“The last decade has seen China becoming the key emerging nation in the Asia-Pacific region and the most attractive market and location for European multinationals.” Critically review this perspective, from the point of view of one European company wishing to develop an Asian business strategy
China is the key emerging nation in the Asia-Pacific region. In recent years China became the most important country for the region, also for the world. Chinese have great inventions for creating human civilization like powder, paper and compass. Knowledge and products of China-India civilizations are reached Europe nations by silk -road and Anatolia. Thus, thanks to China the renaissance began. China, who started renaissance at that time, now living its own renaissance.
China has a great industrial revolution and change. After 1978, the companies of government replaced with the private companies, share of the government fall half and half. But the government still holds the capital-intensive and large-scale markets. When the share of government decreased in the industry, China began to grow %10 every year. Especially the east of the country is growing fast, consumption trends, the prices, foreign investments, GNP per capita increases. Some observers argue that China is growing bigger than picture as described.
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Nowadays, China is almost the production center of the world. China consumes the %30 of mineral and raw of the world. Because of this consumption the price of iron, zinc and copper increased, now the prices are triple of a few years ago. China imports iron, aluminum, chemicals and machine at most. China has high-disposed capacity in many areas. The high investment increased the price of raw material and the high capacity decreased the price of products in China. Although the price of imported raw materials increased, China increased the exports between the years 2003-2005. For example, U.S.A buys the products from China. A few years ago U.S.A was buying from Japan, South Korea and Taiwan. Now, China buys the raw material and components from these countries, mount them and sell. The economy of China rises with double digits for years.
According to data given by IMF, China has the maximum exchange reserves. China has most of the foreign investment almost four times of Russia. The export-import surplus of China is %10 of its GNP. In China interest rates are rising more and hot money is coming to the country. Central Bank of the China gives importance to the cash control and has barriers to the most heated sectors like steel, cement, coal and energy. It is expected that there will be an expansion but the reason will not be guided investment, it will be private consumption.
China is the single most important challenge for EU trade policy. China has re-emerged as the world's fourth economy and third exporter, but also an increasingly important political power. EU-China trade has increased dramatically in recent years. China is now the EU's 2nd trading partner behind the USA and the biggest source of imports. The EU is China's biggest trading partner.
EU and China launched a new strategic mechanism for driving trade and economic policy in 2008. The EU's open market has been a large contributor to China's export-led growth. The EU has also benefited from the growth of the Chinese market and the EU is committed to open trading relations with China.
On the other hand, in 2006 the European Commission adopted a major policy strategy on China that pledged the EU to accepting tough Chinese competition while pushing China to trade fairly. A piece of this strategy is the ongoing negotiations on a comprehensive Partnership and Cooperation Agreement that started in January 2007. The agreements provide the opportunity to increase the framework for bilateral trade and investment relations and also cause an upgrading of the 1985 EC-China Trade and Economic Cooperation Agreement.
The EU helped China a lot for being a member of the WTO, and also argued that a WTO without China was not truly universal in scope. China formally accessed to WTO December 2001 which symbolized an important step of its integration into the global economic order. The commitments made by China in the context of accession to the WTO secured improved access for EU firms to China's market. Import tariffs and other non-tariff barriers were sharply and permanently reduced. While China has made good progress in implementing its WTO commitments, there are still outstanding problems.
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Trade Policy Review of China was also used in the WTO to raise a number of concerns regarding China's trade policy. The China's trade policy include inadequate protection of intellectual property rights, the maintenance of industrial policies which may discriminate against foreign companies especially in sectors like automobiles and barriers to market access in a number of services sectors including construction, banking, telecommunications, and express postal services. Also, the access to raw materials has also been identified as a major trade obstacle.
Since 1990, trade and investment relations with China have been of increasing importance to European machinery manufacturers which takes place as a major export market, a production base, and as a location generating an increasing number of visible competitors. Also, in the mechanical engineering sub-sector, the technological superiority of European companies generates substantially higher profit margins than their low-cost rivals in China and other developing countries.
The other industry in China is one of the largest and most diversified in the world is chemical industry. China's total demand for chemicals in 2004 was valued at €1.7 trillion. The EU-25 accounted for 29.1% of this figure, the United States for 23.7%, Japan for 9.9% and China for 9.2%.This can be contrasted sharply with ten years ago, when China's share of global chemicals turnover was only 3.5%. With a chemicals turnover of €137 bn in 2004, China has become the world's fourth largest manufacturer of chemicals, just after Germany (€142 bn.), Japan (€185 bn.) and the USA (€415 bn.).
