Doing Business in China - 2011

Issues related to doing business

2011
Tarun (DM-162)
Vishal (DM-176)
Saurabh (FN-102)
Srikanth (FN-109)
Tushar (FN-115)
Nikhil (FN-121)
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Doing Business in China - 2011

Source CBBC, Leeds University, UKTI

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Doing Business in China - 2011

Doing Business Report - 2011

Source: IFC report,

doing business 2011

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Doing Business in China - 2011

BRIC Nations Comparative Rankings 2010

Source: Bizshift blog

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Doing Business in China - 2011

Market Indicators

9.2% in FY09
9.2%ininFY10
FY09
10.3%
10.3% in FY10

GDP growth
GDP growth

Inflation
Inflation
Reached to 5.1%
Reached
in
Dec.10 to 5.1%
in
Dec.10
Almost
0% in
Almost 0% in
FY09
FY09

2nd largest
2nd largest
recipient
after
recipient
after
USA
3rdUSA
largest market
rd

largest
market
for3luxury
goods
for luxury goods

FDI
FDI

White Collar
White
jobsCollar
jobs

1-child policy
1-child policy
lessened
lessened
workforce
workforce
Shift
from labor

Shift
from
labor
intensive
areas
intensive areas

Automobile, Education Sectors*

Source: PRC, Ministry of Commerce

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Doing Business in China - 2011

Reforms Driving Business in China

Getting
Credit

Paying
Taxes,
Trading
across
borders

Enforcing
Contracts

Closing a
Business

Dealing with
construction
permits
Source: Doing Business in 2011, by IFC
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Source: Doing Business in 2011, by IFC

Services
Services

Provides a vast
Provides a vast
market
for
market for
consumer
consumer
goods
and
goods and
services
services

Industrial
Industrial
Sector
Sector

Encourages
Encourages
development
of
development
of
new
and
new and
advanced
advanced
technologies
technologies

Agriculture
Agriculture

Output doubled
Output doubled
by linking
by linking to
remuneration
remuneration to
output
output

Leading Sectors
Doing Business in China - 2011

Doing Business in China - 2011

Why managers need to know about China?

Planned Economy

Market Economy

Closed
Economy
RURAAL

Open Economy

Rural

Urban

Major player in the world politics

This extraordinary process feed directly into the

details of your business
Source: Jonathan Story INSEAD, 2010 report of China
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Doing Business in China - 2011

India China Bilateral Trade

Planned Economy

Market Economy

Closed
Economy
RURAAL

Open Economy

Rural

Urban

Major player in the world politics

This extraordinary process feed directly into the

details of your business
Source: 2point6billion.com
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Doing Business in China - 2011

Factories must relocate or remodel

Low RMB
Exchange
Rate, higher
raw material
prices

Minimum labor
wage doubles
by 2015

Outdated,
labor
intensive,
energy
wasteful

Trade
Processing
industry
moving out
by 2012

LLJGs
converting to
WFOEs

Shift to
consumer
driven model

Source: China-Briefing.com
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Doing Business in China - 2011

Where 2011 investments are heading?

Expensive labor cost favoring

Automation, boosting domestic demand

Export sector would increase in the area of
RURAAL

Infrastructure Services & Development

Development would be confined to

Eastern seaboard

Reduction in exports propelling to develop

Indigenous technologies

Massive migration of farmers is presenting

emerging consumers in rural areas

Source: 2point6billion.com, 2011 China briefing report

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Source: 2point6billion.com, 2011 China briefing report

Lack of result predictability, favoritism, protectionism

Riskier to invest in new opportunities
MNCs are finding it longer to get established
Chinas OEMs are not of top quality, un-transparent
Future role & development over next decade?
Political process of choosing next generation leaders?
Border issues
Regional stability & security

Capital
Capital
safety
safety

Time
Timetoto
establish
establish

Executives
Executives

Reputation
Reputation

Concerns over Brand China

Doing Business in China - 2011

Doing Business in China - 2011

New Markets
In terms of per capita GDP
and disposable income

Most popularly purchased

items in rural areas
Product offering should consider
ageing, lifestyle, population &
sports
Source: 2point6billion.com, 2011 China briefing report
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Doing Business in China - 2011

Legal aspects
Right to Private Ownership
and Establishment

Protection of tangible
Property Rights

LEGAL
CONSTRAINTS

Protection of Intellectual
Property Rights

Dispute Settlement

Transparency of
Regulatory System
Source: 2011 country commercial guide for US companies
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Sectors requiring extensive government approval are most afected,

Sectors banking,
requiringfnance
extensive
including
andgovernment
constructionapproval are most afected,
including banking, fnance and construction
The
lack
of
an
independent
press
and
control
of
all
corruption
The lack of an independent
press Party
and control
of anti-corruption
all corruption
investigation
bodies
by Communist
hamper
investigation
bodies by Communist Party hamper anti-corruption
eforts
.
eforts.

SOEs
beneft
from
preferential
government
policies
and
practices
SOEsatbeneft
from preferential
government
policies
and practices
aimed
developing
bigger and stronger
national
champions.
aimed
at developingmonopolies
bigger andover
stronger
national
champions.
Enjoy
administrative
essential
economic
inputs.
Enjoy
administrative
monopolies
Enjoy
preferential
access
to credit. over essential economic inputs.
Enjoy preferential access to credit.

