Transcript Fig 2 - CBL International

Understanding Chinese
economy
Professor JIANWEI WU
TONGJI University
2014
1
Map of P.R. China
2
Chinese economic features
 Fastest growing economy in the world, GDP




much larger than GNP, thanks for FDI
Save more, invest more and consumer less
Hundreds million people swing between the
East and West regions, or on the way
A poor developing country with huge amount
USD reserves, GDP per capita ranks the
poorest 30%, while foreign currency reserve
reached 3.82 trillion USD on 31, 2013
No luxury brand is designed by Chinese, most
of them made in China and half of them
3
shipped back to China
Chinese economic features
 One of the most polluted countries managed
to produce solar and wind generators
 A socialist country trapped in monopoly
industries, struggling to build market system
 GDP per capita is $6920 in 2013
 Four wheels of the economy: cheap labor,
open door policy, reform, urbanization;
energy driven: from high saving rate to high
rate of investment
4
Introduction of Chinese macroeconomic
environment, political factor
 Earliest market regime in the world
 Property heritage system formed an inward
looking society
 Emperors Wen and Jing only taxed 1/15 to
1/30 of people’s income
 Leading roles of Chinese Communism party
can be found in the various administration
levels, real decision makers
 State and regional governments regulate
economic affairs and share tax revenue –
49.4% to 50.6% in year 2012.
5
Major sources of tax revenue China, Bn yuan
Domestic Business Domestic
Year
Total
Valueadded
Tax
Tax
Consump
Tariffs
tion
Tax
Corporate
Individ
ual
Income
Income
Tax
Tax
2003
2002
724
284
118
92
292
142
2006
3480
1278
513
189
114
704
245
2009
5952
1848
901
476
148
1154
395
2012
11725
2641.5
1575
788
437
1965
582
6
14
Fiscal balance, trillion RMB
12
10
expenditure
8
revenue
6
4
2
0
9
2K
1
2
3
4
5
6
7
8
9
10
11
7
12
Tax revenue as % GDP, China
Extra get
30%30%
fromextra
selling
land! from selling land
Governments
revenue
25
20
15 11.9 12.7
14 14.7 14.7
17.8
16.8
16.1
19.8 19.2 20.4 19.4 19 19.4
10
5
0
99 2K
1
2
3
4
5
6
7
8
9
10 11 812
Economic and social factor of urbanization
and mega cities
 Economy of scale, scope, industrial cluster




