China economy

China:China:Economic OverviewEconomic Overview

Economy & Economy & Natural ResourcesNatural Resources

• More market-oriented & globally involvedMore market-oriented & globally involved

• World’s largest importer since 2010World’s largest importer since 2010

• GNP (PPP) = $9.17 (2009)GNP (PPP) = $9.17 (2009)

• World Ranking #121, below CubaWorld Ranking #121, below Cuba

• From 1980-1995, GNP grew 6%/yearFrom 1980-1995, GNP grew 6%/year

• Natural Resources: coal, iron ore, petroleum, Natural Resources: coal, iron ore, petroleum, natural gas, mercury, tin, aluminum, lead, zinc, natural gas, mercury, tin, aluminum, lead, zinc, uraniumuranium

• World’s largest potential for hydropowerWorld’s largest potential for hydropower

ExportsExports

Major ExportsMajor Exports

-$1.581 trillion-$1.581 trillion

World Ranking: #2World Ranking: #2

Electrical and other Electrical and other machinery, data machinery, data processing processing equipment, equipment, apparel, textiles, apparel, textiles, iron & steel, iron & steel, optical and medical optical and medical equipmentequipment

Major Export Major Export PartnersPartners

• US - 18%US - 18%

• Hong Kong - 13.8%Hong Kong - 13.8%

• Japan - 7.6%Japan - 7.6%

• South Korea - 4.4%South Korea - 4.4%

• Germany - 4.3%Germany - 4.3%

ImportsImports

Major ImportsMajor Imports

-$1.327 trillion-$1.327 trillion

World Ranking: #3World Ranking: #3

Electrical and other Electrical and other machinery, oil & machinery, oil & mineral fuels, mineral fuels, optical and medical optical and medical equipmentequipment, metal , metal ores, plastics, ores, plastics, organic organic chemicalschemicals

Major Import Major Import PartnersPartners

• Japan - 12.6%Japan - 12.6%

• South Korea - 9.9%South Korea - 9.9%

• US - 7.3%US - 7.3%

• Germany - 5.3%Germany - 5.3%

• Australia - 4.3%Australia - 4.3%

China has a trade DEFICIT. China has a trade DEFICIT.

Labor & UnemploymentLabor & Unemployment

• Labor ForceLabor Force• 815.3 million815.3 million

- World Ranking - #1- World Ranking - #1• By occupation:By occupation:

38.1% - Agriculture38.1% - Agriculture

27.8% - Industry27.8% - Industry

34.1% - Services34.1% - Services

• UnemploymentUnemployment• 4.3% (9% with rural, substantial unemployment in 4.3% (9% with rural, substantial unemployment in

rural areas)rural areas)• World Ranking- #39World Ranking- #39

Exchange InterestExchange Interest

Exchange Rate HistoryExchange Rate History

• 6.7852 (2010)6.7852 (2010)

• 6.8314 (2009)6.8314 (2009)

• 6.9385 (2008)6.9385 (2008)

• 7.61 (2007)7.61 (2007)

• 7.97 (2006)7.97 (2006)

The Yuan is only The Yuan is only convertible in China.convertible in China.

Exchange Rates:Exchange Rates:

-$1 = 6.38 Yuan-$1 = 6.38 Yuan

-1 Yuan = $0.16-1 Yuan = $0.16

Interest Rate: Interest Rate: 6.56%6.56%

ForeignForeign

• China’s FD abroad has China’s FD abroad has increased rapidly during increased rapidly during the last 10 years.the last 10 years.

• 2008: Chinese 2008: Chinese Multinationals invested Multinationals invested over $40 billion over $40 billion overseas.overseas.

• Asia has received Asia has received around 2/3 of the around 2/3 of the cumulated Chinese FDI cumulated Chinese FDI at US $118 billion, at US $118 billion, accounted by Arica at accounted by Arica at 4%.4%.

• Foreign Aid is mostly determined on a Foreign Aid is mostly determined on a bilateral country-to-country basis. China bilateral country-to-country basis. China offered more than 30 orgnaizations aid to offered more than 30 orgnaizations aid to over 161 countries in 09’.over 161 countries in 09’.

• China signed debt relief protocols with 50 China signed debt relief protocols with 50 countries, cancelling 390 mature debts worth countries, cancelling 390 mature debts worth 22.58bn Yuan ($3.47bn).22.58bn Yuan ($3.47bn).

Investments equate to about 46.2% of GDPInvestments equate to about 46.2% of GDP

Income & WealthIncome & Wealth

• Living in China isn’t Living in China isn’t always cheap anymore- always cheap anymore- especially in cities.especially in cities.

