
industries and within specific re-
gions and countries. But exactly
how economic growth, exports, con-
ventional financing avenues, pay-
ment systems and supply chain
confidence will be affected remains
uncertain. There is agreement, how-
ever, that the impact could be sig-
nificant in some regions and indus-
tries. This implies the need for stra-
tegic thinking and a clear plan with
regards to the appropriate local-
global mix in the supply chain, the
relative risk in categories and a real-
time running view on supplier
‘health’. But this is not easy given
intermittent information flows across
culture, language and long distance.

% of Spending on LCCs % of Asia’s Share of World Exports

2003 Est. 2008 Est. ASEAN China

100 8

80
6
60
4
40
2
20

0 0
Industrial Auto Tier 1 Consumer Home Apparel 1990 2000 2003 2005 2006
Products Electronics Appliances
Source: Booz-Allen Hamilton; Various; TBA Analysis Source: WTO; OECD; World Bank; Centennial; TBA Analysis

Strategic Mapping - From Global,
Low Cost Country (LCC), to
China: a two-tier approach
Looking ahead we need to be clear
about the different horizons of any
impact that might occur. This calls
for a two-tier approach. Firstly, there
are likely to be severe fallout among
certain countries, industries and
companies over the immediate
short term. These risks must be
identified and contingencies worked
out to mitigate specific risks and
manage the overall risk profile.
Some procurement managers have
already been caught off-guard. For
example, smaller suppliers around
the world and also in Asia and
China with less leverage over banks
are suffering already from de-
creased liquidity and many will sim-
ply be unable to withstand the
shock. The supply risk to those that
source from these firms is obvious.
However, due to the myriad of inter-
relationships and the complexity of
forecasting which markets will be hit
hardest, it is very hard to fully com-
prehend the shape and extent of
one’s risk. The question is whether
suppliers will pull through, whether
they will suffer temporarily or
whether they will be left intact.
Based on these possibilities, it is
then necessary to determine the
best response — i.e. change suppli-
ers immediately (and permanently),
line up stop-gap suppliers, or con-
tinue as before. Overall it is wise not
to underestimate the ripple-effect of
what is happening in global mar-
kets. The speed of contamination
could be severe and the reach of
any real economic fallout could be
wide. In fact, over the next 3-6
months we can expect a number of
high profile corporate failures—with
that their surrounding economic net-
works (i.e. 1st/2nd tier suppliers,
service providers, etc.) may also
collapse. Those having a supply
dependency on one of these impli-
cated firms would require a prudent
short-term plan of action.
 15

of how industries will adjust in coun-

China Commodities Export Growth (USD bn)
tries like China, India, Vietnam and
1400 85 CAGR 183
CAGR
326
CAGR
1,218 elsewhere in Asia.
bn 14% bn bn bn
10% USD 25% USD
USD USD

1200 Machinery and electrical equipment When we focus, for example, on

Textile and textile articles
Miscellaneous manufactured articles
1000
Base metals
Chemical products
800
Transport equipment
Others
600
ct
ele
d GR
an
ry
ne
400 i ti
ch
Ma and
t il e
Tex
200
13.59%
28.98%
0
1992 1997
Source: UN Statistical Database, HS 2002 per sections
Secondly, there is the need to plan
for the medium and longer term,
say over a 5-year horizon. Firms
that are not thrust into an unfortu-
nate cycle of crisis management
over the next weeks and months
should keep an eye on the long
term. We take the view that the role
of LCC’s will not be negated by the
unfolding crisis. We expect that over
a 5-year horizon, the share of
sourcing from LCC's will generally
continue its rising trend. (See the
chart on the previous page.)
Undoubtedly, some markets will
disappoint and there will probably
be an ongoing re-balancing of
spending within the LCC world. This
still implies risk, but it suggests that
to reverse long term LCC sourcing
strategies now, because of the fi-
nancial crisis, would be counter pro-
ductive over the long term. Rather,
the challenge is to better mine infor-
mation and have the knowledge of
which regions, countries and indus-
tries must be earmarked for LCC
sourcing. Achieving this level of
market knowledge and strategic
insight could, in our view, equate to
competitive advantage for those
firms.
43.42%
.2 %
27
R
AG
ntC
m
e For example, machinery and electri-
ip
qu 13.62%
ale
ric
7%
12.
9.48%
s CA
le
rtic 5.66%
le a
tex 4.19%
4.51%
35.60%
20.94% 17.77%
23.29%
23.65%
2002 2007
We also take the view that within
the LCC world Asia will continue to
be prominent, even dominant. There
is already evidence that many of the
Asian economies are experiencing
some impact—slower economic
growth, weaker exports, tighter li-
quidity, currency volatility and finan-
cial and corporate sector vulnerabil-
ity. However, we expect that most
South East Asian economies are
structurally in better shape than in
1997 and strong enough to bounce
back. Therefore, for example, we
expect that South East Asia or
ASEAN will continue to compete
globally and increase its long term
share of world exports.
China too, we expect will not lose its
overall ability to compete with its
exports. (See chart on previous
page.) Some traditional ASEAN and
Chinese export winners will no
doubt lose their competitiveness,
but overall these economies should
remain a key component of the
global LCC opportunity. Once again,
the challenge is to see through the
short term turmoil and discern long
term trends and to position supply
chains for the future. This would
require an information-based view
China we notice that it has already
become an exporter of more so-
phisticated goods. This has become
a structural trait of the Chinese
economy, and is unlikely to unravel.
cal equipment already made up
43% of total export in 2007, com-
pared to only 14% in 1992. In fact,
for the period 1992-2007 CAGR
amounts to 27%. This implies a
more diversified economy and a
more competitive higher-end indus-
trial base. (See chart on left.)
We can expect that some ‘sunset
industries’ will lose their ability to
gain or maintain global market
share, but it seems certain that new
higher-end ‘sun-rise’ industries are
emerging that will further propel
China as a future supply base to the
world. As such, at the firm level it is
necessary for strategic mapping be
performed so as to determine the
long term prospect for global sourc-
ing. Within the categories that are
earmarked for global sourcing it is
necessary to look for LCC sourcing
opportunities and within that Asia is
likely to score high (with China in
particular still getting on the shortlist
for many categories).
Looking ahead it is necessary to
factor into the equation to what ex-
tent the unfolding crisis will alter the
path of LCC, Asia and China sourc-
ing potential. While the outcome will
differ from industry to industry, cate-
gory to category and from product
to product, we take the overall view
that LCC, Asian and Chinese sourc-
ing potential will not be detrimen-
tally affected over the medium to
long term. So, while we acknowl-
edge that the challenge of manag-
ing the immediate and near term
risks could be a very real obstacle,
we suggest that procurement pro-
fessionals keep a strategic perspec-
tive on the longer term potential of
16
China in the context of LCC sourc-
ing. But we must acknowledge that
it will be harder to select suppliers.
In Search of Valuable Partner-
ships in China
Given the general increase in global
financial and economic risk there is
also a corresponding rise in the
value at risk that is associated with
the sourcing process. This elevates
the need for valuable partnerships
and supplier relationships. It also
makes it more important than ever
to perform appropriate due diligence
in supplier selection and to have
solid processes that cater for the
increased risk profile. We empha-
size that it is not only necessary to
be prudent in qualifying new suppli-
ers but to also do an audit on exist-
ing suppliers. Where audits are
done on an irregular basis we sug-
gest that the frequency of annual
‘health checks’ be increased. We
High-level Process Flow of THE BEIJING AXIS China Sourcing Unit (CSU)
Source: TBA Analysis
also suggest that relationships, es-
pecially strategic ones, be managed
more closely. The playing field will
start to shift in the coming months
and it will be necessary to have ex-
perienced people that can make
calls on the relative risk in the sup-
plier portfolio.
It is also necessary to revisit the
overall process flow of the sourcing
activity cycle and with that the sup-
porting supply chain elements and
processes. (We highlight this in very
broad terms in the diagram below to
reflect how we look at it from a ser-
vice provider’s perspective.) It is
necessary to identify where the
main risks will derive from, i.e.: the
upstream activities like intelligence
gathering (internally or externally),
during engagements with suppliers
(due diligence, supplier selection or
contracting), or during the down-
stream process stages (transaction
monitoring, QA, or logistics). In a
country such as China the need to
identify pressure points early is
even greater. Making corrections or
iterating parts of the process flow
simply takes longer due to language
barriers, difficulty in managing infor-
mation, time-zone differences, long
distances, etc.
Towards a Preliminary Strategy -
Implementation Framework for
Supplier Identification, Selection
and Day-to-Day Engagement in
China
To try and pull together some of the
earlier views, we now put forward
some brief ideas on how to think
about a strategy implementation
framework. In essence, this is about
having control over the entire Proc-
ess Flow that we refer to above
(and in the diagram below). Unfortu-
nately the degree of cross-cultural
management, language differences,
standardization discrepancies, mul-
tiple stakeholders, etc. complicates
 17

