Team Coast2Coast iMBA 562 PRC Analysis

PRCiMBA 562

Coast2CoastAndrew Kohn, Joanne Newborn, Brian Renaud, Carrie Requist & Shimir Varia

People’sRepublicof China

ECONOMY

• GDP - $9.872 trillion

• Labor Workforce - 780 million• Agriculture: 38.1%• Industry: 27.8%• Services: 34.1%

• Unemployment Rate – 4.3%

• Inflation Rate – 5%

• Imports – $1.31 trillion

Source: CIA Factbook from https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html

https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html

https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html


BACKGROUND

• People’s Republic of China founded October 1st 1949.

• Socialist Market Economy

• Growing Private sector• 70% of Market GDP1

• 74% of China’s Enterprises2

• Employs over 180 Million2

• Total Capital investment $2.9 Trillion2

1 Source: The Economist from http://www.economist.com/node/18332610?story_id=18332610

2 Source: China Daily from http://www.chinadaily.com.cn/opinion/2011-02/12/content_11990049.htm

http://www.economist.com/node/18332610?story_id=18332610

http://www.chinadaily.com.cn/opinion/2011-02/12/content_11990049.htm

http://www.chinadaily.com.cn/opinion/2011-02/12/content_11990049.htm


CHARACTERISTICS

• Largest global population1

• Aging population2

• Median age 35.2 years

• One Child Policy2

• Instituted in 1980 to control rapidly growing population

• Rapidly Aging population2

• Low Buying power due to non-market based exchange rates

1 Source: About.com from http://geography.about.com/library/faq/blqzlargecountry.htm

2 Source: China Mike from http://www.china-mike.com/chinese-culture/society/china-population-growth-crisis/

http://geography.about.com/library/faq/blqzlargecountry.htm

http://geography.about.com/library/faq/blqzlargecountry.htm

http://www.china-mike.com/chinese-culture/society/china-population-growth-crisis/


MARKET POTENTIAL INDICATORS1

1Source: Global Edge http://globaledge.msu.edu/resourcedesk/mpi/(*The data for China does not include Hong Kong, Macao and Taiwan.)

MARKET POTENTIAL INDICATORS• Eight Dimensions are given

• Each Emerging Market is Evaluated Against Those Eight

EIGHT DIMENSIONS

• Commercial Infrastructure• Market Size• Market Growth Rate• Market Consumption Capacity

• Market Intensity• Economic Freedom• Market Receptivity• Country Risk

http://globaledge.msu.edu/resourcedesk/mpi/



MARKET POTENTIAL INDICATORS1

• Ranked 2nd Overall

• Ranked 1st in Two Categories• Market Size• Market Growth Rate

• Ranked Near Last or Last in Three Categories• Market Intensity• Economic Freedom• Market Receptivity

Countries Market Size Market Growth Rate

Market Intensity

Market Consumption

CapacityCommercial

InfrastructureEconomic Freedom

Market Receptivity Country Risk Overall Index

Rank Index Rank Index Rank Index Rank Index Rank Index Rank Index Rank Index Rank Index Rank IndexHong Kong 24 1 6 45 1 100 17 48 1 100 2 93 2 81 1 100 1 100China 1 100 1 100 26 1 13 60 21 33 25 2 23 2 8 64 2 92Singapore 26 1 17 25 2 81 14 57 3 89 8 77 1 100 2 98 3 90Korea, South 7 10 16 31 6 64 1 100 4 85 4 83 9 15 4 73 4 71Czech Rep. 22 1 24 13 13 51 2 94 2 91 3 88 10 13 3 78 5 56

1Source: Global Edge http://globaledge.msu.edu/resourcedesk/mpi/(*The data for China does not include Hong Kong, Macao and Taiwan.)




