China Opportunities

1
China Opportunities Challenges

• Todd Rossuck
• China-Britain Business Council
• June 22, 2007

2
Agenda

• History
• Demographics
• Opportunities
• Getting Started
• Advice and Support

3
China? There lies a sleeping giant. Let him
sleep! For when he wakes he will shake the world.
4
Sun Yat Sen1911
Mao Ze Dong1949
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Deng Xiao Ping1904 - 1997
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Socialism with Chinese characteristics

• Whether it is a black cat or a white cat, as
  long as it can catch the rat, it is a good cat.
• Socialism is not the same as shared poverty
• "We must cross the river by feeling the stones
  with our feet."
• Some must get rich first!

7
Economic context

• China...
• is the worlds fastest-growing economy
• achieved GDP growth of 9.9 in 2005 (10.7 06
  est)
• aims to have a GDP of US4 trillion by 2020
• attracts inward investment of US1bn/week
• is the largest manufacturer of textiles,
  garments, steel, footwear, coal, cement,
  refrigerators, microwave ovens, televisions,
  radios, toys, office products and motorcycles
• WTO accession has led to opening up of economy

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China Economic Powerhouses
Bohai Rim
HEILONGJIANG
XINJIANG
JILIN
GANSU
NEI MENGU (INNER MONGOLIA)
LIAONING
Beijing
Tianjin
Dalian
NINGXIA
QINGHAI
HEBEI
SHANXI
Qingdao
SHANDONG
XIZANG (TIBET)
SHAANXI
HENAN
Nanjing
JIANGSU
SICHUAN
Shanghai
ANHUI
HUBEI
CHONGQING
Yangtze River Delta
ZHEJIANG
HUNAN
JIANGXI
GUIZHOU
FUJIAN
YUNNAN
Guangzhou
GUANGDONG
GUANGXI
Shenzhen
Pearl River Delta
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Affluent Urbanites
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Affluent Urbanites

• Regular consumers of luxury goods
• Biggest cities
• 10 urban disposable income
• 1 of total pop China

11
China continues to grow
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44 of urban pop 290 million
gt50 of urban pop 520 million
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Rising middle class

• Young!
• Between 25-44 yrs old
• (vs. income peaks in USA of 45-54 yrs old)
• Will dwarf the urban affluent classes

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Big Spenders?

• Biggest savers in the world!
• 24 of disposable income vs 1.2 in USA
• Largest current account surplus in the world
  (2006) 180 billion

Big Savers?
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Destruction of the Iron Rice Bowl

• Dismantling of the planned economy SOEs
• No more cradle to grave security and social
  safety net
• Primary reasons for savings
• Health Care
• Retirement

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(No Transcript)
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Forms of Business

• Exporting/selling via distributors/agents/direct
  
• Direct outsourced/contract manufacture
• Managed outsourcing
• Representative Office
• Joint Venture (JV)
• Wholly Foreign-Owned Enterprise (WFOE)
• Foreign-Invested Commercial Enterprise (FICE)

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Distributors/Agents

• In theory, should be the same as in any country
• In practice, many companies have difficulties
• - communication, cultures, different time zones
• - different expectations of principal and agent
• - lack of visibility of sales/prices/activities
• - size of the market
• Avoid giving broad geographical or sectoral
  exclusivity
• Make use of competition to keep them on their
  toes
• Hong Kong-based agencies can be a good solution

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Representative Office

• Not a given requires permissions and paperwork
• Cant trade, cant invoice
• Useful to maintain a presence on the ground, eg
  marketing, sales support, liaison with customers,
  coordination of sourcing
• Get a feel for market precursor to investment
• CBBC Launchpad Scheme as a convenient, short-term
  alternative

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Manufacturing in China

• Motivations include low labour costs, access to
  materials, following clients to China, keeping up
  with European or US competitors
• Direct outsourced manufacture
• - low cost, no presence, risks
• Managed outsourcing
• - using experienced intermediary, full production
  package via single source, middleman costs
• Licensed manufacture

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Wholly Foreign-Owned Enterprise (WFOE)

• Independent limited liability company
• Can trade in China and invoice in RMB
• Subject to local taxes, auditing etc
• Higher investment/commitment required
• Restricted in certain industries eg media,
  banking
• Otherwise can be set up for a wide range of
  activities, eg. manufacturing, services,
  consultancy

22
Foreign-Invested Commercial Enterprise (FICE)

• Since December 2004
• Independent limited liability company
• For distribution
• - retail
• - wholesale
• - franchising
• - commission agency

23
Joint Venture (JV)

• JV is a limited liability company, partially
  owned by you (2 types equity or contractual),
  can invoice in RMB
• Not restricted to 50-50
• JVs still required in certain sectors
• Why have a JV when you can be an independent
  entity?
• Pros JVs may offer ready access to supply
  chain, customers and easier relationships with
  local authorities
• Cons JVs may entail an untested partner, with
  associated risk
• Feasible to plan for conversion from JV to WFOE

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Common mistakes

• Failing to obey ones normal business instincts
• - corruption is part of when in Rome...
• - excessive reliance on untested partners
• - inadequate control/visibility of agents
• Insufficient preparation funding
• Lack of company cohesion
• Viewing China as one market
• Thinking one knows it all and can go it alone
• Underestimating value of relationships takes
  time!

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• Dont Expect
• Business in China to be easy it isnt!
• Business in China to be impossible it isnt!
• Do Expect
• Chinese to be hungry for business
• Interested in what you have to offer
• Demanding

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Advice and Support

• UK Trade Investment (UKTI)
• East Midlands China Business Bureau
• China-Britain Business Council
• Leading independent sources of China business
  information, advice consultancy
• The UK Governments China business promotion
  partner
• 5 offices in the UK and 9 offices in China
• Range of specific services

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• CBBC in China
• 9 offices and 50 staff offering local expertise
  assistance

Shenyang, Liaoning Beijing Qingdao,
Shandong Nanjing, Jiangsu Shanghai Hangzhou,
Zhejiang Wuhan, Hubei Chengdu, Sichuan Shenzhen,
Guangdong
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China-Britain Business Council Helping you do
business in China Tel [phone] Fax 020
7802 2029 www.cbbc.org
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Acknowledgements

• National Bureau of Statistics of China
• McKinsey Global Institute
• Billions Selling to the New Chinese Consumer,
  Tom Doctoroff 2006
• Economist Intelligence Unit
• China Academy of Social Sciences (CASS)