over the great wall: us company views & challenges of doing business in china ryan ong us-china...
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Over the Great Wall:US Company Views & Challenges
of Doing Business in China
Ryan OngUS-China Business Council
“China Emerged—Rethinking Your Global Strategy”University of Kansas
March 1, 2013
About the US-China Business Council
• Private, non-government, non-partisan
• More than 220 member companies
• Senior level board of directors
About USCBC
• Founded in 1973
• HQ in Washington, with regional offices in Beijing, Shanghai
• Role as an “honest broker”
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.
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: US Exports to China
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
China’s Market Opportunities: Chinese Consumers
Setting the Stage: China’s Economicand Political Environment in 2013
• 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%.
China 2013 GDP Growth Rate Projections
China’s Economy in 2013
Institution 2013 Forecast Forecast Date
World Bank 8.4% Jan-13Goldman Sachs 8.2% Dec-12
Chinese Academy of Sciences 8.4% Jan-13HSBC 8.5% Jan-13UBS 8.5% Feb-13
JP Morgan 8.2% Jan-13IMF 8.2% Jan-13
Merrill Lynch 8.1% Jan-13Citibank 7.8% Jan-13
Xi Jinping Li Keqiang Zhang Dejiang Yu Zhengsheng
Liu Yunshan Wang Qishan Zhang Gaoli
China’s New Leadership Lineup
China’s Leadership Transition
Timeline for China’s Political Transition
November December January February March April
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
China’s Leadership Transition
Lower income disparities
Increased domestic
consumption
Balanced regional
development
Broader social safety net
“Clean and green”
economy
Industrial & service sector modernization
Healthcare reform
Tax and financial
system reform
Current Policy
Priorities
China’s Leadership Transition
Domestic priorities may – or may not – link to foreign concernsDomestic priorities may – or may not – link to foreign concerns
China’s 12th 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
Trends to Watch: China’s 12th Five-Year Plans
Company Views of the Business Environment in China
USCBC 2012 Member Company Survey:Respondents Profile
China
United States
Other
51%
40%
9%
> 20 years
11 – 20 years
5 – 10 years
< 5 years
53%
28%
12%
7%
Manufacturing
Services
Ag/Resources
Other
51%
40%
9%
15%
CompanyExperience
in ChinaLocation Sector
Strong and Unique Mix of RespondentsStrong and Unique Mix of Respondents
Company Views of the Business Environment in China
Source: US-China Business Council 2012 Member Company Survey
China's Prominence in Overall Company Strategy
Source: US-China Business Council 2012 Member Company Survey
Company Views of the Business Environment in China
Objectives for Existing andFuture Investments in China
Company Views of the Business Environment in China
Source: US-China Business Council 2012 Member Company Survey
Company Views of the Business Environment in China
Are Your China Operations Profitable?
Source: US-China Business Council 2012 Member Company Survey
30%
37%
17% 17%
3%
41%38%
14%
7%
0%
21%
44%
20%
7% 8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Increased > 20% Increased 10-20% Increased < 10% Unchanged Decreased
Revenue from China Operations
2012
2011
2010
Source: US-China Business Council 2012 Member Company Survey
Company Views of the Business Environment in China
Source: US-China Business Council 2012 Member Company Survey
Five-Year Business Outlook for China
Company Views of the Business Environment in China
Top Company Concerns inOperating in China
USCBC 2012 Survey: Top 10 Challenges
1. Human resources: Talent recruitment and retention2. Administrative licensing3. Competition with Chinese enterprises4. Cost increases5. IPR: Enforcement6. Uneven enforcement and implementation7. Investment restrictions8. Competition with foreign companies in China9. Competition with companies not subject to FCPA10.Standards & conformity assessment
Top Operating Issues for US Companies
Top Cost Concerns
Source: US-China Business Council 2012 Member Company Survey
Top Operating Issues for US Companies: HR & Rising Costs
Project ApprovalsBusiness Licenses
Checks/InvestigationsRegulatory Compliance
The Administrative “Black Box”
- Bureaucratic delays- Lack of regulatory clarity- Inconsistent application of laws and regulations- Conflicts between central & local priorities
Administrative Licensing
Top Operating Issues for US Companies: Administrative Licensing
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: Competition
23Source: US-China Business Council 2012 Member Company Survey
How does China’s level of IPR Enforcement limitthe activities your company can do in China?
Top Operating Issues for US Companies: Intellectual Property Rights
Administrative licensing
Standards setting
Discriminatory enforcement
Subsidies
Gov’t pressure to favor Chinese firms
Gov’t procurementbuy local
M&A reviews/ approvals
Adjudication in commercial courts
Other
Not seeing signs of protectionism
Signs of Protectionism
Source: US-China Business Council 2012 Member Company Survey
Top Operating Issues for US Companies: Protectionism
Strategic Emerging Industries
Trends to Watch: Strategic & Emerging Industries
• 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
What do these trends mean for companies?
Company Takeaways