MARKET POTENTIAL INDICATORS

ADVANTAGES• Market Size1

• 1.334 Billion• 46.6% Residing in Urban Areas• Growing at 0.59% Annually• By 2030 Estimated 1 Billion in Urban Areas

• Market Growth Rate2

• 9.1% Annual Change for 2009• 10.75% 5-Year CAGR3

• Ranked In Top 5 Emergency Economies for 10 Years Running

1Source: Wikipedia.org http://en.wikipedia.org/wiki/Urbanization_in_the_People's_Republic_of_China2Source: Google, Inc. http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mktp_kd_zg&idim=country:CHN&dl=en&hl=en&q=gdp+growth+rate+of+china3Source: 2011 Index of Economic Freedom http://www.heritage.org/index/country/China

http://en.wikipedia.org/wiki/Urbanization_in_the_People's_Republic_of_China

http://en.wikipedia.org/wiki/Urbanization_in_the_People's_Republic_of_China

http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mktp_kd_zg&idim=country:CHN&dl=en&hl=en&q=gdp+growth+rate+of+china



http://www.heritage.org/index/country/China




DISADVANTAGES• Market Intensity1

• Private Spending Low at 36% of GDP• Declining Since 20022

• (Potential Opportunity = Expected to Increase to 45% by 2015)

• Economic Freedom3

• 135th Freest in the World• Average Rating of “52” on 100 Point Scale• World Average of “59.7”• Free Economies of “84.1”

1Source: China Daily http://www.chinadaily.com.cn/bizchina/2011-03/22/content_12208548.htm2Source: Research Institute of Economy, Trade & Industry, IAA http://www.rieti.go.jp/en/china/09062901.html3Source: 2011 Index of Economic Freedom http://www.heritage.org/index/country/China

http://www.chinadaily.com.cn/bizchina/2011-03/22/content_12208548.htm

http://www.chinadaily.com.cn/bizchina/2011-03/22/content_12208548.htm

http://www.rieti.go.jp/en/china/09062901.html

http://www.rieti.go.jp/en/china/09062901.html





1Source: U.S. Census Bureau http://www.census.gov/foreign-trade/statistics/highlights/top/top1012yr.html2Source: World Bank http://data.worldbank.org/indicator/NE.TRD.GNFS.ZS

DISADVANTAGES• Market Receptivity• Low Import of US Goods1

• Imported ~$92 Billion• Exported to US ~ $365 Billion

• Trade As a Percentage of GDP2

• Declining since 2006

http://www.census.gov/foreign-trade/statistics/highlights/top/top1012yr.html



http://data.worldbank.org/indicator/NE.TRD.GNFS.ZS

http://data.worldbank.org/indicator/NE.TRD.GNFS.ZS


Source: World Investment Report 2010 http://www.unctad.org/en/docs/wir2010_en.pdf (The data for China does not include Hong Kong, Macao and Taiwan.)

INWARD

• China rose to 2nd place after the United States in 2009• Country received over FDI of $108 billion in 2008 • Policy measures to promote foreign investments• Barriers to FDI- opaque & inconsistently enforced laws• The largest number of foreign-affiliate employees is now in China • Economic recovery: inflows to China rapidly expanding

FOREIGN DIRECT INVESTMENTS



OUTWARD• China among the top 20 investors in the world • China’s “go global” policy encouraged domestic enterprises to invest globally• FDI from China in non-financial sectors grew (by 7% $43 billion)• One of the most significant foreign investors in African countries• Oil & Gas• Mining• Metal

• Increasing investments in Least Developed Countries



M&A’s • Cross-border M&A purchases by developing-economy firms – mainly from China – were on the rise.

• China’s outward investment in the non-financial sector continued to expand, driven by the M&A opportunitiescreated by global industrial restructuring.




COUNTRY RANKINGS • Global investors show an ever-growing interest in developing economies•Asia is viewed as the most attractive region for FDI•Among the 6 largest foreign investment recipients in the world in 2009, China was the 2nd most popular




CURRENT U.S. FDI RELATIONSHIP

CURRENT DEVELOPMENTS

• China FDI in U.S.

