USCBC UNC GLOBE Presentation - October 2011

transcript

US-China Commercial RelationsUNC GLOBEOctober 24, 2011

Pop Quiz

US-China Business Council

Stats + Data

Cities with a population over 1 million

Labor force

780 million

155 million

Number of time zones

Number of movie theatres

39,000

GDP composition by sector

9.6% Agriculture46.8% Industry43.6% Services

1.2% Agriculture22.2% Industry76.7% Services

Exports

$1.51 trillion

US 20%Hong Kong 12%Japan 8%S. Korea 5%Germany 4%

$1.27 trillion

Canada 19%Mexico 12%China 7%Japan 5%UK 4%Germany 4%

$5.745 trillion

$14.62 trillion

Per capita GDP

$7,400

$47,000

Trends

Demographics:Baby boomers (born after 1980) 50%+ of population by 2015,

45% of workforce by 2020Aging to quadruple total real wage

Source: Morgan Stanley Research (E) estimates.

Urbanization:47% to 65% in the long-term, adding

300 million urban residents

Zhengzhou

Xining

Shijiazhuang

Taiyuan

Hohhot

Nanchang

Nanning Zhanjia

ngHaikou

Kunming

Guiyang

Dalian

QingdaoLianyung

Hangzhou

Fuzhou

Xiamen

Hong Kong

ShantouZhuh

Yinchuan

Urumqi

BeijingTianj

Shanghai

Shenyang

Changchun

Harbin

YantaiJin

Changsha

Guangzhou

Chengdu

Chongqing

Lanzhou

Shenzhen

Nanjing

Super HubsEmerging HSR Hubs

Infrastructure:

China to have the longest + fastest high speed rail grid in the world by 2015

Road capacity to outpace US by 2015Source: Morgan Stanley Research (E) estimates.

Consumer financing:Credit consumption as % of total:

10% to 40%Source: Morgan Stanley Research (E) estimates.

China college education coverage ratio

Education:College degree of workforce:

from 10% to 35%

Business Environment

Five-Year Outlook for Business in China

Optimistic 57%

Somewhat optimistic 37%

Neutral 4% Somewhat pessimistic 2%

USCBC 2010 Survey

View of Current Business Climate Compared with Three Years Ago

More optimistic 26%

Less optimistic 39%

No change 35%

USCBC 2010 Survey

China's Prominence in Overall Company Strategy

Top priority 18%

Among top five priorities 74%

One of many non-key priorities 6%

Not a priority 2%

USCBC 2010 Survey

Will accelerate compared to last

year 66%

Remain unchanged 34%

Company Resource Commitment to China over Next 12 Months

USCBC 2010 Survey

Company Objectives in China

Access or serve the China market

Export platform to servemarkets other

than the US

Export platform to serve the US

USCBC 2010 Survey

Are China Operations Profitable?

Yes 87%

No 13%

USCBC 2010 Survey

Primary Restraint on Profitability

USCBC 2010 Survey: Top 10 Challenges

1. Human resources: Talent recruitment and retention 1. Administrative licensing1. Competition with PRC state-owned enterprises4. IPR: Enforcement5. Cost increases6. Market access in services7. Transparency8. Protectionism risks in China9. Government procurement10. Standards and conformity assessment

USCBC 2010 Survey

1. Human resources: Recruitment & retention 1. Administrative licensing1. Competition with PRC state-owned enterprises4. IPR: Enforcement5. Cost increases

USCBC 2010 Survey

Operating Costs

USCBC 2010 Survey

Rising Costs of Most Concern

Labor 58%

Land 9%

Utilities 5%

Materials 11%

Taxes 17%

Human Resources

Increased costs….. Increased competition…..

2011 Minimum Wage Increases

Beijing 20%Tianjin 16%Chongqing 32%Shandong 26%Jiangsu 17%Guangdong 18%

Among ChinaHR’s 2010 survey of top 50 employers in China, only 4 were foreign companies, down from 21 in 2009. SOEs made up 66% of the list.

ManPower’s 2010 Employee survey, 59% of job seekers prefer Chinese private companies because of better long-term career development opportunities.

