Business In China
Business In China
Dr. Zhiwen Liu
College of Economics and Management, Southwest University
1.China Key Information
•Country
Name: People’s Republic of China
Area: 9.6 million sq.km (mainland)
Population: 1.28 billion
Capital city: Beijing (population 13.8 million)
National Language: Chinese (Mandarin)
•Government:
Communist republic
Head of State: President Hu Jintao
•GDP
growth : 9.3% (2004 actual)
Total Gross Domestic product (GDP) for the country is $4.5 trillion (2000
est.) based on purchasing power parity). Per capita GDP based on purchasing
power parity is $3,600 (2000 est.)
Land
•China
is the world’s fourth largest country (after, Russia, Canada and the U.S.)
and the seventh largest economy. China is about the same size as the
continental 48 states (U.S. excluding Hawaii and Alaska). Much of the land
is mountainous or unsuited to agriculture.
Population
The population tends to be predominantly in the east and along the three
major river valleys. Population is huge compared to the U.S., 1.3 Billion
people, over 25 percent of the world’s total—family planning policy.
Government
•The
government is controlled by the Communist Party –cooperate with 8
democratic political parties.
•The
national government is headed up by a President – Hu Jintao and with a
Prime Minister – Premier Wen Jiabao and a Congress—the People’s
Representatives and the Committee of People’s Political Coordination.
Capital–Beijing
•Beijing
is the capital city and home of a brand-new airport to open in 1999.
The Airport is about 30 minutes by taxi from the city center. Beijing’s
population is currently around 10.5 million.
•Other
large Chinese cities are Shanghai – 7.4 million, Guangzhou – 5.5
million, Chonqing – 10 million and Wuhan – 7 million.
People and Languages
•People:
Han Chinese (93%), plus 55 ethnic minorities
•Different
people has different customs.
•Languages:
China’s official language is Mandarin. The Chinese call it
Putonghua . Cantonese is spoken in Guangdong, southern Guangxi, and
Hong Kong
Religion
•Religion:
Confucianism, Buddhism, Taoism (no stats available); Muslim (14
million), Christian (7 million)
Currency
•Currency
is the Yuan (also called the Kwai)
–
approximate exchange rate is 8.25 Yuan = one U.S. dollar.
• Largest
note
in general circulation is 100 Yuan which is roughly about $12.
Natural Resources
Natural Resources in China include coal, iron ore,
petroleum, natural gas, mercury, tin, tungsten, antimony, manganese,
molybdenum, vanadium, magnetite, aluminum, lead, zinc, uranium, hydropower
potential (world’s largest).
agricultural products
he main agricultural products are rice, wheat, potatoes,
sorghum, peanuts, tea, millet, barley, cotton, oilseed, pork, fish.
Major exports and import
Major exports are machinery and equipment; textiles and
clothing, footwear, toys and sporting goods, mineral fuels, and chemicals
Major imports are machinery and equipment, plastics,
chemicals, iron and steel, mineral fuels.
Major industries: Iron, steel, coal, machinery, textiles
Major trading partners: USA, Japan, Germany, South Korea
Chinese Major Es
xports and Imports
Chinese Major
Major Holidays
January 1-2: New Years
Day Holiday
February 24: Chinese New Year
March 8: International Womens Working
Day
April 4-5: Qingming Festival
May 1-2: International Labor Day
May 4: Youth Day
June 1: Childrens Day
June 6: Tuen Ng Festival
July 1: Anniversary of
the Founding of the Communist Party
August 1: Anniversary of the founding
of the Chinese PLA (Peoples Liberation Army)
Sept. 12: Mid-Autumn Festival
October1-2: National Day
Asia
Asia is home to two of the World’s fastest growing
economies: China and India, each with more than 1 billion in population.
Asia, however, is much more than either of these countries
and area with large trading partners like Japan, Korea, Taiwan and
increasingly Southeast Asia (home to over 500 million) continuing to develop
their economies and trade possibilities.
Additionally, many of the trade barriers such as high import
tariffs are disappearing or being greatly reduced throughout the region.
Asia is currently the site of the World’s most active Free
Trade Agreement environment with Thailand and Singapore both noted for their
recent rapid progress in this area and now with China a significant player
in the field as well.
Long –Term Dimensions
China has been the world’s largest manufacture for at least
3600 of last 4000 years.
In 1820,China represented 36% of world GDP, compared to 32%
foe USA ,Now 6%.
In 1979,Deng Xiaoping introduced the first rational economic
policies
Initiated a 23year process of 6-14% annual GDP growth.
Average 9% growth.
Chinese GDP has grown 4 to 5 times in 23years.
Economic data
Demographics
Total children per female in lifetime
–1950s 5.88
–1960s 5.68
—1970s 4.01
—1980s 2.48
–1990s 1.98
Work Force Composition(2002)
Children (not work force ) 22.4%
15—64 (60) 70.3%
-NBS Statistics
65years or older 7.3%
Younger worker(21-40) 35%
Older worker(41-60) 35%
–IMF Statistics
2.Factors of Sustainable Growth
Demographics and work force composition
Benign geo-political environment
Stable monetary and fiscal policy
High savings and investment rates
Rapid adoption of technology
Trend toward market-oriented legislation
Booming private sector
Market depth-strategic range
Foreign Direct Investment (FDI)
Benign External Environment
China is one of five permanent members of U.N. Security
Counsel,with vote rights
Beijing Olympics of 2008
Economic integration on regional basis,despite economic
weakness across 14 borders.
Proposed China-ASEAN FTA
Expanded use of RMB throughout region
Quiet resolution of all major territorial disputes.