Critical Success Factors / Risks in Sourcing from China

% of respondents, multiple answers possible
2006 2008
Quality of sourced goods 86% 91%
Cost of sourced goods 86% 91%
Total cost of sourced goods (including logistics) 85% 92%
Reliability of suppliers 83% 92%
Suppliers' production processes quality 81% 86%
Internal buy-in of ‘sourcing in China’ idea 78% 75%
Reliability of logistics services suppliers 72% 79%
Continuous cost improvement 72% 83%
Strictly abiding relevant laws and regulations 70% 74%
Purchasing department flexibility 68% 72%
Intellectual property protection 65% 73%
Suppliers' service level 65% 72%
Quantity of Chinese suppliers 62% 67%
Lowering the cultural barrier 56% 57%
Supplier's R&D capabilities 56% 64%
Quantity of sourced goods 55% 61%
Source: Bearing Point; TBA Analysis

matters and increases risk. We pro-
vide a preliminary checklist with
some internal and external issues
that need to be watched closely in
order to ensure good strategy im-
plementation:
Internal Implementation Checklist
People—Without the right people
there is little chance of success.
Language and culture makes this a
key determinant of success.
External Implementation Checklist
Financing activities—Having a pol-
icy and relationships for vendor fi-
nancing is key.
The relationship with HQ, regional
financing centres (i.e. HK, Singa-
pore) and local banks in China must
be managed well. The next 6-12
months could see a turbulent time in
this area.
Service providers and consultants—
Chinese RMB and other Asian cur-
rencies to become more uncertain.
Surveys show that there are many
critical success factors in achieving
good outcomes during implementa-
tion. For example, the chart above
shows important areas where risk
arises when sourcing from China.
Finally, in order to manage these
risks we identify a few implementa-
tion principles for China sourcing
ventures:
● Develop only ‘implementable’

Processes—Firms without good The nature of sourcing and supply strategies

global processes find it hard to suc- chain work in China often necessi- ● Strategies must be research-

ceed in China. China requires a dis- tates the use of various service pro- based, grounded in reality
ciplined approach and having a viders and consultants. Many of ● Invest in good project managers

strong global process capability is these firms are going to be tested in ● Adopt a holistic risk management

crucial. the near future and selecting the philosophy

right partners is key. Complacency ● Manage strategic relationships

Systems—Without the right systems will not pay off. well

in place the best people and good
processes fall flat. Invest early in
setting up the technology infrastruc-
ture if you are serious about China
sourcing.
Currency risk—There is already a
significant increase in volatility in Kobus van der Wath
global markets. Looking ahead we Group Managing Director
can expect the trajectory of the Chi- kobus@thebeijingaxis.com
18

China Sourcing Blog Highlights

The China Sourcing Blog has been investigating sourcing trends influenced by rising transportation
and labour costs in China. Yet, although sourcing trends are changing, China remains the sourcing
destination of choice.

Sponsored by THE BEIJING AXIS,

the China Sourcing Blog takes on a
multi-faceted, dynamic subject and
carefully scans everything from the
mainstream media to distant cor-
ners of the Internet to get to the bot-
tom of all the best bits and pieces
on China sourcing. The following
are some of the most popular post-
ings over the last four months:

Posted: 29 August 2008

Mexico has emerged as a potential
competitor to China in the field of
low cost country sourcing. In a post-
ing titled “In-Sourcing and China
Plus One: Who’s Going to Mex-
ico?”, CSB showed that, far from
US supply chains preparing to re-
treat en masse back to Mexico, Chi-
nese auto manufacturers are in-
stead poised to advance into Mex-
ico to gain a foothold in the Ameri-
can market. And instead of leaving
China, most companies are opting
to diversify their supply chains to
other Asian countries in order to
offset increased costs in China - the
so-called China Plus One phenome-
non.
Posted: 10 August 2008
As the impact of rising transpor-
tation costs continue to be felt in
global supply chains, CSB looked at
whether China sourcing is in any
immediate danger as oil prices drive
up transportation costs. Yet while
some Western companies are trying
to move production closer to their
customers, China is set to remain
the sourcing destination of choice
for the foreseeable future.
Posted: 22 July 2008
Negotiation is a crucial yet compli-
cated element in any sourcing deal
Harder to get there: Logistics costs have caused some to seek sourcing opportu-
nities in Mexico or elsewhere in Asia, but China remains the best choice.
in China. In a posting titled “Its all
about the Supplier: Negotiation
in China”, we analyzed the dy-
namic negotiation process in a Chi-
nese context. Being the best pre-
pared negotiator is ultimately sub-
servient to one overarching reality:
negotiation in China can only be
done in one way - the Chinese way.
Posted: 21 July 2008
As Wal-Mart signed a landmark
labour agreement with its Chinese
employees, CSB examined China’s
move up the production ladder from
the perspective of recent changes
in labour organization and regu-
lation. With a trend towards collec-
tive bargaining, recent labour regu-
lations have encapsulated the gov-
ernment’s resolve to develop
higher-value industries by making it
harder for companies to flout labour
regulations and by forcing them to
invest in employee training.
Posted: 18 July 2008
As electronics manufacturer Fox-
conn left Shenzhen for western
China aiming to save 60% in labour
costs, many simply believe that
China is no longer cheap. Yet
China’s climb out of low-cost pro-
duction is also defined by the rise
of its high-tech companies and
their improving ability to meet
global quality and design require-
ments - signs that China is moving
from low-cost to high-tech.
And finally...
In the latest posting on the state of
quality control (QC) in China, we
find that quality control has a lot to
do with size: the bigger, the bet-
ter… Yet for small companies the
best option remains to utilize an
outside service provider.
CSB@chinasourcingblog.org
www.chinasourcingblog.org
 19

Macroeconomic Monitor
Time for a China Slowdown? Yes—but uncertainty remains over how much and for how long.
China’s post-Olympics economy is showing signs of a slowdown. This is partially due to local soft-
ness i.e. in industrial output, consumer demand and investment levels, but we can also expect
global growth to dent China’s performance via weaker exports and the knock-on effect of tighter
global liquidity. Meanwhile, the weak stock market and a vulnerable property sector will also weigh
on sentiment. The full extent of slowdown is still unclear but we can expect growth falling below
10% - and there are implications for global resource demand, local fiscal and monetary policy and
slower RMB appreciation. As such, manage risks now, but keep in mind that longer term, once
global confidence returns, China’s prospects remain sound.
We expect China’s GDP growth to slowdown that is showing up in sta- small exporters, property firms and
slow from the 11.9% level in 2007 to tistics are the temporary Olympics- utilities, etc.) and there are signs of
close to 10% in 2008 and 8.5-9.0% effect (a widespread but largely ex- inventory build-up across many in-
in 2009. However, the second half pected reduction in economic activ- dustries (i.e. primary production
of 2008 and the first half of 2009 will ity); a slowdown in investment sectors such as steel, etc).
be particularly soft with quarterly spending; a slowdown in industrial
year-on-year growth of below 8.5% production; moderate consumer de- Looking ahead it is necessary to
and potentially even below 8.0% for mand and of course less buoyant carefully monitor the extent of fur-
some quarters during the period. exports. ther slowdown (by region, sector
and sub-sector) and to anticipate
In 2010 we expect growth to re- The next few months will likely see the likely policy responses. Beijing
bound to 9% (largely as the slump further reductions in export growth may respond with fiscal and mone-
falls out of the index.) Overall and consumer sentiment will likely tary stimulus in the wake of a global
though, we have entered a period of also take a hit in the context of the and local slowdown. In the mean-
slowdown in China and key ques- global financial crisis. Property val- time one can also expect a modera-
tions are: ues and stock prices are key factors tion in the rate of RMB appreciation
● How much of the slowdown can be in this regard—neither of which are (or at least that perceived risk) and
explained by the domestic Chinese providing a positive impetus to confi- in the consumption/price levels of
business cycle? dence. (Property values in China are resources and raw materials. But
● How much is external—i.e. what down between 5-35% depending on the main challenge will be to main-
will the impact of the global finan- the area, and the Shanghai stock tain a balanced view between short
cial/economic crisis be on China? index is down around 60% this year. term risk and long term potential.
● How severe and protracted will the

slowdown be? The slowdown that is in process in

● What are the key risks to manage China has already translated into Kobus van der Wath
right now—and how? slower earnings growth in the corpo- Group Managing Director
The main causes for the current rate sector (i.e. airlines, refiners, kobus@thebeijingaxis.com
China GDP Growth (% change y-o-y, 1978-2010F)
Likely period of slowdown:
in 2008 to ~10%, in 2009 to
16 Most recent over- below 9% and in 2010 to
heating period around 9%
Past periods of
14 overheating
7-10% GDP
12 growth ‘band’
8% GDP growth
10 ‘floor’

8
6
4
2
0
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 0 7 0 8 F 0 9 F 10 F

Source: World Bank; China Statistical Abstract 2006; OECD Report; TBA Analysis
20

China Facts, Figures & Forecasts

The following is a selection of recently released data and forecasts that illustrate the main trends in
the growth and transformation of Chinese commerce and industry, with an emphasis on trade and
foreign investment.

