THE HAMBURG SUMMIT

China meets Europe

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Table of Contents
Welcome Address Conference Chairman: Agenda for a Brighter Future Background: Faces, Facts and Figures Helmut Schmidt: Chinas Role in the World 4/5

6/7

8/9

10/11

Zeng Peiyan: Chinas New Leaders Lee Kuan Yew: Chinas Future Financial Market: The Challenge Ahead Energy: Bottleneck for Progress China 2010: At Breakneck Speed Market Trends: Economy on the Move

12/13 14/15 16/17 18/19 20/21 22/23 24/25

Robert A. Mundell: The China-Europe Agenda The Summits Speakers

26 27

10

The Friendly Observer

12

A New Leader

20

The Look Ahead

26

Trade Without Barriers

30

Celebrating the Dialogue

Media Coverage: Echoes of the Summit Gala Dinner: A Festive Setting Looking Forward Art of Illumination: A True Blue Hamburg Summit

28/29 30/31 32/33

Elder Statesman Helmut Schmidt on Chinas role in todays world

Chinas Vice Premier Zeng Peiyans economical and political vision

Views and debates on Chinas development until 2010

Nobel Laureate Robert Mundell At nightfall the summit postulated a free trade zone recongregated in a festive between China and the EU setting

34/35

Imprint: HAMBURG CHAMBER OF COMMERCE International Department Jens Assmann Adolphsplatz 1 20457 Hamburg Germany Phone: +49 40 361 38 -287 Fax: +49 40 361 38 -494 E-Mail: jens.assmann@hk24.de www.hamburg-summit.com Design: zwei:c werbeagentur GmbH, Hamburg Chinese Translation and Type Setting: Dr. Boesken & Partner GmbH, Hamburg Text: R. Hupe / Photos: R. Magunia Circulation: 1.500 copies

Selected speeches are available at www.hamburg-summit.com

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Welcome Address

Platform for Sino-European Relationship

I
Karl-Joachim Dreyer, President, Hamburg Chamber of Commerce

t was an honour and a pleasure for us to welcome such a large, international contingent of high-calibre individuals from business, politics, academia and the media to the "Hamburg Summit. No other Sino-European conference has ever attracted so many high-ranking Chinese officials, entrepreneurs and scientists to Europe. Hamburg boasts the highest number of Chinese branch offices in Europe, making it the EUs most important centre for China-related business. For the Chinese companies which have settled here and for the thousands of others with business interests in this part of the world, our city has become the preferred gateway to the European market. More than 700 Hamburg-based companies maintain permanent business relations with China. The Peoples Republic and the European Union are moving closer and closer together all the time - for reasons that extend well beyond the world of business. Because of these very positive developments, Hamburg is wellplaced to serve as both a Sino-European trading hub and a forum for international leaders who have a strong interest in fostering long-term Sino-European relations.

We need more than love affairs in business; We are in need of a good marriage
Even the best short-term partnership will never be more than a love affair. A truly profitable business relationship is more like a good marriage. It is long-lasting and based on mutual trust. The experts agree that the most successful marriages are those in which the married couple never stops talking about all the important things in life. And that is why we chose "The power of partnership as the guiding theme for all panel discussions, workshops and presentations at this summit.

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A New Level of Cooperation

Welcome Address

ue to the joint efforts of both China and Germany, the first Hamburg Summit was a great success. Those attending felt that strengthening communication and understanding between both sides is essential, and the summit should be a bridge to a new level of Sino-European cooperation. I was pleased to learn that preparations for the second Hamburg Summit in autumn 2006 are already underway. I hope that the summit will continue to improve as it unfolds in the future.

Communication and understandig is essential

Historically, Sino-European relationships have never been more active nor yielded greater achievements than at present. The European Union is Chinas largest trading partner, and China is Europes second largest. In many areas, such as of politics, culture, science and technology, cooperation continues to grow. We are all very pleased about this development. Currently Chinese society is stable, there is well sustained economic growth, and every effort is being made to ensure that we establish a wealthy and happy society. The European Union is also striving to grow and play a greater role in the international arena. Both China and the European Union seek to maintain world peace and are major powers in the encouragement of shared development. The development of Sino-European relations not only satisfies the trends towards globalisation and global multi-polarity, but also ensures shared benefits for both sides. We are therefore extremely confident about the future of Sino-European relations. Since the 18th century, when commercial links with Chinese coastal cities commenced, the beautiful port city of Hamburg has been a commercial window and the hub of the trade between China and Germany. It is our hope that by hosting the Sino-European Summit Hamburg will continue to play a major role in the development of Chinese-German relations.

Ma Canrong, Ambassador, Peoples Republic of China

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Conference Chairman

Agenda for a Brighter Future

T
Conference Chairman Nikolaus W. Sches explained the Summits concept

he Hamburg Summit idea was conceived in typical hanseatic fashion: It was the outcome of a brainstorming session of the Citys political and business leaders, held at the Chamber of Commerce. For many generations Hamburg has been a popular location for internationally-oriented trading enterprises, banks and shipping companies. The reason is simple: the city has always regarded open and comprehensive dialogue as the key to understanding and, ultimately, peace and prosperity. Hamburg is Chinas gateway to Europe and is also increasingly becoming Europes gateway to China. Three years ago, our Chamber of Commerce signed the Agreement on the Beijing-Hamburg Conciliation Centre with Mr Liu Wenjie, Vice Chairman of the China Council for the Promotion of International Trade. We are committed to living up to this agreement because we regard it as a powerful means of further developing the spirit of partnership and trust that exists between our economies.

Without denigrating the importance of our business relations with our smaller trading partners, China's GDP is bigger than that of Brazil, India and Russia combined. China already supplies two thirds of the worlds photocopiers, microwaves, ovens, shoes and DVD players as well as 50 and 40 percent of all digital cameras and PCs respectively.

