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Overview of Chinas Economy and Market Opportunities Craig Allen Senior Commercial Officer U.S. Embassy, Beijing.

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Presentation on theme: "Overview of Chinas Economy and Market Opportunities Craig Allen Senior Commercial Officer U.S. Embassy, Beijing."— Presentation transcript:

1 Overview of Chinas Economy and Market Opportunities Craig Allen Senior Commercial Officer U.S. Embassy, Beijing

2 Headline News Chinas GDP grows 9.9 percent, surpassing USD 2 trillion Per capita GDP up to approximately USD 1,500 Chinas banking system recapitalized with FDI FX reserves increased USD 208.9b to b RMB de-pegged, but still not reflecting market forces Chinas multilateral trade surplus up to 5 percent of GDP China plans to quadruple GDP in 20 years, which implies an average 7.3% annual growth.

3 U.S. Exports to China Jan – Dec yoy

4 Leading U.S. Exports to China (4 digits) (Jan. - Dec. 2005) Product Value (USD)%Change aircraft and parts 3.84b137.23% + digital integrated circuits 3.12b16.98%+ soybeans 2.25b3.25%- cotton 1.40b1.51%- ferrous metal scrap 1.26b34.39%+ auto parts / accessories 1.03b72.04%+ auto data processing equip. 0.78b0.13%+ copper scrap 0.76b42.31%+ aluminum scrap 0.72b94.20%+ Waste of paper 0.69b42.79%+ Electric Apparatus 0.57b7.79%+ Raw hides&skins of Bovine equine animal 0.56b16.6%+

5 Composition of U.S.- China Trade 2005 Top 12 (2 digits) U.S. Imports ( from China) %Change 1. 1.Elect. Machinery 32.09% 2. 2.Machinery 20.29% 3. 3.Toys/Sports equipment 11.13% 4. 4.Furniture and bedding 18.27% 5. 5.Footwear 12.10% 6. 6.Plastic 27.82% 7. 7.Knit apparel 60.26% 8. 8.Leather Goods 9.61% 9. 9.Iron/steel products 34.22% Vehicles 24.54% Optic/Medical inst. 8.95% Misc Textile 29.63% U.S. Exports (to China) %Change 1. 1.Electric.machinery 20.41% 2. 2.Machinery 12.60% 3. 3.Aircraft,spacecraft % 4. 4.Optic/Medical inst % 5. 5.Grain,seed,fruit -3.45% 6. 6.Plastic 25.77% 7. 7.Iron and steel 14.37% 8. 8.Organic chemicals -4.87% 9. 9.Cotton+yarn,fabric -1.44% Wood pulp, etc % Copper 40.02% Vehicles 43.24%

6 U.S-China Bilateral Trade Balance

7 Chinese Trade Balances In USD billion

8 Chinas Multilateral trade balances by industry

9 Economic Snapshot of % GDP growth in 2005: 9.9% in Q1, 10.1% in Q2, 9.8% in Q3, 9.8% in Q4 12.9% growth of retail sales in % growth in net fixed asset investment. –11.4% growth in industrial production (48% of GDP) –5.2% growth in agricultural production (12% of GDP) –9.6% growth in service growth (40% of GDP)

10 Inflation0.4%0.7%0.1%1.8%3.9%1.8% Rev/gdp15.3%17.1%18.5%21.7%19.3%- Bud. Bal-3.6%-3.2%-3.3%-3.1%-2.5%+1% Gov. Res. 171b219b300b403b600b818b Ex. Debt149b164b168b182b229b- Fiscal and Monetary Policy Stability

11 Factors of Sustainable Growth in the future Demographics and work force composition Benign geo-political environment Stable monetary and fiscal policy High saving and investment rates Rapid adoption of technology Trend toward market-oriented legislation Booming private sector Market depth – strategic range Foreign Direct Investment (FDI)

12 Market Entry Roadmap Direct Exports Sales Agent / Distributor Resident Representative Office Wholly Foreign-Owned Enterprise Foreign-Invested Commercial Enterprise (FICE)

13 Direct Exports Evaluate Prospects – Are You China Ready? – Market Research – Regulatory Environment Create a Marketing Plan Develop Trade Leads – Attend a trade show in China, many supported by CS – Participate in a trade mission, organized by USDOC, state government or trade association – Monitor the CS International Buyer Program via your USEAC – Monitor CBIC tender announcements, ADB and World Bank – Featured U.S Exporter (FUSE) – CNUSA, Chinese edition