China — Selected Economic Indicators

General Statistics 2005 2006 2007 2008E 2009E
Population (mn) 1,308 1,314 1,321 1,329 1,336
Nominal GDP (US$bn) 2,244 2,645 3,242 4,214 5,592
GDP per capita (US$) 1,716 2,012 2,454 3,171 4,186
Real GDP growth (%) 10.4 11.1 11.9 9.8 9.0
Growth in real retail sales (%) 12.1 12.7 13 13.6 13.7
Growth in real fixed asset investment (%) 25.7 24 24.8 20.2 19
Fixed investment (% of GDP) 42 42.8 44.1 43.2 41.8
Prices, Interest Rates and Exchange Rates 2005 2006 2007 2008E 2009E
CPI inflation (% December over December) 1.6 2.8 6.5 7.5 6.2
CPI inflation (% change in average index for the year) 1.8 1.5 4.8 7 7.2
Exchange rate (RMB per US$, end-year) 8.07 7.8 7.09 6.6 5.9
Exchange rate (RMB per US$, average) 8.19 7.97 7.61 6.95 6.25
Nominal wage growth (% year-on-year change, average) 14.6 14.4 16.5 20.3 25
3-month interbank rate (%, end-year) 3.6 2.8 4.4 5.2 5.8
Fiscal Data 2005 2006 2007 2008E 2009E
General government fiscal balance (% of GDP) -1.2 -0.8 -0.5 -0.6 -0.6
General government primary fiscal balance (% of GDP) -0.3 0.1 0.3 0.1 0.1
General government expenditure (% of GDP) 18.5 19.2 19.9 20.4 21
Gross general government debt (% of GDP, end-year) 23 20.9 18.3 15.9 13.8
Money Supply and Credit 2005 2006 2007 2008E 2009E
Broad money supply (M2, % of GDP) 160.7 163.9 163.6 161.9 156
Broad money supply (M2, % year-on-year change) 17.6 16.9 16.7 17.5 15
Domestic credit (% of GDP) 105.9 106.9 106.1 104.1 99.4
Domestic credit (% year-on-year change) 9.3 15.7 16.1 16.5 14
Balance of Payments 2005 2006 2007 2008E 2009E
Exports (goods and non-factor services, % of GDP) 37.3 40.1 41 34.3 28.6
Imports (goods and non-factor services, % of GDP) 31.7 32.2 32.2 31.8 28
Exports (goods and non-factor services, % increase in $value) 27.6 26.9 25.2 8.9 10.7
Imports (goods and non-factor services, % increase in $value) 17.4 19.8 22.2 28.5 16.9
Current account balance ($bn) 160.8 249.9 333.7 150 73.1
Current account (% of GDP) 7.2 9.4 10.3 3.6 1.3
Net FDI ($bn) 67.8 60.3 67.7 32 25
Scheduled external debt amortization ($bn) 18.1 20.9 24.1 27.3 30.5
Foreign Debt and Reserves 2005 2006 2007 2008E 2009E
Foreign debt ($bn, year end) 281 323 373 423 473
Public ($bn) 98.7 108.2 118.7 130.3 142.9
Private ($bn) 182.4 214.8 254.2 292.7 330.1
Foreign debt (% of GDP, end-year) 12.5 12.2 11.5 10 8.5
Foreign debt (% of exports of goods and services) 33.6 30.4 28.1 29.2 29.5
Central bank gross FX reserves ($bn) 819 1,066 1,528 1,773 1,918
Central bank gross non-gold FX reserves ($bn) 815 1,062 1,524 1,768 1,914
Source: World Bank, Asian Development Bank, TBA Analysis
 21

Trade Statistics by Province—Total Imports and Exports (2007)

2007 China Total Trade Volumes:

Imports: 956 USDbn

Exports: 1218 USDbn

Heilongjiang

Jilin
Xinjiang Beijing

Gansu Inner Mongolia Liaoning

Ningxia
Hebei Tianjin
Qinghai
Shanxi Shandong

Tibet Shaanxi Henan Jiangsu

Sichuan

Hubei Anhui Shanghai

Chongqing
Zhejiang
Jiangxi
Hunan
Highlighted Provinces make up Guizhou
Fujian
90% of China’s Total Trade Vol-
Yunnan
ume (Imports plus Exports): Taiwan
Guangxi Guangdong
Top 75%

Next 15%
Hainan

Exports % of Imports % of Comparable Exports % of Imports % of Comparable

(USDbn) Total (USDbn) Total Foreign Trade* (USDbn) Total (USDbn) Total Foreign Trade*
Anhui 9 0.7 7 0.7 Lebanon Jiangsu 204 16.7 146 15.3 Switzerland
Beijing 49 4.0 144 15.1 Hungary Jiangxi 5 0.4 4 0.4 Botswana
Chongqing 5 0.4 3 0.3 Tanzania Jilin 4 0.3 6 0.7 Uruguay
Fujian 50 4.1 25 2.6 Iraq Liaoning 35 2.9 24 2.5 Qatar
Gansu 2 0.1 4 0.4 Albania Ningxia 1 0.1 1 0.1 Niger
Guangdong 369 30.3 265 27.7 Spain Qinghai 0 0.0 0 0.0 Liberia
Guangxi 5 0.4 4 0.4 Congo Shaanxi 5 0.4 2 0.2 Ethiopia
Guizhou 1 0.1 1 0.1 Guinea Shandong 75 6.2 47 5.0 Slovak Rep.
Hainan 1 0.1 2 0.2 Afghanistan Shanghai 144 11.8 139 14.5 Turkey
Hebei 17 1.4 9 0.9 Bahrain Shanxi 7 0.5 5 0.5 Iceland
Heilongjiang 12 1.0 5 0.5 Sudan Sichuan 9 0.7 6 0.6 Ivory Coast
Henan 8 0.7 4 0.5 El Salvador Tianjin 38 3.1 33 3.5 Iraq
Hubei 8 0.7 7 0.7 Ivory Coast Tibet 0 0.0 0 0.0 Grenada
Hunan 7 0.5 3 0.3 Botswana Xinjiang 12 0.9 2 0.2 Cuba
Inner Mongolia 3 0.2 5 0.5 Papua New Yunnan 5 0.4 4 0.4 Myanmar
Guinea Zhejiang 128 10.5 49 5.1 Finland
Source: China Monthly Economic Indicators Vol. 95, 2008.2; UN Comtrade Database; TBA Analysis *Imports plus Exports
22

China Trade Roundup

To illustrate the main trends in the growth and transformation of Chinese commerce and industry
with an emphasis on trade and foreign investment, the China Trade Roundup summarizes the
latest available China trade statistics.

China Total Trade (Jul 07-Jul 08, USD bn) Total China Imports (CIF) & Exports (FOB) 2000–1H 2008)

Exports Imports
12,500
120 Imports
10,000
100 Exports
7,500
80
60 5,000

40 2,500 Trade level at the

end of 1H 2008
20 0
0 00

01

02

03

04

05

06

07

08
20

20

20

20

20

20

20

20

20
J A S O N D J F M A M J J
Source: National Bureau of Statistics Source: National Bureau of Statistics

% of Total Imports by Main Commodities (2007) % of Total Exports by Main Commodities (2007)
Iron and Steel 2% Plastic and articles of 2%
100% 100% Toys, games, sport equipment 2%
Copper 3% Vehicles 3%
90% Organic Material 4%
Plastic and articles of 5%
90% Furniture, lighting, signs, etc 3%
Technical , apparatus 3%
Iron and Steel 6%
80% Ores, Slag 6% 80%
Technical , apparatus 7% Articles of Apparel, Accessories 9%
70% 70%
Mineral fuels, oils etc 11%
60% 60% Nuclear Reactors, Machinery 19%
Nuclear Reactors, Machinery 13%
50% 50%
40% 40% Electronic Equipment 25%
Others 22%
30% 30%
20% 20%
Others 28%
10% Electronic Equipment 27% 10%
0% 0%
Source: UN Comtrade Source: UN Comtrade

China’s Importance to the World: Trade with China as a Percentage of Country or Territory GDP (2007)

Key*:
30%

China
15%

0%

No Data Available
Source: TBA Analysis
*For reasons of presentation the colour scheme used on this map only varies between 0 and 30%, with all countries representing percentages larger than 30% shown in
black. These countries are: Benin (32%), Equatorial Guinea (30%), Liberia (84%), Mongolia (59%), Rep. of Congo (41%), Singapore (31%) and Togo (33%).
 23

China Imports and Exports y-o-y Growth Rate 2001—2008

40 Exports Imports
30
20
10
0
2001 2002 2003 2004 2005 2006 2007 H1-2008
Source: National Bureau of Statistics

Total Trade (Imports & Exports) by Major Partners (2007) China’s 10 Largest Trade Surpluses (2007)
USA USA
Japan Netherlands
Hong Kong United Kingdom
Rep. of Korea United Arab Emirates
Taiwan Province Italy
Germany India
Exports
Russia Turkey
Malaysia Im ports Russian Federation
Netherlands Viet Nam
Australia Mexico

0 50 100 150 200 250 300 350 0 50 100 150

Source: World Bank Source: World Bank

Total Value of Imports into China of Top 10 Sources of Imports

2000 (USD133bn) 2007 (USD410bn)

Hong Kong
Hong Kong Thailand 5%
3%
Thailand 3% 7% Australia 5%
Australia 4% Russia 4%
Russia 4% Singapore 4% Japan
Singapore 4% Malaysia 6% 28%
Japan 31%
Malaysia 4%
Germany 8%
Germany 9%
S. Korea
USA 17% 17%
S. Korea 22%
Source: Asian Development Bank: Key Indicators 2007 USA 14%

Total Value of Exports from China to Top 10 Destinations

2000 (USD184bn) 2007 (USD774bn)

Japan 13%
Hong Kong
Hong Kong Japan 24%
24% 23% S. Korea
7%
Italy 2%
S. Korea Italy 3%
UK 3%
6%
Russia 1% UK 4%
Singapore 4% Russia 4%
USA USA 30%
Netherlands 4%
Germany 5% 28% Singapore

Source: Asian Development Bank: Key Indicators 2007

Netherlands 5% Germany 6%
24

Financial Markets
Tracking the dynamics of China’s Shanghai and Shenzhen Composite Index Indicators and Bench-
mark Interest Rates, Financial Markets also illustrates recent trends and transformations in China’s
exchange rate regime.

