WORLD TRADE GROUP. LLP. WORLD TRADE GROUP, LLP and Glenn Rasmussen Fogarty & Hooker, P.A. DOING BUSINESS IN CHINA Present.

WORLD TRADE GROUP. LLP.

WORLD TRADE GROUP, LLPand

Glenn Rasmussen Fogarty & Hooker, P.A.

DOING BUSINESS IN

CHINA

Present


China Market Opportunities

Why China??World’s fastest growing economy and market

Why Now ??

From WTO to the Olympics and

World Expo -- A onetime window

Country & People


China at a Glance

Slightly smaller than the US

1.3 billion people

Population growth rate of 0.9%

23 provinces / 6 special administrative regions / 5 state-governed municipalities

Counties / Cities / Villages


Recent History

1949 - Formation of PRC

1968 -- cultural revolution

1972 -- Nixon’s visit

1978 -- Opening of China

1912 - Qing Dynasty replaced by republic

1992 -- Deng Xiaoping’s reforms

2002 -- WTO


WORLD TRADE GROUP, LLP.

WORLD TRADE GROUP. LLP.WORLD TRADE GROUP, LLP

Rogers Towers Bailey Jones & Gay






Chinese People

Life expectancy – 71 yrs

Infant mortality – 32/1000

Literacy rate – 85%

Education Requirement – 9 yrs min.

Ethnic groups – many … 92% Han

Language – 7 major dialects / Mandarin is official Pinyin used since 1979

Suffrage – 18 yrs. Old


Chinese Government

Executive

President / V.P. / State Council / Premier

29 Ministries

Legislative

National Peoples Congress

Judicial

Supreme Peoples Court

60 million communist party members


China’s Natural Resources

Coal

Iron ore

Crude oil

Mercury / tin / tungsten / aluminum / lead / zinc / uranium / manganese / antimony / etc.

World's largest hydropower potential

Economic Overview


-5

0

5

10

15

20

25

Annual G

row

th R

ate

s

GDP

CPI

Urban Income

Rural Income

China Economic Growth


Asia-Pacific Economic Growth

-4

-2

0

2

4

6

8

10

12

Annual G

DP

Gro

wth

1999200020012002


-10123456789

China Aisa-Pacific w/o

China

US World

An

nu

al G

DP

Gro

wth

(%

) 1999

2000

2001

2002

Comparative GDP Growth( 3.9% of global GDP / 15% of global growth )


Year 2000 Comparative Data

China India Germany Japan US

GDP

$1099 bil

GDP

$ 469 bil

GDP

$1877 bil

GDP

$4753 bil

GDP

$9963 bil

GDP pp

$ 870

GDP pp

$ 468

GDP pp

$ 22,845

GDP pp

$ 37,558

GDP pp

$ 35,352

Ext. Debt

145 bil

Ext. Debt

96 bil

Ext. Debt

0

Ext. Debt

0

Ext. Debt

0


Economic Growth

Policies driving growth: Adoption of “socialist market economy” Emergence of private sector “mixed

ownership” Overhaul of SOE’s Emphasis on export trading Foreign investment zones


Economic Growth

Market sectors driving growth Manufacturing – 35% of GDP Exports – 26% of GDP Infrastructure expansion Foreign investment Domestic consumption Capital Markets


Government Initiatives and Projects

SOE overhaul and privatization

Financial services Banking overhaul Insurance services Asset management Investment services


Government Initiatives and Projects

Agricultural modernization

Home ownership

Technology development

Developing Western provinces

Infrastructure projects (incl. new cities)

Environmental clean up

2008 Olympics

2010 World Expo

China Foreign Trade


Table 1: China's Trade with the World ($ billion)

1996 1997 1998 1999 2000 2001

Exports 151 182 183 194 249

Imports 138 142 140 165 225

Total 289 325 324 360 474

2001266

243

509

2002

550


Table 5: China's Trade with the United States ($ billion)

1996 1997 1998 1999 2000 2001

US Exports 12.0 12.8 14.3 13.1 16.3

US Imports 51.5 62.5 71.2 81.8 100.1

Total 63.5 75.3 85.4 94.9 116.4

2002

19.1

102.2

121.3


Major Exports - 2001

Apparel, clothing & footwear

Machinery, parts & transportation equip.

