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Olympics Hot Sheet - September 13, 2005

Ericsson Plans USD 1 Billion Outlay, China Daily, 9/8/2005

Swedish telecommunication giant Ericsson will invest USD 1 billion in China over the next five years to further engage the world's largest mobile communications market, the company announced Wednesday.

The money will be used to improve Ericsson's manufacturing, research and development (R&D), and service in China, according to Ericsson President and CEO Carl Henic Svanberg.

"We not only see China as an interesting market, but this is a main hub for supply and a growing market when it comes to R&D," he said at the Ericsson Strategy & Technology Summit Wednesday.

The investment will allow Ericsson to win a third of the market for equipment that allows faster downloads of movies, music and games on handsets, according to Svanberg.

"Users are demanding more mobile content, operators are looking for new revenue sources and media companies need new distribution channels. This is in line with our vision of an all-communicating world and we are confident that the mobile content industry has wonderful potential," said Svanberg.

The 53-year-old CEO said he expects China to start issuing licenses for such third-generation (3G) networks in the next six months after correcting technical glitches.

"What we can see is that the world would expect the networks to be up and running ahead of the Olympics and I think we are getting very close, and it's probably good timing now if it comes out in half a year or so," he said, adding that China is likely to spend US$10 billion to USD 12 billion on 3G networks within three years of the issue of licenses.

Svanberg also announced that in a strategic move in (R&D) co-operation, Ericsson has signed its first agreement with the Shanghai Research Center for Wireless Communications (SHRCWC).

Under the agreement, Ericsson will collaborate with SHRCWC in undertaking research projects on future telecommunications technology such as Super 3G and 4G.

Ericsson has 10 (R&D) centers in the country employing 1,100 engineers, said Mats Olsson, Ericsson's president for business in China. The company has built a center in Guangzhou for after-sales servicing of networks, and has a facility in Qingdao focusing on fixed-line broadband networks.

"We're in close co-operation with China Telecom and China Netcom in preparing for 3G," Olsson said. "We're also in development of service networks for China Telecom."

The company signed a co-operation deal with major Chinese telecommunication equipment provider ZTE in May on developing a 3G technology called time division synchronous code division multiple access (TD-SCDMA), a system supported by China.

It is now widely agreed that TD-SCDMA is almost certain to be deployed in China, the world's largest mobile communications market with over 300 million subscribers.

The homegrown TD-SCDMA standard has been tested in several rounds of trials organized by the Ministry of Information Industry and is believed to meet the requirements necessary for a commercial launch.

Ericsson, which on July 21 reported an 18 per cent profit increase to 5.8 billion kronor (USD 749 million) in the second quarter of this year, said its Asia Pacific sales rose 8 percent in the period mainly on the back of growth in China and India.

The company expects the global mobile-phone market to reach 2 billion users this year, adding almost 1 million a day, said Svanberg.

400 Ideas Received on Opening, Closing Ceremonies of 2008 Olympics, Xinhua, 8/30/2005

Beijing Olympic organizers are racking their brains to select plans of the opening and closing ceremonies of the 2008 Games.

A total of 395 proposals had been received by July 31, the deadline for submission of schemes for the opening and closing ceremonies of the Games, the Beijing Organizing Committee for the 2008 Olympic Games (BOCOG) said in a statement released on Monday.

Chinese citizens created most of the proposals, with only 10 works from overseas producers, said the statement. Hundreds of people also provided their suggestions on the ceremonies.

Jiang Xiaoyu, BOCOG's executive vice-president, had said earlier that the schemes for the two ceremonies would begin to take shape by the end of this year.

"After rounds of selection we will pick up tentative schemes for the opening and closing ceremonies and name a production team in September," he said.

The production team will then fine-tune the schemes before the BOCOG submit the final plans to the International Olympic Committee (IOC) next year for approval.

The opening and closing ceremonies are the most eye-catching parts of an Olympic Games and are seen as one of the criteria for an successful Olympic Games.

