C. Morel

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C. Morel Honorary Citizen Shanghai
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• A) Some Figures
• B) WTO
• C) Structures, Methods and Explanations
• D) Problems and Opportunities
• E) New Government Policy
• F) Conclusions

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• A) SOME FIGURES (1/6)
• Population
• - 1,3 billion inhabitants, growing yearly with
  5,5 million persons till 2020
• - the working population will reach 840 million
  in 2020, another 150 million
• farmers will leave their farms, 200 cities
  will have more than 3 million
• inhabitants
• - 30 million people are still below the
  poverty line, was 490 in 1976
• - retired people will grow from 7 to 12 in
  2020
• Labourmarket structure
• - today 33 work in the tertiary sector, 23 in
  the industry and 44 in the agricultural sector
• - 42 million people work in private sector
  (35) and 68 million in SOE (-34)
• - the rural enterprises (35 GNP) absorbed 135
  million farmers
• - the cities created 100 million jobs for rural
  immigrants
• 
  

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• A) SOME FIGURES (2/6)
• Social structure
• - new retirement system (88) introduced in
  1997, today 223 million workers registered
• - introduction of unemployment system (12)
  in 1999, today 173 million registered, maximum 2
  years compensation
• - free medical service stopped in 1996,
  government pays only 10 of
• hospitalbudget, balance to be
  recovered on drugs
• - foreign investments in private hospitals
  allowed since 2004
• - health insurance introduced in 1998 (26),
  today 189 million registered
• Education
• - in 2003, universities have 12 million
  students, the high schools 19 million, 72
  million persons follow vocational training and 78
  in the adult courses
• - there are 70.000 private schools with 14
  million students

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• A) SOME FIGURES (3/6)
• Foreign Direct Investments
• - totalling 1,096 trillion USD since 1982
  (508.941 FI Enterprises)
• - 50 billion USD per year implemented since
  2002
• - 90 à 100 billion USD signed per year is the
  forecast as from 2004
• 153,5 BUSD (43664 cies) in 2004
  (57 increase over 2003)
• Telecommunication
• - 240 million mobile subscribers (1 million new
  per week) (500 million objective by 2007)
• - 225 million fixed network subscribers (25
  million new per year)
• - 60 of local production capacity of fixed
  lines (50 million) and mobile sets (180
  million) exported

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• A) SOME FIGURES (4/6)
• Auto market and production
• - market grows with 25 in period 1995-2002,
  with 60 in 2003-2004 due to revised
  government policy on credit, growth of 10 à 15
  forecasted for the period 2005-2020
• - 5,2 million cars produced in 2004, capacity
  build up to 10 million by 2010,
• growing over-capacity results in price
  battles and export (VW Honda to
• Australia)
• - deal by Chery Automobile to export
  250.000 cars per year to USA as
• from 2007 ( importer is US Visionary
  Vehicle Cy)
• Small Medium enterprises
• - estimated at 39 million of which 10 million
  officially registered
• - they realise 80 of the total sales of
  textile, food, plastics, ...

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• A) SOME FIGURES (5/6)
• Gross Domestic Product
• - 1,33 trillion USD in 2003 (8 above
  2002)
• - 1,45 trillion USD in 2004 ( 9 above 2003)
• - 4,00 trillion USD is the objective for 2020
• (7,4 cumulative growth)
• Import Export Balance
• - 850 billion USD in 2003 (37 more than 2002)
• - 1,19 trillion USD in 2004 (51 more than
  2003) (57 by FIE)
• - 2 trillion USD was the objective for 2020
  (will be reached in 2007
• at present growth)(now slowdown to reach it
  only in 2010)
• Foreign Exchange Reserves
• - 510 billion USD on December 31,2004
  (25 more than Dec. 03)
• - after deduction of 45 billion USD for
  restructuring 2 State Banks
• - procurement of companies i.s.o. USA
  government bonds

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• A) SOME FIGURES (6/6)
• Diaspora
• - 55 million chinese live abroad
• - now they start to return (especially from
  USA) with capital, but basically
• with know how and a network (Deng Xiaopeng
  issue of 1990)
• Taiwan in PRC
• - 72.000 JVC operational (320.000 Taiwanese in
  Shanghai)
• - 136 billion USD FDI signed of which 84
  billion USD already invested

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• B) WTO
• Perfect leverage (excuse) for the Central
  Government to act
• - drastic headcount reduction
• - import duty reduction
• - closing of un-economic companies
• Objective is to go faster than agreed in
  December 2001
• be better prepared to surprise foreigners
  when they arrive
• extra pressure on local companies (to clean
  up faster)
• quick reduction of import duties
• real challenge restructuring of the Banks
• (Dec. 2003 - step 1 45 billion USD for 2
  banks)

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• C) METHODS, STRUCTURES AND EXPLANATIONS (1/2)
• Focussed site approach (SEZ, SIP, STC, )
• later on multiplied in different locations
• Focussed product approach
• forex generating first textile, today
  electronics machinery
• (195 BUSD 45 growth over 2003)
• infrastructure related telecom, energy
• Attractive and efficient investment
  environment
• one step approach
• Consistent longterm policies
• results of career planning
• administration vicefull
  minister level state council
• no real election pressure