The need for open dialogue grows

It is therefore only logical that the Peoples Republic, given its sheer size and rapid industrialisation, has a major impact on the world market for industrial commodities and raw materials such as coal, oil, gas, iron ore, copper, lead, cotton and cement, to mention but a few. This year, China's oil consumption is set to increase by 15 percent. The country, which faces widespread energy shortages, urgently needs to invest in building new nuclear and conventional power generation capacity as well as in upgrading its existing facilities. Naturally, China's transport infrastructure - its roading system, railways, seaports and airports - also has to keep pace with its economic growth. In fact, the countrys transport infrastructure is widely regarded as ranking ahead of its banking system in terms of the threat it represents to the local economy. As our world gets smaller, the need for frequent, comprehensive and open dialogue grows. And the Hamburg Summit: China meets Europe, which we plan to stage on a biennial basis from now on, is designed to foster this dialogue. We invite our partners at home and abroad to join us in the search for global peace and prosperity the only way, in our view, to safeguard the future of our children and our grandchildren.

China will eventually become the worlds industrial powerhouse

All inhabitants of todays global village should be able to articulate their interests and ideas in an environment of mutual understanding and acceptance, without having to fear that another party will attempt to impose its own views. Many of the items on our agenda will remain topical after our Summit has ended. Developments in China point to outstanding future prospects. There is no doubt in our mind that China will eventually become the worlds industrial powerhouse. And, not least, we share an interest in fighting deadly viral diseases such as AIDS, SARS and Asian flu. With China's acceptance into the WTO, the dragons economic power has been well and truly unleashed, underscoring the importance of Sino-European relations.

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Selected speeches are available at www.hamburg-summit.com

Karl-Joachim Dreyer, Nikolaus W. Sches, Zeng Peiyan and Ole von Beust (left to right)

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Background

Faces, Facts and Figures

More than 450 policymakers, managers, scientists and journalists from twelve countries participated in the three-day Hamburg Summit. High-calibre speakers such as Chinas Vice Premier Zeng Peiyan, former Premier of Singapore Lee Kuan Yew (via satellite), former German Chancellor Helmut Schmidt, and Professor Robert A. Mundell, Nobel laureate in Economics, discussed Chinas role in the world. More than 50 experts, including top managers such as Capt. Wei Jiafu, President and CEO of the China Ocean Shipping Company (COSCO), Jrgen Fitschen, Member of Deutsche Banks Group Executive Committee, Liu Yonghao, Chairman of New Hope Group, Andreas Kreimeyer, Member of BASFs
1| 2| 3|

1 | Zeng Peiyan, Vice Premier, Peoples Republic of China 1|

2 | Helmut Schmidt, Former Chancellor, Federal Republic of Germany 2|

Today, the Port of Hamburg ranks first in terms of Sino-European container traffic in Europe. One in four containers passing through the port is bound for or hails from China. 50 percent of the containers arriving from China are trans-shipped directly to Eastern Europe. Hamburg therefore serves as a hub and vital link between the worlds two most dynamic growth regions. Germany is Chinas biggest trading partner within the EU. Between 1972 and 2003, the volume of German exports to China grew by a factor of 70, while Chinese imports to Germany flourished at twice that rate. More than 360 Chinese companies have set up offices in Hamburg (as compared with 200 in London and in Frankfurt), while some 700 Hamburg-based companies maintain trade relations with the Peoples Republic. The City is
4| 5|

3 | Lee Kuan Yew, Minister Mentor, Prime Ministers Office, Republic of Singapore 3|

4 | Robert A. Mundell, Nobel Laureate, Professor of Economics, Columbia University, USA 4|

5 | Capt. Wei Jiafu, Group President & CEO, COSCO, Peoples Republic of China 5|

Board of Executive Directors, Fred Hu, Managing Director of Goldman Sachs Asia, and Bernd Leissner, President of the Volkswagen Group China, participated in 15 panel discussions on a wide range of topics, including Chinas energy sector, the countrys financial market reforms and its economic and social development. Hamburg has a long tradition in Sino-European trade: the first Chinese merchant vessel arrived more than 200 years ago, and in 1845, a merchant from Hamburg was the first European to establish a subsidiary in China.

also home to a population of some 3,300 Chinese nationals. Hamburgs strong commitment to cultivating its relations with China is firmly embedded in the Citys government agenda and receives additional support from a dedicated task force, set up especially to manage all the Citys China-related activities. Today, the Hamburg Chamber of Commerce is highly regarded as a centre of expertise for German-Chinese relations throughout the Federal Republic and is frequently called upon to play a coordinating role for all German Chambers of Commerce in this regard.

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6 | Jrgen Fitschen, Member of the Group Executive Committee, Deutsche Bank, Federal Republic of Germany 6|

7 | Liu Yong-hao, Chairman, New Hope Group, Peoples Republic of China 7|

6|

7|

8|

9|

10 |

8 | Andreas Kreimeyer, Member of the Board of Executive Directors, BASF, Federal Republic of Germany 8|

9 | Fred Hu, Managing Director, Goldman Sachs Asia, Hong Kong 9|

10 | Bernd Leissner, President, Volkswagen Group China, Peoples Republic of China 10 |

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Helmut Schmidt

Chinas Role in the World

H
Helmut Schmidt gave the opening address at Hamburgs City Hall

elmut Schmidt began his keynote address at the welcome dinner with a single, modest question: Why should he be called upon to speak about Chinas role in the world? However, Germanys former Chancellor had the explanation at hand right away. In 1975, he was the first German Chancellor to ever visit China - an historic occasion which was to be followed by a large number of repeat visits in the years that followed. Schmidt: "So I have become a friend of China, not an enthusiastic admirer, rather a friendly observer and critic, but always a friend. The many impressions and insights he gained during his tenure endowed him with a profound knowledge of the economical and political issues confronting the Peoples Republic. "Having met many Chinese personalities, including almost every one of the partys general secretaries and of the prime ministers, and having witnessed Deng Xiaopings pragmatic leadership style, stepwise reforming his country and opening it up to the outside world, my admiration for him today is greater than ever, the Tiananmen tragedy notwithstanding, Mr Schmidt stressed at the beginning of his speech.

cited "the growing disparity in living standards between the well-to-do citizens (who mostly live in the coastal provinces) and the poor as one of the key domestic issues that China needs to address. He also stressed that "every market economy needs an effective judicial infrastructure which treats civil offences such as corruption as criminal acts. It also needs an efficient banking system. However, he also praised the Chinese governments cautious and responsible approach to the countrys far-reaching restructuring process. "Some western politicians and intellectuals believe that they are morally entitled to reproach or even castigate the Chinese, particularly when it comes to issues such as democracy and human rights. These people should perhaps show more respect for a unique civilization that has evolved over three thousand years. They also lack an awareness of the terrible shadows that hang over the laborious development of western civilization. All in all, the former German Chancellor painted a very positive picture of Germanys most important Asian trading partner. "Of course, like any other economy, China also has its crises to confront, not least its energy and water supply infrastructure. However, I am quite confident that within around thirty years we are going to see a sort of triangle between the Dollar, Euro and Renminbi. In closing, Schmidt offered some wellmeant advice to Germanys allies across the Atlantic and in the Far East: "Whatever happens, we can expect the United States to remain the worlds only military superpower in the coming decades. They will probably dominate the rest of us in many other fields as well. Nonetheless, our American friends need to understand that any kind of hegemony over China is unrealistic. By the same token, our Chinese friends ought to bear in mind that it will still take a few decades for their country to develop into a major global economic power, and even longer until China has achieved military superpower status.

