State of Business in S China (Amcham 2015)
Transcript of State of Business in S China (Amcham 2015)
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T A C C S C
2015SPECIALREPORTONTHE
STATEOFBUSINESSINSOUTHCHINA
2015
$?
2015 e American Chamber of Commerce in South China
2015
South China Economic Overview courtesy of Dezan Shira & Associates Ltd.
Reproduction for commercial use is strictly prohibited. is document is available free
of charge in electronic form at: http://www.amcham-southchina.org
Cover photo courtesy of Alice Huang
http://www.flickr.com/photos/alicehccn
Last updated: Feb 3, 2015
201523
The American Chamber of Commer ce in South China
Suite 1801, Guangzhou International Sourcing Center
8 East Pazhou Avenue, Haizhu District
Guangzhou, Guangdong, PRC
8
1801
+86 20 8335 1476 (Tel.)
+86 20 8332 1642 (Fax.)
www.amcham-southchina.org
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Dezan Shira & Associates is a specialist foreign direct invest-
ment practice, providing corporate establishment, business advi-
sory, tax advisory and compliance, accounting, payroll, due dili-
gence and financial review services to multinationals investing in
emerging Asia. Since its establishment in 1992, the firm has grown
into one of Asias most versatile full-service consultancies with op-
erational offices across China, Hong Kong, India, Singapore and
Vietnam as well as liaison offices in Italy and the United States.
Dezan Shira & Associates experienced business professionals
are committed to improving the understanding and transparency
of investing in emerging Asia.
Dezan Shira & Associates also publishes significant and well
received business intelligence about each of the markets and disci-
plines in which it operates through its publishing subsidiary Asia
Briefing Ltd. Established in 1999, Asia Briefing Ltd. is dedicated to
providing individuals and enterprises with the latest business and
regulatory news as well as expert commentary relating to conduct-
ing business in emerging Asia.
1992
1999
Contents
Presidents Report 6
7
Study Results
1. Demographics 10
11
2. Revenue and profitability 18
19
3. South China 22
23
4. Investmen t Trends 24
25
5. e Business Environment in South China 32
33
Economic Overview
1. Introduction to South China 42
43
2. Guangdong Province 46
47
3. Fujian Province 54
55
4. Guangxi Zhuang Autonomous Region 58
59
5. Hainan Province 62
63
6. Hong Kong Special Administrative Region 66
67
7. Macau Special Administrative Region 72
73
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25
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Special Report on the State of Business in South China e American Chamber of Commerce in South Ch
275
2006
2015
501005
79.3%
85.3%
42.3%
12
38.9%
2014
10%
2015
1202015-2017
138
83.5%
53.4
!
treated equally from a regulatory standpoint, and if they felt
they had better insight into the governments decision-mak-
ing process, I am fully confident that we would see invest-
ments grow rapidly across China. Moreover, I would argue
that these improvements would essentially be favorable side-
effects of broader economic reform that would propel Chinas
economy into a position of primacy world-wide.
Regardless of uncertainty about local regulatory issues,
we find strong reinvestment numbers across the board. Most
participants reported investing more than they had originally
budgeted for over the course of 2014, and although total
investment amounts have seen nearly a 10% decline from
historic highs last year, we estimate that AmCham South
China member companies stand to reinvest profits amounting
to more than $12 billion in 2015 and more than $13.8 billion
between 2015 and 2017.
As has been the case in the past several years, we expect one
key area of investment to be human resources: this year fully
83.5 percent of study participants reported having hired new
employees to take advantage of t he labor market. We estimate
that this has led to t he creation of 534,000 new jobs in China.
In light of these figures, I believe it is impossible to argue
against the fact that business continues to boom in what is on-
track to continue to be t he worlds fastest growing economy.
With best regards,
Harley Seyedin
Presidente American Chamber of Commerce in South China
Vice Chairman, China Affairs
e Asia Pacific Council of American Chambers of Commerce
Presidents Report
THIS YEAR, 275 companies participated in our SpecialReport on the State of Business in South China. estudy, which began in 2006, offers us unique insight into
the growth and transformation of the Chinese economy.
In 2015 the cross-section of participants has continued to
broaden. American-invested Joint Ventures and Wholly-
Foreign Owned Enterprises are joined by their counterparts
from other nations and by a growing contingent of Mainland
Chinese enterprises. We see companies of all sizes, from those
with fewer than 50 employees and less than $1 million in
revenue all the way up to companies exceeding $500 million
in revenue and with thousands of employees worldwide. Every
sector of the economy is represented, from energy generation
and agriculture all the way to cutting edge software and high-
precision machinery.
is year we find that exactly half of our study participants
are involved in manufacturing or trading goods and half
involved in providing services to the market. One thing that
unites those two groups, however, is the fact that 79.3 percent
of all participants report providing goods or services to the
Chinese market as their primary business focus instead of
creating goods or services for export.
Similarly, 85.3 percent of participants responded that they
considered the overall business environment in South China to
be Good, Very Good or Outstanding, an increase over
last years result. 42.3 percent of participants, meanwhile, re-
ported that in their opinion the business environment had im-
proved somewhat or greatly in the past 12 months and a further
38.9 percent reported that it had remained about the same.
In terms of planning and risk management, the biggest
perceived challenge to the operations of study participants
over the coming year is once again Regulatory issues (Chinese
government). Trailing behind in second, third, fourth and
fifth places are Local competition, Rising labor costs,
Foreign competition and Lack of qualifiable managerialor specialist talent. Results for the 3-year period are quite
similar, with only the last two concerns trading places.
Elsewhere, participants identified Increasing inflation as
one of their top policy-oriented concerns.
On the topic of regulatory issues, I firmly believe that
this is the largest impediment to massive investment across
China. From the perspective of foreign investors, the lack of
transparencyor even simply the perception of such a lack
will continue to limit the number and scale of investments.
If foreign companies felt more confident that they would be
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Special Report on the State of Business in South China e American Chamber of Commerce in South Ch
STUDYRESULTS
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Special Report on the State of Business in South China e American Chamber of Commerce in South Ch
1.
2011
59.6%52.4%
19.9%
200832.1%
20133.3%
9%
39.5%201337%42.4%
28.4%26.7%
(56%)
(19% )
(2%)
(2%)
(5%)
(7%)(9%)
2013
2014
(52%)
(20% )
(2%)
(2%)
(9%)
(6%)
(8%)
2015
(57%)
(20% )
(2%) (2%)
(1%)
(3%) (2%)
(1%) (1%)
(1%)
(8%)
(1%)
(
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(50%)
(14%)
(5%)
(25%)
(6%)
20132014
(45%)
(18%)
(10%)
(21%)
(6%)
(46%)
(14%)
(9%)
(27%)
(5%)
2015
0%
10%
20%
30%
40%
50%20
10-20
6-9
2-5
2
2015 2014 2013
(71%)
(29%)
2014
(68%)
(32%)
20152013
(73%)
(27%)
0%
10%
20%
30%
40%
50%
60%
70%
80%
20142015 2013
4.5%8.6%
70%
4%
684%20
34%
2
3.6%5.8%
Wholly-OwnedForeignEnterprise
(50%)Joint Venture (14%)
RepresentativeOffice(5%)
Local ChineseCompany(25%)
Other(6%)
20132014
Wholly-OwnedForeignEnterprise
(46%)
Joint Venture (13%)
Represen-tativeOffice
(9%)
Local ChineseCompany(27%)
Other(5%)
2015
Wholly-Owned
ForeignEnterprise(45%)
Repre-sentative
Office(18%)
Joint Venture(10%)
Local ChineseCompany
(21%)
Other(6%)
0%
10%
20%
30%
40%
50%
Morethan 20years
From 10to 20years
From 6to 9years
From 2to 5years
Less than 2years
2015 2014 2013
Yes
(71%)
No
(29%)
2014
Yes
(68%)
No
(32%)
20152013
Yes
(73%)
No
(27%)
0%
10%
20%
30%
40%
50%
60%
70%
80%YangtzeRiver Delta
Northern China
Western China
Other
20142015 2013
Q: What is the form of your companys legal entity?
is year the proportion of Wholly-owned Foreign En-
terprises shrank slightly, while that of Mainland China-based
companies grew by a similar amount. is year also saw the
proportion of participants operating Representation Offices
nearly double to reach 8.6 percent, up from 4.5 percent last
year.
