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Doing Business in China:
Updates and Opportunities
September 29, 2006
Andrew M. Pan
North American Representative Office of Shenzhen, China (NAROS)
2
Outline
• China Economic Developments– China Regional Economy
– China Economic Update
– New Economic Plan
– Most Recent Developments
• Emerging Market Opportunities– Domestic Market Momentum: Service and Distribution
– Manufacturing in China
– Purchasing from China
– Business Process Outsourcing (BPO)
– Acquisition of SOE
– Industrial Zones
• Shenzhen and the Pearl River Delta– Facts and Figures
– Features and Characteristics
– NAROS and Our Services
3
China Economic Developments
4
China Regional Economy
Northeast Region
Shanghai
Xian
Dalian
Beijing
Tianjin
GuangzhouShenzhen
Hong Kong
Chongqing
Suzhou
Macau
Beijing-Tianjin-
Hebei Region
Pearl River Delta
Region
Yangzi River
Delta Region
Chengdu-Chongqing
Region
West and Central
Regions
China
Northeast Region
Shanghai
Xian
Dalian
Beijing
Tianjin
GuangzhouShenzhen
Hong Kong
Chongqing
Suzhou
Macau
Beijing-Tianjin-
Hebei Region
Pearl River Delta
Region
Yangzi River
Delta Region
Chengdu-Chongqing
Region
West and Central
Regions
China
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Economic Update
• China’s economy grew 9.9% in 2005
• China’s GDP US$ 2,279 billion– world’s 4th largest
• Foreign direct investment (FDI) – US$ 60.3 billion
• Foreign trade volume – US$ 1,422.1 billion
• Foreign currency reserve – US$ 818.9 billion
• Total household savings in banks – US$ 1,838.1 billion
Source: China State Statistics Bureau, 2005
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New Economic Development Plan
• China’s 11th 5-year Socioeconomic Development Plan
(2006-2010)
– Establish a “harmonious society”
– Coordinate growth among different regions
– Stimulate development of the agricultural sectors
– Facilitate healthy growth in urban areas
– Transform from export-processing to higher-technology-content
products
– Convert from a manufacturing driven economy to a more diversified
domestic services economy
• Targets by end of 2010
– Double 2000 GDP per capita by 2010
– Reduce energy consumption per GDP unit by 20% from 2005 level
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Most Recent Developments
• Tianjin set to become China’s next Pudong
• Corporate income tax rate for FIEs to be harmonized with
that of domestic enterprises
• A Beijing court overturned China IP Bureau’s ruling on
Viagra patent; a Shanghai court backed Starbucks’ claim
against a local coffee shop called “Starbucks” in Chinese
• China controls the inflow of foreign capital into speculated
real estate market in order to cool housing prices
• New M&A regulation effective from September 8, 2006
• China adopts new anti-corruption efforts
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Emerging Market Opportunities
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China Market Momentum
• Recent survey conducted by PwC
– Survey of 1,410 CEOs from 45 countries
– Projected overseas investment (2006-2009)
– 55% of respondents will invest in China (vs. 36% in India, 33% in
Brazil)
– 75% of respondents are attracted by China domestic market
opportunities
– 48% are attracted by lower manufacturing costs
Source: PricewaterhouseCoopers
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5%
5%
62%
3%
Serve as regional
headquarters
Produce goods or
services for other
(non-China, non-
US) market
Export to China
Produce goods or
services in China
for the US market
Produce goods or
services in China for
the China market
Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
11%
14%
Q: No.1 goal of the US investment in China?
A: China domestic market opportunities.
(62%+ 11% = 73%)
100% = 345 companies
Others
American Chamber of Commerce Survey:
Number One Goal for China Business
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Domestic Service and Distribution
• WTO opens the door of China domestic service anddistribution market– Distribution: retail, wholesale, franchising and direct marketing
– Banking, consumer lending and insurance
– Telecommunication and content driven providers
– Freight forwarding, transportation and package delivery service
– Customer service
– Entertainment: film and TV production, audiovisual products distribution, movie theatres
– Construction engineering and consultation
– Hotels and restaurants
– Education
– Professional services: legal, accounting, tax, medical, dental, management consulting and advertising services etc.