Socio-Economic Factors

Difculties in hiring appropriately skilled labor, navigating new labor

Difculties
in hiring
appropriately
skilled of
labor,
navigating new labor
safety
laws and
the restriction
on mobility
workers
safety lawstrade
and the
restriction
Independent
unions
illegal on mobility of workers
Independent
trade
unions illegal
Right
to strike not
protected
in law.
Right to strike not protected in law.

Corruption
Corruption

Sources of capital: Bank loans, corporate bonds, and equity

Sources of capital: Bank loans, corporate bonds, and equity
fnancing.
fnancing.
Deposit
interest
rates below rate of infation , negative real interest
Deposit
interest rates below rate of infation , negative real interest
rates
.
rates .portfolio investment on foreign exchanges like New York
Foreign
Foreign
and
HK. portfolio investment on foreign exchanges like New York
and HK.
Limited
foreign institutional investment
Limited foreign institutional investment

Source: 2011 country commercial guide for US companies

Labor
Labor
Competition
Competition
from
State
from
State
Owned
Owned
Enterprises
Enterprises
(SOEs)
(SOEs)
Efficient
Efficient
Capital
Capital
Markets
and
Markets
Portfolioand
Portfolio
Investment
Investment

Doing Business in China - 2011

Doing Business in China - 2011

China Imports & Exports

Joined WTO in 2001
Major trade partners are US, Japan, South Korea,
Taiwan, Germany
Major export goods are Electrical & other machinery,
apparel, data processing, optical & medical equipment
Major import goods are Oil & Mineral fuel, metal ores,
plastics, organic chemicals, Electrical & other
machinery

Source: Wikipedia
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Doing Business in China - 2011

Main Forms of Business Establishment

Wholly

Joint Ventures

Foreign Owned
Enterprises (WFOE)

Companies

Foreign Investment

Purchase of shares

Companies

in Chinese

Limited by Shares

Share Companies

Equity JV

Contractual JV

Companies (EJV)

Companies (CJV)

Representative

Market entry as

Office (RO)

supplier/contractor
Source: Niel Blakeman Associates report 2010
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Doing Business in China - 2011

Foreign investments restricted in

sectors:
1) where China seeks to develop domestic firms
into globally competitive multinational corporations;
2) that have benefited historically from stateauthorized monopolies or from a legacy of state
investment;
3) deemed key to social and environmental stability.

Source: Niel Blakeman Associates report 2010

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Doing Business in China - 2011

Foreign Direct Investment Flows for 2009 (Top 10 Sources of Origin)
Country/Economy of Origin

Hong Kong
British Virgin Islands
Japan
Singapore
South Korea
Cayman Islands
United States
Samoa
Taiwan
Germany

Millions of U.S. Dollars

46,075
11,299
4,105
3,605
2,700
2,582
2,555
2,020
1,881
1,217
Source: IFC Report, doing business 2011
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Doing Business in China - 2011

Flow of Outbound Direct Investment for 2009 (Top 10)
Destination
Millions of U.S. Dollars
Hong Kong
Cayman Islands
Australia
Luxembourg
British Virgin Islands
Singapore
United States
Canada
Macau
Russia

35,600
5,366
2,436
2,270
1,612
1,414
908
613
456
348
Source: IFC Report, doing business 2011
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Doing Business in China - 2011

Selected Major Foreign Direct Investments by U.S. Companies
Company

Intel
ExxonMobil
Motorola
Ford
Carlyle Group
Coca-Cola
P&G
DuPont
Microsoft
Alcoa
Cummins

Current Value in Billions of U.S. Dollars

4.7
4.5
3.6
3.0
2.5
2.0
1.5
1.0
1.0
0.7
0.3
Source: IFC Report, doing business 2011
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Doing Business in China - 2011

Three Main Centres of Economic

ssssssss
Gravity
Bohai Rim
Yangtze Delta

Pearl River Delta

Source: Niel Blakeman Associates report 2010

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Doing Business in China - 2011

Cultural aspects
Filled
Filled
with
with
energy
energy
Respect
Respect
face
face

Take
Takeall
all
the
time
the time
in
inthe
the
world
world

Mobilize
Mobilize
local
local
assets
assets

Separate
Separate
fact
factfrom
from
fiction
fiction
Guanxi
Guanxi

Source: Kwintessential site

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Doing Business in China - 2011

Chinas Promising Regions for Trade

City

Characteristics

opportunities

Hangzhou

Good infrastructure
Low cost labor
Easy access to seaport

Banking
Construction
Energy

Suzhou

Good infrastructure
Low cost labour
Concentration of multinational
manufacturing

Shanghai

Very good infrastructure including

largest seaport and two airports
Skilled labour availability
Concentration of high technology
development zone

Automative industry
Electronics and IT
Metallurgy
construction

Electronic and IT
Tourist
Urban regenration
construction

Source: Jonathan Story INSEAD, 2010 report of China

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Doing Business in China - 2011

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Doing Business in China - 2011

CHINA
THREATS?

IPR, Tech. Transfer

Energy, raw materials

Manufacturing
Pace & extent of change
Complexity
Source of competitors

OPPORTUNITIES?
Innovation, R&D
Labour, skills

Environment

Exports, investment,
partnering
Sourcing, outsourcing
Design, science/ research,
marketing, branding
Services, solutions (eg. BPO)

Source: Niel Blakeman Associates report 2010

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Doing Business in China - 2011

Thank You

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