Operating in ChinaOperating in China

Yong Zhang, Ph.D.Yong Zhang, Ph.D.

Hofstra UniversityHofstra University

April 25, 2007April 25, 2007

Chinese Economy at a Chinese Economy at a GlanceGlance• GDP (purchasing power parity): $10 trillion (2006 est.) GDP (purchasing power parity): $10 trillion (2006 est.)

• GDP (official exchange rate): $2.512 trillion (2006 est.) GDP (official exchange rate): $2.512 trillion (2006 est.)

• GDP - real growth rate: 10.5% (official data) (2006 est.);GDP - real growth rate: 10.5% (official data) (2006 est.);– 11.1% first quarter 200711.1% first quarter 2007

• GDP - per capita (PPP): $7,600 (2006 est.) GDP - per capita (PPP): $7,600 (2006 est.)

• GDP - composition by sector:GDP - composition by sector:

Agriculture:Agriculture: 11.9% 11.9% Industry:Industry: 48.1% 48.1% Services:Services: 40% 40%

CommunicationCommunication

• Telephones - main lines in use:Telephones - main lines in use: 350.433 million (2005) 350.433 million (2005)

• Telephones - mobile cellular:Telephones - mobile cellular: 437.48 million (2006), 480 437.48 million (2006), 480

million (April 2007)million (April 2007)• Internet hosts:Internet hosts:

232,780 (2006) 232,780 (2006) • Internet users: Internet users:

123 million (2006)123 million (2006)

http://chinese.wsj.com/gb/http://chinese.wsj.com/gb/20070412/bch204946.asp20070412/bch204946.asp• 中国超越美国成为世界第二大出口国中国超越美国成为世界第二大出口国• 20072007年年 0404月月 1212日日 20:4520:45

• 世界贸易组织世界贸易组织 (World Trade Organization, (World Trade Organization, 简称简称WTOWTO))周四发布的数据周四发布的数据显示，中国在去年年中超越美国成为世界第二大出口国，而且中国的出口显示，中国在去年年中超越美国成为世界第二大出口国，而且中国的出口还在强劲增长。还在强劲增长。

WTOWTO发布了发布了 20062006年第一批全球贸易统计数据。数据显示，去年中国出口年第一批全球贸易统计数据。数据显示，去年中国出口增长增长 27%27%，增幅超过了其他所有主要贸易国。，增幅超过了其他所有主要贸易国。

虽然从去年全年来看，中国的出口总量落后于德国和美国，但在去年后六虽然从去年全年来看，中国的出口总量落后于德国和美国，但在去年后六个月中国一举超越了美国，而且几乎可以肯定的是，个月中国一举超越了美国，而且几乎可以肯定的是， 20072007年中国的全年年中国的全年出口量将超过美国。出口量将超过美国。

如果保持目前的增长速度，中国有望在如果保持目前的增长速度，中国有望在 20082008年超越德国，成为全球第一年超越德国，成为全球第一大出口国。大出口国。

The Increasing Share of The Increasing Share of Chinese Exports since 1986 - Chinese Exports since 1986 - (BA-CA)(BA-CA)•中国在中国在 19861986年时占世界贸易的比例为年时占世界贸易的比例为

1.6%1.6%，， 9090年代中上升到年代中上升到 4.6%4.6%，今年将达，今年将达到到 9.4%;9.4%;

•美国美国 8686年时占年时占 11.3%11.3%，， 9090年代中为年代中为12.7%,12.7%,今年将跌至今年将跌至 8.9%;8.9%;

•德国德国 8686年时占年时占 9.8%9.8%，， 9090年代中为年代中为9.4%9.4%，今年将跌至，今年将跌至 8.8%8.8%；；

•日本日本 8686年时占年时占 9.7%9.7%，， 9090年代中为年代中为9.0%9.0%，今年将跌至，今年将跌至 6.0%6.0%。。

Data by Austrian Credit Bank (BA-Data by Austrian Credit Bank (BA-CA)CA)

19861986 19951995 20072007

• ChinaChina 1.6%1.6% 4.6%4.6% 9.4%9.4%

• USAUSA 11.3%11.3% 12.7%12.7% 8.9%8.9%

• GermanyGermany 9.8%9.8% 9.4%9.4% 8.8%8.8%

• JapanJapan 9.7%9.7% 9.0%9.0% 6.0%6.0%

China’s Current Account China’s Current Account SurplusSurplus

• In 2006, China had the largest In 2006, China had the largest current account surplus in the world - current account surplus in the world - nearly $180 billion. nearly $180 billion.

China’s Economy – China’s Economy – Flashback Flashback • China's economy during the last 30 years has changed from a China's economy during the last 30 years has changed from a

centrally planned system that was largely closed to international centrally planned system that was largely closed to international trade to a more market-oriented economy that has a rapidly trade to a more market-oriented economy that has a rapidly growing private sector and is a major player in the global growing private sector and is a major player in the global economy. economy.

