The China Securities Regulatory Commission on April 2 notified Kingfa Sci & Tech Co. Ltd., the nation's largest plastic compounder, that three current and former company executives are under investigation for questionable stock purchases. Guangzhou-based Kingfa disclosed the news in an announcement.

The three executives include board members Xia Shiyong and Li Jianjun, as well as a former senior manager, Huang Xianbo, who was a deputy director of the corporate technical center.

Kingfa launched its stock options program in 2006. By June 30, 2007, Xia owned 31.58 million shares of Kingfa stock, Li 8.74 million shares, and Huang 3.28 million shares. Huang left the company in September 2007.

Public records show that nearly a dozen of Kingfa executives have been selling stock since December 2008. Li, alone, sold 2.3 million shares in late December.

Chinese media quoted anonymous sources as saying illegal stock selling by executives is not uncommon in China. The usual consequence of such case is the companies seize the earnings from the executives. That Kingfa's executives are being investigated by the CSRC perhaps indicates the severity of the case, a few media reports said.

As the old Chinese saying goes, "food is heaven." Nothing takes higher priority to the Chinese than enjoying good food. That explains why I open this new series with a case study on restaurants. Let's take a peek at the success and missteps of American pizza restaurant chains in China.

"On the frontlines: Doing business in China" gave four reasons for why Pizza Hut succeeded and Domino's failed in that nation:

1. Dine-in versus carryout: Pizza Hut makes itself a fine dining restaurant in China, while Domino's only offers carry-out.
2. Local flavor: Pizza Hut designs flavors specifically for the Chinese, while Domino's uses toppings that are popular in Japan and Taiwan.
3. Traffic: Beijing's traffic jams make Domino's 30-minute delivery promise impossible to achieve.
4. Size: Pizza Hut trims down the pizza size for the Chinese, while Domino's sticks to the American portion.

Actually, carryout can be a viable business model in China, but combining Domino's expensive (by Chinese standards) pricing with carry-out -- which usually is associated with $3 Chinese lunch boxes -- is unwise. The emerging Chinese middle class has deep pockets, but they are also quite demanding and particular on the value/price ratio. The carryout model doesn't come with much value.

Don't forget about the Chinese urban lifestyle. Eating out is essential for business, social and everyday life. For that need, Pizza Hut provides quality and exotic experience that customers get excited about. Their menu is as fabulous as their decoration: Lamb balls with cumin, cheese-stuffed wings, calamari, sausage and oyster mushroom kebab, herbal shrimps, escargots, waffle crispers, onion rings, cherry tomato and bacon roll, barbecue ribs, New Orleans wings, and much more. Not exactly what the Pizza Hut down the street in Akron offers.

Ten years ago in Beijing, I stood in the line outside a Pizza Hut for half an hour on a freezing winter night. My friends and I thought the wait was worthwhile when we finished the meal. Not because the pizza was much better than Domino's (let's face it, pizza is at best an acquired taste for the Chinese). It was worthwhile because we got in the hot spot of the town, because we had plenty of self-serve fruit salad, because we tried clam chowder soup for the first time in our lives, and because we really enjoyed the nice eating atmosphere.

Food is heaven in China. But it's the whole eating experience that delivers value. The same holds true for any other product or service you try to sell in China. The key is to create a unique and meaningful user experience.

Despite the global economic downturn, the world's top profile maker, Dalian Shide Plastic Industry Co. Ltd., continues to expand. The Dalian, Liaoning-based company has signed an investment agreement to build a large-scale profile manufacturing facility in Anyi County, Jiangxi province.

Total investment for the new, three-phase project is 1.2 billion yuan ($176 million). Phase one aims to build profile extrusion lines with annual capacity at 80,000 metric tons (176 million pounds), which will be doubled during phase two. The firm will add plastic board and sheet extrusion lines during the last phase.

