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Doing Business with a Changing ChinaBo JiAssistant DeanChief Representative for Europe
June 30, 2016
Changing Business Environment1
China’s Changing - 13FYP2
Opportunity for Western Countries3
2
3
China Business Environment
China’s Inexorable Rise Challenges and Changes in the Economy
1
3
China’s Inexorable Rise
4
Economic Slowdown
In 2005, 12% growth, increase in GDP of USD 274 billion, USD 2.3 trillion
In 2015, 6.9% growth, increase of USD 790 billion, with its GDP of USD 11.3 trillion
This is almost three times greater than the absolute growth in 2005.
5
RMB Internationalisation
Second-largest economy in the world Largest exporter and second-largest importer in the world Inbound foreign direct investment (FDI) ranks first in the world Payment- the 7th most used payment Trade finance- the 2nd most used trade finance currency FX trading – the 8th largest FX trading currency
6
One Belt One Road
OBOR is expected to help China realize its ‘Going Out’ strategy Focus on improving and creating new trading routes, links and business
opportunities between China, passing through over 60 countries along the way, across Asia, Europe, the Middle East and Africa.
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Made in China 2025
In 2015, the State Council unveiled a national plan, ’Made in China 2025’, which sets a new course for Chinese manufacturing in the next decade.
The aim is to produce more advanced technology and products with less environmental damage and enhanced use of the Internet for intelligent manufacturing, with a view to improving international competitiveness and the long-term prospects of Chinese equipment exporters.
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Rapid Growth of Mobile Internet Market
Number of mobile internet users in China from 2008 to 2018 (in millions)
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The Industry has reached an “internet +” stage
Service industry
Consumer goodsIndustrial products and raw materials
Online gamesMusic
Mobile Phones
Maternal & Child Supplies
CosmeticsTelecom Prepaid
Home Appliances
Household Electricals
Clothing
FoodStationery
Online Procurement
Other Services
Digitals
Steel
Other Industrial Products
Deg
ree
of
Influ
ence
Duration of Effect
Furniture
Furniture
Jewellery
2001-2005 2006-2010 2011-2015
New Cars
Finance
Online Manga
Chemicals
Overseas Shopping
Travel Transportation
Plastics Construction Machinery
TakeawayManicure Fitness
Flash deals Auto Service
Used CarsBuying/Renting Houses
Laundry
Medicare
Show Store Chains
Hotel
Information
Reading
Plane Tickets
Movie
KTV
Education
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Growing of Ecommerce
Alibaba 11.11 Shopping Festival- the biggest online shopping day in the world!
A Single Chinese Company Dwarfed All Of America's Black Friday And Thanksgiving Online Sales In One Day.
Alibaba Group Generated USD 14.3 Billion of GMV on 2015 11.11 Global Shopping Festival
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China Business Environment
China’s Inexorable Rise Challenges and Changes in the Economy
1
12
Rising Labour Costs & Ageing Population
Labour costs for companies are higher today than they ever have been, not least in the crowded coastal provinces.
The situation is brighter inland and in the west of the country, where the government has been encouraging growth, based often on higher levels of surplus labour.
13
Stock Market & Property Prices
Pricing in Beijing, Shanghai, Shenzhen is now approaching those of major international property destinations such as London, Hong Kong and Tokyo.
14
Corruption Clampdown
Since assuming office in 2012, President Xi Jinping has spearheaded a significant anti-bribery campaign in China.
Anti-corruption efforts may negatively affect business efficiency and investment led growth in the short term, in the long term they should help China unleash the potential of private investment and create better conditions for long term growth.
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Changing Import Mix
Having grown at an average of 13% per year from 2007 to 2013, import growth all but halted in 2014, and in the first half of 2015 imports have fallen quite significantly –15%.
