Landon LoomisForeign Commercial Service

U.S. Embassy BeijingOctober 4, 2011

The China Market

Commercial Opportunities in Public Transportation

A Country of Contradictions

AFP

Chinadigitaltimes.net

Chinadigitaltimes.net

Peopledaily.com

Getty ImagesChinadigitaltimes.net

Chinadaily.comChina.cn

Urban v.

Rural

LuxuryShopping

Malls

Migrant Workers

Communistv.

Capitalist

RuralPoverty

Trade Deficit

Ancient v.

Modern

Urban Poverty

ProvincialExceptions

Centralv.

Provincial

Largest Export Market

Thetakeaway.org

Chinadigitaltimes.net

Huffingtonpost.com

Pollution

Coal (40%)

Cement (50%)

Steel (33%)

Iron Ore (43%)

China & World Markets

#1 Vehicles Market Over $110 billion

#1 Internet Users 457 million

Mobile Online Service Users

303 million

Retail Sales $1.8tn in 2009

$520bn in „01, 12.5% yoy

Largest export market x NAFTA

Trade with China

• More than $450bn total trade

• 2010 trade deficit of $273 billion

• Exports up 23% Jan-Mar „11

… is a GOOD THING!

Urbanization: 400 mn pax by 2025

Rising Urban Incomes: 60% since 05

Middle Class: 5% (09) to 45% (20)

2nd Tier Cities: 60% of US imports

Growth Drivers

Source: China NBS and Economist EIU in Boeing Current Market Outlook

Urban

Growth Driver 2: Stimulus (2010-12)

Total Stimulus $586 billion

• Central Government: $175.6 billion

• Provinces: $410.4 billion

• via Regional Banks: $1.45 trillion in new loans

Primary Industries• High-speed rail

• Metros

• Airports

• Energy projects

• Highways

• Mortgages

Corruption

Inflation

Healthcare

Education

Affordable Housing

Demography

Pollution

China‟s Challenges

Is Pollution a Problem?

•Urban Income $2,895•Rural Per Capita net Income $897

China‟s Challenges

Economic Restructuring o “Magic 7” Strategic Industries from 3% to 8% GDP

o Services -- 47 % of GDP

o Urbanization -- 51.5 %

Innovationo R&D funding up 12.5 %

o 2.2% of GDP

o 3.3 patents per 10,000 population

12th Five-Year Plan

Economic Restructuring o “Magic 7” Strategic Industries from 3% to 8% GDP

o Services -- 47 % of GDP

o Urbanization -- 51.5 %

Innovationo R&D funding up 12.5 %

o 2.2% of GDP

o 3.3 patents per 10,000 population

12th Five-Year Plan

Key Investment Directions in 12th Five Year Plan2011 - 2015

• Transportation infrastructure investment

– Railway $460 billion

– Road $615 billion

– Waterway $31 billion

– Metro $178 billion

– Airport $231 billion

• Logistics industry $154 billion

Clean Transportation

Automobile Market •2009 13.5 million vehicles•2030 200 million vehicles

New Energy Vehicle Program •2012 Goal 60,000 electric vehicles

Railroads & City Mass Transit

• 2012 World‟s Longest High-Speed Rail Network

– 13,000 km

– 2025 170 Cities

• Mass Transit

– By 2020 total rail

network 120,000km

China is the world’s largest urban rail marketInvesting $178bn to expand in 35 cities

Metro Current Lines

Current KM

2020 Lines

2020 KM

% Growth

Shanghai 9 250 20 887 355%

Beijing 8 200 19 700 350%

Guangzhou7 190 19 570 300%

Shenzhen 4 80 16 585 731%

Tianjin 2 70 14 470 671%

Despite the Opportunities…

Companies FaceMajor Business Challenges

Source: 2010 AMCHAM Business Climate Survey

Positive Business Outlook

Companies in China

• 71% expect increase revenue

• 90% are “optimistic” for the future

• 41% predict more than 50% increase in investment AmCham Shanghai 2010-

2011 China Business Report

Performance Improving

• 87% companies reported revenue growth

• 79% companies “very profitable”

• 61% increase market share for China products/services

AmCham Shanghai 2010-2011 China Business Report

Take a “China Ready” Assessment Survey :

www.export.gov/china

Export Experience

Senior Level Commitment

Financial Resources

Due Diligence

Regulatory Issues

IP Strategy

Is Your Company China Ready?

