Team Finland China Day Future Watch China signals

China's Future Signals Looking 2-5 Years Ahead China Skinny 3/2013

Increasing Education Needs Disposable Income Growth versus Household Education Spending Education spending will grow faster than incomes overall creating a significant opportunity for tools that capitalise on Finlands lead in education, tech and gamification China's Future Signals Looking 2-5 Years Ahead China Skinny 3/2013

Social Media-Integrated Rich Mobile Entertainment Figure source: iResearch There are more than 500 million online smartphone users in China. Of the 14.7% of Chinese smartphone users who paid for an app in the first half of 2013, 63.7% paid for a game, more than double the next highest category. Chinese consumers lifestyles are ideally suited to mobile entertainment, with a high portion of public transport users, and a low percentage doing out-of- home evening activities such as sports and going to the pub. Over the next 2-5 years, the mobile gaming industry will grow at a faster rate than mobile penetration overall. China's Future Signals Looking 2-5 Years Ahead China Skinny 3/2013

Soaring Staff & Operational Costs for Businesses Wage Inflation in China Figure source: The Ministry of Labor and Social Security for the PRC Labour costs in China are rising more than 10% a year. Related costs such as office rental are also mounting, with Beijing now the forth most expensive location in the world. Chinese businesses are increasingly moving away from low-skilled industries such as low cost manufacturing and focusing on higher value sectors. The shift to efficient workplaces in China over the next 2-5 years presents significant opportunities for Finnish businesses who provide technical solutions that meet the need. China's Future Signals Looking 2-5 Years Ahead China Skinny 3/2013

The Trend Towards Wearable Technology Wearable Tech Expected Uses by Chinese Figure source: Baidu A Baidu survey discovered 93% of Chinese Internet users were aware of wearable technology, with 75% willing to purchase, although the industry is still in its infancy. Whilst wearable tech is not a essential pressing need in China, Chinas large population and love of gadgets presents a significant niche well suited to Finlands tech and sporting strengths. China's Future Signals Looking 2-5 Years Ahead China Skinny 3/2013

In-Car Telemetry Integration with Everyday Lives China's Future Signals Looking 2-5 Years Ahead China Skinny 3/2013 The China auto industry has become the largest in the world. China is forecast to buy half of the worlds new cars by 2020. Chinas smartphone usage amongst the middle class who own cars is among the highest in the world, leading to increasing consumer demand for integrated in-car technology. New Vehicle & In-Car Telemetry Sales in China (Millions of Units) Figure source: BAIH, NBS China, CAAM, IHS

Rising Independent Travellers China's Future Signals Looking 2-5 Years Ahead China Skinny 3/2013 Outbound Chinese Tourists Figure source: CORTI, CNTA, CTA, CLSA More Chinese tourists are going overseas every year. In 2012, 83 million Chinese travelled internationally, growing to 94 million in 2013. Although Chinese have traditionally joined tour groups on overseas trips, an increasingly confident traveller wanting new and unique experiences is travelling independently. The majority of these tourists will have a smartphone, ensuring that there will be a significant market for mobile tools that meet the unique needs of Chinese travellers

The Worsening Likelihood of Ill Health China's Future Signals Looking 2-5 Years Ahead China Skinny 3/2013 China's Worsening State of Health Health is already an industry of primary importance in China, and will continue to grow over the next 2-5 years based on current trends, presenting significant opportunities for Finnish companies. Health is the number 1 concern for affluent Chinese. Saving money to cover future health issues is the top reason for Chinas high saving rates. By 2019, increasing ailments and awareness of health will create significant opportunities for healthtech tools and products. Demand for proactive solutions, online/app developers and smartphone accessories will also rise. Cancer, diabetes, obesity, infertility, premature births and antibiotic usage rates are all soaring, attributed to rising pollution, food safety issues, increasingly stressful urban lifestyles and an aging population.