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Changing Import Mix
There is still an increasing hunger for imported consumer goods amongst China’s middle income demographic, especially beyond the developed coastal cities, and purchases are increasingly conducted online – the Chinese government predicts the online retail market will expand by 30% in 2016
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Top challenge
EUSMECentreBusinessServiceSurvey2014
EUCCCBusinessConfidenceSurvey2015
GermanChamberBusinessConfidenceSurvey2015
FrenchChamberBusinessClimateSurvey2014
CBBCBusinessClimateSurvey2013
Language and culture
Chinese economicSlow down
Finding qualified staff Raising labor costs Bureaucracy
Attracting andRetaining talent Raisinglabourcosts Raising labor costs Skilled staff shortage Rising costs
Market accessbarriers
Global economicslowdown
Retaining qualifiedstaff
Chineseeconomicslowdown
Retaining qualifiedstaff
Ambiguous rules and regulations
Market accessbarriers Currencyrisks
Delinquent paymentsFrom customers
Ambiguous rules and regulations
FinancingCompetition fromChinese private-owned enterprises
Bureaucracy Global economicslowdown
Corruption and localprotectionism
18
Top challenge
EUSMECentreBusinessServiceSurvey2014
EUCCCBusinessConfidenceSurvey2015
GermanChamberBusinessConfidenceSurvey2015
FrenchChamberBusinessClimateSurvey2014
CBBCBusinessClimateSurvey2013
Language and culture
Chinese economicslowdown
Finding qualified staff Raising labor costs Bureaucracy
Attracting andRetaining talent Raising labor costs Raising labor costs Skilled staff shortage Rising costs
Market accessbarriers
Global economicslowdown
Retaining qualifiedstaff
Chinese economicslowdown
Retaining qualifiedstaff
Ambiguous rules and regulations
Market accessbarriers Currency risks
Delinquent payments from customers
Ambiguous rules and regulations
FinancingCompetition fromChinese private-owned enterprises
Bureaucracy Global economicslowdown
Corruption and localprotectionism
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China’s Changing2
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12th FYP & 13th FYP
The 12th Five-Year-Plan had set its main target on transforming China from an export driven economy to one built upon local consumption growth.
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China enters its next new normal with the 13th Five-Year-Plan
Three key issues: The strengthening of China’s energy
efficiency The implementation of its
environmental protection efforts The tackling of China’s widening gap
between the rich and the poor
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Highlighted Concepts of Development
Innovation Coordination
GreenDevelopment
SharingOpening up
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Highlighted Concepts of Development
Innovation Coordination
GreenDevelopment
SharingOpening up
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Innovative Development as the backbone of the new development paradigm
Develop new drivers of
development
Establish new spaces for
development
Upgrade industrial structure
Strengthen innovation in science and technology
Modernize agriculture
Deepen institutional
reforms
Innovation development 25
Develop new drivers of development
Domestic consumption: Increase domestic consumption and guide consumers toward green, healthy and safe goods and services
Investment: Encourage private investments through financial reform and financial innovation
Export: Upgrade China’s position in global value chains by cultivating strengths in technology, standards, brands, quality and service
Innovation development 26
Establish new spaces for development
Geographical regions: Establish economic belts along the coastline, rivers and major transportation lines, and develop city clusters and hub cities as regional centers
Emerging industries: Nurture environmental, biotechnology, IT, smart manufacturing, high-tech equipment, and new energy industries; and support upgrading of traditional industries
Infrastructure: Accelerate infrastructure construction, liberalize natural monopoly industries (e.g. electricity, natural gas, telecommunications)
Internet+: Develop Internet of Things (IOT), shared economy and big data strategy
Innovation development 27
Upgrade industrial structure
“Made-in-China 2025”: Improve efficiency, product quality and brand reputation
Strategic industries: Development emerging industries with the help of government investment
Smart manufacturing: utilize new technologies in manufacturing Develop modern services: support further market access to services,
upgrading both production services and consumption services
Innovation development 28
Deepen institutional reforms
Administration: Improve efficiency and increase delegation of power State-owned enterprise (SOE): improve operational efficiency Macroeconomic control: progressive price liberalization for commodities
and services Fiscal system: optimize taxes to facilitate development, increase
transparency of budgeting Financial system: Marketization of exchange rate and interest rates, bigger
share of private-sector capital in the banking system, innovative financial services, reform of supervision framework
Business environment: reduce red tapes and facilitate fair competition
Innovation development 29
Highlighted Concepts of Development
