cosco looking into the new millennium by luckboy


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									COSCO Looking into the New Millennium
Capt. Wei JiaFu CEO & Executive President of COSCO Group

leaderette: Lately, Captian Wei Jiafu ,the president of COSCO Group, accompany with Mr. Huang Zhendong ,the Ministor of the Ministry of Communications of China, has attended the International Transportation Symposium held in the U.S. In the Symposium, President Wei gave a lecture which topic was "COSCO Looking into the New Millennium". This speech arose great responses in the Symposium and was highly praised by the attendents. After the Seminar, quite a many attendents shew their interests to the lecture. Hereby we provide the whole lecture of President Wei for the reference of those who are interested.

Respected Ministers, Distinguished Delegates,Ladies and Gentlemen, Hello, everyone. I want to talk to you about how China Ocean Shipping (Group) Company, normally known as COSCO, looks into the new millennium. I will start from discussing about the Chinese economic development and its relation to shipping. As about half our shipping businesses are concerned with the home market, we cannot ignore the huge opportunity it will continue to provide us with. I. The Chinese Economy in relation to shipping Let's look at some statistics first. The Chinese economy has grown very fast for two decades now - an achievement which is without parallel in human history, both qualitatively, in terms of the sustained rate of growth of gross domestic product of a nation over a long period, and quantitatively, in terms of the numbers of people affected. Never in human history have so many people become so much better off, so quickly. Whatever else you may say about China, this is an outstanding achievement. The economic management of the Chinese economy is really pretty good. The "Asian Financial Crisis", caused by a combination of excess credit, currency mismatches and an inflated real estate market, had negligible effect on China and the Chinese economy played a major role in damping down and ending the crisis. You will recall that in early 1997 the question was "Could the Chinese economy drag down Hong Kong?" The answer was "No, China was able to support Hong Kong".

This tremendous economic growth also means that, for the first time ever, the famous "Huge Chinese market" has real buying power. Its GDP will be over US$ 1 trillion for the first time in 2000. Taking the average of forecasts recently released by some ten different international financial entities, the Chinese economy will enjoy average growth rates of round 7.85% and 7.89% in 2000 and 2001, respectively; a little higher than the target growth rate of 7% set by the Chinese Government for this year. Foreign trade will continue to increase at a much higher rate. According to a report by China's National Information Centre, it will grow by 27% this year, to 460 billion US Dollars. This report suggests that two factors contribute to the boom. A strong US economy, and the better performance of European and Far Eastern economies, have provided China with higher outbound demand. And under the pressure of the Asian financial crisis, Chinese foreign trade enterprises are building up more market-oriented operational structures and improving their strategies. These help to broaden export markets and to reduce costs. The question of "PNTR" is now behind us, at last, smoothing the way towards WTO membership for China. It is projected that WTO membership will increase China's rate of GDP growth by a further 3 percent per year, as well as easing the trading environment. As for shipping, it is predicted that, by 2005, both China's foreign trade by value and China's shipping by volume will be double their 1998 figures. This is a situation which, to put it mildly, encourages shipping company executives, who are used to much lower growth rates! According to the China Customs Service, China's seaborne foreign trade volume reached 424 million tons in 1999, including 14 million TEU of container cargoes. In the first seven months of this year, the corresponding figures are 320 million tons and 10.4 million TEU, representing increases of 37% and 37.3% respectively. These mark a significant turnaround from the last year's decrease. As the national economy changes and economic and trading policies are modified, China's foreign trade structure will continue to evolve. Container cargo will maintain a strong growth rate and its percentage of total trade will continue to rise. Dry bulk trades will see stable growth. Net oil exports will continue to fall, and oil imports will continue to rise. In this regard, the increase in oil imports this year has been rather dramatic - 400,000 barrels per day, or 30%. From the above, we see great opportunity for COSCO's future growth. II. COSCO and International Shipping

COSCO was established in 1961. At present, it is a complete commercial entity based on Chinese Corporate Law, if you follow the dramatic reforms of the Chinese Government's policy for the state-run enterprises. It is run independently in the market. Today, the company owns and operates one of the largest fleets of ships in the world, with about 500 ships of most types, of over 20 million tons deadweight, trading to practically everywhere. As a global shipping group, we in COSCO will be looking to enhance our shipping businesses' competitiveness and to broaden our logistics service area, by optimizing our organizational structure and making a better use of our global shipping and logistics resources. We aim to provide competitive and quality global carriage and logistics services to our customers. To put that more clearly, we have four key elements in our strategy: Enhancing Shipping's Status as the Core Business of COSCO We will continue to focus on developing our container shipping business, in the meantime strengthening dry bulk shipping, and expanding our liquid bulk and specialized shipping businesses. We hope to revise the whole value chain of our shipping businesses, including fleet structure, service network, information technology use, port infrastructure and marketing system. The percentage of chartered-in ship tonnage will be gradually increased. The management of our owned fleet will be further improved, and our cargo base increased. The optimization of our service network will emphasize network planning and resources reallocation based on a hub-port strategy. Our marketing strategy will focus on providing differentiated and value-added services to acquire long-term contracts and life-long customers. As alliances and mergers have become a major part of the international shipping industry, we will co-operate closely with our partners. We aim to be a world-class global shipping service provider, in the near future, with high efficiency and high quality service. Expanding Into the Logistics Business Expanding into the modern logistics business is a natural step for COSCO, and a key to the success of our development strategy for the new millennium. The basic idea of the logistics strategy is to expand our service spectrum from transportation to include warehousing, processing, distribution and even further to some elements of manufacturing. It will be supported with our prominent shipping business presence and our extensive global logistics resources. Putting the customer first, it will increase our profitability and our competitiveness. It will enhance COSCO's current status as a major global carrier, making COSCO a global logistics service provider. In carrying out our logistics strategy, COSCO is finalizing our service design, and we will be forming a logistics company after organizational restructuring. Our target

customer groups are the transnational companies with global supply chains. We will offer full-process logistics solutions to them, supported with advanced information technology and our global logistics Internet platform. Optimizing Shore-based Businesses We also have shore-based businesses within our Group. In expanding into new shore-based business areas, we have two principles. One is that the business cycle in that sector should be independent of or ideally opposite to, that of shipping. The other is that the sector has high growth potential. Industries fitting the requirements are information, environment protection, energy-saving equipment, new materials and so on, all of which can be compensate for the cyclical swings in our current businesses. At the moment, we are investing on information services to meet the requirement of our long-term strategy. We will also establish a system of venture investment when entering new businesses. Building up the information network As we all know, information networks are the building blocks of the knowledge economy. Our current task is to build such a network for our company. This lies at the core of our Technology Innovation Strategy. What we aim to do is to optimize our current physical network and to integrate it by the establishment of the COSCO Network, based on the Internet platform and connecting the physical networks more closely. The object is the efficient allocation of our shipping and logistics resources across the globe. COSCO supports and abides by the safety and environment protection regulations by International Maritime Organization (IMO), such as SOLAS and MARPOL conventions. COSCO was issued DOC under ISM Code two years ago. And our company is currently operated pursuant to ISO9002 quality management rules. COSCO is seeking to form strategic alliances with friends in the transport and other industries. In Chinese culture, the notion of enduring friendships and long term alliances for mutual benefit are very important; the application of these concepts to business comes naturally to us. Let us join hands to welcome the new challenges and create a better future. Thanks.

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