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Neil Blakeman Associates Ltd 9th November 2010

Business, Economics Politics & Culture. Neil Blakeman Associates Ltd 9th November 2010. CHINA. ssssssss. Bohai Rim. Yangtze Delta. Pearl River Delta. Three Main Centres of Economic Gravity. [Source CBBC, Leeds University, UKTI]. Economic Highlights.

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Neil Blakeman Associates Ltd 9th November 2010

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  1. Business, Economics Politics & Culture Neil Blakeman Associates Ltd 9th November 2010

  2. CHINA ssssssss Bohai Rim Yangtze Delta Pearl River Delta Three Main Centres of Economic Gravity

  3. [Source CBBC, Leeds University, UKTI]

  4. Economic Highlights • World’s 2nd largest economy • Annual growth c.10%for 25 years [forecast 8% to 2015] • World’s largest exporter & manufacturer • GDP growth: 2000-09 = 80% of US : 2010-19F = 2 x US • Inflation: 3% [rising to 4%] • Per capita GDP (at PPP) c.$7,800 [rising to $13k] • Of 1.3bn, 200m+ (?) live on < $2 / day • Overtake US in GDP (PPP) terms by 2030? [Source: EIU, Goldman Sachs, various]

  5. 833m mobile phone users, 420m internet • Huge investment in Motorways, Airports, Metro, Rail • 89 million cars. By 2020, 140 million? • 1998: 1 million university places. Now: 6 million+ • 200 - 600,000? engineering graduates a year • 16 of world’s 20 most polluted cities are in China • 50% of Chinese GDP: savings • Saw the world’s largest ever IPO

  6. Asia's Share (%) In World GDP (at PPP)

  7. POLITICS • 4th generation leadership –> 5th in 2012… • Harmonious, balanced, sustainable development (Party legitimacy) • Domestic challenges; demonstrations, human rights? unemployment • Foreign Policy; N. Korea --, Taiwan ++, US(+), Japan -G20+, [G2?] • Democracy?

  8. Economically, three transformations: Planned Economy Market Economy Other factors: • WTO (Distribution, Financial Services & Retail) – but recently? • Olympics, EXPO 2010, Asian & Student Games 2010-11 • Foreign Exchange Reserves >$2.5 trillion • FDI $100 bn in 2010 ?; $120bn+ 2015? Closed Economy Open Economy RURAAL Rural Urban

  9. Soft landing? Will high growth be sustainable? • What about the currency? • Protectionism (US, EU, China)? • Energy usage, security, efficiency, shortages • Environmental impact • Growth drivers; exports, investment … consumption

  10. Short-term impacts: global economy, credit crunch & recent trends? Global Economy exports (& imports) China: slowed in 2009, bounced back in 2010 cost (& domestic pressures) : competitiveness ? protectionism ? : is a concern (e.g. use of anti-monopoly laws in China) product safety, reputation for quality & consistency (?) UK exports to China are more competitive Consumer / Business confidence (stock market, property market) Consumption ? : retail sales are up ‘Indigenous innovation’ : = more technology transfer ? Huge fiscal stimulus ($586bn) …how effective / over-stimulus? Infrastructure, ’Pillar’ industries, science, health, education Effect on Chinese Banks : limited Outward Investment (FDI & sovereign wealth fund(s)?); Outward direct investment $44bn in 2009, rising to $137bn in 2015? >>> Fundamentals good (but, inflation (recent interest rate increase), unemployment?)

  11. UK China Trade 2001-2009 [Source: UKtradeinfo, British Embassy Beijing]

  12. Britain’s Main Trading Partners in2009 (Avg. Annual Growth 2002-09) [Source: UK trade info]

  13. UK Exports of Goods to China :£5.1 billion in 2009, up 5%. YTD Aug 45% (HMRC) UK Exports of Services to China : £2.5 billion in 2008, up 60% : UK is 2nd largest China = UK’s 2ndlargest non-EU export market China = 3rdlargest source of UK imports UK is China’s 15th largest trading partner (8th largest importer) UK No. 1= EU Investor in China 6639 projects US$16.9 billion realised 580 + Chinese Companies Invested in UK (400 Mainland, 180 Hong Kong) UK is no. 1= destination for Chinese investment into EU UK China Trade & Investment Key Facts [Source: British Embassy, Beijing]