The Anyi government said its preferential policies encourage investment from outside of the province. Beijing-based China Plastics Processing Industry Association has recognized Anyi as an "exemplary production base of plastic-alloy profile." So far this year, 18 construction product manufacturers have decided to open factories in Anyi.

Following a Jan. 23 report forecasting a 30-70 percent yearly profit decline, Chinese compounder Kingfa Sci & Tech Co. Ltd. confirmed in its April 7 annual report that its 2008 net profit dipped 42.7 percent. Operating profit contracted further, marking a 67.4 percent decline from the previous fiscal year.

Kingfa listed a number of contributing factors to its thinning margins:

• During the first three quarters of 2008, plastics processors encountered difficulties in maintaining profitability and healthy cash flow, thanks to Beijing's macroeconomic and currency polices. Consequently, Kingfa's ability to raise prices and collect payments was impaired.

• Due to major resin price hikes in the first half of 2008 and sharp falls in the fourth quarter, the company suffered inventory depreciation loss as well as market reluctance to buy. Kingfa's overall product gross margin was 13.6 percent, just a half percentage point lower than the previous year.

• Kingfa's majority-owned real estate business unit took a 126.5 million yuan ($18.5 million) depreciation loss, as the Chinese housing market cools down.

• Wholly-owned subsidiary Mianyang Changxin New Material Development Co. Ltd. and its subsidiary were affected by the Sichuan earthquake. In addition to damage to factory buildings and machines, the companies' customers in the earthquake region either delayed payment or suspended materials purchasing.

• The snow storms in southern China during the beginning of the year led to transportation cost hikes. High oil prices and new customers located far away from shipping points also increased sales expenditures.

• Interest payments increased due to growing bank loans and rising interest rates in the first three quarters.

• Changes in accounting and tax policies.

Despite the profit decline, Kingfa's annual report stressed its goal of securing more than 10 percent of the domestic market by 2010.

Thanks to strong demand from the appliances and automotive end markets, Kingfa's capacity utilization rate exceeded 80 percent in March, according to analysts at Guotai Junan Securities Co. Ltd.

However, it is hard to tell if the growth in 2009's first quarter represented a real recovery or temporary uptick caused by inventory replenishment. "April and May will be critical times to show the real demand from downstream," a Guotai Junan's report said.

Medical equipment and supplies manufacturer Henan Piaoan Group Co. Ltd. has sealed an agreement to purchase patented polylactic acid production technology, engineering and equipment from Japan's Hitachi Plant Technologies Ltd.

The project in Changyuan, Henan province, is expected to go on stream in March 2011, with an initial annual capacity of 10,000 metric tons (22 million pounds), according to a press release issued by Hitachi. Piaoan plans to expand the capacity to 150,000 metric tons (331 million pounds) "in the future," with a total investment of 1.83 billion yuan (US$267 million).

Piaoan plans to make medical supplies out of PLA biopolymer and become the first "high-quality, industrialized PLA production base in China," the release said.

Hitachi Plant Technologies developed PLA manufacturing technology in 2004. The company claims its patented technology produces pure, colorless and easy-to-process PLA materials.

Privately-owned Piaoan reported 1.2 billion yuan (US$176 million) in 2007 annual sales. The company didn't comment on the new project. Its corporate Web site, however, said the company invested 300 million yuan (US$44 million) to build 10,000 metric tons of PLA capacity with equipment imported from Switzerland.

The fact that "yes" and "no" in China can mean the opposite of what people expect scares foreign businesspeople, who oftentimes turn to cultural consultants for help. But reading between the lines is not a Chinese invention. The Chinese just take it to a higher level and on a broader scale.

Let's say two people meet on their first date. At the end of the meal, the gentleman politely asks when he can see the lady again. What he really wants to find out is whether she wants to see him again. If she suggests a time, the gentleman secures a second date. If the answer is "I'll call you," then she is either uninterested in or unsure about it. She just doesn't want to throw in his face: "I don't want to see you again." Doesn't this hold true in most places in the world?