Shanghai
Share of & Shenzhen
BRI(C)S Composite
Total Trade withIndex (3(Jan-Dec
China Month) 07) RMB Exchange Rates (12 Month Trailing, Indexed)
Index: 2 June 2008 = 100% RMB/Foreign Currency

120 115 USD ZAR AUD RUB

Shanghai Shenzhen
100 110
105
80
100
60
95
40
90
20 85
0 80
June July August 12 September 2007 11 September 2008
Source: Shanghai Stock Exchange; Shenzhen Stock Exchange Source: Oanda Corporation

Benchmark Interest Rates (as on 10 September 2008) USD/RMB Exchange Rate (since peg loosened in 2005)

15% 13% 4
12% 19 July 2005: 17.4% appreciation up
9% 5 RMB ‘unpegged’ to 30 September 2008
10% 7% from US Dollar
7%
5% 6
4%
5%
2% 7
1% .5%
CAGR 4
0% 8
EU

UK

Brazil
US

Australia

China

Africa
Japan

South
India

9
2005 2006 2007 2008

Source: Central Banks Source: PRC Ministry of Commerce

10 Largest Chinese Listed Companies (USD bn) by Market Capitalization in mid-September (A-shares)

P e t ro C hina 265 Petrochemicals

IC B C 166 Financial
S ino pe c 92 Petrochemicals
B a nk o f C hina 92 Financial
C hina Lif e 73 Insurance
S he nhua C o a l 59 Utilities
C hina M ins he ng B a nk ing 36 Financial
P ing A n Ins ura nc e 30 Insurance
B a nk o f C o m m unic a t io ns 26 Financial
D a qin R a ilwa y 20 Infrastructure

0 50 100 150 200 250 300

Source: Shanghai Stock Exchange
 25

China Outbound FDI and M&A

With Chinese companies increasingly ‘Going Global’, this page summarizes the major Outbound
Foreign Direct Investments (OFDI) and Mergers and Acquisitions (M&A) involving Chinese compa-
nies since 2007. Also see our feature article on page 6 for more on this subject.

Chinese Major Outbound Mergers and Acquisitions 2007- 2008

Month Acquirer Target Amount USD Country Stake
May 07 China State Investment Agency Blackstone 3 bn USA 9%
May 07 China Mobile Paktel Ltd. 460 mn Pakistan 100%
Jun 07 China Development Bank Barclays 3.1 bn UK 3%
Oct 07 ICBC Standard Bank 5.5 bn South Africa 20%
Oct 07 China Mingsheng Banking Corp. UCBH Holding 317 mn USA 10%
Nov 07 Ping An Fortis Belgian/Dutch Banking 2.3 bn Belgium 4%
Nov 07 Shandong Nanshan Industrial Gulf Alumina 4.5 mn Australia 20%
Dec 07 China State Investment Agency Morgan Stanley 5 bn USA 10%
Jan Minmetals/Jiangxi Copper North Peru Copper 470 mn Peru 100%
Jan Wuxi Pharma Tech AppTec Lab Services 151 mn USA 100%
Jan Jinchuan Group Tyler Resources 210 mn Canada 100%
Jan State Administration of FOREX ANZ Bank 176 mn Australia <1%
Jan State Administration of FOREX Commonwealth Bank of Australia 176 mn Australia <1%
Jan State Administration of FOREX National Bank of Australia 176 mn Australia <1%
Feb State Administration of FOREX BP 2 bn USA 1%
Mar Huaneng Power Tuas Power 3 bn Singapore 100%
Mar China State Investment Agency Visa 100 mn USA <1%
Apr State Administration of FOREX Total 2.9 bn France 2%
May China Merchants Bank CIGNA & CMC Life Insurance 20.33 mn USA 50%
Jun Changsha Zoomlion Co Italiana Forme Acciaio 253.22 mn Italy 60%
Jun Western Mining FerrAus 20 mn Australia 10%
Jun Sinochem International Corporation GMG Global Ltd. 198 mn Singapore 51%
Jun Sinopec AED Oil 561 mn Australia n/a
Jul China Healthcare Acquisition Corp. Europe Asia Huadu 60.375 mn Singapore 100%
Jul Sinosteel Midwest Corp. 1.32 mn Australia 100%
Aug Suntech Power Nitol Solar 100 mn Russia n/a
Aug FUQI International Inc. Temix 19.3 mn Italy 100%
Aug China Oilfield Services Awilco Offshore ASA 2.49 bn Norway 100%
Aug People's Bank of China Prudential 234.71 mn UK 1%
Aug Cheung Kong Infrastructure Holdings Taharoa Iron Sands 179.526 mn New Zealand 100%
Aug Chinalco Rio Tinto 14.3 bn Australia 12%
Sep ICBC Rosevrobank 800 mn Russia 100%
Sep People's Bank of China Drax Group 32.2 mn UK <1%
Source: Multiple sources, Press, TBA Analysis
26

The C in BRICS
Using recent economic statistics from Brazil, Russia, India, China and South Africa, The C in
BRICS is a comparative segment that evaluates and contrasts China with the other leading devel-
oping economies.

Total Imports (% of GDP) Total Exports (% of GDP)

Brazil Brazil

Russia Russia

India India

China China

South Africa 2005 South Africa 2005

2006 2006
2007 2007
0 10 20 30 40 0 10 20 30 40
Source: UN Comtrade Source: UN Comtrade

USD Exchange Rate (Index) GDP (Current USD billion)

115 3,500
110 South China
105 Africa 3,000
100 India 2,500
95
90 China 2,000
85 Russia
1,500
80 Brazil
1,000 Russia
75 India
70 500
65 Brazil South
60 0 Africa
2004 2005 2006 2007 2005 2006 2007
Source: World Bank Source: World Bank

BRICS World Rankings—Selected Statistics (2007)

1 2 3 4 5 6 7 8 9 10 11 12 15 20 25 30 35 40 45 50 60 70 80 90 100 120 140 160 180

Total Area
Population
GDP Nominal
Exports as % of GDP
Imports as % of GDP
FDI (received) as % of GDP
For. Exch. Res. as % of GDP
Electricity Use per capita
Mobile Phones per capita
Internet Use per capita
Sources: The Economist; CIA World Factbook
Advertisement
Advertisement
30

China Business News Highlights

While China suffered its first legal defeat at the WTO, China’s trade surplus reached a new high of
USD28.7 billion in August and inflation decreased to 4.9%. Almost all coal-to-liquid projects have
been halted in China, yet foreign investments by Chinese companies more than tripled in 1H 2008.

General
On July 18 China suffered its first
legal defeat since joining the World
Trade Organization (WTO) seven
years ago. The global trade body
ruled against Beijing’s import tariffs
for car parts when a WTO dispute
panel upheld complaints by the US,
the European Union and Canada
that China violated fair trade rules
by discriminating against imported
cars. China has decided to appeal
the ruling, which postpones any de-
finitive decision until later this year.
China still has three other cases
outstanding: The US has chal-
lenged China’s enforcement of intel-
lectual property rules and has al-
leged discrimination against US
films, music and books, and during
July Canada joined the US and the
EU in a complaint over Chinese re-
strictions applied to foreign financial
news agencies. Furthermore, in a
letter posted on the WTO website
and dated 13 August, the US has
also challenged China to justify the
legality of its tax, subsidy and export
rules for farm products such as pork
and wheat.
7.6% in the first half of the year,
has continued rising since October
last year, although the prices of
consumer goods in July rose only
4.6% y-o-y. The rise in PPI has
been ascribed mainly to the fuel
price hike in June.
China posted a record trade sur-
plus of about USD28.7 billion in
August. According to customs sta-
tistics, exports in August were
USD134.87 billion, up 21.1% y-o-y,
while imports amounted to
USD106.18 billion, up 23.1% y-o-y.
Yet in light of the 33.7% growth in
imports in July, the spike in China’s
trade surplus during August has
been attributed to a sharp slow-
down in imports rather than any
significant jump in exports. In July,
exports rose by 26.9% y-o-y, and
China’s trade surplus was USD25.3
billion.
A less encouraging employment
outlook for China for the second
half of 2008 has been forecast by
Manpower Inc. A poll of 4,014 em-
ployees in nine major cities showed
that China’s net employment out-
look - the difference between firms
adding jobs and those cutting them -
was a positive 12% for the 4th quar-
ter, yet this figure is down 3% from
the third quarter and 1% y-o-y.
Natural Resources
China imported 120 million tons
of crude oil in the first eight
months of 2008, an increase of
8.7% y-o-y. Imports of oil products
during the January to August period
totalled 28.72 million tons, up 18.3%
y-o-y. Exports of crude oil, however,
was down to 3.34 million tons, a
decrease of 18.3% y-o-y.
Russian steel maker Evraz Group
has joined forces with China Met-
allurgical Construction Group
Corporation (MCC) to gain access

In what has been interpreted as a

positive sign of the effectiveness of
the Chinese government’s meas-
ures to ease inflation, China’s Con-
sumer Price Index (CPI) in-
creased by only 4.9% in August,
compared with 6.3% in July and
7.1% in June.