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Manufacturing, R&D in China
• Take advantage of low cost, skillful labor force and college-graduated engineers, lower cost
• Incentive income tax rates and other tax holidays
• For some products, Chinese government only allows those manufactured and/or R&D in China to enter into China domestic market
• Covering almost all industrial sectors of consumer and capital products
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Purchasing from China
• Access to a larger manufacturer and supplier base
• Deal directly with manufacturers with lower purchasing cost
• Better quality control
• Better supply chain management
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Business Process Outsourcing (BPO)
• State-of-art infrastructure
• Well educated labor force
• Much improving English speaking capability
• Government support and tax incentives
• Services can be outsourced/offshore:
– Data entry and backup
– Call center/customer service
– Back-office business process service
– IT
• Software outsourcing
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Acquisition of SOE
• Industries from banking, infrastructures, public utilities to retail chain stores, machinery equipments etc.
• A good solution for US companies to expand their China operation without a substantial front-end cash investment
• A shortcut for US companies to expand their China operation and enter China domestic market
• May allow US companies to access China domestic regulated market segment
• Some SOEs are down-sizing/spin off to increase efficiency at a fair low cost
• Endorsed by central and local governments with various incentives (case-by-case)
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Industrial Zones
• Industrial zones provide various incentives and
opportunities for US companies with different business
models
– Special Economic Zone (SEZ)
– Economic and Technological Development Zone (ETDZ)
– Free Trade Zone (FTZ)
– High-Tech Park
– Export Processing Zone (EPZ)
– Bonded Logistics Zone (BLZ)
– Bonded Port
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Shenzhen and the Pearl River Delta
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Shenzhen in Greater China
ShenzhenShenzhen
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Shenzhen and Pearl River Delta
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Shenzhen and Pearl River Delta
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Facts and Figures
• City founded in 1979
• Became China’s first SEZ in 1980
• 8.25 million population, average age about 30
• Only city in mainland China borders on Hong Kong
• GDP in 2005 USD 61.5 billion, ranks 4th among all mainland China cities
• Average GDP growth rate over 25% per annum from 1980 to 2005
• Export in 2005 USD 115 billion, ranks the 1st among all mainland China cities for 13 consecutive years
• Hong Kong, US and EU ranks the top 3 trade partners
• FDI in 2005 USD 3 billion, total USD 40 billion since 1980
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Facts and Figures
• 120+ Global Fortune 500 companies have operations in Shenzhen
• The home for Shenzhen Stock Exchange and the regional financial center in Southern China
• Shenzhen Port-the 4th largest container terminal in the world, 16.2 million TEUs in 2005
• Shenzhen International Airport-the 4th busiest airport in China
• The corporate headquarters for Huawei, ZTE, China Merchant Bank, Ping’an Insurance and many other local China big private companies
• 10+ five-star hotels, 10 world class golf courses. Mission Hills Golf Club is the biggest golf club in the world
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Shenzhen in 1982
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Shenzhen Today
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Features and Characteristics
• Major Industries– Consumer products manufacturing
– Technology products manufacturing and R&D
– Imp./Exp. trade city in mainland China
– Logistic center for Southern China-a port city
– Regional financial center
• A young, vigorous migrant city with the culture of creativeness and entrepreneurship
• A coastal city with excellent infrastructures and utilities
• China’s first SEZ with the most open market economy and a pro-business government
• Much lower operation cost compared with Shanghai, Beijing and Hong Kong
• One of the best living cities in mainland China (air quality, green space, foods and entertainment)
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NAROS and Our Services
• Set up in 2001
• Based in Los Angeles, CA
• Shenzhen’s only investment and trade promotion office in North America
• Our FREE services:
– Provide China general/business information
– Consult on China business policies and incentives
– Facilitate business setup and transaction
– Build up Chinese government connections
– Support daily operations
Thank You!
If you need more information about doing business in China, especially in Shenzhen,
please contact us @
Tel: 213-628-9888 Fax: 213-628-8383
E-mail: [email protected]
Web: www.shenzhenoffice.org
