Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Volume 32, 1 July 30 September 2006 Recent Business Highlights Visitors to PEP-China People Among Us Coming Up Soon PEP-China Starts 2nd Cycle or "Extension beyond Sichuan ; PEP-China and NDRC Release Findings of a Survey on SME Financing; NPC Drafting Group Meets again to Review Leasing Law; PEP-China Working to Set Up Green-field MFI in Nanchong; Second Phase of Secured Transactions Reform in China Launched; Examination Syllabi on Risk Management and Financial Planning Published; Business Plan for NCCB Small Business Lending Completed; Xi an CCB Credit Risk Management Project Launched; Launch of China Corporate Governance Portal Website; Dairy Linkages Project Benefits Dairy Industry in SW China; CHUEE Program Orientation Session Held in Beijing; Survey on the Sustainability Performance of Chinese Enterprises Completed; Local Business Trainers receive training by International Experts on Training Needs Analysis and Coaching; Doing Business 2007: How to Reform launched in China; Sub-national Doing Business Study to be Launched; Eco-tourism VCA Kick-off; Sichuan Cluster Development Project Conducted Field Work; Mr. Mark Nielsen, Ms. Irina Niederberger, Mr. Wu Jinkang, Mr. Tang Minglong, Mr. Huang Chengyi, Mr. Ronald Kopicki, Ms. Xiaolun Sun, Ms. Teresa Barger, and Mr. Peter Taylor Junxiu Liu (Jenna), Team Assistant, CHUEE 38785 Signing of MoU between AusAID and IFC; Donor Meeting to be held 8 December in Chengdu; International Symposium on Small Business Lending to be held in Hefei; The second batch of credit workshops for XACB; Market survey scheduled in Chifeng for a MFI pilot; A conference on the Insolvency System of Financial Institutions planned in Beijing; Business Edge Train-The-Trainer scheduled in Chengdu; Kick-off event between CHUEE and Industrial Bank in Fuzhou. Page 1 of 11
Recent Business Highlights PEP-China launches 2nd Cycle or "Extension beyond Sichuan"... 1 July 2006 marks the official beginning of the second five-year cycle of PEP-China. Following earlier commitments by DFID and IFC, AusAID made a decision to support the extension of PEP-China with a contribution of A$3.4 million. In its second phase, PEP- China will continue to focus on promoting sustainable private sector development and SME growth in the less-developed areas of China. It will continue to work in four main areas: (a) access to finance for under-privileged groups, especially micro, small, and medium enterprises; (b) improving the sustainability performance of China's private sector, including environmental and social standards, energy efficiency, corporate governance, and SME linkages; (c) building management skills for SMEs and rapidly growing family firms; and (d) improving the Business Enabling Environment for private sector growth in key sectors and areas. PEP-China will continue to focus on Sichuan and other less-developed Western provinces, but will seek to extend its impact by addressing systemic and policy-related issues that are of nationwide relevance. Access to Finance PEP-China and NDRC Release the Findings of a Survey on SME Financing The SME Department of the National Development and Reform Commission (NDRC) and PEP-China jointly released the main findings of a survey on SME financing in China through a workshop held in Beijing on August 29. This is the first nationwide survey which specifically focused on access to finance from an SME perspective. Among others, the survey found that financing is the single most important constraint for more than 70% of SMEs. The enterprises also indicated that an inability to provide security acceptable to banks is the most serious issue. Over 42% of them believe that greater use of movable assets as security would improve their financing situation. The results of the survey confirmed the findings of another survey of lending institutions conducted by PEP-China and PBOC last year. The Beijing workshop was attended by more than 120 representatives from across the country. The findings will help to provide directions for the work of the SME Department of NDRC and other government entities in the next few years. (News contributed by the ATF team) Page 2 of 11