Rising energy prices, however,

have contributed to the Producer
Price Index (PPI) increasing
10.1% in August, the highest level
since 1996 when data was first re- Go West: China will construct the largest ore carriers ever built for the Brazilian
corded. The PPI, which rose by company Vale, the world’s largest producer and exporter of iron ore.

to Australia's vast iron ore reserves
to supply Chinese steel mills hungry
for the key raw material. Evraz,
partly-owned by Russian billionaire
Roman Abramovich, said in late
July it would own 75 percent of a
joint venture to develop the Cape
Lambert Iron Ore project in Western
Australia.
China Shenhua Energy, the
mainland’s biggest coal producer,
has agreed to pay USD261 mil-
lion for a license to explore for
coal in New South Wales in Aus-
tralia. In winning the license, Shen-
hua beat out a number of competi-
tors, including Anglo American’s
Coal Unit and Griffin Coal Mining.
Plans have been announced for a
new USD30 billion, 30 million
tons per annum steel plant that
will be built in China’s south-
western Guangxi Province. The
plant is expected to be the world’s
largest steel plant upon entering
production in 2010.
In September China’s National De-
velopment and Reform Commission
(NDRC) ordered all coal-to-liquid
(CTL) projects in China to be
halted, with the exception of a pro-
ject under construction by Shenhua
Group and the Ningdong indirect
CTL project jointly planned by
Shenhua Ningxia Coal Group and
the South Africa-based Sasol Ltd. In
the context of excess investment in
the sector and tight coal supplies in
China, the NDRC suspended the
granting of approvals for new pro-
jects with the intention of slowing
development in the sector until its
technology and business processes
become more mature. Shenhua’s
CTL project would be the first in the
world to put direct liquefaction tech-
nology into commercial production.
In early September it was reported
that China’s National Plan for
Under new management: In September Midwest Corporation of Australia be-
came the first company in a First World Country to be subject to a hostile take-
over by a Chinese company.
Mineral Resources was pending
for approval by the State Council,
China’s Cabinet. The plan, formu-
lated by the Ministry of Land and
Resources, proposes enhancing
macro-regulation on the exploration
and utilization of mineral resources,
and specifies areas to be restricted
and encouraged for prospecting
and utilization. The plan also dis-
cusses setting up strategic reserves
for mineral resources such as pe-
troleum, coal and major nonferrous
metals.
Chinese steel trading company Si-
nosteel has completed its take-
over of Australian miner Midwest
Corporation. The Wall Street Jour-
nal reported in mid-September that
Sinosteel had increased its stake in
Midwest to more than 90%, ena-
bling it to force the sale of all out-
standing shares. According to insid-
ers, Sinosteel crossed the 90%
threshold after New York invest-
ment group Harbinger Capital Part-
ners agreed to sell its holding of
31
around 15%. Sinosteel’s takeover
of Midwest it is the first successful
aggressive takeover by a Chinese
firm.
Industry
Manufacturing in the Pearl River
Delta has shown signs of slow-
ing down in the first five months of
2008. According to the latest data
released by the National Develop-
ment and Reform Commission,
China’s eastern areas grew by
16% from January to May, 3%
lower than a year earlier and the
lowest growth rate compared to the
western, north-eastern and the
middle regions of the mainland.
Export-oriented firms in China’s
coastal cities have suffered from
the appreciation of the yuan and
economists have pointed to clear
indications that the advantages of
low labour and raw material costs
are slowly receding in China’s east-
ern areas.
32
In late July the first aircraft section
for the new Airbus A320 arrived in
Tianjin at the Final Assembly Line
(FAL) site. The assembly process
for the first aircraft, which will be for
Sichuan Airlines, started in August
2008 and delivery is anticipated for
mid 2009. By 2011, it is expected to
deliver four aircraft per month.
A deal to build 12 super-tonnage
carriers was signed on August 4th
between Brazil’s Companhia Vale
do Rio Doce, the world’s largest
producer and exporter of iron ore,
and Jiangsu Rongsheng Heavy In-
dustries Corporation. The 12 ore
carriers, each with a capacity of
400,000 deadweight tons, are the
largest ore carriers to be built in the
world, and the USD1.6 billion deal is
the largest shipbuilding order in the
world to date. These carriers will
also be the largest ships built by
China in terms of tonnage. Con-
struction of all the vessels are ex-
pected to be completed by 2012.
Vehicle sales in China declined in
August for the first time in 3½
years, marking a setback for global
auto manufacturers that have
viewed China as a bright spot in the
global market. According to the
China Association of Automobile
Manufacturers, vehicle sales fell
6.3% y-o-y to 629,000 units, the first
decline since February 2005 when
sales dropped 26.3% y-o-y to
318,000 units.
Retail
China's retail sales rose 23.3%
year-on-year to USD126 billion in
July, the fastest one-month pace in
nine years. The sales growth edged
ahead of June's 23% year-on-year
growth. Household electronics sales
rose 18.8%, almost twice June's
pace, as television sales spiked
ahead of the Olympics.
ICT
China now has more people get-
ting online than any other coun-
try. As of June this year, 253 million
Chinese were using the Internet,
according to the latest report by the
China Internet Network Information
Centre, a government organization.
The US had to make do with second
place, with around 223 million online
users, according to Nielsen, an
internet-ratings company. The
growth in China's Internet users has
been rapid: 91 million people have
come online in the past year alone.
For its planned start of 3G services
by the third quarter of 2009, China
Unicom announced in late August it
expected to be granted a license to
use the European-developed
WCDMA third-generation (3G)
standard for its high-speed wireless
network on the mainland. This would
give the company an edge against
its larger competitor China Mobile,
which is using the still immature Chi-
nese-developed TD-SCDMA stan-
dard. In late August, however, China
Mobile announced it will be launch-
ing 3G mobile services in 38 cities
across the mainland by June 2009.
Finance
Actual foreign direct investment
(FDI) in China in the first eight
months of 2008 totalled USD67.73
billion, up 41.6% y-o-y. In August,
FDI was up 20.38% y-o-y, reaching
USD7.01 billion.
Investment overseas by Chinese
companies more than tripled to
USD25.7 billion in the first half of
2008 compared to a year earlier, the
Ministry of Commerce revealed on
July 24. Wang Chao, China’s Assis-
tant Minister of Commerce, told a
press conference in Beijing that
“The government is vigorously pro-
moting domestic companies going
abroad.”
In September British newspaper the
Sunday Telegraph reported that
China’s central bank has built up
stakes worth up to USD16 billion
in leading British companies, in-
cluding household names like Unile-
ver and Tesco. The People’s Bank
of China and the State Administra-
tion of Foreign Exchange (SAFE)
have bought stakes in at least half
of the companies that constitute the
FTSE 100. Also in September, the
Financial Times reported that SAFE
bought USD150 million worth of
Costa Rican government bonds in
January this year as part of an
agreement in which Costa Rica
would sever its 63-year-long diplo-
matic ties with Taiwan.
China’s tax revenue rose 30.5% y-
o-y in the first six months of
2008, to 3.2 trillion yuan, the tax
administration said in 22 July.
China’s tax intake for all of 2007
rose 31.4% to 4.94 trillion yuan.
The Industrial and Commercial
Bank of China (ICBC) has been
given permission by the US Fed-
eral Reserve to open its first
branch in the US, a move widely
seen as a sign of the easing of re-
strictions after claims from China
that Chinese banks had been de-
nied access to the US market.
In September China moved to
tighten controls on how foreign
companies spend the foreign cur-
rency they bring into the country,
in a further effort to curb speculative
inflows. New rules require the State
Administration of Foreign Exchange
to carry out checks on the use of
foreign currency by firms, and disal-
lows them from exchanging foreign
currency into yuan in order to buy
real estate for speculative purposes
or for investing in equity.
 33

China’s International & Cross-Strait Relations

China’s gradual emergence as a world power continued on the global stage, where China’s increas-
ing importance has created both challenges and opportunities for brinksmanship in the midst of a
changing world order.