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• C) METHODS, STRUCTURES AND EXPLANATIONS (2/2)
• Use the export revenues to boost the import of
  technologies, skills 57 of total export
  comes from J.V.C W.F.O.E.
• Use the import needs to make friends worldwide
  (435 billion USD in 2003)
• dedicated purchasing delegations
• (Nov. 03 - USA 4,7 billion USD airplanes)
• (Dec. 03 - USA 1,6 billion USD
  electromechanical)
• (Jan. 04 - USA 2 billion USD telecom)
• Go Abroad policy (April 2003)
• Investing abroad 37 BUSD by end 2004
  (7720 companies)
• - make friends (job creation)
• - obtain technology skill (special
  attention for management)
• - direct import into China share
  dividends of exporters
• E.g. Galileo
• - 236 M USD contribution (January 2004)

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• D) PROBLEMS AND OPPORTUNITIES (1/2)
• Ongoing GDP-growth of minimum 7 is necessary
  to create sufficient jobs, to avoid additional
  social tensions present key problem is
  to realise slow-down (30 million jobs lost in
  SOE) (90 million peasants left the agriculture,
• 150 million in the future)
• Development gap between rich provinces and
  inland
• opportunity for delocalisation (SBell since
  1992)
• necessity for infrastructural educational
  investments
• natural resources are inland
• Restructuring of banking world
• 240 billion USD bad debts
• still too much loans to SOE, hurts the
  private industry
• seems now to start effectively (Dec.
  03 - 45 billion USD)

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• D) PROBLEMS AND OPPORTUNITIES (2/2)
• Investments abroad to saveguard raw material
  supply (oil fields in Sudan and
• Venezuela, steelworks in Brasil, .) and
  to create commercial networks
• Drastic and fast reduction of import duties
  accelerates breakdown of SOE
• and stimulates private industry ( SOE 671
  billion USD sales and 58 billion USD profit
• in 2004 which is an improvement of 50
  and 27 versus 2003)
• WTO-implementation results in growing Foreign
  Direct Investments
• big, big figures
• latest technologies
• most modern industrial service tools
• Upcoming spare capacity in many sectors
  (telecom, auto, steel, )
• result drastic price reductions
• and
  export drive
• support by Central Government machinery
• political and financial

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• E) NEW GOVERNMENT POLICY (Hu Jintao Wen Jiabao)
  (1/3)
• Keep silent, no big declarations but faster
  action
• Central government Brains Power are
  instrumental, remain unavoidable
• Extra support for private enterprises, today
  743.000 companies with 25 million workers
• People first social aspects in
  economic drivers
• (in-land FDI environmental
  efforts) Go-abroad and Become global
• TCL - Thomson TV, Schneider electronics
• - Alcatel Mobile
• Legend - IBM PC
• PLA - Dornier airplane
• Huawei Netherlands

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E) NEW GOVERNMENT POLICY (Hu Jintao Wen Jiabao
(2/3)
Yearly investment of 10 à 15 B USD abroad (versus
90 à 120 B USD inflow) Now
take advantage of weak economy in
Europe, USA, Japan
to make friends to import from own companies to
integrate in global trade and create global
brands to accelerate the improvement of management
Local market China remains the key-market of
this world and now very open Technology center
building-up of RD considering costaspect,
available skills,
quick innovation acceptance and standard
definition-influence Export a combination of
chinese pricelevels and government support
combined with the MNC-existing
customer networks will impact the global
competitive arena
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E) NEW GOVERNMENT POLICY (Hu Jintao Wen Jiabao
(3/3)
Objective 1 it is an instruction 50 Chinese
companies in Fortune Top 500 by 2015 (8 first
entered in 2004) 5500 Chinese SME at the top by
2015
Objective 2 set up of Chinese MS channels
final goal Production is nice, but the
real profit is in the distribution channels
Objective 3 Mofcom instruction of January 17,
2005, the SME have to improve by accelerating the
technological innovations, by building global
sales networks, and by promoting own brands
Mofcom sets up a regulator to evaluate the
global competitiveness

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• F) CONCLUSIONS (1/3)
• A yearly 500 à 999 billion USD import-country
  is a blessing for the exporting world economy
• A yearly 7 à 8 growing market of 1.3 billion
  potential customers provides business
  opportunities 100 million chinese outbond
  visitors/year expected as from 2010 (20 million
  in 2003) 40 million visitors to China in 2003
  growing to 140 million in 2010.
• Delocalisation closer to the final customer,
  closer to the low cost production
• site seems logical (174 MNC of Fortune-top
  invested Shanghai)

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• F) CONCLUSIONS (2/3)
• Speed is key (implementation-product
  lifecycle) ongoing growth only
• possible if based on more technological
  innovations and better management methods.
• Getting accustomed with the laws of big
  figures, resulting in drastic cost- reductions,
  later on in consumer price-reductions
• Global competition and stock exchanges drive
  the Multinational Companies
• towards China 450 of Fortune Top 500 have
  invested in China 600
• global companies have set up RD center
• China considers the MNC as the locomotive to
  develop SME competitiveness.

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• F) CONCLUSIONS (3/3)
• You cannot stop the eager-beavers (5 65
  million guys) . the shareholders (more return)
  . the final customers (lower prices).
• Cooperation is the formula
• - complementarity (in business-chain)
• - bothway (know how, money, markets, products)
• - permanent evolution (production, RD, MS, )
• The funny or cynical part of the story
• - the Chinese take care of an improving
  business environment
• growing local purchasing power
• - the foreigners provide capital,
  technology, management
• now the global markets
• Chinese proverb What you can not avoid,
  welcome.