Over the Great Wall:
US Company Views & Challenges
of Doing Business in China
Ryan Ong
US-China Business Council
“China Emerged—Rethinking Your Global Strategy”
University of Kansas
March 1, 2013
About USCBC
About the US-China Business Council
The United States-China Business Council is the principal organization of US
companies engaged in trade and investment in the People's Republic of China.
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Private, non-government, nonpartisan
More than 220 member companies
Senior level board of directors
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Founded in 1973
HQ in Washington, with regional
offices in Beijing, Shanghai
Role as an “honest broker”
China’s Market Opportunities: US Exports to China
US Exports to China (US$ billions)
Source: US Department of Commerce, cited in US-China Business Council “China and the U.S. Economy: Advancing a Winning
Agenda,” January 2013
China’s Market Opportunities: Chinese Consumers
China’s Growing Consumer Class
(millions)
Source: InterChina Consulting, cited in US-China Business Council “China and the U.S. Economy: Advancing a Winning Agenda,”
January 2013
Setting the Stage: China’s Economic
and Political Environment in 2013
China’s Economy in 2013
China 2013 GDP Growth Rate Projections
• 2012 GDP grew at 7.8% – lower than 2011’s 9.3%...
but higher than the March 2012 targeted rate of 7.5%.
• 2013 predictions are higher… government target
unknown but perhaps around 7.5%.
Institution
World Bank
Goldman Sachs
Chinese Academy of Sciences
HSBC
UBS
JP Morgan
IMF
Merrill Lynch
Citibank
2013 Forecast
8.4%
8.2%
8.4%
8.5%
8.5%
8.2%
8.2%
8.1%
7.8%
Forecast Date
Jan-13
Dec-12
Jan-13
Jan-13
Feb-13
Jan-13
Jan-13
Jan-13
Jan-13
China’s Leadership Transition
China’s New Leadership Lineup
Xi Jinping
Liu Yunshan
Li Keqiang
Zhang Dejiang
Wang Qishan
Yu Zhengsheng
Zhang Gaoli
China’s Leadership Transition
Timeline for China’s Political Transition
National People’s Congress:
New Government Leaders,
Government Reorganization
Party Congress: New
Politburo, Party
Leadership
Remaining
government
changes
Assorted changes in provincial
governments, some ministries
November
December
January
February
March
April
China’s Leadership Transition
Increased
domestic
consumption
Lower income
disparities
Balanced
regional
development
Tax and
financial
system reform
Current
Policy
Priorities
Healthcare
reform
Broader social
safety net
Industrial &
service sector
modernization
“Clean and
green”
economy
Domestic priorities may – or may not – link to foreign concerns
Trends to Watch: China’s 12th Five-Year Plans
China’s 12th Five Year Plans (FYPs)
• Broad, aspirational policy
document, laying out
policies/goals for the next five
years (2011-2015)
• Sets overall social/macro
economic direction
• Accompanied by a series of
follow-up plans (nearly 300
and counting)
• Takeaway: FYPs provide
glimpses of government
direction, policy goals, and
potential opportunities
Company Views of the Business
Environment in China
Company Views of the Business Environment in China
USCBC 2012 Member Company Survey:
Respondents Profile
Company
Experience
in China
Location
China
51%
Sector
> 20 years
53%
Manufacturing 51%
United States 40%
11 – 20 years
28%
Services
Other
5 – 10 years
12%
Ag/Resources
9%
< 5 years
7%
Other
Strong and Unique Mix of Respondents
Source: US-China Business Council 2012 Member Company Survey
40%
9%
15%
Company Views of the Business Environment in China
China's Prominence in Overall Company Strategy
One of many
non-key
priorities 5% Not a priority 1%
Top priority 22%
Among top five
priorities 72%
Source: US-China Business Council 2012 Member Company Survey
Company Views of the Business Environment in China
Objectives for Existing and
Future Investments in China
94%
14%
12%
3%
Access or serve the Export platform to Export platform to
China market
serve other markets serve the US market
outside the US
Source: US-China Business Council 2012 Member Company Survey
Other
Company Views of the Business Environment in China
Are Your China Operations Profitable?
