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Doing Business with China
Neil Blakeman Associates Ltd
9th November 2010
Business, Economics Politics & Culture
Doing Business with China
Three Main Centres of Economic Gravity
Bohai Rim
Yangtze Delta
Pearl River Delta
CHINA ssssssss
Doing Business with China
World’s 2ndWorld’s 2nd largest economy Annual growth c.10% for 25 years [forecast 8% to 2015][forecast 8% to 2015] World’s largest exporter & manufacturer GDP growth: 2000-09 = 80% of US : 2010-19F = 2 x US Inflation: 3% [rising to 4%]3% [rising to 4%] Per capita GDP (at PPP) c.$7,800 [rising to $13k]c.$7,800 [rising to $13k] Of 1.3bn, 200m+ (?) live on < $2 / day Overtake US in GDP (PPP) terms by 2030?2030?
[Source: EIU, Goldman Sachs, various]
Economic Highlights
Doing Business with China
833m mobile phone users, 420m internet Huge investment in Motorways, Airports, Metro, Rail 89 million cars. By 2020, 140 million? 1998: 1 million university places. Now: 6 million+ 200 - 600,000? engineering graduates a year 16 of world’s 20 most polluted cities are in China 50% of Chinese GDP: savings Saw the world’s largest ever IPO
Doing Business with China
0
10
20 30
40 50
60 70
1820 1870 1913 1950 1973 2001
China India Japan Other Asia
%%
Source: Angus Maddison
Asia's Share (%) In World GDP (at PPP)
Doing Business with China
POLITICS
4th generation leadership –> 5th in 2012… Harmonious, balanced, sustainable development
(Party legitimacy) Domestic challenges; ; demonstrations, human demonstrations, human
rights? unemploymentrights? unemployment Foreign Policy; N. Korea --, Taiwan ++, US(+), Japan -; N. Korea --, Taiwan ++, US(+), Japan -
G20+, [G2?]G20+, [G2?]
Democracy?
Doing Business with China
RURAAL
Rural
Economically, three transformations:
Other factors:– WTO (Distribution, Financial Services & Retail) – but recently?– Olympics, EXPO 2010, Asian & Student Games 2010-11Asian & Student Games 2010-11– Foreign Exchange Reserves >$2.5 trillion$2.5 trillion– FDI $100 bn in 2010 ?; $120bn+ 2015?$100 bn in 2010 ?; $120bn+ 2015?
Planned Economy
Closed Economy
Market Economy
Open Economy
Urban
Doing Business with China
Soft landing? Will high growth be sustainable?
What about the currency? Protectionism (US, EU, China)? Energy usage, security, efficiency, shortages Environmental impact Growth drivers; exports, investment …
consumption
Doing Business with China
Short-term impacts: global economy, credit crunch & recent trends? Global Economy
– exports (& imports) China: slowed in 2009, bounced back in 2010China: slowed in 2009, bounced back in 2010– cost (& domestic pressures) : competitiveness ?– protectionism ? : is a concern (e.g. use of anti-monopoly laws in China): is a concern (e.g. use of anti-monopoly laws in China)– product safety, reputation for quality & consistency (?)– UK exports to China are more competitiveUK exports to China are more competitive
Consumer / Business confidence (stock market, property market)– Consumption ? : retail sales are up: retail sales are up– ‘Indigenous innovation’ : = more technology transfer ?
Huge fiscal stimulus ($586bn) …how effective / over-stimulus? Infrastructure, ’Pillar’ industries, science, health, education
Effect on Chinese Banks : limited
Outward Investment (FDI & sovereign wealth fund(s)?); Outward direct investment $44bn in 2009, rising to $137bn in 2015?
>>> Fundamentals good (but, inflation (recent interest rate increase), unemployment?) good (but, inflation (recent interest rate increase), unemployment?)
Doing Business with China
UK China Trade 2001-2009
0
4,000
8,000
12,000
16,000
20,000
24,000
28,000
01 02 03 04 05 06 07 08 09
(£m
)
Year
UK imports from Chinafrom China
Via HK
Total
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
01 02 03 04 05 06 07 08 09
(£m
)
Year
UK Exports to Chinato ChinaVia HKTotal
[Source: UKtradeinfo, British Embassy Beijing]
Doing Business with China
Britain’s Main Trading Partners in 2009 (Avg. Annual Growth 2002-09)2009 (Avg. Annual Growth 2002-09)
[Source: UK trade info]
Country
Total Exports
£bn
Av. Inc. pa. Country
Total Imports £bn
Av. Inc. pa.
USA 33.6 2% GERMANY 39.7 3%GERMANY 24.8 2% USA 28.4 1%FRANCE 18.0 0% CHINA (3rd) 22.9 16%NETHERLANDS 17.6 3% NETHERLANDS 21.5 4%IRISH REPUBLIC 15.5 0% FRANCE 20.5 1%BELGIUM 10.5 1% NORWAY 15.1 13%SPAIN 9.0 1% BELGIUM 14.9 3%ITALY 8.2 0% IRISH REPUBLIC 12.2 3%CHINA (9th) 5.1 17% ITALY 12.1 1%SWEDEN 4.1 1% SPAIN 9.1 1%SWITZERLAND 3.9 2% HK (11th) 7.2 3%CANADA 3.6 2% JAPAN 6.2 -4%UAE 3.6 10% SWITZERLAND 5.7 2%HK (14th) 3.5 5% SWEDEN 5.4 3%JAPAN 3.4 -1% CANADA 5.3 5%INDIA 2.9 6% POLAND 4.6 17%
Doing Business with China
UK China Trade & Investment Key Facts
UK Exports of Goods to China :: ££5.1 billion in 2009, up 5%. YTD Aug 45% 5.1 billion in 2009, up 5%. YTD Aug 45% (HMRC)(HMRC)
UK Exports of Services to China :: £2.5 billion in 2008, up 60% £2.5 billion in 2008, up 60%:: UK is 2 UK is 2ndnd largest largest
China = UK’s 22ndnd largest non-EU export market
China = 3rd largest source of UK imports
UK is China’s 15th largest trading partner (8th largest importer)
UK No. 1= EU Investor in China 66396639 projects US$16.916.9 billion realised
580 + Chinese Companies Invested in UK (400 Mainland, 180 Hong Kong)
UK is no. 1= destination for Chinese investment into EUUK is no. 1= destination for Chinese investment into EU
[Source: British Embassy, Beijing]
Doing Business with China
Impact on Global Economy
Impact on shipping costs Drawing in raw materials and energy: oil, cement, steel,
construction….(and retaining rare minerals?)