Any kind of hegemony over China is unrealistic

His subsequent assessment of Chinas current role in the world met with much approval from all delegates. "China is about to overtake Britain and France; and Germany will follow in less than a decade. Within 20 years, Chinas GNP will be the second-largest in the world, and the country will also be the second-largest importer and exporter. In other words, Mr Schmidt strongly believes that the Chinese economy will continue on its growth trajectory. "However, naturally, certain conditions have to be met to maintain this momentum. Most of these are of a domestic nature and can be met by China itself. Others depend on political and economic developments in the world beyond Chinas borders that the Peoples Republic can only have a partial influence on. Schmidt

Zeng Peiyan was welcomed by Helmut Schmidt, Ole von Beust and Heinrich von Pierer (2nd right to left)

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Capt. Wei Jiafu handed the first China-Europe Friendship Award to Helmut Schmidt

Klaus Ebermann and Mei Zhaorong in conversation with Helmut Schmidt (left to right)

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11

Zeng Peiyan

Chinas New Leaders

he visit of Chinas Vice Premier Zeng Peiyan was ample testimony to the Hamburg Summits significance to Sino-European relations. A delegation of 30 Chinese officials and business leaders accompanied Zeng to Hamburg, Europes most important hub for the Chinese-European trade and home to more than 360 Chinese companies. Having signed the City's guest book of honour the evening before, Mr Zeng delivered a remarkable speech to the many delegates who attended the Summit. "Sino-European relations are improving and stabilising. After all, China now conducts no less than one third of its total trade with the European Union, Mr Zeng remarked at the beginning of his speech. The Chinese Vice Premier then provided a vivid account of his countrys economic achievements. When China embarked on its policy of openness, its economy began to develop at breakneck speed, with average annual growth rates running at 9.5 percent. "As a result, standards of living in China have improved significantly, concluded Zeng. He then surprised the delegates with an open discourse on the "stumbling blocks that China had to confront in the course of its rapid economic development, above all the strong social divisions between urban and rural areas. "Income levels among the rural population are only improving slowly and some 1.3 billion people still do not have sufficient access to basic social services.

of all prices now regulated by the market would aid this process. 2. Both economic powers should deepen the level of technological cooperation, especially in the IT, pharmaceutical, aerospace, automotive and agricultural sectors as well as in the field of renewable energy. 3. Both sides should step up discussions on facilitating direct investments in order to globalise production, raise the productivity of Chinas agricultural sector, liberalise the countrys financial and insurance sectors, and strengthen its services sector. 4. Finally, the protection of intellectual property rights should be strengthened in order to create a sound basis for further improving business relations. When asked about Chinas enormous energy requirements and the threat of rising global energy prices, Zeng gave a broad outline of his countrys energy policy: "Everybody is concerned that Chinas imports are boosting energy prices, especially as regards oil. However, this is often exaggerated. The demand for energy in China has indeed increased considerably, but our share of global energy consumption is not as big as some of you might believe." While Zeng stressed his countrys willingness "to cooperate with energy-producing countries to tap into new resources, he reminded the audience that China also has significant resources of its own. "We have sufficient coal reserves for several hundred years to come. Nonetheless, the importance of coal will decline in favour of other energy sources such as gas, oil, nuclear energy and renewables." In any case, energy efficiency had now become a major priority, and coal would also have to be utilised in an environmentally-friendly manner. The recurrent question about the value of the Renminbi was answered with the utmost diplomacy. Zeng: "We want a stable Renminbi to avoid any major disruptions to our trade balance. However, we plan to streamline the exchange rate mechanism with international standards, giving due regard to our banking system as well as the interests of our neighbours and the international community as a whole.

Zeng Peiyan gave the Summits first keynote speech

Both powers should deepen the level of technological cooperation

While he acknowledged the major cultural differences that exist between Europe and China, Zeng highlighted the many synergies between their economies and pointed out four key areas where cooperation could be further improved: 1. Europe and China should deepen their trade relations across all industries and promote cooperation at the company level. The fact that China now has a firmly-established western-style economy with "90 percent

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Zeng Peiyan bids the Hamburg Summit farewell

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13

Lee Kuan Yew

Chinas Future

ee Kuan Yew, the grey eminence and former Premier of Singapore, does not travel to Europe in winter. Thats why the Honorary Chairman of the Hamburg Summit addressed the delegates via satellite, his image projected onto a large screen. "China is in the process of writing history with respect to the high economic growth rates the country is consistently achieving. If China continues on its current trajectory, it will overtake Japan within 10 years and draw even with the US in 20 years.

rate. He illustrated this by using his own country as an example. "We have to be better than our competitors in terms of price, service, quality and the functionality of our goods." Western countries wanting to keep up with the emerging economic powers have to be prepared to be highly flexible. "The world is changing and we have to change with it. Those who dont adjust will be marginalised, stressed Lee. Singapore, faced with low-cost competition from other countries, had to implement the same changes as the large, mature western economies. "We were certainly not the first to relocate factories to China, India or Malaysia. The workers who got laid off now have to do other jobs, such as, for instance, cleaning hotel rooms.