NPC Drafting Group Meets Again Over the Leasing Law in Bei Dai He In August, PEP-China and the NPC Finance and Economic Committee organized the third review of the latest draft of the Leasing Law in Bei Dai He. The draft has made significant progress in incorporating best practice contents, including a better definition of rights and responsibilities of the three parties in a leasing transaction, reduced regulatory burdens, and an article on repossession. The law is expected to be passed in March 2007. In September 2006, PEP-China also co-sponsored the fourth China Leasing Industry Forum in Beijing where, among others, a senior member of NPC announced the opening up of the leasing industry to the banking sector. This has been promoted by PEP-China for some time and the provisions are already in the draft law. Chinese news media hailed this as an important policy breakthrough. During the Forum, findings from the review of the tax treatment of leasing were also presented. (News contributed by the ATF team) PEP-China Working To Set Up a Green-field MFI in Nanchong PEP-China continues to work closely with the local authorities and PlanetFinance/MicroCred to set up a MFI pilot in Nanchong, Sichuan. In September, the CEO of MicroCred, Arnaud Ventura, visited Sichuan to clarify the company establishment issues. Several potential investors have expressed interest to invest, including international financial institutions. The pilot is currently waiting for the final approval by the Provincial government. If successfully established, this would be the first foreign-invested commercial MFI in the country. In the meantime, PEP-China is also launching a market survey in Inner Mongolia in preparation for the setting up of a second foreign-invested pilot to be led by Accion International. The role of IFC PEP-China in the microfinance pilot initiatives is highly visible in the country and in the international microfinance community, and should make a major contribution to the emergence of a commercially sustainable microfinance industry in China. (News contributed by the ATF team) Page 3 of 11
The Second Phase of Secured Transactions Reform in China Launched Since early 2004, PEP-China has been working with FIAS and PBOC to promote the reform of the secured transactions framework in China. This high-profile initiative has led to a change in the mentality of regulators and bankers in the financial industry, and resulted in the incorporation of a number of recommendations into the Property Law. The three cooperating parties recently launched the second phase of the project with strong support from the Chinese government. The second phase will focus on the development of receivables financing, including the creation of a receivables registry, and the review of security interest enforcement system. In September 2006, a team of PEP- China, FIAS and PBOC conducted field missions to Beijing, Shanghai, Hangzhou and Xiangtan. The team evaluated four potential host agencies for the receivables registry and interacted with a range of stakeholders about what needed to be done in order to promote movables financing. While in Zhejiang, the team was pleasantly surprised to find that the local banks have already rolled out receivables and inventory financing products in recent 1-2 years in anticipation of a better policy and legal environment. In Xiangtan, the team also supported the conduct of a national Symposium on Lending Secured by Intellectual Property (IP) organized by PBOC and the State Administration of Intellectual Property. As an intangible asset, IP can be included as a basis for lending decisions. (News contributed by the ATF team) Examination Syllabi On Risk Management And Financial Planning Published Since December 2005, PEP-China has been supporting the certification program of the China Banking Association (CBA). During the quarter, PEP-China secured US$300,000 from IFC s Capacity Building Fund (CBF) to assist the development of a banking competency certification system in China. This grant, through PEP-China, is much appreciated by the stakeholders, and complements two other grants from the Hong Kong Banking Association and Singapore s Temasek for the same purpose. The CBA published the examination syllabi for the first two pilot positions, i.e., Risk Management and Financial Planning in August 2006. This is an important milestone in the banking history of China. A Committee of Page 4 of 11
Experts has also been set up recently under CBA s Certification Committee. An IFC Banking Specialist was appointed as a member of the Committee. (News contributed by the ATF team) Business Plan for NCCB Small Business Lending Completed Under the downscaling project for Nanjing City Commercial Bank (NCCB), PEP-China completed a Business Plan for the development of a lending line to small enterprises. This was based on the fact-finding mission conducted in April and September 2006, respectively, as well as a market survey in Nanjing. The market study was fully funded by the bank itself while PEP-China provided guidance and the survey instrument. The business plan highlights the market potential, possible business models, and the required organization structure and processes for effective small business lending. On this basis, PEP-China