During the Doha round of multilat-

eral World Trade Organization
(WTO) trade talks held at Geneva
during late July, China emerged as
a central player as it fought for
last-minute concessions, includ-
ing the right to shield important farm
products from competition and to
delay for a number of years cutting
some of its tariffs. China came un-
der heavy criticism from the US and
other nations for its tactics, yet the
discussions at Geneva confirmed
that the balance of power in global
trade has shifted irrevocably with
the rise of China. Traditionally a
defender of free trade policies since
joining the WTO in 2001, China al-
lied itself with Indian negotiators in
insisting that developing countries
be allowed to impose prohibitively
high tariffs on food imports from
affluent countries to halt increases
in imports that might put farmers in Facing off: After a tense round of talks at the Nuclear Suppliers Group in Au-
poorer countries out of business. gust, where India was seeking a waiver to obtain uranium, China and India pre-
pared to re-open long-running border negotiations in September.
China and Russia have settled
the last of numerous border dis-
putes after decades of negotiations by abandoned Japanese chemi- US list of state sponsors of terror.
(and one war). Russia agreed to cal weapons. The incident took The US replied that it will do so
return all of Yinlong and half of place in 2004 in China’s northeast, once North Korea has fulfilled com-
Heixiazi, two riverine islands cap- an area occupied by Japan from mitments on verification.
tured during a 1929 skirmish. The 1933 to 1945 and known as Man-
islands are situated at the conflu- churia at the time. The Chinese China has opened a new consu-
ence of the Heilongjiang and Wusu- foreign ministry issued a statement late in Sudan's autonomous
lijiang rivers that serve as a natural asking Japan to speed up its efforts south, determined to tap greater
frontier between the two countries. to clear the area of weapons. economic potential from the unde-
veloped region, its new consul,
In August Iraq announced a USD3 One of US President George W. Zhang Qingyang, told reporters in
billion 20-year deal with Chinese Bush positive legacies, the six- August. China has close ties with
oil giant Petrochina. It is the first party agreement to dismantle the Sudanese central government
major contract between post-war North Korea’s nuclear pro- in Khartoum and is the chief buyer
Iraq and a foreign oil firm. gramme, ran into trouble in late of the African nation's oil and a key
August. North Korea announced investor in its economy. Beijing has
A court in Tokyo in August that it will be reassembling certain come under fire from human rights
started hearing a case brought by installations in reaction to Washing- groups and countries in the West
two Chinese school boys injured ton’s failure to remove it from the that have urged the Chinese gov-
34
ernment to do more to end five
years of war in the western Suda-
nese Darfur region. Yet China had
earlier expressed serious concern
with the International Criminal
Court’s attempts in July to prose-
cute Sudanese President Omar al-
Bashir for alleged war crimes and
crimes against humanity in the Su-
danese province of Darfur.
At a summit of the Shanghai Coop-
eration Organization, a forum of
China, Russia, Kazakhstan, Kyr-
gyzstan, Tajikistan and Uzbekistan,
China endorsed Russia’s role in
South Ossetia and Abkhazia, yet
prior to the summit China ex-
pressed concern about Russia’s
recognition of the breakaway re-
publics. This was a slight but sig-
nificant break from China’s usual
approach of not expressing opinions
on foreign conflicts.
Panda Diplomacy: Lien Chan, Honorary Chairman of the Taiwanese KMT party,
and his wife during a previous visit to the mainland. In August Taiwan officially
accepted a controversial gift of two pandas from the mainland.
In September an agreement was
reached that will enable China to
open a new shipping route across
the 3km-wide strip of Russian ter-
ritory that denies maritime access
to China’s north-eastern province of
Jilin. For the time being, the new
route will only extend to the Japa-
nese port of Niigata, passing en
route through the South Korean port
of Sokcho.
China and Singapore have suc-
cessfully concluded negotiations
for a free trade agreement, the first
such an agreement between China
and an Asian country.
China has submitted a report to
the United Nations on its defence
expenditure for 2007, endeavour-
ing to display more transparency
regarding its military spending. The
report is China’s second report to
the UN since China joined the world
body’s military budget transparency
mechanism. This year’s budget has
risen by 17.6% to USD57.2 billion.
Yet according to Chinese officials,
the increase is moderate compared
to the US, the world’s top military
spender, which last year had a de-
fence budget of about USD700 bil-
lion.
Chinese online trading site
Alibaba has announced plans to
expand to Europe and will open a
new office in London to encourage
more Chinese companies to invest
in the next Olympic host city. The
new office will be the fifth Alibaba
office outside of mainland China. In
addition, in July and August Alibaba
signed agreements to start Japa-
nese and Korean-language ser-
vices, and in May the company
teamed up with Mumbai-based Info-
media India with the intention of
attracting new business from small
and medium-sized Indian compa-
nies.
Three years after mainland China
offered them as a token of friend-
ship, in mid-August Taipei Zoo fi-
nally obtained approval to re-
ceive a panda couple. The election
of the nationalist Kuomintang candi-
date Ma Ying-jeou as Taiwanese
president in March has facilitated a
dramatic improvement in relations
with mainland China, and in Sep-
tember Taiwan’s deputy president
Vincent Siew made Taiwan’s posi-
tion clear when called for a diplo-
matic truce with the mainland. Yet it
is not certain when Tuan Tuan and
Yuan Yuan - whose names taken
together mean Reunion - will head
for the island and whether they will
retain their controversial names
once they arrive. Nevertheless, Tai-
wan zoo already has a state-of-the-
art panda home, with its own doc-
tors and staff, in anticipation of the
pandas’ arrival.
 35

At a meeting of the 45-country Nu-

clear Suppliers Group (NSG) in Vi-
enna where India was seeking a
waiver to obtain uranium, Chinese
officials drew bitter complaints
from India by trying yet ultimately
failing to block the waiver using
what Indian officials described as
‘backroom tactics’. Because India
has not signed the Nuclear Non-
proliferation Treaty, which it consid-
ers discriminatory, it needs approval
from the 45-country NSG to obtain
uranium. While Chinese officials
subsequently stated that China
wholeheartedly supported India’s
nuclear ambitions, Beijing has also
expressed concern that the NSG
waiver for India might lead to an
arms race with Pakistan and also
impact ongoing border negotiations
between India and China. India
claims China currently occupies
38,000 square kilometres of its terri-
tory in the Himalayas, while China
A new line in the sand: Yunlong and a part of Heixiazi, two sandy islands in the
claims the 90,000 square kilometre Songhua River, were handed back to China by Russia. On the picture above the
north-eastern Indian state of Arun- yellow line shows the old border, while the red line shows the area gained by
achal Pradesh. China. This agreement settles the last of the two countries’ border disputes.

SUGGESTED READING China: Practical Advice on Entry Strategy & Engagement

China: Practical Advice on Entry Strategy and Engagement is very different

from the multitude of books by Western commentators that have flooded the
market in recent years. The principal author and editor, Jonathan Reuvid, has
been actively engaged in joint venture development in China since 1984, both
as a consultant and an investor. The book deals with the regulatory detail of
investment and trade in China with a series of commentaries on actual experi-
ences by leading practitioners of doing business in China, supported by case
studies of British companies that have engaged China with mixed fortunes.
The book offers insight to Western companies seeking to engage in China in
terms of practical issues and the business environment they will encounter.
Yet the book is also of interest to Chinese readers because it illustrates the
perceptions British entrepreneurs have of China and their attitudes towards
Chinese companies. Both sets of readers will find illuminating the chapters on
developing and managing joint ventures, as well as personal accounts of man-
aging a business in China, airport construction and the MG Rover takeover.
There are also some 15 case studies of actual business projects, most of
which have matured into successful ventures and some of which have failed to
achieve their objectives.
36

Upcoming Events
THE BEIJING AXIS can assist delegates who wish to attend fairs, exhibitions and conferences in
China. Services include research, interpretation, negotiation and travel logistics. For more informa-
tion: info@thebeijingaxis.com, or contact one of our offices.

Date Event Location

1 - 4 Oct 08 9th Suzhou Building Materials and Home Decoration Exhibition Suzhou
9 - 11 Oct 08 International Trade Fair for Toys, Hobbies and Baby Articles Shanghai
9 - 13 Oct 08 9th China International Machine Tools Exhibition Beijing
10 - 12 Oct 08 5th China (Shanghai) International Non-Metallic Minerals Industry Expo Shanghai
13 - 16 Oct 08 Hong Kong Electronics Fair 2008 - Autumn Edition Hong Kong
15 - 17 Oct 08 2nd China International Exhibition for Titanium Industry Shanghai
15 - 17 Oct 08 China International Copper Industry Exhibition Shanghai
15 - 17 Oct 08 2nd Annual Retail Banking Asia 2008 Shanghai
15 - 17 Oct 08 Shanghai International Parking Equipment & Intelligent System Expo 2008 Shanghai
15 - 30 Oct 08 China Import and Export Fair Guangzhou Guangzhou
16 - 18 Oct 08 2008 China (Qingdao) International Aluminium Industry Exhibition Qingdao
16 - 18 Oct 08 2008 China (Qingdao) International Copper Industry Exhibition Qingdao
16 - 18 Oct 08 China International Pipeline Exhibition Langfang
17 - 20 Oct 08 International Computer, Communication & Consumer Products Expo Dongguan
20 - 21 Oct 08 2nd China - Latin America Business Submit Harbin
17th International Symposium on Mine Planning and Equipment Selection 2008
20 - 22 Oct 08 Beijing
(MPES2008)
22 - 24 Oct 08 Scan China 2008 Shanghai
10th China International Exhibition on Industrial Gases Industry Association - IG
22 - 24 Oct 08 Shanghai
China 2008
22 - 25 Oct 08 5th China - ASEAN Expo Nanning
25 - 26 Oct 08 Summit on Sustainable Development and Investment of China Mining Beijing
26 - 28 Oct 08 2008 China International Copper Conference Nanchang
27 - 30 Oct 08 CeMAT Asia 2008 Shanghai
28 - 31 Oct 08 Hong Kong International Furniture Fair Hong Kong
28 - 31 Oct 08 3rd China International Architectural Expo Beijing
29 - 31 Oct 08 5th China Copper and Asia Lead Zinc Conference Shanghai
3 - 5 Nov 08 World Scrap Metal Congress 2008 Shanghai
4 - 7 Nov 08 2008 China International Coal Expo Beijing
4 - 8 Nov 08 China International Industry Fair Shanghai
4th China International Hi-tech Symposium on Coal Chemical Industry and Coal
5 - 6 Nov 08 Beijing
Conversion
 37