Q: Does your company or group have offices in other parts of China? If so, where?
Over the history of this study, the proportion of partic-
ipating companies with offices in other parts of China has
consistently been around 70 percent; this years results are no
different. Also similar to prior years, most participants with
other offices in China reported a presence in the Yangtze River
Delta with successively smaller population reporting offices
in Northern China and Western China. Interestingly, while
the ranking of the three regions has remained consistent, the
proportion of participants with offices in the Yangtze River
Delta once again declined by roughly four percentage points,
as did the proportion of part icipants with offices in the north-
ern part of China.
Q: How long has your company been engaged in business in China?
Continuing a long-standing trend, older companies are
more represented in this study than in any previous iteration.is year just under 84 percent of participants have been in
China for 6 or more years; moreover, an historical high of 34
percent of participants report having engaged in business in
China for 20 or more years. Meanwhile, the percentage of
participants reporting having been doing business in China
for two or fewer years has grown slightly, reaching 5.8 per-
centdown from last years historical low of 3.6 percent.
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0%
5%
10%
15%
20%
25%
30%
5000
10005000
5001000
250500
50250
50
20142015 2013
20.7%
79.3%
20092013
72.9%79.3%
50-
2505000
250-500
1000-5000
0%
5%
10%
15%
20%
25%
30%
More than 5,000
Between 1,000 and 5,000
Between 500 and 1,000
Between 250 and 500
Between 50 and 250
Less than 50
20142015 2013
20.7%Manufacturing primarily for export
79.3%Providing goods or services
to the Chinese market
Q: Which category best describes the primary focus of your businessactivities in China?
Last years responses to this question interrupted a trend
that dated back to 2009, in which each year a progressively
larger proportion of participating companies reported that
their primary business focus was providing goods or services
to the Chinese market. is years results see a return to that
upward climb, with 79.3 percent of study participants report-
ing a primary focus on the Chinese market, up from 72.9
percent last year.
Furthermore, this years results find the proportion of par-
ticipants involved in the trade of goods at parity with those in-
volved in service industries. Early iterations of t his study had
found a small majority of companies doing manufacturing or
trading, whereas in recent years that major ity had belonged to
the group of companies offering services to the market.
Participants involved in the manufacture or trade of goods
were this year most likely to be in the Other, Electron-
ic equipment, household appliances and components or
Chemicals categories.
Participants in service industries, meanwhile, were most
likely to be in the Professional services, Other or Busi-
ness services categories.
Q: How many people does your company currently employ in China?
is years results saw a decline in par-
ticipants employing between 50 and 250
or more than 5,000 employees being offset
by growth in the number of participants
employing between 250 and 500 or be-
tween 1,000 and 5,000 individuals.
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0%
10%
20%
30%
40%
50%
60%
50
2150
1120
510
5
20142015 2013
(81%)
(19%)
20132014
(84%)
(16%)
2015
(79%)
(21%)
0%
10%
20%
30%
40%
50%
60%
5000
10005000
5001000
250500
50250
50
2015 2014 2013
5
50%510
50
30%11
20
2150
201269.5%
83.5%
5000
2300
201453.4
0%
10%
20%
30%
40%
50%
60%
Greater than 50
Between 21 and 50
Between 11 and 20
Between 5 and 10
Less than 5
20142015 2013
Yes
(81%)
No
(19%)
20132014
Yes
(84%)
No
(16%)
2015
Yes
(79%)
No
(21%)
0%
10%
20%
30%
40%
50%
60%
More than 5,000
Between 1,000 and 5,000
Between 500 and 1,000
Between 250 and 500
Between 50 and 250
Less than 50
2015 2014 2013
Q: Out of your total number of employees, how many are expatriates and/or foreignpassport holders?
As in prior years, approximately half of
participants report employing fewer than
5 foreign passport holders and around an-
other 30 percent reporting either 5 to 10
or more than 50 expatriates. Slightly fewer
reported employing between 11 and 20
expatriates, while nearly twice the number
of participants this year reported employ-
ing between 21 and 50 expatriates than
had last year.
Q: Has your company taken advantage of the current labor market by hiring newemployees?
Continuing a gradual rise from a his-
toric low of 69.5 percent in 2012, the
number of participants who reported hav-
ing taken advantage of the current labor
market by hiring new employees grew
once more this year to reach 83.5 percent.
Out of companies which reported
hiring new employees over the courseof 2014, we find a somewhat similar dis-
tribution to prior years in terms of the
number of new hires, with t he exception
of a notable decrease in the proportion of
participants reporting hiring more than
5,000 new employees. is tracks with
the decline in the number of companies reporting that many
employees overall, suggesting that this years participants are
less focused on labor-intensive (and likely low-margin) activi-
ties in favor of more highly-skilled work and workers.
Based on this years distribution of numbers hired and the
chambers current size of 2,300 members, we can estimate
that over the course of 2014 AmCham South China compa-
nies hired 534,000 new employees in China.
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0%
5%
10%
15%
20%
25%
2.5
50002.5
11005000
1001000
1
2015 2014 2013
0%
5%
10%
15%
20%
25%
30%
35%
40%
5
1.015
11001
1001000
1
2015 2014 2013
2.
/
1100-5000
2006
0
5.5%9%
5
1100
68%
0%
5%
10%
15%
20%
25%
N/A
Greater than $250 million
Between $50 million and $250 million
Between $11 million and $50 million
Between $1 million and $10 million
Less than $1 million
2015 2014 2013
0%
5%
10%
15%
20%
25%
30%
35%
40%
Greater than $500 million
Between $101 million and $500 million
Between $11 million and $100 million
Between $1 million and $10 million
Less than $1 million
2015 2014 2013
2. Revenue and Protability
Q: What is your company/groups approximate annual worldwide revenue?
As in prior years, participants tended to have large world-
wide annual revenues. We see approximately one third of
participants having more than $500 million in revenue, a fea-
Q: What is your company/groups approximate annual China revenue?
is years participants were comparatively more likely to
see revenue in China of between $11 and $50 million over
smaller or larger amounts than in any prior year of the study
except for 2006. is year also saw growth in the proportion
of study participants reporting zero revenue as a result of legal
status (i.e. representation offices), with that figure rising to 9
percent from 5.5 percent last year.
ture which tracks with common sense as larger companies are
more likely to expand beyond their home market.
Also similar to previous years, around two-thirds of par-
ticipants report worldwide revenues of greater than $11 mil-
lionthis year 68 percent of the total.
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0%
20%
40%
60%
80%
00%
3-5
2
(6%)
(51%)
(43%)
2013
2014
(4%)
(49%)
(47%)
2015
(4%)
(56%)
(40%)
94.4%
2012
53.1%
0%
20%
40%
60%
80%
100%Other
In between 3 to 5 years
Within 2 years
This year
Already profitable
2015 2014 2013
Profitable and significantly exceeding
budget expectations (6%)
Profitable
and meeting
budgetexpectations
(51%)
Profitable but
not meeting
budget
expectations
(43%)
2013
2014
Profitable and significantly exceeding
budget expectations (4%)
Profitableand meeting
budget
expectations
(49%)
Profitable but
not meeting
budget
expectations
(47%)
2015
Profitable and significantly exceeding
budget expectations (4%)
Profitable
and meeting
budget
expectations(56%)
Profitable but
not meeting
budget
expectations
(40%)
Q: When does your company expect to be profitable in China?
Q: If your company is already profit-able, to what extent?
is year fully 94.4 percent of participating companies re-
ported that they were already profitable or would be within
the next two years. is is among the strongest majorities in
the studys history.
Continuing a trend observed since 2012, however, we find
that fewer and fewer companies are profitable and meeting
or exceeding budget expectations. Since the historic high for
this measure in 2012, each year we have seen the proportion
of participants in this category fall to a historic low of 53.1
percent this year.
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Special Report on the State of Business in South China e American Chamber of Commerce in South Ch
3.
2014
1.