The opening ceremony of the Athens Games won worldwide acclaim for its evocative tableau of 3,000 years of Greek history and culture. It registered a new record in TV viewing on a world scale, according to the IOC.

Jiang said that BOCOG are under huge pressure to present the world a "compelling" opening ceremony of the 2008 Games on August 8, 2008.

"Surprises are key to the success of an opening ceremony," he said.

"We will try to keep the opening and closing ceremonies in mystery until the last moment."

BOCOG launched a worldwide search this March for ideas that will pave way for the opening and closing ceremonies.

China Sees Beijing Jobs Bonanza from 2008 Olympics, Reuters, 9/9/2005

The 2008 Olympics will create 1.8 million jobs in Beijing over the next four years and trigger 0.8 percent annual growth for the Chinese capital's economy, domestic media said on Friday.

Most of the new jobs should go to low-paid migrant construction workers, like those already teeming around building sites for Beijing's main Olympic venues, new highways and subway lines.

"For the next two years, most of the jobs will be in construction," the Beijing News said, citing a report issued by the municipal government.

"Job creation will peak in 2007 and 2008, when the service sector will show especially fast growth."

Beijing plans to have 800 high-class hotels operating by 2008, up from more than 600 now, as it expects to receive over 4.4 million overseas and 150 million domestic tourists the year the Olympics come to town, state media have said.

The employment boom could help allay some of Beijing's massive Olympics-related costs.

China has already poured nearly $4 billion into building the five main Olympic venues, with around $1.5 billion due to go to their construction this year alone, state media have reported.

Chinese Olympic organizers estimate the total bill for the 2008 Games should come in around $40 billion, with most of the money going to construction of new roads and subway lines and efforts to improve the city's power grid and environment.

Airport Firm Looks at Bond Issue, Listing, China Daily, 9/7/2005

Capital Airports Holding Co (CAH), China's largest airport company, is mulling a series of financing plans after aggressive expansion last year.

The company plans to raise 6 billion yuan (USD 741 million) by issuing corporate bonds and another 6 billion yuan through a domestic public listing in the next three years, said Li Peiying, CAH president.

CAH is also trying to attract strategic investors to manage its non-core businesses such as hotels, restaurants, shops and advertising, Li said.

CAH controls 16 Chinese airports and has stakes in another four airports. Last year alone, the company acquired seven airports; and currently has total assets of 67 billion yuan (USD 8.3 billion).

Li made the remarks yesterday after receiving a 500-million-euro (USD 625 million) loan from the European Investment Bank (EIB).

The loan is the largest ever granted by the EIB in Asia and the agreement was signed during the eighth China-EU Summit held on Monday.

Li said the loan would finance the ongoing expansion of Beijing Capital International Airport, which needs a total investment of 20 billion yuan (USD 2.5 billion).

"This is a landmark agreement," Li said. "It only took us eight months to reach a deal, while getting loans from the World Bank or the Asian Development Bank usually takes much longer."

With a 25-year repayment period, the loan carries an interest of 3 per cent.

Li said the loan presents "the lowest costs" for CAH as borrowings from commercial banks usually have a shorter repayment period and interest rates of over 5 per cent.

EIB is the only foreign lender in the Beijing airport expansion project.

"This project features significant and feasible mutual interest for China and Europe," said Philippe Maystadt, EIB president.

"It is a national priority for China to meet rising demand for air travel. It also facilitates better connectivity between China and Europe."

Maystadt declined to reveal the extent of European companies' involvement in the airport expansion project, but said: "We don't enforce special conditions (for the project), but there is significant European interest in this project."

Two years ago, the coalition of Dutch airport planner NACO, architects Foster and Partners, and engineers ARUP won the design bid for Terminal 3 of the Beijing airport.

Construction of Terminal 3 started in March last year and when the project is completed at the end of 2007, the enlarged airport will be able to handle 60 million passengers a year, almost double the current capacity of 35 million passengers.