Smarter Environmental Intelligence China's Future Signals Looking 2-5 Years Ahead China Skinny 3/2013 Daily Average PM2.5 Pollution 2013 China's Worst 10 Cities Figure source: China's Ministry of Environmental Protection, ALA, WHO Chinas environment is among the worst in the world Just 1% of Chinas 700 million urban dwellers breathe air considered safe by the European Union. 90% of Chinas cities groundwater is polluted to some degree Rising non-renewable electricity consumption and car usage will continue to worsen pollution levels over the next 2-5 years. Tools that can measure, monitor and address Chinas pollution at any level stand to significantly benefit.

Food Production Corporatisation China's Future Signals Looking 2-5 Years Ahead China Skinny 3/2013 Food Consumption Trends in China Figure source: SSBc As a key Government focus, there will be significant investment into efficient farming in China, creating large opportunities for synergies between heavy machinery manufacturers and tech companies. Part of this shift will be the trend moving away from small individual farmers to company-operated farms, who will start to utilise connected technology to monitor and produce food more efficiently over the next 2-5 years. Chinas rising middle class are eating more food every year, with China forecasted to account for almost half of the global increase in food demand between now and 2050.

The Food Safety Movement China's Future Signals Looking 2-5 Years Ahead China Skinny 3/2013 China's Food Safety Issues & Sentiment Figure source: PEW Research Finnish tech firms have opportunities from both B2B standpoint, such as agricultural technology and processes, and B2C such as tech developers and food producers working together to create competitive advantages selling to Chinese consumers through smartphone and web tracking of food origins, to packaging. Chinas infamous 2008 melamine dairy scandal brought Chinas abysmal food safety standards to light. Social networks and state media have raised awareness further and as consumers become wealthier, they are demanding safer food.

Macro view on manufacturing Shifting landscape from 1970 to 2009 Renewing manufacturing in China including the industrial internet. China Materialia 3/2014.

Macro view on manufacturing Since 2010, China is first in total value added from manufacturing Rank Country/Region (Millions of $US) Year World 9,963,056 2010 1 China 1,924,961 2010 2 United States 1,800,500 2011 3 Japan 1,091,175 2011 4 Germany 610,184 2010 5 South Korea 315,885 2012 6 Italy 306,196 2010 7 Russia 260,435 2012 8 Brazil 253,642 2012 9 France 253,608 2009 10 India 235,248 2012 11 United Kingdom 229,615 2010 12 Indonesia 210,176 2012 13 Mexico 198,199 2012 14 Spain 172,433 2009 15 Canada 169,120 2008 16 Thailand 124,345 2012 17 Turkey 122,743 2012 18 Australia 108,163 2012 19 Argentina 84,360 2012 20 Poland 76,421 2010 http://data.worldbank.org/indicator/NV.IND.MANF.CD/countries/1W?order=wbapi_data_value_2010%20wbapi_data_value&sort=desc&display=default Renewing manufacturing in China including the industrial internet. China Materialia 3/2014.

Various manufacturing sectors evolve differently The manufacturing sector should be subdivided into various categories when thinking about trends. Looking at China, we use the following 9 categories: - Aerospace and defense - Automotive and transportation - Chemicals and process industries - Telecommunications - Energy, Utilities and Mining - Forest, paper and packaging - Metals - Information technology - Semiconductors and electronics 1 2 3 4 5 6 7 8 9 10 2014 2016 2018 2020 2022 2024 GlobalCompetitiveness Year Aerospace and defense Automotive and transportation Chemicals and process industries Telecommunications Energy, Utilities and Mining Forest, paper and packaging Metals Information technology Semiconductor and electronics Renewing manufacturing in China including the industrial internet. China Materialia 3/2014.

China goes from low-cost to high-quality manufacturer 5-Year Plan contains clear direction. more emphasis on value added manufacturing across seven priority industries: new energy, energy conservation and environmental protection, biotechnology, new materials, new IT, high-end equipment manufacturing, and clean energy vehicles. It is thus a national economic imperative to move up the value chain, and multinational companies have been quick to grasp the opportunities that Chinas economic evolution provides. The number of R&D centers in China funded by foreign companies rose from one in the early 1990s to more than 750 by 2005. It is not a question of if China will transition from low-cost to high-quality manufacturing; it is a matter of how soon and to what extent. http://www.kpmg.com/cn/en/IssuesAndInsights/ArticlesPublications/Pages/Global-Manufacturing-Outlook-O-201206.aspx Political will from the top http://www.kpmg.com/cn/en/pressroom/pressreleases/pages/statement-20120604-manufacturing-outlook.aspx http://www.accenture.com/SiteCollectionDocuments/PDF/China.pdf