Well, I just revealed the secret weapon for you to interpret "yes" and 'no" in different cultures: Make your own judgment by seeking specific, action-oriented details for the next step. If a Chinese partner expresses interest in your business proposal, then try and see if he or she is willing to set up a follow-up factory visit. "I'll think about it" or "I'll get back to you" or any other vague reply that doesn't commit to a next-step action is not a positive answer.

In the Chinese culture, people prefer not to use "no" directly, in order to save the other party's face. This almost applies to all occasions (with exceptions such as in a court of law, of course). But it's more than that. Due to the absence of a credit system and the lack of regulatory enforcement, Chinese business people take their time to establish trust on a personal level for a business relationship. The American way of making quick business decisions often hits a brick wall.

As a couple of interviewees in the first program of "On the frontlines: Doing business in China" pointed out, the Chinese give the name "seagull" to overseas business people who just want to "come, shoot and leave." You need a little more patience to allow for due diligence -- in the form of after-hours entertaining or otherwise -- for both sides.

Again, the abovementioned issues are neither complex nor unique to China. In a global market, it makes things easier to keep your eyes and heart open and look for commonalities, instead of dwelling on differences.

Plastics News Global Group for the fifth straight year will be exhibiting (booth 10.2J11) at Chinaplas, the largest plastics trade fair in Asia. The 2009 show, also known as the 23rd international Exhibition on Plastics and Rubber Industries, will take place May 18-21 in Guangzhou.

A team of PN U.S. and China staffers will be at the show, including publisher Tony Eagan, marketing and trade shows director Linda Whelan, general manager of online products Ron Shinn, associate publisher and editor Robert Grace, assistant managing editor Nina Ying Sun, Guangzhou-based Asia Bureau Chief Steve Toloken and Shanghai-based correspondent Lauren Hilgers.

Mark our booth number 10.2J11 in your planner and drop by at your convenience!

The China Securities Regulatory Commission has approved the Dalian Commodities Exchange to begin trading PVC futures. In the April 15 announcement, the agency said it will soon approve DCE's PVC futures contract.

Being the world's largest producer and consumer of PVC resin, China is in urgent need of futures trading to balance the dramatic pricing fluctuations and reduce market risk, CSRC said. The agency said it values DCE's experience of trading linear low density polyethylene futures since July 2007.

DCE said it has established a trading, transaction, and delivery system, and selected recommended delivery manufacturers and grades. The exchange published for public review the PVC futures draft contract, which specifies trading content as class-1 and premium PVC resin of the SG5 grade.

The Chinese standards categorize PVC resin into 10 grades, from SG0 to SG9. Among them, SG5, which is PVC powder produced through suspension polymerization, makes up more than 70 percent of the PVC consumption in China.

Thanks to globalization, one nation's fiscal spending to stimulate economic growth is bound to "leak out" to the entire global supply chain. For example, China's move to subsidize big-ticket item purchases - such as appliances, cars and electronics - in rural areas is bolstering sales for Japanese and Taiwanese suppliers, among others.

Chinese financial media CBN cited a report from Nihon Keizai Shimbun saying that Japanese material suppliers, including Mitsubishi Chemical Corp., have raised their ethylene capacity utilization rates to 75-90 percent. The report attributed the change to China's growing demand as well as the ending of the industry's inventory adjustment.

Taiwan Union Plastic Machinery Co. Ltd. also reported 10-15 percent sales growth in the first quarter, when the company said it sold more than a dozen large injection molding machines (with clamping forces of more than 1,600 metric tons). The company's 2008 sales contracted 5-10 percent, according to a news story from Xinhua News Agency. "We didn't expect to see the effects [of the stimulus package] so soon," a company official said, "We believe the growth rate will reach 20 percent for 2009 fiscal year."