will implement a multi-year TA project to the bank to increase the proportion of small business lending to about one third of the portfolio. In recent efforts by the authorities to promote small business financing, NCCB has stood out as a committed local bank with a clear vision for the business, thanks in part to IFC s and PEP-China s continuing work with this institution. (News contributed by the ATF team) Xi an City Commercial Bank (XACB) Credit Risk Management Project Launched The project aims to strengthen the risk management system of XACB, one of the largest city commercial banks based in the western part of China. This project is mostly funded by the Swiss Government through trust funds. In July-August 2006, PEP-China and a Swiss consulting firm successfully delivered a three-day credit risk management workshop in the bank, and conducted an initial analysis of their existing system. The diagnostic report has now been prepared, which generated a series of recommendations to improve the bank s risk management processes and structure. Among others, the project is expected to result in a re-building of the bank s risk rating system for corporate lending. (News contributed by the ATF team) International Best Practice In Credit Card Business Introduced To Sichuan Banking Community Credit cards are rapidly growing business in China s banking sector. The healthy and effective development of this industry will not only enhance lenders profitability but also improve SMEs access to finance. To introduce international best practice in the development and risk control of credit cards to the local banking community, PEP-China held a workshop on August 31, 2006 in Chengdu. Mr. Frank Xu, Vice President of Citi Analytics, a consulting arm of CitiGroup based in New York, was invited to make a presentation at the workshop. Over 30 participants from local banks, the branches of national banks, regulatory agencies and training institutions attended this event. (News contributed by the ATF team) Page 5 of 11
Sustainability Launch of China Corporate Governance Portal The China Corporate Governance Portal Website was completed in September 2006. The website provides easy access to Corporate Governance resources for Chinese enterprises and other interested organizations to raise their awareness and understanding of Corporate Governance. The key components of the CG Portal are the Corporate Governance Tools and Cases developed by IFC/World Bank Corporate Governance Department. The CCGP website also contains materials gathered from major international and domestic research and educational institutions, relevant articles and publications, etc. The China Corporate Governance Portal (CCGP) website is now available at www.cgchina.org. (News contributed by Liu Min, Operations Analyst, CSR Team) Dairy Linkages Project Benefits Dairy Industry in SW China PEP-China finished the Train-the-Trainers (TTT) component for the Linkage Project with New Hope Dairy and Jule Dairy in August 2006. About 400 participants from the two dairy companies and government extension services attended the training starting in February 2006. The training evaluation reports indicate an average satisfaction rating of 4.25 on a scale from 1 to 5. The participants will play a key role in technical extension to individual farmers. After the TTT, it is planned to develop 50 model farmers in Dali, Yunnan province. These model farmers will receive regular advice from consultants and technicians. At the same time, a farmer-friendly handbook on dairy farming is being developed. The content of the handbook will be finalized in November. The handbook will be published and disseminated to some 10,000 dairy farmers. In parallel, the corporate demonstration farm component in Sichuan is to focus on the corporate farm and large-scale farm management with advice from Dutch consultants, since dairy farms are of relatively bigger scale in Sichuan than in Yunnan. (News contributed by Fan Longqing, Operations Officer, Sustainability Team) CHUEE Team Orientation Session Held in Beijing After nearly three months recruitment campaign, most of CHUEE team members have been on board since mid-september. An orientation session for new team members was held September 25-28, 2006 near Beijing. The four-day event generated good teambuilding, shared understanding within the team, setting timelines for key tasks, and defining clear roles for each team member. Project Officers from IFC s Environent and Social Department, a colleague from PEP-Russia, IOs from IFC Beijing, Managers from PEP-China, and CHUEE s external consultants were all invited to the first get-together event. Page 6 of 11
