Le imprese in Cina - docenti.luiss.it
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LE IMPRESE IN CINA Economia dell’impresa, della concorrenza e dei mercati globali 1
Transcript of Le imprese in Cina - docenti.luiss.it
LE IMPRESE IN CINA
Economia dell’impresa, della
concorrenza e dei mercati globali
1
Sommario
•Perché la Cina è diversa
•Le imprese straniere in Cina (cosa fare e cosa non fare)
•Le imprese cinesi
•(Q&A)
2
Perché la Cina è diversa
•La geografia
•La storia
•La politica
•L’economia
•(il sistema giuridico)
3
Le imprese straniere in Cina
•Investire in Cina
•Vendere in Cina
•Produrre in Cina
•Comprare in Cina
4
Le imprese cinesi • L’impresa pubblica
• L’impresa privata
• Le imprese cinese nei mercati globali
• Conoscete Wenzhou?
• La concorrenza cinese è diversa?
5
PERCHÉ LA CINA È
DIVERSA
6
GEOGRAFIA
Source: China Statistical Yearbook 2010
North
Northwest China 5 provinces 7% of population 5% of GDP
North China 5 provinces 12% of population 14% of GDP
Northeast China 3 provinces 8% of population 8% of GDP
Southwest China 5 provinces 15% of population 8% of GDP
Middle China 3 provinces 16% of population 12% of GDP
East China 7 provinces 29% of population 38% of GDP
South China 3 provinces 12% of population 14% of GDP
Consumers and market - Unbalanced Development
• 283 prefecture-level cities • 368 county-level cities • More than 50,000 towns
STORIA
History ca. 1937
Millions of people all of
one mind vow to
exterminate the
Japanese enemy
Wanzhong yixin shimie
Wokou
Great leap forward: 30
million deads?
Everybody comes to beat
sparrows 1956 (4 plagues rats, fly,
mosquitos sparrows)
The industry of the fatherland develops by leaps and bounds
and frightens England so that it trembles with fear 1958
Bombard the capitalist headquarters 1976
POLITICS
Politics: Old and new
leadership
Il problema della corruzione
• Tutti i paesi in via di sviluppo sono fortemente corrotti
• Il problema si ha quando la corruzione passa da elemento
che permette ad una macchina statuale, spesso non
consolidata, di funzionare ad essere un elemento che
blocca lo sviluppo
• Il Cina è in corso una fortissima campagna anti corruzione
• To fight «tigers and flies»
• Bisogna capire quanto sarà selettiva
• Nel breve periodo può rallentare la crescita: calo acquisto
beni di lusso, rallentamento investimenti. Attenzione degli
amministratori si distrae dalla crescita.
18
Fight Tigers and Flies
19
ECONOMIA
Economy: data
Never ask how statistics and sausages are made. This is true everywhere, even more in China
• Market research are usually not very reliable. Difficult to cross check.
• Gdp is estimated in different ways but remember statistical offices are under the control of the Govern/Party. Still lack of standards.
• Retail data can be even worse because China mix investment and domestic consumption (plus government spending)
Chinese development time Reforms Policies for industrial development
1978
-
1992
Market
preparation
Dual track system . Some
space for private firms in an
increasing number of
industries. Foreign firms
allowed to operate in China
(with constraints) abolishing
of State monopoly on foreign
trade. GATT (1986); lowering
of tariffs (1994)
SEZs development ; FDIs
attraction ; undervaluation of
the currency , creation of non-
tariffs barriers , import
substitution; export support
1993
-
2001
Market
development
Soes reform , more
business oriented, 5 years
plan loose importance . WTO
(2001)
Less subsidy for enterprises.
Support for infant industries.
Large investment in
infrastructure.
