1

Contemporary Economic & Business Issues in China

Laura Yang

Shanghai University of International Business & Economics

May, 2013

2

Transition into Modernization

3

Time’s 1978 Personof the Year

“I don’t care if the cat is black or white as long as it catches the mice.”

Deng Xiaoping (1904–1997), head of China’s Communist Party and pioneer of “Socialism with Chinese characteristics”

Background

4

Started from 1979

Economic reform towards Market Economy, reduce government interference

Opening up to outside world

5

Economic Achievements

Source: MOFCOM

6

China’s GDP Growth

China surpassed Japan to be world No. 2 economy in 2010

Country GDP (million dollars)United States   14,582,400

China（ PRC）  5,878,629

Japan  5,497,813

Germany  3,309,669

France  2,560,002

SOURCE: World Bank

7

Import and Export of China Total foreign trade increased by 85 times

from US$ 20.6 billion in 1978 to US$ 2972.76 Billion in 2010.

China became the world largest trading power in 2012 (according to US Department of Commerce).

8

Foreign Economic & Trade Relationships of China

9

Bilateral & Multilateral Trade Relationships

Mainland ECFA Taiwan Sept., 2010

HK Macao1/1/04 1/1/04

ASEANJan. 2010Free Trade

APEC(Founded in 1989 and China became a member in 1991)

WTOTrade without discrimination

   Freer trade

Predictability

Encouraging development and economic reform

CEPA

10

Multinational Companies in China?

over 400 of Fortune 500 have invested in China Nearly 60% of China’s exports are processing trade by foreign companies investing in China 1990-2005, foreign investors’ profit remittance from China

totaled $280 billion

11

Selected Largest Exporting FIEs (2006)

Source: http://www.fdi.gov.cn/pub/FDI_EN/Statistics/AnnualStatisticsData/AnnualFDIData/FDIStatistics,2006/t20071008_85470.htm

LG Philip LCD (Nanjing)

Canon Zhuhai

Fuji Xerox

Shenzhen Samsung Kejian Mobile

LG Electronics (Tianjin)

Toshiba Info Machine (Hangzhou)

Maxtor Tech (Suzhou)

Wuxi Sharp Electronic Component

Kingston Tech (Shanghai)

996

1,000

1,016

1,038

1,164

1,307

1,441

1,495

1,646

1,686Suzhou Samsung

LG Electronic (Huizhou)

Tianjin Samsung

BenQ

Dell (Xiamen)

Intel Tech (China)

Beijing Sony & Ericsson Putian Mobile

Hangzhou Motorola Mobile Telecomm

Samsung (Suzhou) Semiconductor

Nokia Shouxin Mobile Telecomm

1,850

2,054

2,157

2,306

2,770

2,822

3,789

4,076

5,912

6,174Motorola (China) Electronics Ltd

Export Volum

e ($mill.)Enterprise

Export Volum

e ($mill.)Enterprise

12

China Market

Opportunities in China market

Opportunities in China market

If current trends continue, nearly one billion people will live in China's cities by 2025.

The urban population will grow by some 350 million people-more than the population of the United States today.

Some 240 million of China's city dwellers will be migrants.

China will have 221 cities with more than one million inhabitants-compared with 35 in Europe today-of which 23 cities will have more than five million people.

Characteristics of Chinese Consumers

Functional buying factors dominate

Pay for safety

Characteristics of Chinese Consumers

Characteristics of Chinese Consumers

Page 22

Economic reform & market economy provided ground for entrepreneurship in China

Breaking of the “Iron Rice Bowl”: allow employment freedom

Increased market opportunities： provide the “soil” for cultivating SME

More entrepreneurs encouraged: greatly help the employment in the long run

Page 23

Local Entrepreneurs Western Best

PracticesTraditional Chinese Serve the stockholdersServe the familyObjective: Transparent and

auditedPrivate and secretiveFinancial

data: Investment bankers, stock exchanges

Family and friendsFinancing source:

Mergers, consolidations, battles for control

Not for sale; family obligations

Longevity:

Based on building brands

Based on family networks

Sales: Professionals rewarded

based on meritNepotism (with

approval by patriarch)Executive

recruitment: Quarterly profits for

stockholdersLong-term view for

family prestigeTime horizon:

*Source: Ming-Jer Chen, Inside Chinese Business: A Guide for Managers Worldwide (Harvard Business School Press, 2001) http://www.quickmba.com/mgmt/intl/china/

When Business is All in the Family*

Page 24

Local Entrepreneurs (Cont’d.)

*Source: http://www.hurun.net/listreleaseen25.aspx

China’s 2007 Billionaires*

1,0501,1001,2001,3001,3001,3001,6001,7001,8001,8501,8501,8501,9002,0002,2003,0005,300

17,500

LonghuHaixin GroupYangzijiang ShipbuildingITAT TextileTransfield ER GroupShandaChina DongxiangNorth China ShippingHuabaoSanlian GroupLiye GroupHidili IndustryAntaYinyi GroupKWG PropertySuning UniversalLDK SolarCountry GardenCompany

Wealth US$mill.

Wu YajunLi ZhaohuiRen YuanlinOu TongguoMo FengChen TianqiaoChen YihongGao YanmingZhu LinyaoXian YangLin LiXian YangDing Shizhong & familyXiong XuqiangKong Jianmin & familyZhang GuipingPeng XiaofengYang HuiyanName

Real estateArtificial textile and knitwearShipbuildingRetailShippingOnline GamingSports apparelShippingInternational Fragrances & FlavouringCokeInsurance

Coal and coke and coal-related chemicalsSports apparelReal estateReal estateReal estateSolar panel componentsReal estateIndustry

Page 25

Local Entrepreneurs (Cont’d.) Example: Shanda Interactive Entertainment*

Founded in 1999 with family and classmates, sold “massive multiplayer online role playing games” (MMORPG) to become China’s largest entertainment company

2003, Japan’s Softbank and Cisco invested $40 mill., sold its 20-25% shares on NASDAQ in 2004 for $100 mill., became one of the Nasdaq’s biggest success stories Introduced EZ Pod TV set-top boxes to deliver movies, music and content online … but

heavily regulated and little broadband for coach potato audiences 2005, switched from “come-pay-stay” model to “come-stay-pay” (CSP) platform

where gamers play for free but pay for virtual accessories or expansion packs Stock crash caused founder and CEO Chen Tianqiao to lash out at Wall Street analysts

for not understanding Chinese market When sued by S. Korea game developer, SNDA bought its parent

Over 500 mill. registered accounts and 1/3 China’s market, 2007 revenues around $300 mill. with market growing 30%/year through 2011.

*Source: http://www.businessweek.com/magazine/content/04_46/b3908040.htm; http://english.people.com.cn/200312/03/eng20031203_129569.shtml; http://www.financeasia.com/article.aspx?CIaNID=61660; http://www.forbes.com/markets/2007/05/15/shanda-entertainment-closer-markets-equity-cx_jl_0515markets16.html; http://www.forbes.com/markets/2007/08/28/shanda-online-gaming-markets-equity-cx_jc_0828markets01.html; http://seekingalpha.com/article/23375-investing-in-china-s-online-gaming-sector; http://thechinablogger.blogspot.com/2006/09/wsj-article-on-shanda-i-think-if.html

27

Thank You！