HOW CAN FCS HELP?

19 Cities

5 CS Offices

14 Secondary Markets

Foreign Commercial Service in China

Products and Services

Trade counseling

Existing Market Research

Tailored appointments

Partner searches

Basic due diligence

Promotional events

Trade Missions, Trade Fairs and Catalog

Exhibitions

American Rail Working Group (ARWG)

• Raises PROFILE of US companies and products

• Provides ACCESS to key government decision makers

• Builds RELATIONSHIPS with peers and clients

• Working Groups focused on industry sub-sectors

– Metro

– Freight

– Highspeed Rail

IPR Resources

The US Embassy IPR Toolkit

http://beijing.usembassy-china.org.cn/ipr.html

China IPR Advisory Program -

one hour free IPR consultation with legal expert

http://www.abanet.org/intlaw/china_program2.html

US Patent & Trademark Office: free China conferences

http://www.stopfakes.gov/events/china_webinar_series.asp

IP webinar series (www.stopfakes.gov)

In China…Everything is possible, nothing is easy.

U.S.

China Business Information Center at export.gov/chinaor call us at 800-USA-TRADE

CHINA:

http://www.buyusa.gov.china/en

or contact Export.China@mail.doc.gov

Landon.Loomis@trade.gov

Thanks!

Clear Preference for Wholly-Owned

Structure of Foreign Investment

Key Targets by the End of 12th FYP

Best Prospects•Environmental Technology

•Energy

•Coal

•Nuclear

•Smart Grid

•Healthcare

•Transportation

•Outbound Tourism

•Education

Tires Case

TaiwanDalai Lama

Human Rights Report

GoogleExchange

Rate

Growing Chinese FDI into the US

The Myth of Chinese ForEx

Americans are America’s Bankers• 77% debt and equity owned by Americans• Only 1% owned by China

China is betting on the U.S.• 80%+ of China‟s holdings are USG securities • Chinese hold 8% of US treasury securities

$2.622 T

Chairman Hu‟s State Visit

• Positive, Cooperative, Comprehensive Relationship

• Security, Economic, Social, Energy, Environment Coop.

• $45 B U.S. Exports

• $3.5 B Chinese Investment

• IP - Audit Govt. Software

• Delink Catalogues from

Government Procurement

• New GPA Offer

Social Stability Risk

• Sichuan Provincial Government:

– Income distribution in state enterprises

– Water and gas prices

– Pollution

– Reduce administrative fees at markets

– Subsidize rising prices

– Continue payouts to ensure a minimum income.

Source:《四川省社会稳定风险评估暂行办法》下月起实施 2010-11-24 08:35:58 来源:成都商报 点击次数:71 收藏文章

Livelihood

o Population ≥ 1.39 billion

o Per capita income up 7+%

o Central Government Funding for affordable housing to rise 14.8 %

oMinimum wage up 13 %, wage rates are from RMB580 to RMB1,000 depending on the area

o Education spending up 16.3 %

oHealthcare expenditures up 16.3 %

12th Five-Year Plan

Livelihood

o Population ≥ 1.39 billion

o Per capita income up 7+%

o Central Government Funding for affordable housing to rise 14.8 %

oMinimum wage up 13 %, wage rates are from RMB580 to RMB1,000 depending on the area

o Education spending up 16.3 %

oHealthcare expenditures up 16.3 %

12th Five-Year Plan

Outbound Tourism

• Total Spending $5bn in

2010, up 483% since 2003

• Arrivals over 800,000, up

410% over 2003

• Tourism Revenues from

China: up 53% in 2010

alonehttp://tinet.ita.doc.gov/outreachpages/download_data_t

able/2010_China_Market_Profile.pdf

Education

China #1 Source for International Students in U.S.

• 127,628 students

2009/2010

• 29.9% Increase

0

10,000,000

20,000,000

30,000,000

40,000,000

2000 2001 2002 2003 2004 2005 2006 2007 20082009

Total

China

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total

China

Number of Visitors to the United States

Growth Rate of Visitors to United States

Source: DHS data.

No

n-I

mm

igra

nt

En

trie

s (r

esid

ents

) t

o U

.S.

An

nu

al

Gro

wth

Ra

te o

f N

on

-Im

mig

ran

t E

ntr

ies

(res

iden

ts)

to

U.S

.