2.1 High Investment and domestic Savings Rates
Gross domestic savings/GDP
1981 32%
1991 38%
2000 39%
2001 40%
2002 42%
Gross domestic investment/GDP
1981 32%
1991 35%
2000 36%
2001 38%
2002 40%
Funding source-fixed assets
Source Growth
-State Budget 3.2
-Domestic loans 45.3
-Bonds -24.9
Foreign investment 28.6
Enterprise 46.6
stocks -10.3
Others 40.1
Proportion
5.3
23.6
0.3
4.8
48.0
0.2
18.0
Over Investment In F-asset
Category Increase%
Primary Indus. 10.8
Manu. 51.5
Services 24.4
Real Estate 32.0
Nat.Total 29.6%
Proportion %
2.8
35.6
61.6
34.5
100%
Aggregate foreign Investment
Stock of foreign investment is about $440b or 40% of
GDP—compared to 1.2% in Japan.
Foreign investment accounts for 10% of total capital
expenditures,11% of total production,28% of total manufacturing and 54%
exports in 2002.
FDI leads to rapid productivity growth.
2.2 Rapid Adoption of Technology
2 million college graduates/year v.s. 1.3m in USA
80million internet users
280 million mobile telephone users—112 million new phone
users in 2003
An astronaut into orbit and active space program.
First functioning Magnetic Levitation Train
2.3 Market-Oriented Regulation Increases Competition
Transition from planning economy to market economy(market
economy country position)
95% of consumer goods priced by market;
83% of agricultural goods and 85% producer goods
Reduction of tariffs to 10%,elimination of quotas and
reduction of licensing requirements by 2005
Government/Party/Military is withdrawing from corporate
management role. But crony capitalism is alive and well.
WTO helps to codify market-oriented regulations, but most of
these reforms are aimed at improving domestic productivity. Manufacturing
productivity goes up 12.5% in 2003
Level of Affluence
2002 China Statistics year book
Urban
Car 0.88%
M.cycle 22%
W.machines 92.9%
Color TV 126%
PC 20.6%
Shower 64%
E.Cooking Ap. 96%
Telephone 93.6%
Rural
M.cycle 21.9%
W.machines 28.5%
Color TV 48.7%
Camera 3.1%
Refrigerator 12.3%
Engel Coefficient
Urban
-1978 57%
-1995 48%
-2002 37%
-2004 37.7%
Rural
67%
59%
46%
47.2%
Income per capita per year(2004)
Urban
$1177
6.8%
Rural
$367
7.7%
2004 Imports and exports(0.1b)
2.4 Strategic Depth
Traditional, Labor-intensive industries can continue to
thrive by migrating to inward, poorer provinces, rather than migrating out
to other countries
170 million rural under-employed
China can simultaneously maintain Labor-intensive industries
while transitioning to knowledge and capital-intensive industries.
But from where will the investment come?
2.5 Private Enterprises is Booming
The Communist party recognizes role of private sector and is
cooperating capitalists into party.
1989 only 90,000 firms, in 2000 up to 2 million.
Employment growth is all from private initiative
China has only 20 years experience with private ownership.
There is enormous scope for private firms to expand.
3.Micro Economic Trends
SOE reform continues
State intends to sell of strategic shares
Not Privatization, rather Corporate-lization
Opportunistic conglomeration by SOEs
Nonetheless, productivity is surging in 03:
Ag. 2.5%;Manu.12.5%; Services 6.7%
Definition of private
30years ago private enterprise was illegal.
Definition of private is unlear.
In 2002,as a percentage of production:
-25% State owned enterprises
-21% Collective
-19% Shareholding Co.
-18% Foreign investment enterprises
-17% Private
4. Economic Challenges
Unemployment Rural Migration
Over supply Bad debt
Poor legal environment Corruption
Strengthening the financial system
Pollution control and lack of water
Electric power demand shortage
4.1 poor legal Infrastructure
Domestic protectionism between provinces or cities remain a
difficult barrier.
Contracts are difficult to enforce
Cost of litigation is very high ;penalties are low
Continued barrier in cultural and other service industries
,some sanctioned by WTO
Special problems with intellectual property rights
enforcement: trademarks, patents and copyrights.
4.2 Corruption
Corruption is common at all levels of commerce
American companies must comply with the Foreign Corruption
Act.
FCPA can lead to short term disadvantages relative to
international competition.
Over the longer term, the law probably reduces costs and
increases profitability for American firms operating in China.
4.3 Over supply and bad loans
88% of goods are in over supply, due to excess capacity and
low domestic demand.
Over capacity produces bad loans, at least 15% of total
loans are non-performing.
Lack of bankruptcy law discourages corporate exits and
continue excessive production.
Government ‘s response is to try to increase domestic
demand-housing, automobile, services.
5.WTO Compliance Problems
Intellectual Property Protection
– weak enforcement
–high thresholds for criminal prosecution
–low administrative fines
TRANSPARENCY
--Difficult to obtain draft regulations
Standards
–aggressive development of indigenous standards: TDSCDMA
Trade remedies
– anti-dumping cases
–Subsidy issues
Services
-Strict licensing requirements
-High capitalization requirements
sole proprietorship no minimum capital
LLC
production or wholesale $62,500
retail $40,000
services $12,000
C Corporations $1.2 Million
WTO Schedule for 05
Telecommunications
Financial services
–banking, insurance, securities
Trading rights Retail, wholesale, agents ,services,
franchise, direct sales
Construction, Packaging, Entertainment
Further drop in tariffs, exp. agricultural.
Posted in International Business