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Emerging Market China

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Page 1: 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.