End of teachers’ book. Coastal wealth radiates across inland China
Inland cities such as Nanchang, capital of the southern Chinese province of Jiangxi have been largely off the map for foreign and domestic investors. Only four years ago, staff at its airport still referred to overseas tourists as foreign guests', a term no longer used along China's industrialised east coast. But Nanchang's fortunes are changing. The construction of several motorways and railways in the past few years has made the city less remote and has attracted manufacturing industries inland from the coast.
‘You can reach Shanghai in six hours, Fuzhou in six hours and Guangzhou in six hours,’ Li Douluo, Nanchang's mayor, said in an interview at the National People's Congress in Bering, 'You can reach 450m people within about six hours of Nanchang. We are at a hub between the Pearl River Delta and the Yangtze River Delta.'
The story of Nanchang illustrates an important emerging theme. The rapid development of coastal China in the past two decades is starting to radiate inland at a considerable pace. The impoverished provinces of Jiangxi, Hunan and Anhui -centres of the Communist revolution in 1949 - are becoming favoured investment destinations.
The main attraction of such places is the cheap cost of the labour they can offer. The average manufacturing wage in Nanchang is about Rmb600 ($72, ˆ58, £39) a month, significantly less than the Rmb900-Rmbl,000 common in the Pearl River Delta, an area of concentrated manufacturing capacity in the southern province of Guangdong. Not surprisingly, it has been the industries with the thinnest profit margins that have been first to migrate. 'The first arrivals have been companies such as air-conditioner makers,' said Mr Li, naming Greencool, Midea and TCL, three large domestic manufacturers of consumer electronics. Teco Group, a Taiwanese home appliance group, has also invested $30m to build a plant making refrigerators, air-conditioners, humidifiers and microwave ovens.
However, in common with many areas of China, Nanchang is suffering from a shortage of electricity and the rising cost of steel, cement, aluminium and other materials required to build factories. 'We have done a deal with cement factories in our area to sign long-term, fixed-price contracts so as to shield ourselves from rising costs,' Mr Li said. He laughed at the idea that Nanchang might be suffering from too much investment, in spite of warnings at the NPC that the growth in certain industry sectors needs to be restrained. 'Our economy is not overheating. We are just starting to catch up with the coastal areas,' Mr Li said.
Structural changes such as the construction of infrastructure and new housing for an urbanising population were drivers of long-term demand. The migration of farmers to Nanchang was planned to increase its population from 1.8m to 2.5m in 2005 and 3m in 2010.
From the Financial Times
Unit 5. Money.
Target Stores (42th page)
By Lauren Foster
Target yesterday beat Wall Street expectations when it delivered a 21.1 percent rise in quarterly earnings.
(#5) Gains in Target's credit card business, as well as both its Target Stores division and Marshall Field's stores, offset a small (#10) drop in pre-tax profit at the Mervyn's department store chain.
Target has cultivated a more upmarket and style-(#15) conscious image than other discount retailers. It is the third-largest general retailer in the US by revenues.
(#20) Target yesterday said it saw continued price pressure from rival Wal-Mart. For the fourth quarter, Target's profit (#25) rose to $832m, or 91 cents a share, compared with $6S8m, or 75 cents a share, a year ago. Analysts had expected Target to earn 87 (#30) cents a share, according to Reuters Research.
Revenues for the quarter rose 10.7 percent to $15.57bn from $14.06bn, (#35) while same-store sales -from stores open at least a year - rose 4.9 percent.
Target said pre-tax profit soared 18.5 percent at (#40) Target Stores. At the department stores, which have been ailing, pre-tax profit jumped 15.6 percent at Marshall Field's but fell (#45) 0.3 percent at Mervyn's. Credit card operations added $168m to pre-tax profit in the recent quarter, up 11.7 percent from a year (#50) ago.
For the full year, Target's profits were $1.84bn, or $2.01 a share, up 11.4 percent from $1.65bn, or (#55) $1.81 a share, the year before. Revenues rose 9.7 percent to $4S.16bn from $43.91bn, driven by new stores, a 2.9 (#60) percent rise in same-store sales and growth in credit revenues.
From the Financial Times
One of the main features of globalisation is that capital can flow freely to and from almost everywhere. Money is always looking for places where it will be most profitable and earn the greatest return on investment.
As an individual, you can put your money on deposit in a bank and you will get interest. Your money is lent out to people, businesses and governments who need it to finance their own projects, and the bank will make its money on the difference between what it pays out in interest on deposits and what it gets in as interest from its loans.
If you want to live more dangerously you could buy some bonds and, as long as the organisation or country you have invested in by lending it money does not default,you will get your interest payments and later your bonds will eventually be repaid. If you live even more dangerously, you want to buy some sharesand share in the profitability of your chosen company. In good times, the dividends will be more than what you would get from bonds and the shares themselves will increase in value, giving you a capital gainif you sell them. But, if the company runs into trouble and goes bankrupt,you will be among the last to be paid back and you may get only part of what you put in or you may lose all your money.
This is the trade-off between riskand return.The higher the risk of your investment not being repaid, the more you will want it to pay back in return on investment. Venture capitalistslike the ones in the case study in this unit of the Course Book will invest in many different startups,knowing that most will fail but that a few will do reasonably well and one or two will, with luck, hit the jackpot, paying back all the money they lost on unprofitable projects and much more.
Investorsuse the world's financial markets to channel money into profitable investment activities and projects. Borrowerssuch as companies and governments use them to find capital on the best terms.
Most investors are not private individuals but institutionslike banks, insurance companies, mutual funds (unittrusts in Britain) and pension fundswho are, of course, investing the money of private individuals indirectly. The markets they invest in include the moneyand currency markets, stock marketsfor shares (also known as equities), commodities marketsfor anything from gold to pork bellies (used for making bacon) and property:buildings and land.
There are alsomarkets for futuresin currencies, equities, bonds and commodities: a future is afixed-price contract tobuy a certain amount of something for delivery at a fixed future date.
There aremarkets for optionsin currencies, equities, and bonds. Here, an investor buys the right to buyor sella certain amount of these things at a certain price and particular date in the future. This is a form of betting on how prices will move.
Some of these markets, like stock markets, are based in particular buildings, some with trading floors,out most tradingis now screen- and telephone-based. Others, like bond and currency markets, are 'virtual', in the sense that selling and trading takes place by phone and computer between the premises of issuers, brokenand traders.(A broker is an intermediary between an issuer of securitiessuch as bonds, a seller of ÿ property, etc. and potential investors who buy the securities. Many brokers of securities are also traders, having their own supplies ofsecurities tosell and makemoney on trading or dealing, hence the term securities house.)
Central bankslike the bank of England and the European Central Bank are linchpins for financial centres (even if the Fed in the US ê in Washington and the two main financial centres are New York and Chicago) because they set basic Interest rates:the 'price of money', and control money supply:the amount of moneycirculating in an economy. These controls have an enormous effect on the economy as a whole, and on the financial markets, even if the link of cause-andeffect between the fundamentalsof the real economy and the financial marketsis not always clear.