Transcript Risk of China market

Changes May
Influence Future
Investments in China
Le Nguyen Duy Hung (黎阮維雄)
MA1N0242
Economy of the People's
Republic of China
• The People's Republic of China (PRC) is the
world's second largest economy by nominal
GDP [ $8,250 trillion (2012) ] and by
purchasing power parity (PPP) [ $ 12, 38
trillion (2012) ] after the United States.
• It is the world's fastest-growing major
economy, with growth rates averaging 10%
over the past 30 years, and the biggest
market with population about 1,3 billion.
China’s FDI
China’s FDI
• In 2006, not including banks, insurance, and securities,
foreign direct investment amounted to 63.02 billion
• China’s economy has surged more than tenfold since
1980
• China’s trade surplus swelled 74 percent in 2006 to a
record 177.5 billion
Why ?
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Cheap labor – cheap land
Good infrastructure
Tax incentives for FDI companies
Potential domestic market (1,3 billion)
Natural Resource Abundance, with a great variety of minerals.
China Foreign Investment
Rebounds
• With a strong foreign exchange
surplus, China no longer desperate
for capital from overseas , but is now
primarily interested in foreign skills
and technologies. China will focus on
the quality of investment from
abroad rather than quantity, its
National Development and Reform
Commission said in November, 2007.
Prime Minister Wen Jiabao wants to
steer investment toward the
manufacturing of higher value
products and toward less-developed
regions
Zhong Guan Cun
• Zhong Guan Cun, is a technology
hub in Haidian District, Beijing,
China
• The total revenue of nearly
20,000
companies
in
Zhongguancun was 1.55 trillion
yuan (252 billion USD) in 2010,
up by 20 percent year on year.
The area accounted for 19.2
percent of Beijing's GDP
Intel Capital in China (2005)
• Invested 4 billion in more than 1,000 companies on over the
world
• Invested $ 200 million in 3 Chinese companies
 Chipsbrand Microelectronics Co., Ltd., a semiconductor design company
 Onewave Techonologies, Inc., a broadband entertainment technology
solutions providers
 Versilicon Holdings Co.,Ltd., an integrated circuit design foundary
Types of foreign investments
• A wholly foreign owned enterprise (WFOE): the firm is entirely
funded with foreign capital
• A joint venture: the foreign partner must provide at least 25% of
initial capital
• A representative office (RO): the most common and easily
established entity, which cannot perform business activities that
directly result in profits. RO is the 1st step to upgrade to a WFOE or
Joint Venture
Risk of China market
• A future tax increase: Currently, domestic enterprises have
heavy tax burdens, while foreign investment enterprises enjoy
a lower tax rate (-13%)
• Higher production costs due to stricter requirements on
environmental protection and higher salaries for Chinese
employees
Risk of China market
• The yuan climbed 21% against the dollar from 2005 to
2008, when China adopted a managed-float currency
system under which the yuan's value was linked to a
basket of currencies. But the yuan has been kept almost
unchanged against the dollar since the outbreak of the
global crisis to help Chinese exporters, which has
prompted much criticism from abroad => Unfair
Risk of China market
• Transparency International (the global civil society organization leading the
fight against corruption) : rated China as 80 of the 174 countries on “ 2012
Corruption Perception Index”. Corruption’s long arm now is reaching out to
touch China’s foreign business community (No guan xi? No good! )