and economic networking
High value added industry in CBD: finance,
services and entertainment
Face to face communication (dating and
appointment), emotional needs, social
networking
Tank of skills and talents
Employment and recruitment opportunities
9
Cardinal challenges and opportunities to modern
Chinese economy are urbanization and employment
 Up to 53.7% of residents are categorized as city and
town citizens and 46.3% as farmers, respectively in
2012. Hundred million youth migrates from inland
China, particularly countryside to cities and coast
areas, looking for jobs.
 More than 60% of the Chinese will be settled in
urban area by year 2020. Therefore, there have to
be enough jobs, shelters and infrastructure to
accommodate new immigrates.
 Number of cities with one million or more population
are 150 in China in 2010.
10
Labor force and employment
 Working forces (age between 15-64) was 644
million in 1980 and 941 million in the peak year
2011. Labor force shrink 3.5 million since 2012.
 The ratios of labor to total population are:
1980 64.4%; 2009 72.4%; 2030 67.4%; 2050 63%
11
Urbanization and road communication in
China
 Rapid train system, over 10000 Km and competing
with airlines
12
Highway, China, Mn Km
4.5
4.11
4.01
3.86
3.73
4
3.58
3.46
3.35
3.5
3
2.5
1.87
1.81
1.77
1.7
2
1.35 1.4
1.5
1
0.5
0
9 2K 1 2 3 4 5 6 7 8 9 10 1311
Expressway, China, 1000Km
84.9
90
74.1
80
65.1
70
60.3
53.9
60
45.3
50
41
34.3
40
29.7
25.1
30
19.4
16.3
20 11.6
10
0
9 2K 1 2 3 4 5 6 7 8 9 10 1411
(continued)
 The total turnover of cargos in harbors is 3.42 billion
tons in 2006 and 9.47 billion tons in 2012.
national highway project “7918” will be
constructed based on the planning of Ministry of
Transportation, namely 7 routes radiating centered in
Beijing, 9 North-South and 18 East-West rotes cross
mainland China, making total mileage of 85000 km.
All 319 cities which have population more than
200,000 will be connected in year 2020.
 The
15
Distribution of Chinese population
100%
Urban
Rural
80%
60%
40%
20%
0%
1952
1960
1970
1980
1990
2000
2020 16
Total population mn and percentage of senior
citizen in China
Year
Total
Population
Population 65
+
1950
1960
1970
1980
552
662
830
987
2
3.5
4.1
4.9
5.8
Year
Total
Population
2010
2020
2030
2033
2050
1,300
1,445
1,460
1,500
1,453
8.7
12
16.2
21
23.1
Population 65
+
1990
2000
1,143 1,273
7
17
Widening distribution of income between
coastal and inland, urban and countryside
 The gaps of income between coast areas and
inland China are huge and still enlarging. Gini
coefficient was 0.28 in early 1980s, increasing to
0.38 in 1995, 0.458 in 2001 and over 0.47 in 2012.
 Social stability, comparison between China, India
and Brazil (0.515 in year 2008)
 Disposable income per person in cities and towns
were RMB8472 in 2003, 26955 in year 2013. By
contrast, average net income of rural residents was
only RMB 2622 in 2003; 8896 in year 2013 .
 Social welfare coverage is close to 100% but at
very basic level
18
Everlasting unemployment issue
 Because of limited arable land, people ages




between 15 to 50 move to cities to find jobs.
Left home ages and children, not only an
economic issue
The hidden unemployment is a serious problem,
but it provides abundant supply of labor.
Supply of employment posts in the near future
should come from the service sectors and near
major cities.
The development of Chinese industry has
constraint of shortage of skilled labor
19
Minimum wage US$
Vietnam 2011
1002 Spain 2010
11426
Indonesia
2011
1027 US 2009
15080
Shanghai 2011
Switzerland
2430
2008
15457
Russia 2008
2812 France 2011
17701
Brazil 2012
Australia
4350
2011
20027
Chile 2010
5484 Denmark
23277
20
Employment in Chinese firms, %, 2011
6
7.6
18.6
1.7
59.1
21
SOE
Collective
Corporation
FDI
Self
Profit distribution in Chinese industry, %, 2006
10.3
27.6
SOE
FDI
others
62.1
Profit distribution in Chinese industry, %, 2011
5.8
25.2
SOE
FDI
others
69
22
16
14
12
10
8
6
4
Compound growth rate, GDP, %
2
23
0
78
9
0
1
2
3
4
5
6
7
8
9
0
1
2
3
4
5
6
7
8
9
2K
1
2
3
4
5
6
7
8
9
10 11 12 13
Industrial performance in year 2005 and 2013
 Electricity bn KW/hour, 2474.7 to 5397.6,





shortage
Coal mn tons, 2190 to 3680, transportation
problem, slowing down
Steel mn tons, 352 to 779, over capacity and
constrained on ores importing
Cement mn tons,1060 to 2420, pollution
Car million, 5.7 to 22.12, mild growing
Construction value added bn, 690 to 3900,
demands slow in real estate and more on
infrastructure
24
(con’t)
 Investment for real estate bn, 1543 to 8601,




