Parts suppliers play a big role in determining where new factories are built.

By LOUIS UCHITELLE
BENTON HARBOR, Mich. - Who is the biggest exporter of German-made washing machines to the United States? Not Miele or Bosch-Siemens, or any other German manufacturer. It is the American appliance maker, Whirlpool, the company proudly reports.

Never mind the higher labor cost - $32 an hour, including benefits, versus $23 in the United States. The necessary technology existed in Germany when Whirlpool decided to sell front-loading washers to Americans. So did a trained work force and a Whirlpool factory already making a European version of the front loader.

“We were able to expand the capacity in Germany at a very incremental investment,” said Jeff M. Fettig, Whirlpool’s chairman and chief executive. “It was the fastest way to the American market.”

Globalization is often viewed as a rootless process of constantly moving jobs to low-wage countries. But the issue is more complex, as illustrated by Whirlpool’s worldwide operations. What attracts Mr. Fettig and other chief executives is a relatively new form of globalization that emphasizes first-rate centers of production and design in various countries - including the United States.

Whirlpool’s global network, a work in progress, includes microwave ovens engineered in Sweden and made in China for American consumers; stoves designed in America and made in Tulsa, Okla., for American consumers; refrigerators assembled in Brazil and exported to Europe; and top-loading washers made at a sprawling factory in Clyde, Ohio, for American consumers, although some are sold in Mexico.

“The really sophisticated multinationals,” said Diana Farrell, director of the Global Institute at McKinsey & Company, the management consulting firm, “are taking advantage of the different locations in their global networks without worrying about whether they also sell in the countries where they produce.”

The advantage of Whirlpool’s approach to globalization is that it allows the company to put the earnings of overseas affiliates to their best use anywhere in the world, Ms. Farrell argues. The larger consequence, she adds, is that parent companies “invest in new technologies and business opportunities that will eventually create new jobs at home and abroad.”

At the moment, the job growth and the expansion are mainly abroad. As its turns out, more than 40 percent of the nation’s imports are from the overseas subsidiaries of American companies, contributing to the lopsided trade deficit%

By DAVID BARBOZA Published: June 15, 2005 in New York Times

SHANGHAI, June 14 - The Chinese government is considering creating a $15 billion fund to help bail out the nation’s ailing stock market, according to a senior government official and people told of the proposal.
The creation of a huge fund to invest in mainland stocks would be the government’s most striking effort yet to prop up share prices and try to restore confidence in a market that has fallen to its lowest level in about eight years.

The proposal comes at a time when China’s economy is sizzling hot, but the nation’s Communist Party leadership is struggling to fix a stock market that has been broken for several years.

The Shanghai and Shenzhen stock exchanges, where about 1,400 state-owned companies are listed, are each down 40 to 50 percent from the highs they reached in 2001. In recent months, struggling brokerage houses and large investors have been aggressively lobbying for a government bailout fund.

Government bailouts have a weak track record, however, and the proposed support is unlikely to nurse the growth of the capital markets here. When authorities in Hong Kong and Tokyo stepped in to aid their local stock markets, the moves only provided a short psychological lift and failed to produce a sustained turnaround.

Analysts say the government is considering the huge bailout proposal because the market has fallen so sharply in the last year that some government officials fear a bigger drop could seriously impede the long term development of China’s financial markets. (more…)

Fears that capital being kept overseas could flood back into the country

China has stepped up its efforts to set up a more flexible foreign exchange regime, fearing that capital being kept overseas could flood back into the country, the central bank said Tuesday in its annual report.

The central bank’s comments did not suggest any imminent, sudden change in policy. However, they appear to make a case for urgent reform of the foreign exchange policies, which keep the Chinese currency, the yuan, trading within a narrow range around 8.28 yuan per U.S. dollar.

Some of the capital that has left the country in the past decade is “unstable,” and could shift back into China “at any time, putting pressure on the yuan exchange rate mechanism, buffeting domestic financial markets and insidiously affecting financial stability,” the report said.

The central bank did not say how much money it believed could potentially flow back into the country. However, it said China recorded net capital outflows each year from 1994 to 2003. The accumulated net outflow for those years was 1.72 trillion yuan (US$208 billion; Euro172 billion), the annual report showed.

The bank said it had intensified studies on setting up a more flexible foreign exchange system to handle a “reasonable” level of foreign exchange from companies and individuals.

The United States and other trading partners have lobbied China to let the Yuan’s value rise. It has been fixed for the past 11 years. They contend the yuan is undervalued by as much as 40 percent, giving Chinese exporters an artificial price advantage overseas.

- Xinhua/Agencies

Says World Bank Report

WASHINGTON, June 15, 2005 “ More than ever, the future of East Asian countries depends on the capacity and performance of local and provincial governments, according to a new World Bank report, East Asia Decentralizes “ Making Local Government Work, launched online today at http://www.worldbank.org/eapdecentralizes .

Over the past two decades, sub-national governments have taken on core responsibilities for raising and spending public money and for providing critical services and infrastructure. Decentralization has also unleashed local initiative and energy, with new ways to deliver services to people. With great potential for continued improvement and innovation, the report says, it is essential that decentralization is done right.

Reform is happening rapidly in almost every country, said Homi Kharas, Chief Economist for the East Asia and Pacific Region. Demands for government accountability on the local level are on the rise as people look more and more to their local and provincial officials and institutions to improve education, health, and other public services. The key now is to ensure that government delivers for people and for the economy.

The report, which focuses on six countries, notes the differences in the approach to decentralizing government in Cambodia, China, Indonesia, the Philippines, Thailand, and Vietnam. The systems chosen are quite different but with some shared features that the report uses for comparisons. In some cases, like in Indonesia, decentralization was a rapid process or a “Big Bang.” In others, like Vietnam and Cambodia, the process has been much slower.

(more…)

Enhanced accountability, shareholder rights & relaxed restrictions on raising capital

Squire, Sanders & Dempsey L.L.P has reported in their CHINA LAW UPDATE JUNE 2005 that several significant revisions to PRC Company Law have been proposed.

• Transparency and accountability of boardroom operations enhanced. Improved transparency and accountability include:
  > disclosure of directors’ salaries and other benefits
  > shareholders will be permitted to take joint legal action against the company and
  > at least one-third of the board be independent.
• Rights of minority shareholders enhanced. Shareholders who collectively hold 10% or more will be entitled to call for an interim shareholders’ meeting, while shareholders with – collectively – as little as 3% or more will be entitled to have matters placed before the board of directors.
• Relaxation of restrictions on raising capital. The raising of capital in the marketplace is to be eased, with the existing minimum share capital requirement of RMB 50M set to be reduced to RMB 30M.

Information from an articla by – Diarmuid O’Brien CHINA UPDATE JUNE 2005 SQUIRE, SANDERS & DEMPSEY L.L.P. WWW.SSD.COM