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The China Market:
Vast in More Ways Than One
It's useful to regard China as a continent rather than a country.
In reality, China is a collection of regions occupying an area slightly
larger than the contiguous United States—9.5 million square
kilometers (3.6 million square miles).
These regions are defined by dialect, culture, climate and level
of economic development; a certain amount of competition exists
among them. What unifies China is pride in a continuous cultural
tradition stretching back more than 5,000 years, a common written
language, a centralized authoritarian government and nationalism.
The most populous unified political area in the world, China has
1.3 billion people and it grows at a rate of 10 million a year.
There are really two Chinas. The first has about 900 million people
living in rural areas with a per capita income of less than US$100
per year.
The second has 400 million people in the more developed areas along
the east coast and Yangtze River basin with a per capita income
of about US$800 per year. Proponents of a "vast China market"
should keep this important distinction in mind.
WTO is not instant access
Tariff reductions under accession to the World Trade Organization,
while welcome, will not be the most significant gain for foreign
firms. Market access for various service sectors, the right to own
and operate distribution facilities, increased transparency in Chinese
laws and how they are formulated, and an improved investment environment
will, in my view, be the main benefits.
But difficulties will remain. Currency convertibility in China's
capital account is not an immediate condition for WTO entry, and
this will continue to cause uncertainty among foreign firms.
Foreign companies will also continue to operate at a disadvantage,
vis-à-vis Chinese state-owned enterprises (SOEs). The need
for local government connections, which are an important way to
access to foreign currency, will not diminish in the short term.
Regardless of how the WTO regime is implemented in China, any sensible
person needs to carefully define the specific market inside the
Chinese "continent" that he or she is trying to reach.
There are regional differences in taste, income levels and acceptance
of foreign products that must be considered.
Major areas of change
The No. 1 key to success is understanding the market. Complacency
will lead to lost opportunities. The first area of rapid change
is the accelerating speed of product and service innovation in China.
Cellphones and software development such as databases and language
conversion and recognition, and optical character recognition, are
all becoming more widespread than they were just a few years back.
There is also tremendous growth in China’s talent pool. From
foreign-trained Masters of Business Administration to scientists,
many PRC employees with valuable experience are enhancing the quality
and professionalism of China’s managerial class.
One area that should not be underestimated is the synergy between
U.S. and PRC technology development zones such as Silicon Valley
and Zhongguancun. The rapid utilization of the Internet for business
is dramatically transforming the face of commerce in China.
Follow the plan
To gain a better sense of China's priorities in its economic development,
look at the goals listed in the 10th Five-Year Plan (2001 to 2005).
It was passed at the 15th session of the Chinese Communist Party
and will be discussed and approved by the National People's Congress
this March.
The plan highlights key areas toward which the government would
like to focus development and investment opportunities. The plan
usually takes into consideration needs the government has already
identified, and as such, provides a good insight into sectors the
government might favor.
One area touched on in the 10th Five-Year Plan was environmental
protection. There is a growing awareness in China of environmental
problems, and the need for pollution-control services. These sectors,
in addition to housing construction and health care, are promising
areas for foreign investment.
Importance of the Internet and telecom
Another area the government is targeting is transportation and
communication networks. China will achieve even greater efficiencies
when it learns to operate new and existing infrastructure more efficiently,
e.g. railroad scheduling, telecommunications pricing, trucking,
and airline and port operations. This will also benefit foreign
business operations and trade.
The rapid growth of the Chinese Internet will profoundly alter
many things in China, including business operations. One can now
use the Internet in China to obtain news and market information,
research product sources, advertise and conduct online transactions.
In the past year, there has been a rapid increase in the number
of Web sites offering hotel and travel reservations, searchable
maps, yellow pages, directories and even online laws—the National
People’s Congress now uses the Internet to distribute its
legislation to legal officials throughout China.
China's commitment to rapid development of better telecommunications
infrastructure, including broadband, cable television, mobile phone
service, wireless application protocol (WAP), etc., should make
it even easier to conduct business in the PRC.
Borderless trade
Several cross-border trade portals are now using the Internet to
enable foreign buyers to more easily obtain products from China.
The best known among them are MeetChina.com, GlobalSources.com and
Alibaba.com.
The more innovative ones are moving beyond offering simple product
catalogs and now offer many elements of a complete trading solution,
which include finding a product, verifying supplier competence,
financing, shipping, insurance, customs clearance, delivery to the
buyer, and integration with the buyer’s inventory system.
These services will take years to fully integrate, but companies
are off to an impressive start, and the market holds considerable
promise for foreign buyers.
An example of how foreign buyers can benefit from using these enhanced
business-to-business services is the case of The Stanley Works,
a 150-year-old U.S. producer of hand tools. They recently used the
MeetChina.com network of pre-qualified PRC firms to request bids
on a large quantity of tools.
MeetChina told me that they received more than 1,000 qualified
bids in one week! This year Stanley plans to increase the China
share of its annual US$1.3 billion international procurement to
60 percent—from 15 percent.
Speaking out and moving on
Language barriers continue to be a formidable barrier to doing
business with China. Again, innovative applications on the Internet
promise to help lift this barrier. A new site, Netat.net, can instantly
translate Web sites and e-mail in English, Japanese, Chinese traditional
and Chinese simplified written languages at no cost to the user.
Admittedly, the translation quality leaves something to be desired,
but at least the user has a rough idea of what the original language
meant.
Chinese enterprises will not always remain at home, however. A
little-noticed phenomenon is the move of major Chinese firm to invest
in overseas operations.
One of the best managed and largest (sixth overall) of China's
SOEs, the Haier Corp. recently completed a US$30 million plant in
South Carolina to manufacture air conditioners. Most of the production
is slated for the Latin American market.
Assisting Chinese firms in locating manufacturing facilities in
other countries represents another business opportunity.
Keeping up on developments in China and having access to reliable
information, especially market data, is critical to doing business
in China. As the Chinese saying has it, Zhi bi zhi ji, bai zhan
bai sheng! Know the other party, know your own situation—a
hundred struggles, a hundred victories!
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