Innovation Coordination
GreenDevelopment
SharingOpening up
30
Coordinated Development
Coordination among regions
Balance between rural
and urban areas
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Coordination among regions
• Development strategies for each region • Freer flow of factors of production • More equal access to public services
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Balance between rural and urban areas
Development of small- to medium-sized cities Increase of rural per capita income Improvement in rural infrastructure and public services Reform of “hukou” system
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Highlighted Concepts of Development
Innovation Coordination
GreenDevelopment
SharingOpening up
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Opening Up
The “two-way opening up” and trade structure upgrading
Actively participate in global economic governance
The Belt and Road Initiative Reform institutions for international integration
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The “two-way opening up” and trade structure upgrading
“Two-way opening up”: Attracting foreign investments and encouraging China enterprises to go abroad
Optimize trade structure, improve border crossings and enhance economic cooperation zones
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Actively participate in global economic governance
Participate in rule-making Promote multilateral trade agreements
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The Belt and Road Initiative
Enhance co-operations between China and Belt and Road countries, with private enterprises taking a leading role
Enhance cooperation with international financial institutes on AIIB, Silk Road Fund and New Development Bank
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Reform institutions for international integration
Implement national treatment and negative list for foreign enterprises Financial liberalization: supporting RMB’s inclusion in Special Drawing
Right (SDR) and its progress toward free convertibility. Gradually release restriction for overseas investment
Signing bilateral investment agreements
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Highlighted Concepts of Development
Innovation Coordination
GreenDevelopment
SharingOpening up
40
Green Development
Accelerate the Development of
Functional Regions
Support Clean Production and Low
Carbon EconomyConserve Resources
Environmental ProtectionHarmonized
Development Between Nature and Mankind
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Accelerate the Development of Functional Regions
Define the key functions (e.g. ecological conservation, agricultural, industrial) of certain geographical regions
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Support Clean Production and Low Carbon Economy
“Energy revolution” – shift to renewable energy Support recycling and low-carbon transportation systems Control emission by strengthening regulation and supervision
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Conserve Resources
Promote conservation among industries and consumers, emphasizing on water resources
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Environmental Protection
Reform environmental governance structure, e.g. set up a pollution permit system
Preserve and restore natural environments
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Harmonized Development Between Nature and Mankind
Incorporate ecological concerns in urban planning and management of agricultural areas
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Highlighted Concepts of Development
Innovation Coordination
GreenDevelopment
SharingOpening up
47
Sharing Development
Improve supply of public goods and services, especially in less-developed and poor rural areas
Implement two-child policy to counter aging population Increase the size of funding dedicated to poverty reduction and improve
infrastructure and public service in poverty-stricken regions
48
Sharing Development
Improve employment support policy and services, and provide vocational training to raise labor quality
Expand middle-income group and significantly raise income for lower income group
Improve social insurance system to cover all residents in China and lower insurance rates to a reasonable level
Improve public health system through deepening medical reform
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Opportunities for Western Company3
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Opportunities for Western Company
1. The end of cheap and low-quality China 2. Nurturing waves of entrepreneurs and formidable competitors in China 3. Business environment changing for companies 4. City clusters in urbanization and regional development would have
implications for companies’ locational strategy 5. Promoting cross-border ecommerce are changing trade pattern 6. Changes in the population policy and possible implications 7. Rising expectation on companies’ social and environmental responsibilities
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Summary
Overview Business Environment
China’s Changing - 13FYP
Opportunity for Western Countries
52
Doing business with a Changing ChinaBo JiAssistant DeanGlobal Executive Education
June 30, 2016
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