After ten years of slow growth, sales of passenger vehicles in China exploded after 2001, and increased by more than 50% in 2002 and 2003. Driven by a nascent middle class of 100 million, price cuts and expanding access to credit, the Chinese market overtook Japan to become the world's second largest market for new vehicles in 2006 next to only the United States, registering sales of 7.22 million units. The automakers of China, last year produced 7.28 million vehicles, making the country the third largest auto producer in the world.
China which has 20% of the world's population, only accounts for 1.5% of the global drug market with per capita spending on drugs is at a low US$ 16. If the economic growth is considered, China offers considerable potential as an export market as well as a production base for pharmaceuticals. As the real amount of the market is difficult to be numbered, which is figured range from US$ 8 bn. to US$ 21 bn. where there is no denying that China's pharmaceutical market has been growing rapidly in the last few years. Beyond that, much is made of the potential demand for pharmaceuticals due to China's large population and the current low per capita demand. All these factors bode well for the European pharmaceutical industry.
The third largest industry in the world, after the United States and Japan, China's overall electronic and communications equipment industry, worth US $480 billion in 2005.On the other hand, China became the world's leading exporter of high-tech goods such as laptop computers, mobile phones and digital cameras in 2004. However, foreign companies dominated China's ICT sector, accounting for 77% of gross output. Foreign Invested Enterprises accounted for as much as 90% of all computer exports in 2003 which may be given as example. In some market segments, such as Telecommunications Equipment, European companies currently occupy strong positions of up to 30% of the market. The %30 share will diminish as Chinese ICT equipment manufacturers build their indigenous R&D capabilities and brands, permitting them to move up the value chain. It should be considered by European companies that using China as a base for selected low cost investments in R&D which will provide more capital to increase competitiveness. In addition they should compete on design and innovation rather than commoditized goods.
The other important industry for China is the agriculture which has always played a significant role in China's economy. However, when the reforms started, it is evident that the role of agriculture is slowly changing and its contribution in terms of employment, gross value added, capital accumulation, urban welfare, poverty alleviation, and foreign exchange earnings is diminishing. The EU was slow to establish itself as a producer of high quality products with a strong image and marketing speciality. As a provider of high quality agricultural products and services, Europe has built a strong competitive basis on which it can trust on for beyond innovation and specialization. That is why, given China's huge size and growth potential, and Europe's experience and skill base, the gains for both China and Europe can be significant for each other.
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The other important sector for China is banking sector. The banking sectorin China is comprised of around 30,000 financial institutions with over 2.8 million employees in more than 500,000 banking units and by strictly physical measures, has to be considered as one of the world's largest financial sectors. However, when comparing total banking sector assets (€2,801 billion) with that of the EU (€29,010 billion) this gives a more understandable perspective. But still, the banking sector of China by assets is considerably larger than that of the whole of ASEAN put together (€1,884 billion).
One of the most growing sectors of China is insurance sector. The Chinese insurance sector, there are 80 institutions which is small but developing quickly. An annual growth rate, at around 12% as measured by premiums, gives a result that the sector will become a significant market within the next few years if regulation allows for it. China has adopted a protective regulatory regime in this sector, where the limits of product and price competition are sticky. The quick growth of the financial sector in China and the increasing financing needs of the growing economy, means foreign investors are seeking to increase business volumes in most, if not all, market segments.
Consumption of the individuals is expected to see more than 20% growth per annum in the consumer loan business and 50% in credit card business, while corporate business is expected to see increases of 15% in areas such as standard lending transactions, securitization and so on. Also, the increase in trade activity of their domestic customers, the growing of trade finance business will continue. The recent quick increases in returns seen by foreign financial institutions can be attributed to innovation and the introduction of new banking products which could not be found in the Chinese market before.
International retailers and offers have a big chance and opportunity in China. They are represented a greater potential than many other service sectors due to a relatively liberal investment environment. China has a big expansion and quick domestic growth opportunities which makes Chinese market irreplaceable. Thus, retailers who enter Chinese market increased day by day and also domestic retail and distribution sector have benefit with the 2005 reforms. The future potential in the Chinese market is positive for European retailers.
By 2010, the total value of sales in the Chinese market could increase to around €916 billion. China provides a valuable opportunity to international retailers in the form of sourced goods. While detailed data on sourcing by retailers is not available, some indication of the scale can be given by looking at figures made available by individual retailers. Walmart, Carrefour and Metro together exported US$ 23.8 billion worth of goods from China. While challenges to European and other foreign retailers largely remain operational in there still remains some regulatory challenges which restrain foreign retail expansion.
