Ever since our financial meltdown, the US has been accusing China of 'currency manipulation'. These accusations are in spite of the fact that the Yuan has risen nearly 20% from 2005-2008 and the US imported at least as much in those years as we do now.

Somehow this just seems too simple to bother with economists, treasury secretaries, or in particular the financially astute US politicians.

Ready?

-Most exports from China to the US are only ASSEMBLED in China (such as Apple's iPod where the China export value input to an iPod is about $18). Since the Chinese input to this export constitutes no more than 10% of such export, another 20% appreciation in the Yuan would AT MOST increase the price of these exports by 2%. 

-Then, the appreciation of the Yuan may cause China to LOSE these jobs to other countries (Vietnam, India) which will reduce the buying power of Chinese to buy (import) US goods

Therefore, it is not the currency. Labor is the most significant component of most goods exported from China to the US. If wages go up in China then prices of its exports will rise which is what US is hoping to achieve by increasing the value of the Yuan.

Some key differences in business culture between US and China:

-Americans wants do 'do a deal' while Chinese want to 'build a relationship'

-Americans wants to maximize short-term profits while Chinese are long term thinking

-Americans are 'direct' while Chinese will not deliver bad news

-Americans want to move quickly, while Chinese move when they're ready

Guanxi:

-Guangxi describes the Chinese dynamic in personalized networks of influence and is the central idea in Chinese business relationship. Knowing someone who can make introductions for you is a very important step in successful business dealings in China.

-Earning trust and respect should be considered the first step in business interactions. With a strong Chinese partner, everything is possible.

Negotiations:

-Americans value straightforward, while Chinese are master of oblique

-Be prepared and know all details, because the Chinese always do (Even after bottles of rice wine)

-Chinese may appear indifferent and unemotional during negotiations

-Remain calm and impersonal during negotiations and discussions

-Know that Chinese will negotiate ANY price

-Americans tend to appreciate value, where Chinese are transactional and price driven

-Give in to some issue in your negotiations, as this will benefit you in the long run

-Be copious and diligent in your contract discussions and signing

The figure brought the country's FDI inflow to $58.35 billion in the first seven months of the year, an increase of 20.65 percent from a year earlier.

Yao said on a month-on-month basis, FDI inflows had increased by more than 20 percent for two straight months, reflecting the solid recovery in FDI flows into China. The manufacturing sector received 47.94 percent of the July FDI inflow and the services industry got 45.09 percent.

A total of 14,459 foreign-invested companied were approved for establishment in China during the first seven months of the year, up 17.9 percent year on year.

BEIJING – Most China-related merger and acquisition deals have rebounded strongly in the first half of the year, and set the scene for robust activities for the remainder of 2010 and into 2011, accounting firm PricewaterhouseCoopers (PwC) said on Monday.

Chinese outbound merger and acquisition deals for the first six months of 2010 have reached record levels, up by more than 50 percent over the same period last year, PwC said in a report. A total of 99 outbound deals were announced in the first half of this year, continuing a growing trend that began in the first quarter of 2008.

Natural resources are the main industry target for Chinese investors overseas. Fourteen resource deals were announced in the first half, with the largest being Sinopec's $4.7 billion acquisition of a 9 percent stake in Synacrude from ConocoPhillips.

Another notable investment was China Investment Corporation's double investment in PennWest Energy, aggregated to $1.2 billion in total.

Though Australia is identified as the main target destination, Africa is growing in prominence for Chinese resource investors.

"Although natural resources continue to be the priority industry target for Chinese investors overseas, we are seeing other industries starting to get increased attention, including technology, manufacturing and services industries," said Andrew Li, Transaction Services Partner at PwC. "Meanwhile, investors are broadening their target regions to include the United States, Japan and the European Union."

China's domestic and in-bound merger and acquisition deals also rebounded strongly, reaching peak levels before the financial crisis. Deal volumes increased by 26 percent to 1,884 in the first half of this year, compared to a three-year low in the first half of 2009.

