CHINA FRANCHISE NEWS
Vol. 2 , No. 3 - February 5, 2001
TOPICS THIS ISSUE:
- China Will See High Private Capital Inflows in 2001
- PostNet's Regulatory Problems
- Tianjin Home to China's Largest Drugstore Chain
- China Olympic Franchises Trademark
- McDonald's Continues to Expand in China
- Louisville Pizza Chain Chooses China
- Increased Regulation of Market Transactions
China Will See High Private Capital Inflows in 2001
Almost one quarter of all private financial inflows to emerging markets will be headed for China in 2001, according to a report by the Institute of International Finance (IIF). The Institute, a global association of financial firms with over 320 member institutions, issued the report detailing the flow of capital to emerging markets on January 24.
Net private capital flows to emerging markets in 2001 should total approximately US $166 billion, a figure only slightly higher than last year's total of US $154 billion. The IIF has predicted that US $40 billion, or 24%, of this year's amount will go to China. Inflows of private capital to China increased over 1998 and 1999, due to the increase in equity investment and net repayments to creditors, according to the report.
Other Asian countries, conversely, have been predicted to maintain their negative capital inflows. Likely related to the Asian financial crisis in 1997, net private capital outflow in Thailand, Indonesia and Malaysia is expected to continue, while China's prospects are much better. China enjoyed a growth rate of 8 percent in 2000, faring much better than its neighbors. The IIF believes that Beijing's initiation of fiscal stimulus packages and low interest rates could result in a repeat growth rate performance.
China's National Bureau of Statistics also holds this belief, and has predicted an 8 percent growth rate for this year.
(Source: ChinaOnline News; and IIF: "Capital Flows to Emerging Market Economies," 24 January 2001)
PostNet's Regulatory Problems
On December 19, 2000, the Shanghai Administration for Industry and Commerce (AIC) examined and punished the flagship store of Shanghai Baoyi Science and Technology Co., Ltd, which was called by the China media as a "foreign post office".
Shanghai Baoyi is an outlet of PostNet, a postal service franchise located in Nevada. PostNet invested RMB 1 million to set up their first store in Shanghai. PostNet believed that it would find its niche in providing high-quality name-card printing, copying, and key cutting, services on a large scale. PostNet believes that their "One-Stop service" could be competitive in the Chinese Market.
The establishment of PostNet's first outlet in Shanghai on November 15, 2000 attracted a lot of attention in the domestic media. It was called "the first foreign post office in Shanghai". Not reported by media, however, is that Shanghai Baoyi is more like a community service center, rendering copying, key cutting, name-card printing, mail box renting and courier services. The fact later proved that those reports partly led to the misfortune of Shanghai Baoyi: Shanghai Baoyi was prohibited to continue the mailbox and courier services on the grounds that it had violated China's Postal Law. Shanghai Baoyi claimed that their business was not equal to postal services as defined in the Postal Law. The company is now considering its legal options.
(Source: Sina.com.cn 01/19/01)
Tianjin Home to China's Largest Drugstore Chain
The Zhongxin Pharmaceutical Group Corporation has set up a chain subsidiary in the northeastern city of Tianjin, making that city host to China's largest pharmacy chain.
Offering services such as home product delivery, mail order and consulting services, the subsidiary consists of 248 stores around the city. Stores will also be inviting well-known doctors to provide diagnoses, as well as accepting telephone orders from customers.
Zhan Yuanjing, General Manager of the Zhongxin Pharmaceutical Group, said the chain will use one managing system, one sign, one accounting system and one stock and distribution structure. All the chain stores will ensure the quality of the medicine sold to the customers; the People's Insurance Corporation of China will be responsible for any quality problems.
The Zhongxin Pharmaceutical Group Corporation was the first Chinese company to be listed on the Singapore Stock Exchange's main board.
(Source: ChinaOnline News 01/29/01)
China Olympic Franchise Trademark
The China Olympic Committee (COC) will unveil a distinctive commercial trademark as soon as May 2001. The new trademark could easily become one of the most recognized brands in China.
Mr. Xu Zengwu, director of the COC's Market Development Committee, expects the trademark to dominate Chinese sports and bring the commercial value to more than RMB 80 million.
The COC will have four basic development strategies for its commercial trademark: sponsorship; trademark licensing; donations; and the development of individual athlete's images. The COC considers the sales of licenses to use the trademark as particularly important.
Mr. Xu said the COC would permit certain companies willing to become trademark licensees to manufacture licensed products. The COC will establish 80 to 100 outlets nationwide to promote the sale of these licensed products. These retail stores will be franchised to companies or individuals responsible for the retail sales of COC trademarked products. The COC's responsibility will be simplified and limited to the management of the retail network and examination and approval of the qualification of the chain stores.
The COC also plans to open a flagship store in downtown Beijing. The trade dress and product inventory of the flagship will be copied in the franchise stores around the country. The COC's Market Development Committee also plans to cooperate with the various management centers of China's General Administration of Sports (GAS) in the joint development of trademarked products and related products.
(Source: Beijing Youth Daily 01/22/01)
McDonald's Continues to Expand in China
Despite a 7 percent drop in fourth-quarter earnings, McDonald's expects to see continued growth in one of its largest consumer markets, China. The overall drop was associated with decreased European sales.
But McDonald's has big plans in China: with nearly 280 stores opened in China since the company first initiated business there in 1990, the chain is doing well. So well, in fact, that company spokesmen expect a further 75 restaurants to open this year.
Most McDonald's restaurants are concentrated on China's eastern coast, across more than 40 cities. The capital, Beijing, boasts 67 restaurants, with southern city Shenzhen following closely with 61 stores. Restaurants in Beijing, Shenzhen, Shanghai and Guangzhou account for the bulk of McDonald's sales in China.
Competitors to McDonald's Chinese business include the American-based KFC, which arrived in China years before. The two restaurants have engaged in ice cream price wars, as well as modifying their menus in direct response to the competition. Local chain restaurants have also proved a challenge, in some cases attempting to recruit experienced employees from the two companies.
(Source: ChinaOnline)
Louisville Pizza Chain Chooses China
Bearno's Little Sicily's establishment of two of a planned 40 franchises in China marks the first international expansion of the company.
Company CEO Joe Steier raised funds for the initiative by having U.S. Hospitality International purchase the Chinese rights. Bearno's is ensuring that the pizzeria's American standards are upheld in China by sending some of the managers from its Louisville, Kentucky, base to train their Chinese counterparts and by creating a worldwide vendor and supplier network.
The Chinese outlets are generating about 25 percent more sales than their average American counterpart.
Future Bearno's locations may include Thailand and other Far East nations, says Steier.
(Source: IFA News 01/25/01)
Increased Regulation of Market Transactions
China's current incomplete market transaction regulations lead to frequent contract fraud, smuggling, illegal brokerage, and other unlawful transactions, said Wang Zhongfu, Director of the State Administration for Industry and Commerce (SAIC), in a recent interview.
The SAIC has responded to this problem by taking efforts to strengthen the management and standardization of market transactions. Aspects to be implemented include:
1. A crackdown on the manufacture and sales of counterfeit products and regulation of production and operation activities.
2. Strengthening the protection of consumer rights, especially in the service industry, and the establishment of a complete and efficient enforcement system of consumer rights protection.
3. Strengthening the supervision and management of the transaction of grain and other vital commodities.
4. Strengthening the supervision and management of contracts, and cracking down on fraudulent actions in the purchase and processing of contracts.
5. Strengthening brokerage management.
(Source: Xinhua News 01/28/01)
Lehman Lee & Xu
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