Zhan Su, Université Laval
Quebec and Canadian firms
faced with an emerging China
Presentation at the CÉRIUM’s Summer School
China Risen
How it changes and changes us
Quebec and Canadian firms
faced with an emerging China
Dr. Zhan SU
Professor of international management
and business strategy
Director of GÉRAC (Research Group on
Contemporary Asia)
Université Laval
July 2006
China is attracting attention from the
whole world
 Chinese burden (Brown, 1994)
 Chinese illusion (Segal, 1999; …)
 Chinese manipulation (Rawski,
2001)
 Bankruptcy of China (Chang, 2001; …)
 Chinese miracle (..., 2002; …)
 Chinese opportunity (…, 2003; …)
 Chinese threat (…, 2003; …)
 Chinese jungle (…, 2005; …)
 Chinese shocks (Brown, 2005; …)
Part 1
China as a world factory: myth or reality?
Part 2
Trade relationships between
Canada/Quebec and China: a win/lose,
lose/lose, or win/win relationship?
Part 3
Quebec and Canadian firms faced with an
emerging China: what position and which
strategies to take?
Fundamental characteristics of China
- An emerging key economic player
- A developing country
• Still more than 100 million people living in poverty
• Current GDP / capita is equal to South Korea in
1982 and Japan in 1961. They need another 25
years to reach the current GDP / capita in Japan.
- A country in transition
One thing China is not lacking today are PROBLEMS.
But, as long as there is growth…
The rise of Chinese economy is an
undeniable fact
• Growth: 9.4% from 1978 to 2005, from 147 billion
$US to 2,240 billion; 4th biggest
• GDP per capita: from 340 $US to more than 1,700
US$ in 2005; China quickly surpassed India
• Poverty reduction: from 500 million to less than 100
million; a record
• International trade: from 20 billion $US in 1978 to
1,422 billion in 2005; from less than 1% of world
trade to 6%; currently 3rd biggest
• Foreign currency reserves: from 0.17 billion $US in
1978 to 854 billion in February 2006; 1st place
Part 1
China as a world factory:
myth or reality?
Exceptional growth
of exportations:
China :
Malaysia
Mexico :
Brazil :
+ 1200%
: + 600%
+ 600%
+ 300%
Source: WTO
China, a world factory
•
•
•
•
•
•
•
•
•
•
•
•
•
•
90% of DVDs
75% of toys
70% of tractors
65% of sports goods
60 % of bicycles
58% of telephones
50 % of cameras
45% of watches and clocks
40% of screens
40 % of micro-waves
36 % of television sets
30 % of air-conditionners
20 % of refrigerators
……
“Made in China” myths (1)
- China does not have a dominant place in world
manufacturing industry.
Although China is currently the first producer of more than one hundred
products, it realizes only 5% of the world industrial production, far behind
the United States (20%), Japan (15%) and Germany.
China is particularly weak in industrial goods production where the
added value is much more important (a share of 30% in the Chinese
manufacturing industries against 42% in the United States, 44% in Japan
and 46% in Germany).
Currently, China does not have the necessary technological level to
become a world manufacturing center, because it is very dependent on
advanced technologies coming from abroad, and this, in most of its
industries.
“Made in China” myths (2)
- Products “made in China” are the result of a
globally organized production system
China is not the main master of the “made in China” products.
China currently counts approximately 500.000 companies with
foreign capital. They contribute to more than 33.4% of the Chinese
industrial production and to more than 60% of Chinese exports.
A lot of countries participate in the production of “made in China”.
Ex: of the 12 million lap-top computers sold by China to the United
States in 2005: the majority of the key pieces (screens, software,
sound cards, hard drives, etc.) were in fact imported from around
the world to be assembled in China. The true contribution of China
in this case represents less than 30% of the final value of the
product.
“Made in China” myths (3)
- China only obtained a small percentage of the
value added of the products “made in China”
The development of the products “made in China” was very
beneficial for China. There is today more than 80.000.000 jobs in
China directly involved in this activity. Thanks to the technological
and managing learning, the competitiveness of Chinese companies
is no more limited just to the low cost of Chinese labor.
However, China just obtains a small percentage of the value added
of products “made in China”. Ex: to purchase an Airbus A-380,
China needs to export 800 million shirts. A Barbie doll, produced for
2 $US in China will be sold for 16 $US in the United-States.
