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Volume 24 | No.2 | April 2006

ContentsCOVER REPORT14- HAIER’S GLOBAL 16 BRANDING STRATEGY

Rebuffed in his attempt to buy America’shousehold brand Maytag, Haier CEO ZhangRuimin spend Christmas brainstorming withkey staff to develop a workable strategy for hisglobal ambitions. For now, he will focus ondeveloping Haier’s internal resources, with anR&D centre under construction in Sydney tocreate and test new whitegoods models forWestern markets.

5-7 COMMENT – NPC IS LOOKING FOR ANSWERSChina’s Hu/Wen leadership must face up tothe fact that urban coastal wealth is nottrickling down fast enough, if at all, to therural regions; Towards an ASEAN Charter – ASEAN is taking the first steps towardsfashioning a stronger regional organisation.

THE REGION9 TRANSFER PRICING AUDITS IN CHINA: Desktop audits

of loss-making foreign ventures are under way – 1,500 firmshave been audited, with a total of 15,000 JVs on the list.

9-11 INVESTORS HAILING JAPAN’S ‘RENAISSANCE’: Fundmanagers are tipping another Y10 trillion to flow into the TokyoStock Exchange in 2006 – repeating last year’s performance.

INFRASTRUCTURE12 VIETNAM TARGETS POWER, TRANSPORT: Targets and

strategies to meet infrastructure needs in Vietnam will be set inJune at the 10th Annual Congress of the VietnameseCommunist Party.

17 WORLD BANK, ADB TO TRIPLE LENDING: The WorldBank and the Asian Development Bank have pledged some US$6 billion to infrastructuredevelopment in India, which is seeing unprecedented growth of 7-8 per cent. Leadingeconomist Nariman Behravesh warns that infrastructure and literacy are the two keyrestraints to economic development in India.

21 BANKERS SET FOR AUSTPHIL EXPRESSWAY: Australian banks are ready to com-mit AUD216 million to the three-in-one North Luzon East Expressway.

BUSINESS TRAVEL29 MAKEOVER FOR THAI: Drawing market from its European network, THAI sees

Australian and New Zealand routes contributing up to one-third of total revenue in futureyears.

30 PANORAMA TAKES 13 PROPERTIES: The new Morgan Stanley subsidiary hasmoved to capture what it sees as a clear opportunity to become a serious independenthotel operator.

All contents copyright © ASIA TODAY INTERNATIONAL 2006

Zhang Ruimin: ‘Competing withthe masters’

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AtsushiKawakami:‘Current recoveryis sustainable’

HONG KONG – Judging by the Five-Year Plan presented at the recent NationalPeople’s Congress, China’s policymakers areacutely aware of the dangerous social andeconomic divide being created by China’srapid, but unbalanced, growth. Solving theproblem is another matter altogether.

The plan acknowledges by implication thatgrowth over the five years just begun (2006-10) will most likely be slower than the nearnine per cent achieved in the last five. Thereasons for this are several fold, but likelyinclude:

n A sharp slowdown in export growth asthe absorptive capacity of western marketsslows and the US has to face up to the need toreverse the trend of an ever-growing tradedeficit, with China in particular. Growth inexports to East Asia and elsewhere – espe-cially India and the Middle East – shouldremain firm, particularly as Japan recovers,but probably not enough to compensate forslowdowns in the West.

n A sharp slowdown in investment, at leastfor the next two years, as even State firmsface up to the profit consequences of excesscapacity in many industries, and have to slowspending on wasteful prestige constructionprojects.

n A slowdown in the rate of total labourforce growth as the one-child policy impactsnew entrants into it. This could be offset byincreased rural-to-urban migration, but thatwould require social policy changes whichmay be difficult if urban areas face lowerincome growth.

The higher income base makes high sin-gle-digit annual gains more difficult than theywere. Although there is still a huge gapbetween official GDP and GDP on a purchas-ing Power Parity (PPP) basis, it is narrowinggradually.

Where all this is likely to lead actual GDPgrowth over the next five years is anyone’sguess. Some see a modest slowdown to an


NPC ISLOOKINGFORANSWERS

average 7.5 per cent. Some think that pastgrowth has been understated so that it willnot be difficult to reach 8.5 per cent. Othersare more pessimistic, at least over the nexttwo years. Credit Lyonnais Securities Asia (anoted bear of the Thai economy before the1997 crisis) sees it slumping to the 5-7 percent rate this year and 3-5 per cent next year.The US has the ability to create even worsehavoc through a recession, trade barriers or amixture of both.

The Chinese leadership, however, is atleast as likely to be concerned about the gen-eral direction of development than its pace.The Hu/Wen leadership has always been lesscommitted to the coastal/urban/export orien-tation of growth than its Jiang/Zhu predeces-sor, and must now face up to the fact thaturban coastal wealth is not trickling down fastenough, if at all, to the rural regions.

The NPC meeting indicated that some oldleftist sentiments might be reviving as aresult of the extreme mal-distribution ofnational income gains and the pervasivenessof corruption among officials who used thepowers of the (socialist) state to amass capitalfor themselves. Nationalists have also beendecrying the sale of shares in banks to foreigninstitutions at allegedly cheap prices – even ifthe buyers have been criticised for overpay-ing for dubious quality assets. MeanwhileChina continues to be beset by frequent, ifunconnected, mini rural peasant revoltsagainst corrupt and oppressive officials.

The Government has a few partial answersto these problems. This year, the ending ofagricultural taxes announced last year takeseffect and will give a modest boost to ruralincomes – if local officials obey. Farm prices,too, are generally firm, thanks to global condi-tions and shrinkage in domestic agriculturalland as cities have expanded. TheGovernment is to pump much more moneyinto rural infrastructure and education. Thiswill create more rural jobs and, perhaps, do alittle to close the educational gap opened upby the fact that education has become almostas subject to market forces as merchandise.

However, it is easy to exaggerate the likelyoverall impact. Rural spending remains asmall part of overall central Governmentspending, which itself has been slipping as ashare of GDP. Meanwhile defence spendingcontinues to rise. Thus, though some of thebudget subsidies to urban and prestige proj-ects will be cut back in favour of rural spend-ing, urban development will proceed apacevia banking system loans.

China has also announced heavier taxesfor the rich and to combat pollution – highertax rates for large-engined cars and a few lux-uries such as golf clubs. But they are politicalgestures more than effective tools.

China’s rural/urban dilemma revolvesaround the fact that land productivity inChina is mostly very high. Indeed, it is toohigh in some areas to be sustained in the faceof declining water tables. But labour produc-tivity is very low. The economists’ answer isto let more people move to the cities, wherethey would be able to find some sort of low-paid but more productive jobs.

