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Delve into China's evolving economy, government influence, retail market prowess, key trends, and the Belt and Road Initiative's impact. Explore the vast consumer market and technology landscape.
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The New China and International Business Gary Knight Fellow, Academy of International Business Professor and Helen Jackson Chair Atkinson Graduate School of Management Willamette University Salem & Portland, Oregon, USA April, 2019
The most populous country, with 1.4 billion people • The second largest economy, and growing fast • Per-capita GDP of $10,000 (nominal). The middle class exceeds 300 million people, with average annual income over $15,000 • Huge market for cars, food, luxury goods, and many other goods. • Government plays enormous role in business China Overview
Leading Countries in International Merchandise Trade, by Total Annual Value Total annual value of products trade (exports + imports) in billions of US dollars
Leading Countries in International Services Trade, by Total Annual Value Total annual value of services trade (exports + imports) in billions of US dollars
Total Contribution to World GDP, 2015 to 2020 Source: Based on International Monetary Fund, World Economic Outlook Database, www.imf.org, 2018 6
China: Recent GDP Growth Rates, % A rate of 6.5% in 2018, while excellent by world standards, represents the lowest percent in China since about 1990. China’s economy is slowing for several reasons: -- Aging population, resulting in a declining labor pool -- Lower inward investment and softening entrepreneurship -- Chinese exports slow as global economic growth softens -- Trade tensions with the US and other countries 10-7 7
China is a mix of entrepreneurship and government control. The government leverages business while exercising control to reduce undesirable outcomes. • Abundant low-cost labor is a big advantage, supported by a strong K-12 education system • Inward investment and massive exports have fueled the economy, providing enormous capital • Strong societal cohesion and general consumer optimism • China will become the world’s largest retail market in 2019, which holds the promise of new opportunities (and challenges) for foreign firms. Business Environment
Total Annual Retail Sales, China & US, $trillions China United States Sources: eMarketer and P. Davidson, “China to top U.S. as world's No. 1 retail market in 2019: Report,” USA Today, January 23, 2019, www.usatoday.com 9
Pyramid of Chinese Cities Percent of Population 4 cities In terms of GDP, many Chinese cities are huge. Examples: CityGDP (PPP billions) Shanghai $860Beijing $800Shenzhen $650 Guangzhou $620Chongqing $570 Tianjin $550 Suzhou $500 Tier 1 New Tier 1 Tier 2 Tier 3 Tier 4 & 5 5% 11% 14% 70% 15 cities 30 cities 70 cities 531 cities
Chinese Cities Tier 1. Typically 12m+ population; most developed markets. Four cities: Beijing, Shanghai, Guangzhou, Shenzhen New Tier 1. Typically 3m+ population; 15 cities, often provincial capitals. E.g., Chengdu, Hangzhou, Wuhan, Chongqing, Nanjing, Tianjin, Suzhou, Dalian, Ningbo Tier 2. Typically 1m+ population; 30 cities, lesser known. E.g., Xiamen, Fuzhou, Wuxi, Hefei, Harbin, Foshan Tier 3. About 70 cities. E.g., Weifang, Baoding, Yangzhou, Guilin, Tangshan, Sanya, Huzhou Tier 4 & 5. About 571 cities. 11
One Belt, One Road Initiative • China seeks to extend its presence in various countries – especially in Asia, Africa, and Europe – through a China-centered global trading network. • Aims to increase capital inflows, ensure access to needed resources, and develop technology and the talent pool in China. • Some critics see it as a push by China for dominance in world affairs through development of a China-centered global trading network. • The central government in Beijing aims to promote what it sees as China’s rightful position in the global economy and in world affairs. 12
Key Trends • Growing middle class • Rising disposable income • Rapid urbanization. About 50 cities in China now have more than 10 million people each. • Aging population (with associated opportunities and challenges) • Transitioning from a manufacturing to a service economy • China’s central government is promoting: -- development of domestic consumption -- greater market openness for inward FDI and international trade
China: Retail Consumer Market • Nearly 1.4 billion consumers; half are in cities. • Numerous regional consumer markets, with distinctive characteristics. • The world’s No. 1 or 2 market for cars, motorcycles, cell phones, luxury goods, electronics, appliances, bikes, shoes, and various commodities. • Buying is strongly influenced by group behavior. Consumers make decisions based on what is best for their family, including the extended family. • Successful retailers leverage strong capabilities in mobile phone platforms, including WeChat and payment apps. WeChat is used by 700 million Chinese for everything shopping-related.
China and Technology • China is the most advanced nation in mobile telephony • China’s digital ecosystem is highly integrated across e-commerce, payments, social media, video streaming, and search engines • The Chinese use QR codes on their phones for all variety of purchases. Chinese has effectively leap-frogged credit cards, and gone directly from cash to QR technology. Many Chinese have stopped carrying cash, and use their phones instead. WeChatPay and Alipay are major platforms. • WeChat has 700 million users, and is used for everything.
Percent Who Do E-Commerce Via Mobile Phones: China and US Sources: Criteo, iResearch, eMarketer, C. Biggs et al, "What China Reveals About the Future of Shopping," Boston Consulting Group, May 4, 2017, www.bcg.com
China: Top Technologies for Retailing Source: Brad Loftus et al, “To See Where Retail Stores Are Heading, Look to China,” Boston Consulting Group, September 7, 2018, www.bcg.com
Challenges Bureaucracy, red tape – much government regulation and burdensome rules. Corruption – especially cronyism, officials profiting from their positions, bribery, kickbacks, misspending of public funds Evolving rule of law – regulation and laws can change quick; enforcement is inconsistent Various restrictions on FDI – formal and informal regulations hamper inward investment activities. Government intervention – the federal and provincial governments intervene enormously in business. Intervention is often unpredictable and hasty, a big added layer of uncertainty for firms doing business in China. 18
Challenges, cont’d Weak intellectual property laws Trade tensions and rising protectionism Poor physical infrastructure – in roads, sewers, electrical utilities, telecommunications, etc. Partner availability and qualifications – local partners are often needed, but qualified partners may be hard to find. Rising labor costs – increases the cost of doing business. 19
Seizures of Counterfeit Goods at US Ports Source: CBP Office of International Trade (2018), Intellectual Property Rights Seizure Statistics Fiscal Year 2017, Washington DC: U.S. Immigration and Customs Enforcement
Main Sources of Counterfeit Goods Source: CBP Office of International Trade, 2018, Intellectual Property Rights Seizure Statistics, Washington DC: U.S. Immigration and Customs Enforcement; OECD, Counterfeiting and Piracy, www.oecd.orgfc; and www.statista.com