The largest transaction in the first half of 2010 was China Mobile's acquisition of a 20 percent stake in Shanghai Pudong Development Bank for $5.8 billion. Foreign in-bound merger and acquisition activities are still below pre-financial crisis levels, but are trending back.

Financial buyer activities including private equity and venture capital have flat lined, but foreign funds remain committed and domestic private equity and venture capital fund raising in the first half of 2010 reached record levels.

Looking ahead, domestic strategic merger and acquisition activity in China is expected to increase in industries previously only accessible to State-owned enterprises.

Meanwhile foreign investors are expected to re-enter the market at volumes last seen prior to the financial crisis.

As for Chinese outbound investment which has seen record growth, this trend is expected to continue and in an increased number of industries apart from natural resources including automotive, equipment, and high-technology industries.

"The appetite for Chinese enterprises to invest overseas is showing no signs of slowing, and with Chinese enterprises' increasing interest in global markets, technical capability and production expertise, and stable financial returns in mature asset markets.We can look forward to the announcement of many more outbound transactions," said PWC's Xiaogang Wang.

SINGAPORE – Morgan Stanley is adding to the weighting of property stocks in its China model portfolio, saying that a further volume recovery in the nation's housing market is "imminent".

The brokerage added China Overseas Land & Investment Ltd to the model and increased its position in China Resources Land Ltd, according to a report by analysts led by Jerry Lou. A recent increase in residential rents point to pent-up purchase demand, while a greater supply volume in the second half may drive "deeper" price cuts, the analysts wrote.

"From what we observe in the few developers that have been bold enough to cut prices early, their sales volumes have been very impressive," the analysts wrote. "Further volume recovery in the Chinese property market is imminent and we should increase our 'overweight' position."

The 17 developers traded on the MSCI China Real Estate Index have dropped an average 12 percent this year after the government introduced curbs ranging from a ban on third-home mortgages to higher down-payments for second homes. The MSCI China Index has retreated 4.5 percent in 2010.

Home prices in 70 major Chinese cities rose 10.3 percent in July, the slowest pace in six months, the statistics bureau's newspaper, China Information News, reported on Aug 10. The value of sales fell 19.3 percent from a year earlier, while transactions by floor area shrank 29 percent from the previous month. Investors are "overly bearish" on China's property stocks, according to Frank Shi, a Hong Kong-based investment director at Prudential Asset Management. The negative sentiment on Chinese real estate means there may be investment opportunities in the industry, he said.

"The risk for a property bubble in China is much, much lower," Shi told reporters in Singapore on Aug 13.

Morgan Stanley added a 2 percentage point weighting in China Overseas Land to its China model portfolio. The Hong Kong-listed developer said on Aug 10 property sales rose 21 percent in July from a year earlier.

The brokerage also increased its weighting of China Resources Land by 2 percentage points to 4 percent, according to the report. It trimmed the weighting in China Petroleum & Chemical Corp and removed China Pharmaceutical Group Ltd. "Our model portfolio now has even higher beta, with our most heavily weighted industries being properties, banks, steel and construction materials," said the analysts, referring to a measure of risk. "We are bullish on the outlook for Chinese equities."

BEIJING – China's Supreme People's Court (SPC) on Monday issued a set of regulations providing a detailed ruling basis for cases involving foreign investment companies regarding share transfer, anonymous investment and other procedures.

The regulations mainly focus on conflicts involving foreign limited liability companies, including the effectiveness and legal consequences of equity transfer contracts without administrative approval, according to a statement on the website of the supreme court.

The new rules also specify various conditions for anonymous investment, and consider contracts invalid only when investors allegedly violate laws and regulations or intent to escape legal responsibilities. The move aims to protect many investors who make anonymous investment when it is not proper to reveal their names.

According to the SPC statement, conflicts involving foreign investment companies accounted for about 20 percent of all foreign-related civil and commercial cases in the past two years.