China Academy of Social Sciences Bearing manufacturers Building new competitive advantages should help to give China new opportunities: Government should provide an environment which helps to cultivate human capital. Enterprises should promote technology innovation and research to upgrade their products and build strong brands. The mass production cheap bearings markets have been pretty much developed already. Further growth is possible only in a direction of high quality medium and large size bearings, produced in small and medium series for industrial applications machine tools, energy, including wind power, mining, off-road machines, metal and paper mills, aerospace etc. China goes from low-cost to high-quality manufacturer http://www.china.org.cn/opinion/2013-02/25/content_28049447.htm http://www.bearing-news.com/chinese-bearing-manufacturers-are-aiming-for-of-high-tech-high-margin-and- high-precision-bearings Bearing manufacturing in China is in transition from growing in terms of quantity to its development in terms of quality

Rise of active Unions Facing a PR nightmare that included hunger strikes and threats of suicide by its workers, Foxconn has been forced to allow its employees to unionize. With a Chinese mainland workforce of over 1 million, the development may have enormous ripple effects within Chinas secondary sector, which accounts for roughly 45% of the countrys GDP2. http://www.reuters.com/article/2013/02/04/us-foxconn-china-idUSBRE9130EM20130204 http://www.nytimes.com/2013/11/11/business/international/service-sector-gaining-steam-in-chinas-economy.html?_r=0 At present, The official All-China Federation of Trade Unions controls all enterprise unions throughout the country But pressure from Apple, as well as other major foreign firms, is projected to yield substantive reforms, unlike past efforts. https://www.wsws.org/en/articles/2013/02/13/foxc-f13.html http://www.nytimes.com/2010/06/11/business/global/11strike.html?pagewanted=all Pressure from Chinese government Strikes Foxconn public issues Pressure from Western companies There were 1,171 strikes and protests in China recorded by the Hong Kong-based labor advocacy group from June 2011 until the end of last year. Of those, 40 percent occurred among factory workers, as Chinas exports suffered a slowdown and its overall economy cooled. (The China Labour Bulletin) http://www.clb.org.hk/en/sites/default/files/Image/research_report/Searching%20for%20the%20Union.pdf http://www.businessweek.com/articles/2014-02-20/behind-chinas-labor-unrest-factory-workers-and-taxi-drivers

Social security and other increasing costs In order to increase Chinese household consumption, the Chinese social security system is being implemented aggressively. Exact numbers vary per province and cities, but the total percent of employee salary paid to the system, including health insurance, unemployment insurance, retirement insurance, maternity insurance, worker Injury, is often above 30%. http://www.chinabusinessreview.com/cost-of-doing-business-in-china-rises/ Other costs are also increasing, such as: - Cost of energy and quality of the power, including power rationing. - Cost of safety measures that need to be implemented. - Cost of environmental regulations. - Import and export taxes on key commodities. Rise in social security and other costs

RMB/USD exchange rate A currency move of (8.26 6.10) / 8.26 = 26% between the two largest economies in the World Rise of the RMB

Death of the lowest margins Low-margin manufacturers, in particular in the Pearl river delta around Shenzhen, did not survive the first phase of RMB appreciation. To make certain the smartest companies prosper and accelerate Chinas exit from low-margin, low- pay, low-tech industries, Chinese regulators have purposefully crafted a difficult corporate environment. They have authorized a yuan to appreciate, aggressively enforced labor and environmental regulations, and increased the typical minimum salary in 24 provinces and cities by 18 percent in 2013. RMB/USD exchange rate

Cost comparison various countries After a decade of nearly 20% annual wage increases in China, companies are moving their operations to countries with cheaper labor, including Asian neighbors like Vietnam, Cambodia, and India, and describing it as a matter of survival. http://online.wsj.com/news/articles/SB10001424127887323798104578453073103566416 Competition from cheaper locales:

Cost comparison various countries Competition from cheaper locales:

Increasing productivity Chinese wages may be rising fast, but so is Chinese productivity. The precise numbers are disputed, but the trend is not. Chinese workers are paid more because they are producing more. http://www.economist.com/node/21549956 From Made in China to Innovated in China Following the Asian tigers Like Japan and the Asian Tigers Hong Kong, Singapore, South Korea, and Taiwan China is trying to remake its secondary sector, shifting from low-cost/low-value manufacturing to higher-quality/higher-cost operations.

Consumption stable at 35% of GDP Source: National Bureau of Statistics of China 39,7% 38,0% 36,1% 35,0% 35,3% 35,4% 34,9% 35,4% 32% 33% 34% 35% 36% 37% 38% 39% 40% 41% 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000 2004 2005 2006 2007 2008 2009 2010 2011 Domestic Consumption (Billion RMB) GDP (Billion RMB) Consumption/GDP (%) China is a global market. When you are dealing with a population of 1.4 billion people, even a nominally wealthier populace can translate into a disproportionate shift in demand for higher-quality products and services. 2012 GDP - composition, by end use: household consumption: 35.7% government consumption: 13.5% investment in fixed capital: 46.1% investment in inventories: 2% exports of goods and services: 26.9% imports of goods and services: -24.1% Huge and growing Chinese internal consumption

More automation and robotics The International Federation of Robotics tracked a 50 percent jump in purchases of advanced industrial robots by Chinese manufacturers in 2011, to 22,600 units, and now predicts that China will surpass Japan as the worlds largest market in two years. http://www.kurzweilai.net/migrant-workers-in-china-face-competition-from-robots

Internet of things - Huawei Chinese companies like Huawei are already articulating a vision for what the newly remade IoT world will look like: Power companies read meters through tele-metering systems instead of visiting houses; doctors remotely monitor the conditions of their patients 24/7 by having the patients use devices at home instead of requiring the patients to stay at hospital; vehicle-mounted terminals automatically display the nearest parking space; sensors in smart homes turn off utilities, close windows, monitor security, and report to homeowners in real time. Industrial internet becomes ubiquitous China has shown strength in architectural innovation To prepare for integration and maximum exploitation of IoT, companies need to focus on architectural innovation, which, at its most basic level is the idea that you can take an existing product or process, break down its components, and modularize them. This might seem like mere reverse-engineering and mimicry, but theres a crucial difference by modularizing components you can also standardize them across an industry. That means you can establish a robust supply chain of components and produce goods on a massive scale incredibly quickly. http://www.industrialinternet.com/blog/chinas-innovation-revolution/ Industrial internet is bigger in China A GE executive speculated that with infrastructure in place its Industrial Internet network in China would create about $3 trillion in accumulated growth opportunities for Chinese companies by 2030.

China needs the smart grid more than any other country Chinese power generation is still mostly based on polluting coal-fired power plants. Smart electric grid

3D printing as a National priority The 3D printed parts market alone shows enormous growth potential through 2025, as well as the 3D manufacturing equipment. Automobile parts are expected to account for an increasing percentage of the 3D printed parts market. http://www.designnews.com/author.asp?dfpPParams=ind_183%2Cindustry_auto%2Cindustry_aero%2Cindustry_consumer%2Cindustry_ma chinery%2Cindustry_medical%2Cbid_27%2Caid_262205&dfpLayout=blog&doc_id=262205&image_number=1 3D printing China has built the World largest 3D printers China is already on the vanguard, building the worlds largest 3D printer, and then beating its own record in 2014. The behemoth 3D printer will be able to print out metal objects approximately 6 meters, or 18 feet in diameter. China will be able to manufacture and assemble automobiles in fully automated facilities, going a long way towards sating the hundreds of millions of domestic auto buyers over the next handful of decades; with inexpensive, efficient domestic vehicles instead of foreign imports. http://3dprint.com/733/chinas-huge-3d-printers-soon-able-to-print-automobile-sized-metal-objects