growth rate slowing down
Consumer retail 6718bn to 23781bn, booming
sector
Saving in financial institutes 30 trillion to 94.3
trillion, slowdown since year 2010
Money supply of M2 29.9 trillion to 110.7
trillion. hard to get loan
China is facing the threaten of the bubble
economy and deflation
25
GDP in 2011, where does fuel come from?
 GDP = C + I + G + (X – M)=49.1(C+G)+48.3(I)+2.6X
 High level of saving in banks, liquidation mismatch






problem, SME is hunger for loan, loan for the poor
(Shanghai miracle in the 1920s and Bangladesh
country banks)
Insufficient development of financial market, bond and
other security markets
Less enthusiasm of consumption
Overheating of regional government investment and
expenditure
Underground economy
Surging in foreign currency reserve, over export and
flowing in speculative money
26
Price index and interest rate
27
Continuous growth of Chinese economy
 Divergent interests of central government versus




regional governments, increasing gaps of
development
Potential of the service industry: the road from
secondary position to leading sector of GDP; value of
emotion and information, from GE to IBM, from
physical manufactures to the new economy
Resurging of commodity economy, materials and
agriculture and economic products
Further opening up industrial sectors to private and
foreign investors
Why do we need a ever growing model, pollution also
cost 10% of GDP
29
30
A long way from OEM to ODM and selfowned intellectual property
 The cost of intellectual property, barriers for
catching up economies, overwhelming patent
applications from the overseas
 Emerging of ODM in the coast regions
 Insufficient input on R & D, case of the
Chinese pharmaceutical industry
 Lessons learned from pattern of development
in South American
31
2.5
R&D as % of GDP
2
1.5
1
0.5
32
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
 Can growth of Chinese economy rest on
soaring prices of raw materials in the global
markets?
 Sustainability of resource-based model in
China
 Who enjoys large stake of economic fruits:
China, MNCs, developed countries,
resource-rich nations?
 Political, environment and financial risks and
challenge for Chinese firms through mining
in the overseas
33
Value composition of Boeing, where exists real value?
34
Global value chain and ladders
 Material supplied in resource rich countries
 Processing nations
 Assembly basis
 Call centers
 Logistic and harbors
 Trading centers
 Financial centers, monetary markets: gold,
currency issue and circulation, FX market
35
Global value chain and ladders
 R & D centers
 Information processing centers: software,