• Chinese companies invested $2.81 billion in U.S. projects or acquisitions during the first nine months of 2010. 1

• 2010 - Chinese companies acquired or announced they were establishing more than 50 companies in U.S. 1

• Recent greenfield investments 1

• Tianjin Pipe - $1 billion steel pipe mill in Corpus Christi, TX• Suntech Power Holdings – Solar panel assembly

plant in AZ• American Yoncheng Gravue – Cylinder plant in

Spartanburg, SC1 Source: China-U.S. Trade Law from http://www.chinaustradelawblog.com/2011/02/articles/investment/the-united-states-welcomes-chinese-foreign-direct-investment-the-handful-of-deals-blocked-by-cfius-are-aberrant/



ADVANTAGES AND DISADVANTAGES…

• China FDI in U.S.

• ADVANTAGES• Allows Chinese companies to better serve customers• Takes advantage of Buy American provisions in

government contracting• Avoid trade barriers

• DISADVANTAGES• High labor costs• Recent negative press for Chinese FDI in U.S. 2

1 Source: Reuters from http://www.reuters.com/article/2009/02/16/us-usa-stimulus-buyamerican-idUSTRE51F4BF200902162 Source: China-U.S. Trade Law from http://www.chinaustradelawblog.com/2011/02/articles/investment/the-united-states-welcomes-chinese-foreign-direct-investment-the-handful-of-deals-blocked-by-cfius-are-aberrant/



CURRENT DEVELOPMENTS

• U.S. FDI in China

• 2009 - U.S. FDI in China was $49.4 billion 1

• Only represented 1.4% of U.S. outward FDI worldwide• Netherlands and United Kingdom receive the most U.S.

outward FDI

• U.S. FDI in China by sector (of the $49.4 billion) 1

• Manufacturing – 45.8%• Computer and electronic products – 11.6%• Chemicals – 10.1%

• Since 1994 - Employment at Chinese affiliates of U.S. companies has grown 390% 2

• Employment by U.S. affiliates in China is larger than any other country

2 Source: Univ. of Colorado at Boulder from http://www.nber.org/books_in_progress/china07/yeaple7-29-08comment.pdf

1 Source: UCSC: http://www.uscc.gov/hearings/2011hearings/written_testimonies/11_03_30_wrt/11_03_30_fung_testimony.pdf



ADVANTAGES AND DISADVANTAGES…

• U.S. FDI in China

• ADVANTAGES• A 1% increase in U.S. FDI in China will

increase exports to other Asian markets by 0.37% 1

• Lower cost of employment and bigger employment pool

• DISADVANTAGES• 2009 - Inconsistent regulatory interpretation• 2008 – Management-level human resource

constraints1 Source: UCSC: http://www.uscc.gov/hearings/2011hearings/written_testimonies/11_03_30_wrt/11_03_30_fung_testimony.pdf


INTERNATIONAL TRADE

Exports and Imports• Except for worldwide economic impact in 2009, China’s

international trade has grown steadily in the past decade.• Total Trade:

• 2010= $2,972.4 billion • 2010 35% vs. ‘09 and 16% vs.‘08

• Exports - 2010 31% vs. ‘09 and 10% vs.‘08• Imports - 2010 39% vs. ‘09 and 23% vs.‘08

2007 2008 2009 20100

500

1000

1500

2000

$ 1,435 B$1,205 B

$1,579 B

$1,579 B

$1,133 B$1,003 B

$1,394 B

$1,394 B

Exports Imports

Source: www.econographer.com from http://seekingalpha.com/article/245695-china-exports-continue-growth-imports-hit-record-in-december

http://www.econographer.com/

http://seekingalpha.com/article/245695-china-exports-continue-growth-imports-hit-record-in-december



TRADE BALANCE

• Strongly towards Exports• Pressure from major trading partners to

decrease trade imbalance:• 2010 9% vs. ‘09 and 39% vs. ‘08

2007 2008 2009 20100

50100150200250300350

$261.8 B

$302 B

$202 B $185 B

Source: www.econographer.com from http://seekingalpha.com/article/245695-china-exports-continue-growth-imports-hit-record-in-december