Date Event Location

6 - 8 Nov 08 2008 China International Silver Conference Haikou

7 - 9 Nov 08 China Shenzhen International Logistics Fair 2008 Shenzhen
10 - 12 Nov 08 Bohai Electronics Week 2008 Tianjin
11 - 13 Nov 08 China Mining Congress & Expo Beijing
11 - 15 Nov 08 Asia Pacific CEO Summit 2008 Macau
12 - 14 Nov 08 12th International Exhibition on Electric Power Equipment and Technology Beijing
5th International Exhibition on Electrical Engineering, Electrical Equipment & Con-
12 - 14 Nov 08 Beijing
tractor's Supplies
12 - 15 Nov 08 72nd China Electronics Fair Shanghai
18 - 20 Nov 08 Coal Tech Asia 2008 Beijing
3rd China (Beijing) International Wind Power Generation Technology and Equip-
25 - 27 Nov 08 Beijing
ment Exhibition 2008
25 - 27 Nov 08 2nd Nuclear Power Industry Exhibition 2008 Beijing
2 - 4 Dec 08 2008 China Aluminium Forum Sanya
2 - 4 Dec 08 2008 China (Shanghai) International Mining Conference Shanghai
3 - 5 Dec 08 9th China International Industrial Automation & Instruments Expo Beijing
5 Dec 08 AmCham China's Ninth Annual Appreciation Dinner Beijing
9 - 10 Dec 08 China Complex Project Management Excellence Conference Beijing

THE CHINA ANALYST—Highlights of Previous Editions in 2008

January April July

2008 2008 2008

The Next Generation of Chinese Re-
source Companies Going Abroad
The original trailblazers are still making
headlines for big-ticket deals, but what
are the new kids on the block up to?
China’s Reaction to BHP’s Bid for Rio
Tinto: Does it Matter?
News of BHP Billiton’s bid quickly turned
into a guessing game on the Chinese
reaction, yet in the end this amounted to
no more than a shrug, and for good rea-
son.
China Perspectives
A summary of high level debates in the
media.
To view or obtain a copy of current or previous editions of The China Analyst, visit our website at www.thebeijingaxis.com.
Putting China’s Urban Billion into
Perspective
To the business community, China’s big
population offers an opportunity, yet to
the government this is serious challenge.
Africa and China: How Long will the
Honeymoon Last?
With Chinese involvement in Africa
growing, questions are being asked
about the sustainability of the relation-
ship. Yet is there reason to be con-
cerned?
China in Statistics
A breakdown of China trade and invest-
ment figures.
The Scramble for Australia
We take a look as China’s Australian
mining moves from trade to investment.
Sourcing High-Value Industrial Prod-
ucts from China
The era of Chinese high-value industrial
exports is approaching and the winners
will the firms that successfully navigate
the pitfalls and peculiarities.
Macroeconomic Monitor
Is China’s Olympian economy slowing
down at last? A slowing world economy
has given the Chinese authorities much
more to think about in their balancing
act.
38
Alert: Mining Delegation to China
THE BEIJING AXIS will facilitate a high-impact mining sector fact-finding and business development
visit for clients to China during November 2008 around the time of China Mining. Places are limited.
Interested parties from mining and related companies should respond as soon as possible.
Raise your China Mining Knowl-
edge and Profile
China Mining Sector Unpacked
Global Implications of China’s Rise
China Mining Procurement
Targeted 1-on-1 Meetings
3. China Procurement (Intelligence,
Senior Level Engagement
Attend China Mining 2008 (11-13 Nov)
The Concept
● A China trip that is sector-specific
with focused sub-streams to allow
a deep-dive and assure relevance
● A well organized itinerary to opti-
mise use of time: structured ele-
ments (the whole group); targeted
breakouts (for individual firms to
maintain relevance); and free time
(own appointments, and/or leisure)
● Timing coincides with China Min-
ing 2008 Conference & Exhibition
in Beijing (11-13 Nov 08) — Asia’s
most prominent mining event
● Programme designed to fit around
the proceedings of China Mining
and will allow delegates to add
days (before and/or after the
event) for side-trips to relevant ar-
eas for meetings & site visits
● Carefully targeted pre-arranged
meetings will be tailored to the
specific and focused needs of
each individual firm/delegate
based on research and screening
● Experienced multi-lingual business
consultants will accompany and
support each delegate throughout
● Flexible travel arrangements
(make your own or let us assist)
Select from 3 Focused Sub-
Streams
1. China Domestic Mining Environ-
ment (Intelligence & Networks)
2. China Goes Global (Intelligence,
Partnering & Networks)
Supplier search, Supplier visits,
Direct engagement, Reference
sites)
Programme Elements
Programme is currently being finalised
under construction; preliminary items
include:
● Orientation in Johannesburg —20-
24 Oct 08 (Individual firms)
● Workshop/Roundtables in Beijing
on arrival in China (All/Sub-
streams)
● Opportunity to attend China Mining
2008 (All)
● One-on-one meetings with appro-
priate targeted firms. [THE BEI-
JING AXIS will scope individual
needs, do research/engage appro-
priate targets.] (Individual firms)
● Supplier/site visits (Individual firms)
● Mine site visit (Indiv./optional), etc.
CHINA MINING 2008 Conference &
Exhibition Overview
China Mining is Asia’s premier mining
and exhibition event, hosted by
China’s Ministry of Land and Re-
sources. It will be held in Beijing from
11-13 November 2008.
The event is well attended and worth-
while. For more information please
visit: www.china-mining.com
(Dates: 9-15 November 2008)
Who would find the trip valuable?
We target those executives with a
serious China agenda that want to
extract more than the usual value
from an expensive, time-consuming
trip to China. We aim to achieve
specific business objectives as op-
posed to just having a general
China exposure. We work closely
with individual delegates in the lead-
up to November to ensure high-
impact interactions. We target min-
ing companies but selected service
providers and the investment com-
munity may also benefit:
● Executives from mining compa-
nies that are selling into China
● Executives from investing or
fundraising mining companies
Executives from service compa-
●
nies that are looking at entering
China or sourcing from China
Mining and engineering sector
●
procurement managers
● Sector analysts, strategists and
fund managers
Please note that the aim is to keep
all interactions at a senior level.
Contact in Beijing
Barry van Wyk
Tel: +86 10 6440 2106
barryvanwyk@thebeijingaxis.com
Contact in Johannesburg
Jackie Li
Tel: +27 11 201 2318
jackieli@thebeijingaxis.com
Note: The trip has an Africa-China
focus but delegates from other re-
gions are welcome to contact us.
 39

Careers at THE BEIJING AXIS

We are currently looking for dynamic, creative, performance-driven individuals to assist us in meeting our
present and future business challenges. Applications will be treated confidentially. If you believe that you can
make a positive contribution, please send your detailed CV with a letter of motivation and references to our
Group MD, Kobus van der Wath: kobus@thebeijingaxis.com. Note that international relocation is possible.
LEAD CONSULTANT
(CHINA STRATEGY GROUP)
Based in Beijing: 1 position

Role
● Lead multiple strategy consulting

assignments in the Strategy Divi-

sion of THE BEIJING AXIS
● Project manage assignments and

ensure quality and time objec-

tives are met— and ensure pro-
fessional ‘best practice’ stan-
dards across assigned projects
● Manage a team of consultants

and analysts
● Manage and mitigate associated

project risks
● Be a thought leader and promote

the development of learning proc-

esses and platforms
● Improve process efficiencies;
Let your career take off: THE BEIJING AXIS is an entrepreneurial firm and wel-
optimise workflow; control costs comes applications from persons with a well-grounded knowledge of their pro-
● Customer relationship manage- fessional fields in a China context. We offer a rewarding experience, interna-
ment tional exposure and highly competitive remuneration.
● Ensure alignment of Strategy