Visitors to U.S. per 1,000 Population

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Series1

Series2

No

n-I

mm

igra

nt

En

trie

s to

U

.S.

per

10

00

Po

pu

lati

on

Source: Embassy Beijing Economic Section calculation based on DHS data.

Citizen

Resident

U.S. Travel Exports per Visitor

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

China India Japan Korea Taiwan Russia Brazil

Tra

vel

Rel

ate

d S

erv

ice

Ex

po

rts

per

N

on

-Im

mig

ran

t (c

itiz

en)

En

try

to

th

e U

.S.

(20

08

)

Source: Embassy Beijing Economic Section calculation based on DHS and BEA data.

Direct Flights

Beijing to:

• Chicago (United)

• San Francisco (United, CE)

• DC (United)

• Seattle (Delta, AC)

• Chicago (American)

• NYC (Cont/United, AC)

• LA (AC)

Guangzhou to:

• LA (CS)

Shanghai t0:

• San Francisco (United, CE)

• Chicago (United)

• LA (United, CE)

• Detroit (Delta)

• Chicago (American)

• LA (American)

• NYC (Cont/United, CE)

• Seattle (CE)

U.S. Patent & Trademark Office (PTO)

The US Embassy IPR Toolkit

http://beijing.usembassy-china.org.cn/ipr.html

China IPR Advisory Program -1 hr free consultation

http://www.abanet.org/intlaw/china_program2.html

USPTO: Free China Conferences

http://www.stopfakes.gov/events/china_webinar_series.asp

IP Webinar Series

www.stopfakes.gov

SYSTEM SUPPLIER / PARTNERSHIP

Avionics SystemGE aviation and COMAC and AVIC, Rockwell Collins and CECT, Honeywell and CAIC Electronics

Engine CFM International and AVIC Commercial Aircraft Engine Co., Ltd

Electrical Power Supply Xiamen Hansheng Qinling Aero Co., Ltd (Hamilton partnership)

Hydraulic System Eaton Corp and COMAC Shanghai Aircraft Manufacture Co., ltd

Water Supply and Treatment

Envirovac Inc (Zodiac) and Wuhan Hangda Aero Science & Technology Development Co., Ltd

APU Honeywell and AVIC Harbin Dongan Engine (Group) Corporation Ltd

Fire Proof and Alarm Kidde Aerospace & Defense and B/E Aerospace Inc

Lighting SystemEaton and AVIC Shanghai Aero-electrical Appliance; Goodrich and Jiangsu Tongming Auto Lamp

Fueling System Parker and AVIC Systems Co., Ltd

Deicing System Goodrich and COMAC

Flight Control SystemHoneywell and AVIC Flight Automatic Control Research Institute, Parker, Hamilton Sunstrand, Moog and AVIC Qingan

Cabin Core SystemRockwell Collins and Shanghai Shiju Electronic Co., Ltd (No. 633 Institution)

US Companies supplying C919

Renewable Energy Opportunities

Wind

• Largest Producer

• 2009 33% World Investment

• 2010 Install Capacity 10 GW

• 2020 Target 150 GW

Renewable Energy Opportunities

Solar Power

• PV Production 90% exported

• 2009 Capacity 8 GW

• 2020 Target 20 GW

Why Green Tech is GrowingWater

20% unusable for industry

$303 billion through 2016 Rural wells/ Urban Wastewater/

Key Water Body Pollution

$11.5 B to curb heavy metal pollution (over next 5 years)

.

Air pollution

Deaths/year 400,000

• Energy Usage 70%

• Coal Reserves-

127 billion tons

• 598 coal-fired power plants (on-grid) in 2010

• By 2035 coal-fired capacity to increase 150%

0

1

2

3

4

5

1 2 3 4

Total Coal Production

2008 2009 2010 2011

Billio

n T

on

s

Coal

Nuclear Power

10 yr Investment $110billion

2030 Goal 200 GW

Active Plants 13

Under Construction 28

Smart Grid Investment

• Smart Grid: electric grid that most efficiently delivers electricity from generation to consumers

• China- $10 B annually – 10 yrs

- $590 B total investment in electric power grid

• (U.S.- $3.4 B in DOE grants - $4.7 B from industry)

Healthcare: Caring for an Aging Population

• 2010 169 M > 60; 2020 240 M >60

• $124 B Healthcare Reform over 3 years

• 3rd largest medical equipment market

-15% year on year growth

-projected$26.8 B by 2014

• Pharmaceuticals-over 20% annual

growth

China Assoc. for Medical Devices Industry, (CAMDI)

Healthcare ReformProgress

• 2010- 432.06 million covered by various urban basic medical insurance schemes

• 2010- 90% achieved immediate account settlement of inpatient and out-patient expenses.

