Your Excellency Vice Minister Ivan Ramalho,
Distinguished Minister Assistant Chen Jian,
Distinguished Ambassador Luiz Neves,
Distinguished Chairman Ernesto Heinzelmann,
Distinguished Chairman Miao Gengshu,
Ladies and gentlemen,

Good morning！I’m Lu Weiguang from Shanghai Anxin Flooring Co., Ltd., China. I’m very glad to meet you again at this annual China-Brazil cooperation conference. This is the time that I summarize the successes and failures of my Brazilian operations every year, in which I can benefit a lot through our communication. Although there is a vast ocean between China and Brazil, trade exchanges between the two countries have been strengthened year by year with increasing trade volumes. As a Chinese company investing in Brazil, we have attached great attention to our investment and trade opportunities in Brazil while our company in Brazil has been going through continual growth. Now, I’d like to take this opportunity to brief you all about the operations of Anxin Flooring in Brazil.
Established in 1994 Shanghai Anxin Flooring Co., Ltd. has grown into a medium-sized company with over 2,000 employees. We are mainly dealing in wood cutting and processing, wood flooring production and lumber trade. At present, we rank the first among our Chinese counterparts in sales of solid wood flooring and come out at the top in the global market. 80% of our products are designed for the Chinese market and 20% shipped to over 20 countries in Europe, America and Asia. Now we have established over 600 outlets in China for the sales of finished flooring products, covering 31 provinces and municipalities in China. The “Anxin” trademark has been subject to the Madrid Agreement and is under the legal protection of WIPO (World Intellectual Property Organization) member countries, including countries like Brazil in Latin America.
It was in 1995 that Anxin started its business operations with Brazil, when we mainly used to purchase wood from Latin America through intermediary traders in Europe, Taiwan, and so on. We established a direct trade relationship with Brazilian suppliers in 1999 and successively established firm partnerships with over 120 wood Brazilian suppliers. They sold the wood to us and we finished the processes of quality control and mortise. Before that, we used to import most of the wood from Southeast Asia.
In 2002, we started direct investment in Latin America and entrusted our Brazilian partners to establish two wood processing factories in Brazil for wood cutting and board processing. In the two factories the logs are cut into boards and then into flooring planks through drying and exposure before exporting to China. Currently, localized operation has been realized in the factories, which are mainly dealing in board processing and the processing of outdoor floor DECKING; the processed boards are mainly exported to China while outdoor floor DECKING is shipped to Europe and America. The factories began their production in 2004 and delivered a good performance in 2005 with the gross margin of 25%-30% and the net margin of 15%-20%. The second half of 2006 witnessed significant changes in Brazil’s exchange rates. The original USD conversion rate against Real of 1:3 was changed to the current rate of 1:1.9. Consequently the loss resulting from the exchange rate change reached as high as 35%. Although the export unit price has been marked up by 20%, we still lost 10%-15% after the offset of the two, which has caused the drastic decline in the profitability of Brazilian factories, actually almost zero profit in export. Today many local wood companies are facing the same crisis. They are looking for a way out. In fact some of them have nothing to do but shut down; some are cutting production and others have to change the categories and the product structure of their exports. Generally speaking, the year of 2006 was extremely difficult for our Brazilian factories, in which we had a poor performance and we were made to balance our profits and losses through laying off the employees.
On purchase, as Anxin’s import of Brazilian wood is constantly on the rise, it is expected that we will import wood worth USD 60 million. As known to all, these purchases are normal international trade. But the Western media babbled about the so-called “China Threat” again in 2006. And maybe due to lack of communications, Brazilian companies were misled by the international media and began to take a defensive attitude toward Chinese investors. They have shown strong concern about Chinese companies’ purchase, which, they fear, might cause destruction to the primeval forest in Amazon.
These are pretty much the basic operations of our Brazilian factories.  And now I’d like to share with you some of my opinions on the economic and trade cooperation between China and Brazil：
1. Brazil’s worry about Chinese wood purchase is unnecessary. First of all, Brazil boasts a perfect legal system for forest management and sound forest management institutions. Forest exploitation has to be subject to the approval of the Brazilian Environmental Protection Agency and the certificate for forest exploitation, therefore, the Brazilian government is considered to have a comprehensive supervisory mechanism. Second, Chinese purchase accounts for a very small proportion and in my opinion, the year-on-year downsize of the Amazon forest is not because the proprietors followed blindly the international purchase but mainly because of the farmers’ destruction of massive forests for soybean and other crops plantation. Third, as a member of the Forest Trade Network (FTN) and a globally renowned company, we will never purchase from illegal sources and the wood sources of our suppliers must be completely legitimate, that is to say, they must have the FSC certificate awarded by the Forest Management Committee. We are willing to purchase at a higher price from those certified companies. Although this will add to our operating costs, it can improve the income of Brazilian wood suppliers and wood processing workers and indirectly create more job opportunities for Brazil and increase its financial revenue. Fourth, as a company with over 10 years in the wood business, we understand the preciousness of the wood so we advocate green environmental protection and recycled utilization; we cherish wood resources and put the remaining wood materials into recycled utilization. We will never waste a single inch of wood in order to realize its value. Wood is a recyclable and renewable resource and we have always been dedicated to the development of a recycled economy and regard it as the core value of our company. Therefore, we venture to disagree with the allegation and concern that China is consuming a whole lot of the global resources.
2. The continual appreciation of the Real is a double-edged sword, which is obviously not a good thing for our investment in Brazilian export companies. Due to the rising costs and declining profits, many companies which used to invest in Brazil are tending to shift their operations to adjacent countries such as Peru, Suriname, Guiana and etc. for a better investment environment. On the other hand, the Real appreciation is also an opportunity. I suggest that Brazil encourage domestic companies to invest in China and to introduce various Brazilian resources, farm products, beverages and etc. into China, which, I think, will produce generous returns.
Our company has been operating in Brazil for many years, and we have developed a good relationship with the local government and people. And from years of trade exchanges with Brazil I have fully understood the importance of getting to know the local social and economic environment, familiarizing with and accepting the local culture and customs, respecting the ethics, religious beliefs of the local people, integrating into the local life. It is also very important to give the local people enough trust and appropriately authorized management for multinational trade or overseas investment. At present we have realized localized operation and management in two Brazilian wood processing factories, which has greatly facilitated our management. The localized operation and management of Anxin Brazil have helped solve the local employment issue and have been welcomed by the local government and people. Today, I’m honored to attend this meeting with the same belief and aspiration of contributing my own modest efforts to the friendly cooperation between China and Brazil.
Last but not the least, I’d like to thank the China-Brazil Business Council again for giving me this opportunity to communicate with entrepreneurs from Brazil and for giving Anxin Flooring the chance to share the successes of the developing economic and trade cooperation between China and Brazil. Let’s make concerted efforts to create a brilliant future for China and Brazil！Thank you！