2002
-
2012
Socialist
market
economy
Market prices , trade
reform (2004); establishment
of SASAC (2003)
go west strategy; go global
strategy; less incentives for
FDIs; policies to attract and
develop new technologies, Ofdi
to enter new market and to
“control” raw materials supply
,000
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
19
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06
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20
10
GDP (% real change pa)
GDP (% real change pa)
,000
200,000
400,000
600,000
800,000
1000,000
1200,000
1400,000
19
80
19
82
19
84
19
86
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90
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92
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94
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20
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20
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China CN Population
China CN Population
,000
2000,000
4000,000
6000,000
8000,000
10000,000
12000,000
Real GDP (PPP US$ at 2005 prices)
Real GDP (PPP US$ at 2005 prices)
,000
1000,000
2000,000
3000,000
4000,000
5000,000
6000,000
7000,000
8000,000
9000,000
10000,000
GDP per head ($ at PPP)
GDP per head ($ at PPP)
Contribution to Gdp
More than
450 million
Chinese still
in agriculture
0,00
10,00
20,00
30,00
40,00
50,00
60,00
19
80
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82
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06
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07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Agriculture/GDP
Industry/GDP
Services/GDP
Chinese Gdp
0,00
10,00
20,00
30,00
40,00
50,00
60,00
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Private consumption (% of GDP)
Government consumption (% of GDP)
Gross fixed investment (% of GDP)
Stockbuilding (% of GDP)
Questo è il vero
problema della
Cina
0
50000
100000
150000
200000
250000
300000
350000
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
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19
96
19
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19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Inward direct investment
Inward direct investment
,000
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
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20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
Inward foreign direct investment/GDP
Inward foreign direct investment/grossfixed investment
Foreign Direct Investment in China (in USD billion)
2007 2008 2009 2010 2011
Hong Kong 15.5 17.95 41.04 46.08 67.47
Taiwan 2.3 2.15 18.99 18.81 6.7
Singapore 2.17 2.2 4.44 3.61 5.66
Japan 2.92 6.53 3.65 4.11 4.24
US 4.38 3.6 2.94 2.55 4.05
South Korea 1.49 5.17 3.14 2.7 2.69
Germany 1.04 1.53 0.9 1.22 0.93
Netherlands 0.79 1.04 0.86 0.74 0.95
France 0.85 0.62 0.59 0.65 1.24
UK 1.16 0.96 0.91 0.68 1.64
Italy 0.21 0.32 0.49 0.35 0.38
Total 40.71 60.33 92.4 90.03 105.74
Urban Rural
Year
Grouped by Urban and
Rural Areas
UrbanAreas RuralAreas Urban/Rural
1949 57650000 484020000 0,11910665
1979 184950000 790470000 0,23397472
1989 295400000 831640000 0,35520177
2001 480640000 795630000 0,6040999
2010 665570000 674140000 0,98728751
2012 urban/rural 1 to 1
Labour force and population
0,00
200,00
400,00
600,00
800,00
1.000,00
1.200,00
1.400,00
1.600,0019
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
20
07
20
10
20
13
20
16
20
19
20
22
20
25
20
28
Labour force
Population
0
0,1
0,2
0,3
0,4
0,5
0,6
0,7
19
80
19
84
19
88
19
92
19
96
20
00
20
04
20
08
20
12
20
16
20
20
20
24
20
28
Labour force/population
Labourforce/population
China getting older
trade
-500000,000
,000
500000,000
1000000,000
1500000,000
2000000,000
2500000,000
3000000,000
Trade balance Goods: exports fob Goods: imports fob
,000
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Exports of G&S (% of GDP)
Imports of G&S (% of GDP)
Exchange rate USD/CNY and
USD/EUR
From 2006 2008 Yuan appreciation on US$ didn’t give
advantages in EU due to an even weaker dollar compared to €.
Export import and trade balance with China
Code Product label Exported
value in 2008
Exported value in
2009
Exported value in
2010
Exported value in
2011
Exported value in 2012
TOTAL All products 1430693100 1201646800 1577763800 1898388400 2048782200
'85 Electrical, electronic equipment 342083349 301099032 388755010 445756705 487322454
'84 Machinery, nuclear reactors, boilers, etc 268671157 236009996 309813672 353763873 375899473
'61 Articles of apparel, accessories, knit or crochet 60877450 53762969 66710933 80164561 87045225
'94 Furniture, lighting, signs, prefabricated buildings 42832799 38936958 50584032 59336352 77886190
