CHAPTER II : Business environment.

Economic outlook

Key Economic Indication

China's economic reform has stepped into the 21st century. Experiencing more than 20 year, great changes have taken place in all aspects of social and economic life in China. Currently, government makes great efforts to push on industries construction optimizing and western development. At the same time, China has been realizing two transforms. One is the change form a state-run and planned economy to a market-oriented economy, and the other is the change of production condition from using land, labor, and capital to expand production to using technology and science management. As stated above, China's GDP has grown at 14.4% per annum for the past decade. And the growth rate is projected to increase about 7% each year by the end of 2007. Rapid urbanization is changing the labor force considerably. Farmers are giving up low profit farming for jobs in the cities. New industrial townships began to emerge throughout the country. The national industrial output has grown at 16.2% annually in the past decade. In major cities along the coast industrial output grows at the rate of over 20% per annum. Total agricultural output value reached 1,521 billion yuan in 2002, growing at 10.1% in the past decade. It is projected that the output will be 1,607 billion yuan by 2007. The tertiary industry grew most quickly in the past decade. The growth rate was 14.3% and the output value reached 3,485 billion yuan by the end of 2002. Since China has paid much attention to the development of tertiary industry, it is projected that the output will reach 5,882 billion yuan by 2007.

The fast economy growth has made China enter a buyer-market economy. Major historical changes have also taken place in the balance with market supply and demand, in the environment for economic development and in external economic relation. In 1997, China government successfully restrained the inflation, which made the over-heated economy realize soft-landing. Beijing has succeeded in winning its bid to host the 2008 Olympic Games. This coupled with the imminent accession to the World Trade Organization will add impetus to China's reform, opening-up and economic development. Though the world economy has experienced the flat phase, China's foreign investment and trade had been growing. Total foreign trade reached 530.8 billion US dollars in 2002. The repertory of foreign exchange reached 322.5 billion US dollars by the end of 2002. Given its vast market and one-fifth of the world's population, Chinese market will remain a hotspot for foreign investment and trade in the world. Its economic growth will continue to remain strong through the beginning of the new century.

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Industrial Output

Reviewing the 10th Five-year Plan of China, economic and social development reached great achievement. China's industry has a significant development and become competitive in the international market. China's industrial output has been growing by 16.2% annually in the last ten years. The industrial output in 2002 reached 5,235 billion yuan. Industrial output in some coastal cities has been growing at over 20% each year. Since Deng Xiaoping endorsed the reform success in southern regions, China's market-oriented reform has accelerated in the rest of the country. The Chinese government has realized the objectives of getting most of the large and medium-sized state-owned enterprises out of difficulty by the end of 2002, which is only a temporary target. Most important is to build up a modern corporate system, promote shareholding and strengthen scientific management. The output of state-owned companies has grown at 5.7% annually and reached 1,080 billion yuan (130.6 billion US dollars) in 2002. The total industrial out by the state sectors will be 971.3 billion yuan in 2007. But state-owned companies will continue to dominate key industries, such as energy, raw materials, petroleum refining and transportation.