Fuelled Japanese & Korean economic recoveries
Following ‘Asian Tiger’ model of moving up value chain
Huge pool of skilled and unskilled labour (some upward
pressure on wages – as low as 10% of Europe)
Innovation
IPR
Doing Business with China
Key Challenges in doing business with China
IPR protection HR issues Regulations, and dealing with Chinese government
Legal, tax, accounting, certification (and resolving disputes) Partner selection, relationships Corruption Handling people / relationships (‘Face’, ‘Guanxi’, hierarchy)
Official trade & investment limitations Route to market, physical distribution Risk management (company, personal) Size, diversity, cultural ‘distance’, language
Sales, marketing, branding Negotiating, pricing Remitting funds, getting paid Scarcity: power, water etc
Doing Business with China
Intercultural Communication & UnderstandingIntercultural Communication & Understanding
Practicalities: Mandarin v's Cantonese, business cards, interpreters, banquets, design / promotion, gifts, hotel cards etc.Acknowledgement: input from Eugene Chang (formerly at CBBC)
BehavioursBehaviours (business context) (business context) PatientPatient Group orientationGroup orientation HierarchyHierarchy ‘‘Guanxi’ (networks/relationships)Guanxi’ (networks/relationships) BondingBonding ModestModest Decision-makingDecision-making
- Simplicity v’s complexity- Simplicity v’s complexity- Employment, technology- Employment, technology
Contract (only the beginning)Contract (only the beginning) ‘‘Face’Face’ Personal relationshipsPersonal relationships
InfluencesInfluences Long historyLong history Confucius, Daoism, BuddhismConfucius, Daoism, Buddhism Women (father, husband, child)Women (father, husband, child) EldersElders Pictographic languagePictographic language Study / educationStudy / education Family tiesFamily ties Zhongguo (middle kingdom)Zhongguo (middle kingdom) PatriotismPatriotism
Doing Business with China
Business Challenges
• Regulatory, market and operational challenges• Some issues are more acute in regional cities
[Source: CBBC, Leeds University, UKTI]
Doing Business with China
Creative Industries: Chinese government engagement
Beware sensitivities: film, media, content etc… Discuss with UK Trade & Investment Important to understand & potentially engage:
– Ministry of Culture
– MOFCOM (Ministry of Commerce)
– SARFT (State Administration of Radio, Film & TV)
– MII (Ministry of Industry and Information Technology
– GAPP (General Administration of Press & Publications)
– Other (SIPO, SAIC etc.)
Doing Business with China
Areas of Opportunity
Exporting - Agent or Distributor Establishing a local presence (Rep, JV, WOFE, FICE)
Sourcing, Outsourcing (goods, business processes) China going global
Consumer spending Infrastructure development Increased manufacturing output
Doing Business with China
Areas of Opportunity
Energy, including efficiency Environmental protection Financial Services Information & Communications technology Creative Industries/Design Enhanced public services - health & education Innovator, R&D World Student Games 2011, other major events
Doing Business with China
Market Entry Drivers
• Build your own market-entry strategy• Focus on business objective and priorities
[Source: CBBC, Leeds University, UKTI]
Doing Business with China
Doing Business in China Leave your preconceptions at home Keep hold of your business sense as tightly as you would
anywhere else Do your homework on the market and on potential partners Patience is a virtue; need commitment and open mindedness ; need commitment and open mindedness Take a long-term approach, but do not stick rigidly to your plans Obtaining good quality independent legal and professional advice is
essential Protect your IPR Carry out due diligence Importance of personal relationshipsImportance of personal relationships
Doing Business with China
CHINA THREATS? OPPORTUNITIES?
Depends on your sector, stage of development, strategy ….
Must factor China fully into your strategy
Exports, investment, partnering Sourcing, outsourcing Design, science/ research,
marketing, branding Services, solutions (eg. BPO)(eg. BPO)
Innovation, R&D Labour, skills Environment
IPR, Tech. Transfer Energy, raw materials Manufacturing Pace & extent of change Complexity Source of competitorsSource of competitors
A management consulting firm specialising in international business, trade and investment- we advise clients on the development of their international strategy and practical implementation, to
deliver growth- our main focus is on China, complemented by extensive commercial experience in Central Europe and a
range of emerging and developed markets- we have an exceptional group of highly experienced Associates, who are acknowledged experts- our clients are world-class companies, public-sectors agencies & academia. We have built a strong
reputation by working closely with them, to achieve measurable results- we have a unique blend of commercial and public-sector experience at senior levels, particularly in
China and the UK- our knowledge and skills are combined with an exceptional network of contacts within the commercial
world, government, and higher education
To contact us: UK: +44 (0)1647 2772777
[email protected] www.neilblakeman.com