Many, of course, do move, but much of themigration is temporary because migrants areunable to access housing and educational

facilities in the cities. They become, in effect,a temporary low-wage labour force whichbenefits the established urbanites and firmswhich exploit the rural labour supply.Allowing total freedom of movement wouldundercut living standards in the pamperedcities, create urban slums of the sort seen inBombay or Rio, and perhaps increase the dan-gers of urban unrest.

The other way out for rural China also runsup against political barriers. Peasants havereasonable security of tenure – except whenurban development encroaches. But theycannot sell or mortgage the land they till. Sothere is no incentive for consolidation, invest-ment in mechanisation, or for peasants to sellup and use the proceeds to start a business.

Private rural land ownership is an ideologi-cal hurdle for a party still proclaiming socialistprinciples even as its broader economic and

CHINA’S GREAT DIVIDEOOPPIINNIIOONN

PERHAPS the leadershipis more aware of China’sproblems than the foreigninvestors and commenta-tors so loud in its praise . . .

Ô CONTINUED PAGE 6

} The Hu/Wen leader-ship must now face up tothe fact that urbancoastal wealth is nottrickling down fastenough, if at all, to therural regions ~

From the pages of ASIA TODAY INTERNATIONAL

APRIL 1986: China set to ease tax, trade restraints;Singapore slams Australia’s ‘stop-go’ export traders;Offshore business gears to fight foreign tax credit.

APRIL 1991: More foreign investors move intoTaiwan’s high-tech sector; Taiwan sticks to its US-onlypolicy on foreign insurers, rejecting Australia, Europeand other bidders; ‘Old ways’ fading in Korean business;Austrade boosting resources in North and SoutheastAsia in strategy overhaul.

APRIL 1996: Estimated 60 million middle-classfamilies creating huge market for new breed of manu-facturers in India; India’s Supreme Court endorses pri-vatisation of telecommunications sector; Transport winslargest share of Indonesia’s new budget; BHP com-pletes feasibility study for US$2 billion gas pipelinefrom Iran to Pakistan.

APRIL 2001: Dramatic downturn in demand for ITproducts having major impact on the external marketsof East Asia; Philippines to privatise remaining seg-ments of its power industry – Singapore also moves toderegulate its power sector; Wildcat taxes emerge asJakarta devolves revenue raising back to local authori-ties, and down to the lowest level of government, theregencies – the mining industry in particular, is beingtargetted.

APRIL 2005: Malaysia looks to China as it boostsservices sector; Iran signs off LNG deals with China andIndia; BP gives green light for US$5 billion LNG projectin Indonesia; Hedge funds whet their appetite in India; Anew report says East Asia will need to spend US$200billion yearly on infrastructure.

Philip Bowring*ANALYSIS

Commission, (the EU’s implementing bureau-cracy) – ASEAN operates with minimal setrules and treaties, says former ASEANSecretary General, Rod Severino. It respondsto issues more on the basis of common inter-est as determined at the moment, he says.

ASEAN countries can and do enter intoagreements that are technically binding, suchas tariff reduction and removal under theASEAN Free Trade Area Agreement. But, infact, compliance is a voluntary matter. Thereare no mechanisms calling for member Statesto account for non-compliance with agree-ments. ASEAN does have a Jakarta-basedSecretariat, but its powers and resource arelimited.

Now, the first steps towards fashioningwhat might become a much stronger region-al organisation are being taken – with investi-gation of whether ASEAN should adopt a for-mal Charter.

An “Eminent Persons Group” (EPG) of onerepresentation from each member country –appointed by ASEAN leaders in December –is studying the question and will submit itsrecommendations at the end of this year.

The group includes former IndonesianForeign Minister, Ali Alatas; formerPhilippines President, Fidel Ramos; formerThai Foreign Affairs Minister,Kasemsamosorn Kasemsri; former VietnamForeign Minister, Nguyen Mahn Can;Brunei’s Minister for Foreign Affairs andTrade, Lim Jock Sen; former Laotian DeputyMinister, Khamphan Simmalvavong;Cambodian Chairman of the NationalEconomic Council, Aun Porn Moniroth;Singapore’s Deputy Prime Minister, S.Jayakumar; and Myanmar’s Chairman of theCivil Service Selection and Training Board, DrThan Nyunt. The group is chaired byMalaysia’s former Deputy Prime Minister,Musa Hitam.

Severino, currently a visiting research fel-low at the Institute of Southeast AsianStudies in Singapore, says that while theinformal “ASEAN way” has served the coun-tries and region, the time is right to look athow ASEAN can be strengthened.

The Charter could become a watersheddocument, like the 1957 Treaty of Rome,which established the European EconomicCommunity and, ultimately, the EU. AnASEAN Charter would define clearlyASEAN’s values, functions, goals, organisa-tion and decision-making processes.

Importantly, the Charter would give theorganisation a true legal identity under inter-national law, which in fact it does not have at

OOPPIINNIIOONN

6 | ASIA TODAY INTERNATIONAL APRIL 2006

Ô FROM PAGE 5

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SINGAPORE – ASEAN, the 10 mem-ber Association of Southeast Asian Nations,is not uncommonly criticised for being toomuch of a talking shop: plenty of meetingsand declarations but far fewer concreteactions and results.

This stereotype is unfair. There can be nodoubt that ASEAN, since it was formed in1967 by founder members Indonesia,Thailand, Malaysia, Singapore and thePhilippines, has contributed greatly to politi-cal stability and economic development inthe region. If it did not exist, it would have tobe invented. A lot has been achieved throughASEAN’s consensus style approach.

At the same time, the body’s effectivenessis restricted by a lack of formal powers andinstitutions, in contrast to the situation forEurope and the European Union (EU).

Whereas the EU has developed suprana-tional bodies and processes – the Council ofthe European Union (on which national gov-ernments are represented), the EuropeanParliament (where sit representatives ofmember citizens) and the European

TOWARDSAN ASEANCHARTER

ASEAN is taking the firststeps towards fashioning astronger regional organisa-tion, with an EminentPersons Group consideringthe concept of an ASEANCharter . . .

Ô CONTINUED PAGE 7

} The Charter couldbecome a watersheddocument, like the 1957Treaty of Rome, whichestablished theEuropean EconomicCommunity and, ulti-mately, the EU ~

Andrew Symon*

share ownership policies focus on privatesavings and wealth creation.