• Inflation Rate:Inflation Rate:• 3.2% World Rank: 1063.2% World Rank: 106• Rate was 0.7% in 2009Rate was 0.7% in 2009

• Credit Card UsageCredit Card Usage• Use expected to rise 11-Use expected to rise 11-

14% from 2011-202514% from 2011-2025• Mastercard is Mastercard is

experiencing a bug experiencing a bug increase in usage.increase in usage.

• Per Capita Income @PPPPer Capita Income @PPP• $4,382$4,382• World Rank: #91World Rank: #91

• Distribution of wealth:Distribution of wealth:• 310 million people in 310 million people in

Chiaa have a Chiaa have a comparable income to comparable income to ours.ours.

• Hundreds of Millions Hundreds of Millions below poverty line:below poverty line:

• Poor Population : 2.8%Poor Population : 2.8%• 21.5 million in “absolute 21.5 million in “absolute

poverty,” 35.5 in “low poverty,” 35.5 in “low income”income”

TradeTrade• Inadequate port facilities and a lack of warehousing and

cold storage installations impede both domestic and international agricultural trade.

• The U.S. trade deficit with China rose to $273.1 billion in 2010. This represents almost 55% of the total U.S. trade deficit. While U.S. exports to China grew by a third in 2010 to an all-time high of $91.9 billion, U.S. imports from China increased 23.1% to $364.9 billion.

• A recent trend has shifted low-end assembly industries to China from the newly industrialized economies in Asia.

• Chinese value-added gets over-counted. China's restrictive trade practices, which include an array of barriers to foreign goods and services, are often aimed at protecting state-owned enterprises. Under its WTO accession agreement, China is reducing tariffs, eliminating import licensing requirements, and addressing other trade barriers.

Tariffs, Quotas & Tariffs, Quotas & EmbargosEmbargos

• The average tariff rate is less than 17%

• China can impose anti-dumping duties on foreign goods if there is evidence showing that they are sold at dumping prices.

• The steel industry, one of China’s largest industries, subsidizes domestic producers.

• China uses both tariff and non-tariff measures to regulate imports. Tariffs imposed include import duty (applied on the import CIF value and a few specific and compound duties on the volume imported), value added tax (VAT) and consumption tax; non-tariff measures include import licenses, quota control, restricted import list, etc.

TaxesTaxes• Value added tax (VAT) is imposed on all commodities in

addition to import tariffs. The basic rate is 17% and 13% on the following commodities: food and edible vegetable oil; drinking water, heating, natural gas, coal gas, liquefied petroleum gas; books, newspapers and magazines; feedstuffs, chemical fertilizer, pesticides, agricultural machinery and agricultural plastic sheeting.

• 11 categories of goods are also subject to consumption tax when entering China. These include: cigarettes, liquor, cosmetics, skin- and hair-care products, jewellery, firecrackers and fireworks, petroleum, diesel, motor vehicle tyres, motorcycles and small motor vehicles. The tax rates range between 3% and 45%.

LicensingLicensingImports of 35 product categories (374 items) are subject to

import licensing control.

- Importers are required to obtain in prior the approval and licence from the different government departments, namely the State Development Planning Commission, the Ministry of Commerce (MOFCOM)--formerly the MOFTEC--and the Mechanic and Electronic Products Import and Export Department.

- Certain imports into China are subject to both licensing and quota control. Imports into China are classified into two major categories: 1. 15 machinery and electronic products; and 2. 13 general commodities.

CustomsCustoms

• Customs tariff, VAT and consumption tax may be imposed on the following 20 commodities

• television set, video camera, video cassette recorder, video cassette player, hi-fi system, air-conditioner, refrigerator, washing machine, camera, copying machine, programme-controlled telephone switch, micro-computer, telephone, radio pager, fax machine, electronic calculator, typewriter and word-processor, furniture, lighting fixture and foodstuffs.

FranchisingFranchising

• Second largest franchising market in the worldSecond largest franchising market in the world

• More than 1,900 successful franchises in ChinaMore than 1,900 successful franchises in China

• Many companies shy away from franchising in China due to issues in the country’s laws on trademark infringement and patent protection, underdeveloped infrastructure, uncertainties relating to the enforcement of contracts and the weak dispute- settlement mechanism.

• With the entry of China to the World Trade Organization, more and more foreign franchisors will be allowed to do franchising in the marketplace of China with less and less restrictions in the coming years.

PatentsPatents• Three types in the US:Three types in the US:• Utility Patents: Utility Patents: which cover any new and useful process,

machine, article of manufacture, or composition of matter• Design Patents: Design Patents: which cover any new, original, and ornamental

design for an article of manufacture• Plant Patents: Plant Patents: which cover distinct and new plant varieties

• Three types in the China:Three types in the China:• An invention patent in China is closest to the utility patent in the

United States and protects "any new technical solution relating to a product, a process or improvement" for a period of 20 years from the date of filing the patent application.

