CHINA FRANCHISE NEWS
Vol. 4 , No. 2 - February 25, 2003
TOPICS THIS ISSUE:
- Holiday policy does little to change consumptions patterns
- Largest mainland media group set for stock market listing
- Wal-Mart boasts "win-win cooperation" with Chinese manufacturers
- Chinese Restauranteurs get fat on people eating out
- Hualian plans hypermarket expansion
- Sogo to open Shanghai store
- Franchise chain operations boom in China
Holiday policy does little to change consumptions patterns
The level of consumption is one of the weakest links in China's economy. One way of rectifying this problem is by changing consumptions patterns, which has been done through the granting of more holidays to workers. The Chinese Lunar New Year is the largest holiday season in China and since 1999 employees in the cities are given more time off in order to boost the consumption but it is not clear if this policy has had the desired effect. It is indisputable that there is an effect but it may be marginal and not necessarily long-term, analysts say. One reason for this is that many workers who come from the outside Beijing often need to help their families financially by sending money home rather than spending it themselves. This is exactly where the problem lies, the holiday policy does not accurately target the root of the problem, which is the low level of consumption in the country side accounting for the under performing retail sales.
Statistics show that spending in the cities rose by 8.8%, a good number by itself but perhaps not in relation to the size of China. 10% or more would be more desirable, especially since the Chinese development is rapid and many people are lifted out of poverty each year. In the countryside spending in November rose by some seven percent compared to the cities, where the number was 10.4 percent in the same month.
Economists argue that rather than changing the amount of consumption the holiday policy simply changes the timing of it, for example from January to February The relatively slight change in consumption patterns over the holidays can also be attributed to the attitude of shop owners, who in some cases are reluctant to keep normal opening hours in order for the staff to also be able to take holidays.
The record seems to be mixed. On the one hand retail sales had a boost during and in the months surrounding the May holiday last year (reaching 38.6 billion dollars). On the other hand sales during the national holiday in October were actually lower (seven billion Yuan lower than the following month).
The Chinese government needs to take down further existing barriers in order to boost consumption long-term. Barriers that need to be taken down include ordinary Chinese running into problems when wishing to purchase a plane ticket or borrow money to buy a car. The economy should not be restricted; instead it should be let to grow to its potential.
(Source: Agence France Presse)
Largest mainland media group set for stock market listing
Following its management reorganization, Guangzhou Ribao, mainland China's largest mass media group, has made new progress in its plan to have its shares listed on the stock market. According to sources close to the CCP Chinese Communist Party Central Committee Propaganda Department, Zhong Yangsheng, Director of the Propaganda Department of the Guangdong Provincial CCP Committee, recently visited the CCP Central Committee Propaganda Department to discuss the stock market listing case.
All mass media enterprises in Mainland China are required to obtain approval from both the CCP Central Committee Propaganda Department and the Securities Regulatory Commission (CSRC) before getting their stocks listed on the stock market. It is particularly difficult to get the Central Propaganda Department's approval. Newspaper editorial operations have so far never been open to market listing. During a national meeting this year of information bureaus, a decision was made to open up China's books- and periodicals retail market to foreign-funded enterprises. In connection with this, the State Press and Publications Administration promulgated relevant regulations to let China-based book and periodical publishers as well as related advertisement operations directly apply for stock market listing.
In September 2000, acquired the holding company Qingyuan Jianbei, which is a listed company authorized for over-the-counter trading in mainland China. Through the acquisition Guangzhou Ribao obtained access to the capital market. At present, the company has issued a total of 200m shares. After an agreement between the Securities Supervisory Commission and the Guangdong Provincial Government, the company is entitled to move its dealings related to negotiable shares to Shanghai. Guangzhou Ribao owns Asia's largest printing facilities. In six consecutive years from 1996 to 2000, Guangzhou Ribao's advertisement income and profit both topped the newspaper sector in China and ranked second among other mass media enterprises in the country, second only to China Central Television. Guangzhou Ribao's listing efforts were halted last March when its former director, Li Yuanjiang, was investigated and at that time the listing process came to a halt.
Following its acquisition of Qingyuan Jianbei, Guangzhou Ribao incorporated its newspaper printing operations, Dayoo Cultural Chain Stores and part of its authorized advertisement sale agent operations in Qingyuan Jianbei. Guangzhou Ribao's annual business turnover is now over 3bn Yuan, of which 1.5bn Yuan is the income and 500m Yuan the profit derived from its advertising operations. So far, Guangzhou Ribao has incorporated a total of more than 150 chain stores in the Qingyuan Jianbei Dayoo Cultural Communication Network. Currently, Guangzhou Ribao's circulation is over 1.6m copies per day. It may eventually incorporate its whole distribution network, advertisement operations, and its printing facilities in Qingyuan Jianbei.
(Source: BBC News)
Wal-Mart boasts "win-win cooperation" with Chinese manufacturers
The world's largest retail giant Wal-Mart bought goods worth over 12bn US dollars in China last year now boasts of a win-win cooperation with the country's manufacturing industry. Wal-Mart, with sales of 217.7bn US dollars, ranked first in Fortune magazine's world top 500 companies in 2001. Last year, it reported global sales of 245bn US dollars.
The value of Wal-Mart's direct and indirect purchasing in China jumped from 2bn US dollars in 1998 to 10.3bn US dollars in 2001, making China its major buying base. In February 2002, Wal-Mart established its global purchasing center in Shenzhen to take charge of 200bn US dollars worth of purchasing. Last October, the purchasing center set up another branch in Shanghai.