• Reforms started in 1978 with the phasing out of collectivized Reforms started in 1978 with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of agriculture, and expanded to include the gradual liberalization of prices, increased autonomy for state enterprises, the foundation prices, increased autonomy for state enterprises, the foundation of a diversified banking system, the development of stock of a diversified banking system, the development of stock markets, the rapid growth of the non-state sector, and the markets, the rapid growth of the non-state sector, and the opening to foreign trade and investment.opening to foreign trade and investment.

• China has generally implemented reforms in a gradual fashion, China has generally implemented reforms in a gradual fashion, including the sale of equity in China's largest state banks to including the sale of equity in China's largest state banks to foreign investors and refinements in foreign exchange and bond foreign investors and refinements in foreign exchange and bond markets in 2005. The restructuring of the economy and resulting markets in 2005. The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase efficiency gains have contributed to a more than tenfold increase in GDP since 1978. in GDP since 1978.

Threats to China’s Economic Threats to China’s Economic Development Development • In per capita terms, the country is still lower middle-income, In per capita terms, the country is still lower middle-income,

and 130 million Chinese fall below international poverty lines and 130 million Chinese fall below international poverty lines ($1.08/day). ($1.08/day).

• Economic development has generally been more rapid in Economic development has generally been more rapid in coastal provinces than in the interior, and there are large coastal provinces than in the interior, and there are large disparities in per capita income between regions. disparities in per capita income between regions.

• One demographic consequence of the "one child" policy is that One demographic consequence of the "one child" policy is that China is now one of the most rapidly aging countries in the China is now one of the most rapidly aging countries in the world. world.

• Another long-term threat to growth is the deterioration in the Another long-term threat to growth is the deterioration in the environment - notably air pollution, soil erosion, and the steady environment - notably air pollution, soil erosion, and the steady fall of the water table, especially in the north. China continues fall of the water table, especially in the north. China continues to lose arable land because of erosion and economic to lose arable land because of erosion and economic development. development.

ContinuedContinued

• The 11th Five-Year Program (2006-2010), The 11th Five-Year Program (2006-2010), approved by the National People's Congress in approved by the National People's Congress in March 2006, calls for a 20% reduction in energy March 2006, calls for a 20% reduction in energy consumption per unit of GDP by 2010 and an consumption per unit of GDP by 2010 and an estimated 45% increase in GDP by 2010. estimated 45% increase in GDP by 2010.

• The plan states that conserving resources and The plan states that conserving resources and protecting the environment are basic goals, but it protecting the environment are basic goals, but it lacks details on the policies and reforms necessary lacks details on the policies and reforms necessary to achieve these goals.to achieve these goals.

Reasons for Manufacturing in Reasons for Manufacturing in ChinaChina

• Low labor costs:Low labor costs:– 10 to 40% of U.S. unit labor costs10 to 40% of U.S. unit labor costs

• Market access:Market access:– Huge, and growing consumer baseHuge, and growing consumer base

• Global web of operationGlobal web of operation– Feed into value chains in the regionFeed into value chains in the region

GM, Ford, and VW in ChinaGM, Ford, and VW in China

• BBCBBC中文网中文网 //美国通用汽车和福特汽车公司星期一（美国通用汽车和福特汽车公司星期一（ 11月月 88日）表示，通用和福特汽车公司日）表示，通用和福特汽车公司20062006年在中国市场的销量大幅增长年在中国市场的销量大幅增长

• 美国最大的汽车制造商——通用汽车表示，该公司去年在中国共销售了美国最大的汽车制造商——通用汽车表示，该公司去年在中国共销售了 876876，， 747747辆汽车，比辆汽车，比20052005年上升了年上升了 32%32%

该公司旗舰产品“别克”轿车在华销售数量增长了该公司旗舰产品“别克”轿车在华销售数量增长了 24.9%24.9%，达，达 304304，， 230230辆辆

• 福特汽车公司则表示，该公司包括福特、林肯、捷豹、路虎和沃尔沃在内的各种品牌汽车福特汽车公司则表示，该公司包括福特、林肯、捷豹、路虎和沃尔沃在内的各种品牌汽车20062006年中国市场销量增加年中国市场销量增加 86.6%86.6%，达，达 166,722166,722辆，是迄今为止福特在中国销售最为强劲的辆，是迄今为止福特在中国销售最为强劲的一年一年福特汽车的声明说，福特汽车的声明说， 20062006年福特品牌汽车在中国的销量增加年福特品牌汽车在中国的销量增加 73,30673,306辆，达辆，达 155,404155,404辆，增辆，增幅为幅为 89.3%89.3%

