Doing Business with China
Business, Economics
Politics & Culture
Neil Blakeman
Associates Ltd
9th November 2010
Doing Business with China
CHINA
ssssssss
Bohai Rim
Yangtze Delta
Pearl River Delta
Three Main Centres of Economic Gravity
Doing Business with China
[Source CBBC, Leeds University, UKTI]
Doing Business with China
Economic Highlights
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World’s 2nd largest economy
Annual growth c.10% for 25 years [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%]
Per capita GDP (at PPP) c.$7,800 [rising to $13k]
Of 1.3bn, 200m+ (?) live on < $2 / day
Overtake US in GDP (PPP) terms by 2030?
[Source: EIU, Goldman Sachs, various]
Doing Business with China
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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
Asia's Share (%) In World GDP (at PPP)
%
%
70
60
50
40
30
20
10
0
1820
1870
1913
China
Source: Angus Maddison
1950
India
Japan
1973
Other
Asia
2001
Doing Business with China
POLITICS
 4th generation leadership –> 5th in 2012…
 Harmonious, balanced, sustainable development
(Party legitimacy)
 Domestic challenges; demonstrations, human
rights? unemployment
 Foreign Policy; N. Korea --, Taiwan ++, US(+), Japan G20+, [G2?]
 Democracy?
Doing Business with China
Economically, three transformations:
Planned Economy
Market Economy
Closed
Economy
RURAAL
Open Economy
Rural
Urban
Other factors:
– WTO (Distribution, Financial Services & Retail) – but recently?
– Olympics, EXPO 2010, Asian & Student Games 2010-11
– Foreign Exchange Reserves >$2.5 trillion
– FDI $100 bn in 2010 ?; $120bn+ 2015?
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?
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Global Economy
– exports (& imports) China: slowed in 2009, bounced back in 2010
– cost (& domestic pressures) : competitiveness ?
– protectionism ? : is a concern (e.g. use of anti-monopoly laws in China)
– product safety, reputation for quality & consistency (?)
– UK exports to China are more competitive
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Consumer / Business confidence (stock market, property market)
– Consumption ? : retail sales are up
– ‘Indigenous innovation’ : = more technology transfer ?
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Huge fiscal stimulus ($586bn) …how effective / over-stimulus? Infrastructure, ’Pillar’
industries, science, health, education
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Effect on Chinese Banks : limited
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Outward Investment (FDI & sovereign wealth fund(s)?); Outward direct investment $44bn in
2009, rising to $137bn in 2015?
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>>> Fundamentals good (but, inflation (recent interest rate increase), unemployment?)
Doing Business with China
UK China Trade 2001-2009
from China
Via HK
Total
UK imports from China
28,000
to China
Via HK
Total
UK Exports to China
7,000
24,000
6,000
20,000
5,000
(£m)
(£m)
16,000
4,000
12,000
3,000
8,000
2,000
4,000
1,000
0
0
Year
01
02
03
04
05
06
07
08
[Source: UKtradeinfo, British Embassy Beijing]
09
Year
01
02
03
04
05
06
07
08
09
Doing Business with China
Britain’s Main Trading Partners in 2009 (Avg. Annual Growth 2002-09)
Country
Total
Exports
£bn
Av.
Inc.
pa.
Country
33.6
24.8
18.0
17.6
15.5
10.5
9.0
8.2
5.1
4.1
3.9
3.6
3.6
3.5
3.4
2.9
2%
2%
0%
3%
0%
1%
1%
0%
17%
1%
2%
2%
10%
5%
-1%
6%
GERMANY
USA
CHINA (3rd)
NETHERLANDS
FRANCE
NORWAY
BELGIUM
IRISH REPUBLIC
ITALY
SPAIN
HK (11th)
JAPAN
SWITZERLAND
SWEDEN
CANADA
POLAND
USA
GERMANY
FRANCE
NETHERLANDS
IRISH REPUBLIC
BELGIUM
SPAIN
ITALY
CHINA (9th)
SWEDEN
SWITZERLAND
CANADA
UAE
HK (14th)
JAPAN
INDIA
[Source: UK trade info]
Total
Import
s £bn
Av.
Inc.
pa.
39.7
28.4
22.9
21.5
20.5
15.1
14.9
12.2
12.1
9.1
7.2
6.2
5.7
5.4
5.3
4.6
3%
1%
16%
4%
1%
13%
3%
3%
1%
1%
3%
-4%
2%
3%
5%
17%
Doing Business with China
UK China Trade & Investment Key Facts
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UK Exports of Goods to China
: £5.1 billion in 2009, up 5%. YTD Aug 45% (HMRC)
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UK Exports of Services to China
: £2.5 billion in 2008, up 60%
: UK is 2nd largest
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China = UK’s 2nd largest non-EU export market
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China = 3rd largest source of UK imports
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UK is China’s 15th largest trading partner (8th largest importer)
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UK No. 1= EU Investor in China
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580 + Chinese Companies Invested in UK
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UK is no. 1= destination for Chinese investment into EU
[Source: British Embassy, Beijing]
6639 projects
US$16.9 billion realised
(400 Mainland, 180 Hong Kong)
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
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Legal, tax, accounting, certification (and resolving disputes)
Partner selection, relationships
Corruption
Handling people / relationships (‘Face’, ‘Guanxi’, hierarchy)
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Official trade & investment limitations
Route to market, physical distribution
Risk management (company, personal)
Size, diversity, cultural ‘distance’, language
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Sales, marketing, branding
Negotiating, pricing
Remitting funds, getting paid
Scarcity: power, water etc
Doing Business with China
Intercultural Communication & Understanding
Influences
 Long history
 Confucius, Daoism, Buddhism
 Women (father, husband, child)
 Elders
 Pictographic language
 Study / education
 Family ties
 Zhongguo (middle kingdom)
 Patriotism
Behaviours (business context)
 Patient
 Group orientation
 Hierarchy
 ‘Guanxi’ (networks/relationships)
 Bonding
 Modest
 Decision-making
- Simplicity v’s complexity
- Employment, technology
 Contract (only the beginning)
 ‘Face’
 Personal relationships
Practicalities: Mandarin v's Cantonese, business cards, interpreters, banquets, design / promotion, gifts, hotel cards
etc.
Acknowledgement: input from Eugene Chang (formerly at CBBC)
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:
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–
–
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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
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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
 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 relationships
Doing Business with China
CHINA
THREATS?
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IPR, Tech. Transfer
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Energy, raw materials
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Manufacturing
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Pace & extent of change
Complexity
Source of competitors
OPPORTUNITIES?
Innovation, R&D 
Labour, skills
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Environment
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Exports, investment,
partnering
Sourcing, outsourcing
Design, science/ research,
marketing, branding
Services, solutions (eg. BPO)
 Depends on your sector, stage of development, strategy ….
 Must factor China fully into your strategy
Doing Business with China
Doing Business with China
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