emerging market- china
TRANSCRIPT
7/24/2019 Emerging Market- China
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Emerging Market‐ China
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China
• Largest country in terms of Population (1.35
billion – 1/6
of
world
total)
• 3rd Largest in land area (After Russia & Canada)
• 56 ethnic groups ‐91% Han Chinese
• Dynamic Environment
• Different consuming behaviors in different
regions• One country, two systems
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China Economy
• 2nd Largest Economy ‐$14.625 trillion
• Per capital
GDP
‐ $10,695
(88th)
• Total global stock market value,‐ USA 30%,
China 7.38%,
Japan
7.05%
• China’ GDP is 9.5% of world’s GDP in 2010, (as
against only 5% in 2005)‐ (The USA’s GDP
23.8% world’s
GDP
in
2010)
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China Economy
• Up to the end of 2009, China has approved
683,000 foreign
‐funded
enterprises
with
the
total FDI value of 945.4b US$.
• According to the 2009 report issued by
UNCTAD, transnational
investment
went
down
by 50% in Brazil, 19% in India, 93% in the UK, 57% in the US, 53% in Japan and only 2.6% in
China.• China records No.1 in absorbing FDI in
developing countries for 17 years.
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China’s Local
Governments(34)
• Municipalities‐‐4
( Beijing,
Tianjin,
Shanghai,
Chongqing)
• Provinces‐‐23
• Autonomous Regions—5
( inner Mongolia, Guangxi Zhuang, Tibet,
Ningxia Hui, Xinjiang Uygur)
•
Special Administrative
Regions—2
(Hong Kong Special Administrative Region,
Macao Special Administrative Region )
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Geographical Division
• North‐east China(3 provinces)
• East China
(10
provinces
and
municipalities)
• Central China (6 provinces, i.e. Shanxi, Anhui,
Jiangxi, Henan,
Hubei
and
Hunan)
• West China (13 provinces, municipality and
autonomous regions )
• SAR (2)
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Some
Important
Events
in
China1. 1949– the founding of the People’s Republic of
China2. 1966‐1976 Great Culture Revolution
3. 1978 –the reform and open policy started
(initiated by
Deng
Xiaoping
‐ the
general
architect
of China’s reform and open policy)
4. 1993—the
establishment
of
market
economy
5. 2001‐ China’s accession to WTO
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Chief Chinese
Top
leaders
(from1949
‐now)
1. Mao Zedong (1949‐1976)
2. Deng Xiaoping(1979
‐1989)
3. Jiang Zemin(1989‐2002)
4. Hu Jintao
( from
2002
‐2012)
5. Xi Jinping ( from 2012‐
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Legal Environment
in
China
• China’s Legislative System
• China’s Judicial
System
• Vehicles for Doing Business in China
• Intellectual Property
Protection
in
China
• The Settlement of Disputes
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China’s legislative
system
• National People’s Congress and its standing committee
(NPC‐‐
constitution and
basic
laws,
NPC
Standing
committee other laws)
• State council—administrative rules and regulations
•
Provincial (or
municipality
) people’s
congress
and
their
standing committee‐‐Local ordinances
• Autonomous regional people’s congress and their standing committee— autonomous ordinances and
separate regulations
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China’s judicial
system
• The supreme people’s court
• Higher people’s
court
• Intermediate people’s court
• District
court
(basic
‐level
people’s
court)
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Company Law
• First effective 1 July, 1994
• Most recently
amended
2005,
effective
1
January 2006
• Deals with
– Limited liability
companies
– Joint stock companies (companies limited by
shares)
– Foreign investment
enterprises,
except
to
extent
FIE laws otherwise provide
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Enterprise Bankruptcy
Law
• Comes into effect 1 June 2007
• Applies to
state
‐owned
enterprises,
private
companies, financial institutions and FIEs
•
Special section
on
financial
institutions
• Law applicable “by reference” to organisations
other than enterprise legal persons
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Grounds for
Bankruptcy
• Entity is unable to pay debts when due and
does not
have
sufficient
assets
to
pay
debts
or
clearly demonstrates that it lacks the ability to
meet payments
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Bankruptcy Law
• Options: declare bankruptcy; undergo
reorganisation (rehabilitation);
reach
settlement with creditors (composition)
• Participation of courts required
• Position of
secured
creditors
preserved
• Priority of payments: liquidation debts, payment to employees (wages and social security
benefits);
social
insurance
and
taxes;
general creditors
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The
Vehicles
for
Doing
Business
in
China
• Direct sales to Chinese end‐users
• Trade with
commission
agents
• Representative offices
•
Sino‐
foreign
joint
ventures
(JV)• Sino‐foreign co‐operative enterprise
• Wholly foreign‐owned enterprises (WFOE)
• Franchising
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Constitution,
laws
and
regulations
• Constitution of P.R. China (Art. 18)
• Company Law
• Sino‐foreign Joint Ventures Law
•
Sino‐
foreign
Co‐
operative
Enterprise
Law• Wholly Foreign‐owned Enterprises Law
• Catalogue for the Guidance of Foreign
Investment Industries(2010
version)
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Catalogue for
the
Guidance
of
Foreign
Investment Industries
• Focusing on
advanced
manufacturing,
high
‐
tech, modern services, new energy and
energy‐saving sector.