2.
3.
4.
5.
1.
2.
3.
4.
5.
1.
2.
3.
4.
5.
1. Produce goods or services in South China for the China
market
2. Produce goods or services in South China for markets
other than the U.S. and China
3. Produce goods or services in South China for the U.S.
market
4. Establish or expand a regional base
5. Export from China to countries other than the U.S.
1. Opportunities in South Chinas domestic market
2. Proximity to Hong Kong
3. Better infrastructure than other places in South China
4. Greater openness than other places in China
5. Availability of highly qualified managers and specialists
1. Services provided in China
2. Overall China business activities
3. Competition from P.R.C. firms
4. Overall China business activities
5. Profits
3. South China
Q: What are your companys goals in South China?
Continuing the long-established trend, Produce goods
or services in South China for the China market remains
participants top goal in the region; the two other production-
oriented resultsProduce goods or services in South China
for markets other than the U.S. and China and Produce
goods or services in South China for the U.S. marketalso
remain in the top five priorities for participating companies.
is years results, in fact, are identical to those recorded last
year. In 2014 Benefit from lower labor costs in China was
displaced in the top five ranking by Export from China to
countries other than the U.S.
Q: What are the major reasons for your company to set up operations in South Chinainstead of other China locations?
Opportunities in South Chinas domestic market re-
mains a top consideration for companies setting up opera-
tions in South China, as do Proximity to Hong Kong and
Better infrastructure than other places in China. is year
more companies prioritized Greater openness than other
places in China over Availability of highly qualified manag-
ers and specialists.
Q: How do you expect your companys operations to change in the following areas over
the coming 3 years?Responses to this question are similar to those recorded
last year, although Overall China business activities replaced
Competition from PRC firms in the ranking, suggesting
that businesses are anticipating stronger growth and less fi erce
competition.
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0%
5%
10%
15%
0%
5%
0%
5%
2.5
50002.5
10005000
1001000
100
2015 2014 2013
0%
5%
10%
15%
20%
25%
30%
35%
2.5
50002.5
10005000
1001000
100
2015 2014 2013
4.
2014
12%
2.5
6.4%20149.7%
5.9%100
1000500050002.5
2015
20152014
0%
5%
10%
15%
20%
25%
30%
35%
Greater than $250 million
Between $50 million and $250 million
Between $10 million and $50 million
Between $1 million and $10 million
Less than $1 million
No investments made
2015 2014 2013
0%
5%
10%
15%
20%
25%
30%
35%
N/A
Greater than $250 million
Between $50 million and $250 million
Between $10 million and $50 million
Between $1 million and $10 million
Less than $1 million
2015 2014 2013
4. Investment Trends
Q: For 2014, what was your companys realized investment volume in China?
Results this year showed smaller overall investments, but
also fewer participants making no investments at all. Whereas
in 2014, 12 percent of participants reported having invested
greater than $250 million, only 6.4 percent of this years
study participants report the same; similarly, 9.7 percent of
last years participants reported having made no investments
whatsoever, this year t hat figure has declined to 5.9 percent.
Picking up the slack is notable growth in the Less than
$1 million, Between $10 million and $50 million and
Between $50 million and $250 million categories.
Q: For 2015, what is your companys budgeted investment in China?
We see the same across-the-board shift in projected 2015
investment budgets that we saw in actual 2014 resultsfewer
companies planning large investments and fewer companies
planning no investments at all.
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2015 $3,030,100,000 (-9.3%)
2014 $3,343,500,000 (+30.10%)
2013 $2,569,950,000 (+1.90%)
2012 $2,521,958,000 (+16.20%)
2011 $2,170,370,000
2015-17$2,988,100,000 (-16.9%)
2014-16$3,599,200,000 (+1.30%)
2013-15$3,552,850,000 (+40.88%)
2012-14$2,943,304,000 (+21.40%)2011-13: $2,424,338,000
2015$12,029,504,000 (-9.3%)
2014$13,273,703,000 (+30.10%)
2013$10,202,708,000 (+1.90%)
2012$10,012,180,000 (+16.20%)
2011$ 8,616,900,000
2015-17$13,844,682,000 (-16.9%)
2014-16$16,676,076,000 (+1.30%)
2013-15$16,461,324,000 (+40.88%)
2012-14$11,684,920,000 (+21.40%)2011-13$ 9,624,660,000
100
5%
10%
15%
20%
25%
30%
35%
2014
2014
2.5
5000-2.5
1000-5000
100-1000
100
2014
2014
2.5
8.4%
5.9%
100
2.52.5
2013
2014
5%
10%
15%
20%
25%
30%
35%
N/A
Greater
than
$25
0million
Betw
een$50millionan
d$2
50million
Betw
een$1
0millionan
d$50million
Betw
een$1
millionan
d$1
0million
Less
than
$1million
2014 Actual
2014 Budgeted
2014 Budgeted vs. Actualized Reinvestment
Comparing reinvestment budgets
for 2014 reported last year against
realized reinvestment volumes for
the same period reported this year,
we can make several interesting
observations. First, only one-third
as many companies did not make
investments than had originally
planned, suggesting (relatively)
spontaneous investments made to
capture opportunities rather than as
part of organized expansion plans.
Second, more companies invested
at every level than had originally
budgeted to do so except for in
the Greater than $250 million
category, which saw a net decline
from 8.4 percent having budgeted
to do so against only 5.9 percent
actually securing investments with
that value.
Normalized reinvestment gures
(Response distribution applied to 100 companies by
percentage share)
Projected 2015: $3,030,100,000 (-9.3%)
Projected 2014: $3,343,500,000 (+30.10%)
Projected 2013: $2,569,950,000 (+1.90%)
Projected 2012: $2,521,958,000 (+16.20%)
Projected 2011: $2,170,370,000
Projected 2015-17: $2,988,100,000 (-16.9%)
Projected 2014-16: $3,599,200,000 (+1.30%)
Projected 2013-15: $3,552,850,000 (+40.88%)Projected 2012-14: $2,943,304,000 (+21.40%)
Projected 2011-13: $2,424,338,000
Estimated reinvestment volumes
(Normalized, scaled by a factor representing chamber
membership)
Estimated 2015: $12,029,504,000 (-9.3%)
Estimated 2014: $13,273,703,000 (+30.10%)
Estimated 2013: $10,202,708,000 (+1.90%)
Estimated 2012: $10,012,180,000 (+16.20%)
Estimated 2011: $ 8,616,900,000
Estimated 2015-17: $13,844,682,000-16.9%
Estimated 2014-16: $16,676,076,000+1.30%
Estimated 2013-15: $16,461,324,000+40.88%Estimated 2012-14: $11,684,920,000+21.40%
Estimated 2011-13: $ 9,624,660,000
To accommodate fluctuating sample sizes, for the past five
years we have reported investment figures normalized to 100
companies as a primary year-on-year comparison. is figure
is calculated as the product of the mean of each category range
and the percentage of total participants indicating that cat-
egory, except in the case of the largest ($250 million or more)
category, for which the minimum value is used.
Whereas in 2013 we saw a large increase in 3-year invest-
ment budgets and a tiny one in 1-year budgets and an oppo-
site result in 2014, this year we see a modest decline in 1-year
investment budgets and a more substantive one in 3-year bud-
gets, suggesting increased uncertainty in the medium term.
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0%
5%
10%
15%
0%
5%
0%
2.5
50002.5
10005000
1001000
100
2015 2014 2013
0%
10%
20%
30%
40%
50%
2015 2014 2013
2014
20%
1001000
1000
50005000
2.52.5
100
0%
5%
10%
15%
20%
25%
30%Not applicable
Greater than $250 million
Between $50 million and $250 million
Between $10 million and $50 million
Between $1 million and $10 million
Less than $1 million
2015 2014 2013
0%
10%
20%
30%
40%
50%Yangtze River Delta
Northern China
Western China (Sichuan)
Western China (other locations)
South China (Guangdong)
South China (Guangxi)
South China (other locations)
Other
2015 2014 2013
Q: For the coming 3 years, what is your companys expected investment volume in China?
is year, we find that the distribution of 3-year invest-
ment budgets has skewed toward smaller amounts compared
to 2014s results, but in such a way as to align them more
closely with results we have seen in earlier years.