Textiles & yarn

Chemical industrial products

Furniture, housewares, toys, handicrafts

Food stuffs

Electrical equipment & parts


Major Imports - 2001

Electrical equipment & parts

Machinery, parts & transportation equip.

Crude oil and fuels

Plastics and plastic articles


China’s Leading Markets

US

HK

JAPAN

EU

OTHER


US

TAIWAN

JAPAN

EU

OTHER

China’s Major Suppliers



New Milestones -- 2002

8% GDP growth – largest globally

#1 in foreign investment - $52 billion

24% increase in domestic investment

#1 in cell phone users – 200 million

#2 in Internet users – 59 million

2010 World Trade Fair

Foreign investment in stock markets


WTO -- What and Why

180+ member nations

Purposes: Establish agreements on tariffs, duties, quotas Prevent trade abuses Promote certainty and transparency in trade

and investment Resolution of trade disputes Assist developing nations Promote world peace through trade


WTO and China

Major changes during next 2-5 years

Legal changes now

Challenges


Major WTO – Related Changes for China

Tariffs

Quotas and other non-tariff barriers

Anti-dumping / overproduction

Enhanced IP protection and enforcement

Transparency rules and systems

Accelerated Clean up of banking and securities markets

“Looking glass” effect

Opening up service industries


Services Opening up with WTO

Sales and distribution

3rd party Logistics

Telecom

Banking and finance

Insurance

Construction and development

Project consulting

Engineering

Architecture

Environmental

Legal services

Education / training

Travel services

Employment agencies

Franchising


Chinese Legal Changes

Over 200 new or changed laws Joint ventures and wholly-owned subsidiaries Patent, trademark and copyright laws Foreign investment Import / export, distribution, franchising Stock markets

Thousands of implementing regulations

Training of attorneys and judges


Challenges for China

Local resistance to WTO changes

Industry confusion as to WTO requirements

Transition -- economic impact

Enforcement Open markets Anti-dumping

Legal system overload


Impact on Regional Neighbors

Migration of manufacturing

Greater competition for exports

Greater competition for foreign investment

Overproduction and lower prices

BUT…More investment regionally

Lower consumer prices regionally

Gradual redistribution of resources


2001 Sales of Electronic Exports

25

-8.8

-12.4

-20

-10

0

10

20

30

China

South

Kor

ea

Taiwan

Example – Electronic Exports



Impact on Other Developing Countries

Competition in manufacturing

Competition for foreign investment

Pressure on wages and prices

Low-priced imports


Manufacturing Wages: China vs. Latin America (USD)

780

1802

2658

3738

7338

7607

0 2000 4000 6000 8000

China

Guatemala

Honduras

Uruguay

Argentina

Mexico


Impact on US

Access to China markets Sale of US Goods Sale of Services

More open access to investment in China

Greater transparency of Chinese businesses

Increased IP protection


01020304050607080

Ta

riff

Ra

tes Prior Rate

WTO Rate

WTO Industry Tariff Reductions


0102030405060708090

Tar

iff

Rat

es Prior Rate

WTO Rate

WTO Industry Tariff Reductions


0

10

20

30

40

50

60

Tari

ff R

ate

s

Prior RateWTO rate

WTO Agriculture Tariff Reductions


010203040506070

Tari

ff R

ate

s

Prior RateWTO rate

WTO Agriculture Tariff Reductions


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Florida Trading Partners (yr.2000 exports)


