Transcript No Slide Title

Overview of China’s Economy
and Market Opportunities
Craig Allen
Senior Commercial Officer
U.S. Embassy, Beijing
Headline News - 2005
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China’s GDP grows 9.9 percent, surpassing USD 2 trillion
Per capita GDP up to approximately USD 1,500
China’s banking system recapitalized with FDI
FX reserves increased USD 208.9b to 818.9 b
RMB de-pegged, but still not reflecting market forces
China’s multilateral trade surplus up to 5 percent of GDP
China plans to quadruple GDP in 20 years, which implies an
average 7.3% annual growth.
U.S. Exports to China
Jan – Dec yoy
45.00
41.84
40.00
34.70
35.00
28.40
30.00
25.00
19.20 22.10
USD(b)
20.00 16.30
15.00
10.00
5.00
0.00
2000 2001 2002 2003 2004 2005
Leading U.S. Exports to China (4 digits)
(Jan. - Dec. 2005)
Product
Value (USD)
aircraft and parts
3.84b
digital integrated circuits
3.12b
soybeans
2.25b
cotton
1.40b
ferrous metal scrap
1.26b
auto parts / accessories
1.03b
auto data processing equip.
0.78b
copper scrap
0.76b
aluminum scrap
0.72b
Waste of paper
0.69b
Electric Apparatus
0.57b
Raw hides&skins of Bovine equine animal 0.56b
%Change
137.23% +
16.98% +
3.25% 1.51% 34.39% +
72.04% +
0.13% +
42.31% +
94.20% +
42.79% +
7.79% +
16.6% +
Composition of U.S.- China Trade
2005 Top 12 (2 digits)
U.S. Imports (from China) %Change
U.S. Exports (to China)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Elect. Machinery
Machinery
Toys/Sports equipment
Furniture and bedding
Footwear
Plastic
Knit apparel
Leather Goods
Iron/steel products
Vehicles
Optic/Medical inst.
Misc Textile
32.09%
20.29%
11.13%
18.27%
12.10%
27.82%
60.26%
9.61%
34.22%
24.54%
8.95%
29.63%
Electric.machinery
Machinery
Aircraft,spacecraft
Optic/Medical inst.
Grain,seed,fruit
Plastic
Iron and steel
Organic chemicals
Cotton+yarn,fabric
Wood pulp, etc.
Copper
Vehicles
%Change
20.41%
12.60%
124.59%
15.03%
-3.45%
25.77%
14.37%
-4.87%
-1.44%
33.34%
40.02%
43.24%
US Deficit (USD billion)
U.S-China Bilateral Trade
Balance
250
201.6
200
162
150
100
83.8
83.1
2000
2001
103.1
124
50
0
2002
2003
2004
2005
Chinese Trade Balances
In USD billion
800.0
762.3
700.0
660.2
600.0
560.8
593.6
413.1
438.5
500.0
400.0
300.0
200.0
295.3
225.1 243.6 325.6
266.4
249.2
102.1
24.1 22.8 30.3 25.4 32.8
2000
2001
2002
2003
Exports
Trade B
100.0
0.0
Imports
2004
2005
China’s Multilateral trade
balances by industry
Trade balance composition, 1990-2005
140.0
140.0
120.0
120.0
100.0
100.0
80.0
80.0
60.0
60.0
40.0
40.0
20.0
20.0
0.0
0.0
-20.0
-20.0
-40.0
-40.0
-60.0
-60.0
-80.0
-80.0
-100.0
-100.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Machinery and equipment
Primary products
Light industrials and intermediates
Chemicals
Other manufactures
Economic Snapshot of 2005
• 9.9% GDP growth in 2005: 9.9% in Q1, 10.1% in Q2,
9.8% in Q3, 9.8% in Q4
• 12.9% growth of retail sales in 2005.
• 25.7 % growth in net fixed asset investment.
– 11.4% growth in industrial production (48% of GDP)
– 5.2% growth in agricultural production (12% of GDP)
– 9.6% growth in service growth (40% of GDP)
Fiscal and Monetary Policy Stability
2000
2001
2002
2003
2004
2005
Inflation
0.4%
0.7%
0.1%
1.8%
3.9% 1.8%
Rev/gdp
15.3% 17.1%
18.5%
21.7% 19.3%
Bud. Bal
-3.6% -3.2%
-3.3%
-3.1% -2.5% +1%
Gov.
Res.
Ex. Debt
171b
219b
300b
403b
600b
818b
149b
164b
168b
182b
229b
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Factors of Sustainable
Growth in the future
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Demographics and work force composition
Benign geo-political environment
Stable monetary and fiscal policy
High saving and investment rates
Rapid adoption of technology
Trend toward market-oriented legislation
Booming private sector
Market depth – strategic range
Foreign Direct Investment (FDI)
Market Entry Roadmap
 Direct Exports
 Sales Agent / Distributor
 Resident Representative Office
 Wholly Foreign-Owned Enterprise
 Foreign-Invested Commercial Enterprise (FICE)
Direct Exports
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Evaluate Prospects
– Are You China Ready?