• A utility model patent in China lies somewhere between a United States utility patent and a design patent in that it protects "any new technical solution relating to the shape, the structure, or their combination, of a product which is fit for practical use."

• A design patent in China is much like a design patent in the United States in that it protects "any new design of the shape, pattern, color, or their combination, of a product, which creates an aesthetic feeling and is fit for industrial application."

Workplace EnvironmentWorkplace Environment•Township and village enterprises (TVEs)•Have experienced dramatic growth since the concept was developed when China started economic reforms in 1978•Originally TVEs were conceived as enterprises to be run by townships or villages to absorb the surplus rural labor force•They are a major source of employment, creating more than 120 million jobs.•TVEs cover manufacturing, construction, mining, transport and communications, commerce, services and other businesses. •Their adverse impact on the environment has become a major concern both for the Government and the public.

Business OwnershipBusiness Ownership• After 1949, all business entities in China were created and owned

by the government.

• Then, in the late 1980s, the government began to reform the state-owned enterprise, and during the 1990s and 2000s, many mid-sized and small sized state-owned enterprises were privatized and went public.

• State-owned enterprises are governed by both local governments and, in the central government, the national State-owned Assets Supervision and Administration Commission.

• The private sector, concentrated on the country's southeastern coast, remains a small slice of an economy that is still dominated by government-owned enterprises.

Pay & WagesPay & WagesChinese employees are paid monthly, not bi-weekly. A typical Chinese employee gets between 12-13 paychecks a year. The 13th is usually a yearend bonus. Bonuses vary depending on status with the company. Laborers will usually get up to two weeks, while upper level managers can get up to two months.

• An average Chinese wage of $0.57 per hour -- or $104 per month -- is about 3 percent of the average U.S. manufacturing worker's wage

• The average hourly wage for a worker in a rural setting was $0.41 per hour, and migrant workers are making even less than that. The average annual earnings for manufacturing workers in cities were $1,347 (11,152 yuan at the official exchange rate) for the year 2002.

Work Week in ChinaWork Week in China• As in the US, a normal work week is eight hours a day,

five days a week. If overtime is approved, typically up to five hours is allotted and only four hours on Saturday. More than four or five hours for a given week is uncommon. The maximum days per week an employee is allowed to work is six.

• The following is how overtime is calculated for hourly workers:

➢ Overtime – 150% of hourly wages

➢ Saturday/Sunday - 200% of hourly wages

➢ Holidays – 300% of hourly wages

BenefitsBenefits• In addition to two weeks off per year, Chinese employees also receive ten

paid holidays.

• If a laborer works for a foreign company, he/she will typically get a few extra holidays that the foreign company celebrates in their home country. Chinese New Year is the biggest holiday celebrated in China. It is not uncommon for companies to shut down for up to three days during this time.

• Chinese employees are usually provided with:

-dormitory-style housing

- Uniforms

- shuttle buses in larger cities

- access to shower facilities is limited for laborers and is greatly appreciated as a benefit of working for foreign companies.

Safety & Accidents Safety & Accidents • The protection of workers' safety and health lags far behind the

economic performance of TVEs.

• Causes include general lack of awareness, low level of education of managers and workers, outdated technology, & non-availability of technical and financial support.

• According to officially available national statistics on occupational accidents in China the total number of fatalities in TVEs is almost 10,000 every year.

• According to an MOL study, the annual rate of fatal accidents in TVEs is around 1 per thousand workers.

• The US rate is around .04 per 1,000 workers placing China’s TVEs rate at 25 times greater than the US rate.

• The actual number of fatal accidents in TVEs could be much higher as many are not reported.

• As far as the workplace is concerned, a MOH report revealed that only 36.89 per cent of sampled points in 2,593 TVEs cleared the national exposure limits of occupational health hazards such as benzene, asbestos, chromium, lead, dust and noise.

• China experiences one of the worst cases of pollution in the world in its large cities like Hong Kong & Bejing. This is why our product would be really beneficial for the Chinese public.

•China sees green as the future engine of its economy. Although currently the world leading greenhouse gas emitter, China is serious about slowing greenhouse gas emissions and using renewable energy.

Environmental

• Age is 16, but China is known for it’s sweat shops that employ young children.

• In recent years there have also been kidnapping child slave labor rings, involving mostly children between 13-15.

•The All-China Federation of Trade Unions is the sole national trade union federation of the People's Republic of China. It is the largest trade union in the world with 134 million members in 1,713,000 primary trade union organizations

•The ACFTU is divided into 31 regional federations and 10 national industrial unions.

Age Standard & UnionAge Standard & Union

• 263 million landlines in a population of 1.3 billion people.