• 德国大众汽车公司周一也宣布，上海大众汽车公司的销量约为德国大众汽车公司周一也宣布，上海大众汽车公司的销量约为 352352，， 000000辆辆

一汽大众汽车公司的销量约为一汽大众汽车公司的销量约为 350350，， 000000万辆万辆

Motorola in ChinaMotorola in China

• http://www.motorola.com.cn/http://www.motorola.com.cn/

• Cumulative investment by 2003: $3.4 billionCumulative investment by 2003: $3.4 billion

• Motorola is the largest foreign investor in China’s Motorola is the largest foreign investor in China’s electronics industry with more than 9,000 employees in electronics industry with more than 9,000 employees in China. Since coming to China in 1987, Motorola has made China. Since coming to China in 1987, Motorola has made its commitment to China a long-term strategy. By the end its commitment to China a long-term strategy. By the end of 2005, Motorola’s total investment reached US$3.6 billion. of 2005, Motorola’s total investment reached US$3.6 billion.

• Motorola’s commitment to China continues to increase, Motorola’s commitment to China continues to increase, showcased in part, by its venture investment program. showcased in part, by its venture investment program. These investments are expected to bring much-needed These investments are expected to bring much-needed funding, technology and management know-how to local funding, technology and management know-how to local Chinese entrepreneurs.Chinese entrepreneurs.

Intel to invest in ChinaIntel to invest in China

• Intel has announced that it will open a wafer fabrication Intel has announced that it will open a wafer fabrication facility in China, a significant milestone in the chip giant's facility in China, a significant milestone in the chip giant's manufacturing history. manufacturing history.

• The plant will be located in an industrial rust-belt hub in The plant will be located in an industrial rust-belt hub in northeast China called Dalian in the Liaoning Province and northeast China called Dalian in the Liaoning Province and will cost around $2.5 billion to build. The Chinese will cost around $2.5 billion to build. The Chinese government is providing financial incentives to Intel, government is providing financial incentives to Intel, according to company spokesman Chuck Mulloy, and has according to company spokesman Chuck Mulloy, and has built up the infrastructure around the city. built up the infrastructure around the city.

• Chips will start coming out of the factory in the first half of Chips will start coming out of the factory in the first half of 2010. Initially, Intel will make chipsets--which shuttle data 2010. Initially, Intel will make chipsets--which shuttle data back and forth across the processor to the microprocessor back and forth across the processor to the microprocessor of the computer--and possibly communications chips. of the computer--and possibly communications chips.

China’s Top 10 Origins of FDI, 2005China’s Top 10 Origins of FDI, 2005

Country/Region of Country/Region of OriginOrigin

Amount Invested Amount Invested (US$)(US$)

Hong KongHong Kong $17.95 billion$17.95 billion

Virgin Islands Virgin Islands $9.02 billion$9.02 billion

JapanJapan $6.53 billion$6.53 billion

South KoreaSouth Korea $5.17 billion$5.17 billion

United StatesUnited States $3.06 billion$3.06 billion

SingaporeSingapore $2.20 billion$2.20 billion

TaiwanTaiwan $2.15 billion$2.15 billion

Cayman IslandsCayman Islands $1.95 billion$1.95 billion

GermanyGermany $1.53 billion$1.53 billion

Western SamoaWestern Samoa $1.35 billion$1.35 billion

Source: PRC Ministry of CommerceSource: PRC Ministry of Commerce

Foreign Direct Investment by Vehicle Type, 2004 and 2005Foreign Direct Investment by Vehicle Type, 2004 and 2005

   Number of ProjectsNumber of Projects   Utilized FDI Value ($ Utilized FDI Value ($

billion)billion)

   20052005 20042004 % % ChangeChange    20052005 20042004 % %

ChangeChange

Total FDITotal FDI 44,0044,0011

43,6643,6644

0.770.77   $60.3$60.333

$60.6$60.633

-0.5-0.5

EJVs EJVs 10,4810,4800

11,5711,5700

-9.42-9.42   $14.6$14.611

$16.3$16.399

-10.81-10.81

CJVsCJVs 1,1661,166 1,3431,343 -13.18-13.18    $1.83$1.83 $3.11$3.11 -41.15-41.15

WFOEsWFOEs 32,3032,3088

30,7030,7088

5.215.21   $42.9$42.966

$40.2$40.222

6.816.81

Foreign-investedForeign-investedshareholding shareholding venturesventures

4747 4343 9.39.3    $0.92$0.92 $0.78$0.78 18.2118.21

Note: FDI=foreign direct investment; EJVs=equity joint ventures; Note: FDI=foreign direct investment; EJVs=equity joint ventures; CJVs=cooperative joint ventures; WFOEs=wholly foreign-owned enterprisesCJVs=cooperative joint ventures; WFOEs=wholly foreign-owned enterprisesSource: PRC Ministry of CommerceSource: PRC Ministry of Commerce