19%
18%
12%
16%
13%
15%
11%
Yes
No
81%
82%
2006
2007
88%
84%
87%
85%
89%
2008
2009
2010
2011
2012
Source: US-China Business Council 2012 Member Company Survey
Company Views of the Business Environment in China
Revenue from China Operations
50%
45%
44%
2012
41%
2011
37%38%
40%
2010
35%
30%
25%
20%
15%
30%
21%
20%
17%
14%
10%
17%
8%
7% 7%
3%
5%
0%
0%
Increased > 20% Increased 10-20% Increased < 10%
Source: US-China Business Council 2012 Member Company Survey
Unchanged
Decreased
Company Views of the Business Environment in China
Five-Year Business Outlook for China
2%
3%
2%
2%
1%
4%
7%
5%
4%
8%
6%
35%
37%
33%
1%
0%
7%
51%
38%
38%
55%
52%
58%
57%
58%
2007
2008
2009
2010
2011
46%
2006
Somewhat Pessimistic
Neutral
Source: US-China Business Council 2012 Member Company Survey
Somewhat Optimistic
42%
48%
2012
Optimistic
Top Company Concerns in
Operating in China
Top Operating Issues for US Companies
USCBC 2012 Survey: Top 10 Challenges
1. Human resources: Talent recruitment and retention
2. Administrative licensing
3. Competition with Chinese enterprises
4. Cost increases
5. IPR: Enforcement
6. Uneven enforcement and implementation
7. Investment restrictions
8. Competition with foreign companies in China
9. Competition with companies not subject to FCPA
10. Standards & conformity assessment
Top Operating Issues for US Companies: HR & Rising Costs
Top Cost Concerns
88%
Labor costs
50%
General inflation outlook
41%
Materials Costs
36%
Rising tax burden
34%
Energy and utilities costs
28%
Land purchase or rental costs
New payroll taxes/social
insurance expat fees
Other
19%
5%
Source: US-China Business Council 2012 Member Company Survey
Top Operating Issues for US Companies: Administrative Licensing
Administrative Licensing
The Administrative “Black Box”
Project Approvals
Business Licenses
Checks/Investigations
Regulatory Compliance
- Bureaucratic delays
- Lack of regulatory clarity
- Inconsistent application of laws
and regulations
- Conflicts between central
& local priorities
Top Operating Issues for US Companies: Competition
Competition with Chinese Companies
• Chinese companies (SOEs, private) increasing market
competitiveness over time, both in China and abroad…
• …but foreign companies remain concerned that Chinese
companies have access to better policies, incentives,
and greater/better government access – both in China
and abroad.
• Access to credit and export promotion programs,
government procurement projects, inside role in shaping
and driving policy, etc.
Top Operating Issues for US Companies: Intellectual Property Rights
How does China’s level of IPR Enforcement limit
the activities your company can do in China?
40%
40%
36%
28%
22%
Limits products we Limits our R&D Limits products we Limits products we
will co-manufacture activities in China will manufacture in
sell in China
or license in China
China
Source: US-China Business Council 2012 Member Company Survey
No impact
23
Top Operating Issues for US Companies: Protectionism
Signs of Protectionism
Administrative
licensing
48%
Standards setting
45%
Discriminatory
enforcement
43%
Subsidies
35%
Gov’t pressure
to favor Chinese firms
33%
Gov’t procurement
buy local
28%
M&A reviews/
approvals
21%
Adjudication in
commercial courts
Not seeing signs of
protectionism
Other
17%
4%
9%
Source: US-China Business Council 2012 Member Company Survey
Trends to Watch: Strategic & Emerging Industries
Strategic Emerging Industries
Become a
world leader
in seven
developing
industries
Build
globally
competitive
companies
SEI
Industries
Foster
industrial
sector reform
Promote
independent
self-reliant
innovation
Comprise
15% of GDP
by 2020
Company Takeaways
What do these trends mean for companies?
• Tracking of policies and plans to position operations and
anticipate challenges: short- and long-term
• Reassessment of global and China operations to adapt
to changing markets and operational challenges
• Need for active engagement and relationship-building
with governments and external stakeholders
• Increased use of Chinese enforcement channels to
protect company interests
Thank you!
Contact information:
ryanong@uschina.org
(202) 429-0340