“Made in China” myths
China occupies today a very important place in
the world economy. That is due as much to its
relative economic weight as to the impacts
generated by its fast rise. However, it is
exaggerated to already qualify China as a
“world factory”, the title that was given to
empires of past and present (England, the
United States, Japan, etc). China should rather
be considered as a country which is today only
an assembly workshop of world in industries of
consumer goods, but aims at becoming a world
industrial superpower.
What will be the future of the
“Made in China”?
According to many experts, in spite of innumerable problems, Chinese
manufacturing industries will in the future still accentuate their place in international
market, and will occupy, in addition, an increasingly important place in the field of
high technologies.
China is an atypical developing country, because it has at the same time the
absolute advantages with regards to costs, the comparative advantages with
regards to productivity and the competitive advantages in several high-tech
sectors. According to a study by Mc Kinsey (2002), in several industrial sectors, the
productivity of Chinese workers is already 20% greater than European countries.
An increasingly complete and efficient industrial system, an important tank of rural
human capital, little qualified but inclined to work for low wages, a political stability
ensured by a totalitarian regime which however puts the economic growth at the
center of its concern, an increasing domination of the private companies in Chinese
economy, the existence of an important and relatively inexpensive infrastructure are
as many factors that contributed and which likely seem to continue to contribute to
the rise of the “made in China” products in international market.
China will remain the giant of the
manufacturing products
Exportation de marchandises
trillions de US$
2
1,5
Inde
1
Chine
0,5
0
2002
2004
2006
2008
2010
China: a world laboratory?
Results of a survey to American high-tech firms done by
“The Economist” in 2005
• Favoured countries for the implementation of R&D
centers in the upcoming years :
• China (39%)
• United States (29%)
• India (28%)
• Determining factors :
•
•
•
•
Fiscal advantages (70%)
Current and future local market
Labour costs
Large supply of skilled workers
Part 2
Trade relationships between
Canada/Quebec and China: a
win/lose, lose/lose, or
win/win relationship?
Principal trade partners of China in 2005
Origin of import. in 2005
Country
Destination of export. in 2005
Part (%)
Japan
15.2%
South Korea
11.6%
ASEAN
11.4%
Taiwan
Country
Part (%)
United-States
21.4%
EU
18.9%
Hong Kong
16.3%
11.3%
Japan
11.0%
EU
11.1%
ASEAN
7.3%
United-States
7.4%
South Korea
4.6%
Australia
2.5%
Taiwan
2.2%
Russia
2.4%
Russia
1.7%
Saudi Arabia
1.9%
Canada
1.5%
Hong Kong
1.9%
Australia
1.5%
Source: Ministère du commerce de la Chine
Echanges commerciaux du Canada avec la Chine
40 000
30 000
20 000
10 000
20
05
20
04
20
03
20
02
20
01
20
00
9
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
-10 000
19
91
19
90
0
-20 000
-30 000
Exportations du Canada vers la Chine
Im portations du Canada vers la Chine
Solde
Echanges commerciaux du Québec avec la Chine
6000
4000
2000
05
20
04
20
03
20
02
20
01
20
00
20
99
9
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
19
-2000
90
0
-4000
-6000
Exportations du Québe vers la Chine
Importations du Québec vers la Chine
Solde
Punish Us, Please
by Jim Stanford, Canadian Auto Workers, No 80, 25 avril 2004
Chinese officials have hinted darkly that if Canadian politicians express support for Tibetan
independence in meetings with the Dalai Lama, there could be repercussions for our bilateral trade. We
should take them up on that offer. Because the evidence is mounting that trade with China is doing us
much more harm than good.
A decade ago, we had a modest, balanced trading relationship. Since then, our exports to China have
grown by $2 billion - but our imports have grown 8 times as much. That makes China our second-largest
trading partner, and our $15 billion bilateral deficit is our largest anywhere. That imbalance represents at
least 50,000 lost Canadian jobs.
The bleeding is set to accelerate in the years to come, as Chinese exports become more diverse and
technically sophisticated. Stop thinking about plastic toys from McDonald's; start thinking about cars,
computers, and airplanes.
Free-traders have a pat answer. China is a low-cost, labour-intensive country. It's good for us to import
labour-intensive goods from them, in return for exports of knowledge-intensive goods and services from
us. That's how "comparative advantage" works.