Recent media reports from China revealed disturbing news on the making of fake eggs with synthetic resin and pigments. A number of investigative reporters across regions visited "fake egg masters" who hand make and assemble egg yolk, egg white and eye shells. These fake eggs are being sold as regular, edible eggs. Consumers usually don't find out until they notice the unusual texture of the eggs during cooking or eating.

Photos and videos of the process are posted online, such as here. So far, there is no official conclusion on the effects of these fake eggs on human body. But media reports have quoted experts advising consumers not to eat them.

There is a lot that can be said about this, from business ethics to consumer rights.

We all know that China needs better enforcement of intellectual property laws, but in this case, who owns the intellectual property of eggs? Mother Nature? Ironically, the egg counterfeiters actually claim their "independently invented production techniques." One counterfeiter said he spent years developing "innovative" methods that make fake eggs "flawless".

Coincidentally, earlier this month, the owner of an injection molder in Wuhan said it took him hundreds of thousands of yuan and two years' of "research and development " to come up with "quality knockoff car parts." The operation was busted by authorities, according to the government Web site.

What the two cases have in common is that the ultimate goal is cost reduction, which seems to be what some Chinese businesses embark on. You'd wonder why they are willing to invest the capital, time and talent on knockoff projects? Why wouldn't they do normal, legit business?

Among all reasons, I think an important factor is the severe deficiency of business knowledge and skills that are required in original product development, launch, marketing and brand management. It's easy to imitate, no matter how hard the imitation process is. It takes much more to develop marketable and profitable new products from scratch. Many Chinese businesses understand their weaknesses and simply decide to take a short cut by making knockoffs. Meantime, the government is not doing a job of banning these illegal and unethical shortcuts.

These shortcuts don't lead to real, sustainable success. They bring short-term financial gains for some individuals, but also cause long-term damage to the society.

It feels like a long time ago, probably because subconsciously I just don't want to revisit what happened in the spring and summer of 2003 in Beijing. But the ongoing swine flu (or "influenza A (H1N1)") scare revived my memory of the outbreak of the severe acute respiratory syndrome.

In hindsight, SARS started in the early weeks of 2003 in Guangdong province. The government initially denied its existence and then underreported cases, as the virus quickly spread out to other regions and countries. Eventually, more than 600 Chinese residents died of SARS. The government's mishandling of the epidemic sparked anger from within and outside of the country.

But the dry facts don't do any justice in revealing what individuals experienced in that crisis. I'm sure everyone has a different story. Mine started with school closings in Beijing.

In the middle of the spring, more SARS cases were confirmed in the nation's capital. Authorities ordered a lockdown of all college and university campuses (yes, they were gated and guarded). Without special permission, nobody could leave or come in. Classes were canceled.

Life became very simple - studying at the library, eating at the school cafeteria, and sleeping in the dorm - until one evening, I injured my right ankle when playing badminton (we were advised to exercise to strengthen our immune systems).

I was immediately sent to the school hospital on campus. After a brief check-up, the doctor taped up my painful and swollen ankle and prescribed pain killer. Fearing of bone damage, I asked for an X-ray exam.

The doctor said: "Are you sure? At this point, we only send suspected SARS patients to the X-ray lab." One major SARS symptom was the buildup of fibrous lung tissue, which shows on X-rays.

So I decided to skip X-rays and use traditional herbal ointments, which were mailed in by a relative outside of Beijing.

In short, it took a year and half to heal that ankle. At the end of the summer, when things came back to normal, I finally had an X-ray, which showed abnormal balance of bone density and slight misalignment. The doctor said the only way to fix it would be to break my ankle again and realign the bones. But I was all set to come to the U.S. for graduate school. I never since had the time (or the courage) for that treatment.

I'm glad that the Chinese government appears to be taking plenty of precaution and maintaining transparency this time. Although China so far doesn't have any confirmed cases of swine flu, health checks are being conducted. National leaders are working with international organizations and other countries to fight swine flu.

Let's hope the outbreak doesn't get much worse.