CHINA : THE HIDDEN DRAGON

No company fails in communist China, because

they're all partly owned by the government.
-Jim Bunning
 Topography
• The topography of China consists of Mountains, plateau and
valleys cover approximately two-third of the country while the
plains account for one-tenth of the land area.
• There are many rivers in China, five of which have water
catchment areas in excess of one million square kilometers.
Centred around the major rivers are fifteen large water
systems.
• China has more than 2,800 fresh water and salt water lakes of
which 13 have an area of more than 1,000 square kilometres.

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 Climatic Conditions
• The weather is hot from April to September varying from 19C
to 31 C from October to March with temperatures varying
from 6 C to -10 C.

Impact of Climate Change on China : -

a. Impacts on agriculture and agro - related industry

b. Impacts on livestock industry

c. Impact on water resources and Hydroelectricity projects

d. Impact on the coastal zone and ports and exports .

 
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 Infrastructure in China
Electric Power
• Vision for 2011: the total generating capacity of the country will
be 550 million kilowatts and a major hydro-electricity project
in South-West China’s Tibet Autonomous Region with 100,000
kw of generation capacity.
Transport
Road
• By the year 2011, the road networks would be extended to 1.4
million km.
Railways
• Target to reach 1,00,000 km by 2011.
• As of 2010, Chinese Railway owned about 584,961 wagons,
43,215 coaches and 18,437 locomotives and ran more than
36,300 trains daily, including about 3000 passenger trains and
33,300 freight trains. 4
 Infrastructure in China
Airport
• By 2020 About 300 well equipped airports, modelled on the
Beijing International Airport, will be developed all over China.

Inland Waterways
• China has a very good network of rivers which are used for inland
transport of goods.

Telecommunication
• China Mobile Ltd ( Unicom ) has a user base of 564 million and
China Telecom Ltd is another major telecom firm with a user
base of 164 millions.
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 Remnibi: The Currency
• Experts have insisted that China purposely keeps the Yuan at
an artificially cheap level, giving its exports an unfair cost
advantage in global markets and fueling China's persistent
trade surpluses.
• If China decides to let the Yuan float, it may go up initially but
once foreign investors take the money out of the country once
the revaluation has been done, the flow of capital will drain
China holding of FX reserves since it will need to sell them in
order to prevent a Yuan collapse
• When China's economy was opened during the 1980s, the
RMB was devalued again to improve the competitiveness of
Chinese exports.
• Current Rate- 1 USD= 6.68 Yuan
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 Increase in Exports due to devaluation
SECTOR 10% DEVALUATION 25% DEVALUATION
Food 31.93% 110.29%
Vegetable Oil 26.14% 86.88%
Other Agricultural Products 33.16% 113.82%
Extractive Industries 31.27% 114.25%
Textiles & Apparel 34.71% 114.64%
Chemicals 20.91% 68.09%
Motor Vehicles 101.06% 566.31%
Electrical Appliances &
38.15% 138.84%
Machinery
Other Manufactures 37.45% 131.02%
Services 24.90% 82.81%
TOTAL 33.89% 119.67%

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 Trade
• China’s massive production has made it the largest exporter in
the world.
• It can be assured that in the future years, China may grow at
an even more faster pace as their market is opening up to more
and more FDI.

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A surplus in trade ensures in most of the months ensures a high
foreign exchange reserve.

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 China's Trade with the World ($ billion)

  2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Exports 249.2 266.1 325.6 438.2 593.3 762.0 969.0 1,220.5 1,430.7 1,201.7

% change 27.8 6.8 22.4 34.6 35.4 28.4 27.2 26.0 17.3 -16.0

Imports 225.1 243.6 295.2 412.8 561.2 660.0 791.5 956.1 1,132.6 1,005.6

% change 35.8 8.2 21.2 39.8 36.0 17.6 19.9 20.8 18.5 -11.2

Total 474.3 509.7 620.8 851.0 1,154.6 1,421.9 1,760.4 2,176.6 2,563.3 2,207.2

% change 31.5 7.5 21.8 37.1 35.7 23.2 23.8 23.6 17.8 -13.9

Balance 24.1 22.5 30.4 25.5 32.1 102.0 177.5 264.3 298.1 196.1

China's Top Trade Partners 2009 ($ billion)