"Among these cases, conflicts involving share transfer, anonymous investment, merger and liquidation saw a sharp increase, and the legal problems reflected in these cases are very complicated," said the statement.

SPC spokesman Sun Jungong said the rules will play a positive role in ensuring equal rights of domestic and foreign investment companies and promoting a fair market environment.

However, the document did not cover merger conflicts. "These conflicts are more complicated as they not only involve private laws but also run on public laws such as the Anti-monopoly Law… and the legal basis is inadequate. So it's not the right time to map out judicial interpretations for them," Sun said.

Sun revealed that the court will also release a set of judicial interpretations focusing on the application of law on conflicts involving foreign investment companies on termination issues such as disbandment and liquidation.

http://www.charlierose.com/view/interview/11171

But William Cline, a veteran international economist at the Peterson Institute for International Economics, estimates that a 10% rise in the inflation-adjusted value of the yuan against the currencies of its trading partners would have substantial economic effects. It would reduce China’s current account surplus, which the International Monetary Fund estimates will hit $335billion in 2010 — by $170 billion to $250 billion, he estimates.

Looking at the U.S., Mr. Cline figures, the change in the value of the yuan would reduce by $22 billion to $63 billion the U.S. current account deficit, which the IMF estimates will hit $487 billion this year.

Different economists reach different conclusions, of course. Skeptics doubt that a yuan appreciation would have much effect on the U.S. because imports from China would be replaced from imports from elsewhere around the world.

Mr. Cline acknowledges that the last time the yuan appreciated significantly, by 18.6% between 2005 and 2008, the U.S. trade deficit with China actually widened. (He says it takes time for the appreciation to affect the trade numbers.)

But the importance of Mr. Cline’s numbers may be more political than economic. Democratic lawmakers continue to be unhappy about China’s currency policies and disappointed that the Obama administration hasn’t pushed Beijing harder. The PIIE has long been known as a free-trade advocate and their estimates have become important parts of the debate over trade, giving ammunition to free traders.

Mr. Cline’s estimates could play such a role in a coming legislative fight, but this time as a weapon for trade hardliners. Lawmakers may latch on to the PIIE numbers to demonstrate they aren’t being protectionist.

Congressional aides say any legislation to boost U.S. manufacturing could become a vehicle to attach crack-down-on-Beijing rules.

China Real Time

Big foreign companies with operations in China were once considered by many of China’s most talented graduates to be better employers because they offered better compensation and opportunities for learning and growth. But the results of a survey of 200,000 Chinese college students by online employment agency ChinaHR.com listed only three non-Chinese multinational companies on a list of the top 50 employers, down from 21 last year.

Surveys of foreign companies in China have long shown that finding and retaining qualified personnel is one of their biggest operational challenges. And the competition for talent is increasingly important as more Chinese companies are going head to head with foreign companies both within China’s huge market and abroad. Having access to lower-cost talent has played a large role in helping Shenzhen-based Huawei transform the global telecom-equipment industry, for example, by enabling the company to offer dramatically reduced prices.

“Five or six years ago, there was a big difference” in packages offered by domestic and foreign companies, says Echo Cui, partner at recruitment firm Eiger Search. But the gap has narrowed, with some Chinese companies offering even better packages than foreign employers. And fresh graduates fear instability at foreign companies because of the changes and downsizing many underwent over the past two years, she says, adding that it is increasingly difficult for her firm to woo talent away from Chinese companies.

In ChinaHR’s survey, the three foreign multinationals in the top 50 ranking scored well. Notably, Google placed sixth—even with its spot last year, and just two notches behind No. 4 Microsoft, the top-ranking foreign company in the 2010 survey—despite the Internet search giant’s uncertain future. Procter & Gamble came in at No. 8, down from second place last year.

This year’s top 50 also include two of Hong Kong’s top conglomerates, Hutchison Whampoa (No. 40) and Jardine Matheson (No. 46), and several companies from Taiwan, like Asustek Computer (No. 25), Cathay Financial (No. 37), Formosa Petrochemical (No. 48), and Quanta Computer (No. 49).