Yet this standard free-trade model has never been more out to lunch than in explaining Canada-China
trade. China's boom does not reflect a natural abundance of labour (which every poor country has). It
reflects a deliberate, semi-planned strategy to construct advantage in increasingly sophisticated
industries, with the help of powerful state interventions: subsidized capital, investments in infrastructure,
a managed currency, and - of course - forcibly cheap and compliant labour.
What's more, our puny stake in China's phenomenal growth - $5 billion annual exports to a country with GDP
approaching $10 trillion - does not mostly reflect our "brains." It is our traditional commodity industries (minerals,
agriculture, and other resources) that will capture most of the crumbs coming our way from China's economic miracle.
Believe it or not, trade with China is reinforcing our historical status as an exporter of staples, even as they work
consciously to escape their role as a supplier of cheap labour.
Standard responses to the Chinese trade threat won't even slow the coming explosion of our jobs-destroying bilateral
deficit. Investing in education for Canadian workers is no panacea: workers in China, India, and elsewhere are just as
capable of learning high-tech skills as Canadians are. Easing interest rates won't help much, either - beyond undoing
some of the damage of last year's run-up in the loonie. Pressing China to float its currency (the current U.S. tactic) will
make hardly any difference: the yuan could double tomorrow, and companies would still be flocking there.
Ultimately, it will require direct measures to limit trade imbalances and force Chinese planners to buy as much from us
as we buy from them. Fortunately, by threatening their own retaliation for our hospitality to the Dalai Lama, the Chinese
have made it easy. We'll let them disrupt this one-sided relationship, instead of us.
Applying my well-known diplomacy and tact, I therefore propose an escalating 8-point strategy to disrupt our trade. It's
sure to get a rise out of China's touchy apparatchiks, and provoke the punishment we so richly deserve:
Appoint Iona Campagnolo as our new ambassador to Beijing - after she takes an assertiveness-training
course.
Make the Dalai Lama an honorary citizen of Canada (his purchases of incense can stay GST-exempt).
Keep Canada's team home from the 2008 summer Olympics in Beijing. (The only risk is that no-one might
notice.)
Lend Don Cherry to provide commentary for Tibetan hockey games (since his days at CBC are numbered
anyway).
Invite Tibet to join NAFTA - with appropriate dispensation for their softwood lumber exports.
Pay $100 million to several ad agencies to sponsor patriotic Tibetan festivities.
Organize an official bilateral cultural exchange. Tibet would send us a traveling exhibit of artifacts from
Lhosa,
and we would send them DVDs of the Trailer Park Boys.
Send MP Dennis Mills to shout "Vive le Tibet libre!" from a balcony of the Imperial Palace.
If all else fails, we could always just get down on our knees and plead for sanctions. I know it sounds kinky to beg for
punishment. But in this case, the facts are clear: it's gonna hurt them far more than it hurts us.
Jim Stanford is economist with the Canadian Auto Workers. He owns no handcuffs, whips, or leather straps.
“Hidden” impacts for Canada (1)
• An economy of several billion per year for
consumers
According to several recent American studies, the imports of “made in
China” products would have made it possible to the American
consumers to save about 60 billion US$ per year in the nineties.
Since the value of trade sino-Canadian represents nearly 1/10 of
that of the sino-American exchanges, we can estimate that, thanks
to the consumption of the cheap products “made in China”, there
are several billion dollars which can be saved or consumed for
other goods by the Canadians each year. For families with
moderate incomes, this means an increase of purchasing power by
5 to 10%
• Increasing revenues from Canadian firms
operating in China
“Hidden” impacts for Canada (2)
• Improvement of Canadian firm’s international
competitiveness
. Since several years, Canada has imported more industrial goods
than consumer goods from China. Quebec and Canadian
companies tend more and more to take advantage of the
strengths of China to be modernized and to reinforce our
international competitiveness
• The trade with China constitutes an engine
of growth for the Canadian economy, given
the increasing importance of Canadian
exports towards China.