Those who dont adjust will be marginalised

He went on to stress to the delegates that, against this impressive background, the importance of the Hamburg Summit could not be overestimated. "Germany's knowledge of China must improve, Lee emphasised. However, investors had to consider that "China still has a command economy mindset. We are talking about a government that always puts politics before business. He also warned of the threat that soaring commodity and crude oil prices pose to future development, not only as regards China but all countries. In addition, Lee alerted the surprised audience to a potentially dangerous situation, which up to that point had not been raised at the Summit. "China would not simply stand by and watch if Taiwan were to declare its independence. If that were to happen, Asia could change radically. According to the elder statesman, the pressure to adapt to change that weighs on todays leading economic powers will be enormous at any While they received compensation for some time, they had to find new jobs eventually. After all, we can't afford to support them forever." When asked how German companies should go about fostering an open-minded approach to change among their employees, Lee couldnt help but jest: "Well, you could take your staff to China or India. But don't let them visit the Taj Mahal, take them to the factories instead. It would no doubt be a highly educational experience for all involved."
More than 350 participants and 100 media representatives attended the session

Via satellite, Lee Kuan Yew engaged in a lively discussion with high-ranking European and Chinese managers

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Simultaneous translation was available throughout the entire Summit

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15

Financial Market

The Challenge Ahead

I
The interactive panel in session

In order to maintain its high economic growth rates in the next decade and beyond, China will have to fundamentally reform its capital market. That was the unanimous assessment of the "Financial Reforms panel. The most critical issues identified were the high risks of doing business in China, outdated and inflexible administrative structures, a lack of modern financial instruments for local companies ("a non-existent corporate bond market) and insufficient access for foreign institutions. "What we need are transparency, sound governance and service, explained Lance Brown of Standard Chartered Bank, China. Jrgen Fitschen, a member of Deutsche Banks Group Executive Committee with many years of experience in Asia, stressed that reforms resulting in a more efficient capital market would also boost domestic consumer demand. "Chinas traditionally export-driven economic growth has to be backed by solid domestic consumption. Chinese consumers need improved access to financing.

In addition, insufficient data severely limits the ability of financial institutions to undertake accurate analyses. By the same token, the balance sheets and annual accounts of Chinese companies are all but reliable. According to Lance Browne, more than 90 percent of Chinas assets are owned by the countrys financial institutions, not the state or private individuals. Many loans are not paid back because of government policy-driven lending practices, poor economic performance, bad monitoring systems and poor decision-making within the financial institutions. At present, the government-imposed criteria for capital allocation, which largely focus on maintaining social stability rather than financial viability, further exacerbate the problem. In Lance Brownes view, "jobs are more important than profits to the Chinese government, whose primary concern is with social issues. That is because the millions of people that will enter the Chinese job market in the coming decades, although vital for the countrys future growth, could potentially worsen the already high social disparities. Jrgen Fitschen is certain: "The Peoples Republic offers excellent long-term prospects for the financial sector and many foreign banks would like a slice of the market. Lance Browne shared his view: "Foreign financial institutions would exert a positive influence on the Chinese market by increasing transparency, fostering private lending and by offering more customer-oriented services. In addition, they would help China to bring its bad loan problem under control. Gerd Vogt, Germanys ASEM spokesman, followed up on that with suggestions for short-term measures: "Foreigners still do not feel comfortable doing business in China. A lack of trust and transparency means that many opportunities in the Peoples Republic are either ignored or require costly monitoring systems. Thats why China should initially focus on building confidence abroad and on fostering greater transparency at home.

Capital markets have to be adjusted to a modern economy

Xu Xiaonian, Professor for Economic Science at Shanghais China Europe International Business School, raised another issue: "What are the implications of Chinas ageing population for the finance industry? The problems created by the countrys inefficient banking sector, weighed down by an excessively high proportion of bad loans, are being covered up by large infusions of new money. However, what happens when the ageing population starts to withdraw more money from the banking system to pay into pension funds than it contributes? An analysis of the current state of Chinas finance industry should also focus on the still comparatively low level of free-market competition, according to Yu May Wong, Managing Director of HSH Nordbank in Hong Kong. His experience has shown that the current system clearly disadvantages foreign banks by enabling Chinese banks to offer more favourable terms and conditions.

Lance Brown demanded transparency, sound governance and service

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Xu Xiaonian discussed the impact of an ageing population on the financial sector

Jrgen Fitschen sees the need to stabilise growth through domestic consumption

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Energy

Bottleneck for Progress

I
Werner Marnette emphasised the importance of recycling

ndustrialisation has never before taken place in a country of this size, said Fred Hu, Managing Director of US investment bank Goldman Sachs in Asia. The sheer size of Chinas 1.3 billion population alone fuelled the countrys rapid development in recent history - and would continue to do so in the future. But it is for this reason that specific problems arise, for instance, when looking at the supply of natural resources and energy. Peter Cornelius, Chief Economist for the Royal Dutch / Shell Group in London, pointed out that China is driving global oil and gas demand. Over the last ten years, the worlds oil consumption has doubled, not least because of a significant increase in the number of cars in China and the countrys fast-growing industrial sector. For Jean-Christophe Iseux, Special Member of the Upper-House of Parliament and Adviser to the Chinese Ministry of Commerce, the key question was whether energy could become a bottleneck that will slow down Chinas economy. As a preventive measure, the Chinese government has embarked on a very complex and ambitious programme. According to Iseux, China is investing more than four billion dollars into researching new forms of energy each year. "Moreover, in 2004, we installed around 42 gigawatts of new generation capacity - approximately the UKs total existing generation capacity, added Mr. Cornelius. The round concluded: Although the level of investment is very high, China can afford it.

undersea and nuclear power seem to be attractive options, said Eckhard Rohkamm of the German Asia-Pacific Business Association. For Peter Cornelius, it is evident that although prices will go up, demand for oil will remain robust, even if the economy slows down. Increasingly, China has to foster economic and political relations with its foreign suppliers (for example, build overland and undersea pipeline links to Siberia and Sachalin respectively). Besides coal and oil, "gas will play an increasingly important role if China is successful in developing downstream markets for gas and reforming its pricing policy within the markets although the more competitive markets become, the more problematic the distribution of energy will get, predicted Mr. Cornelius. Boosting gas utilisation is an essential part of meeting Chinas energy demand while protecting the environment. This notion is supported by the fact that, according to experts, China will not be able to pin its hopes on alternative forms of energy in the future. Mr Rohkamm thinks its unlikely that "wind and solar energy will ever be able to play a major role in China. He is also certain that "hydropower on a big scale will not have an impact on markets within the next 25 to 30 years. That will not solve Chinas problems. Apart from the supply of primary energy, China has to master three major challenges if the countrys economic growth is to continue at its current dynamic pace: power generation, power distribution and energy efficiency. The overall energy conversion efficiency in China is similar to that of other developing countries. Especially small and medium-sized Chinese companies presently do not use energy-saving technology and systems. An increase in energy prices and appropriate education will facilitate energy saving and improve energy conversion. The same is true for the use of raw materials. Werner Marnette, Chairman of the Board of Norddeutsche Affinerie, stated that "Chinas own resources alone will not be enough to sustain the countrys long-term growth. Recycling must be seen as an important way to meet Chinas rising demand for natural resources - especially as regards water.

