A forward look at the developing

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A forward look at the developing Chinese economy
Dimitri de Boer
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Disclaimer

• The figures and views in this presentation are
  my personal opinions gained through experience
  with China and do not represent official
  positions of UNIDO, nor are they intended to
  oppose or support any people or organizations.

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Overview

• Economic Developments
• Social Developments
• Problems for Doing Business
• Forecasts and Expectations
• ChinaChem 2004

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Economic Developments

• Average 8 GDP growth since 1978
• Prosperous coastal cities, poor rural areas
• FDI magnet
• FX Reserves, Credit and NPL
• WTO entry

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GDP Growth

• 1979 2002
• Real GDP (billion ) 180 1,250
• Real GDP per capita 185 1,000
• US GDP (billion ) 10,500
• US GDP per capita 37,000

Source The World Bank 2002 World Development
Report
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GDP Growth, limited Inflation
Source 2003 Statistical Yearbook of China
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Structure of the Economy
Source 2003 Statistical Yearbook of China
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Income Growth
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FDI magnet
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Recent Economic Indicators
Source Finance Asia, accredited to UBS Warburg
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FX Reserves Build-Up
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Credit Expansion

• 2002 2003
• Credit (trillion RMB) 0.9
  1.9
• Will it go bust?
• Credit and debit cards
• Total sum of bank card transactions has increased
  by approximately 76 per year
• Number of retailers who accept cards has
  increased by about 51 per year
• Average person still prefers cash

Source Access Asia Credit and Debit Cards in
China Market Analysis
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Non-Performing Loans
2002
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WTO Accession Opportunities and Challenges
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Social Developments

• Emerging Middle Class
• Urbanization
• Huge Workforce, Rising Unemployment
• Virtually Unlimited Labor Lack of Talent
• Gaps in Culture, Attitudes and Values
• Hot Markets Cars, Houses, Communication
• Threats Energy (Oil), Water, Environment

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Emerging Xiao Kang Middle Class
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Urbanization

• Still over 600 million people in rural China
• An estimated 100 million urban workers come from
  rural areas

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Huge Workforce, Unemployment

• An estimated total of 50 million laid-off public
  sector workers
• Every year an estimated 10 million new laborers
  enter the job market
• Official unemployment rate 4.7

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Unlimited Labor - Lack of Talent

• Qualified higher and middle management is hard to
  find
• of GDP spent on education about half of the US
  and Europe
• 2.8 million college and university graduates this
  year (up 25)
• Poor flow of information in job market, lack of
  trust

Source China Ministry of Personnel
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Gaps in Culture, Attitudes and Values

• The government has gone into business
• Differences between every city and region,
  generations, education etc.
• Low quality, safety and health standards in
  production

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Hot Markets

• Cars
• Houses
• Communication

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Internet Use
Source CNNIC Statistical Survey Report on
Internet Development in China
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Mobile Phone Use

• Largest market in the world since end of 2001
• 2003 2004
• Mobile phone users 260m 310m

Source China Ministry of Information Industry
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Threats Energy (Oil), Water, Environment
Source BMO Nesbitt Burns
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Threats Energy (Oil), Water, Environment

• Water Increasing Demand, Diminishing Supplies
• 400 out of the 600 1st and 2nd tier cities in
  China already face water shortages
• Renewable water sources will decrease by 30 per
  capita by 2030
• Pollution of surface water in rural areas poses
  threat to health

Source China Ministry of Water, 2004
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Threats Energy (Oil), Water, Environment

• Desertification and urbanization leading to
  reduction of arable land
• Frequent flooding
• Chinese cities and seas amongst the most polluted
  in the world

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Problems for Doing Business

• Legal environment
• Law enforcement
• JV Disputes
• Corruption
• Government Relations
• Intellectual Property Rights, Patents
• Distribution Difficulties

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Distribution Difficulties
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Forecasts and Expectations

• Some fear of inflation this year
• Privatization, MA, Consolidation
• Labor prices will stay cheap for a long time
• Improvements in Business Environment

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Realistic Expectations of Growth

• Chinas goal is to quadruple GDP by 2020
• This amounts to an 8.3 annual increase
• If achieved, per capita GDP will be about 4000
  by 2020

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Aging Population
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Conclusion

• Huge opportunities
• Know your market and environment
• Expect hot competition
• Expect many things to improve

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ChinaChem 2004

• See China Chemical Industries for 400 Euros,
  everything covered
• 40 European SMEs and more than 60 selected
  Chinese SMEs
• November 12 15
• Sponsored by EU Asia Invest

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ChinaChem 2004

• Flights reimbursed
• 3 days accommodation and meals
• 1 page company intro
• Several practical seminars
• Comprehensive printed and online catalogue
• Pre-arranged individual business meetings

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Emphasis of Cooperation

• Trade both ways, outsourcing, dealership
• Technical and know-how cooperation

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Objectives

• Promoting SME business cooperation between the EU
  and China
• Enhancing safety, health and environmental
  performance in China
• Strengthening the position of EU companies in
  China

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Who may attend?

• Must be from the EU
• Must be SME
• Must be in Chemical Industries
• Must indicate desired cooperation with Chinese
  counterparts
• Register at
• www.chinachem.org

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Organizers and Sponsors

• Sponsored by
• European Union Asia Invest II
• Organized by
• Merchants Promotion Bureau of Dongying
• Co-Organized by
• Chemical Industries Association
• UNIDO ITPO-China
• VCI, Federchimica, VNCI
• China Fine Chemicals Association