But the vast majority of companies on the list are mainland Chinese companies, including 33 state-owned enterprises. Many foreign companies that were on the list last year–such as International Business Machines, Nokia, Hewlett-Packard, PricewaterhouseCoopers, and General Electric, didn’t make the cut in 2010.

“Chinese firms are growing quickly…We think that is a very good thing for society,” said Geoff Li, a spokesman for GE. “At the same time, whether foreign or domestic, companies have to do more to communicate with today’s college students and graduates to make them understand what they can achieve within our [corporate] environment.” Representatives of IBM, Nokia, H-P, and PWC didn’t immediately respond to requests for comment.

Cui, of Eiger Search, says the turmoil in the global economy in recent years has changed views of foreign companies. “It’s mostly because of the financial crisis,” she says. “People now think [foreign companies] are not stable, and that they have more security at domestic companies.” Even though foreign companies may still offer better opportunities for training and personal development, landing a job at a company like state-owned telecom carrier China Mobile (No. 1) is seen as providing strong security and a clear path for advancement, she says.

China Real Time

China National Real Estate Development Group Corporation was merged into China Communications Construction Company Limited (CCGRP) and became a wholly-owned subsidiary of CCGRP, while Shanghai Ship and Shipping Research Institute became a wholly-owned subsidiary of China Shipping (Group) Company following the merger.

No additional details concerning management changes and the value of the companies were released by the government agency, the State-Assets Supervision and Administration Commission (SASAC). Wang Zhiyong, an analyst with Bohai Securities, predicted more mergers and acquisitions would occur in China’s central SOEs involved in nonferrous metal and coal, as well as in commerce.

SASAC chief Li Rongrong said in late July that the Chinese government sought to reduce the number of SOEs to less than 100 while focusing on creating 30-50 large groups with strong international competitiveness by the end of 2010.

However, he said SOEs should retain their absolute dominance in important industries such as electric power and the power grid, petroleum and chemicals, telecommunications, coal, aviation, and shipping.

China Daily

Many piled into China over the last decade, pairing with re-sellers and joint venture partners, but with so much at stake, they are severing these ties and bringing their own considerable financial and marketing muscle as well as expertise to China.

In July, Burberry said it plans to buy its network of 50 China stores in 30 cities, now operated by its franchisee, for 70 million pounds ($107.5 million), a deal seen as adding up to 20 million pounds to its 2011-12 operating profit.

French handbag maker Longchamp has decided to buy out its Chinese distributor, and has assembled a Chinese team to take care of administrative tasks. Polo Ralph Lauren has also bought back China distribution right from Dickson Concepts.

“This is definitely a trend for luxury brands to operate in China themself,” said Marie Jiang, retail analyst from Pacific Epoch, a China focused advisory firm.

“It’s a booming market and is in a period of high growth at least in the next 3 to 5 years,” she said, adding she expects to see about 30 percent sales growth in luxury brands each year in the coming few years.

China is now the world’s No 2 luxury goods market, with sales up 12 percent in 2009 to $9.6 billion, accounting for 27.5 percent of the global market, according to consultancy Bain & Co.

The figure is expected to grow further to $14.6 billion in the next five years, making it the world’s top luxury market.

“Many of them gained experience after more than a decade of operation in the mainland, and are ready to roll over to the next phase of development of operating on their own, so they can reduce the distribution cost and raise the operating margin,” said William Lo, an analyst at Ample Finance.

SOARING SALES

With its growing economic muscle, China has become an increasingly important contributor to the bottom lines of makers of luxury goods, as such brands appeal to many keen to show off their newly acquired wealth.

Earlier this week, Coach said its China business could reach $250 million by fiscal 2012, and double from that by fiscal 2015 — a sizeable contribution for a company expected to post about $4 billion in total revenue for its current fiscal year.