Availability of natural resources will be crucial for future development

According to the experts, Chinas long-term energy supply rests on three pillars: coal, gas and oil. Coal, which already accounts for 80 percent of Chinas electric generation, will remain important, although the environmental drawbacks are enormous. Coal is going to be both the backbone and critical bottleneck of the countrys energy supply in the medium to long term. In the medium term, gas turbine power generation seems to be a good opportunity although it means burning the most precious raw material for chemical production. "For dealing with the carbon dioxide problem, the capture and storage of carbon dioxide

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Eckhard Rohkamm discussed the carbon dioxide problem

Jean-Christophe Iseux sees energy as a limiting factor for economic growth

Peter Cornelius predicted an increasing importance of gas

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China 2010

At Breakneck Speed
e are only witnessing the start of a long-term process in the Peoples Republic, predicted Lance Browne, Chairman of Standard Chartered Bank China, which has many years experience in the country. "At present, China accounts for three to four percent of gross world product. But what if this figure were ten percent? was his thought-provoking question.

within ten years, 40 million university graduates will enter the Chinese labour market. In addition, Chinas exploding growth is not only exportdriven. The country may be the worlds fourth-largest exporter, but it is also its third-largest importer. "China is not going down the same track as Japan and Korea, added Fred Hu, the Managing Director for Asia of US investment bank Goldman Sachs. So where will China be in 2010? And what will be Europes role at that time? Will there be a hard landing for the Peoples Republic, especially in its prospering coastal regions, as journalist Marc Faber fears? Or will China "continue on its path of prosperous growth, as Capt. Wei Jiafu, head of COSCO, predicted. Should European businesses invest now or wait "till the time is right? Liu Yong-hao of New Hope Group clearly feels Europeans should be encouraged: "With our participation at this conference we want to demonstrate our strong wish to become part of the global economy. Nan Cunhui, Chairman and President of CHINT Group, also a private company, held that there is no universal, perfect point in time to start doing business with China: "Its not a matter of too soon or too late. If the enterprise is soundly-based, the time is always right.

Chinas economy will continue to grow rapidly in the next few years
This seemingly small difference could radically change the world as we know it: China would be an economic and henceforth also a political super-power, and would provide a strong counterbalance to America, Europe and Japan. Enough reason to explore possible future scenarios during a panel discussion titled "China in 2010 - scenarios. The tenor of most of the panelists comments was optimistic. "I believe that China will continue to pursue its current path of dynamic growth in the near future. And Europe has a major opportunity to participate in that growth as an equal partner, suggested Capt. Wei Jiafu, President and CEO of the Chinese shipping company COSCO. Jean-Christophe Iseux, Special Member of the Chinese Upper-House of Parliament and Adviser to the Chinese Ministry of Commerce, agreed: "Europes role is particularly important because China must reduce its dependency on the USA.
Capt. Wei Jiafu sees a chance for Europe to participate in Chinas vigorous growth

Chinas exploding growth is not only export-driven

China has a number of unique characteristics which support the notion of a sustained phase of economic growth. As opposed to its Asian neighbours, there is little danger of Chinas upswing slowing down due to a lack of manpower. The country has a vast cheap workforce at its disposal, many of whom are highly-qualified young professionals. Liu Yonghao, Chairman of private company New Hope Group, estimated that,

Lance Brown predicted a growing Chinese share of the worlds gross product

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According to Liu Yong-hao, 40 million university graduates will enter the Chinese labour market

Thomas Straubhaar moderated the power talk

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Market Trends

Economy on the Move

Preparing for Chinas emerging middle class
Chen Ming-Jer, Professor of the University of Virginias Darden Graduate School, highlighted that "the middle class is the twin brother of Chinas private sector, it will be the market of the future. According to even the most conservative analyses, the Chinese middle class will encompass at least 200 million individuals by 2020, with a per capita GDP that is equivalent to that of Europe and the US. This was one of the key statements made at the interactive session "Opportunities in Chinas Private Sector - From SOE (State Owned Enterprises) to Privatisation. According to Professor Chen, foreign entrepreneurs should prepare themselves for the rise of the Chinese middle class and for a Chinese market that focuses mainly on products and services. And, last but not least, they should position their companies in the "Global Triad: the EU, the US and China. Chen: "In doing so, foreign enterprises should ask themselves two questions. First, what is my motivation for going to China? Second, have I done all my homework? He went on to stress that for companies that are well prepared, it is never too late to enter the Chinese market. The panels message was clear: the Chinese Communist Party regards developing the countrys private sector as one of its primary tasks.

Access to new markets

Chinese and German companies have very different reasons for investing in each others countries. This was the conclusion of the panel "China expands abroad: Mergers & Acquisitions in Europe. Whereas European firms mainly invest in China in order to benefit from lower labour costs, the key motives for Chinese investors appear to be access to new markets, state-of-the-art-technology and qualified personnel, explained Max von Zedtwitz, Professor for Technology and Innovation Management at Tsinghua University and the University of St. Gallen. According to Ludwig Schmucker, Managing Director at Berenberg Consult, another popular target for Chinese acquisitions in Europe is well-known brands that are currently having financial problems (e.g. Rover - SAIC and TCL - Schneider). As Stefan Matz, Director International Business at the Hamburg Business Development Corporation, explained, "establishing overseas branches is relatively easy for Chinese companies, whereas acquisitions of formerly German-owned enterprises often still generate more problems than benefits. Jiang Zhou, Managing Director of Huapeng Trading, who successfully invested in an industrial company in eastern Germany, pointed out that bureaucracy and environmental regulations are the greatest obstacles for Chinese firms wanting to invest in German enterprises. On the other hand, Jiang reported, German Chambers of Commerce and Business Development Corporations give excellent support to foreign industrial investors.