As in the past more than 20 percent of part icipants re-
ported that 3-year investment budget amounts were Not
applicable and a peak in the Between $1 million and $10
million category. Participants this year were modestly less
Q: For future investments, in which areas of China will you likely expand in the nextthree years?
likely to have planned investments of Between $10 million
and $50 million, Between $50 million and $250 million
and Greater than $250 million, while being somewhat more
likely to be planning investments of Less than $1 million
over the 3-year time frame.
is years results show small increases in the proportion of
companies planning investments in the Yangtze River Delta,
the northern part of China, the western part of China outside
of Sichuan and South China outside of Guangdong, and a
decline in the proportion of companies planning investments
elsewhere.
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0%
5%
10%
15%
20%
25%
30%
35%
40%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2.5
50002.5
10005000
1001000
100
< () >
2015 2014
< () >
0%
5%
10%
15%
20%
25%
30%
35%
40%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2.5
50002.5
10005000
1001000
100
< () >
2015 2014
< () >
201260%51.2%
1001001000
2.51000
50005000
2.5
2014
80%10006.7%
50002.5
51%81%100
1001000
88.3%
100011.8%5000
2.5
0%
5%
10%
15%
20%
25%
30%
35%
40%
0%
5%
10%
15%
20%
25%
30%
35%
No change
Greater than $250 million
Between $50 million and $250 million
Between $10 million and $50 million
Between $1 million and $10 million
Less than $1 million
Decrease < No change > Increase
2015 2014
Decrease < No change > Increase
0%
5%
10%
15%
20%
25%
30%
35%
0%
5%
10%
15%
20%
25%
30%
35%
No change
Greater than $250 million
Between $50 million and $250 million
Between $10 million and $50 million
Between $1 million and $10 million
Less than $1 million
Decrease < No change > Increase
2015 2014
Decrease < No change > Increase
Q: Did your companys 1-year budgeted investment volume change over the course of the year?
Continuing a downward trend in the proportion of com-
panies increasing their 1-year investment budgets over the
course of the year, only 51.2 percent of this years participants
reported doing so, down from 60 percent in 2012. is year
also saw the proportion of study participants who decreased
their 1-year investment budgets shrink, albeit by a smaller
amount.
Of those companies who increased their budgets, com-
paratively fewer increased them by Less than $1 million,
Between $1 million and $10 million or Greater th an $250
million. Instead, we observe notable growth in the propor-
tion of participants having increased 1-year investment bud-
gets by either Between $10 million and $50 million or Be-
tween $50 million and $250 m illion.
Finally, of those companies whose 1-year investment
budgets decreased over the course of 2014, 80 percent saw
decreases of $10 million or less, while 6.7 percent decreased
their budgets by Between $50 million and $250 million.
Q: Did your companys 3-year budgeted investment volume change over the course of the year?
e percentage of participants whose companies adjusted
their 3-year investment budgets roughly tracks the 1-year
budget changes, albeit with a slightly smaller proportion re-
porting no changes for the 3-year term and a slightly greater
percentage reporting having decreased their 3-year budget. Of
the 51 percent who reported increases to their budgets, 81
percent indicated increases of Less than $1 million or Be-
tween $1 million and $10 million.
Of those participants who reported decreases in 3-year in-
vestment budgets, 88.3 percent reported changes of less than
$10 million and 11.8 percent reported decreases of Between
$50 million and $250 million.
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0%
10%
20%
30%
40%
50%
/
2015 2014 2013
0%
10%
20%
30%
40%
50%
2015 2014 2013
5.
/
85.314.72014
15.8%
0%
5%
10%
15%
20%
25%
30%
2015 2014
12?
12
?
4.4%
18.7%
44
23.7%
31.8
0%
10%
20%
30%
40%
50%Outstanding
Very good
Good/acceptable
Needs improvement
Poor
2015 2014 2013
0%
10%
20%
30%
40%
50%Improved greatly
Improved
Remained about thesame
Decreased
Decreased greatly
2015 2014 2013
5. The Business Environment in South China
Q: How would you rate the overallbusiness environment in South
China?
is year, as in years past, most participants rat ed the over-
all business environment as Good/acceptable, Very good
or Outstanding. is year that grouping accounts for 85.3
percent of participants while 14.7 percentslightly less than
2014s historic high of 15.8 percentreport feeling that the
overall business environment either Needs improvement or
that it was simply Poor.
Q: Compared to 12 months ago, inyour opinion the overall businessenvironment in South China has
In terms of progress, responses to the question
Compared to 12 months ago, in your opinion the overall
business environment in South China has show that
most participants feel that the business environment either
remained about the same or improved only somewhat. Only
4.4 percent felt that the business environment had improved
greatly, whereas 18.7 percent felt that it had declined either
somewhat or greatly.
Q: How much interest would yourcompany have in opening a newoffice or facility within a FreeTrade Zone located in SouthChina?
Responses to a question measuring interest in a
hypothetical Free Trade Zone in South China show 44.4percent of participants interested in expanding into such a
zone, with 23.7 reporting not much or no interest whatsoever
and 31.8 percent either ambivalent or uncertain.
0%
5%
10%
15%
20%
25%
30%
Uncertain
Great interest
A littleinterest
Ambivalent
Not much interest
No interest whatsoever
2015 2014
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015
0%
10%
20%
30%
40%
50%
0%
10%
20%
30%
40%
50%
66
54.2%
63.1%
4.1%
1.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Significant positive effect
Somewhat positive effect
Remain about the same
Somewhat negative effect
Significant negative effect
Uncertain
Not applicable
Otherlegislativeorregulatorychanges
Increasingminimumwagestandards
Increasinginflation
Tightmonetarypolicies
RMBappreciation
ProtectionistpoliciesinChinaorothercountries
EconomicnationalisminChina
Economicnationalisminothercountries
Q: A more freely-convertible RMBwould affect your companys Chinaoperations...
Q: A more freely-convertible RMBwould affect your companys globaloperations...
is year we also asked two questions about the convertibility
of the yuan. Interestingly, 66 percent of participants indicated
that a more freely-convertible yuan would have a positive effect
on their China operations, up from 54.2 percent last year. e
proportion of companies reporting that a more freely-convertible
yuan would have a positive effect on their global operations also
grew this year, albeit to arrive at a slightly lower total of 63.1 per-
cent. In both the China and global contexts, the proportion of
companies reporting that a more freely-convertible yuan would
have a negative effect on their operations shrank to near-negli-
gible levels, with only 4.1 percent expecting negative effects in
China and only 1.5 percent expecting negative effects globally.
Q: How do you expect the following developments to affect your business in SouthChina in 2015?
0%
10%
20%
30%
40%
50%Uncertain
Very positively
Somewhat positively
Not much
Somewhat negatively
Very negatively
0%
10%
20%
30%
40%
50%Uncertain
Very positively
Somewhat positively
Not much
Somewhat negatively
Very negatively
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Special Report on the State of Business in South China e American Chamber of Commerce in South Ch
1. :
2.
3.
4.
5.
1. :
2.
3.
4.
5.
30.5%
2006,
(59%)
(41%)
2014
(62%)
(38%)
2015
61.8%201248%201135%
Increasing inflation, as in past years, was identified as
the largest projected negative influence on future opera-
tions, followed by Increasing minimum wage standards and
Tight monetary policies. Although no category achieved a
positive rating by a majority of participants, 30.5 percent of
participants indicated that RMB appreciation would have
a Somewhat positive effect or Significant positive effect
on their businessa similar, but less pronounced, result to
last years.
Q: In your opinion, what are the top 5challenges that hinder or limit yourcompanys opportunities for growthin South China?
Asked to identify their top business challenges from a list
of 14 common issues, participants once again listed Regula-
tory issues (Chinese government, for example: tax, customs,
or regulations of industries) as their primary concern in both
the 1- and 3-year timeframes.
is has been the case since 2006, suggesting that busi-
nesses are not much more confident in Chinas overall regula-
tory transparency today than they were nearly a decade ago.
e second and third most common concernsLocal
competition and Rising labor costsare also placed identi-
cally for the 1- and 3-year timelines, making the replacement
of Foreign competition over the coming year with Lack of
qualifiable personnel (general) for the 3-year time frame the
only change in rankings between the two intervals.
ese rankings are identical to last years.