Lamborghini, the Italian luxury sports car maker owned by Volkswagen, said its sales more than tripled in China to 86 cars in the first half of 2010, making the market its second-largest after the United States, even as its global revenues fell 2.6 percent with 674 cars sold during the period.

To keep their China expansion alive, many of the global players are expected to move into China’s second- and third-tier cities in the coming years to tap demand there.

The largest cities in China’s coastal areas now form the main sales base for most luxury goods makers, but are home to just 5 percent of the population, leaving huge room for growth inland and in smaller cities, said Selina Sia, a retail analyst at Mirae Asset Financial Group.

“Just like a newborn baby, it’s in infancy stage,” Sia said. “You have to get the quantity and at the same time you have to build and protect your image.”

Swiss luxury goods maker Bally said earlier this week it plans to expand into lower-tier Chinese cities in coming years and has started opening boutiques in Hohhot in Inner Mongolia.

Analysts said rapid development of high-end shopping malls and retail spaces across the country should help the domestic expansion of luxury groups, especially as mall operators could offer attractive terms to land big-name brands.

“Luxury brands don’t like to spend a lot of money, its all about branding generally,” said Steve Yi, chief strategy officer of Grey Group, a global market communications agency.

“They will depend on family and friends’ opinion” to appeal to consumers.

China Daily

]]> http://blog.cu-bd.com/luxury-brands-wrest-back-china-market/feed/ 2 http://blog.cu-bd.com/china-must-replace-half-its-homes-in-20-years-report/ http://blog.cu-bd.com/china-must-replace-half-its-homes-in-20-years-report/#comments Sun, 08 Aug 2010 20:30:04 +0000 admin http://blog.cu-bd.com/?p=183 SHANGHAI – More than half of China’s existing residential structures will be demolished and rebuilt in the coming 20 years, according to a senior researcher from the Ministry of Housing and Urban-Rural Development, a claim that has sparked fresh questions about the short lifespan of Chinese buildings.

Chen Huai, director of the policy research center at the ministry, was quoted on Friday by Southern Metropolis Daily as saying that homes built before 1999 will be dismantled to make way for new development during the next two decades. Chen said some historical relics that deserve protection will be spared the wrecking ball.

He explained that buildings constructed before 1949 have long passed their designed lifespan of 50 years. Many of those built between 1949 and 1979, for historical reasons, were essentially makeshift and met basic needs for housing during a difficult time but were not meant to be used for the long-term.

“Given China’s fast economic development and pace of urbanization, houses built between 1979 and 1999 cannot meet the demands of modern living, either because of limited space or a lack of supporting facilities,” he said. “Only those homes built after 1999 are likely to be preserved in the longer term.”

Chen confirmed the Guangzhou-based newspaper report in an e-mail reply to China Daily later on Friday and said poor-quality houses are not a new problem in China and have been talked about for many years.

China annually sees more construction than any other country. In recent years, the nation has had up to 2 billion square meters of development annually. Each year, China uses 40 percent of the world’s cement and steel, the main ingredients of the construction industry.

Around 40 percent of building land is created every year by the demolition of older developments.

But both experts and industry watchers have questioned the rapid speed of demolition and reconstruction, suggesting poor building practices and a lack of consistent urban planning, along with a blind pursuit of economic gain on the part of developers, are the real reasons for the relatively short lifespan of buildings.

In April, Qiu Baoxing, vice-minister of the ministry, said during an industry forum that Chinese buildings can only stand for between 25 and 30 years. In contrast, the average life expectancy of a building in Britain is 132 years and they last around 74 years in the United States.

“Although, before the 1970s, buildings did need to be rebuilt for safety reasons, what we see nowadays is the blind demolition of relatively new buildings, some of which have only been standing for less than 10 years,” said Li Dexiang, deputy director of the school of architecture at Tsinghua University.

Yu Hongsheng, director of the Urbanization Research Center under the Shanghai Academy of Social Sciences, agreed.