Having built a comprehensive network of suppliers in the Yangtze River Delta and Pearl River Delta among China's most developed manufacturing industries, Wal-Mart regards long-term bulk buying as beneficial both to itself and to China. More Chinese goods could be sold through over 4,600 Wal-Mart chain stores worldwide, said one of the retailer's senior managers.
The commercial goods Wal-Mart buys in China mainly include tools, shoes, clothes, furniture and electronic products. Many labor-intensive small and middle-sized domestic companies have gained valuable experience in dealing with international trade through cooperation with Wal-Mart. Meanwhile, their ability to upgrade their products and competitive edge have also been boosted.
(Source: BBC News)
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Chinese Restauranteurs get fat on people eating out
Statistics show that increasing numbers of people in China ate out last year, fattening the pockets of restaurant owners. Private consumption holds the primary position in the market as more than 80 percent of consumers are ordinary people," said Li Mingde, general vice director of the China Cuisine Association. Restaurant owners appear to have quickly reacted to the changes, developing specialty dishes to meet customer demands. Price seems no longer to be the determining factor on restaurant usage, instead brand, service and environment has come into the equation.
The China Daily reported that the restaurant sector earned 508 billion Yuan (61 billion US) last year, up 16.3 percent from 2001, quoting China Cuisine Association figures. The growth was double the expansion of China's gross domestic product and was attributed to a booming economy and stable social conditions. The association predicts that overall the market will continue to expand in 2003 with a target annual income of 580 billion Yuan (70 million US dollars), a 16 percent rise.
While 79 of China's 100 largest cuisine companies have opened chain stores in major cities, the outlook is not as rosy for smaller operations, which face severe challenges in food safety and credit. Many restaurants close soon after opening due to poor management or insufficient market research.
Adding to smaller restaurant's difficulties is that domestic restaurant giants have started cooperating with each other to cultivate well-known brands and cut costs.
(Source: Xinhua News Agency)
Hualian plans hypermarket expansion
Hualian is China's second largest supermarket chain with over 1,000 supermarkets nation wide. Sales last year reached 15 billion Yuan. Their main domestic competitor, Lianhua Supermarket recorded sales of 16 billion. Hualian is planning to invest 600 million Yuan in 20 new hypermarkets as a way to meet foreign competition. Other plans include opening hundreds of supermarkets and convenience stores. With the WTO regulations changing the foreign ownership limits in the retail sector foreign competition is likely to grow massively. Currently Hualian has 11 hypermarkets, which are on average 8,000 sq. m large and roughly 10 times the size of their supermarkets. Moving into the hypermarket business in this big way will put them into direct competition with France's Carrefour and Wal-Mart of the United States, which already operate - respectively - 27 and 20 hypermarkets in China. Hualian is listed in Shanghai and plans to finance the hypermarket expansion by issuing 70 million new A-shares after approval of the shareholders.
Hualian believes that is has an advantage over the foreign companies in the market and are not too rattled by the prospect of competition. Advantages include lower sourcing costs and flexible investment strategies in terms of familiarity with China's business environment. Hualian's plans are to open in cities such as Beijing, Hangzhou, Nanjing, Qingdao, Shanghai and Tianjin. In direct competition, Wal-mart is planning to open its first Shanghai store soon and is the process of discussing a few more in that area. They also plan to enter the Beijing market.
(Source: South China Morning Post)
Sogo to open Shanghai store
Sogo, the Japanese retailer is planning to open its first store in Shanghai's Jingan district. The store is scheduled to be opened in September this year through the Hong Kong Subsidiary and will be the first one that is managed by that subsidiary directly. In shanghai 20 of the world's top retailers have a store and Sogo will be ranked as number 10 with an area of about 50,000 sq. m, housing boutiques, a department store and a supermarket.
New Sogo in Shanghai will, according to rumours accentuate the Japanese roots of the store by using Japanese style decorations, keeping Japanese-made goods "at a certain level," including a special section for discounted Japanese goods.
(Source: China Online)
Franchise chain operations boom in China
Recent years have seen a significant development in the franchise chain (FC) operation.
Statistics provided by the China Franchise Operation Association show that by the end of July 2002, China had opened more than 1,000 FC businesses in more than 50 sectors, up 40%. Experts attribute such unprecedented development to the high-speed growth of Chinas national economy, to the improvement of people's living standards and to the higher demand of people. An increase in people's income is also a contributing factor. The per capita GDP is close to 4,000 US dollars in Beijing, Shanghai and Guangzhou and their neighboring areas. Meanwhile, there are flocks of high-income earners also in other areas. These people have accumulated large amounts of money and are seeking investment forms and for many of them, to invest in FC businesses is a good choice.
Furthermore, after China joined the World Trade Organization (WTO), multinational retail giants have accelerated the pace of entering into the Chinese market. Under such circumstances, Chinese chain enterprises also speed up the pace of expansion. According to experts, FC businesses require little investment but yield quick returns. Another positive factor is that it can be utilized as a low-threshold and effective way for laid-off workers to get re-employed. In recent years, Chinese chain enterprises seeking expansion by way of FD operation in recent years have already absorbed huge amounts of social capital as well as created many jobs. The top 100 Chinese chain enterprises have so far opened 5,400 outlets and employed 110,000 workers, averaging 20 jobs for each outlet.
(Source: Xinhua News Agency)
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