US-China Commercial Relations - UChicago

US-China Commercial Relations

Pop Quiz

US-China Business Council

Maps

Stats + Data

Cities with a population over 1 million

160

9

Labor force

780 million

155 million

China is expected to build over the next 15 years some 1,000 gigawatts of new power generation capacity.

WSJ

There are 270 regularly scheduled flights each week between Chinese and Taiwanese cities. The number of weekly flights is set to grow to more than 400 in a few weeks.

WP

More than a million Taiwanese now live in China full time -- about half of them in the Shanghai area -- running factories, starting restaurants, attending universities, buying property.

WP

Analysts estimate G.M. is worth $50 billion to $90 billion, with China accounting for about $15 billion of that total.

NYT

General Motors Co. sold more cars and trucks in China last year than it did in the U.S., for the first time in the company's 102-year history.

AP

“China is one of the larger and faster-growing markets for us,”said Karen Gerwitz, the new executive director of the World Trade Center Denver. China purchased $440 million worth of Colorado goods last year, ranking third.

Denver Post

The trade numbers don't include service providers such as CH2M Hill that are helping China industrialize, build infrastructure and clean up environmental problems. "We are very bullish on China," said Thomas Searle, president of CH2M Hill International.

Denver Post

Number of time zones

1

6

China has plenty more room to grow. Its potential lies in the fact that about one-fifth of the world lives there and virtually every major company looking to increase market share, from General Electric to Caterpillar, has a strategy to somehow reach those consumers.

People’s Daily

3M reported a growth of 53 percent in sales during the first half of 2010. A strong performance in China helped lift the company's global net profit to $1.12 billion in the second quarter, said George Buckley, president and chief executive officer, 3M. "China has been performing well for some time now, and for many years we had a growth of 20 to 25 percent," said Buckley.

People’s Daily

McDonald's plans to double to number of stores to 2,000 by 2013.

CNBC

In 2010, China was the fifth biggest box office market outside of the US, with $1.5 billion in revenue.

LAT

China government only allows about 20 non-Chinese films into theaters each year.

LAT

Number of movie theatres

6,200

39,000

China’s economy is more oil intensive than either America or Europe, while half of its imported oil comes from the Middle East and north Africa, compared with one-quarter for the US.

FT

Energy accounts for a third of the cost of grain production and oil prices are increasing demand for biofuels. Food prices are rising twice as fast as consumer prices overall..

FT

For multinationals, the shift from exports to domestic consumption will increase the importance of treating China as a core market.

Businessweek

GDP composition by sector

9.6% Agriculture46.8% Industry43.6% Services

1.2% Agriculture22.2% Industry76.7% Services

Companies will find it beneficial to align their China strategies with the

government's policy agenda.Businessweek

Exports

$1.51 trillion

US 20%Hong Kong 12%Japan 8%S. Korea 5%Germany 4%

$1.27 trillion

Canada 19%Mexico 12%China 7%Japan 5%UK 4%Germany 4%

While market opportunities are likely to be abundant in most industries, we anticipate that some sectors, such as health care, financial services, and travel and tourism, are likely to grow at a much faster rate thanthe GDP.

Businessweek

According to a World Bank report, China moved up from the world's 21st-largest source of FDI in 2006 to the 13th-largest in 2010. Given the country's abundance of capital and a determined policy push, we anticipate that China is likely to move into the ranks of the top five by 2015.

Businessweek

GDP

$5.745 trillion

$14.62 trillion

Per capita GDP

$7,400

$47,000

Trends

Demographics:Baby boomers (born after 1980) 50%+ of population by 2015,

45% of workforce by 2020Aging to quadruple total real wage

Source: Morgan Stanley Research (E) estimates.

Urbanization:47% to 65% in the long-term, adding

300 million urban residents


Zhengzhou

Xining

Shijiazhuang

Taiyuan

Hohhot

Nanchang

Nanning Zhanjia

ngHaikou

Macau

Kunming

Guiyang

Dalian

QingdaoLianyung

ang

Hangzhou

Fuzhou

Xiamen

Hong Kong

ShantouZhuh

ai

Xian

Yinchuan

Lhasa

Urumqi

Yumen

BeijingTianj

in

Shanghai

Shenyang

Changchun

Harbin

YantaiJin

an

Changsha

Guangzhou

Hefei

Chengdu

Chongqing

Lanzhou

Wuhan

Shenzhen

Nanjing

Super HubsEmerging HSR Hubs

Infrastructure:

China to have the longest + fastest high speed rail grid in the world by 2015

Road capacity to outpace US by 2015Source: Morgan Stanley Research (E) estimates.

Consumer financing:Credit consumption as % of total:

10% to 40%Source: Morgan Stanley Research (E) estimates.

China college education coverage ratio

Education:College degree of workforce:

from 10% to 35%


Business Environment

USCBC 2010 Member Priority Survey Results

US Companies’ China Outlook:China Operations Profitable and Growing;Protectionism Concerns Real and Rising

Five-Year Outlook for Business in China

USCBC 2010 Survey

View of Current Business Climate Compared with Three Years Ago

USCBC 2010 Survey

China's Prominence in Overall Company Strategy

USCBC 2010 Survey

Company Resource Commitment to China over Next 12 Months

USCBC 2010 Survey

Company Objectives in China

USCBC 2010 Survey

Are China Operations Profitable?