Li said the new terminal will serve Air China, the nation's flagship carrier, and foreign airlines. Other Chinese air carriers flying on both domestic and overseas routes will use the existing two terminals.

The airport expansion is regarded as a key project in the run-up to the 2008 Beijing Olympic Games as millions of visitors are expected.

The nation's busiest airport was expanded twice since the reform and opening up.

EIB has helped finance three other projects in China since 1995 - oil and gas development in Pinghu, Zhejiang Province; a drinking water treatment plant in Chengdu, Sichuan Province; and an expressway near the border between the Guangxi Zhuang Autonomous Region and Viet Nam.

"We are looking forward to financing other investment projects in China, projects that present this scale of mutual interest for China and Europe," Maystadt said.

Top US Brewer Plans More China Moves, China Daily, 9/7/2005

Anheuser-Busch Cos, the brewer of Budweiser and Michelob beer, may make more acquisitions in China to tap a market that's growing as much as seven times faster than the US, according to the head of the company's international operations.

"Consolidation in the market is not over. We've always said we'll continue in that process," Stephen Burrows said in a telephone interview on September 2 from Anheuser-Busch's headquarters in St. Louis.

Anheuser-Busch, the world's biggest brewer, in April tripled its stake in Tsingtao Brewery Co Ltd, China's biggest beer maker, to 27 per cent.

China's beer market will expand by as much as 5 per cent a year until 2008, compared with growth of 0.7 per cent for the US and 2.5 per cent for Europe through 2005, beverage research firm Canadian estimates.

China's 1.3 billion people each drink an average of 18 liters of beer a year, compared with as much as 80 liters each in Europe.

"Obviously we'd like them to drink as much per capita as they do in Germany," Burrows said.

Beer consumption in South Korea and Japan stands at about 35 liters per person, according to Burrows. "If it reached that, the market would double in size."

Anheuser-Busch last year beat back London-based SAB Miller to acquire Harbin Brewery Group Ltd, China's oldest and fourth-largest brewer, in a transaction valued at HKD 3.5 billion (USD 444 million). The American brewer first entered China in 1993, taking a minority stake in Tsingtao, and now has investments worth more than US$1.4 billion in China, according to a company statement.

Tsingtao had 12.8 per cent of the Chinese market last year.

Other drinks companies including Coca-Cola Co, the world's largest soft-drink maker, also want to tap an increase in demand in China as sales growth of its main soda brands slows in the US.

The Atlanta-based company said in July that first-half sales by volume in North American rose just 1 per cent as overall sales of carbonated soft drinks fell.

"The biggest difference from the US is that we're in a building phase," David Brooks, vice-president of Coke in China, said in an interview in Beijing.

Brooks is in charge of the company's Olympic sponsorship and marketing efforts.

The beverage maker is betting that its sponsorship of the 2008 Olympics, a deal which was extended through the 2020 Games, will help sell more Coke as well as Sprite Icy Mint, Qoo Lactic, and Bing Lu (also known as Ice Dew) drinks sold in the country.

Fresh Financing Initiative for the Olympics, China Daily, 8/26/2005

The infrastructure debate is intensifying in Asia, as economic growth remains sound this year. At Nikkei's International Conference in Tokyo in May, Malaysian Prime Minister Abdullah Badawi proposed an East Asian Infrastructure Development Fund, which he wants to be discussed at the inaugural East Asian Summit in Kuala Lumpur in December, thus integrating East Asia via economic and infrastructure development.

Meanwhile, Beijing announced the Chinese capital would invest 320 billion yuan (USD 39 billion) in the next three years for the 2008 Olympics. The bulk of the more than 860 investment projects will be in the transport and energy sectors.

In February the government threw its weight behind overseas involvement in strategic sectors of the economy apart from the specific needs of the Olympics including aviation, railways and oil.

Beijing could consider financing such huge infrastructure projects via the Public Private Partnership or PPP initiative.

