Transcript US Company Views & Challenges of
Over the Great Wall: US Company Views & Challenges of Doing Business in China
Ryan Ong
US-China Business Council
“China Emerged—Rethinking Your Global Strategy”
University of Kansas March 1, 2013
About USCBC
About the US-China Business Council
The United States-China Business Council is the principal organization of US companies engaged in trade and investment in the People's Republic of China.
• • • Private, non-government, non partisan More than 220 member companies Senior level board of directors • • • Founded in 1973 HQ in Washington, with regional offices in Beijing, Shanghai Role as an “honest broker”
China’s Market Opportunities: US Exports to China
US Exports to China (US$ billions)
Source: US Department of Commerce, cited in US China Business Council “China and the U.S. Economy: Advancing a Winning Agenda,” January 2013
China’s Market Opportunities: Chinese Consumers
China’s Growing Consumer Class
(millions)
Source: InterChina Consulting, cited in US China Business Council “China and the U.S. Economy: Advancing a Winning Agenda,” January 2013
Setting the Stage: China’s Economic and Political Environment in 2013
China’s Economy in 2013
China 2013 GDP Growth Rate Projections
• 2012 GDP grew at 7.8% – lower than 2011’s 9.3%... but higher than the March 2012 targeted rate of 7.5%.
• 2013 predictions are higher… government target unknown but perhaps around 7.5%.
Institution
World Bank Goldman Sachs Chinese Academy of Sciences HSBC UBS JP Morgan IMF Merrill Lynch Citibank
2013 Forecast
8.4% 8.2% 8.4% 8.5% 8.5% 8.2% 8.2% 8.1% 7.8%
Forecast Date
Jan-13 Dec-12 Jan-13 Jan-13 Feb-13 Jan-13 Jan-13 Jan-13 Jan-13
China’s Leadership Transition
China’s New Leadership Lineup
Xi Jinping Li Keqiang Zhang Dejiang Yu Zhengsheng Liu Yunshan Wang Qishan Zhang Gaoli
China’s Leadership Transition
Timeline for China’s Political Transition
Party Congress: New Politburo, Party Leadership National People’s Congress: New Government Leaders, Government Reorganization Assorted changes in provincial governments, some ministries Remaining government changes November December January February March April
China’s Leadership Transition
Lower income disparities Tax and financial system reform
Current Policy Priorities
Increased domestic consumption Balanced regional development Healthcare reform Broader social safety net Industrial & service sector modernization “Clean and green” economy
Domestic priorities may – or may not – link to foreign concerns
Trends to Watch: China’s 12 th Five-Year Plans
China’s 12
th
Five Year Plans (FYPs)
• Broad, aspirational policy document, laying out policies/goals for the next five years (2011-2015) • Sets overall social/macro economic direction • Accompanied by a series of follow-up plans (nearly 300 and counting) • Takeaway: FYPs provide glimpses of government direction, policy goals, and potential opportunities
Company Views of the Business Environment in China
Company Views of the Business Environment in China
USCBC 2012 Member Company Survey: Respondents Profile Location China 51% United States 40% Other 9% Company Experience in China > 20 years 11 – 20 years 5 – 10 years < 5 years 53% 28% 12% 7% Sector Manufacturing 51% Services 40% Ag/Resources Other 9% 15%
Strong and Unique Mix of Respondents
Source: US-China Business Council 2012 Member Company Survey
Company Views of the Business Environment in China
China's Prominence in Overall Company Strategy One of many non-key priorities 5% Not a priority 1% Top priority 22% Among top five priorities 72%
Source: US-China Business Council 2012 Member Company Survey
94%
Company Views of the Business Environment in China
Objectives for Existing and Future Investments in China 14% 12% Access or serve the China market Export platform to Export platform to serve other markets serve the US market outside the US
Source: US-China Business Council 2012 Member Company Survey
3% Other
Company Views of the Business Environment in China
Are Your China Operations Profitable?
