Created in China

download Created in China

of 31

  • date post

    17-May-2015
  • Category

    Business

  • view

    1.328
  • download

    1

Embed Size (px)

description

As China continues to upgrade its economy and add value-added services, it will transition from ‘Made in China’ to ‘Created in China’. This presentation was created by China-based consultancy SmithStreetSolutions,

Transcript of Created in China

  • 1. Upgrading the Chinese EconomyThe Historic Transition from Made in China to Created in China June 23, 2010 Copyright 2010 SmithStreetSolutions. All rights reserved. 0

2. Table of Contents 1. What Created in China Means 2. Why China Must Create 3. Enablers of Chinese Creation 4. Challenges to Chinese Creation 5. Implications of Created in China1 3. Quotes from Beijings 2005 China Economic SummitI think now its time for Chinese companies to build their own brands.I think now its time for Chinese companies to build their own brands.The Chinese government should push healthy developments of theThe Chinese government should push healthy developments of theeconomy.economy.Robert A. Mundell, winner of the 1999 Noble Prize in EconomicsRobert A. Mundell, winner of the 1999 Noble Prize in EconomicsUnique and creative designs will give Chinas manufacturing a majorUnique and creative designs will give Chinas manufacturing a majorboost and higher technological maturity will make Chinese productsboost and higher technological maturity will make Chinese productsmore competitive.more competitive.Sir James Alexander Mirrlees, winner of the 1996 Noble Prize in EconomicsSir James Alexander Mirrlees, winner of the 1996 Noble Prize in EconomicsJapanese products completed the transition from manufacturing toJapanese products completed the transition from manufacturing tocreation in over 10 years, setting a good example for Chinese companies.creation in over 10 years, setting a good example for Chinese companies.This transition is necessary for the development of ChinasThis transition is necessary for the development of Chinasmanufacturing.manufacturing. John Forbes Nash, winner of the 1994 Noble Prize in Economics John Forbes Nash, winner of the 1994 Noble Prize in Economics 2 4. What Makes Creation Four basic elements are necessary for creation in the industrial sense to happen.The difference between Manufacturing an iPod and Creating an iPod I.Sound Market Strategy II. Smart Product Design III. Successful Technology IV. Shrewd Branding Source: SmithStreet Analysis 3 5. Moving up the Value Chain As a countrys economy transitions from basic manufacturing to innovation and creation, it will see its industries moving up the value chain.Case Study: The Rise of Made in JapanIn the 1970s, the image of Japanese brands in the international market was defined by cheap price and low cost To move up the value chain, the Japanese government did two things: The government stepped in to increase corporateidentity awareness among large Japanesecompanies, and helped them establish theirCorporate Identity Strategies The government spent many resources to promotedemand for good design among consumers Now Tokyo is one of the worlds leading innovation capitals and Made in Japan is linked to high quality and superior designSource: SmithStreet Analysis 4 6. An Increasingly Important Service Sector As an economy becomes more and more innovation- and creation-oriented, its service industry becomes increasingly important. Service Sector as a Percentage ofService Sector as a Percentage ofChinas GDP over Time GDP across Countries, 2007 100% 100%90%90%80%80%70%70% 68.9%, OECD Average 60%60%50%50%40%40%30%30%20%20%10%10% 0% 0%19821987 19921997 2002 2007ChinaKoreaGermany Japan UK US Source: National Bureau of Statistics of China; OECD 5 7. Table of Contents1. What Created in China Means 2. Why China Must Create 3. Enablers of Chinese Creation 4. Challenges to Chinese Creation 5. Implications of Created in China6 8. The Maturing Chinese Manufacturing Industry Since Chinas opening-up, its manufacturing industry has made great achievements and is now at the point to usher in a new era of innovation. For the past 30 years, the CAGR of Chinas trade volume was higher than the CAGR of Player in Global Chinas GDP (17.4% vs. 15.6%). Now, China is the third largest trading nation and theTradeworlds second largest exporter. The Worlds China has become an indispensable part of the international division of labor, with manufactured goods making up 94.6% of China's total exports in 2008 compared withManufacturingthe 1980s 49.7%. China is a major global supplier of manufactured goods, and is noBase longer a pure exporter of resources and primary products. Strong Domestic Chinas has a huge domestic market, superior infrastructure, and the worlds largestResource Basetalent pool to match its titanic manufacturing capability. Source: National Bureau of Statistics of China; Ministry of Commerce of China; WTO 7 9. The Currency Factor With the trade surplus China has accumulated, the Renminbi is bound to appreciate, which in turn creates an environment allowing China to upgrade its