1. Regulatory issues (Chinese government)
2. Local competition
3. Rising labor costs
4. Lack of qualifiable managerial and specialist talent
5. Foreign competition
1. Regulatory issues (Chinese government)
2. Local competition
3. Rising labor costs
4. Lack of qualifiable managerial and specialist talent
5. Lack of qualifiable general personnel
Q: Has your company made specific preparations for emergency situations, such asa potential outbreak of Avian Influenza (Bird flu) or an earthquake or othernatural disaster?
Yes
(59%)
No(41%)
2014
Yes
(62%)
No(38%)
2015
e proportion of participants reporting some sort of pro-
grammatic emergency response preparation has grown for the
fourth consecutive yearalbeit slightlyto reach 61.8 per-
cent, up from 48 percent in 2012 and 35 percent in 2011.Similarly to last year, descriptions of response schemes
provided by study participants included alternate supply
chains and even backup product lines and insurance policies,
in addition to preventative measures such as hygiene training
and remote work procedures.
Q: In your opinion, what will be thetop 5 challenges over the coming 3
years that will hinder or limit yourcompanys opportunities for growthin South China?
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0%
10%
20%
30%
40%
50%
/
2015 2014 2013
0%
10%
20%
30%
40%
50%
60%
2015 2014 2013
2014
90%
95.4%
/
65.9%
2014
0%
10%
20%
30%
40%
50%Outstanding
Very good
Good/acceptable
Needs improvement
Poor
2015 2014 2013
0%
10%
20%
30%
40%
50%
60%More presentations on relevant topics
More social activities
More round table discussions
More lobbying efforts
More publications
More services
Other
2015 2014 2013
Q: How would you rate AmCham South Chinas 2014 performance on deliveringprograms and activities that match your expectations and needs?
As in years past greater than 90 percent of
participants95.4, to be exactrated Am-
Cham South Chinas performance as Good/
acceptable, Very good or Outstanding and
a strong majority of 65.9 percent chose the lat-
ter two categories.
Q: In what areas would you recommend future improvements in AmChams programsand services?
is year the most common areas for im-
provement selected by participants were, in de-
scending order, More presentations on relevant
topics, More social activities and More
round-table discussions.
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ECONOMICOVERVIEW
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Special Report on the State of Business in South China e American Chamber of Commerce in South Ch
1.
2003
CEPA
OEM
20142208
1808
2014
2008-2020
2014 2014
1,808 16.5
1,550 15
* 1,380 13.2
1,310 13.2
1,310 13.2
1,310 12.5
1,130 11.1
1,130 11.1
1,130 11.1
*
1. Introduction to South China
e city raised its minimum monthly wage by RMB 208 in
February 2014, to RMB 1808, making it the second highest
nationwide (after Shanghai). Many other PRD cities raised
their minimum wages in 2014 as well.
Increasing labor costs stand in contrast to the regions sub-
stantial but nevertheless decreasing productivity growth. is
has been a major driver behind the flight of labor-intensive
industries from China in recent years to lower-cost alterna-
tives such as Vietnam. Other factors pulling investment away
from the region include Chinas increasing emphasis on the
service sector over manufacturing, as well as decreasing indus-
trial land availability in the PRD.
Despite this, and spurred by on-going processes of in-
dustrialization, urbanization and marketization, the PRD
remains home to a vibrant economy, which the government
(at all levels) is doing its best to reshape. To accomplish this,
some local governments are implementing stricter industry
approval measures, ranging from increased minimum regis-
tered capital thresholds (some raised as much as tenfold) to
more stringent criteria for total investment or output value
per square meter invested. As well, local governments in more
heavily-invested areas are increasingly refusing to approve in-
vestment from enterprises in non-capital-intensive, low value-
added or environmentally harmful industries, forcing suchenterprises to locate elsewhere in the PRD or further inland.
Lastly, research and development, with government support,
is also increasing in the region. Taken together, these trends
can be seen as indicative of a maturing economy.
Future Outlook
e Outline of the Plan for t he Reform and Development
of the Pearl River Delta (2008-2020), put forward by the
e term South China immediately brings to mind
the Pearl River Delta (PRD) - Chinas manufacturing center
and beating economic heart. Broadly defined as including
nine cities in southeast Guangdong province (Guangzhou,
Shenzhen, Dongguan, Foshan, Huizhou, Jiangmen,
Zhaoqing, Zhongshan and Zhuhai), the PRDs true centers
are to be found in Guangzhou (the provincial capital) and
Shenzhen (Chinas first and most successful special economic
zone).
To think of the PRD only in terms of these cities, however,
would be to ignore the instrumental role in economic devel-
opment played by the special administrative regions (SARs)
of Hong Kong and (to a lesser extent) Macau, with which
the cities of Guangdong have long leveraged their proxim-
ity. e Closer Economic Partnership Arrangements (CEPA)
concluded in 2003 between Mainland China and Hong Kong
and Macau, respectively, have phased out tariffs and trade bar-
riers, liberalized trade in services and boosted trade and in-
vestment in Guangdong. As such, the term Greater PRD
was coined to refer to the PRD, Hong Kong and Macau as
a group.
e more remote, less developed (and often more moun-
tainous) towns of Guangdong province and neighboring
provinces of Fujian, Hainan and the Guangxi Zhuang Auton-
omous Region are the final pieces of the South China puzzle.
A series of economic and infrastructure-focused government
policies have been designed to better connect the Greater
PRD and to improve its links t o these adjoining regions.
The PRD Today
e PRD has long been considered the heart of high-tech
China, with Shenzhen, Guangzhou and Dongguan (as well
as Zhuhai and Huizhou) considered as centers for the manu-
facture of consumer electronics and other high-tech prod-
ucts. e PRD hosts direct and indirect production arrange-ments for a wide variety of goods sold worldwide, offering
both original equipment manufacturing (OEM) and branded
goods. e Shenzhen Stock Exchange is the national leader
for high-tech enterprises; Chinas leading technology enter-
prises, including Huawei, Tencent and ZTE, were all founded
in Shenzhen.
Yet the PRD is a region in transition. In recent years, low
labor costs (once the major att raction of the region) have been
increasing rapidly. Minimum labor costs are one measure of
this, with Shenzhen as a particularly illuminating example.
Region 2014 Minimum 2014 Minimum
Monthly Wage Hourly Wage
Shenzhen RMB1,808 RMB16.5
Guangzhou RMB1,550 RMB15
Zhuhai * RMB1,380 RMB13.2
Dongguan RMB1,310 RMB12.5
Foshan RMB1,310 RMB12.5
Zhongshan RMB1,310 RMB12.5
Jiangmen RMB1,130 RMB11.1
Huizhou RMB1,130 RMB11.1
Zhaoqing RMB1,130 RMB11.1
*Zhuhai independently sets minimum wages
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202010
200
2020
67201097.5
--2016
2020
(2009, 2012, 2020)
2009 2012 2020
GDP 60,000 80,000 135,000
GDP 50% 53% 60%
76% 80% 85%
2008
National Development and Reform Commission (NDRC),
describes the PRD region as an experimental area for scientific
development and calls for the creation of three super-met-
ropolitan areas, respectively, Guangzhou and Foshan, Hong
Kong and Shenzhen, and Macao and Zhuhai. Provided with
greater autonomy, the PRD is expected to be at the forefront
of new economic patterns and achieve balanced economic de-
velopment between its urban and rural areas.
e Plan also includes the following key goals:
Establish financial centers in Guangzhou and Shen-
zhen, as shown by projects such as the second board
at the Shenzhen Securities Exchange and construc-
tion of the Guangdong Financial and High-tech Ser-
vices Zone.
Improve infrastructure, and promote Guangdong as a
world-class logistics center through the construction
of several hub-type modern logistics parks, including
those at Baiyun Airport, Baoan Airport, Guangzhou
Port and Shenzhen Port.
