John Thomson: INVESTORS MUST KNOW THE 'CHINESE CONTINENTAL' MARKET
Date: 01-26-2001
John Thomson, managing editor of China Online, which monitors more than 100 Chinese media sources as well as the foreign press. Thomson spoke at the
East-West Center's Asia Pacific Executive Forum on "Doing Business in a Changing Asia: A Strategic Vision" held Jan. 16-19. Topic: "Where is China Heading?"
INVESTORS: KNOW THE 'CHINESE CONTINENTAL' MARKET
China should be regarded as a continent with competing regions rather than a country. Proponents of a "vast China market" should keep in mind that there are "two Chinas" -- 900 million Chinese living in rural areas with a per capita income of less than $100 per year; and 400 million in more developed regions along the coast and Yangtse River basin with an income of $800. And there are regional differences in taste and acceptance of foreign products.
To all investors in China: Understand the market. That includes the accelerating speed of product and service innovation in China like cell phones and software; growth of the foreign-trained talent pool and those now being trained at home; the synergy between Silicon Valley and China (Zhongguancun); and the rapid utilization of the Internet for business.
While tariff reductions under the World Trade Organization will be welcome to foreign investors, more valuable will be market access to various service sectors, the right to own and operate distribution facilities, increased transparency in laws and how they are formulated, and a better investment environment. "China's accession to WTO is seen as a catalyst for internal change in China and an opportunity for foreign firms to obtain a more level playing field in China. Neither of these will happen quickly...China needs to amend about 2,000 laws and regulations to comply with WTO accession requirements and reportedly has only 12 persons working on it."
There is a growing awareness in China of environmental problems, and this was included in the 10th National 5-Year Plan covering 2001-2005. Environmental protection and pollution control services are promising areas for foreign investment. About 50 million people in Northern China do not have reliable sources of drinking water, and the overuse of underground water has caused ground to sink in major cities.
China is the largest consumer and producer of coal in the world. Air pollution in many northern Chinese cities is five-10 times higher than WHO standards. A December 2000 report from the American Embassy in Beijing estimates pollution costs China about 3-8 percent of its GDP growth while environmental damage takes another 5-14 percent. Closure last year of a large state-owned smelter that was causing heavy pollution in Shenyang was a milestone of sorts for improvement of China's environment.
Another challenge is the shrinking work-age force. The percent of persons over 65 is expected to climb from 6.9 percent in 1995 to 13.5 percent by 2025. "Unfortunately China is only now just beginning to experiment with retirement plans for workers."
Consumers are saving to prepare for privatization of housing and medical services, dampening consumer demand. But housing and medical services are promising areas for foreign investors. One little-noticed phenomenon is the start of investment in overseas operations by major Chinese firms. One of the best-managed and largest state-owned enterprises, the Haier Corp., recently completed a $30-million plant to manufacture air conditioners in South Carolina with most production targeting the Latin American market. Assisting Chinese firms in locating manufacturing facilities in other countries represents another business opportunity.
"The rapid growth of the Chinese Internet will profoundly alter many things in China." An example of how foreign buyers can benefit from B2B (business-to-business) services: Stanley Works, a 150-year-old U.S. producer of hand tools used MeetChina's network of pre-qualified Chinese firms to request bids on tools. This year Stanley Works plans to increase its China share from 15 percent of its yearly $1.3 billion international procurement to 60 percent.
Language continues to be a formidable barrier for doing business in China. But the Internet is also helping here. A new site, www.netat.net instantly translates English, Japanese and Chinese.
John Thomson can be reached at 312-335-2018 or jthomson@chinaonline.com