The CHUEE team has geared up to work on program marketing, development of the training programs with partners, and networking with other energy efficiency programs being operated in China. (News contributed by Huan Ni, Communications Officer) Survey on the Sustainability Performance of Chinese Private Enterprises Completed Under this Private Sector Development (PSD) Study, the project team successfully completed a comprehensive survey on the sustainability performance of 1,200 enterprises in 12 cities in August 2006. This is the first such comprehensive national survey conducted in China, and is expected to contribute important insights to the PSD study which focuses on corporate behavior in product quality, labor standards, environmental and social practices. Subsequently, over a dozen interviews and focus groups were held in Chongqing and Shunde (Guangdong Province), with assistance from NDRC, in order to better understand Chinese enterprises incentives and performance in sustainability. The analysis of survey data is in progress. (News contributed by the ATF team) Management Development Local Business Trainers Get Trained by International Experts on Training Needs Analysis and Coaching From July 5-11, PEP-China invited the senior international training consultants, Mr. Mark Nielsen and Ms KeKe Qui, to deliver a five-day workshop on Facilitation skills and Coaching skills to build capacity for local individual trainers and training companies in Chengdu. The trainers and training companies gave very good feedback after the workshop, saying that they had benefited from the workshop and started apply the skills learned in their new training courses. (News contributed by Management Development team) Business Enabling Environment Page 7 of 11
Doing Business 2007: How to Reform launched in China China has picked up the pace of its reforms and is among the world s top 10 reformers on the ease of doing business, according to a new report by the International Finance Corporation and the World Bank. IFC Beijing and PEP-China hosted a forum linking Beijing and Chengdu on September 14 to launch Doing Business 2007: How to Reform. Vice President of the World Bank Financial and Private Sector Development and IFC Chief Economist Mr. Michael Klein briefed more than 130 attendants on the key findings of the report and policy implications for China. In the past year, China implemented reforms to speed business registration and trading, ease access to credit, and strengthen investor protection. Specifically, China reduced the time to register a business from 48 to 35 days and cut the minimum capital required from 947 percent to 213 percent of income per capita, making it easier for entrepreneurs to start new businesses. It also established a credit information registry for consumer loans. Amendments to the company law strengthened investor protection against insider dealing. And new online customs procedures reduced the time to import and export. Those efforts make China the top reformer in the region and the fourth best worldwide. However, Mr. Klein said the recent improvement in business regulations is encouraging but should go further. He pointed out that the biggest hurdles facing Chinese enterprises include: paying taxes, obtaining credit, and obtaining licenses. China ranks 93 rd among 175 economies in the overall ease of doing business. (News contributed by Lihong Wang, Operations Officer with the BEE team) Sub-national Doing Business Study to Be Launched PEP-China s BEE team is joining hands with the China Academy of Social Sciences to launch a Sub-national Doing Business study. The project will apply the World Bank s Doing Business methodology to analyze the ease of business regulations in China s provinces and autonomous municipalities. The study will look into five areas - starting a business, registering property, getting credit, enforcing contracts and paying taxes. These areas are selected based on the findings of several other studies, including the 120 City Investment Climate Survey recently completed by the World Bank. The result will provide insights on the administrative barriers that private enterprises face and identify key areas for improvement. It will also help reveal the regional variations in the ease of doing business and provide indications on the reasons for such variations. (News contributed by Lihong Wang, Operations Officer with the BEE team) Page 8 of 11