media, culture products
Design centers
Industrial code and standards: visa group
International organization
Value circle, environment friendly
production
36
3.5
Chinese domestic visitors, Bn
3
2.5
2
1.5
1
0.5
37
0
99
0
1
2
3
4
5
6
7
8
9
10
11
12
13
Tourist hotel in China
16000
14000
12000
10000
8000
6000
4000
2000
0
8880
9751
10888
11888
12751
13583
14099
7358
1
2
3
4
5
6
7
8
38
Chinese energy industry
 Choosing a right industry is the key of business
success in emerging economies
 The energy industry in China: bottleneck or
business opportunities
 What business opportunities can you observe from
the growing demand for energy supply in China:
investment for shares listed in the major stock
markets, consulting, technology transfer, trading in
oil, environment protection?
39
Composition of Chinese energy consumption,%
Coal
Crude Oil
Natural Gas
Others
1978
70.3
23.7
2.9
3.1
1995
75.3
16.6
1.9
6.2
2005
77.6
12.0
3.0
7.4
2011
77.8
9.1
4.3
8.8
40
China Petroleum Balance Sheet, Mn tons
1990
1995
2000
2005
2010
138.3
150.1
163.0
181.4
203.0
7.6
36.7
97.5
171.6
294.4
31.1
24.5
21.7
28.9
40.8
Item
Output
Imports
Exports (-)
41
25
Chinese car output, Mn
20
15
10
5
42
0
2K
1
2
3
4
5
6
7
8
9
10
11
12
13
Mobil phone users in China, Mn. Tools of marketing and
social communication
1200
1000
859
800
600
400
200
0
0.0031.5 2.7 13 34
101
269
206
393
340
455
547
986
1112
692
643
87 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11 4312
The rapid development of automobile industry,
acceleration of urbanization
Cars manufactures have been growing
dramatically
 Causing sever problem of traffic congestion.
 Lifestyle changing and urban spending
 Limited space of parking space in residential
blocks and CBD
 Vehicle purchase, tariff and toll gates,
experience in Sydney
44
PC output, China, Mn
400
354.1
320.4
350
300
245.8
250
182.2
200
136.7
120.7
150
93.3
80.8
100
59.7
32.2
50 6.7 8.8 14.6
0
2K 1 2 3 4 5 6 7 8 9 10 11 4512
Average residential SQ meter per capita, Shanghai
20
17 17.3
16.7
16.4
15.9
15.5
15.2
14.9
14.6
13.8
15
13.1
12.5
11.8
10
5
0
2k
1
2
3
4
5
6
7
8
9
10
11
12
46
Shanghai housing
price
andcircle
income
in 29281;
Shanghai
PriceHousing
per SQ meter:
Inner
55518;ratio
middle
out circle 16541
25000
20000
15000
10000
5000
0
22282 22432 21412 40
35
35
31
30
26.625
13411251410624.5
20
19.1 18
17 825317.5
16.7
15
14.1 14.2 15.1 6386 6698 7039
4980
4007
10
3326 3659
5
0
2k 1 2 3 4 5 6 7 8 9 10 11 12
price per SQ meter
set housing price/year family disposable income
47
Chinese residential construction, Bn SQ meters
4.65
5
3.77
4
3
2.26
2.67
4.29
3.12
1.88
1.66
2
1.43
1.24
1.03
0.94 1.04 1.14
0.87
0.82
0.76
0.79
0.69
0.66
0.63
0.57
0.6
0.57
0.55
0.55
1
0
2K
1
2
3
4
5
6
7
8
construction completed
9
10
11
12
48
M2, Trillion RMB
120
100
80
60
40
20
12
10.5
9.1
7.6
3.5 4.7 6.1
97.4
85.2
72.6
60.6
47.5
40.3
34.6
29.9
25.4
22.1
18.5
13.515.8
0
3 4 5 6 7 8 9 2K 1 2 3 4 5 6 7 8 9 10 114912
Annual Compound growth rate of M2, %
40 37.3
34.4
35
29.6
27.6
30
25.2
25
19.6
19.6
19.7
17.616.9
17.6 16.717.8
17.3
20
15.7
14.9
14.814.7
14.4
12.2
15
10
5
0
3 4 5 6 7 8 9 2K 1 2 3 4 5 6 7 8 9 10 115012
Residential deposit as % of M2
60
50
40
30
20
10
0
3 4 5 6 7 8 9 2K 1 2 3 4 5 6 7 8 9 10 1151 12
Interest rate for 1 year deposit saving
7.7
4.6
11.
2.9
11.
6
10.
10.
2
0
10.
10.
2
3
08.
3.5
3.25
3
2.75
2.5
2.25
12.
2
7
11.
2
08.
10.
3
0
2.52
08.
08.
3.6
11.
3.87
10.
9
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
52
Major facts of FDI in China
 Approved FDI firms are over 800,000 and
accumulated investment over $1300 bn by the
end of March 2013
 99.8% of FDI have been approved by regional
and local governments, 0.2% by the Ministry of
Commerce
53
Inflow FDI in China, projects
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
91 92 93 94 95 96 97 98 99 2k 1 2 3 4 5 6 7 8 9 10 115412
Inflow FDI in China, Bn$
140
120
100
80
60
40
20
0
91 92 93 94 95 96 97 98 99 2k 1 2 3 4 5 6 7 8 9 10 115512
Inflow FDI in China, Mn$ per project
5
4
3
2
1
0
91 2 3 4 5 6 7 8 9 2k 1 2 3 4 5 6 7 8 9 10 115612
Chinese FX reserves and the end of year in 100 million US$ and
growth rate
57
Accumulated FDI in Shanghai 311.1 Bn$ at
the end of 2010, % by region
HK
29.2
JP 12.4
US 8.4
SG 4.9
GM 4.7
TW 3.6
Others
36.7
58
Types of foreign investment in Shanghai %
joint
co-op
fully own
1990
61
37.9
1.1
1995
54
33.5
11.2
2000
40.9
0.9
49.6
2007
12.1
0.6
87.3
2010
11.4
0.4
88.2
59
Sources of FDI in China, %
2009
2011
2009
2011
HK
51
60
US
3
2
Virgin
Is
13
9
Cayman
3
2
JP
5
6
Samoan
2
2
EU
6
5
TW
2
2
SG
4
5
other
8
5
SK
3
2
60
FDI in China by sectors, %
2006
2011
2006
2011
0.8
2.1
Manufacturing
63.6
44.9
R&D,
technical
serv
Real estate
13.1
23.2
Utility
2
1.8
Wholesale & retail
2.8
7.3 Agriculture
1
1.7
Leasing & business
6.7
7.2
Service
Household
0.8
1.6
Transportation
3.1
2.8
Financial
intermed
<0.1
1.6
IT
1.7
2.3
Others
5.4
3.5
61
100
Chinese outbound FDI, Bn $
90
80
70
60
50
40
30
20
10
0
3
4
5
6
7
8
9
10
11
12
13
Accumulate Chinese outbound FDI, Bn $ 531.9，
2012
HK
EU
Virgin Is.
2%
3%
3%
Cayman Is
Africa
US
Australia
Singapore
others
12%
4%
6%
57%
6%
7%
63
Flood in hot money
 Overseas mutual funds: strategic moves
 Appreciation of RMB: pro and con, but
inevitable, case of investment of water
business
 High margin of interests between loan and
saving account: 3.0% in year 2012
 Business reaction: speculation, gamble and
investment
 Firm’s decision: going to abroad?
64
Chinese invest in the overseas
 Property in Hong Kong, Australia, US and