China’s pragmatic leadership is not givento fretting about ideology. But the more themarket and urban-based reform policies suc-ceed, the more they show up the contradic-tions of China’s system and its most evidentby-product – massive corruption.

The sheer energy and momentum of cur-rent China, plus a nationalist pride in spaceexploration and sports, may sweep asidethese problems for several years to some. Butthe NPC was perhaps evidence that the lead-ership is more aware of China’s problemsthan the foreign investors and commentatorsrecently so loud in its praises.

* Philip Bowring is Chief Correspondent of ATI.

ANALYSIS

China growth forecast up

HONG KONG – The EconomistIntelligence Unit has substantially revisedupwards its growth forecasts for China follow-ing newly-released GDP data. GDP growth for2006 is tipped at 8.6 per cent, 2007 at 8.0 percent, 2008 at 7.9 per cent, 2009 at 7.6 per centand 2010 at 7.2 per cent. In comparison, fore-

casts for India start at 7.0 per cent for 2006,dropping to 6.3 per cent for 2007, 6.5 per centfor 2008, 6.7 per cent for 2009 and 6.6 per centfor 2010. For Asia and Australasia (excludingJapan), forecasts are 6.1 per cent for 2006, 5.9per cent for 2007, 5.8 per cent for both 2008and 2009, and 5.6 per cent for 2010.

present. This means, for example, thatAustralia cannot undertake a “free tradeagreement” treaty with ASEAN, but wouldhave to sign any agreements negotiatedthrough ASEAN with each separate memberof ASEAN. As with other important interna-tional charters, such as the 1945 Charterestablishing the United Nations, an ASEANCharter could amount to a constitution forASEAN, providing for it to play a more com-prehensive role in Southeast Asia’s develop-ment in the 21st century.

An ASEAN Charter will not appearovernight. Assuming the EPG recommendsthat a Charter be drawn up and suggests howit might look, it will then be drafted over thecourse of 2007. And it would be dangerous toprophesise an EU-like ASEAN emerging.Southeast Asian states are still very uneven interms of levels of economic development,many policies vary, and political systems arediverse.

But the very idea of an ASEAN Charterindicates the desire of the region’s leaders togive more muscle to common approaches toSoutheast Asia’s development. The proposalis driven by both a greater sense amongmember governments of the challenges fac-ing Southeast Asia – economic, social andenvironmental – and the evolving maturity ofthe region’s States.

They are more comfortable with each other,although the question of reform in the mili-tary-ruled Myanmar remains a difficult issuefor them. The idea of a stronger, more direc-

ADDING MORE MUSCLE TO ASEAN


Ô FROM PAGE 6

Real GDP growth – actual/forecasts %

2001

4.0 6.0 6.1 7.0 6.5 6.1 5.9 5.8 5.8 5.6

Source: Economist Intelligence Unit.

200420032002 2005 2006 200920082007 2010

Asia and Australasia (excl Japan)

China 8.3 9.1 10.0 10.1 9.9 8.6 8.0 7.9 7.6 7.25.2 4.1 8.6 7.1 7.8 7.0 6.3 6.5 6.7 6.6India

tive ASEAN is less threatening than it mayonce have been, and there is agreement thatgreater economic integration within the regionwill be of benefit to all.

In October 2003, ASEAN leaders agreed topursue the establishment of an ASEANEconomic Community by 2020. Envisaged arecommon markets and production bases withfree flow of goods, services, capital and skilledlabour. The region’s energy supply would beenhanced through cross border gas and power

grid development. But to achieve all this,ASEAN members will need to make bindingcommitments to harmonise policy and pro-grammes and laws and regulations. This willrequire common ASEAN institutions to man-age and regulate markets, ensure complianceto treaty obligations by members, and providefor dispute settlements. An ASEAN Charterwould be an essential framework.

* Andrew Symon is Singapore correspondentfor ATI.

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Su said a SAT survey found that, between1994 and 2004, 52 per cent of foreign-ownedand foreign joint venture companies operatingin China lost money. The loss varied from sectorto sector. None of the firms in the services sec-tor made a profit, he said. And many in thepharmaceutical sector also ran at a loss. Overall,only the electronics sector made a profit.

"I began to ask what the main reason was forforeign companies to be running at a loss for somany years," he said. So SAT did its own inves-tigation and found that, for one-third of thecompanies, these were normal operating losses;for the rest, they were abnormal losses in which

affiliated companies played an important role.Su is interested in companies which have

connections with tax havens – especially in theCayman and Virgin Islands. "We have foundthat a lot of companies (operating in China)have an association with companies registeredin those locations,” he said. Since 2002, wehave noticed that the third- or fourth-largestinvestment source of foreign investment intoChina came from those two places respectively.

"In the past, the Chinese did not know wherethe Cayman Islands or Virgin Islands werelocated. So I took out a map to find they aresmall dots on the map." This aroused his suspi-cions, and he asked himself how such smallislands could have so much money to invest inChina. "Later, I referred to information issued bythe OECD on tax avoidance, and found thatthese are havens for tax avoiders," he said.

Su, who specialises in anti-tax avoidanceresearch, said that, between 1991 and 2004,transfer pricing audits were conducted onalmost 11,500 foreign-invested joint ventures inChina. So far, nearly 7,000 companies have beenaudited, resulting in an upward adjustment oftaxable income of 29.1 billion renminbi, andadditional tax payments of RMB2.5 billion.

He said transfer pricing has become a promi-nent issue for Chinese tax authorities, and thatissues such as proprietary technology transferand marketing costs will now attract scrutiny.

"In our day-to-day tax collection, we haveseen many multinational companies involvedwith proprietary technology transfer or intangi-ble areas, such as marketing, used in the man-ner of internal cost-sharing,” said Su. “Chinadoes not recognise the legal basis of such cost-sharing regimes.We recognise only approvedindependent transfer pricing agreements."

SAT has established an ‘Advance PricingSystem’ where taxpayers can provide taxauthorities with their pricing principles and cal-culation methods for business transactions withaffiliated enterprises. China is working on bilat-eral agreements with the US, Korea and Japanbecause of the large number of companies fromthese countries operating in China.

Su said reaching agreements between twocountries is not simple because no countrywants to forego tax which it feels belongs to itsjurisdiction. "If SAT believes that we are owedthe money, we will not want to give out a cent."

Transfer pricing was a global problem and animportant issue for tax authorities around theworld, Su acknowledged. Hopefully, he added,there is "light at the end of the tunnel”.