19% 18% 12% 16% 13% 15% 11% Yes No 81% 82% 88% 84% 87% 85% 89% 2006 2007 2008 2009
Source: US-China Business Council 2012 Member Company Survey
2010 2011 2012
Company Views of the Business Environment in China
Revenue from China Operations
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
30% 41% 21% 37% 38% 44% 17% 14% 20%
Increased > 20% Increased 10-20% Increased < 10%
17% 7% 7%
Unchanged
2012 2011 2010 8% 3% 0%
Decreased
Source: US-China Business Council 2012 Member Company Survey
Company Views of the Business Environment in China
2% 1% 51% Five-Year Business Outlook for China 0% 7% 38% 3% 7% 38% 2% 5% 35% 2% 4% 37% 1% 8% 33% 4% 6% 42% 46% 55% 52% 58% 57% 58% 48% 2006 2007 2008 2009 2010 Somewhat Pessimistic Neutral
Source: US-China Business Council 2012 Member Company Survey
Somewhat Optimistic 2011 2012 Optimistic
Top Company Concerns in Operating in China
Top Operating Issues for US Companies
USCBC 2012 Survey: Top 10 Challenges
1. Human resources: Talent recruitment and retention 2. Administrative licensing 3. Competition with Chinese enterprises 4. Cost increases 5. IPR: Enforcement 6. Uneven enforcement and implementation 7. Investment restrictions 8. Competition with foreign companies in China 9. Competition with companies not subject to FCPA 10. Standards & conformity assessment
Top Operating Issues for US Companies: HR & Rising Costs
Top Cost Concerns 88% Labor costs General inflation outlook Materials Costs Rising tax burden Energy and utilities costs Land purchase or rental costs New payroll taxes/social insurance expat fees Other 19% 5%
Source: US-China Business Council 2012 Member Company Survey
41% 36% 28% 34% 50%
Top Operating Issues for US Companies: Administrative Licensing
Administrative Licensing
Project Approvals Business Licenses Checks/Investigations Regulatory Compliance
The Administrative “Black Box”
- Bureaucratic delays - Lack of regulatory clarity - Inconsistent application of laws and regulations - Conflicts between central & local priorities
Top Operating Issues for US Companies: Competition
Competition with Chinese Companies
• Chinese companies (SOEs, private) increasing market competitiveness over time, both in China and abroad… • …but foreign companies remain concerned that Chinese companies have access to better policies, incentives, and greater/better government access – both in China and abroad.
• Access to credit and export promotion programs, government procurement projects, inside role in shaping and driving policy, etc.
Top Operating Issues for US Companies: Intellectual Property Rights
How does China’s level of IPR Enforcement limit the activities your company can do in China?
40% 40% 36% 28% 22% Limits products we will co-manufacture or license in China Limits our R&D activities in China Limits products we will manufacture in China Limits products we sell in China No impact
Source: US-China Business Council 2012 Member Company Survey
23
Top Operating Issues for US Companies: Protectionism
Signs of Protectionism Administrative licensing Standards setting Discriminatory enforcement Subsidies Gov’t pressure to favor Chinese firms Gov’t procurement buy local M&A reviews/ approvals Adjudication in commercial courts Not seeing signs of protectionism Other 4% 9% 17%
Source: US-China Business Council 2012 Member Company Survey
21% 28% 35% 33% 48% 45% 43%
Trends to Watch: Strategic & Emerging Industries
Strategic Emerging Industries Become a world leader in seven developing industries Build globally competitive companies
SEI Industries
Promote independent self-reliant innovation Foster industrial sector reform Comprise 15% of GDP by 2020
Company Takeaways
What do these trends mean for companies?
• Tracking of policies and plans to position operations and anticipate challenges: short- and long-term • Reassessment of global and China operations to adapt to changing markets and operational challenges • Need for active engagement and relationship-building with governments and external stakeholders • Increased use of Chinese enforcement channels to protect company interests
Thank you!
Contact information: [email protected]
(202) 429-0340