USCBC 2010 Survey

Impact of Rising Costs on Long-term Planning

Rising costs in

China 57%

Market access restric-

tions 14%

Better prospects for capital

deploy-ment 5%

Other 24%

Reasons Company Considers Moving operations from China to other Asian/East Asian country

No impact 21%

Some impact 75%

Considerable impact 4%

6. Market access in services7. Transparency8. Protectionism risks in China9. Government procurement10. Standards and conformity assessment

USCBC 2010 Survey

Policy and Regulatory Costs

Seeing Signs of Protectionism in…..

Standards setting

Market access barrie

Government procurement/b

uy local

Administrativ

e licensing

Pressure to fa

vor Chinese fir

Tighter enforcement

Difficulty

in bidding on certa

in contracts

M&A review/approvals

Subsidies/external financing

47%44%

42% 42% 41%39%

14%11%

16% 14%

20102009

USCBC 2010 Survey

Selected Industrial Issues and Advocacy Map

Key Commercial Policies Spread Across Agencies, Not Always Well-Coordinated;Effective Advocacy Targets All Key Stakeholders … And Senior Leadership

Zhang DejiangVice Premier

Li KeqiangVice Premier

Wang QishanVice Premier

Liu YandongState Councilor

Wen JiabaoPremier

Agencies

SelectedResponsibilities

NDRC, MOHURD, MOF, MLR, MOH, MEP, SAT

MIIT, MHRSS, MOT, MOR, SASAC, SAWS

MOFCOM, PBOC, SAIC, Customs, AQSIQ, SIPO,

CSRC, CBRC, CIRC

MOE, MOST, SARFT, Min of Culture, GAPP

Economic planningCommodity pricesPublic finance/taxHealthcare reform

Climate /energy policy

Financial sectorTrade & investmentQuality inspectionBusiness licensingCompetition policy

S&ED, JCCT

Industrial reformTelecom, IT, transportation

Labor, social securityProduction safety

State-owned enterprises

Science & technologyEducation

CultureSports

HK & MacaoIssues

Govt procurement

Tax/HNTE

Standards

Indig Innovation

Industrial policy

MOF, NDRC MOFCOM

MOF, SAT MOST

AQSIQ MIIT

MOF, NDRC MOST

SIPO, SAIC GAPP

NDRC MIIT

NDRC MOFCOM, SAIC SASAC, MIIT

AQSIQ = Quality & Inspection AdminCS/B/IRC = Securities, Bank, Insurance regulatorsGAPP = Gen Admin of Press & PubsMEP = Min of Envir ProtectionMIIT = Min of Industry & Info Tech

MLR = Min of Land & ResourcesMOE = Min of EducationMOF = Min of FinanceMOFCOM = Min of CommerceMOH = Min of Health

MOHURD = Min of Housing, Urb/Rural DevMHRSS = Min of Hum Resources & Soc SecMOR = Min of RailwaysMOST = Min of Science & TechnologyMOT = Min of Transportation

NDRC = Nat. Devel & Reform CommPBOC = People’s Bank of ChinaSAIC = State Admin of Ind & CommerceSARFT = Radio, Film, TV AdministrationSASAC = State Assets Commission

SAT = State Tax AdminSAWS = State Admin of Workplace SafetySIPO = State Intellectual Property Office

Energy Efficiency NDRC, MEP, MOF SASAC, MIIT AQSIQ MOST

Advocacy Strategies Pursued

Direct e

ngagement

Foreign-based org.

Professional service firm

China-based org.

US government

Informal coalitio

n of companies

Affiliated PRC company

46% 46% 46%

36%31%

USCBC 2010 Survey

What Keeps CentralPlanners Awake?

What Keeps AverageCitizens Awake?

#1 - Social (in)stabilityNext Issues:• Inflation, inflation,

inflation• Resource allocation• Control over local

governments• “Imbalances”• Corruption

• Social security• Justice• Anti-corruption• Personal income• Housing prices• Healthcare reform• Commodity price

control• Environment

pollution• Food safety• Education reform

Policy Environment

12th FYP

Key Goals

Encourage domestic consumption

Improve social safety net

Industrial “upgrading” (Strategic Emerging Industries plan)

Regional development – Central & Western China

Energy efficiency and environmental sustainability

Taxation and financial systems reform

Urbanization

Marc Rossmross@uschina.org

+1 202 429 0340+1 703 598 3242

@marcaross@USChinaBuisness

Joe Lukjluk@uschina.org

+1 202 429 0340+1 202 615 9921

@lukkyjoe@CBR_Magazine