– Market Research
– Regulatory Environment
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Create a Marketing Plan
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Develop Trade Leads
– Attend a trade show in China, many supported by CS
– Participate in a trade mission, organized by USDOC, state government or trade
association
– Monitor the CS International Buyer Program via your USEAC
– Monitor CBIC tender announcements, ADB and World Bank
– Featured U.S Exporter (FUSE)
– CNUSA, Chinese edition
2006 CS China
Trade Show Calendar
Mar
Apr
May
Jun
Jul
Aug
Sep
China CIPPE (BJ) Con Expo
SITL SINOCES
CCFA Book Fair
Building
(BJ)
LogisticsConsumer Franchising (BJ)
Water
(BJ)
(GZ) Electronic
(SH)
Expo (BJ) Broadcast
CIFTEE
(Qingdao)
Dental
Network & MEDTEC
(BJ)
Expo (GZ) NEPCON Expo China (SH)China Int’l
(SH)
Analytica
Comm
Building
SIMM 2006
China
Hotelex
(GZ)
Decoration
(GZ)
2006 (SH)
(SH)
Fair
ELE/PT
SEMICON
CIEME
(GZ)
China
Comm
(SH)
Equip
Refrig (SH) China
(Shenyang)
Pollutec
(SH)
Sporting
(SH)
Goods
World
(CD)
Travel Fair
(SH)
Oct
Nov
Dec
Security MEDTEC Printed
China China (GZ) Circuit &
(BJ)
Electronics
Assembly
EP China
(GZ)
(BJ)
PTC Asia/
Metal
Working
(SH)
Zhuhai
Air Show
(GZ)
Sales Agent / Distributor ( I )
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Advantages
– no investment in office overhead
– no registration requirements, no physical presence
– lower likelihood of non-payment
– no responsibility for customs clearance
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Responsibilities
– Comply with safety and quality certifications, China Compulsory Certification, other
standards requirements
– Comply with the U.S. Foreign Corrupt Practices Act
– Comply with U.S. Export Control regulations
– Prepare a contract that protects your legal interests, see a local attorney
– Closely monitor the agent / distributor’s activity
Sales Agent / Distributor ( II )
 Manage Expectations
– use worldwide selection criteria, then evaluate skill sets
– explore their view of market prospects, approach to business
development
– ask to see a prior marketing plan and market research report
– discuss cost sharing for Chinese language brochures, participation in
trade shows, demonstration equipment, training in the U.S.
– contract should contain clear reporting requirements and performance
goals to monitor whether the Chinese company can do what it purports to
be able to do
– evaluate capacity to stock and warehouse
Sales Agent / Distributor ( III )
 Due Diligence
– Many exaggerate trade experience, check trade references
– Ask for a copy of the firm’s business license, SAIC inspection, trading
rights license, visit business premises
– Triangular debt common for entities lacking trading rights and foreign
exchange
– Obtain a DD report through local service providers or CS.
China lacks a corporate credit rating system
– Government system for verification of business registration on line is
emerging – SAIC Red Shield (Hong Dun) Program
Sales Agent / Distributor ( IV )
 Contract Terms
– seek professional legal advice before contracting, do not rely upon your
Chinese business partner
– ensure the dispute resolution clause limits time for “friendly discussion or
mediation”
– do not accept obligations outside of your control: visas, export licenses
– do not export on open account or D/P terms
– ensure contract has non-competition and non-disclosure clauses to
protect trade secrets, in the event the relationship ends badly
Resident Representative Office
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RRO may perform a useful government liaison and marketing function, contract
implementation. Useful for getting into government procurement projects.
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Restrictions on business scope apply:
– not allowed to engage in profit-making activity
– not allowed to directly import and distribute product
– not allowed to service equipment or warehouse spare parts
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Establishment of physical presence now requires only local registration. The cost to
support a modest RRO $250,000-500,000 depending on location and size.
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Registered capital in the amount of $10,000 still required.
Foreign-Invested Commercial
Enterprise
 Market entry vehicle for domestic wholesale and retail
distribution
 Scope of operation includes “trading rights,” meaning
the right to import or export goods manufactured by
third parties into or out of China.
 Scope of operation includes “distribution rights,”
meaning right to sell products for its own account on
retail or wholesale basis, import for sale within China,
purchase domestic products for export and perform
related services.
Hong Kong as a Gateway
 Ease of Doing Business
 Rule of Law
 Free Trade Port
 Secure banking system
 Strategic Asia Hub
 Location
 Test products for market
 Regional HQ
 Huge re-export market to China
 Closer Economic Partnership Agreement (CEPA)
 Access to Pearl River Delta – China’s manufacturing hub
Anticipate Problems - Macro
• Intellectual Property Rights
– Patent
– Copyright
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- Trade Secrets
- Trade Mark
Industrial Standards and Certification Problems
Transparency/Corruption
Payment issues
Dispute Resolution
Price Competition
Anticipate Problems - micro
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Management-level human resources
Bureaucracy
Unclear Regulations
Lack of Transparency
Inconsistent Regulatory interpretation
Corruption
Contract Enforcement
Local protectionism
U.S. Companies Profit/Risk in
China - 2005
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72% U.S. firms increased product offering in China
86% increased revenue substantially
63% increased profitability
34% have higher margins than global averages
92% are optimistic
Find the right markets and partners
with our products and services
 CNUSA – Chinese edition
 Featured U.S. Exporter
 International Partner Search
 Customized Market Research
 Gold Key Service
 International Company Profile
 Single Company Promotions
 Trade Missions, Trade Fairs and Catalog Exhibitions
American Trading Centers:
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Harbin
Dalian
Qiangdao
Tianjin
Xiamen
Wuhan
Hangzhou
Nanjing
Ningbo
Chongqing
Kunming
Zhuhai
Shenzhen
Xiamen
ATC Program Coordinators
Beijing
Shanghai
Guangzhou
Ms. Julie Jiang
Ms. Cindy Qian
Mr. Barry Zhang
[email protected] [email protected] [email protected]
ov
c.gov
oc.gov
(86 10)8529-6655
* 809
(86 21) 6279-7630
*6145
(86 20)8667-4011
*22
China in a Time of Transitions
• China is simultaneously undergoing a series of
dramatic transitions:
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Confucian to modern
Communist to market-driven (not capitalist)
Rural and agrarian to urban and industrial
Economic Autarchy to global integration