“Today, there is an impulse from both the government and developers to build newer and higher buildings to gain greater profits, which has accelerated the pace of the demolition of old buildings. But it is actually not in line with the concept of sustainability and has even pushed up real estate prices,” he said.

Yu added that ordinary working people end up bearing the brunt of rising house prices.

With China’s urbanization rate likely to be close to 50 percent by 2015 and the growing need for more residential buildings, Yu suggested that the government invests more in developing towns in suburban areas where there is more land and less need for demolition before development.

Li also pointed out that the pursuit of profits coupled with a lack in consistency in urban planning had led to a huge waste of construction materials. He said the country should improve the recycling of reclaimed materials.

In China, construction waste comprises 30 to 40 percent of the total volume of urban waste. The erection of a 10,000-square-meter building typically creates 500 to 600 tons of waste and the demolition of a similar sized building creates 7,000 to 12,000 tons, according to industrial data.

Poor building quality is also a major concern for China’s construction industry, which has been plagued by scandals in recent years.

In June 2009, a 13-floor newly-constructed building in Shanghai toppled, killing one worker. An investigation revealed its foundations had been undermined by a combination of soil piled 10 meters high on one side and the digging of an underground garage on the other.

The scandal was soon followed by numerous media reports of poor building quality in other parts of China.

“The rush for speed and pursuit of maximum economic interests are to blame,” said Yu.

China Daily

Chen Pointed out that : “Sales of consumer goods rose in 2009 to Rmb12,530bn, contributing more than half of gross domestic product. This year China’s domestic market will grow by Rmb2,000bn ($295bn, 193bn, 229bn), outstripping exports. The US is set to gain in particular. The independent American Chamber of Commerce in China recently published a report arguing that in the next 30 years the US can achieve “three trillion-dollar goals”: $1,000bn for annual US exports to China, $1,000bn for revenues of US businesses in China producing goods and services for the Chinese market, and $1,000bn for cumulative Chinese FDI in the US. “

But the optimism from the chairman and founder of Terra Firma Capital Partners Ltd., one of the largest private equity funds in Europe, may have arrived late. Many believe the golden period for investment in China is over.

Indeed, Hands’ statement that Terra Firma has started looking for Chinese partners for some businesses may strike some as a tad anachronistic.

“We feel very strongly that the economic future of the world for the next 20 to 50 years is going to be dominated by China,” he told a press briefing in Beijing, adding that the confidence the West had a year ago about a quick recovery “is not there today”.

Kynikos Associates founder Jim Chanos and British hedge fund manager Hugh Hendry are two well-known hedge fund managers who have decided to short China. Both believe that China’s credit excesses have led to bubbles that will burst.

Even Hands acknowledged that the subject of his latest visit to China has been related to “more where I came from, than where I arrived”. Indeed, his view about Europe, and China, may not have shifted so much, had his fund not put a severe dent in its track record by buying EMI Group Ltd..

Terra Firma in 2007 bought EMI for 2.4 billion pounds — around $4.8 billion at the time — in a deal largely financed by loans from Citigroup Inc. The deal soured quickly after its completion as the financial crisis amplified the already significant declines in the recorded music market.

Terra Firma closed that deal in late July or early August of 2007, around the same time that a couple of Bear Stearns hedge funds ran into trouble in the mortgage markets.

“We were wrong by two weeks,” he said in September last year. If Terra Firma had not invested, it would still have 90% of its fund and “would look like geniuses”, Hands said at the time.

“The world has become more difficult to invest in over the last 10 years”, he said. To be successful over the next 20 to 30 years, one would need to think more globally, he said.

Hands didn’t elaborate on what has attracted him most about China. But he indicated that U.K. Foreign Secretary William Hague, who was his best man, shares his optimism, pointing out that Hague visited Beijing as one of his first stops after he took the position.

China Real Time

China’s property sector, which was on a tear until the government began tightening the sector in April, will benefit from the rising buying power of Chinese consumers, analysts say.