• Efforts have been made ,and are succeeding, in unifying urban and rural basic medical insurance

Future Work

• By the end of 2011, basic medical insurance in urban areas will achieve coverage of 90% and the participation of 440 million people

• Subsidy for residents‟ medical insurance will increase to 200 RMB per person

www.export.gov 1-800-USA-TRADE

10493, 6.5

17175, 6.5

6682, 6.5

0.636805489, 0, 0

, 0

, 0

Iron & Steel

Chemicals

Meat, Fish, Crustaceans

Paper

Pharmaceutical Products

Glassware

Fertilizer

Beverages, Spirits Coffee,

Sugars, Confectionery

Musical Instruments

Carpets , Floor Coverings

Apparel, Silk, Yarn

Railway Equipment

Soaps

Clocks, Watches

Photographic Goods

TOTAL = $71.5 billion

US Exports to

China

12th Five-Year Plan

Economic targets

oGovernment expenditures to rise 8%

oGDP to grow 7 % annually

oInflation target 4%

o45 million jobs to be created in urban areas

o Urban registered unemployment ≥ 5 %

China‟s 12th Five-Year Plan

“New Magic 7” • New energy

• Energy-saving and environment protection

• Biotechnology

• New materials

• Clean-energy vehicles

• High-end manufacturing

• Next generation information

technology

Environment & Clean Energy

o Environmental Protection RMB up 10 %

o Energy consumption cut by 16 %

o Energy Consumption from Non-fossil fuel = 11.4 %

o Carbon dioxide emission cut 17 %

o Water consumption/ unit value-added output cut 30 %

12th Five-Year Plan

Rising Dragon: China’s Investments

• China FDI in U.S. - $1.2 B (total worldwide $246 B in 09)

• Explosive Growth “Go Global Policy”

• Benefits U.S.

• Invest In America

• http://www.investamerica.gov

• Access America

• http://www.buyusa.gov/china/en/aaguildlines.html

National Institute of Standards and Technology (NIST)

Smart Grid - $600 B Market (2020)

Resisted Harmonizing Standards

Hu Agreed to Joint Development

WiFi vs. WAPI

Compromise – China requires both

3G and 4G

Technology Neutral

Since 2001 facilitated $4.2 billion in U.S. exports

With $52.3 million

Feasibility Studies

Orientation Visits

Conferences

Definitional Missions

Public – Private Partnerships

Energy / Aviation / Healthcare

U.S. Trade & Development Agency (TDA)

U.S. Export-Import Bank (Ex-Im Bank)

Finance U.S. Exports of Goods & Services

Railway Equipment - $84M & $120 M

Healthcare Equipment - $4.25 M

Pakistan Locomotive Case

• Met Chinese Terms

Bureau of Information Security(BIS)

Only 0.3% of U.S. Exports to China in 2009 required Export License

Civilian – Military Use

Reforming Export Control RegimeConsolidate Enforcement under DHSCreate One Independent Licensing Agency-LegislationOne Control ListOne IT Platform

Market Access and Compliance

Joint Commission on Commerce and Trade (JCCT) Lead

Some 2010 JCCT Outcomes

Audit Government Computers for Legal SW

National Treatment for Foreign Invested Enterprises (FIEs)

Technology Neutrality - 4G Wireless Services

Wind Power Experience Requirements

Pharmaceuticals / Medical Devices

Government Procurement Preferences

Import Administration(IA)Antidumping (AD) / Countervailing Duty (CVD)

cases

Cases Against China

2009 - 12 AD / 10 CVD - 2.9% of imports from China)

2010-- 3 AD / 3 CVD

Cases Against U.S.

2009 -- 4 AD and 3 CVD (0.3% of total exports from U.S.)

2010 -- 4 AD (optical fiber, caprolactam, photo paper, distiller‟s dried grains)