  14. Impact on Global Economy • Impact on shipping costs • Drawing in raw materials and energy: oil, cement, steel, construction….(and retaining rare minerals?) • Fuelled Japanese & Korean economic recoveries • Following ‘Asian Tiger’ model of moving up value chain • Huge pool of skilled and unskilled labour (some upward pressure on wages – as low as 10% of Europe) • Innovation • IPR

  15. Key Challenges in doing business with China • IPR protection • HR issues • Regulations, and dealing with Chinese government • Legal, tax, accounting, certification (and resolving disputes) • Partner selection, relationships • Corruption • Handling people / relationships (‘Face’, ‘Guanxi’, hierarchy) • Official trade & investment limitations • Route to market, physical distribution • Risk management (company, personal) • Size, diversity, cultural ‘distance’, language • Sales, marketing, branding • Negotiating, pricing • Remitting funds, getting paid • Scarcity: power, water etc

  16. Practicalities: Mandarin v's Cantonese, business cards, interpreters, banquets, design / promotion, gifts, hotel cards etc. Acknowledgement: input from Eugene Chang (formerly at CBBC) Behaviours (business context) Patient Group orientation Hierarchy ‘Guanxi’ (networks/relationships) Bonding Modest Decision-making - Simplicity v’s complexity - Employment, technology Contract (only the beginning) ‘Face’ Personal relationships Intercultural Communication & Understanding • Influences • Long history • Confucius, Daoism, Buddhism • Women (father, husband, child) • Elders • Pictographic language • Study / education • Family ties • Zhongguo (middle kingdom) • Patriotism

  17. Business Challenges • Regulatory, market and operational challenges • Some issues are more acute in regional cities [Source: CBBC, Leeds University, UKTI]

  18. Creative Industries: Chinese government engagement • Beware sensitivities: film, media, content etc… • Discuss with UK Trade & Investment • Important to understand & potentially engage: • Ministry of Culture • MOFCOM (Ministry of Commerce) • SARFT (State Administration of Radio, Film & TV) • MII (Ministry of Industry and Information Technology • GAPP (General Administration of Press & Publications) • Other (SIPO, SAIC etc.)

  19. Areas of Opportunity • Exporting - Agent or Distributor • Establishing a local presence (Rep, JV, WOFE, FICE) • Sourcing, Outsourcing (goods, business processes) • China going global • Consumer spending • Infrastructure development • Increased manufacturing output

  20. Areas of Opportunity • Energy, including efficiency • Environmental protection • Financial Services • Information & Communications technology • Creative Industries/Design • Enhanced public services - health & education • Innovator, R&D • World Student Games 2011, other major events

  21. Market Entry Drivers • Build your own market-entry strategy • Focus on business objective and priorities [Source: CBBC, Leeds University, UKTI]

  22. Doing Business in China • Leave your preconceptions at home • Keep hold of your business sense as tightly as you would anywhere else • Do your homework on the market and on potential partners • Patience is a virtue; need commitment and open mindedness • Take a long-term approach, but do not stick rigidly to your plans • Obtaining good quality independent legal and professional advice is essential • Protect your IPR • Carry out due diligence • Importance of personal relationships

  23. Depends on your sector, stage of development, strategy …. Must factor China fully into your strategy Exports, investment, partnering Sourcing, outsourcing Design, science/ research, marketing, branding Services, solutions (eg. BPO) CHINA THREATS? OPPORTUNITIES? • IPR, Tech. Transfer • Energy, raw materials • Manufacturing • Pace & extent of change • Complexity • Source of competitors • Innovation, R&D • Labour, skills • Environment

  24. www.neilblakeman.com

  25. A management consulting firm specialising in international business, trade and investment • we advise clients on the development of their international strategy and practical implementation, to deliver growth • our main focus is on China, complemented by extensive commercial experience in Central Europe and a range of emerging and developed markets • we have an exceptional group of highly experienced Associates, who are acknowledged experts • our clients are world-class companies, public-sectors agencies & academia. We have built a strong reputation by working closely with them, to achieve measurable results • we have a unique blend of commercial and public-sector experience at senior levels, particularly in China and the UK • our knowledge and skills are combined with an exceptional network of contacts within the commercial world, government, and higher education To contact us: UK: +44 (0)1647 2772777 info@neilblakeman.com www.neilblakeman.com

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