manufacturing sector. The China Price in USD Technology Price in RMB Source: SmithStreet Analysis8 10. Trading Prices Down The global financial crisis drives down the price of undifferentiated goods and erodes the margins of low-end producers. Source: SmithStreet Analysis 9 11. Rising Labor Costs The new labor law introduced in China last year enhances rights for Chinese workers and requires higher product prices to cover the raised production costs. Source: Ministry of Labor and Social Security of China10 12. Environmental Concerns Chinas traditional low-end manufacturing has been developed at the cost of the deterioration of the environment, and is unsustainable given the sheer size of the countrys capacity. Source: SmithStreet Analysis11 13. Table of Contents1. What Created in China Means 2. Why China Must Create 3. Enablers of Chinese Creation 4. Challenges to Chinese Creation 5. Implications of Created in China12 14. Government Support The Chinese government has taken the upgrading of the countrys industries seriously and industrial technological advancement has been a repeated focus of recent government guidelines.Optimizing and upgrading industrial structure is one of the major goals in ChinasFive-Year Plan for the 2006 2010 period, ratified by National Peoples Congress in 2006The Guideline for the National Medium- and Long-Term Science and TechnologyDevelopment Plan (2006-2020) issued later by the State Council echoes the principles ofthe Five-Year Plan Source: Gov.cn13 15. China Is Building its Financial Infrastructure China is steadily building up the soundness of its financial system, against the background of an upgrading manufacturing sector.In December of 2008, theChina Banking RegulatoryCommission (CBRC) issued aguideline allowing ChineseEncouraging Yuan- banks to grant loans toDominated Funds enterprises, not excludingforeign holding companies orPrivate Equity, to acquire theThe Red Chip Model used toequity and assets of a targetprovide an exit strategy forfirmdollar dominated funds Pushing Away Dollar-China investmentsDenominated FundsPrimarily triggered by thisnew guideline, we have seen aThe Chinese governmentsrecent hustle of foreign PE2006 M&A regulationsfirms trying to set up Yuan-effectively froze approvals denominated funds in Chinafor overseas listings andhampered the exit of foreignventure investors Source: Ministry of Commerce of China; China Banking Regulatory Commission 14 16. Relatively Cheaper US Assets US assets are relatively cheaper due to falling US equity and the rising value of the RMB. Falling US Equity Appreciating RMB RMB/USDExchange Rate0.1500.1450.1400.1350.1300.1250.1207/1/2005 10/1/2005 1/1/20064/1/2006 7/1/200610/1/20061/1/2007 4/1/20077/1/2007 10/1/2007 1/1/20084/1/2008 7/1/200810/1/2008 The Chinese Yuan has appreciated The Chinese Yuan has appreciatedBoth the S&P500 and Dow Jones haveBoth the S&P500 and Dow Jones have20.9% since the RMB was unpegged20.9% since the RMB was unpeggedfallen over 25% in the past year. fallen over 25% in the past year. from the USD in July of 2005.* from the USD in July of 2005.**Note: Calculated based on the change from the original pegged price of 0.121 RMB/USD to 0.1463 RMB/USD on 12/17/09. Source: Bloomberg; Oanda.com15 17. Chinas Cash Holdings Chinas foreign exchange reserve has been growing rapidly in recent years.Chinas Foreign Exchange Reserves USD Bn2,0001,8001,600 %1,400= 29.7 C AGR1,2001,000800600400200 01998 1999 2000 2001 2002 20032004 2005 2006 2007 2008 Source: State Administration of Foreign Exchange16 18. Inbound M&A Moving Toward Value-added Industries Foreign investments in higher value-added industries are growing faster than investments in traditional enterprises. China Inbound M&A 2004China Inbound M&A 2007Social Services, 3% Real Estate, 5%Social Services, 12%Real Estate,Finance & Finance &14%Insurance, Insurance, 28%1% Manufacturing, 50%Manufacturing, 64%IT, 11%IT, 0%Retail, 2%Transport & Retail, 0%Logistics, 10% Transport & Logistics, 0%Total = RMB 4.67 billion Total = RMB 10.47 billion Source: China Mergers & Acquisitions Yearbook 2005, 200817 19. Table of Contents1. What Created in China Means 2. Why China Must Create 3. Enablers of Chinese Creation 4. Challenges to Chinese Creation 5. Implications of Created in China18 20. Intellectual Property Protection To boost innovation, China has to enhance its anonymous intellectual property protection. Source: SmithStreet Analysis 19 21. Education System Chinas education system focuses more on memorization than on innovation , which can be a drawback in creating an innovative environment. Source: SmithStreet Analysis20 22. Distorted Financing Channels In spite of the high amount of bad assets in Chinas banking system, Small- and Medium-sized Enterprises (SMEs), the major driver of innovation and creation in China, find it very difficult to get loans from banks. Source: SmithStreet Analysis 21 23. Quality Control Chinas reputation for poor quality products and the compete-on-price mindset of Chinese manufacturers could stand in the way of Chinas moving up towards creation and innovation.Recent product and