How China Will Change Your Business Article by Ted Fishman

1. How China Will Change Your BusinessArticle by Ted Fishman Ben Hassold Brock Strom Megan Stampke

2. Introduction • China is an increasing presence and influence in lives of consumers • Connected through shipping lanes, financial markets, telecommunications, globalization of appetites • Worlds largest maker of consumer electronics • Also produces automobiles (120 automakers) • In 2004, Chinese sold the US $160 billion more in goods than they bought

3. Economic Growth Larger Economy than Shown Growth has no equal 2003 GDP = $1.4 trillion Authorities have incentive to underreport growth rates Government only measures China’s legal economy China uses power of foreign currency reserves to keep the world price of Yuan locked with the dollar CIA estimates China’s true GDP = $6.6 trillion GDP has expanded at annual rate of 9.5% 30 year run where their economy has doubled almost 3 times Every time the worst is predicted for China they seem to grow faster, create stronger industries, import/export more

4. Global Competition • Economy is growing so fast because the world keeps feeding it capital • 1/3 of China’s industrial production made possible through foreign money since 1978 • 2003, foreigners invested more in building businesses in China than anywhere else • Made China third-largest trading country in the world

5. Setting Prices Growth making raw materials more expensive Setting global benchmarking prices China’s demand for raw materials have caused spikes in prices Copper (25% +) Aluminum/Zinc (25% +) Oil (33% +) 2003 purchasing statistics 7% world’s Oil 25% aluminum/steel 1/3 world’s iron ore and coal 40% world’s cement Causing manufacturers to become more productive China’s price over the years has become interchangeable with the lowest price possible Between 1998 and 2004 prices in the US fell in almost every product category in which China was the top exporter

6. Closing R&D gap – Fast! • $60 billion spent on R&D last year • Only countries who spent more are US and Japan • US devotes its time to innovation, while China’s emphasis is on training/development of technical employees and managers • US has spent nearly five times what China has, but produced less than two times as many researchers • China’s universities produce 325,000 engineers per year • Five times as many as the US

7. China’s Piracy Problem • Foreign companies have little defense against theft of technology in China • Creates global subsidy worth hundreds of billions in revenue losses for businesses • By investing in China’s manufacturing structure the world is helping to assemble the most successful “illegal” manufacturing complex in the world • As China grows the wealth transferred into the country by theft of intellectual property will drive it forward

8. U.S. and China working together • China needs low priced currency to keep exporting goods and creating jobs • China lends U.S. all money they need in order to “spend itself silly” • Without US to buy Chinese goods, China cannot sustain growth • Without China to lend US money, Americans cannot spend as much as they do