Canada
Firms
Resources, forests, oil, mining field
Antiques and art
Labs
Stocks
Wine
Sovereignty debt
65
2500
Chinese foreign trade, Bn$
2000
1500
1000
500
0
8
9
90
1
2
3
4
5
6
7
8
9
2K
expotrs
1
2
imports
3
4
5
6
7
8
9
10
11
1266 13
350
Chinese foreign trade, balance, Bn $
300
250
200
150
100
50
0
8
-50
9
90
1
2
3
4
5
6
7
8
9
2K
1
2
3
4
5
6
7
8
9
10
11
12
13
67
Understand Chinese traditional and
buying behavior
 Aesthetics, big is better, auto
 Face value, mianzi and courtesy
 International homogeneous behavior or
differentiation in local market
 Role of family in decision making
 Class and status of wealth
 Buying behavior of new generation
68
Chinese consumer%, 2012, by Chen Zeqi
19
直邮电话 Mail/Tel Mrt
50
26
电视广告 TV AD
56
23
网络广告 Web AD
60
31
平面广告 Prit AD
73
51
店内信息 Shop inf
82
47
官方网页 Offical Web
88
68
口碑 W O mouth
88
58
网上信息 Web inf
0
20
40
60
91
80
Channel use decision base
100
69
Emerging middle class in China
 Definition: family annual income RMB80k+
(E$10k) in year 2012; population is 220m, and
expected to 800m and 58% by 2020
 Standard of middle class varied significantly
between different tiers of cities and regions
 Up middle class: ages from 25 to 44; family
annual income 120k to 200k (in year 2011),
total population reached 13 million in 2011,
and 76 million by 2015
70
Emerging affluent class and lower middle
class in China
 Affluent class: family assets for investment
annual income is more than 6 million, total
population is 2.7 million in year 2012. Their
average assets is 50 million, spend 1.5 million
in consumption, and average age is 39.
 Their demand for banking services are tour,
health services and children education.
 Population of family assets more than 100
million is estimated 63500.
71
Emerging middle class in China
 Lower middle class – ignorable consumers: family
annual income 30k to 60k, total population is over
300 million in 2010 and 500 million by 2020
 Very fragile to social security, less covered by social
welfare, then hesitate to spend money
 China is the third largest consumer market, 9% of
the world market share; will be the second largest
market and 14% in 2015 and 22% in 2020
 Residents are willing to consume more in small and
medium size cities than in large cities
72
Social class and their income in
Shanghai in 2014
 Current wages and salaries of employees