China signed an agreement with Japan lastyear. Following this, Su said, eight Japaneseenterprises have applied for an AdvancedPricing Ruling under the bi-lateral arrangement.These agreements have a life of no more thanfour years. The so-called APRs will be national,coming under the jurisdiction of SAT and taxauthorities in Beijing, Shanghai, Laoaning andShenzhen – areas with a concentration of for-eign investors. These regions will not be able tonegotiate their own APAs.

One of the difficulties in the past, Su said,was a lack of co-ordination between SAT andlocal and provincial tax authorities. Since lastyear, all transfer pricing audits have had to beapproved by SAT.

Su said SAT will increase its staffing to han-dle the growing volume of work. But, he added:"The attitude of the Chinese Government totransfer pricing is moderate. If we find a prob-lem and that the taxpayer faces an adjustmentand needs to pay additional tax, there areno penalties attached."

BEIJING – Chinese tax authorities hasstepped up desktop audit of loss-making for-eign joint ventures and foreign-owned compa-nies in a bid to control losses through tax avoid-ance. As China reforms its tax legislation tomake tax collection more effective, it is increas-ing the spotlight on (1) multinationals in regardto transfer pricing and (2) on loss-making com-panies whose parents are incorporated in taxhavens.

However, Su Xiaolu, Assistant Counsel andEconomist with the State Administration ofTaxation (SAT), says reforms to streamlineChina's tax legislation, bringing domestic andforeign companies under one piece of legisla-tion, will not lead to higher corporate tax. Sugave an assurance that the nominal corporatetax rate will remain at 33 per cent after the newlegislation is enacted. He added that, afterdeducting expenses and other costs, the actualtax rate for most foreign companies is onlyaround 14 per cent.

Similarly, he said preferential treatment andtax exemption offered to foreign investors inChina will largely be retained in the new legis-lation. The main areas of amendment involvetransfer pricing and tax avoidance.

The draft of the combined tax law, to beknown as the Uniform Enterprise Income TaxLaw, is now before the Standing Committee ofthe National People's Congress. It is a key areaof SAT’s work for this year, he said.

Chinese tax authorities have targetted 15,000foreign enterprises for desktop audits. Of these,1,500 firms have been audited, with more than800 cases finalised each year.

"If you lose money all the time, we want tofind out what is going on. Certainly, if a compa-ny runs at a loss and that continues for a fewyears, we want to determine if the reason is taxavoidance or transfer pricing," he told a transferpricing seminar organised by the law firm,Baker & MacKenzie.

TRANSFER PRICING AUDITS


TTHHEE RREEGGIIOONN

China targets 15,000 foreign-owned JVs

WHEN a leading Chinese tax official identified the Cayman andVirgin Islands on the map, he asked himself how such smallislands could have so much money to invest in China. Now, desk-top audits of loss-making foreign ventures are under way . . .

} None of the firms in theservices sector made aprofit, and many in thepharmaceutical sector alsoran at a loss ~

Investors hailing Japan’s ‘Renaissance’TOKYO – Some 10 trillion yen flowed intothe Tokyo Stock Exchange last year, with pos-sibly a similar volume expected over 2006.

One manager alone – the US fund managerInvesco – received US$3 billion last year, boost-ing its total funds under management in Japanto US$6.5 billion.

Invesco's Chief Investment Officer in Tokyo,Atsushi Kawakami, expects at least ¥5 trillion

to be invested on the TSE this year. Others, hesays, believe the amount could be as much aslast year's ¥10 trillion.

Brad Durham, Managing Director of theBoston-based Emerging Portfolio FundResearch (EFPR), says Japan is a consensusfavourite market for global asset allocators andglobal equity strategists. Durham told ATI that,

FUND managers are tippingthat another Y10 trillioncould flow into the TokyoStock Exchange in 2006 –repeating last year’s stellarperformance . . .

Ô CONTINUED PAGE 10

in 2005, the grand total was US$15.7 billion innet buying of Japan equities from funds withabout US$105 billion in Japanese equity hold-ings. In Australia, the Platinum Japan Fund hasseen its size almost double from AUD445 millionin November 2005 to AUD883 million at the endof January 2006. Collectively, Australian institu-tional and retail investors have invested aboutAUD1 billion in Japanese shares.

Foreign fund managers returned to Japan in2004 to ride on Japan's revival. Japan's mostwidely-used stock indicator, the Nikkei 225, hasbeen spiralling upwards since it bottomed at7,603 points in April 2003, wiping out an aver-age of 80 per cent of the value of Japan's listedcompanies. Hovering just below 16,000 pointsat the time of writing, the index is a long way offits peak of December 1989, when it soared to38,915 points.

Durham says a combination of continuingpositive economic data, including rising con-sumer demand, positive GDP growth, the end ofdeflation, and continuation of a zero interestrate policy, bode well for continued fund flowsand market performance.

However, he warns that the pressure of buy-ing has increased the price of Japanese shares,now trading on average at 21 times their price-earnings ratio. Japanese companies will have tocontinue their "stellar" performance, he says, forJapan to not appear fully-valued.

Durham says global investors have afavourable view of Prime Minister JunichiroKoizumi's structural reforms. The rebound inthe stock market is underpinned by Japan’seconomic recovery, now in its third year.

Fidelity's Nicholas Price, manager of theFidelity Japan Fund, says that, over the pastfew weeks, Japanese companies have beenreporting their third-quarter earnings results.On aggregate, sales increased 9.9 per cent year-on-year and recurring profits surged 26.4 percent year-on-year. Price says Japanese firms areexpected to generate a 13.1 per cent year-on-year increase in recurring profits for the year toMarch 31, 2006 – 6.6 per cent points higher thanforecasts made at the beginning of the year.

This year, Kawakami expects large capJapanese companies to return an average of 10per cent, whilesmall cap com-panies willreturn around20 per cent.

Investors whoreturned toJapan earlyhave enjoyedrich returns.Invesco hasreturned toinvestors 146.16per cent of themoney investedin the last threeyears. This isagainst theinternat iona lb e n c h m a r kMCSI JapanIndex, which showed an average annual returnof 111.92 per cent in the same period.

The Sydney-based Platinum Japan Fund,established in 1989, returned 40.3 per cent inthe past 12 months. While the AUD85 million

Fidelity Japan Fund returned 55.3 per cent. Lastyear, Topix returned 34.7 per cent.

Invesco's Kawakami calls its Japan'sRenaissance, explaining that the current recov-ery is sustainable. He says Japan has enteredwhat he terms the "post post-war" phase of eco-nomic development, having stripped awaymany outdated economic policies, implement-ed in the rebuilding of Japan after the war.