Canadian imports from China
2004 - million Canadian dollars
Product
Value
Variation (%)
Machines
4707.80
55.58
Electric materials
4325.45
32.77
Toys and sports equipments
2049.37
6.38
House furniture
1634.58
29.99
Woven clothing
1120.05
15.08
Shoes
913.18
5.34
Knitted clothing
887.79
29.34
Steel and iron products
752.29
38.66
Plastic
721.32
12.35
Optical and medical equipments
680.73
24.53
Sources: World Trade Atlas
Canadian exports bound for China
2004 – Million Canadian dollars
Product
Value
Variation (%)
Wood pulp
1033.23
23.36
Organic chemicals
868.68
107.8
Cereals
766.57
1059.5
Machines
320.76
28.86
Fish and sea food
295.17
17.59
Manure
274.86
7.52
Electric material
251.67
-7.83
Nickel
232.15
152.27
Ores, slags and ashes
161.13
9.12
Grease and oil
152.79
158.45
Sources: World Trade Atlas
Canada's imports and exports
$ 000 000 000
Excédent
Importations totales
04
20
02
20
00
20
98
19
96
19
94
19
92
Exportations totales
19
19
90
900
800
700
600
500
400
300
200
100
0
Part 3
Quebec and Canadian firms faced
with an emerging China: what
position and which strategies
to take?
PRINCIPAUX DÉFIS IDENTIFIÉS PAR LES MANUFACTURIERS POUR LES 5
PROCHAINES ANNÉES
57
APPRÉCIATION DU DOLLAR
38
38
CONCURRENCE DE LA CHINE
CHANGEMENTS DE PATTERNS DE CONSOMMATION
30
COÜTS PLUS ÉLEVÉS
ACCÈS À UNE MAIN-D'ŒUVRE QUALIFIÉE
25
23
22
COMMERCIALISATION
CONCURRENCE D'AUTRES PAYS
19
INNOVATION EN MATIÈRE DE PROCÉDÉS
17
FISCALITÉ ET RÉGLEMENTATION PLUS COÜTEUSE
15
CHANGEMENTS TECHNOLOGIQUES
SURCAPACITÉ
13
GÉRER LA CROISSANCE
13
9
ACCÈS AUX MARCHÉS ÉTRANGERS
8
DISPONIBILITÉ ET COÜT DE L'ÉNERGIE
PERCENT OF COMPANIES
5
CONCURRENCE POUR L'INVESTISSEMENT
0
10
20
30
40
50
60
Is the worst still to come ?
Quebec/Canada faced with the
emergence of China
The emergence of China is both a threat and an opportunity.
Above all, it represents a challenge.
If China were not the major supplier of consumer goods for
Western countries, another developing country would be.
The most important is to be able to take advantage of the
competitive factors of China that are in our favour, and not try to
beat China at any cost
To be successful in global competition, firms must put emphasis on
the development of new and distinct competencies, instead of
simply trying to keep all what we have. We need to know how to
do things differently than our principal competitors instead of
contenting ourselves to passively follow their lead.
Quebec and Canadian companies should
reconsider their business strategies
• Produce by ourselves?
Excel in the domains where we posses distinctive advantages, or
where there are strategic importance for our future.
• Have them produced?
Delocalise in a selective manner the activities that represent the
least amount of competitive advantage in order to take advantage
of the strengths of China to reinforce our international
competitiveness and even to halt the disappearance of certain
industrial sectors.
• Produce together?
Exploit complementarities and synergy through partnerships.
• Don’t produce, or stop producing?
Be capable of bring about the radical changes necessary to
ensure the “survivability” of our firms.
Possible competitive strategies faced
with Chinese competition
• In industries that are labour and capital intensive
• Integration by specialisation (outsourcing)
• Confrontation by differentiation
• Avoidance by focalisation (niche)
• In knowledge intensive industries
• Exploitation by penetration
• Integration through collaboration
Positioning! Positioning!!
Positioning!!!
The business opportunities in China are
too attractive for us let them pass by
• Poverty is ever present
• Still more than 100 million people living in poverty
• Current GDP / capita is equal to South Korea in 1982 and
Japan in 1961
• Wealth / capita is currently only 2% of the American figure
• They need another 25 years to reach the current GDP / capita
in Japan and more than 30 years to reach the South Korea
• But, a huge potential consumer market
• The middle class represents 20% of the population
• Annual growth of 20% in luxury goods; China will be the
second largest market in 2015
• 70 000 marriages celebrated each day
• 7th market in 2004 (3%), but 2nd in 2014 (11%)
New Chinese development strategy
•
•
•
•
•
More value added
More efficiency
More socially responsible
More environmental
More diplomatic
Objectives:
- Growth: by 2010 double the GDP per capita of 2000
- Efficiency (consumption of energy resources for each unit of
GDP): 20% less in 2010 than in 2005
- Innovation capacity: In the top 20 by 2020
- Standard of living: a developed country by 2050
Factors for future Chinese growth
- Growth in local consumption (especially by
the rural population)
- Urbanisation (40% vs. 60% in Asia)
- Growth in service sectors (40.7% vs. 70%
and more)
- Improving the competitiveness of Chinese
products on the international market (labour
costs, productivity and quality)
- Development of high technology domains
To succeed in doing business in China,
our companies must be:
 more proactive
 more reflective
 more adapted
 more concerted in our efforts
 in it for the long haul
 better supported
The Chinese market is too complicated for
us to treat it lightly
Chair of global business strategies and
emerging Asian markets
Chair: Dr. Zhan Su
Faculté des sciences de l’administration, Université Laval
Mission:
• Raising awareness of the new reality of the Asian
competition;
• Competitive intelligence of emerging Asian
markets’ evolution;
• Developing expertise and decision-making tools;
• Training experts on the matter;
• Providing assistance to Quebec and Canadian
companies and organizations.