Rank Country/region Volume % change over 2008
1 United States 298.3 -10.6
2 Japan 228.9 -14.2
3 Hong Kong 174.9 -14.1
4 South Korea 156.2 -16.0
5 Taiwan 106.2 -17.8
6 Germany 105.7 -8.1
7 Australia 60.1 0.7
8 Malaysia 52.0 -3.0
9 Singapore 47.9 -8.8
10 India 43.4 -16.3
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 China’s Top Export Partners 2009 ($ billion)
Rank Country/region Volume % change over 2008
1 United States 220.8 -12.5
2 Hong Kong 166.2 -12.8
3 Japan 97.9 -15.7
4 South Korea 53.7 -27.4
5 Germany 49.9 -15.7
6 The Netherlands 36.7 -20.1
7 United Kingdom 31.3 -13.3
8 Singapore 30.1 -6.9
9 India 29.7 -6.1
10 Australia 20.6 -7.2

China’s Top Import Partners 2009 ($ billion)

Rank Country/region Volume % change over 2008

1 Japan 130.9 -13.1

2 South Korea 102.6 -8.5
3 Taiwan 85.7 -17.0
4 United States 77.4 -4.8
5 Germany 55.8 0.0
6 Australia 39.4 5.4
7 Malaysia 32.3 0.7
8 Brazil 28.3 -5.3
9 Thailand 24.9 -3.0
10 Saudi Arabia 23.6 -23.9 11
 China's Top Imports 2009 ($ billion) China's Top Exports 2009 ($ billion)
Commodity % change over Commodity
Volume Volume % change over 2008
description 2008 description
Electrical machinery Electrical machinery
72.9 -9.2 301.1 -12.0
and equipment and equipment
Power generation Power generation
62.4 -4.2 236.0 -12.2
equipment equipment

Apparel *24.3 *1.5 Apparel *100.5 *-11.1

Toys and games 23.2 -14.6 Iron and steel *47.3 *-53.6

Furniture 16.0 -17.4 Furniture 38.9 -9.1

Iron and steel *8.0 *45.9 Optics and medical

38.9 -10.2
equipment
Footwear and parts Inorganic and organic
13.3 -7.9 *32.0 *-24.5
thereof chemicals
Plastics and articles
8.0 -10.1 Ships and boats 28.4 44.9
thereof
Leather and travel
6.0 -18.9 Footwear 28.0 -5.7
goods
Optics and medical Vehicles, excluding
5.6 -9.4
equipment 27.9 -28.9
railway
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 Trade Barriers
• Tariff and tariff administrative measures
• Import restrictions
• Export restrictions
• Barriers to trade in services
• Discriminatory taxes and fees
• Custom barriers
• Technical barriers
• Sanitary and phytosanitary barriers
 Demography
•China has about 400 million fewer people today than it would
have since the one-child policy was introduced in 1979.
•China has a population of 1.3 billion i.e. every in
in the world is Chinese.
•The population of china is over 1 billion .94% of the
population is known as HAN [ethnic Chinese ]
•There are 55 national minorities.

POPULATION
 Family
6

5
Family Size
person/household

3
In 2002, the average family size in
2 China was 3.39 persons, down
1

0
1.42 from the same figure in 1973
1960
1963
1966
1969
1972

1984
1987
1990
1993

2005
2008
1954
1957

1975
1978
1981

1996
1999
2002

The Type of Family (2009)

"In the past thirty years,
above 8- person
7- person
household
household

Chinese families have

6- person
household 1- person
5- person household

become more multi-faceted household 2- person

household

and smaller in size and the 4- person

household

institution of marriage has 3- person

household

been gradually weakened."