While those policies propelled post-WarJapan's growth, it became obvious by the mid-1980s that the time had come for change.Unfortunately, the political leadership could notcome to terms with the need for change. Japanpaid for this with a decade-long recession.

Japan started to turn the corner in 2002.Kawakami lists four key indicators which sug-gest that this recovery is ongoing – and not aflash in the pan. They are: recovery in domesticspending and consumption; a potential end todeflation; strong economic growth in Asia; andglobal expansion in digital home electronics.

Kawakami says the generation of Japanese,now in their late 50s, who have run the countryin the past two decades are close to retirement."They are now preparing for retirement and ayounger generation is gradually moving intoimportant decision-making positions," he says.This second group, in their 30s, bring withthem fresh ideas and are not tied to the oldpost-war economic regime.

As a result, he says, there will be an end tothe inefficient production style and regulatedmentality as people who favour deregulationand freer markets move into key positions incompanies. A fundamental change, he says, isthe emergence of new businesses in Japan,such a medical services. Until now, medicinewas not open to the private sector, but this ischanging, and will create more opportunitiesfor entrepreneurial Japanese.

Large Japanese behemoths like Sony andSumitomo – which until recently were too big toembrace changes quickly – have started tochange. The degree of change with large capi-talisation companies is harder to measure. Butthe energy of the smaller capitalisation compa-nies is starting to allow them to compete withthe large cap companies.

"In the 1990s, I would describe the large com-panies as 200 kg fat men. Today, they haveslimmed down to 70-80 kg. Their use of cashflow for capital investment has become muchmore efficient than in the past. Whereas theywould use 100 per cent of their cashflow oninvestment, that has dropped to 50 per cent.Consequently, Japanese companies are nowcash-rich and have increased spending on

JAPAN’S RENAISSANCE TTHHEE RREEGGIIOONN


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Ô FROM PAGE 9


Atsushi Kawakami:Current recovery is

sustainable

New Japan FundINVESCO in March launched aJapan equities fund in Australia. Initially,Invesco’s director retail sales and market-ing in Australia, Mick O'Brien, expects toraise AUD30 million for the new fund.

Currently, Invesco invests in Japan equi-ties through its large Asia Share Fund. Italso accepts mandates from large pensionfunds in Europe and the US for investmentin Japanese stocks. The new fund will giveinvestors exposure only to Japanese stocks.

last year. Japanese consumer sentiment is nowat its highest because of income growth andstrong employment statistics. A gradual rise inincome is helping drive private consumption.For the first time in many years companies in2005 started to hire more permanent employeesthan part-time workers.

The current high oil price will hurt Japan, butKawakami says the impact on the Japaneseeconomy is nowhere near as serious as the firstoil shock in the 1980s. According to modellingwork done by Nomura Research, if the oil pricestays at US$65 per barrel, Japan will lose 0.3 percent in GDP growth, compared to 0.6-0.85 percent in the US or Germany. After early oilshocks, he says, Japan has reduced energy con-sumption.

Fidelity's Nicholas Price says that, during thefourth quarter of 2005, Japan's economy grew atan annualised rate of 5.5 per cent. Kawakamiexpects the economy to grow by around twoper cent – above its potential of 1.5-1.7 per cent– over the next two to three years.

SOVEREIGN RATINGS ON THE UP


TTHHEE RREEGGIIOONN

research and development and updating of pro-duction facilities. The average age of Japaneseplants is now lower, and consequently they aremore efficient.

A restructured corporate Japan has focussedon core businesses, and sales from these unitshave started to rise again.

Japan's ongoing economic growth willdepend on the US, China and the rest of Asia.Kawakami says Japan now has a more diversi-fied export market. China is an important trad-ing partner, but exports to China are mainly incapital goods, which China uses to producegoods for export. He agrees that, when the glob-al economy slows, China will not import asmuch. Today, 45 per cent of China's exports areto the fast-growing Asian region. Kawakamisays that up to 50 per cent of Japanese exportsonce went to the US – that figure has droppedto 25 per cent, with another 20 per cent going toEurope.

He says deflation will cease; the core inflationrate has started to be positive since November

credit trends in the region. With the addition ofSri Lanka last year, S&P now rates 19 countriesin the region and 100 globally.

However, a leading economist on Asia, JimWalker, cautions that liquidity is tightening inAsia as a result of higher oil prices. The directimpact of higher prices is slower growth in for-eign reserves of Asian economies. Walker saysthat, in 2004, Asian countries accumulatedUS$530 billion in foreign reserves. Last year,that growth was US$250 billion.

S&P regards Asia Pacific sovereigns as well-placed for improvement in credit ratings thisyear. Taiwan is the only economy to have anegative outlook – it has been revised to nega-tive from stable. While Taiwan’s economy isexpected to remain stable, growing at aroundfour per cent again this year, S&P is concernedby the political situation there.

S&P says that, despite Taiwanese votersfavouring a less antagonistic and more prag-matic approach to China, President Chen Shui-bian continues hard line rhetoric, arguing forincreased weapons purchases and restrictionson business contacts.

And while the emergency has been lifted inthe Philippines, S&P will continue to monitorthe situation there. Its main concern is that theArroyo Government does not loosen its fiscalgrip, and that economic reforms not be post-poned. Chew says its interest in the politicalsituation is only to monitor its effect on interestrates and foreign investor confidence. If confi-dence weakens, this will raise the risk premi-um on the country. With half of its debt denom-inated in foreign currencies, the Philippines isvulnerable to changes in perception of risk.

China, Indonesia, Pakistan, Vietnam andMongolia have positive outlooks. S&P saysregional growth prospects are projected to sup-port credit quality, with trend growth rates like-ly to be maintained. It notes that there will besome upside potential in China, India, Pakistanand Vietnam.

Ô FROM PAGE 10

‘Oil to edge up slowly’SINGAPORE – Oil prices are likely toedge up steadily this year, and likely to stayhigh, says Ping Chew, Director of Sovereignand International Finance Rating withStandard & Poor’s. But another price shock,similar to that in 2005 which resulted in seem-ingly-permanent step-up in price, is less likely,

Chew points out that recent events, such assupply problems in Nigeria and other issues inSaudi Arabia, are risks that do cause a one-offimpact. But even without these events, he saysS&P expects oil prices to stay high, adding:"We don't expect the price to shoot from US$60to US$80 or US$90 a barrel. We expect it toedge up slowly."