working in enterprises are as follows (in RMB
per month per person):
Senior management personnel 50k and more,
Ordinary management personnel 8k-50k,
Skilled labor 6k-20k
Ordinary labor 1.82k-6k
Social average 4.8k per person
73
Cash consumption per capita in city and town, RMB,2011
11189 10955 10399
Ga
ns
u
Qi
nh
ai
Ti
be
t
Sh
an
gh
ai
Be
ij
in
g
Gu
an
gd
on
g
Zh
ej
ai
ng
Ti
an
ji
n
Ji
an
gs
u
Fu
ji
an
30000 25102
21984 20252 20437
25000
18424
16782 16661
20000
15000
10000
5000
0
74
Chinese household per 100
Mo
tor
wash refrig
color
mach erato
TV
ine
r
Hifi
came
ra
air
condi
PC
tione
r
2000
18.8
90.5
80.1
117
22.2
38.4
30.8
2008
21.4
94.7
93.6
133
27.4
45.1
2011
20.1
97.1
97.2
135
24
44.5
9.7
mobi
le
car
19.5
0.5
95.1
53.8 165.2
6.1
122
81.9 205.3
18.6
75
The luxury industry in China: Eden or hell for
international corporations?
 Second largest market of luxury goods in
the world, are expected to reach 30% of
the world market in year 2015
 Regular buyers are 10 to 13 million in
2005, and 180 million by 2015
 Potential in 30 secondary cities
 Limitation of growth: less qualified
servants, expensive shops, logistics,
cultural difference (Danish china plates)
76
The luxury industry in China: Eden or hell
for international corporations?
 Cluster of world famous brands
 Face value and showing off society
 Tax incentives: antique and art works
 Gift giving society
 Domestic jewelry market is 279 billion
RMB in year 2011, second largest in the
world
77
Online imports, Bn RMB
70
48.3
26.5
12
78
2010
2011
2012
2013
140
tourists, Mn
120
100
80
60
40
20
0
99
0
1
2
3
4
overseas visitors
5
6
7
8
9
10
11
12
Chinese going abroad
13
79
Consumption by tourists in the overseas in
year 2012, billion $
Chinese
German
American
British
Russia
102（72.6 in 2011），
83.8（85.9 in 2011），
83.7,
52.3,
42.8
The World Tourism Organization (UNWTO/OMT)
80
Law of ownership of land
 Ownership of land by the State is not affected by the
transfer of land use rights for valuable consideration.
 Unless otherwise stated in the grant contract, or
disallowed for planning reasons, the term may be
extended on application by the grantee; the land use
right may be assigned or mortgaged by the grantee,
as well as inherited.
81
The maximum terms for granting of land use right:
For residential purpose
70 years
For industrial purpose
50 years
For the purpose of education, scientific research,
culture, public health and sport
50 years
For commercial, tourism and recreational purpose
40 years
For comprehensive purpose or other use
50 years
82
Sum up
 Cultural communication skills, face value and social








contacts
Talent personnel and high turnover
Regional differences, potential in rural areas
Availability of infrastructure
Emerging industries
Increasing labor costs
Opportunities in luxury industries, examples
Branding orientation
From OEM to OBM
83