Implement an outward strategy, by establishing 10
native multinational corporations with annual sales
revenue of over US$ 20 billion by 2020.
Develop a series of specialized conventions and ex-
hibitions, including the Guangzhou Export Com-
modities Fair, Shenzhen High-tech Fair, Zhuhai
International Aviation and Aerospace Exhibition,
Guangzhou Small and Medium-Sized Enterprise Fair
and Shenzhen International Cultural Industries Fair.
Foster creative industry business clusters, including
the construction of a national base for the software
and cartoon industries.
Increase the innovative capacity of the region to real-
ize the transformation from Made in Guangdong to
Created by Guangdong by 2020.
Establish internationally influential brands in Foshan
for home appliances and building materials, in Dong-
guan for garments, in Zhongshan for lighting and in
Jiangmen for papermaking.
To reach these goals in the increasingly overcrowded PRD
region, the Guangdong provincial government recently ear-
marked more than 672 billion yuan (US$109.75 billion) to
develop rural areas in the province over the next five years.
e funds are to specifically focus on infrastructure projects,
including a number of new links planned to better connect
the greater PRD and integrate it with the pan-PRD area.
Major ongoing infrastructure developments include:
Zhongshan-Shenzhen passage across the Pearl River
estuary
Hong Kong-Zhuhai-Macao Bridge (scheduled for
completion by 2016)
Eastern passage between Shenzhen and Hong Kong
Express railway from Guangzhou via Shenzhen to
Hong Kong
Guizhou-Guangzhou coastal railway and Nanning-
Guangzhou railway
Urban rail transit systems in Guangzhou, Shenzhen,
Foshan and Dongguan
Improvement to the modern functions of ports in
Guangzhou, Shenzhen and Zhuhai
Expansion of Baiyun Airport in Guangzhou
Joined by Hong Kong and Macau, th e PRD aims to be-
come a globally competitive area for the advanced manufac-
turing and modern service industries by 2020, and the most
vigorous economic zone in the entire Asia-Pacific region. In
the following, we break the region down by provinces/cities.
Economic Development Goals for the PRD
( 20 09 , 20 12 , 20 20 )
2009 2012 2020
GDP per capita RMB60,000 RMB80,000 RMB135,000
GDP from service sector 50% 53% 60%
Urbanization 76% 80% 85%
Source: Ou tline of NDRC Development Plan for the PRD (2008)
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2.
2013
201211
20138.5%
1
16
2013
85%
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
20152012
2015
8%202010%
2012
6882.85
15.2%2013
1400
20131.542
20136647
2013
1300155019.2%
10.515
2013
10.9%6364
11%4552
20140.8%
51572014110
3492
7.6%
2011-2015
2015
48%
2. Guangdong Province
Heart of the PRD
Guangdong has the largest regional GDP of Chinas prov-
inces and is the countrys biggest exporter, accounting for
more than one-third of Chinas total foreign trade. e pro-
vincial capital, Guangzhou, is the heart of Cantonese culture.
Guangdong is also home to three out of four of Chinas origi-
nal special economic zones - Shenzhen, Zhuhai and Shantou.
In terms of commerce, the cities of Guangdong lead not
only the PRD but in many cases the country as a whole, with
Guangzhou ranking number one in Forbes Chinas Best
Cities for Business 2013. e city is actively supporting the
development of micro, small and medium-sized enterprises,
such as via tax incentives introduced in a November 2012
circular.
Economy
Guangdongs economy is estimated to have grown by 8.5
percent in 2013 and reached a GDP output of more than
US$1 trillion last year according to Xinhua News Agency.
If Guangdong were a separate country, it would rank as the
worlds sixteenth largest economy, behind Mexico and South
Korea, and ahead of Indonesia and Turkey. Guangdong is
also taking action to shift its focus onto services rather than
manufacturing. With average wages among the highest in the
country there is a growing potential to reorient the provincial
economy toward domestic consumption rather than exports
and cheap labor.
e Pearl River Delta contributed 85 percent of Guang-
dongs economic growth in 2013 through the following lead-
ing industrial outputs:
1. Communications equipment, computers and other
electronic equipment
2. Electrical machinery & equipment3. Smelting and processing of metals
4. Raw chemical materials and chemical products
5. Automobiles
6. Plastics
7. Petroleum refining and nuclear fuel processing
8. Garments and footwear
9. General purpose machinery
10. Textiles
Furthermore, the provincial government is also taking
steps to advance the financial industry, setting a goal for this
to be among the provinces key industries by 2015. In 2012,
the provinces Financial Department released its Overall Plan
of Guangdong Province in Establishing an Integrated Experi-
mental Area for Financial Reform and Innovation. e Plan
suggests that added value in the financial industry will account
for more than 8 percent of provincial GDP by 2015, and this
is further estimated to reach more than 10 percent by 2020.
Spotlight on Guangzhous Changing Identity
Traditionally considered only a manufacturing base,
Guangzhou is increasingly being recognized for its growing
amount of domestic consumption. From 2012, total retail
sales in the city increased by 15.2 percent and reached RMB
688.285 billion. is enabled Guangzhou to take the top
spot on Forbes Chinas Best Cities for Business in 2013.
Growth in retail sales is largely being fueled by Guangzhous
large population and high wages, as well as its efficient
infrastructure.
Guangzhou is a city of 14 million people and the na-
tions third-largest metropolitan economy.
In 2013, regional GDP totaled RMB1.542 trillion,
ranking third in the country, trailing Shanghai and
Beijing.
Among the highest in the country, average monthly
wages in Guangzhou grew to RMB 6647 in 2013.
Guangzhous monthly minimum wage rose by 19.2
percent from RMB 1,300 to RMB 1,550 in 2014
the second highest in the province behind Shen-
zhen. Meanwhile, the citys minimum hourly wage
increased from RMB10.5 to RMB15.
Guangdongs strength in foreign trade is evident in the fol-
lowing figures (from Guangdong Statistical Yearbook 2013):
Total exports and imports rose to US$636.4 billion
and US$455.2 billion, respectively, by 10.9 and 11
percent year-over-year
Although exports h ad to face a 0.8% decrease in the
first ten months of 2014, Guangdong Chinas big-
gest export region realized an export value of US&
515.7 billion.From Januar to October 2014, imports
decreased 7.6% year on year to US% 349.2 billion.
Nevertheless, Guangdong province was still ranked
tops for both export and import values nation wide.
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60%
2015
2015
201570%
2015
40%
CEPA
2013829
20141
500
45
PEDFPEDF
2009
2009
150
20126
201446470
4500
202020
1500
In particular, trade between Guangdong and newly
emerging markets including Latin America, the Middle East
and Africa has increased greatly in recent years.
e Outline of Guangdongs 12th Five Year Plan, current
2011-2015, includes the following goals:
Optimize the industry structure of the province
such that the service industry occupies 48 percent
of all industries by 2015.In addition, the Plan aims
to increase the ratio of the value added by modern
service industries to 60 percent of value added for the
entire service industry. e key modern service indus-
tries to be promoted are finance and insurance, mod-
ern logistics, information service, science and tech-
nology service, business exhibition and headquarters
economy, among others. In addition, newly emerg-
ing service industries such as creative industries, ser-
vice outsourcing, human resources ser vices and high
technology services will be actively promoted.
Significantly improve innovative capacity, and be-
come an important innovation center in the Asia-
Pacific region by 2015.In this regard, the Plan aims
to introduce a great number of high-level technologi-
cal innovative talents from abroad.
Transform the PRD into a domestic as well as
international consumer service center with a
great number of trend-setting products and with
strengthened supervision of both quality and
prices of the products in order to better protect
consumers interests.
Promote integration of PRDs economy and im-
prove its competitiveness.is includes integrating
the transportation systems, infrastructures, urban
and rural planning, industry layout, environmental
protection and public services of the region.
Strengthen environmental protection by strength-
ening water pollution control, improving air qual-
ity and improving the standard of safe disposal
and treatment of solid wastes.
Promote low-carbon development in the province
and improve the system and mechanism for con-trolling emission of greenhouse gases.