• Encouraged industries
• Restricted industries
• Prohibited industries
(e.g.
gambling
and
eroticism)
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7 strategic
industries
1. Energy‐saving and environmental protection
2. New‐
generation
information
technology
3. Biotechnology
4. High‐end equipment manufacturing
5. Alternative energy
6. Advanced materials
7. Alternative‐fuel cars
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IPR in
China
• Formulation of IPR laws and regulations ‐early 1980s.
• China
has
finished
its
IPR
legislative
work
in
less
than
30 years.
• China has revised its IPR laws in line with TRIPS
Agreement
aiming
at
world
dimension
and
world
standards.
(WTO: trade in goods; trade in services; trade for TRIPs)
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Ways of Settlement of Trade and
Investment Disputes
• Mutual consultation
• Mediation
• Arbitration (CIETAC‐China International
Economic
and
Trade
Arbitration
Commission
)• Litigation
• the International Center for Settlement of
Investment Dispute
(ICSID)
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• Technical competence is the primary criterion for doing
business in China
• Time is
a major
cultural
difference
between
many
Western
countries and China – Chinese are patient negotiators and
may take advantage of American impatience or time
constraints.
• Guanxi :‐ connection
or
relationship
between
or
among
people. e.g. try to establish a relationship with somebody, or someone has very good social connections ‐Good
connections that result in lower costs, increased business,
and better
business
opportunities.
‐In
a highly
‐centralized
,bureaucratic state, the use of personal contacts is the
only way or important way to get things done.
Business Culture
in
China
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• China is a collective society. Older Chinese may place values
and principles above money and expediency. They value the
good of
their
country
or
group.
• Age and rank are respected in China. Negotiating team
should be composed of mid‐level and senior executives, middle aged or older.
• Early negotiations
are
likely
to
focus
on
general
principles.
The Chinese will be reluctant to change those later.
• Chinese are slow to decide on a course of action, but stick to
the decision once it is made
• Chinese negotiators
expect
concessions
but
do
not
always
make a concession in return.
• China is a neutral culture. Do not display emotions during
negotiations.
Negotiating in
China
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Hidden Dragons
Companies have Myopic Interests in China
• Setting offshore
manufacturing
units
(low
cost labor)
•
Selling
Products
(big
market)• Ignored the emerging giants
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Why aren't Chinese companies on
Corporate competition
radar
?
Chinese market is big but fragmented‐ firms are
small ‐
Not big/profitable
enough
to
compete
oversees
Large Corporations are state owned and hence
not globally competitive
Private players cannot become big as they are
denied permission
to
access
stock
market
easily
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HybridsHybrids are emerging – Partly state owned and
have operational
freedom
‐ have
profit
motive
1. Have preference in stock market listing
2. Allowed
to
make
acquisitions3. Preferential treatment in getting bank loans
They were missed because in Japan and Korea, it
is private
players
who
dominated
Hybrids are of four types
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National Champions
• Domestic leaders build global brands by
identifying segments
that
global
market
leaders have dismissed because of volume is
too low or profit margins negligible.
• Leverage their
experience
in
adapting
technologies and features to meet cost‐
conscious Chinese buyers' price points. Low
manufacturing costs give them a further edge
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National Champions
• Lack of Understanding of local tastes and
consumer habits
• Many don't use proprietary technologies
•
Solution‐
Increased
R&D
investments
and
Novel Marketing Campaigns
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Dedicated
Exporters• They focus on external markets, leveraging their
economies of scale.
• First break into mass markets, where their low
production costs give them an edge. (Pearl
River Piano)
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Dedicated Exporters
• Then they develop expertise with crucial
technologies‐‐often forming strategic
partnerships and
acquiring
rivals
‐‐to
migrate
to specialized, high‐value markets.(CMIC)
• Then they master important technologies
swiftly‐ Ex
Galanz
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Dedicated
Exporters
• Lack of Experience in Global marketing and
service delivery
• Solutions ‐ Outsourcing Marketing and
developing alliances
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Competitive
Networks• These networks comprise hundreds of small,
specialized, entrepreneurial companies located in
one limited
geographical
area.
Operating
as
a
cohesive, interdependent entity, they take on
world markets. With scant bureaucracy and
overhead, they're
flexible,
low
‐cost
producers.
They thrive in markets requiring quick responses
to changes in demand.
•
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Competitive
Networks
• Tag itself has become a powerful brand among
distributors and
retailors
• Many of China's networks operate in
industries where changes in style affect
demand
• They have hired fashion houses in Asia and
Europe to
fill
the
gaps
in
their
knowledge
and
help them anticipate trends
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Technology upstarts
• Chinese government built a large
infrastructure for
scientific
and
technological
research, then required state‐owned
laboratories to obtain funding by
commercializing their
technologies.
In
response, research institutes have spawned
companies and encouraged scientists to
become entrepreneurs
in
emerging
industries.