"China: Implications for Corporate Investment Strategy"

May 21, 2002

Mr. Dhanin Chearavanont
Chairman & CEO, Charoen Pokphand Group (Thailand)

Mr. Chairman,
Ladies and Gentlemen:

I am very honored to be here today, together with all of you, to discuss the impact and change brought on Asia following China's accession to the World Trade Organization.

In the year 2001, China attracted forty six billion dollars' worth of foreign capital, the highest ever recorded. This has attracted the attention of the countries of Southeast Asia, Asia and the rest of the world. In fact this figure is not really very big. In the same year China's own aggregate investment reached four hundred fifty billion dollars, with the amount of foreign capital being absorbed amounting to but ten percent. Looking at the picture as a whole, the proportion of ten percent has been steadily maintained during recent years which means there is still considerable room for foreign capital expansion.

The advantage of China's attraction of foreign investment lies with its huge market. Not only are foreign enterprises able to sell domestically, they can also use China as a production base for export to other countries. China has a sizable, multi-tiered talent pool, from common production workers to highly skilled technicians, which can fulfill enterprise requirements. The reformed Chinese national constitution confirms the legal standing of private enterprises in the country, which provides a legal guarantee for, and accelerates their development thus consolidating the China market. These privately-owned enterprises cannot be regarded simply as competitors of foreign enterprises, but also as collaborators providing mutual support and complementary development. The continuing legal reform following the WTO entry which provides an even more stable environment further benefits the attraction of foreign capital. Naturally, China's absorption of foreign capital faces certain inadequacies such as the incompleteness of China's rules and laws as well as certain occurrences of unrationalized competition.

Coming to China to invest, one has to note the following: one must bring along first-grade technology and products. Ordinary products easily lose out to Chinese enterprises. More seriously, various large enterprises of the world today are producing in China. One therefore is not simply competing with and againt Chinese enterprises, but against the world's more powerful enterprises, in the Chinese market. Zheng Da's or Charoen Pokphand (CP)'s investments adhere to the principle of "Three Benefits", namely benefit to the Chinese nation, the Chinese people and to the company and its staff. This is the reason for the success of the CP Group in China.

With regards the trend for the growth of foreign capital in China, China's market, benefiting from the policy of internal demand stimulus, has been steadily growing in recent years. China has a population of 1.3 billion. During the next ten years, if only ten percent of this population would reach the income level of Japan, the internal demand market of China would exceed that of Japan. And if twenty percent of the population reached the income level of the United States, China's purchasing power would exceed that of the United States'. This is because the remainder of the Chinese population still have to eat, wear clothes, live and travel. This continually expanding Chinese grand market provides a good opportunity for foreign enterprises and this growth trend will be maintained over a considerably long period of time.

Regarding the question of whether China's attraction of foreign capital could lead to a "hollowing out" impact for Asian and other countries, I believe that such an effect has in fact been around for quite some time. When China started her reform, she in fact began to "hollow out" investment from Southeast Asia. Not only was the capital originally intended for other Asian countries been partially diverted to China, even the domestic investment of these countries was shifted to China. First it was the Hongkong and Macao entrepreneurs who invested in Mainland China, followed by the Chinese from Southeast Asia and Taiwan.

In my view, China's economy today is more beneficial to Southeast Asian countries than before. Previously, China was impoverished; its level of productive development low. China could only compete with these Southeast Asian countries on the same production plane, attract the same sort of investment, produce the same kind of goods, compete in the same market. Now China is becoming more wealthy. Not only does China export, she also begins to import from these Southeast Asian countries. The Chinese people are now rich, and can afford Southeast Asian products as well as travel to Southeast Asian countries for tourism. Chinese enterprises have become rich, and they are able to invest in these countries.

We should not be concerned about a wealthy China. The wealthier she gets, the more beneficial it is to the world, especially to Southeast Asia. A poor China offers Asia not a single benefit. "Beggar Thy Neighbor" is outdated thinking. One must be good at utilizing others' markets to stimulate one's own economy. Is it not true that many countries have stimulated their own wealth by utilizing the US market because the United States is a wealthy country? The wealthier China is the better. The bigger the "cake", the better, so that we can all enjoy it. You have only yourself to blame if you fail to benefit.

Commenting on China's domestic enterprises, in my opinion the Chinese state-owned enterprises will definitely reform further. State enterprises in nations around the world are large in size but few in number. The same will happen in China. Meanwhile China's private enterprises will speedily increase and become stronger. Their development is similar to Taiwan's, but conditions for their development are even more favorable. This is because Taiwan in those days did not have so many multinational companies investing there; neither did Taiwan possess such a big market. Looking at the development situation of Taiwan's medium and small enterprises today, one can picture an even bigger development for the private enterprises of Mainland China. Cooperating with these Mainland Chinese private enterprises can take several forms including production matching, trading, and not only joint venture. And if wholly owned investment is beneficial, so be it.

The CP Group was among the earliest of foreign investors to invest in China. After more than twenty years, following China's reform opening, we have basically completed our China investment layout and have established the basis for the next steps in our investment development. The next ten years will be a period of "harvesting".

Following China's accession to the WTO, the CP Group has grown even more confident about investing in China. We believe the Chinese authorities will fulfill their pledges and adhere to international practices, in order to establish for foreign businessmen an even more favorable investment climate. The Chinese government can only benefit from this. The better the investment climate, the more investment can be attracted., which contributes more to the country's tax revenue collection. This naturally benefits local governments and the people. This is how the United States' emergence and success has been fashioned: by absorbing the world's talent and capital.

The future investment of the CP Group in China will be in the agrifoods industry which is our core business, while endeavoring to establish further processing and branding. Products which we produce are the "energy of humankind". Such an industry will never become obsolete. In China we also own a bank and a finance company, the headquarters of which are registered in Shanghai. They principally service small and medium-sized enterprises. We have already invested in the retailing and logistics business in China which we are looking to further develop. China's enormous internal demand market makes distribution and service business a great investment opportunity. At present China already has a good communications and transportation network, but is still in need of a good logistics system and structure in order to lower production costs. Logistics is the essential vital foundation for the development of internet and e-commerce. The opportunity for investing in logics and distribution business is here. The future direction of the CP Group's development in China will use its retailing business as core to further expand our chains of hypermarkets and fast food restaurants, and to complete our retailing network and distribution center.

The CP group is filled with hope and confidence in the future of China and Asia. China's development will propel the development of Asia as a whole, thus strengthening the common prosperity of Asia and entire world.

Thank you.

Titles of speakers, names of companies, etc., were correct as of the time when the forum was held.