Snke Bstlein, McKinsey, at the panel on Mergers & Acquisitions

Opportunities in the Chinese consumer market

China is the worlds 6th largest consumer market. For this reason, a whole panel focussed on the enormous "Opportunities in Chinas fast growing Consumer Sector. "However, the big regional differences within the country make it impossible to speak about the Chinese average or the typical middle-class Chinese consumer, stressed Patrick T. Siewert, Group President East and South Asia at the Coca Cola Export Corporation. "At present, there is strong demand for food, household services and cosmetics, with the consumers becoming increasingly brand conscious, added Hans-Otto Schrader, member of the OTTO Groups Board of Management.

M&A-panel moderator Stefan Matz, Hamburg Business Development Corporation, in conversation with a Summit attendee (left to right)

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Andreas Kreimeyer, BASF, sees excellent business opportunities for European-owned companies in China

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Market Trends

Economy on the Move

China on track to becoming fully motorised
"By 2020, there will be about 130 million cars in China estimated Bernd Leissner, President of the Volkswagen Group China and member of the panel "Developing Chinas Automotive Industry. For many years, Chinas private-sector automotive market was insignificant, whereas today it accounts for 70 percent of all car sales in China. The Peoples Republic is therefore clearly well on its way to becoming an automotive society, which in turn has major repercussions on other sectors of the Chinese economy as well as on the countrys daily life. As Leissner pointed out: "Just importing oil is not the solution. China has to think about new forms of energy, and traffic control will also be a key issue. John F. Perkowski, Chairman & CEO of ASIMCO Technologies added: "In two to four years, the Chinese automotive industry will have a sufficiently large pool of wellqualified workers. The technology gap between China and Europe will have closed because many young Chinese are planning to pursue careers in engineering. Perkowski predicted that in the long run, China may even become a technology leader in this industry." While Chinese consumers are very cost conscious at present, they also tend to want to have the latest and greatest. foreign firms in the non-political news segments, such as sports and culture. The panel "Chinas Emerging Media Markets, came to the conclusion that the main risks are posed by the lack of a sound legal and regulatory framework as well as a lack of transparency concerning intellectual property rights.

Facing future challenges

The interactive panel, "China in Europe/Europe in China also delivered a clear message: the Sino-European relationship shows distinct differences to that which exists between China and the US. China and Europe face common The Hamburg Summit provided an excellent networking platform future challenges, explained Andreas Kreimeyer, member of BASFs Board of Executive Directors. Companies with many years international experience and a sound background of doing business with China especially European-owned companies will have an advantage over their competitors in terms of gaining access to Chinese consumers. For Klaus Ebermann, head of the EU-Delegation to China, the situation is clear: "Europe is Chinas number one trading partner and the two regions have a lot in common. Both value the concept of multilateralism and the philosophy of a multipolar world. As Capt. Wei Jiafu, President and CEO of COSCO, summed up: "The immediate consequence to draw from this panel is to go to China at once.

China and Europe both value the concept of multilateralism, explained Klaus Ebermann, head of the EUs delegation to China

Lack of legal framework in media sector

The fast-growing Chinese market for newspapers, magazines and television is opening up for foreign investors. "There are attractive investment opportunities in this sector, according to Heike Holbig, Senior Research Fellow at Hamburgs Institute of Asian Affairs, "however, the industry is still under government control. Bruno Wu, Group CEO of Sun Media Holdings, highlighted that "there are particularly good investment opportunities for

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Moderator Bernd Ziesemer, Handelsblatt, and Zhang Yue, Broad Air Conditioning, at the panel on Chinas private sector

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Robert A. Mundell

The China-Europe Agenda

T
Robert A. Mundell warned of a substantial Renminbi appreciation

he presentation by Nobel laureate Robert Mundell ranks as one of the events closing highlights. At 72 years of age, Mundell still ranks among the worlds most ingenious economists and longterm thinkers, some of his well-researched forecasts reaching as far ahead as the year 2060. Mundell provided a vivid account of the overwhelming success of Chinas economic policy, the "Competitive Shock as he called it, over the last 26 years.

China and Europe should respect each others interests

Today, China is the worlds largest steel producer, can boast a six percent market share of the worlds total exports, accounts for 50 percent of global camera production, and its Renminbi is the worlds fourth most important currency. Although many financial analysts suggest that China should extend its currency margins, Mundell feels this would be a big mistake. In his view, China would stand to lose more than it would gain.

Cooperation on global business fosters closer relations

A substantial appreciation in the value of the Renminbi would suppress Chinas economic growth and increase unemployment, both of which could potentially destabilise the entire South-East Asian region. Consequently, Mundell predicted that China will focus more on the Renminbis convertibility than on exchange rates. Showing mutual respect for each others interests is a vital ingredient in maintaining and further developing Sino-European trade relations, Mundell said. Additional impetus could be provided by the creation of a free trade zone and by facilitating more direct investment - in both directions. Closer cooperation on global issues would also help to further deepen ties between the two regions. Mundell estimated that, if Chinas economy is able to maintain the momentum it has shown over the last 26 years, it will overtake Japan by 2030, and the EU by 2060.