Optimize high-efficiency information network
system. e Plan aims to achieve the standards of a
mid-level developed country in terms of the infor-
mation levels of the entire province by 2015. is
includes reaching an internet penetration rate of 70
percent by 2015.
Adjust income inequality by expanding the ratio
of people with mid-level incomes and raising the
minimum wages in the various cities in the PRD
to above 40 percent of the local average salaries by
2015.
Improve the social insurance system and medical
service standards in the province.
Improve internationalization of education by
introducing several internationally well-known
schools to Guangzhou, Shenzhen, Zhuhai, Dong-
guan, Foshan and other cities to jointly establish
higher education institutions.
Deepen cooperation with Hong Kong and Macau
under the CEPA. In finance, efforts involve build-
ing a financial cooperation hub with Hong Kong
in the lead and PRD cities providing support with
their own financial resources and services. To further
enhance services industry cooperation and growth
between Hong Kong and Mainland China, the Chi-
nese central government and the Hong Kong Special
Administrative Region government signed the Tenth
Supplement to the Mainland and Hong Kong Closer
Economic Partnership Arrangement (CEPA) on Au-
gust 29 and will take effect in January 2014.
Internationalize the provinces economy and op-
timize the structure of FDI utilization. Foreign
investment is encouraged in high-end manufactur-
ing industries, high- and new-technology industries,
modern service industries, new energy and energy-
saving and environmental protection industries. e
key focus will be on attracting investment from Glob-
al Fortune 500 companies and leading enterprises in
various industries, and strengthening cooperation
with developed countries such as the U.S., Japan and
European countries in the areas of economy, trading,
technology and culture. Foreign investors are also en-
couraged to establish venture capital enterprises, pri-
vate equity investment funds and invest in enterprises
within the province.
Establish proper commercial dispute resolution
mechanisms and improve legal systems to create
a fair and orderly market competition environ-
ment conducive to the internationalization of the
economy.
Spotlight on Shenzhen Government Innovation
Shenzhens government has taken t he lead on a number of
new initiatives to become the national leader in innovation
and private enterprise growth. e city has experienced
rapid private economic growth, spawning about 450,000
private companies, including international behemoths such
as Huawei Technologies Co Ltd, Tencent Holdings Ltd,
China Vanke Co Ltd and BYD. Available incentives include a
recent VAT and business tax exemption policy for small and
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CEPA
15%
15%20134
201211
17%
13%11%6%
17%
11%
6%3%
20121031
micro-sized enterprises. e government has also adopted
specific measures in terms of equity investment incentives,
e-commerce promotion and the introduction of electric
vehicles. Lastly, as part of a pilot program to curb emissions of
key pollutants and clean up the environment, foreign investors
are now permitted to trade car bon permits in Shenzhen.
Equity Investment Incentives
Private equity (PE) investment has emerged as one of the
most important capital-raising avenues for small and medi-
um-sized enterprises. Recognizing this, the Shenzhen govern-
ment has become one of several coastal city administrations
to offer further incentives to equity investment enterprises.
e city has established a PE Development Fund (PEDF) and
clarified operation procedures for PE funds that intend to ap-
ply for financial support from the PEDF. Incentives offered to
PE funds include: rewards for local financial contributions,
office purchase and rental subsidies, one-time settlement re-
wards, and one-time rewards for investment withdrawal.
E-Commerce Promotion
In September 2009, Shenzhen was approved by Chinas
NDRC and Ministry of Commerce (MOFCOM) to become
Chinas first e-commerce model city. In addition t o stream-
lining registration processes for e-commerce companies, the
city has made other efforts to promote the development of
e-commerce. One example is the building of dedicated indus-
trial parks, such as Futian International E-commerce Indus-
trial Park, which opened in 2009 and houses more than 150
internet and e-commerce companies.
One state-level project being developed in Shenzhen is t he
Qianhai Shenzhen-Hong Kong Modern Services Coopera-
tion Zone, approved by the State Council in June 2012. By
the end of April 2014, a total of 6,470 companies with a com-
bined registered capital of RMB 450 billion had already reg-
istered in the zone. A joint venture between Hong Kong and
Mainland China, and supported by the State Council, the
Qianhai Zone is designed as an experimental business zone
for better interaction between the two jurisdictions financial,
logistics, and IT services sectors. It covers slightly less than
20 square kilometers on the western side of Shenzhen, and isexpected to achieve a GDP of RMB150 billion by 2020.
Among its many goals, the Qianhai Zone will serve as a
pilot area for the liberalization of Chinas financial sector as a
whole, including preferential policies such as:
Allowing the Qianhai area to explore the expansion of
offshore RMB fund flow-back channels, and establish
an innovative experimental zone for cross-border RMB
business;
Supporting the granting of RMB loans for offshore
projects by banking institutions established in Qianhai;
Under the CEPA framework, conducting studies on the
granting of RMB loans by Hong Kong-based banking
institutions for enterprises and projects established in
Qianhai;
Supporting qualified enterprises and financial institu-
tions registered in Qianhai to issue RMB bonds in
Hong Kong within the quotas approved by the State
Council to support the development of Qianhai;
Supporting the innovative development of foreign-in-
vested equity investment funds, and actively exploring
new modes of foreign exchange settlement of capital
funds, investment and fund management; and
Supporting the establishment of international or na-
tional management headquarters or business operation
headquarters by Hong Kong and other onshore and off-
shore financial institutions.
Qualifying enterprises will be entitled to a reduced cor-
porate income tax rate of 15 percent and, to increase investor
confidence in the area, the government has stated plans to ex-
plore the establishment of branches of Hong Kong arbitration
institutions in Qianhai. To attract foreign talent, especially fi-
nancial sector employees from Hong Kong, the zone offers a
special 15 percent salary tax rate for foreign nationals living or
working in Qianhai. In April 2013 the municipal government
announced four industriesfinance, modern logistics, infor-
mation services, and related industries operating within the
zonethat are eligible for special funds.
Identified as an area for spearheading industrial restruc-
turing in the Pearl River Delta region, the Qianhai Zone pro-
vides incentives that are likely to be extended to the other areas
in Guangdong Province in the near future. is is designed
to extract the next wave of FDI in areas such as Hengqing
Island near Zhuhai and Nansha Port near Guangzhou, and if
successful may eventually be instituted nationwide.
Spotlight on Value-added Tax Reform
Guangdong Province launched its value-added tax reform
pilot program in November 2012, following the pilot program
launch in Shanghai and Beijing. Here, two lower rates of 11percent and 6 percent were added on to the standard rates of
17 percent and 13 percent under the previous value-added
tax regime. e tax rate of 17 percent applies to the leasing of
tangible movable property while that of 11 percent applies to
the transportation industry.
Industries included in the pilot include:
Land transportation service
Water transportation service
Air transportation service
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Pipeline transportation service
R&D and technology service
Information technology service
Cultural and creative service
Logistics auxiliary service
Authentication and consulting service
e tax rate of 6 percent shall apply to other modern ser-
vice industries and that of 3 percent shall apply to small-scale
taxpayers providing taxable services. Taxable services subject-
ed to a zero percent tax rate shall be carried out as prescribed
by the Ministry of Finance and the State Administration of
Taxation.
Pilot taxpayers engaged in specified taxable services shall,
as required by the relevant state tax authorities, undergo the
formalities for tax registration, tax type identification, invoice
type verification, general taxpayer recognition, tax-control
system application, invoice purchasing and collection, tax
preference application, and tax-exemption registration for ex-
port refund before October 31, 2012.
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3.
.
20135
2012616
60%
2011
35
1.5
2011
13
2015
3000
12%
30/
3
4
6
8
9
7
2013
3. Fujian Province
Cross-Strait Trade Hub
Directly facing Taiwan, Fujians coastline provides it easy
access to cross-strait trade and business. e province used to
be the sole hub for all air and sea transportation to Taiwan,
but several years ago the government began permitting direct
links with other parts of the country, following which Guang-
dong and Jiangsu surpassed Fujian in terms of attracting in-
vestment from Taiwan. Nonetheless, Fujian stands to gain the
most from the continuing improvement of cross-strait rela-
tions, both economically and in terms of its importance to the
state government. e main economic engines in Fujian are
Xiamen, Fuzhou, Quanzhou, Zhangzhou and Putian. ere
are also a number of less well-known economic gems hidden
throughout the province.