Singapore is already engaged in this novel financing scheme, which it has learnt from Europe. In fact, Singapore has already decided to farm out a USD 1.3 billion package of projects to the private sector over the next three to five years, allowing it to operate big public projects. Under the PPP scheme, public sector non-core projects worth more than USD 50 million may be outsourced to the private sector, with contracts lasting for up to 30 years.

This financing method is not new outside Asia infrastructure financing changed from being public and governmental in the 1950s and 1960s to the private sector in the 1980s and 1990s elsewhere. PPP sprang up in Europe, as opposed to liberal outright privatization in Britain and the United States.

France's success with PPP took off after some privatized public service projects in Britain encountered difficulties, such as the quasi-collapse of most of its nine privatized water companies and British Rail.

The collapse of two utilities companies was a big blow to the 1996-deregulation package for Californian electricity. A serious breach of the supply versus demand balance, as well as its erroneous price projection, caused the downfall of this much-touted US privatization.

Deregulation and privatization have proven they are not necessarily a panacea for scarcity and inefficient management of resources in Britain and the United States they have strengthened the case for PPP as an alternative to outright privatization.

What lessons can Beijing learn from these British and American failures, as well as successes in Europe, especially in financing its transport, energy and sports infrastructure sectors ready for 2008?

Take the examples of PPP in Europe, and especially in France, where the scheme of "design, build and operate" (DBO) was extended from water and wastewater treatment plants and incinerators to stadiums, district-cooling systems, common services tunnels, and even low-security prisons.

The impressive Stade de France, where the 1998 World Cup finals were held, is a PPP that was given to three big French construction firms to DBO for 30 years. Today it is raking in revenue, given its multi-faceted uses from football matches and athletics competitions to exhibitions, conventions, tourist visits and its restaurant, which Beijing could emulate.

For Beijing the PPP concept is a useful counter approach to outright privatization. This method marries private initiative and services with the authorities' need to provide critical social goods, services and distribution to the people. Most importantly, public assets remain in public hands, although its services are farmed out to the private sector through an agreement or partnership.

For China, the outsourcing of public services financing to the private sector could boost productivity and initiative, as well as enhance private sector's job creation, thus helping to stabilize both the economy and society.

Beijing could effectively finance its Olympics infrastructure projects through the blossoming private sector local and international construction companies and banks in accordance with WTO liberalization, from sports facilities, housing and transportation projects in the Olympic Village to electricity, IT, water and sanitation providers covering the whole city.

But four critical points must be considered to ensure a successful PPP that Beijing should keep in mind.

A fair price for a public service is essential for both consumers and the private operator in order to ensure social redistribution or development and financial viability for the private sector operator.

Pricing as close as possible to the true cost of delivering the services is necessary to ensure the longer-term financial viability of a PPP. This would be crucial for China in the transport and energy sectors, especially in maintaining social stability.

Governments must be on the lookout for potential supply and demand distortions, especially if the private sector alone controls the supply, as in the case of California. The private utilities firms had purposely suppressed supply over six years so as to force up the electricity price, to their sole benefit.

The authorities should stipulate the private operator's responsibility for expanding its services through continuous investment over the whole concessionary period. The private operator should bear this financial responsibility, commensurate with projected increasing demand.

A transparent governance framework must be established to ensure fair play, especially in regulating the private operator's investments and operations. Beijing could make use of this opportunity to tighten corporate governance.

Long-term financing and a sound financial system to ensure and sustain financial viability of both the private sector operator and consumers are important prerequisites.

The biggest bottlenecks for a PPP are undoubtedly found in pricing, which must be fair to both the operator and consumers, and in supply versus demand, which the private sector should not control alone, but rather in partnership with the authorities.

The PPP approach could be best described as a privatization of public services, but not its assets or a social means of privatization. This formula could be successful in China, and should be considered as the nation ponders further financing for 2008 Olympics infrastructure in the capital.