CHINA. In November 2003, it was announced that China’s leading duty free retailer and supplier, China Duty Free Group (CDFG), was to be merged into the country’s leading tourism company, China International Travel Services (CITS) [The Moodie Report, 21 November].
This powerful marriage of tourism and retail interests was designed to foster the rapid growth of China’s duty free business through developing the common interests of the two state-owned enterprises.
Although the two groups have merged under the CITS banner, CDFG will retain its name, identity and stronghold in China’s duty free business. CDFG achieved a turnover of around US$200 million in 2002 and owns or manages over 150 duty free outlets – as well as holding exclusive supply rights to most of the country’s duty free stores.
In early March, CDFG president Gai Zhixin was named as president of CITS, confirming the organisation’s view that the duty free company’s position would be reinforced – not weakened – by the merger. In his first interview since the appointment, Gai put the record straight on the merger and on recent publicity surrounding management changes at the group. He spoke to Martin Moodie.
The Moodie Report: Last November it was announced that China Duty Free Group (CDFG) was to be part of a strategic merger with China International Travel Services Group (CITS). Can you elaborate on the significance of the merger? What are its aims?
Gai Zhixin: The significance of the merger is two-fold. Firstly, SASAC (State-owned Assets Supervision and Administration Commission of China’s State Council) ordained CDFG and CITS to be mergered. This was in accordance with the Chinese government’s wish to create a batch of large companies or enterprises with the capacity for international competition. SASAC is the national institution that oversees the reponsibilities of investors on behalf of the state.
Secondly, the merger reflects changing conditions – and both CDFG’s and CITS’s demands for self-development. The aims of the merger include the enhancement of China International Travel Services Group and the general strengthening of both CDFG and CITS. Each will bring advantages to the other and the merger will allow the optimization of the state enterprise structure. It will also accelerate the capacity of the whole group for international competition.
The Moodie Report: How will the merger benefit China’s duty free industry?
Gai Zhixin: I deeply believe that China’s duty free industry posesses a huge and developing potential. As China’s economy and its tourism industry are developing so rapidly, CDFG, as the largest company in the country’s duty free industry, will surely benefit. The merger will certainly strengthen CDFG’s control of the traveller market. The space devoted to duty free retail business will be significantly expanded.
After nearly 20 years of steady and healthy growth, CDFG has become a powerful competitor in the fields of business management, financial management and the development of professional and talented management. The future for CDFG is bright.
The Moodie Report: Can you update our readers on the state of the merger of the two companies?
Gai Zhixin: On March 2, 2004, I was appointed as the general manager of CITS by the State Council while still remaining president of CDFG. According to SASAC’s timetable, in a month and a half from now I am due to report the merger scenario to the council.
A working committee comprising the key leaders from both CDFG and CITS has been established. This consists of several working teams which are dealing with the specific details of the merger. The merger is progressing step by step, according to plan.
The Moodie Report: There has been widespread publicity elsewhere in the press about large-scale middle management resignations from CDFG that have badly affected the group’s operations. Is that true? And if so, how will such changes affect the company’s business?
Gai Zhixin: We noticed this article. Our attitude is that it is their right to report what they want, but reporters also have the responsibility to report righteously, objectively and factually. That is basic professional ethics.
We were not contacted for comment or we would have been happy to clarify the position earlier. The situation is this – since 2001 when CDFG underwent an internal reorganization, our business and staff structures have changed a lot. Some staff, including several middle management, move on. That’s normal in business. But equally, as some management have left CDFG, some who had left the group earlier to study abroad have returned to us after several years. The recent staff changes are nothing unusual and certainly will not affect CDFG’s future development in any way.
The Moodie Report: One key question going forward is whether CDFG will continue to enjoy the status of exclusive supplier to most China duty free outlets – especially given China’s access to the WTO. What is the situation here?
Gai Zhixin: China’s policies for industry are suitable both to the country’s current situation and the fast-evolving duty free industry. The governement constantly urges CDFG to strengthen the implementation of current policies relating to industry in order to keep China’s duty free industry competitive and developing.
China has entered the WTO. But the Chinese government never promised to open up China’s duty free industry. Under accepted international practice, the Chinese government has no obligation to open up the duty free market following China’s entry to the WTO. So the government’s standpoint is consistent with ours. Therefore, the exclusive policies currently applying to China’s duty free industry will be unchangeable for a long period of time.
The Moodie Report: So what is your overall message to the international duty free community?
Gai Zhixin: Through this interview, I hope that everyone will be firmly confident in co-operating with CDFG in the future. Rest assured that CDFG will continue developing a friendly cooperation with friends and colleagues and sparing no efforts to develop China’s duty free industry. After the merger is fully in pace, CITS will also pay more attention to the strong development of CDFG. So the future is very bright indeed.