Economy
e economies of Fujian and Taiwan are closely related
and complementary with the pillar industries of both re-
gions consisting of electronics, petrochemicals and machin-
ery. If this favorable economic factor can be properly utilized,
gains from the increased trade between the t wo regions could
benefit both sides amid the ongoing global economic down-
turn. In May 2013, the capital city of the province Fuzhou
set up an administration office to handle the certification of
origin for goods made in Taiwan.
In June 2012, Chinas State Administration of Industry
and Commerce issued 16 new policies to promote the devel-
opment of the region and strengthen its bond with Taiwan.
e new policies empowered local offices to directly handle
registration applications and other business-related licenses
for enterprises funded with overseas capital, rather than go-
ing through the Beijing office, and thereby making it more
convenient for Taiwanese enterprises to gain market access.
Additionally, the new policies newly allowed Taiwan-fundedenterprises to use traditional Chinese characters on outdoor
advertisements and register company names with Taiwanese
idioms. All these measures were aimed to reduce the com-
mercial costs to Taiwan-funded enterprises and help to attract
more large-scale companies and projects to Pingtan.
Historically, Fujians key industries have been agriculture,
footwear and clothing, but in recent years the area has in-
creasingly focused on high-tech and electronic goods. Fujians
industrial clusters have become stronger in electronic infor-
mation, equipment manufacturing and petrochemicals, with
these industries accounting for more than 60 percent of total
industrial output value.
A prime example of an equipment manufacturer head-
quartered in Fujian is Lonking Holdings, one of the largest
construction machinery manufacturers in China (making and
distributing loaders, road rollers, excavators and forklifts). In
late 2011, the company invested RMB3.5 billion in an exca-
vator m anufacturing line in the Longyan Economic Devel-
opment Zone. e project is estimated to produce 15,000
excavators annually.
To fuel such industry, Fujian province has taken measures
to promote energy production. For example, a household
waste-fuelled power plant in Fuqing city was completed and
entered operation in 2011.
e provincial government focuses on attracting foreign
investment in 13 industries, namely electronics and informa-
tion technology, machinery, petrochemicals, steel and non-
ferrous metals, shipbuilding, new energy, bio-pharmaceuticals
(traditional Chinese medicine), logistics, new materials, con-
struction materials and textiles. Other key industries in the
province include aquaculture and fisheries.
Spotlight on Xiamen
While Fuzhou is the capital of Fujian province, the moresouthern Xiamen is one of Chinas four original special
economic zones (along with Guangzhou provinces Shenzhen,
Zhuhai and Shantou) and a key trade hub its port and
airport are both the third busiest in the region, behind
Guangzhou and Shenzhen.
e import and export volume connected to trade con-
ducted by foreign-invested enterprises takes up more than half
of the total volume in Xiamen, which in turn occupies more
than half of the total import and export volume of the entire
province. ese provide opportunities for service outsourcing
Fujians Major Industrial Products
National Rank (total 30 provinces/municipalities)
Product National Rank
Chemical Fiber 3
4Televisions
Cloth
Paper6
Hydropower
Microcomputer Equipment
Mobile Telephone
Beer
8
9
7
Source: China Statistical Yearbook, 2013
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2013
2015
730028%
2020
10
20131693.5
8.6%1000
628.58.2%2014
7%5%
2010
enterprises in Xiamen to open up their overseas markets.
Xiamens more prominent service outsourcing businesses in-
clude information technology service outsourcing targeted to-
wards the Japanese market, logistics and supply chain outsourc-
ing, as well as integrated circuit design, animated games and call
center service outsourcing businesses targeted towards Taiwan.
e Fujian provincial government has a standing policy to
promote the development of emerging industries, including
next-generation information technology, biotechnology and
new medicine, new materials, new energy, energy-saving tech-
nology, high-end equipment manufacturing, and the marine
high-tech industry. By 2015, the provincial government aims
to increase the value of emerging industries to RMB300 bil-
lion, accounting for 12 percent of Fujians GDP.
e province is now vigorously promoting the marine
economy as its new growth engine. Fujian initiated related
pilot projects in 2013, targeting a total output value of the
industry of RMB730 billion by 2015. If achieved, this would
contribute more than 28 percent of total regional product
and turn the province into a marine economic powerhouse
by 2020. e province is also set to improve the organization
of its ports and optimize resource allocation. e provinces
coastal resources for building deep water berths of 10,000
tons to 30,000 tons rank first in the country; this is planned as
the basis for an ambitious move to turn Fujian an internation-
ally competitive shipping center. To this end, the provincial
government has plans to establish a special fund of RMB1
billion for the development of marine economy.
Fujians 12th Five-Year Plan encourages foreign invest-
ment in newly emerging strategic industries, modern ser vices,
energy conservation and environmental protection, and other
key industries. e Plan also aims to:
Increase cooperation with large international corporations
through technological cooperation and asset M&As;
Optimize the structure of exported products by en-
couraging the export of high-tech, electrical and me-
chanical products with independent IPR, as well as
high added-value labor-intensive products;
Promote the accelerated transformation and upgrad-
ing of the processing trade, and encourage domesticand foreign enterprises to cooperate in the expansion
from simple assembly and processing to the inclusion
of R&D, design, core component manufacturing,
and logistics;
Restrict the export of high-energy consumption,
high-pollution and resource-intensive products;
Encourage the import of advanced equipment and
technologies, important resources, key component
parts and goods for daily consumption that are neces-
sary for economic development so as to optimize the
provinces import st ructure;
Strengthen the certification of enterprises and prod-
ucts entering the global market; and
Expand cooperation with Hong Kong and encourage
Hong Kong financial institutions to set up branches
in Fujian.
Much of the Plans focus is placed on cooperation with
Taiwan, for example in modern services such as the legal, in-
termediary, medical and health, cultural, service outsourcing,
commercial exhibition, shipping and logistics and R&D in-
dustries. e Plan encourages the introduction of Taiwanese
hospitals, rehabilitation centers and retirement homes to Fuji-
an, and Taiwanese residents are encouraged to star t businesses
and participate in politics in Fujian.
Fujians import/export value grew by 8.6 percent to
US$169.35 billion in 2013. Exports exceeded US$100 billion
for the first time, while imports reached US$62.85 billion (an
increase of 8.2 percent). For 2014, trade volume is expected to
grow by 7 percent, and foreign investment by 5 percent.
Spotlight on Development Zones
Fujians development zones received great attention under
Chinas 11th Five Year Plan, in which the State Council
approved free trade port zones both in Xiamen and Fuzhou
and upgraded three provincial development zones - China
Merchants Zhangzhou Development Zone, Quanzhou
Economic and Technological Development Zone, Quanzhou
High-tech Industrial Development Zone - to state level status.
Fujians development zones are also representative of the
provinces economy as a whole. For example, the provinces
development zones include three state-level investment zones
specifically aimed at Taiwanese businesses, located in Fuzhou,
Quanzhou and Zhangzhou. Auto-parts are a major product
in Fujian province and this is no more clearly seen than in
Huaan Economic Development Zone, which is home to the
aluminum wheel production project. According to Fujian
government plans, this zone will develop an auto spare parts
industrial cluster that produces car wheels, car bearings, tires
as well as auto glass products, among others. In addition, sev-
eral new-energy vehicles and fork-lift trucks manufacturerswill also be housed in the area.
e West Coast Economic Zone (also known as the
Western Taiwan Straits Economic Zone) covers the entirety
of Fujian province, as well as several cities in the Zhejiang,
Guangdong, and Jiangxi provinces. e Zone, described in
Chinas 12th Five Year Plan, was proposed by the Fujian gov-
ernment and Chinese central government with the purpose
of facilitating political and economic relationships across the
Taiwan Straits and accelerating economic development along
the coastal cities in Fujian province.
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4.
2010-
2013
40%
-
-
-
-
2011
3000
20121
10
20
--
300037
2011100
NEC
IBM
20107
-
2011-20153000
4. Guangxi Zhuang Autonomous Region
Link to South Asia
As t