Chew says most Asian countries have donea reasonable job in absorbing high oil prices. Ina way, he says, the price hike has been a bless-ing in disguise as it has forced some govern-ments, especially in Indonesia and Thailand, todeal with domestic fuel subsidies and cut backon oil consumption. In Indonesia, he says, oilconsumption has fallen by 30 per cent, withprices rising by 126 per cent. The Governmenthas learned a lesson, and now domestic fuel ischarged at a price closer to the world price.

Having learned the lessons of 2005, Chewbelieves future policy responses will be swifterand implemented more effectively. Fiscal bal-ance should also benefit from lower oil subsi-dies, and the funds may be used for more pro-ductive purposes, or to reduce debt.

But Chew singles out India and China, say-ing that they are still "tentative" in addressingthe shock from oil prices because they have notyet passed through full costs to consumers.Both countries will continue to suffer theeffects of providing subsidies.

Nevertheless, S&P says sovereign ratingshave improved steadily over recent years. Inthe past three years alone, there have been 14upgrades but only four downgrades. In 2005,there were four upgrades and one downgrade.

Chew says good global growth and still-ample liquidity conditions underpin positive

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with commercial and industrial as well ashousehold demand. If not, then these stronggrowth forecasts will likely be dampened.

Traffic congestion has become a major prob-lem in Ho Chi Minh City in the south and Hanoiin the north – Vietnam’s major urban and indus-trial centres. In Ho Chi Minh City, now with apopulation of more than seven million in thegreater metropolitan area, what just a few yearsago was a 15-minute trip from the centre of thecity to the airport has become a journey of up toan hour, depending on time of day.

More and more cars are entering the city’snarrow roads, alongside tens of thousands ofmotor scooters. Hanoi, with a population ofabout two million, tells a similar story. Just adecade ago, transport in the cities was predom-inantly bicycle and “cyclo” or bicycle rickshaw,with some motor scooters and a few oldPeugeot taxis.

Various schemes are being put forward forurban light rail transport systems. In January,the Government approved a pre-feasibilitystudy for a 15-km urban tram route for Hanoi,much of it in the historic French colonial builtinner city. The US$550 million system is finan-cially supported in part by the FrenchGovernment. French engineering and equip-ment will be a key part of the development.Financing is also to be raised throughGovernment and City bonds, and directly fromthe State budget.

Another means of relieving urban pressure isthe development of more industrial parks andsatellite towns on the outskirts of Hanoi and HoChi Minh City. To facilitate this in Ho Chi MinhCity, new bridges and a tunnel are under devel-opment across and under the Saigon River,enabling urban expansion to the east acrossfrom the old city, confined for its 300-year histo-ry largely to the western side of the river.

Airport transport facilities and shipping con-tainer ports are also serious weaknesses, whichare becoming more evident as goods tradeexpands. Demand will continue to mount, withVietnam’s trade flows and international eco-nomic integration to be boosted by accessionthis year, the government hopes, to the WorldTrade Organisation.

In the power sector, Vietnam’s generationcapacity for the public grid is a meagre 11,000megawatts (MW) – about the same as the Stateof Victoria in Australia. Transmission and distri-bution also are inadequate. Vietnam vulnerabil-ity was revealed last year when drought condi-tions crippled hydro-electric dams in the north,which in normal conditions meet much of thesystem’s basic load.

A real power crisis was narrowly avoided byramping up output from newly-established gas-fuelled power generation plants in the south,near Ho Chi Minh City. These included bothplants operated by the State-owned power util-ity, Electricity Vietnam (EVN), and two inde-pendent power plants Vietnam’s first largescale IPPs selling to the public grid.

The Government’s target is to raise genera-tion capacity by 2010 to 21,000 MW, and it esti-mates a total system cost of US$19.5 billion. Amore diversified fuel mix is part of this, withreliance broadened to include more natural gas,coal – possibly imported alongside of coalmined in the north – as well as hydro. Gasdemand will stimulate development, largely byforeign companies such as BP, Chevron, andConoco Phillips, in partnership with Vietnam’sState company, PetroVietnam, of offshore fieldsin the south east and southwest. Nuclear powergeneration is also proposed longer-term.

The scale of the finance needed for powerand transport development makes it impossiblefor Vietnam not to turn to foreign investment. Inthe power sector, the Government is earmark-ing seven projects, totalling 1,000 MW of gener-ation capacity, to be developed by foreigninvestors as IPP plants under build-own-transfer(BOT) conditions.

Alongside development assistance loans, theGovernment is embracing more than everbefore foreign direct investment and the har-nessing of international capital through bondissues and other instruments.

State power utility, EVN, plans to issueVND850 billion (US$53.5 million) in domesticbonds in the first quarter of 2006. A total of 2-3trillion would be sold in total in 2006. In addi-tion, US$250 million in foreign-denominatedproject bonds are set for the third quarter of theyear. EVN is developing a proposal to theMinistry of Finance for issue of foreign bonds.The bond issues are part of EVN’s aim to raiseVND20 trillion in 2006.

The foreign bond proposal follows Vietnam’sfirst and successful issue of international bondsby the Government to the value of US$750 mil-lion in October 2005. The bonds were traded onthe securities exchange in Singapore and pro-ceeds were passed on to the State-owned shipbuilding enterprise, Vinashin.

HANOI – Vietnam’s lagging infrastructuredevelopment, especially in transport and power,continues to be the country’s Achilles heel – theweak point in what otherwise is an ever-strengthening economy.

Infrastructure is one of the priorities for theGovernment. Targets and strategies for thecoming 2006-2010 five-year period will be dis-cussed and set at the all important 10th AnnualCongress of the Vietnamese Communist Partyin June. Held every five years, the Congressdetermines leadership and goals for the comingperiod.

Vietnam is recording now the highest GDPgrowth rates in the region – 8.4 per cent in 2005– and these rates are expected to continue inthe coming decade and beyond, according tothe Government, agencies from the World Bankand Asian Development Bank, and independ-ent analysts.

The Government is forecasting average GDPto 2010 of 7.2 per cent to 8 per cent, and from2010 to 2020 from 7 per cent to 7.5 per cent.Average annual per capita income of Vietnam’s80 million population is expected to rise from acurrent US$500 to US$1,000 by 2010.

Another measure of Vietnam’s economicmomentum is the increasing level of foreigndirect investment (FDI). In 2005 more than US$6billion in FDI commitments was made, thehighest since the 1997 Asian economic crisis.Over the next five years, the Government wantsto double annual FDI inflow.