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The Summits Speakers

Dr. Snke Bstlein, Director Asia House, McKinsey & Company, Germany Ole von Beust, First Mayor and President of the Senate of the Free and Hanseatic City of Hamburg, Germany Lance Browne, Chairman, Standard Chartered Bank, PRC Cao Baijun, President, China Economic Cooperation Centre (CECC), PRC Prof. Chen Ming-Jer (Author of: Inside Chinese Business), Leslie E. Grayson Professor of Business Administration, The Darden School, University of Virginia, USA Dr. Peter Cornelius, Chief Economist, Royal Dutch / Shell Group, United Kingdom Dr. Karl-Joachim Dreyer, President, Hamburg Chamber of Commerce / Speaker of the Board, HASPA Hamburger Sparkasse, Germany Dr. Klaus Ebermann, Ambassador, Head of the European Union Delegation to China, PRC Dr. Marc Faber, Managing Director, Marc Faber Limited / Author and Publisher of The Gloom, Boom & Doom Report, Hong Kong Jrgen Fitschen, Member of the Group Executive Committee, Deutsche Bank AG, Germany Dr. Heike Holbig, Senior Research Fellow, Institute of Asian Affairs, Germany Fred Hu Ph. D., Managing Director, Goldman Sachs Asia, Hong Kong Prof. Dr. Jean-Christophe Iseux, Special member of the Chinese Upper-House of Parliament and Adviser to the Ministry of Commerce, PRC Jiang Zhou, Managing Director, Huapeng Trading GmbH, Germany Ian Johnson, Bureau Chief Germany, The Wall Street Journal, Germany Dr. Andreas Kreimeyer, Member of the Board of Executive Directors, BASF AG, Germany Lee Kuan Yew, Minister Mentor, Prime Ministers Office, Republic of Singapore (via satellite) Dr. h.c. Bernd Leiner, President, Volkswagen Group China, Germany Liu Yong-hao, Chairman, New Hope Group / President, Hope Group / Vice Chairman, China Minsheng Banking Corporation, PRC Christof G. Maetze, Global Head of International Products and Financial Institutions, Dresdner Bank AG, Germany Dr. Werner Marnette, Chairman of the Board, Norddeutsche Affinerie AG, Germany Stefan Matz, Director International Business, Hamburg Business Development Corporation, Germany H.E. Prof. Dr. Mei Zhaorong, Honorary Director, Institute of World Development, State Council Development Research Center / Special Consultant, Ministry of Foreign Affairs / Vice Chairman, China Institute of International Strategic Studies, PRC Prof. Dr. Robert A. Mundell, Nobel Laureate, Professor of Economics, Columbia University, USA David Murphy, Beijing Correspondent, Far Eastern Economic Review, PRC Nan Cunhui, Chairman and President, CHINT Group, PRC John F. Perkowski, Chairman & CEO, ASIMCO Technologies Limited, PRC Mark Qiu Ph. D., CFO & Senior Vice President, CNOOC China National Offshore Oil Corporation Limited, PRC Dr. Frank Jrgen Richter, President, Horasis / Former Director, World Economic Forum, France Prof. Dr.-Ing. Eckhard Rohkamm, Chairman, OAV German-Asia Pacific Business Association, Germany Helmut Schmidt, Former Chancellor, Federal Republic of Germany, Germany Dr. Ludwig Schmucker, Managing Director, Berenberg Consult GmbH, Germany Hans-Otto Schrader, Member of the Executive Board, OTTO Group , Germany Nikolaus W. Sches, Conference Chairman / Former President of the Hamburg Chamber of Commerce / Shipowner, Germany Patrick T. Siewert, Group President East and South Asia, The Coca-Cola Export Corporation, Hong Kong Dr. Stefan Simons, Editor, Der Spiegel, Germany Prof. Dr. Thomas Straubhaar, President, Hamburg Institute of International Economics, Germany Prof. Dr. h.c. Horst Teltschik, Chairman, Teltschik Associates, Germany Dr. Gert Vogt, ASEM Spokesman of German Business / CEO, Sterling Invest AG, Switzerland Dr. Henning Voscherau, Former Mayor of the Free and Hanseatic City of Hamburg / Former Member and President of the Federal Council of Germany, Germany Marcus Wallenberg, President and CEO, Investor AB, Sweden Capt. Wei Jiafu, Group President & CEO, China Ocean Shipping Group Co. (COSCO), PRC Dr. Horst-Henning Wolf, former Senior Vice President Technical Purchasing, BMW Group, Germany Dr. Bruno Wu, Chairman, Group Chief Executive Officer & Executive Director, Sun Media Group Holdings Limited / Executive Chairman, Sun Media Investment Holdings Limited, Hong Kong Prof. Xu Xiaonian, Professor of Economics and Finance, CEIBS, PRC Yang Lan, Chairwoman, Sun Media Investment Holdings Limited / Delegate of the National Committee of the Chinese Peoples Political Consultative Conference, PRC Yu May Wong, Managing Director, HSH Nordbank AG, Hong Kong Prof. Dr. Maximilian von Zedtwitz, Director of the Research Center for Global R&D Management, University of St. Gallen / Associate Professor of Technology and Innovation Management, Tsinghua University, Switzerland Zeng Peiyan, Vice Premier, Peoples Republic of China / Member of the Political Bureau of the CPC Central Committee, PRC Zhang Yue, Chairman, Broad Air Conditioning, PRC Jonathan Zhu, Managing Director, Morgan Stanley Dean Witter Asia Limited, Hong Kong Bernd Ziesemer, Editor in Chief, Handelsblatt, Germany

Selected speeches are available at www.hamburg-summit.com

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Media Coverage

Echoes of the Summit

AP ARD Beijing Daily Bild China Youth Daily Die Welt Deutsche Welle Deutschlandfunk Die Zeit Dow Jones dpa Far Eastern Economic Review Frankfurter Rundschau Hamburg 1 Hamburger Abendblatt Hamburger Morgenpost Handelsblatt NDR Manager Magazin Peoples Daily Sat 1 Sddeutsche Zeitung Spiegel taz The Wall Street Journal Europe Wirtschaftswoche Xinhuan News Agency Germany ZDF