Commercial property–which sees more foreign investment than housing—could experience a boost in interest from foreign funds, says one property analyst from a Chinese brokerage. Real-estate investment funds with long-term horizons, for example, could be attracted to China if they expect long-term yuan appreciation.

One particular beneficiary will be landlords who lease space to retailers, such as Hong Kong-listed Hang Lung Properties and Renhe Commercial Holdings.

One significant effect of a rising yuan on the property business would be on how some developers raise capital. Some developers this year issued bonds abroad ahead of a possible appreciation—which would make dollar debt cheaper in yuan terms—even though they have to pay relatively high coupons. Hong Kong-listed Country Garden issued a $550 million global bond this year with a yield of 11.375%.

Such offerings have dried up more recently, because China property bonds have lost some of their appeal amid concerns that the government’s property-tightening measures will hurt their finances, and also because there was a glut in of supply in the bond market.

Johnson Hu, an analyst from UOB KayHian, says the main reason for overseas fundraising was tighter monetary conditions at home, but anticipation of yuan appreciation may have helped make developers like Country Garden more willing to offer fatter yields.

But the effect on most developers in China would be limited, analysts say. Residential developers wouldn’t see much impact on house sales from a mild appreciation of the yuan, analysts say, especially given recent property-tightening measures and restrictions on house purchases by foreigners.

And most developers are locally funded. CapitaLand, for instance, a Singapore-listed property developer that recently doubled its China portfolio through a $2.2 billion acquisition of Orient Overseas Developments, borrows in yuan for its China business. “This forms a natural hedge,” said a CapitaLand spokesperson.

Typically, property developers here source materials for construction and third-party vendors from domestic companies, so the revaluation of the yuan is expected to have minimal impact.

Johnson Choo, a spokesperson from CentraLand, a property developer based in Zhengzhou, said his company sometimes engages foreign consultants like architects, who must be paid in foreign currency, which would mean savings if the yuan rises. But these payments typically make up a very small part of CentraLand’s expenses, so “it would not have a significant impact,” he says.

China Real Time

At the end of 2009, the number of Chinese Internet users reached 384 million, or 28.9% of the population, a higher penetration rate than the world average, the paper notes. The paper states that China aims to raise the Internet penetration rate to 45% of the population within five years.

Google on Monday announced a new approach to its operations in China. But the company’s late-night blog post leaves some questions about its new approach unanswered, and whether they fly with the Chinese government remains to be seen.

The key change is in how Chinese visitors to Google.cn, Google’s China web address, are taken to Google.com.hk, its Hong Kong site. Unlike Google’s old Google.cn search site, which it censored in compliance with Chinese regulations, the U.S. company doesn’t filter the Hong Kong site — although it is subject to filtering by China’s Great Firewall for users inside China. Since March, Google.cn has automatically redirected to Google.com.hk, but now users in China land on a clickable image of a search box that links to the Hong Kong site.

In Google’s post, David Drummond, the company’s chief legal officer, says that the Chinese government found the redirect “unacceptable.” But will Beijing see the new method — what Google calls a “landing page” that points to the same destination as the redirect — as much of a change?

Drummond also writes that the changes were prompted by concerns that China wouldn’t renew Google’s Internet Content Provider license. “Without an ICP license, we can’t operate a commercial website like Google.cn — so Google would effectively go dark in China,” he says.

But Internet users in China still have access to Google.com even if Google.cn went away, unless Beijing were to start blocking access for users in China to Google’s global sites (like Google.com), an escalation analysts have said is unlikely. Search results that point to censored sites are still unavailable, and Google.com has been blocked by China in the past, but the idea that Chinese Internet users could search on Google.cn and no other Google sites is a long running misconception.

In China, government officials haven’t yet had much to say. A Foreign Ministry spokesman said Tuesday that the Chinese government “encourages foreign enterprises to operate in China according to the law,” and the Ministry of Industry and Information Technology said it wouldn’t be able to respond immediately.

China Real Time