But the challenge is for power, transport andother infrastructure expansion to keep pace

THE CHALLENGE FOR VIETNAM IINNFFRRAASSTTRRUUCCTTUURREE


VIETNAM has the highest growth rate in the region, but it mustmeet the challenge of power, transport and other infrastructureneeds. Targets and strategies will be set in June, at the 10thAnnual Congress of the Vietnamese Communist Party . . .

Five-year targets nearfor power, transport

} Traffic congestion hasbecome a major problemin Ho Chi Minh City andHanoi. Various schemesare being put forward forlight rail transport sys-tems. Airport and shippingcontainer ports are alsoserious weaknesses. ~

From a SPECIAL CORRESPONDENT

} The Government’s tar-get is to raise generationcapacity by 2010 to21,000MW, and it is esti-mating a total system costof US$19.5 billion. Sevenprojects are marked as IPPplants for development byforeign investors. ~

n World Bank, ADB double lending for infrastructure in India, page 17.

n AMP raises US$10 million in India infrastructure funds, page 19.

n Green light near for Philippines Expressway, page 21.

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6239.ATN.4.qxd 4/1/04 1:12 PM Page 1

where former US President Richard Nixonstayed when he first visited China, leading tonormalisation of Sino-Chinese relations. It hasalso been the venue for protracted Six-Party

talks on North Korea, in which China is playingthe role of broker.

Zhang launched Haier's "globalised brandstrategy" on that day. He wants the company toimplement strategies which will turn what isalready a Chinese household brand into a glob-al household brand. Haier's refrigerators, dish-washers and washing machines dominate thehuge Chinese market – now Zhang wants hisshare of the global market.

For now, Zhang has decided to focus oninternal resources to develop a global brand.

In mid-2005, Haier made a bid for America'shousehold brand, Maytag, a 102-year-old com-pany best-known around the world for itsHoover cleaners. Perhaps Zhang was influ-enced by another dynamic Chinese company,Lenovo, which last year acquired IBM's PCbusiness, delivering a global brand on a platter.However, Maytag chose to merge withWhirlpool, another US appliance maker, to cre-ate the world's largest company in this sector.

In an article published by People's Daily

ON CHRISTMAS DAY, when mil-lions around the world were unwrapping pres-ents and celebrating, leading Chinese busi-nessman Zhang Ruimin gathered his key stafffor a brain-storming session at the DaioyutaiState Guesthouse.

The 57-year-old Zhang, Chief Executive ofHaier, was celebrating too – but for a differentreason. It was the 21st anniversary of Haier,China's largest whitegoods manufacturer, nowrated as the world's fastest-growing white-goods company.

The anniversary provided an auspiciousoccasion on which to unveil plans for Haier’snext development phase – appropriately in avenue, a former palace in Beijing's west, whichsymbolises Beijing's international face. This is

HAIER’S GLOBAL STRATEGY MMAARRKKEETTIINNGG


} Zhang’s strategy is to‘compete with the mas-ters’ in the main battle-fields of Europe, the USand Japan ~

Why China must haveworld-class brands

Why China must haveworld-class brands

‘It is not a question fordebate. It is a must!’

‘It is not a question fordebate. It is a must!’

REBUFFED in his attemptto buy America’s householdbrand Maytag, Haier CEOZhang Ruimin spentChristmas brainstormingwith key staff to develop aworkable strategy for hisglobal ambitions. For now,he will focus on developingHaier’s internal resources,with a new R&D centre nowunder construction in Sydneyto create and test newwhitegoods models forWestern markets. For Zhang,the global adventure will beboth a hundred-metre dash –and a marathon . . .

Haier’s Zhang Ruimin: Keepinghis finger on the business pulse.

by Florence ChongEditor, ASIA TODAY INTERNATIONAL


Managing in Asia

AUSTRALIA TO PIONEER NEW PRODUCTS


MMAARRKKEETTIINNGG

establish the Haier brand in local markets over-seas, such as Australia.

"It is an ever-lasting goal for Haier to build aworld-famous brand. For this purpose, Haiermust work for best customer satisfaction in dif-ferent markets all over the world," he says.

As Haier implements its "Global BrandingStrategy" the key will be "further localisation" inmajor markets and the launch of products tai-lored to local needs. In a word, Haier wants topresent itself as alocalised namebrand.

During a whirl-wind visit to Aus-tralia in February toopen a new andexpanded showroomfor Haier products inSydney's westernsuburb ofSilverwater, Zhangannounced that aresearch and designcentre would be setup in Sydney toserve the Australian market. His AustralianManaging Director, Karl Quin, said the centrewould be open by June, and would develop anddesign products for Australia.

Quin says Zhang sees Australia as an impor-tant market, even though in size it is much

Online, Zhang argues eloquently on the need forChina to have world-class brands. He writes:"There have been heated debates in publicopinion over whether China needs its ownbrands. My personal opinion is that China can-not afford to have no world-class brands. It isnot a question for debate. It is a must."

He goes on to say that Haier buys compo-nents from a US company, Emerson. "Why don'twe use the cheaper products made by domesticproducers?" he asks. "The reason is simple(because) Emerson has innovative capabilityand can design and make the best electricmachinery according to specification, raisingthe competitiveness of (our) products." Zhangsays Haier strategy is to raise competitivenessby "competing with the masters" in the mainbattlefields of Europe, the US and Japan.

So in his assessment, where is the Haierbrand in the global market today? Through hisspokesman in Beijing, Zhang told ATI: "Sincethe beginning, over 21 years ago, we have beenstriving hard in an innovative spirit to become aworld-famous brand. So far, we have made con-siderable achievements.

"According to the list of the World's 500 MostInfluential Brands, published by World BrandLab last April, Haier – the only Chinese brand –ranks 89th among the top 100 companies. Haieris the No.1 in the list of Top Ten World-ClassBrands of China published by the FinancialTimes in August last year. And statistics inEuromonitor show that Haier ranks fourthamong whitegoods manufacturers worldwide.The first three companies are century-old."

Zhang says Haier has made its way into thegroup of world-class independent brands suc-cessfully. "But it is very clear to Haier peoplethat there is still a very long way to go tobecome a top-class brand. Given the gaps inhuman resources and global competitiveness,we have to make unceasing efforts towards ourgoal," he adds.

Zhang says Haier's international rivals aremore competent in terms of globalised networkand competitiveness. The Chinese companyhas conducted a great deal of in-depth researchon developing a global brand. To achieve this,he says, Haier has to lift its export volumes and

smaller than the US, Europe or Japan. Zhangsees Australia as a market which straddlesEurope and Asia. He wants the Australian R&Dcentre to pioneer new products. Tested andaccepted in the Australian market, these prod-ucts would then be offered to other parts of theworld. "We will design products for the localenvironment and test new ideas and productsin this market," says Quin.