We are not so far behind, and China is
not so far ahead. But, we still need to
do better!
We do need to make changes.
If not, the worst is still to come.
“It is not the strongest of the species that survives, nor the
most intelligent that survives. It is the one that is the most
adaptable to change.”
- Charles Darwin
Part 4
China since 1978:
what’s happened and why?
The determining factors of Chinese
growth
• Introduction of a market system
(private firms: 61% in 2004; foreign
capital: 8.7% of total assets)
• Government’s power to mobilise and to
control
• Investments (44.2% in 2004)
• International markets (69.8%)
• Internal consumption (53%)
Two fundamental policy changes
adopted in 1978
Reform to the economic system
Reform of economic decision making
mechanisms
Reform of motivation mechanisms
Openness to the world
Introduction of capital, technologies and modern
management methods from the rest of the world
The processes of economic modernisation
in the Mao era
• Predominance of ideological
movements
• Monopoly of public property in the
national economy
• Creation of a a centrally planned
economy
• Practises of equal distribution of riches
Failure of the Maoist ideology in the
economic sphere
• Large fluctuations and discontinuities
in the evolution of the national
economy
• An economy of shortage
• Poor performance of state run firms:
“Eating from the same pot”
• Lack of motivation on the part of
workers, each with “an iron rice bowl”
Principal characteristics of Chinese
reform
• No precise objective (model): a trial/error approach: “We
cross the river by looking for the stone bridge in the water”
• Gradual approach : progressive elimination of the
elements of the planned system and the progressive
introduction of market elements
• Development based on inequality : “We must allow a
small number of people and regions to get rich firstly ”
• Fundamental condition : political stability assured by the
domination of the Communist Party of China
• Motivation of the Party: “Only economic development
will allow the Chinese Communist Party to remain in
power”
The transformation of the Chinese State
From a State that produces, programs and protects
to a State that firstly promotes, and also
programs, protects and produces
China today is remarkably open. But this is not due
to the fact that it is very liberal, rather because it
is not.
China today combines all the most negative
aspects of the two worlds: a capitalist culture
introduced by Deng, superimposed on a
traditional Maoist bureaucracy.
Index of corruption perception
Source : Transparency International 2003
Rank
Country
Score
1
Finland
9,7
11
Canada
8,7
11
United Kingdom
8,7
14
Hong Kong
8,0
16
Germany
7,7
18
United States
7,5
20
Chile
7,4
23
France
6,9
30
Taïwan
5,7
40
Hungary
4,8
54
Brazil
3,9
54
Czech Republic
3,9
64
Mexico
3,6
64
Poland
3,6
66
China
3,4
83
India
2,8
86
Russia
2,7
The determining factors of Chinese
growth
• Introduction of a market system
(private firms: 61% in 2004; foreign
capital: 8.7% of total assets)
• Power to mobilise and Government
control
• Investments (44.2% in 2004)
• International markets (69.8%)
• Internal consumption (53%)
Investments in China
Year
Total sum of the
investments
(100 million $US)
Volume of foreign
capital
(100 million $US)
% of foreign capital
/ sum of
investments
1991
1050.97
43.66
4.15
1992
1465.22
110.08
7.51
1993
2268.71
275.15
12.13
1994
1977.34
337.67
17.08
1995
2397.23
375.21
15.65
1996
2763.22
417.26
15.10
1997
3059.97
452.57
14.79
1998
3437.29
454.62
13.23
1999
3608
403.18
11.17
2000
3944.26
407.15
10.32
2001
4458.11
468.46
10.51
2002
5223.94
527.43
10.10
Weight of foreign investments in China’s
industrial production
(in millions of yuan)
Production
Année
industrielle (100
millions yuans)