0

2

4

6

8

10

12

Perc

en

tag

e G

row

th Annual GDP Growth 1990-2000

Annual GDP Growth 2000-2010

Florida Trading Partners: GDP Growth

Your China Operations


WHO -- Foreign Corporate Expansions in China

Walmart

Kfc / Pizza Hut

Heinz / P&G

MacDonalds

Office 1 Superstore

Home Depot

Honda / Mitsubishi / VW / GM

Intel

Microsoft

Computer Associates

DuPont

Rockwell

Toshiba

Embraer Aviation

World Trade Group


WHERE - China’s Big 3 Trading Centers

Beijing / Tianjin

Shanghai / Jiangsu /ZhejiangGuangdong / Shenzhen

Other

Rogers Towers Bailey Jones & Gay


China’s Labor Supply

1998 1999 2000 2001

Labor costUSD / hour

0.41 0.42 0.44 0.44

Recorded Unemployment*

3.10 5.50 7.0 6.0

????

* Does not include 150 mil. Underemployed in rural areas


China’s Work Force Allocation(percentage of work force)

0

10

20

30

40

50

60

Industry and commerce

agriculture and forestry

other


Labor Over-Supply

At current GDP growth rate:

8 million new jobs / yr

Current annual rate of new workers:

12 million / yr.


Conducting Market Analysis

Government info – MOFTEC and NBSUS Dept. Commerce - FCSUS Dept. of State – background notesPrivate consultants Analytical studies Surveys and Questionnaires Investigation & Intelligence Sampling & Taste Tests


Choosing an Entity Structure

JV WOFE Repres. Ofc.

OEM Agent

Manufacturing x x xIn-country sales & distribution

x x x x

Export x x x xR&D x x xProf. Svc. x x x


Choosing Your OEM

Quality introductions

References (western and Chinese)

Due diligence:

customers / competitors / vendors

government / chamber of commerce

Site visit

Familiarity with Western practices


Distributing Imported Products

Licensed Import – Export Companies

WOFE

Joint Ventures

3rd - Party Distribution


Distributing Domestic Products

Agents

Joint Venture

WOFE

3rd - Party Distributors


Due Diligence in China

OBSTACLES:

Little or no transparency

Poor record-keeping / Actg. practices

Short operating histories

Little government oversight

SOLUTIONS:

Private consultants

Friends


Quality Control

Who ? Manufacturer Local company employee / representative 3rd party QC service

Production samples

Payment terms

Replacement guaranty


Protecting Your Stuff

Legal Means

Patent & trademark registration

Licensing agreements

Confidentiality agreements

Practical Means

Selective technologies

Control staff / compartmentalize


Taxes in China

33 % tax on profitsBUT SEZ’s = 15 %

Open Coastal cities = 25%Inland areas = tax preferences 3-5 yr. Forgiveness for FIE

17 % VATBUT Special treatment for exported

items


Logistics Issues in China

International transport

Inland transport

Aggregation and warehousing

Cold-chain storage

Supply-chain management

IT solutions

Customs issues


Investing in Chinese Companies

Typical investment sectors: Manufacturing, real estate, power industry, trade

Some new areas opening up under WTO Banking , Asset Management, Financial Services Media distribution (content -??) Telecom

Advice: JUST DON’T !!


Legal Representation in China

Domestic law firms

Foreign law firms

Law firm networks and affiliates

Advice: Deal with who you know !!


Cultural Issues

Hosting and Protocol

Demeanor and Cordiality

Meals

Hotels

National pride / Local bias

Language differences


Miscellaneous Issues

Who am I really dealing with ?

Referrals to “Friends”

Who is in charge ?

Public corruption

Language translation / documentation

“Contract” = a living document


WORLD TRADE GROUP, LLPand

Glenn Rasmussen Fogarty & Hooker, P.A.

DOING BUSINESS IN

CHINA

Present

WORLD TRADE GROUP. LLP. WORLD TRADE GROUP, LLP and Glenn Rasmussen Fogarty & Hooker, P.A. DOING BUSINESS IN CHINA Present.

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