Division’s objective with Group CONSULTANT SOURCING ENGINEER

● Manage aspects of Strategy Divi-
sion budgeting
● Multi-sector assignments with
emphasis on resources, mining
and industry
● Significant (international) travel
Requirements
● Superior analytical and problem
solving ability
● Ability to work with diverse cul-
tures and backgrounds
● Interest in and knowledge of
China’s cross-border business
engagement
● Sound judgement, maturity and a
systematic mind
● Conceptual thinking and attention
to detail
● MBA preferred with more than 8
years experience in consulting
and/or management
● Native English written and verbal
communication skills essential
(CHINA STRATEGY GROUP)
Based: Beijing, Perth & JHB: 3
positions
● Employed in the Strategy Divi-
sion of THE BEIJING AXIS
● Sound analytical and problem
solving skills
● A degree in a business or techni-
cal discipline with a post-
graduate qualification
● Minimum of 3 years work experi-
ence in an appropriate or related
field
● Strong experience in the formu-
lating and execution of research
methodologies and analysis is
preferred
● Excellent communication skills
● Mandarin not essential, but re-
garded as an advantage
● Willing to travel
(CHINA SOURCING UNIT)
Based: Beijing: 1 position
● Employed in the China Sourcing
Unit of THE BEIJING AXIS
● Strong sourcing (or manufactur-
ing) project management skills
● Focus: Project manage sourcing
schedules (i.e. ensure that spe-
cialised capital equipment is
manufactured to required stan-
dards and delivered on time);
technical QA/QC knowledge; ex-
pediting experience and strong
supplier management skills
● A degree in engineering, prefera-
bly mechanical/mining-related
with a minimum of 10 years work
experience in appropriate field
● Excellent English and Mandarin
written and spoken ability
● Willing to travel
40
THE BEIJING AXIS News
Community
THE BEIJING AXIS commends
China and all organisers and ath-
letes of the 2008 Beijing Olympic
Games for a phenomenal spectacle
and an event that will be remem-
bered for its awesome opening
ceremony, impressive record-
breaking achievements and all-
round embrace of sports. We further
extend our wholehearted support
and praise to all 2008 Paralympic
athletes for the most competitive
Paralympic Games to date and a
successful event in its own right.
Learning & Getting Around
On 12-14 August, Kobus van der
Wath, Group MD, attended the
Perth Mining Exhibition and Con-
ference 2008. He also delivered a
presentation on China’s role as a
low-cost country sourcing base in a
global environment characterised by
supply chain bottlenecks.
Kobus van der Wath was invited to
present at the CIPS Australia -
Strategic Procurement Forum in
Perth on 21 August. Kobus’ presen-
tation was entitled: ‘The Role of
Low-cost Countries in the Global
Sourcing Equation - with Specific
Reference to China’s Sourcing Ad-
vantages & Challenges’.
On 4-5 September, Kobus van der
Wath attended the Africa Downun-
der Conference in Perth.
Jackie Li and Danielle Olivier from
the Johannesburg office attended
the Mining in Africa 2008 Confer-
ence in Johannesburg on 8-12 Sep-
tember.
Kobus van der Wath was invited to
Chair a session at the Excellence
in Mining & Exploration Confer-
ence in Sydney on 14-16 Septem-
ber. He also delivered a presentation
on Chinese mining investment in
Australia.
On 23-25 Sep, Cheryl Tang, Direc-
tor, attended 2008 China Interna-
tional Sourcing Fair Shanghai.
Kobus van der Wath, Chaired the
CPA Australia 2008 China Busi-
ness Insights Conference on 18
September in Sydney.
Jackie Li, Johannesburg Office Busi-
ness Development Manager, deliv-
ered a presentation on Low-cost
Country Sourcing from China at the
Global Sourcing Conference in
Pretoria, SA, on 7-8 October.
Kobus van der Wath and Jackie Li
was invited to host a practical half-
day workshop entitled ‘Doing Busi-
ness with China & Asia’ at the Jo-
hannesburg Chamber of Com-
merce and Industry on 23 October.
THE BEIJING AXIS will further be
represented at events in Australia,
China and Singapore in October and
November:
● South Africa Expo in Hong Kong
(2-3 Oct.), Beijing (8-9 Oct.) and
Shanghai (13-14 Oct.)
● CIPS Australia Annual Confer-
ence in Melbourne (14-15 Oct.)
where Kobus van der Wath will
present on China Sourcing
● the Mining 2008 Resources
Convention in Brisbane (12-14
Oct.)
● the Canton Fair in Guangzhou
(15-19 and 23-28 Oct.)
● the INSEAD Leadership Summit
Asia 2008 in Singapore (7 Nov.)
● the Australia Mining Congress
2008 in Sydney (18-20 Nov.)
● China Mining 2008 where Kobus
van der Wath have been asked to
present on the Drivers, Enablers,
Constraints and Future Trends of
China’s Outbound Investment in
the Global Mining Sector
Team Developments at THE
BEIJING AXIS
Barbie Co joined the Beijing of-
fice in September as an intern.
She holds a degree in Interna-
tional Relations from the Ateneo
de Manila University in the Philip-
pines. During September she
was offered a permanent position
as an Analyst in THE BEIJING
AXIS China Strategy Group.
During August and September,
Ajara Chekirova joined the Bei-
jing office as an intern. Ajara is
from Kyrgyzstan and currently
studies Law at Beijing University.
THE BEIJING AXIS welcomes
Mitch Cosani, Corporate Office
Manager (based in Johannes-
burg), to Beijing for 3 months as
part of his China learning and
corporate office development
programme.
Dirk Kotze, Manager in our Bei-
jing office, left THE BEIJING
AXIS at the end of September to
pursue other opportunities. Dirk
has been with the company for
more than 4 years and has seen
it grow from strength to strength.
The entire team wishes Dirk
every success in the future and
thanks him for the commitment
and professionalism that he
brought to the company.
THE BEIJING AXIS wishes
Helen Tang, Finance & Admin
Manager, and family everything
of the best for her imminent ma-
ternity leave. Sincerest best
wishes and affection from us all.
THE BEIJING AXIS also wishes
Haiwei Huang (Business Devel-
opment Manager) and proud fa-
ther to-be and his wife everything
of the best for the birth of their
child. Our best wishes to the en-
tire Huang family.
42

About THE BEIJING AXIS

THE BEIJING AXIS is a cross-border business bridge to/from China in three principal areas: Strategy, Sourcing and
Investment.
Since our establishment in 2002, we have successfully worked with many international and Chinese MNC clients
across various sectors and industries, but our core focus is on the Chinese mining and resources sector, and on
China’s burgeoning industrial and engineering sector. Our work is always cross-border — supporting international
firms as they act in unfamiliar territory in China, or supporting Chinese firms as they venture out and go global. We are
committed to safety and sustainability; and our solutions emphasize 'actions and transactions’.
THE BEIJING AXIS is organised along 3 synergistic cross-border China businesses: the China Strategy Group, China
Sourcing Unit and China Capital Advisors.

China Strategy Group China Sourcing Group China Capital Advisors

THE BEIJING AXIS China Strategy THE BEIJING AXIS China Sourcing THE BEIJING AXIS China Capital
Group provides professional busi- Unit supports sourcing / procurement Advisors provides cross-border advi-
ness solutions, focused on strategy initiatives to/from China based on a sory services. The focus falls on
formulation and implementation: systematic & analytical approach: origination activities:

Strategy Formulation Strategic Sourcing Corporate Finance Origination

ƒ Market intelligence ƒ Supply needs analysis ƒ Advising Chinese strategic capital
as Chinese outbound FDI/M&A
ƒ Market and industry research ƒ Supplier identification, filtering, seek overseas assets, equity or pro-
due diligence and selection jects
ƒ Market entry strategy
ƒ Negotiation ƒ Advising foreign capital that is
ƒ Partnering strategy seeking Chinese assets, equity and
ƒ Commercial and contract man-
ƒ Business planning agement support
projects

Strategy Implementation Supply Chain Management & Financial Advisory

Support ƒ Buy side & sell side M&A advisory
ƒ Market entry support
ƒ Comprehensive project manage- ƒ Acquisition target identification,
ƒ Business development ment filtering and selection
ƒ Operational support ƒ Transaction monitoring ƒ Project and target due diligence
ƒ Negotiation ƒ QA/QC, expediting, managing 3rd
parties (QA inspectors, lawyers,
ƒ Fundraising support
ƒ Agency services etc.) ƒ Valuations
ƒ Relationship management ƒ Logistics ƒ Opinions
ƒ Delegations ƒ Holistic risk management
ƒ Strategic relationship manage-
ment

Contact Information
For more visit our English, Chinese, Russian or Spanish websites at www.thebeijingaxis.com, or contact an office:

Beijing Johannesburg Russia, CIS Latin America Australia

Cheryl Tang Jackie Li Lilian Luca Javier Cunat Kobus van der Wath
cheryl@thebeijingaxis.com jackieli@thebeijingaxis.com luca@thebeijingaxis.com javiercunat@thebeijingaxis.com kobus@thebeijingaxis.com
 43

International Business Workshop

MANAGING IN CHINA AND ASIA

Strategic Imperatives in Times of Financial and Economic Turbulence
Organised by PriceWaterhouseCoopers and THE BEIJING AXIS for South African Companies
that are Managing International Exposures
Wednesday, 26 November 2008
Johannesburg (Location details to be confirmed)

Agenda

08:00 Registration
08:45 Introduction: PWC
09:00 PART 1:
A New Strategic Landscape - Perspectives on Asia & China
a. The Global Context
b. Asia
c. China
Kobus van der Wath, Group Managing Director, THE BEIJING AXIS &
Vice-President, Asia Pacific South Africa Chamber of Commerce

10:00 PART 2:
Strategy and Implementation in China & Asia - Constraints &
Enablers
a. Strategies to Support Export Development
b. Strategic Sourcing for Cost Advantage
c. Attracting Strategic Capital from China, or investing in China
d. Selected Topics and Issues
1. Dealing with Culture and Language
2. Managing Risk Effectively
3. Research, Due Diligence and Other Key Processes
4. Exchange Rates, Regulations, Approvals, etc.

10:55 PART 3:
Practical Issues During Implementation - A Perspective from China
Jackie Li, Manager, THE BEIJING AXIS

11:15 Coffee Break

11:30 Final Word, Conclusions & Integration: PWC / THE BEIJING AXIS

11:45 Interactive Discussion

12:30 Close/Lunch

For more details please contact:

Alan Witherden, PWC Tel: +27 (0)11 797 5590 alan.witherden@za.pwc.com
Jackie Li or Danielle Olivier, TBA Tel: +27 (0)11 201 2550 danielleolivier@thebeijingaxis.com
Fee: No charge