Contribution des
% des capitaux
capitaux étrangers
étrangers dans la
(100 millions
production
yuans)
industrielle
1990
19701.04
448.95
2.28
1991
23135.56
1223.32
5.29
1992
29149.25
2065.59
7.09
1993
40513.68
3704.35
5.15
1994
76867.25
8649.39
11.26
1995
91963.28
13154.16
14.31
1996
99595.55
15077.53
15.14
1997
56149.70
10427
18.57
1998
58195.23
14162
24
1999
63775.24
17696
27.75
2000
73964.94
23145.59
22.51
2001
94751.78
26515.66
28.05
2002
101198.73
33771.09
33.37
The determining factors of Chinese
growth
• Introduction of a market system
(private firms: 61% in 2004; foreign
capital: 8.7% of total assets)
• Government’s power to mobilise and to
control
• Investments (44.2% in 2004)
• International markets (69.8%)
• Internal consumption (53%)
Degree of opening
1998
1999
2000
2001
2002
Canada
69,27
70,58
73,79
70,15
67,18
USA
18,65
19,02
20,90
19,06
18,26
Argentina
19,35
17,23
18,16
17,47
33,65
Bolivia
36,33
33,87
36,47
37,31
39,48
Brasil
14,18
18,83
18,89
22,93
24,33
Chili
49,55
45,38
49,95
54,60
55,23
Mexico
59,00
58,79
59,56
53,13
52,38
Paraguay
45,49
34,19
39,68
46,32
50,84
Uruguay
29,42
26,75
28,68
27,43
31,54
Venezuela
34,44
33,16
39,60
36,00
41,05
China
34,23
36,38
43,89
43,35
49,03
Indonesia
79,82
51,91
63,68
61,91
51,13
Japan
16,94
16,35
18,03
18,02
18,88
Malaisia
182,37
188,79
199,86
183,99
182,44
Vietnam
76,67
81,17
96,52
95,15
101,27
2004
70
24
Middle school and university
studies
Korea
100%
60%
Singapore
74%
39%
Philippines
78%
29%
Thaïland
59%
22%
Malaisia
64%
12%
Indonesia
56%
11%
China
70%
5%
Students in science and engineering
China
53%
Korea
34%
Indonesia
28%
Malaisia
28%
Philippines
23%
Thaïland
20%
Attractiveness of the Chinese
business environment
-
Productive and inexpensive workforce:
– Average hourly wage : $ 0.50 US/h
– Very large pool of skilled and unskilled workers (20 millions enter
workforce each year; 300 million too many in rural areas)
-
Current and future importance of the Chinese market
-
Political stability
-
Competitive advantages:
- Favourable fiscal conditions (competition between local
governments)
- Low exchange rate
- Complete industrial system
- Low infrastructure and real estate costs
- Relatively abundant and inexpensive supply of natural resources
and raw materials
The Chinese model of development is
put into question …
•
•
•
•
•
•
Growth vs. real gains
Growth vs. efficient economy
Growth vs. social justice
Growth vs. resource constraints
Growth vs. sustainable development
Growth vs. outside resistance
One thing China is not lacking today are
PROBLEMS. But, as long as there is growth…
China: the “blue collar” workers for
the world
• 6% of global industrial production (Japan: 15%, United States:
20%)
• 40 to 100 B$ annual surplus
• 100 000 000 jobs (80 000 000 direct jobs)
• Technological and managerial learning curves
However:
• 60% is done by foreign firms operating in China
• 85% is for foreign brands
• 40% of exported products have very little value-added : 800
million shirts for 1 Airbus A-380; Barbie doll: $2 vs. $16; average
price per textile product: $4; …
• Competitiveness to the detriment of the well-being of Chinese
workers
• High procurement costs (annual bill for imported oil: 2% of GDP
and more)
• Disastrous environmental consequences (15% of GDP)
The determining factors of Chinese
growth
• Introduction of a market system
(private firms: 61% in 2004; foreign
capital: 8.7% of total assets)
• Government’s power to mobilise and to
control
• Investments (44.2% in 2004)
• International markets (69.8%)
• Internal consumption (53%)
China is “subsidizing” foreign
countries
•
•
•
•
•
•
•
Product prices
Fiscal incentives
Resource prices
Cost of capital
“Harmful” industrial projects accepted
Social conditions of workers
Financial losses (foreign bad credits: 5% vs.