 Education
Educational attainment
•No schooling and incomplete
primary: 15.6%
•Completed primary: 35.7%
•Some secondary: 34.0%
•Complete secondary: 11.1%
•Post- secondary: 3.6%
• Education is compulsory till the
age of 15.
• It has a literacy rate of 92%.
• It has around 4 lakh institutions
providing primary education in
the urban and rural areas.
• The government has a budget of
32 billion dollars for increasing
literacy in rural areas.
 Labour: China’s trump card
100
million
peak ： 2016
1.01billion
12 1billion
10 age15-64

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6
4
2
0 year
2000 2010 2020 2030 2040 2050
 Major Religions
• Confucianism:
a. High ethical standards
b. Deep respect for ancestors and for
the past
c. Well ordered society

• Taoism:
a. Many protective gods
b. Living in harmony with nature

• Buddhism:
a. Strict moral standards
b. Ideas of rebirth
 Treatment of Women
•Traditional Chinese society has been
male-centered.
•Sons were preferred to daughters, and
women were expected to be subordinate
to fathers, husbands, and sons.
•Abortion is legal in china.
•Before the establishment of the People's
Republic of China, it was lawful to have
a wife and multiple concubines within
Chinese marriage.
•In 1949, All-China Women's Federation was founded to "represent and
to protect women’s rights and interests, and to promote equality
between men and women."
 Business Customs
•The business culture of China is unique. The Chinese people
follow certain ethics in business. For the Chinese people business
is very auspicious.
•The Chinese culture has no resemblance than the Western
Culture.
• Chinese will make dealings with people whom they think are
trustworthy. If the Western countries want to do business then they
have to prove them trustworthy.
•Patience and humility are the two main features of the Chinese
business culture.
 ….Business Customs
• “Guanxi” is a very important characteristic of the Chinese
business culture. It means relationships. Forming a good
relationship is very important step in Chinese business culture
• Punctuality is considered virtue in business meeting
• Never become too informal and avoid humour. This is not
because the Chinese are humourless but rather jokes may be
lost in translation and hence be redundant.
• The Chinese are renowned for being tough negotiators. Their
primary aim in negotiations is 'concessions'. Always bear this
in mind when formulating your own strategy.

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 Hofstede’s Model

PDI- Power Distance Index (80) UAI-Uncertainty Avoidance Index (45)

IDV – Individualism (20) LTO-Long-Term Orientation (118)
MAS -Masculinity (50)
 Hofstede’s Model:Analysis
• Slow and steady wins the race as a high LTO ranking.
• Slow relations are due to the importance of trust in a business
relation in China.
• Low individualism shows their loyalty towards work and
family.
• A Chinese believes in doing business with one person for a
long time, seen in low individuality.
• A collectivist attitude referring back to the Communist rule
compared with individualism.
• A high power distance shows importance of hierarchy in
organizations and family.
• Masculinity and uncertainty avoidance are average so most
likely these factors are similar to other customs.
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 The Chinese Government.
• Type of government : Communist.
• Ruling party Chinese Communist Party, has 8 other smaller
parties all under the CCP.
• Government issues : Hierarchy, reforming economy, bias
towards internal industries(Google and baidu), high level of
nepotism.
• How to do business with the Chinese government.
a. Pay attention to hierarchy
b. Convey one message to all.
c. Cultivate local party people.
d. Align your goals with the governments 24
 The Economy- Statistics.
• Fiscal year Calendar year : 01 January to 31 December.
• GDP growth 10.3% (major economies: 1st; 2010)
• GDP per capita $3,735 (nominal: 97th; 2009)
• GDP by sector industry (46.8%), services (42.6%),
agriculture (10.6%) (2009)
• Inflation 5.1% (November 2010)
• Labour force 813.5 million (1st; 2009)
• Labour force by occupation agriculture (39.5%), industry
(27.2%), services (33.2%) (2008)
• Unemployment 4.2% (July 2010)
• Ease of Doing Business Rank 79th
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 The Economy.
• Natural resources: Coal, iron ore, petroleum, natural gas,,
aluminum, lead, zinc, uranium, hydropower potential (world's
largest).
• Agriculture: Among the world's largest producers of rice,
wheat, potatoes, corn, peanuts, tea, millet, barley; commercial
crops include cotton, other fibers, apples, oilseeds, pork and
fish;
• Industry: Types--mining and ore processing, iron, steel,
aluminum, coal; machine building; armaments; textiles and
apparel; petroleum; cement; chemicals; fertilizers; consumer
products; automobiles and transport; telecommunications
equipment, commercial space launch vehicles, satellites.
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27
 The Legal System
• Transforming legal system.
• Reforms in both criminal and civil laws.
• National Peoples Congress makes all the rules.
• Bias in enforcement of law.
• A lot of laws are present but not practised.
• High level of corruption.
• Enabling scope for human rights with developing economy.