Eco-tourism VCA Kick-off The Value Chain Analysis on Sichuan eco-tourism took off with its first field mission in July-August 2006. This project, requested by the Sichuan Provincial Government, aims to use VCA as an analytical tool to reveal the cross-cutting policy and strategic issues that are critical to the province s effort to develop its unique tourism potential catering to high-end European and North American travelers. It intends to provide the government with useful benchmarking information and practical recommendations based on international best practice. In October, after the team has processed the initial data, the team will return to Sichuan for a follow-up mission to further engage local stakeholders in discussing the key issues identified and exploring feasible solutions. A draft report will be delivered to a workshop for discussion next January. Its recommendations will provide to the Government of Sichuan the inputs for formulating its policy and strategy for developing the tourism industry. (News contributed by Guofang Liu, Operations Officer with the BEE team) Sichuan Cluster Development Project Conducted Field Work During the quarter, a survey instrument on industrial concentrations was developed in collaboration with the Development Research Center of the State Council (DRC) with inputs from the World Bank and MIGA experts. In July, a tripartite team of PEP-China, DRC and the Sichuan Economic Commission (SEC) made field visits to several industrial clusters in the Province in order to obtain first-hand information. The team was pleased to find that the clustering approach had been embedded well into local development strategies following the dissemination of knowledge by PEP-China and SEC over the past two years. A general survey on all emerging clusters is currently on-going in Sichuan. (News contributed by the BEE team) Visitors to PEP-China Mr. Mark Nielsen, Senior Advisor of Business Edge, visited PEP-China on July 5-11 for delivering TTT in facilitation skills and TNA workshop Ms. Irina Niederberger, Senior Operations officer of IFC, visited PEP-China on July 11-13 to discuss M&E and the Logic Model for PEP-China. Visitors for Workshop of the Electronics / Pork VCA program on July 11: Mr. Wu Jinkang, Director of International Financial Institution Division, MOF Mr. Tang Minglong, Director of Department of Comprehensive Planning Office of the Leading Group for Western Region Development, the State Council Mr. Huang Chengyi, Director of Policy Research Office, Kunshan Economic & Technical Development Zone Mr. Ronald Kopicki, Lead Private Sector Development Specialist of World Bank visited Chengdu on July 12-13 for Sichuan Cluster Development fieldwork Page 9 of 11
Ms. Xiaolun Sun, Senior Investment Policy Officer of FIAS, visited IFC PEP-China on June 17-28 and Aug 9-10 for information and data collection of the joint PEP-China/FIAS Tourism VCA program. Ms. Teresa Barger, Director of Corporate Governance, Capital Market development Dept of IFC and Business Line Leader of Value Addition to Firms Business Line, and Mr. Peter Taylor, Corporate Governance Officer of IFC Hong Kong visited PEP-China on September 21, to review the Corporate Governance program and discuss ideas for a possible future program. People Among Us Junxiu LIU (Jenna) Team Assistant, CHUEE Junxiu Liu (Jenna) holds a Bachelor's Degree in English translation and interpretation from Beijing Foreign Studies University. Jenna had three years experience in the field of Finance/Marketing/Customer Relations with a real estate company and multinational construction company, and another three years in Administration and HR field as EA/Office Manager with Global Photographic Studios (China) Ltd. Right before she joined us, Jenna was a translator/interpreter in Highspeed Translation Service Company for one year. Coming Up Soon Signing of MOU between AusAID and IFC by Mr. Peter Callan, Assistant Director General. The first annual Donor Meeting of the second PEP-China s Program Cycle will be held on Dec 8, 2006 in Chengdu. PEP-China and CBRC will organize an International Symposium on Small Business Lending in Hefei, Anhui Province on Oct. 25-27, 2006. The second batch of credit workshops for XACB will be held in Xi an from November 5 to 16, 2006. A detailed market survey is scheduled to start from the end of October in Chifeng, Inner Mongolia, for the creation of a MFI pilot. PEP-China and CBRC are arranging for a conference on the Insolvency System of Financial Institutions in Beijing in December 2006, following the recent approval of the Bankruptcy Law by NPC. IFC-Global Business Edge master trainer Mark Nielsen has been invited to share his knowledge and experience in Train the Trainer in facilitation skills, training needs analysis and coaching in Chengdu from Nov.27- Dec.8. Page 10 of 11
A kick-off event on the cooperation between CHUEE Program and Industrial Bank has been scheduled Nov 6-8 in Fuzhou. Comments and/or questions? Contact us at: Huan Ni (Helen) Communications Officer Tel: 86 28 8676 6622 Fax: 86 28 8676 7362 Email: hni@ifc.org Page 11 of 11