HOLLAND

Cultivating business

Sino-Dutch relations have progressed since the visit to China by Dutch Prime Minister Wim Kok in 1995 with a flurry of follow-up missions including ones headed by the transport and agricultural ministries.

Dutch multinationals continue to invest heavily in China including Philips, Heineken, Akzo and Shell (see box). But it is becoming apparent that smaller firms need more of a helping hand.

Their efforts should be helped by the recent start of direct air services between the two countries and the decision of the Dutch Ministry of Economic Affairs to open three 'support points' in Jinan, Wuhan and Nanjing. They will provide assistance for Dutch companies, although they won't be staffed by diplomats.

Agribusiness opportunity

Agriculture is one of the most promising sectors for smaller Dutch companies. Changing food consumption patterns in China resulting from higher incomes, is presenting an opportunity. Only six to seven per cent of Chinese agricultural products 'are, processed, but the proportion is rising. In the first eight months of 1996, Dutch food and live animal exports to China rose strongly, when there was an overall one per cent decline in exports over the same period in 1995 to US$484m.

In China there is a demand for technology in the field of vegetables and meat production," says Mr Pieter Noordman, the agricultural attache of the Netherlands Embassy in Beijing.

Expertise is particularly needed to improve the breeding of chickens and cows while Holland is also involved in exporting materials for potatoes, seed potatoes and sugar beet. "You can produce vegetables or flowers in greenhouses anywhere," says Noordman, noting that knowledge about distribution, handling, storage and processing is also in demand.

Some Dutch companies doing agribusiness in China, including the Meyn Group, have opened representative offices. The typically small size of Dutch enterprises dealing with China means that many are represented by consultants such as Unisono, Hofeng or Chintou. "Dutch businesses in the agricultural sector are always a bit careful," says Noordman. "Small companies… want to be paid for their services and products in the relatively short term."

Royal Brinkman, a specialist in greenhouses, became involved in a pilot project on a three hectare site in the Pudong district of Shanghai last year. Ms Wang Lei of Brinkman's Beijing office estimates that there is little more than 10 hectares of glass houses in the whole of China. The US$3.6m investment involves the construction of greenhouses complete with climatological computers, heating and irrigation systems. Sweet peppers and cherry tomatoes are two of the crops now being grown. Brinkman is helping to ensure that the Chinese make the most of this sophisticated equipment by providing a one-year maintenance and management guarantee. In addition, Chinese technicians are being trained at the Dutch agricultural University of Wageningen.

Although there's much interest in Dutch technology, especially in refrigeration and distribution, trade barriers remain a problem. These include high import tariffs, rigorous rules concerning the import of live products and a lack of trained personnel. Import tariffs on processed foods and drinks are as much as 65 per cent, meat ranges from 40 to 50 per cent, while milk, fruit and vegetables are taxed at 30 per cent. Customs duty is also levied on insurance and transport costs.

In a highly price sensitive market such as China, these taxes render most imported products uncompetitive ? no matter what the quality differential.

In some cases, China keeps its borders closed for certain products, such as seed potatoes. Whether its because of protectionism or justifiable caution, officials tend to be suspicious of overseas produce. "Tests have proved that Chinese peasants can get a two- to three-times bigger yield if they were to use Dutch material, but they are afraid of diseases and plague," says Noordman. "It's unfamiliarity. We don't have any interest in selling bad material here and building a bad name".

Some Dutch companies are also reluctant to sell their cucumber and flower seeds to China, fearing patent violations. Plants are protected under the regulations of the International Union for the Protection of New Varieties and Plants where they can be registered. Buyers who want to propagate seeds then have to pay a fee to the developer of the seeds. China is still not a member of the union. "They don't realise that Dutch high-tech companies that specialise in the improving of breeds sometimes take more than 10 years before they have any result," says Noordman. The difficulty is in the application. "You need certain techniques for cloning, based on strict hygiene. It is still a problem to bring that under control here." Enditerm

Refinery talks rumble on

When the Chinese government invited Shell to develop the US$6bn Nanhai oil refinery project in 1988, the Anglo-Dutch company was ready to commit itself to its biggest single overseas investment ever. The company, which already invested almost US$1 bn t in China in offshore drilling, carried out a US$50m feasibility study for the construction of a refinery near Huizhou, Guangdong province. The plant will have an output capacity of eight million tonnes a year and will be supported by a series of petrochemical factories. In addition, an ethylene cracker with a capacity of 450,000 tones a year and supporting factories for the production of polypropylene and polyethylene are part of the Nanhai project. Shell will take a 50 per cent share; the rest will be split by four Chinese partners.

A feasibility study was accepted by the State Planning Commission in 1994 and included into the Ninth Five-Year Plan (1996-2000), the biggest project ever in the Chinese petrochemical industry.

However, negotiations are far from concluded. Shell wants the Chinese side to ensure that the infrastructure surrounding the plant is up to standard. Some US$850m will be needed to create a new infrastructure consisting of roads, telephone lines and harbour facilities.

Negotiations were severely hampered in February 1996 when the government-relations manager at the Shell office in Beijing, Xu Yichun, was arrested under suspicion of "stealing state secrets", The arrest of Xu is thought to be part of a bigger government investigation into corruption practices inside CNOOC, one of Shell's partners in the Nanhai project.

In spite of the delay, Shell felt sufficiently confident of the deal to announce plans to shift its China headquarters from Hong Kong to Beijing by the end of 1997.

Shell has also invested US$600m in vestment in two oil platforms which started operating last year, with a production capacity of 80,000-100,000 barrels a day. The construction of a third platform is being studied. Enditerm