While many arrangements are not, strictly speaking, in conflict with China's WTO commitments, they are often not implemented transparently and involve excessive red tape for foreign retailers. These include limits on total store outlets a foreign majority owned company can open up, limits on store size, and limits on the sale of certain products. Surveys that are made recently, suggest that a new type of consumer is emerging in China, one that does not mind paying up to 20% more to ensure product quality, particularly when it comes to food safety.
Over the last ten years, trade and investment relations with China have been of increasing importance to European construction industry operators. China, as an emerging market and investment-driven economy, offers great growth potential in infrastructure and building projects.
Most of the time, the activity amounts in the construction sector of a country is closely related to economic growth and development. The economic development associated with the transformation of a less developed country to an advanced industrialized country lead to a change in the role of construction in that country. In this regard, China is progressing from a less developed to a newly developing country and therefore, a high level of activity will continue for the foreseeable future. For the European construction industry, China should be seen more as an opportunity than a threat.
The companies of China generally, are low-cost and relatively efficient but they lack the expertise and management skills to handle large projects. In particular the construction implementation and coordination sector has seen a significant reform of formerly state owned enterprises. European companies can continue to retain their competitive advantage in the high value segment of project design and management and areas of niche specialization.
However, high market-entry barriers make it unlikely that any high levels of competition or cooperation between Chinese and European service providers will take place.
China Telecom and China Netcom is believed to have too little experience in dealing with the very exacting demands of multinational companies, have insufficient products to offer, lack global all-IP networks that will define the next stage of international telecom services, and lack brand names and the flexibility to compete in increasingly sophisticated markets. As different from the equipment market, the services market is easy to enter and exit if policies and regulations permit. The truth that China does not permit access to any great extent may mean that China's operators will face similar roadblocks overseas which means that in the longer term perspective it would be in China's interests to open its own markets.
When the market reforms started in 1978, the Chinese economy has grown rapidly, achieving an average GDP annual growth rate of 8.2% per annum. While China's economic boom has increased incomes, reduced poverty, and improved the health and quality of life for most citizens, these improvements have come at the cost of severe environmental and natural resource degradation. China's list of environmental challenges range from air and water pollution, desertification and water shortages, refuse accumulation, loss of biodiversity, cropland, wetlands and grasslands, to increasing frequency and scale of human-induced natural disasters.
Beyond that, while China moved along on its path of development, energy availability and efficiency are becoming causes for concern. These problems in China, are not only caused by the environmental and energy related problems, but also caused by the serious economic losses, social conflicts and health costs. Nowadays, the expectation of China for trustable, affordable and effective sustainable technologies and services remains unsatisfied through domestic means.
China is a country which is for centuries a nation of innovation and inventiveness, missed the Industrial Revolution that founded the development of western countries during the 19th century for centuries a nation of innovation and inventiveness. Its socialist experience, during the 20th century deepened the technological gap between China and the developed countries. From 1978 onwards, China felt the need to fill the gap and realized that Intellectual Property protection was crucial to drive its future developments. For more than two decades the People's Republic of China has promulgated laws and regulations covering almost every important area relating to intellectual property rights. China has increasingly resorted to policies that aim to absorb technology from foreign rights-holders for the benefit of domestic operators.
While the objectives of the Chinese authorities are perfectly understandable and welcomed, the means used to achieve this end are not always legitimate. Methods employed by the Chinese government can be both direct and indirect. Direct absorption of foreign IP includes the flat refusal to pay royalties to foreign patent owners and the forced disclosure and dissemination of secret data. The more indirect method on the other hand, relies on the use of government procurement practices where foreign companies are selected initially in order to pass their technological know-how to a joint venture partner and are then excluded from successive rounds.
Sadly, some of the questionable methods seem to be considered as fair by public opinion in China. While U.S.A government strictly controls Chinese media, the sentiment inherent in the messages can be assumed to reflect the opinion of the Chinese government. According to result of national statistics, Chinese IP owners constitute the large majority of the victims of such violations.
In order to start a business in China the corporate should be aware of some points about Chinese market. First of all, trust is the most important subject for the Asian people especially for the Chinese. For example, to have meetings many times is very important to provide reliable environment which is needed for Chinese people to make business. Also, the companies who want to have strong business relations with Chinese companies should care of their culture and ethical values. In free market conditions still Chinese government identifies who will have business and what will be the amount of capital.
There should be a balance about employment in the investor's country and China. The investor should not only produce its products in its country or in China. It should be produced both in China and investor's country in order to make the competition continue and minimize the unemployment in its country. If the investor company has a middle or small sized company, and does not use high technology, the Chinese government does not support the investor such as free land, tax return, etc. Thus, making business in China is not easy as it was before. China is quickly moving away from its image of tax free and cheap sub material country belief. China also, changed its strategy of being export focused growth and government tries to increase domestic consumption.