Australia is a competitive market, but Haiersees strong growth opportunities. To win cus-tomers, the manufacturer has extended a fullfive-year warranty for parts and labour. UntilFebruary this year, its warranty applied only tobar fridges. All Haier products, from winechillers to vertical freezers and top-load wash-ers, are now included.

Most valuable, however, is the wealthyAmerican market. Haier products have beenintroduced into the top 10 chains of the US,including SEARS and BEST BUY. Haier nowsells its complete range in the US, although itinitially gained access with bar fridges – a seg-ment vacated by US manufacturers. Zhang saysa future milestone for the group's internationalgrowth would be establishment of a manufac-turing plant in the US.

Even though China isthe world's factory, intime, Haier will probablyestablish manufacturingplants overseas. But, saysZhang: "We explore a mar-ket first by selling prod-ucts. Then, when thereare enough orders fromthis market, we considersetting up our own plantsthere. It is not about look-ing for orders after theproducts are manufac-tured. It is about gettingthe orders first. Haier has

established 15 industrial parks worldwide."Staff have described Zhang as a dynamic

leader, a thinker who is keenly interested indesigns and improving business systems. Hemeets key executives every Saturday to thrashout new ideas for products, and to keep his fin-

Ô FROM PAGE 14

} We explore a marketfirst by selling products.When there are enoughorders, we consider set-ting up our own plantsthere. It is not about looking for orders after the products are manufactured ~


Haier’s Australian Managing Director,Karl Quin: A market straddling Europeand Asia.

compass. These intangible values are the foun-dation of tangible achievements," he says.

‘Key Breakthrough and Closed-LoopOptimisation’ is about identifying the appropri-ate method to be used to orient a business."Without such a method, there is no way to dothe right thing successfully.”

When he talks about a key breakthrough, it isabout identifying the breakthrough point whichhas a significant impact on the company's over-all performance. "A key breakthrough is essen-

tial to business growth. However, when a keybreakthrough is accomplished, the success willnot last long if there is no follow-up ‘Closed-Loop Optimisation’.”

The three principles are being applied to theglobalisation of Haier’s business. "Weannounced a concept of "brand-buildingthrough export" instead of "earning foreignexchange through export", he says. “For this

purpose, progressive steps have been taken.For example, the strategy of internationalisationis achieved step by step from ‘Go Abroad’, ‘GoLocalised’ to ‘Go Higher’.

"To ‘Go Abroad’ is just to sell a productabroad; to ‘Go Localised’ is to become a recog-nised product in the local market – that is, tobecome locally-marketed, locally-designed andlocally-serviced; to ‘Go Higher’ is to become aname brand in the local market.

“To put it another way, to ‘Go Abroad’ is tostudy abroad; to ‘Go Localised’ is to get theGreen Card; and to ‘Go Higher’ is to become alocal celebrity."

While he is proud of Haier's well-establishedorganisational structure, Zhang says the bestchallenge facing the company is global compe-tition in the information era and adjusting hisorganisational structure to confront ongoingchances in the market. "This is tough, like anearthquake. It is too much challenge for a busi-ness from time to time. But if we do nothing, wewill lose our competitive edge."

Zhang says his ‘Hundred-Metre Dash andMarathon’ theory is about ensuring things aredone in a timely fashion. "You lose time, youlose all," he says. It would be impossible for abusiness running slowly to bridge the gapbetween excellent international players anditself.

Zhang adds: "But if we keep running withdashing speed, it will be demanding andexhausting. Speed and endurance are contra-dictory factors. Our answer to this question isthat, for Haier, every year is like a marathon andevery day is like a hundred-metre dash.

"The challenge is that we have to go forwardwith dashing speed every day in the future. Butwhat if people get tired? Is there an unfadingdrive for our sustained efforts? "

Part of the answer to this is to introduce theconcept of strategic business units (SBUs),which, at the lowest level, are a division withina business. The concept, he says, is to treatevery employee as an SBU. "With SBU, everyemployee serves the market directly. Haier isbringing its SBU concept to its global markets.

In Australia, a "store-by-store" strategy isbeing implemented, under which everyemployee is held responsible for his/her ownstore. The purpose of this programme is toensure that all employees are driven by the dis-cipline of the market directly.

In the US, each employee is an SBU responsi-ble for his/her business. Local sales managersare held responsible for sales, inventory anddefective items under a "one-ticket" system. Atthe same time, each department is also an SBU,responsible for departmental functions. Zhangstresses that, in a business, it is intangiblehuman resources rather than tangible assetsthat are most worthwhile.

On the positioning of Haier over the next fiveyears, Zhang has this to say: "According toEuromonitor, Haier is the No 4 whitegoodsmanufacturer in the world by sales income(today). It is Haier's aim to make greaterachievements in future."

gers on the pulse of the business. He has alsogained the respect of his peers for driving anindebted small appliance maker to what it istoday. Haier, which now employs 50,000, in2004 had total global sales of RMB 103.9 billion(US$13 billion).

The many international accolades Zhang hasreceived since the late 1990s are a demonstra-tion of his achievement. Leading internationalinstitutions, such as Harvard, have used theHaier business experience as a case study.

Back in 1984, when Zhang was DeputyManager of the former Qingdao HomeAppliance company, he was appointed Directorof the Qingdao Refrigerator Factory, a small ail-ing collective with debts totalling RMB 1.5 bil-lion. When asked about the group's dramaticgrowth under his charge, Zhang says: "Haierhas made no significant mistakes in decision-making over the past 21 years. Instead, Haierhas seized every major business opportunityavailable."

Zhang is a man given to management theo-ries and principles. He lists three guiding prin-ciples for success – ‘Inaction and Action’; ‘KeyBreakthrough and Closed-Loop Optimisation’,and his so-called ‘Hundred-Metre Dash andMarathon.’

‘Inaction and Action’ is about identifying theorientation of the business – that is, what is theright thing to do for a business.

"One is blind when there is no orientation. Ifa business is compared to a man, these valueswould be the soul of this man; if a business iscompared to a ship, these values would be the

‘EVERY EMPLOYEE AN SBU’ MMAARRKKEETTIINNGG


Ô FROM PAGE 15

} If we keep running withdashing speed, it will beexhausting. Speed andendurance are contradic-tory. For Haier, every yearis like a marathon andevery day is like a hun-dred-metre dash ~

Managing in Asia

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