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Gala Dinner

A Festive Setting
Schmidt painted a positive picture of the countrys future and complilittering strobe-lights illuminated the tower of Hamburgs City mented the administration in Beijing on its pragmatic political approach: Hall while Chinese dragons danced to the booming rhythm of "The Chinese Communist Party works hard to maintain a balance between enormous drums. The approximately 350 delegates at the confucianism, communism and a market-oriented economic policy. Hamburg Summit welcome dinner were treated to a truly exuberWei Jiafu then presented Helmut Schmidt with the first "China-Europe ant welcome display. Meanwhile, the evenings guest of honour, Chinas Vice Friendship Award for his contribution to Sino-European relations. The Premier Zeng Peiyan, attended a reception hosted by Hamburgs First Mayor former German Chancellor has travelled to China many times since Ole von Beust. Mr Zeng, who was accompanied by a 30-strong delegation, his first, historic state visit in 1975. After signed the City of Hamburgs honorary the speeches, the Chinese and German guest book at the historic City Hall build"More than visitors, more than guests our friends" national anthems were played, followed ing in the presence of Karl-Joachim by a festive and original interpretation in Dreyer, President of the Hamburg Chinese language by the Monteverdi Chamber of Commerce, Helmut Schmidt, Choir of "The Yellow River, a traditional former German Chancellor, and a large Chinese folk song. crowd of journalists. "Hamburg-ChinaEurope-Forum, he wrote beside his name The second ceremonial highlight of the in calligraphic letters. It has been a long first "Hamburg Summit: China meets time since Hamburgs City Hall has enjoyEurope was a gala dinner at the ed the privilege of hosting so many highKempinski Hotel Atlantic on the Alster ranking guests on a single evening. waterfront. The hotel, one of Hamburgs oldest and most distinguished, was specThe Chinese dragons danced around the 350 guests dined in the impressive Groer Festsaal tacularly lit up in bright blue in honour of guests, guiding them to the "Groer Festthe Summits many distinguished guests. The gala dinner culminated in an saal (Celebration Hall) where they were officially welcomed by the First award ceremony, during which the "China-Europe Sustainability Award was Mayor and Nikolaus W. Sches, Conference Chairman and Former President conferred on Chinese entrepreneur Zhang Yue by Eckhard Rohkamm, of the Hamburg Chamber of Commerce. "We are very happy and proud that, Chairman of the German Asia-Pacific Business Association. In 1992, Mr Yue today, Hamburg can claim to be the capital for Chinese business within and his brother founded the company Broad Air Conditioning, which today the European Union, Mr Sches proclaimed, while Mr. von Beust stressed is a world market leader for non-polluting cooling systems. Mr Yue is also a that the high-ranking guest from the Far East were "more than visitors, sought-after participant at international business forums that deal with more than guests - our friends. Following the welcome speeches, environmental issues - issues that are of particular importance in a vast Capt. Wei Jiafu, President of the China Ocean Shipping Company COSCO, country which faces serious ecological problems. and Helmut Schmidt presented their views on "Chinas role in the world.

The Gala Dinner at Hamburgs City Hall

Conference Chairman Nikolaus W. Sches welcomed the international guests

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Gala Dinner at the Kempinski Hotel Atlantic

Acrobats of the Cirque du Soleil were painted in Chinas Red and Europes Blue

Eckhard Rohkamm presented the ChinaEurope Sustainability Award to Zhang Yue

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Looking Forward

Logistic and Environment are Hot Issues

W
Nikolaus W. Sches, Conference Chairman

hen the Finnish Export Promotion Office for Germany was opened in Hamburg a few years ago, its director had a deceptively simple explanation to offer for Finlands decision to locate here: "We just had to go where the trade is! For the same reason, top-level people from twelve countries made the journey to Hamburg, "Europes focal point for trade with China, to discuss a wide range of political and economic issues at the aptly-named Hamburg Summit this year. In summing up the Summits results, I would like to stress the following points in particular: Chinas further integration into global politics and into the global economy is inevitable. The European Union should view the Peoples Republic as a strategic partner and facilitate the process of forging a relationship among equals. China is definitely a must for most European companies. In fact, for those of our companies which face growing competition from China, seeking partnerships with their counterparts in the Peoples Republic could be a question of survival. The European Union should support the Chinese government in its endeavours to reform its economy and establish a stable society.

The Hamburg Chamber of Commerce will be hosting the second "Hamburg Summit in autumn 2006
The first "Hamburg Summit: China meets Europe was a remarkable success as far as the number and quality of both speakers and delegates was concerned. Our Chamber of Commerce will therefore be hosting the next "Hamburg Summit in September 2006. And since logistic and environment are already "hot issues for Chinese-European business today, and destined to become even more important in the future, we have chosen these particular subject matters as the key topics for next years event.

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Strengthening Our Logistical Ties

Looking Forward

ast year we all witnessed the great progress of Sino-European economic and trade relations, with high ranking officials from both sides paying fruitful visits to each other. The successful organization of the Hamburg Summit last November was a very good example of our successful cooperation. In this event with the main theme 'The power of partnership between China and Europe', the China Federation of Industrial Economics (CFIE) and the Hamburg Chamber of Commerce have joined hands to encourage a closer bilateral relationship. It gave me great honour to lead the delegation, to attend the conference and to meet with so many European counterparts.

We have to take a closer look at logistics and transportation

As an important part of the whole economy, the logistics and transportation industries are closely linked with international trade development. Take shipping for example. Over 80 percent of cargo trade in the world is transported by ocean-going ships. In this sense, it would be another humble step towards strengthening Sino-European economic and trade ties to take a closer look at logistics and transportation in the next Hamburg Summit in 2006. The China-Europe shipping trade, one of the largest in size in the world, is presently among the fastest growing shipping markets. Logistics and transportation companies from both China and Europe will benefit from this growth. However, they will also try their best to serve the customers from both sides. In the future, CFIE will continue to cooperate with our counterparts in Germany and other European nations. We will continue to render our support to the next Hamburg Summit in 2006 to make it an even greater success.

Capt. Wei Jiafu, Group President and CEO, COSCO

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Art Of Illumination

A True Blue Hamburg Summit

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ot only Hamburgs City Hall (1) was brightly illuminated on the occasion of the Hamburg Summit; the other two conference locations and the headquarters of a major sponsor were also lit up bright blue during the conference days: the Hamburg Chamber of Commerce (2), the Kempinski Hotel Atlantic (3), and the HSH Nordbank (4). The lighting project was intended to provide a suitably dignified and notable backdrop for the "most important international summit on the future of Sino-European relations. Funded by HSH Nordbank, Hamburg-based lighting artist Michael Batz had 1,000 lights strategically mounted to the four buildings. As a result, the top-level symposium, quite literally, moved the Free and Hanseatic City of Hamburg into the spotlight. Batzs technicians performed almost artistical feats, especially when affixing the 300 flashing lights that transformed Hamburgs City Hall tower into a spectacular, glittering crown. Michael Batzs intention was to both visually highlight the most important locations of the Hamburg Summit and create a festive atmosphere, in keeping with the enormous significance of the conference to Hamburg and Sino-European relations. Batz: "Not least, we simply wanted to welcome and pay special homage to our distinguished guests. And we hope that our efforts helped them acquire a taste for our beautiful city.

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This DVD has been checked thoroughly for viruses and duplicated under strict quality control. However the Hamburg Chamber of Commerce will accept no responsibility for any damage or loss resulting in whatever way from the use or misuse of this DVD. The film and images on this disc are copyright protected by national and international law and intended for inhouse viewing only .

THE HAMBURG SUMMIT

China meets Europe