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 Human Rights Issues
• Reported abuses are :
a. Executions without due process.
b. Torture.
c. Severe restrictions on freedom of speech. ( The Press)
d. Religion.
e. Worker rights.
f. Coercive birth limitation.

• May result in disgruntled employees, hence affecting business.

• Situation improving due social mobility which is driven by
economic growth and western influence.
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 Corruption: China’s Achilles Heel.
• Illicit activities such as bribery, kickbacks, theft, and
misspending of public funds cost at least 3 percent of GDP.(86
billion in 2003)
• Major causes of corruption are:
a. Partially reformed economy. ( monopoly and price setting)
b. Absence of genuine political reform.
c. Lax enforcement.

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 …Corruption: China’s Achilles Heel
• Corruption most seen in industries with extensive state
involvement:
a. Infrastructural projects
b. Sale of land user rights.
c. Real estate.
d. Government procurement and forced joint ventures.
e. Heavily regulated industries.
• Collusive corruption in financial sector.
• “Maiguan maiguan”
• Guanxi- legalizing corruption.
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 Foreign Relations
• Permanent members of the UNSC.
• 171 nations have maintained diplomatic relations with China.
• Chinese leaders have been regular travellers to all parts of the
globe, in recent years
• Important player in the G-7, BRIC,ASEAN etc.
• International boundary issues with India, Tibet.
• China rising exports have flooded international markets and
hence have developed positive relations with a lot of countries.
• Have tried to resolve past issues, internal issues and have
fostered relationships by transforming its economy and talks,
especially with South-East Asia.

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 Foreign Direct Investment.
• Dramatic change since the 1980’s.
• China has allowed foreign investors to manufacture and sell a
wide range of goods on the domestic market, being a major
reason for China’s development.
• Foreign-invested enterprises produce about half of China's
exports.
• Largest foreign exchange reserve at $2.39 trillion.
• Outbound FDI has also surged in recent years to $52 billion
from $2 billion in 1990’s.
• Recently voted as the most favourable investment spot for
future growth.

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 Investment Climate: The Factors
Indicators
• International integration : Friendly.
• Private sector participation : Low level but increasing.
• Domestic entry and exit barriers : Strong barriers.
• Labour flexibility : High level of non-permanent workers.
• Skills and technology : A very high ratio of trained staff and
Research and Development.
• Government effectiveness :Communist approach and high costs
relating to government.
• Financial services : High availability of external finance, loans
availability of credit.
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 Challenges
• High Government interference.
• Preference to local companies.
• High Level of Corruption.
• Human Rights.
• Language.
• Intellectual Property issues.
• Business culture is unique.

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 How an MNC should work in China?

• Dipping your toes.

• Shifting locus of control
• Learn to adapt.
• Become local.

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 Why should you invest in China?
• Highly educated and trained labour.
• Cheap labour.
• Large consumer base.
• Low religious restrictions.
• Comparatively less trade barriers.
• Good Competition.
• A good headquarter for Asian operations.

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THANK YOU.

Niranjan Nakhate-147
Palash Agarwal- 151
Sagar Gosrani-160

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