June 2000 Edition
Wise
Words
We read some wise words the
other day, spoken by Jack Welsh, the Chairman and CEO of GE, USA.
What Jack said seems obvious but it is critical for companies doing
business in China. He said, “If you want to be the world leader in your
industry, you have to be the leader in China”.
So there you have it, many
companies are world leaders in their particular market niche or aspire to be so.
China is such an important market, on a global scale, that you just
cannot afford not to be there.
We have always said that we
can understand if a company chooses not to be in China, but that should be a
conscious decision, based on facts and should not be made by default.
A company must avoid suddenly finding that its competitive position is
under threat elsewhere in the world, simply because it ignored China, and that
its competitors, which took full advantage of what China has to offer, are
threatening the very basis of its business.
China has vast resources of
inexpensive and increasingly skilled labour.
You should be regularly reviewing whether China can play a role in your
company strategy.
Protectionism
China’s accession to the
WTO means that much of the protectionist regulation and many of the
protectionist practices that made market access difficult for foreign companies will be done away
with. In addition companies already
in China, both domestic and foreign will also benefit. Local protectionism is widespread on the mainland.
In part this is a legacy of the post-revolutionary era where Mao
Zedong’s fears of being attacked, led to a policy of local self-sufficiency.
Each province of China was
treated like a mini country and was expected to have a full range of industry,
so that, in the event of part of the country being occupied by an aggressor, no
vital industry would be lost.
This led to the
proliferation and duplication of many manufacturing facilities many of which are
of sub-optimum size. This is a
direct cause of China having so many old, small and obsolete plants and why
there must be rationalisation.
Even today, over 20 years
since economic liberalisation began, both provincial and municipal governments
regard it as part of their role to protect local industry. The Courts tend to favour local manufacturers and even in
cases where local companies lose, the enforcement of judgements leaves much to
be desired.
Accession to the WTO should
gradually improve the situation by introducing more transparency.
Nevertheless, the task of establishing a nation-wide brand presence from
a single location is still extraordinarily difficult.
For many years China will continue to be “one country, several
markets”.
Import Deposits Reduced
Manufacturers in China which
import raw materials for “export processing” have had the deposit they are
required to pay reduced by 50%. The
reduction applies to smaller scale manufacturers.
The deposit scheme is designed to prevent imported raw materials, which
are exempt from customs duty, from being sold in the domestic market.
Exports
and Domestic Spending Up
China’s industrial
production rose 11.5% year-on-year in May, boosted by government spending and an
increase in exports. Domestic
industry is also beginning to boom as the government pours money into
infrastructure in a bid to accelerate economic growth.
Strong overseas demand for
Chinese products has also boosted exports which rose 22.7% last month according
to the National Statistics Bureau. This
increase in industrial output will accelerate the country’s economic growth
and the economy is expected to expand at about 7.7% this year compared with last
year’s figure of 7.1%.
Western
China Investment Incentives
Beijing intends to introduce a
package of policy incentives to attract more foreign investment into the central
and western regions of China. The
government is becoming increasingly concerned that the widening income gap
between the coastal regions and the rest of the country may lead to social
instability. As part of its policy
to direct increasing investment towards the poorer regions, the government
announced ten major new infrastructure projects including railways, highways,
airports and a natural gas pipeline.
It is interesting to note that
this announcement was made by the State Development & Planning Commission
and in the same statement the spokesman confirmed a gradual easing of investment
restrictions in certain sectors including telecommunications and insurance.
We would not be surprised if this liberalisation were to commence in the
central and western regions, particularly for telecommunications, with the
prospect of access to the markets in the coastal regions in return for
investment in the interior.
Get on
the Net!
One of the key problems facing
companies doing business in China is how to publicise their products in such a
vast country. The Internet is the
obvious answer and Business Development International is introducing a new
service that will enable you either to set up your corporate website in Chinese
or better still have a site in
Chinese dedicated to the Chinese market.
The Chinese value commitment
very highly and what better demonstration of your commitment to the market could
you have than a Chinese language website? Even
a “brochure-ware” site could save you thousands of pounds, in printing
costs. We have had Chinese language
brochures printed and we know how expensive and complicated a process this can
be. And as soon as they are printed
they are out of date. A website
will allow you to publicise your products directly to your Chinese customers and
always offer current information. If
you require more information on developing a Chinese language website, give us a
call.