1. The Chinese Challenge Competitiveness Strategies for Turkey Istanbul, 8. November 2005

2. © 2005 THINK!DESK - All rights reserved2 The Multi-purpose China-Chart x t

3. © 2005 THINK!DESK - All rights reserved3 Agenda I.What drives the Chinese Economy: Trends and Developments II.The Competitive Setting: China and Turkey in China III.The Way Ahead for Turkey

4. © 2005 THINK!DESK - All rights reserved4 Agenda I.What drives the Chinese Economy: Trends and Developments II.The Competitive Setting: China and Turkey in China III.The Way Ahead for Turkey

5. © 2005 THINK!DESK - All rights reserved5 ‚Unexhaustable‘ Supply of Unqualified Labour China India Thailand Mexico Poland Hungary CzechRep. Spain USA Germany 0,80 US$ 1,12 US$ 1,96 US$ 2,45 US$ 2,70 US$ 3,53 US$ 3,64 US$ 12,32 US$ 21,86 US$ 30,60 US$ 1 hour of labour in manufacturing has a price of: Source:BCG Source: United Nations

6. © 2005 THINK!DESK - All rights reserved6 The Savings – Investment Nexus China‘s Savings Rate has Jumped to Nearly 50% of GDP - Priv. Households: 16%  - Corp. Sector: 23%  - Government: 11% 

7. © 2005 THINK!DESK - All rights reserved7 Absorption of technologies and business models Share of foreign invested enterprises in gross industrial output value Share of foreign invested enterprises in China‘s exports to the EU FIE other

8. © 2005 THINK!DESK - All rights reserved8 China has Been Able to Sell a Story to the Global Investors‘ Community... dreaming of 1.3 bn. customers... Going China …... for ressources … … pushed by oligopolistic competition …. and

9. © 2005 THINK!DESK - All rights reserved9 China – Asia‘s Interface to the Global Economy China has become a ‚must‘ stop for all supply chains touching (South) East Asia China‘s import- and export-quotas are at about 45% of GDP each Global supply chain value-added in China is on average about 25%

10. © 2005 THINK!DESK - All rights reserved10 China‘s two Worlds Accumulated FDI-Inflow in % of the national total

11. © 2005 THINK!DESK - All rights reserved11 What moves China? – major trends and pospects Increasing regional disparity Growing environmental degradation Rising demand for sustainable social security system From political underdog to a global power From a dominance of foreign brands to a dominance of Chinese brands From a technology/standards receiver to a technology/standards creator Being shaped by global business in the past to actively shaping the global economic setting Increasingly influencing global prices Major net demand of world resources Using party/government assets to promote active presence in world economy Inward FDI counterbalanced by outward FDI What are the underlying driving forces of the current and future developments? Stronger role in international trade disputes Growing nationalism Rise of national champions

12. © 2005 THINK!DESK - All rights reserved12 China is moved by three Mega-Trends as underlying driving forces Stronger role in international trade disputes From a dominance of foreign brands to a dominance of Chinese brands From a technology/standards receiver to a technology/standards creator Being shaped by global business in the past to actively shaping the global economic setting Increasingly influencing global prices Major net demand of world resources Mega-Trend I From passive recipient to active global player economic Growing environmental degradation Rising demand for sustainable social security system Increasing regional disparity Mega-Trend II Internalization of external effects socio-economic From political underdog to a global power Using party/government assets to promote active presence in world economy Mega-Trend III Continuing political grip on economic developments politico-economic interdependency Rise of National Champions Growing nationalism Inward FDI counterbalanced by outward FDI

13. © 2005 THINK!DESK - All rights reserved13 Agenda I.What drives the Chinese Economy: Trends and Developments II.The Competitive Setting: China and Turkey III.The Way Ahead for Turkey

14. © 2005 THINK!DESK - All rights reserved14 Exports to EU-15 by «Factor Endowments»

15. © 2005 THINK!DESK - All rights reserved15 Exports to EU-15 by «Labour Quality»

16. © 2005 THINK!DESK - All rights reserved16 Origin of products/ industry & subgroups 2003 1996 - 2003Similarity Index in Mio € Share of total exports Aagr in% 19952003 China Total IT goods2501934.731.2 Computers, IT consumer goods2265131.433.4 50.128.7 Turkey Total IT goods16576.829.3 Computers, IT consumer goods15946.630.8

17. © 2005 THINK!DESK - All rights reserved17 Origin of products/ industry & subgroups 2003 1996 - 2003Similarity Index in Mio € Share of total exports Aagr in% 19952003 China Textiles910312.611.5 Fabrics and knitted apparel12791.814.7 84.087.4 Turkey Textiles964339.67.2 Fabrics and knitted apparel19277.95.3

18. © 2005 THINK!DESK - All rights reserved18 Origin of products/ industry & subgroups 2003 1996 - 2003Similarity Index in Mio € Share of total exports Aagr in% 19952003 China Automotive industry33304.635.4 Car parts2940.438.1 31.920.2 Turkey Automotive industry403416.629.5 Car parts9684.022.3

19. © 2005 THINK!DESK - All rights reserved19 Knowledge Economy Index 2004

20. © 2005 THINK!DESK - All rights reserved20 Agenda I.What drives the Chinese Economy: Trends and Developments II.The Competitive Setting: China and Turkey III.The Way Ahead for Turkey

21. © 2005 THINK!DESK - All rights reserved21 The Growth Game The Turkish Issues:  Level the playing field between players of the formal and traditional sectors by improving the enforcement of legal obligations  Promote good governance and invest in the creation of trust (i.e. secured expectations) in long-term stable economic development  Do not suppress existing comparative advantages (lessons to be learned from East Germany)  Activate the full productivity potential of Turkey (hidden reserve of plus 80%) by integrating the traditional sector in the formal economy The European / International Issues:  Open all sectors to international competition  Integrate into Europe‘s strongest and most stable industry networks  Define a slot for Turkey in the global supply chains (beyond labor cost calculus)  Dress up for more and better FDI  Communicate achievements to the international investors‘ community

22. © 2005 THINK!DESK - All rights reserved22 Prof. Dr. Markus Taube Director, Institute for East Asian Studies Chair of East Asian Economic Studies / China Lotharstrasse 63 47057 Duisburg - Germany - Prof. Dr. Markus Taube Dr. Christian Schmidkonz Dr. Matthias Schramm THINK!DESK China Research & Consulting Merzstrasse 18 81679 München - Germany - www.oawi-china.uni-duisburg.de www.thinkdesk.de markus.taube@uni-duisburg.de taube@thinkdesk.de