• China is the world’s largest mobile telephone market

• Within China, mobile communication is the most profitable sub-sector of the telecommunications market. This is dominated by two domestic companies, China Mobile, and China Unicom cutting into fixed line services of China Telecom, amongst others.

TechnologyTechnology

Beihai, Dalian, Dangdong, Guangzhou, Haikou, Hankou, Huangpu, Jiujiang, Lianyungang, Nanjing, Ningbo, Qingdao, Qinhuangdao, Sanya, Shanghai, Shantou, Shenzhen, Tianjin, Weihai, Yangzhou, Yantai, Zhangjiang and Zhenjiang.

Water PortsWater PortsWater PortsWater Ports

Beijing, Chengdu, Dalian, Guangzhou, Hangzhou, Harbin, Hohhot, Hong Kong, Kunming, Qingdao, Shanghai, Shenyang, Tianjin, Urumqi, Xiamen and Xi'an.

Air PortsAir PortsAir PortsAir Ports

Alataw, Baketu, Erenhot, Friendship Pass, Hunchun, Ji'an, Kunjirap, Manzhouli, Mohe, Nyalam (Zhangmu), Pingxiang, Ruili, Suifenhe, Tumen, Wanding, Xunke and Yadong.

Land PortsLand PortsLand PortsLand Ports

Chinas expressways are in the prcess of growing, but are not where they need to be.

Highways

Earnings in Earnings in ManufacturingManufacturing

Earnings in Manufacturing

Mattel

Best Buy

Home Depot

Wal-Mart

Yum! Brands

…Why??

Success or Failure?

Costs of ProductionCosts of Production

Retailers & WholesalersFor years, China has been known as the country that you can produce a lot of products for a low price, but in some places that’s changing. Production is cheaper in rural areas.

Still, China is the world leader in production of retail and wholesale products.

Especially because many car companies base their production in China, we feel that production in China would be the most economical choice for maximum profitability.

Often times, companies coming to China hire middlemen, who help with the company’s transition to new culture, laws, and environment.

Internet Use in China

Internet Use in China

Internet Use in ChinaChina had 457 million netizens by the end of 2010, up 73 million from a year earlier. The number of broadband users increased by 104 million to 450 million in 2010.

The value of China's e-commerce transactions grew 22% to

･ 4.5 trillion in 2010, where the value of B2B transactions was up 15.8% to

･ 3.8 trillion, and online retail sales were up 97.3% to

･ 513.1 billion, which accounted for 3% of total retail sales.

Dominant players in China's Internet space:

-Baidu.com, China's most used search engine, controls over 70% of search market

-Alibaba,com is the operator of China's top C2C site Taobao.com that recorded

-400 billion of transactions in 2010

-Alipay, China's most used third party payment service that had 550 million

Media in ChinaOutput of China's media industry expanded 17.7% to 580.8 billion in 2010 and is expected to be 688.24 billion in 2011. Ads revenue growth from the Internet, film and broadcast segment markets was up 54.9%, 47.4% and 34% respectively from the year before.

Newspapers:- China had 1,937 newspapers that printed 43.91 billion copies in 2009;- Newspaper ad revenues were ･ 91.1 billion in 2009;- Revenue from real estate, retail and auto ads in newspapers (top three advertisers) was up 1.6%, 21.9% and 35.7% year on year respectively in 1H 2010. 

Periodicals:- China had 9,851 periodicals that printed 3.15 billion copies valued at ･ 20.24 billion in 2009;- Periodical ads revenue was down 2.1% to ･ 3.04 billion in 2009, accounting for less than 4% of total revenue of the publications industry;- Over 2/3 of the periodicals such as scientific findings or industry reports were not commercially available in 2009. 

Media in China Cont’dRadio & TV:- China's radio revenue was up 12.8% to ･ 8.15 billion in 2009;- Radio revenue accounted for 3.52% of total ads revenue in 2009, down from 3.6% in the year before;- Increased number of private cars is an impetus to radio ads- Total radio and TV revenues were expected to exceed ･ 200 billion in 2009;- The number of cable TV users was up 6.9% to 175 million in 2009;- The number of digital TV users was up 39.7% to 63.22 million in 2009;- 7.13 million households paid ･ 1.82 billion for premium digital TV programs in 2009, up 58.6% and 27.8% respectively from the year before. 

Movies:- China's box offices grossed ･ 10 billion in 2010, up 64% from the year before;- Ticket revenue from domestic movies accounted for 56% of total grossing in 2010;- Close to 300 million tickets were sold in 2010;- Over 1,500 screens were launched in 2010, taking the total number to over 6,000. 

TV dramas:- 402 TV dramas with 12,910 episodes were given licenses to be aired in 2009, compared to 502 dramas and 14,498 episodes respectively in the year before;- 60% of the episodes were aired between prime time (7:20pm- 10:20pm);- 20% of the episodes were never aired.