0.25 - 0.5%)
Inefficiency of the Chinese economy
• Two thirds of financing for one third of the production (State run)
• An inefficient and incomplete financial system : bad debt, 30 to
50% of GDP
• 40% more energy resource consumption needed by iron and
steel firms;
30% more in the electricity sector;
• 5 the consumption of water and 3 three times more energy
needed for each 10 000 Yuan of GDP produced;
• 80% of fatal accidents for 35% of the global coal production …
• Coexistence of penury and overproduction (86% of products
implicated)
• Investments for political interests
• Speculative investments (real estate,…)
Social injustice
• Growing divide in cities
• GINI coefficient (inequality of distribution): 0.424 in 1996,
0.456 in 1998, 0.457 in 1999, 0.458 in 2000
• 20% of the population hold more than 50% riches, 4.7% for
the poorest 20%
• 50% des urbanites and 90% of the rural population have
no medical insurance
• Growing divide between urban and rural populations
• More than 6 times difference in revenue levels and buying
power
• 300 to 400 million rural workers too many
China faced with a lack of resources
• Relative poverty of resources: 7% of the cultivable land in
the world, 6% of potable water, 4% of forests, 1.8% of oil
reserves, 0,7% of natural gas
• In 2004, China already consumed 20% of global aluminium
production, 35% of steel production, 35% of coal
production, 45% of cement production, 8% of oil
production, …
• Self-sufficiency in energy in 2004: 94%
• Coal remains the most important energy resource in China
(70% of the total). 40% of oil is imported (Saudi Arabia,
Iran, Oman, …)
• By 2020, the consumption of coal and oil will have doubled
• An increase in the price of oil by $10 reduces the GDP by
0.5%
China is severely touched by pollution and acid rains
(a loss of 15% of the GDP per year)
Source: Economic images of the world 2005
China faced with trade conflicts
• Target of anti-dumping charges (15%
globally, 60 cases in 2002 and 49 in 2003)
• Conflicts related to problems concerning
prices, norms, working conditions, IP
infringement, exchange rates, etc.
• Complaints from developed countries but
also from developing ones
• Occidental countries refuse to recognise
the Chinese economy as a market
economy
$000 000
Importations du Canada en provenance de la
Chine
12000
produits agricoles
10000
produits énergétiques
8000
produits forestiers
6000
biens industriels
4000
machines et
équipements
2000
produits automobiles
0
1995
2000
2002
2003
2004
biens de
consommation
Source: l’Observateur Économique Canadien, juin 2005
The rise of the BRICs
Tiré de Goldman Sachs, Octobre 2003 http://www.gs.com/insight/research/reports/99.pdf
Evolution of the world economy
Source: Keystone India
Pourcentage du PIB mondial en 2004
Ētats-Unis
Autres
20%
Ētats-Unis
Inde
28%
2%
Union
Européenne
Japon
Chine
4%
Japon
Chine
12%
Union
Inde
Européenne
34%
Autres
Pourcentage du PIB mondial en 2025
Pourcentage du PIB mondial en 2050
Ētats-Unis
Ētats-Unis
A utres
21%
Ētats-Unis
27%
Union
Européenne
Japon
Autres
10%
Inde
17%
Ētats-Unis
26%
Union
Européenne
Japon
Inde
5%
Chine
Union
Européenne
15%
Chine
15%
Union
Japon
Européenne
7%
25%
Inde
Autres
Chine
28%
Chine
Inde
Japon
4%
Autres
China is not a homogeneous country
• Two worlds: urban vs. rural
• 31 (34) administrative regions
• Three parts: East vs. Centre vs. West
• Three pole of growth: Delta of the Pearl
River vs. Delta of the Yangzi vs. Bohai
• Close to 700 cities
• Favoured areas of development
Segmentation ! Segmentation !!
Segmentation !!!
A few cultural traits in today’s China
•
•
•
•
•
•
Materialism
Voluntarism
Conformism
Pragmatism
Collectivism
Attachment to family
Confucianism, Capitalism and
Communism are the sources of Chinese
culture today
China quickly surpasses India
PIB par habitant
1200
1000
US$
800
China
600
India
400
200
0
1970
Source: Banque Mondiale, Global Insight Inc.
1980
1990
2000
2004