http://www.econographer.com/



People’sRepublicof ChinaINTERNATIONAL TRADE

Commodity $ B

Electrical Machinery & Equipment

388.8

Power Generation Equipment

309.8

Apparel 121.1

Iron & Steel 68.1

Optics & Medical Equipment

52.1

Furniture 50.6

Inorganic & Organic Chemicals

43.2

Ships & Boats 40.3

Vehicles (excluding Rail) 38.4

Footwear 35.6

Commodity $ B


314.4

Mineral Fuel & Oil 188.7


172.3

Ores, Slag & Ash 108.6

Optics & Medical Equipment

89.8

Plastics 63.7

Inorganic & Organic Chemicals

58.2

Vehicles (excluding Rail) 49.5

Copper 46.1

Iron & Steel 34.5

Major Exports 2010 Major Imports 2010

Source: PRC General Administration of Customs, China’s Customs Statistics from http://www.uschina.org/statistics/tradetable.html

http://www.uschina.org/statistics/tradetable.html


TOP TEN TRADING PARTNERS

Country $ B

1. United States 385.3

2. Japan 297.8

3. Hong Kong 230.6

4. South Korea 207.2

5. Taiwan 145.4

6. Germany 142.4

7. Australia 88.1

8. Malaysia 74.2

9. Brazil 62.5

10. India 61.8

Source: PRC General Administsration of Customs, China’s Customs Statistics from http://www.uschina.org/statistics/tradetable.html



TOP 10 EXPORT AND IMPORT

Country $ B


2. Hong Kong 218.3

3. Japan 121.1

4. South Korea 68.8

5. Germany 68.0

6. The Netherlands 49.7

7. India 40.9

8. United Kingdom 38.8

9. Singapore 32.3

10. Italy 31.1

Country $ B

1. Japan 176.7

2. South Korea 138.4

3. Taiwan 115.7


5. Germany 74.3

6. Australia 60.9

7. Malaysia 50.4

8. Brazil 38.1

9. Thailand 33.2

10. Saudi Arabia 32.8

Top 10 Export Destinations Top 10 Import Suppliers

Source: PRC General Administsration of Customs, China’s Customs Statistics from http://www.uschina.org/statistics/tradetable.html



TRADE WITH UNITED STATES

• Continued strength towards Exports• Significant impact in 2009 due to economic

downturn in global economy• In 2010 United States imported 23% of

China’s total export volume.

2007 2008 2009 20100

50

100

150

200

250

300$256.3 B $266.3 B

$226.8 B

$273.1 B

Source: US-China Trade Statistics and China's World Trade Statistics from http://www.uschina.org/statistics/tradetable.html


People’sRepublicof ChinaTRADE WITH UNITED STATES

Commodity $ B


11.5


11.2

Oil seeds and oleaginous fruits

11.0

Aircraft and spacecraft 5.8

Optics and medical equipment

5.2

Plastics and articles thereof

4.8

Vehicles, excluding rail 4.5

Inorganic and organic chemicals

4.5

Pulp and paperboard 3.0

Commodity $ B


90.8

Power generation Equipment

82.7

Apparel 28.8

Toys, games, and sports equipment

25.0

Furniture 20.0

Footwear and parts thereof

15.9

Plastics and articles thereof

9.6

Iron and steel 8.4

Leather and travel goods 7.5

Major Imports 2010Major Exports 2010

Source: US-China Trade Statistics and China's World Trade Statistics from http://www.uschina.org/statistics/tradetable.html



TRADE ADVANTAGES & DISADVANTAGES

• Advantages• Large population of consumers• Government policy measures are promoting FDI• 1.334 Billion People with 46.6% in Urban Areas• Market Growth Rate at 10.75% 5-Year CAGR

• Disadvantages• Currency value set by fiat, not by free trade,

artificially makes goods less expensive on the world market but limits consumer buying power.

• Ranked 135th for “Freest Economies” in the World• Only 36% of GDP is “Private Spending”


CONCLUSIONS

• Advantages outweigh the disadvantages• PRC is opening up to more inward FDI• PRC is expected to play a key role in the

global economy in the coming years.• For the right international firms the

opportunities are excellent

Source: CIA – The World Factbookhttps://www.cia.gov/library/publications/the-world-factbook/maps/maptemplate_ch.html

https://www.cia.gov/library/publications/the-world-factbook/maps/maptemplate_ch.html

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