14 2006 CS China Trade Show Calendar MarAprMayJunJulAugSepOctNovDec China Building (BJ) Dental Expo (GZ) SIMM 2006 (GZ) SEMICON (SH) Pollutec (SH) World Travel Fair (SH) SINOCES Consumer Electronic (Qingdao) China Intl Building Decoration Fair (GZ) Printed Circuit & Electronics Assembly (GZ) CIPPE (BJ) Water Expo (BJ) NEPCON (SH) Hotelex (SH) China Refrig (SH) Sporting Goods (CD) Con Expo (BJ) Broadcast Network & Expo Comm (GZ) ELE/PT Comm China (SH) Book Fair (BJ) CIFTEE (BJ) Analytica China 2006 (SH) CIEME Equip (Shenyang) Security China (BJ) EP China (BJ) PTC Asia/ Metal Working (SH) Zhuhai Air Show (GZ) CCFA Franchising (SH) SITL Logistics (GZ) MEDTEC China (SH) MEDTEC China (GZ)

15 Sales Agent / Distributor ( I ) Advantages – no investment in office overhead – no registration requirements, no physical presence – lower likelihood of non-payment – no responsibility for customs clearance Responsibilities – Comply with safety and quality certifications, China Compulsory Certification, other standards requirements – Comply with the U.S. Foreign Corrupt Practices Act – Comply with U.S. Export Control regulations – Prepare a contract that protects your legal interests, see a local attorney – Closely monitor the agent / distributors activity

16 Sales Agent / Distributor ( II ) Manage Expectations – use worldwide selection criteria, then evaluate skill sets – explore their view of market prospects, approach to business development – ask to see a prior marketing plan and market research report – discuss cost sharing for Chinese language brochures, participation in trade shows, demonstration equipment, training in the U.S. – contract should contain clear reporting requirements and performance goals to monitor whether the Chinese company can do what it purports to be able to do – evaluate capacity to stock and warehouse

17 Sales Agent / Distributor ( III ) Due Diligence – Many exaggerate trade experience, check trade references – Ask for a copy of the firms business license, SAIC inspection, trading rights license, visit business premises – Triangular debt common for entities lacking trading rights and foreign exchange – Obtain a DD report through local service providers or CS. China lacks a corporate credit rating system – Government system for verification of business registration on line is emerging – SAIC Red Shield (Hong Dun) Program

18 Sales Agent / Distributor ( IV ) Contract Terms – seek professional legal advice before contracting, do not rely upon your Chinese business partner – ensure the dispute resolution clause limits time for friendly discussion or mediation – do not accept obligations outside of your control: visas, export licenses – do not export on open account or D/P terms – ensure contract has non-competition and non-disclosure clauses to protect trade secrets, in the event the relationship ends badly

19 Resident Representative Office RRO may perform a useful government liaison and marketing function, contract implementation. Useful for getting into government procurement projects. Restrictions on business scope apply: – not allowed to engage in profit-making activity – not allowed to directly import and distribute product – not allowed to service equipment or warehouse spare parts Establishment of physical presence now requires only local registration. The cost to support a modest RRO $250, ,000 depending on location and size. Registered capital in the amount of $10,000 still required.

20 Foreign-Invested Commercial Enterprise Market entry vehicle for domestic wholesale and retail distribution Scope of operation includes trading rights, meaning the right to import or export goods manufactured by third parties into or out of China. Scope of operation includes distribution rights, meaning right to sell products for its own account on retail or wholesale basis, import for sale within China, purchase domestic products for export and perform related services.

21 Hong Kong as a Gateway Ease of Doing Business Rule of Law Free Trade Port Secure banking system Strategic Asia Hub Location Test products for market Regional HQ Huge re-export market to China Closer Economic Partnership Agreement (CEPA) Access to Pearl River Delta – Chinas manufacturing hub

22 Anticipate Problems - Macro Intellectual Property Rights –Patent- Trade Secrets –Copyright- Trade Mark Industrial Standards and Certification Problems Transparency/Corruption Payment issues Dispute Resolution Price Competition

23 Anticipate Problems - micro Management-level human resources Bureaucracy Unclear Regulations Lack of Transparency Inconsistent Regulatory interpretation Corruption Contract Enforcement Local protectionism

24 U.S. Companies Profit/Risk in China % U.S. firms increased product offering in China 86% increased revenue substantially 63% increased profitability 34% have higher margins than global averages 92% are optimistic

25 Find the right markets and partners with our products and services CNUSA – Chinese edition Featured U.S. Exporter International Partner Search Customized Market Research Gold Key Service International Company Profile Single Company Promotions Trade Missions, Trade Fairs and Catalog Exhibitions

26 American Trading Centers: Harbin Nanjing Dalian Ningbo Qiangdao Chongqing Tianjin Kunming Xiamen Zhuhai Wuhan Shenzhen Hangzhou Xiamen

27 ATC Program Coordinators BeijingShanghaiGuangzhou Ms. Julie JiangMs. Cindy QianMr. Barry Zhang ov (86 10) * 809 (86 21) *6145 (86 20) *22

28 China in a Time of Transitions China is simultaneously undergoing a series of dramatic transitions: –Confucian to modern –Communist to market-driven (not capitalist) –Rural and agrarian to urban and industrial –Economic Autarchy to global integration

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