N E W S L E T T E R May 2006

Story of the MonthStory of the MonthStory of the MonthStory of the Month

China’s Carmakers at the Crossroads

Chinese auto manufacturers have moved onto the global stage with exceptional speed and efficiency. China recently passed a milestone, becoming a net exporter of vehicles for the first time. Should it succeed in exporting passenger cars in significant numbers, China’s next move may be to export automobiles to the U.S. and European markets and challenge DaimlerChrysler, Ford, GM, Honda, Hyundai, Nissan, Toyota, Volkswagen and other well-established brands. China’s leading domestic brand car manufacturer, Chery Automobile, which introduced its first model six years ago, recorded the fastest pace of growth among all Chinese automakers in the first four months of 2006. China Securities Journal reports that Chery Automobile sold more than 100,000 units in the first four months of 2006. The company has raised its sales target for this year to 300,000 units, from 281,000 units. According to Forbes, Chery Auto sold 185,000 cars in 2005, an increase of 118 percent from a year earlier. Meanwhile, GM, Ford, Toyota, Volkswagen, Honda and other world’s largest carmakers keep increasing their production capability in China to tap rising domestic demand, which currently is growing at 20 percent annually. However, the Chinese market temporarily suffers from significant excess capacity, as foreign and domestic manufacturers vie for market share by investing in new facilities and launching new models. In the face of punishing domestic competition and excess capacity, international markets will appear attractive to some Chinese auto makers, especially for weaker players looking for respite from the harsh reality of the domestic market. According to sources, Malcolm Bricklin, the man who brought Americans the Yugo, wants to sell U.S. consumers a new line of cars made in China as early as then end of 2007. Working with Chery Automobile, Mr. Bricklin plans to introduce sedans and SUVs priced at

$19,000 and designed to steal customers away from cars such as Toyota Camry and Buick LaCrosse.

(Photo: Chery Automobile)

The following is the sales and rank figures for China’s top ten automobile makers (2004).

Company Name Units Sold Rank

First Automobile Works (FAW) 456,600 1

Shanghai Automotive Corp. (SAIC) 403,800 2

Dongfeng Motor Corp. (DFM) 360,200 3

Changan Automobile 340,800 4

Beijing Auto Industry Holding Co. (BAIC) 301,000 5

Harbin Hafei Motor Mfg. Ltd 116,000 6

Guangzhou Auto Group Ltd. 109,700 7

Chery Automobile Co. 83,400 8

Jianghuai Auto Co. Ltd (JAC) 78,600 9

Geely Holding Group 68,100 10

(Source: Emage Company)

NAROS UpdateNAROS UpdateNAROS UpdateNAROS Update

NAROS and LA Chamber Improve Close Ties The Los Angeles Area Chamber of Commerce and the North American Representative Office of Shenzhen, China (NAROS) have officially entered into a strategic alliance, whereby the two organizations have agreed to work closely together in matters pertaining to their respective missions.

This Alliance comes as NAROS looks to expand its reach not just locally but also nationwide. Working with the LA Chamber will allow NAROS to reach out to the Los Angeles business community, develop a larger contact network, and eventually attract more investment and trade projects to Shenzhen. Similarly, NAROS will give the LA Chamber a great resource for China business, and for promoting Los Angeles as a destination for international trade and investment, all free of charge and in the interest of mutual benefit.

NAROS Takes New York City Business Development Trip Representatives of the North American Representative Office of Shenzhen, P.R. China (NAROS) and the Shenzhen Bureau of Trade and Industry (SZBTI) traveled to New York City on May 8 – May 10, 2006 to meet with various organizations and individuals in order to develop stronger relations between New York and Shenzhen. The delegation was led by SZBTI Deputy Director Wang Xiaochun and included Sinclair Li, Andrew Pan, Sharp Zhang, and Alex Cree. The group met with senior officers at the Partnership for New York City, JP Morgan Chase, Phillips Nizer LLP., and toured the unfinished China Center at 7 World Trade Center.

NAROS and ChinaPact (SM) Form Strategic Alliance Massachusetts–based ChinaPact (SM) and the North American Representative Office of Shenzhen, China (NAROS) have entered into a strategic alliance, whereby the two organizations have agreed to work closely together in matters pertaining to trade and investment in China.

US/China BusinesUS/China BusinesUS/China BusinesUS/China Business Newss Newss Newss News

BlackBerry Targets China Research in Motion Limited, the makers of BlackBerry will launch its mobile e-mail services in China. The company will team up with China Mobile Communications Corp., China’s largest cell phone company, to launch their services nationwide. BlackBerries will not initially be on sale in China. The target market for Blackberries in China is to serve business people who bring their devices from overseas. Both companies will announce BlackBerries sales at a later date.

(Photo: BlackBerry)

Best Buy Buys Stake in Chinese Retailer Consumer electronics retailer Best Buy will purchase Jiangsu Five Star Appliance, China’s fourth-largest appliance and consumer electronics retailer for $180 million, giving it control of 136 outlets in China. Best Buy already operates three sourcing offices in Shanghai, Beijing and Shenzhen. The company has also established relationships with manufacturers seeking to gain broader distribution in both China and North America.