USCBC 2010 Survey

Profitability of China Operations in2009 vs. 2008

Profitability of ChinaOperations vs.

Company's Global Rate

USCBC 2010 Survey

USCBC 2010 Survey

Primary Restraint on Profitability

USCBC 2010 Survey: Top 10 Challenges

1. Human resources: Talent recruitment and retention 1. Administrative licensing1. Competition with PRC state-owned enterprises4. IPR: Enforcement5. Cost increases6. Market access in services7. Transparency8. Protectionism risks in China9. Government procurement10. Standards and conformity assessment

USCBC 2010 Survey


1. Human resources: Recruitment & retention 1. Administrative licensing1. Competition with PRC state-owned enterprises4. IPR: Enforcement5. Cost increases

USCBC 2010 Survey

Operating Costs

USCBC 2010 Survey

Rising Costs of Most Concern

Human Resources

Increased costs….. Increased competition…..

2011 Minimum Wage Increases

Beijing 20%Tianjin 16%Chongqing 32%Shandong 26%Jiangsu 17%Guangdong 18%

Among ChinaHR’s 2010 survey of top 50 employers in China, only 4 were foreign companies, down from 21 in 2009. SOEs made up 66% of the list.

ManPower’s 2010 Employee survey, 59% of job seekers prefer Chinese private companies because of better long-term career development opportunities.

USCBC 2010 Survey

Impact of Rising Costs on Long-term Planning

Reasons Company Considers Moving operations from China to other Asian/East Asian country


6. Market access in services7. Transparency8. Protectionism risks in China9. Government procurement10. Standards and conformity assessment

USCBC 2010 Survey

Policy and Regulatory Costs

Seeing Signs of Protectionism in…..

USCBC 2010 Survey

Selected Industrial Issues and Advocacy Map

Key Commercial Policies Spread Across Agencies, Not Always Well-Coordinated;Effective Advocacy Targets All Key Stakeholders … And Senior Leadership

Key Commercial Policies Spread Across Agencies, Not Always Well-Coordinated;Effective Advocacy Targets All Key Stakeholders … And Senior Leadership

Zhang DejiangVice Premier

Li KeqiangVice Premier

Wang QishanVice Premier

Liu YandongState Councilor

Wen JiabaoPremier

Agencies

SelectedResponsibilities

NDRC, MOHURD, MOF, MLR, MOH, MEP, SAT

MIIT, MHRSS, MOT, MOR, SASAC, SAWS

MOFCOM, PBOC, SAIC, Customs, AQSIQ, SIPO,

CSRC, CBRC, CIRC

MOE, MOST, SARFT, Min of Culture, GAPP

Economic planningCommodity pricesPublic finance/taxHealthcare reform

Climate /energy policy

Financial sectorTrade & investmentQuality inspectionBusiness licensingCompetition policy

S&ED, JCCT

Industrial reformTelecom, IT, transportation

Labor, social securityProduction safety

State-owned enterprises

Science & technologyEducation

CultureSports

HK & MacaoIssues

Govt procurement

Tax/HNTE

Standards

Indig Innovation

IPR

M&A

Industrial policy

MOF, NDRC MOFCOM

MOF, SAT MOST

AQSIQ MIIT

MOF, NDRC MOST

SIPO, SAIC GAPP

MIIT

NDRC MIIT

NDRC MOFCOM, SAIC SASAC, MIIT

MOST

AQSIQ = Quality & Inspection AdminCS/B/IRC = Securities, Bank, Insurance regulatorsGAPP = Gen Admin of Press & PubsMEP = Min of Envir ProtectionMIIT = Min of Industry & Info Tech

MLR = Min of Land & ResourcesMOE = Min of EducationMOF = Min of FinanceMOFCOM = Min of CommerceMOH = Min of Health

MOHURD = Min of Housing, Urb/Rural DevMHRSS = Min of Hum Resources & Soc SecMOR = Min of RailwaysMOST = Min of Science & TechnologyMOT = Min of Transportation

NDRC = Nat. Devel & Reform CommPBOC = People’s Bank of ChinaSAIC = State Admin of Ind & CommerceSARFT = Radio, Film, TV AdministrationSASAC = State Assets Commission

SAT = State Tax AdminSAWS = State Admin of Workplace SafetySIPO = State Intellectual Property Office

Energy Efficiency NDRC, MEP, MOF SASAC, MIIT AQSIQ MOST

Advocacy Strategies Pursued

USCBC 2010 Survey

What Keeps CentralPlanners Awake?

What Keeps AverageCitizens Awake?

#1 - Social (in)stabilityNext Issues:•Inflation, inflation, inflation•Resource allocation•Control over local governments•“Imbalances”•Corruption

• Social security• Justice• Anti-corruption• Personal income• Housing prices• Healthcare reform• Commodity price

control• Environment

pollution• Food safety• Education reform

Policy Environment

12th FYP

Key Goals

Encourage domestic consumption

Improve social safety net

Industrial “upgrading” (Strategic Emerging Industries plan)

Regional development – Central & Western China

Energy efficiency and environmental sustainability

Taxation and financial systems reform

Urbanization

Marc [email protected]

+1 202 429 0340+1 703 598 3242

@marcaross@USChinaBuisness