Louis Vuitton to Open 3 New Stores in China Louis Vuitton Malletier, the world’s leading luxury brand, plans to open three new stores in China this year. The company plans to open their stores in Chengdu, Wenzhou and Shenyan. Chinese customers have already become LV’s third largest consumer group in the world, after Japan and the United states. The firm’s first store in China is located in Beijing since 1992.

Shenzhen International Cultural Fair Closes with 10 Billion Yuan Deals More than 900,000 people participated in the four-day Second China (Shenzhen) International Cultural Industry Fair (ICIF). According to ICIF, the fair closed with trade deals worth more than 10 billion yuan (US$1.25 billion) being signed. Both the number of participants and the trade volume surpassed the figures from the first ICIF held two years ago.

Doing Business in ChinaDoing Business in ChinaDoing Business in ChinaDoing Business in China

Event Invitation: The 5th China (Shenzhen) Consumer Goods Procurement Fair The 5th China (Shenzhen) Consumer Goods Procurement Fair (CCGPF) will be held at the Shenzhen Convention and Exhibition Center in Shenzhen, China on June 25th – 27th 2006. The fair is sponsored by The People’s Government of Shenzhen Municipality and Guangdong Economic and Trade Committee and supported by Hong Kong Trade Development Council. Started in 2002, CCGPF has been successfully held for four years. It is one of the largest fair for consumer goods with more than 800 exhibitors and more than 50,000 visitors participating every year. Participants came from almost all provinces and regions of China and more than 42 countries all over the world. The exhibitors includes some of the largest and most famous retailers, manufactures, distributors, wholesalers, agents and service companies around the world such as Wal-Mart, Carrefour, Target etc. Shenzhen Logistics Service and Technology Fair will be held in the Shenzhen Convention and Exhibition Center at the same time. For more information, please visit (www.ccgpf.com). For further information, please contact NAROS at (213) 628-9888 or email us at (info@shenzhenoffice.org).

Foreign Enterprises Increase Investment in China’s Trading & Distribution Sectors In April 2004, the PRC Ministry of Commerce (MOFCOM) released order [2004] 8 (Order 8), which allows Foreign Investment Enterprises (FIE) to engage in wholesaling, retailing, commission agency, franchising,

and other auxiliary services in China. It also provides guidance on establishment requirements and the application process. Order 8 removed most of the entry barriers faced by foreign investors in accessing the China domestic retail and wholesale market. According to Order 8, current manufacturing FIEs in China are allowed to expand their business scope to include distribution operation functions.

Delegation of Approval Authority over FICE to Local Counterparts of MOFCOM Effective March 1, 2006, the Ministry of Commerce (MOFCOM) has delegated examination and approval authority over commercial enterprises engaged in distribution retail (except for special categories of retail and special commodities) to its provincial-level departments under the Notice Concerning Entrusting Local Departments to Examine and Approve Foreign Invested Commercial Enterprises, issued by MOFCOM on December 9, 2005. The delegation of authority from the central government to the provincial departments is expected to significantly streamline the application process and facilitate establishing a commercial enterprise.

Business Culture: Some Do’s and Don’ts When doing business in China, one must understand the business culture of the Chinese. China’s ethical system involves respect for superiors, duty to family, sincerity, courtesy, and loyalty to friends. Age brings increased respect and status. Handshaking is the accepted greeting. Chinese lower their eyes slightly as a sign of respect. It is very important for Chinese people to “maintain face” in everything they do. So do not spoke fun at someone, even if just for fun. Avoid unintentional criticism of others. Remember that in China, business relationships are sometimes personal relationships. Try to establish a trusting personal relationship that demonstrates your respect and become friends with local influential officials. Therefore, the relationship you develop with a person represents your relationship with his or her entire company.

Shenzhen FactsShenzhen FactsShenzhen FactsShenzhen Facts

� Shopping in Shenzhen – MixC Shopping Mall is the largest mall in Shenzhen. It is located on No. 1881, Bao’an Nan Road, Luohu District which includes an ice skating rink, movie theatres, Starbucks, Pizza Hut and Taco Bell.

� Window of the World – This is a fantastic replica theme park situated at the overseas of Chinese Town where you can see vivid replicas of the world’s wonders, historical heritages and famous scenic sites.

� New Hotels Being Built in Shenzhen – Ritz Carlton, Grand Hyatt, Sheraton, Marriot, Shangri-la and more than 10 new 5-star hotels are being built in Shenzhen.

North American Representative Office

Of Shenzhen, P. R. China

中国深圳市驻北美经贸代表处中国深圳市驻北美经贸代表处中国深圳市驻北美经贸代表处中国深圳市驻北美经贸代表处

350 S. Figueroa Street, Suite 288 Los Angeles, CA 90071 Tel: (213) 628-9888 Fax: (213) 628-8383

Email: info@shenzhenoffice.org Website: www.shenzhenoffice.org

If you have any questions or would like to subscribe/unsubscribe to the newsletter, please contact Linda Ho at 213-628-9888 or lindaho@shenzhenoffice.org.

This newsletter is provided by the North American Representative Office of Shenzhen, P. R. China (NAROS) for general guidance and information only, and

does not constitute the provision of legal advice, investment advice, or professional consulting of any kind. The information is provided ‘as is’, with no

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