'90 Optical, photo, technical, medical, etc apparatus 43331345 38914169 52109780 60684983 72631372
'62 Articles of apparel, accessories, not knit or crochet 52490143 46716321 54361478 63073873 61224360
'73 Articles of iron or steel 48419118 33781144 39143621 51196168 56156107
'39 Plastics and articles thereof 29808557 25274692 34696577 45420906 55194044
'87 Vehicles other than railway, tramway 39273457 27931282 38397962 49539445 55117129
'64 Footwear, gaiters and the like, parts thereof 29720438 28016268 35633851 41722333 46811268
China export By product (thousand US$)
Code Product label Imported value in 2008 Imported
value in 2009 Imported
value in 2010 Imported
value in 2011 Imported
value in 2012
TOTAL All products 1132562200 1005555200 1396001600 1743394900 1818199200
'85 Electrical, electronic equipment 266514884 243756119 314282498 350954252 381520999
'27 Mineral fuels, oils, distillation products, etc 169251777 123970041 188965812 275766337 313066988
'84 Machinery, nuclear reactors, boilers, etc 138795536 123717219 172150025 199313752 181960039
'26 Ores, slag and ash 85936803 69590904 109386524 150655638 133727965
'90 Optical, photo, technical, medical, etc apparatus 77708548 66996321 89919369 99140733 106145649
'87 Vehicles other than railway, tramway 26962790 28363242 49504235 65438574 70596739
'39 Plastics and articles thereof 48862558 48513919 63704657 70198652 69424491
'99 Commodities not elsewhere specified 4407629 3304654 18433281 49498449 68769065
'29 Organic chemicals 39237189 36163021 48263067 63131991 60864293
'74 Copper and articles thereof 26051361 29513125 46183467 54251470 54516255
China Import By product (thousand US$)
Exporters Imported value in 2008 Imported
value in 2009 Imported
value in 2010 Imported
value in 2011 Imported
value in 2012
World 1132562200 1005555200 1396001600 1743394900 1818199200
Japan 150600041 130937525 176736084 194567856 177832336 Korea, Republic of 112137921 102551712 138339223 162716843 168728402
China 92461200 86413993 106867897 122614384 142929913 United States of America 81585556 77755101 102734185 123124010 133765823 Taipei, Chinese 103338103 85722961 115733646 124910647 132199339
Germany 55789930 55764084 74251272 92726220 91933081
Australia 37435133 39438780 61105168 82667477 84568209
Malaysia 32101396 32330691 50430150 62136640 58304935
Saudi Arabia 31022698 23620244 32829048 49467520 54861126
Brazil 29863443 28280983 38099447 52386750 52281127
China Imports
Importers Exported
value in 2008 Exported
value in 2009 Exported
value in 2010 Exported
value in 2011 Exported value
in 2012
World 1430693100 1201646800 1577763800 1898388400 2048782200
USA 252843531 221295020 283780323 325010988 352438221
Hong Kong, China 190729035 166216920 218301360 267983737 323445330
Japan 116132455 97910966 121043965 148268708 151626581
Korea, Republic of 73931990 53679877 68766311 82920308 87673764
Germany 59208951 49919564 68047133 76399999 69212732
Netherlands 45918581 36682225 49704161 59499691 58898785
India 31585381 29666560 40913958 50536416 47677452
United Kingdom 36072739 31277364 38767054 44122055 46296693
Russian Federation 33075850 17513771 29612074 38903018 44056551
Singapore 32305805 30066363 32347238 35570137 40750209
Chinese export by country
Source: International Trade Center
Source: International Trade Center
Region Exports Imports[1] Total trade Trade
balance
European
Union 356.0 211.2 567.2 +144.8
United States 324.5 122.2 446.7 +202.3
Hong Kong 268.0 15.5 283.5 +252.5
ASEAN 170.1 192.8 362.9 -22.7
Japan 148.3 194.6 342.9 -46.3
South Korea 82.9 162.7 245.6 -79.8
India 50.5 23.4 73.9 27.1
Russia 38.9 40.3 79.2 -1.4
Taiwan 35.1 124.9 160.0 -89.8
China trade Balance in billions US$ 2011
Region Percentage
Mongolia 89.0%
Turkmenistan 69.6%
North Korea 67.2% (2011 est.)
Gambia 57.1%
Democratic
Republic of the
Congo
54.3%
Hong Kong 54.1% (2012 est.)
Mali 52.9%
Sierra Leone 51.1%
Solomon Islands 50.8%
Mauritania 50.5%
Angola 46.3%
Zambia 43.4%
Congo 39.0%
Yemen 37.2%
Oman 31.8%
Australia 29.5%
Taiwan 27.1% (2012 est.)
How is important china as a final market (2011 or 2012)
Burkina Faso 25.9%
Benin 25.0%
South Korea 24.4% (2011 est.)
Liberia 24.0%
Chile 23.3%
Iran 22.1%
Uzbekistan 21.2%
Zimbabwe 21.1%
Peru 19.9%
Kazakhstan 19.3%
Japan 18.1%
Brazil 17.0%
Cameroon 15.2%
Ethiopia 13.0%
South Africa 11.8%
Thailand 11.7%
Region Percentage
North Korea 61.6% (2011 est.)
Kyrgyzstan 55.2%
Hong Kong 46.9% (2012 est.)
Tajikistan 41.2%
Togo 40.4%
Mongolia 37.5%
Benin 37.2%
Burma 36.9%
Macau 32.2%
Kazakhstan 28.0%
Gambia 27.6%
Vietnam 25.8%
Ghana 25.6%
Djibouti 24.4%
Japan 21.3%
Tanzania 21.3%
Angola 20.9%
Vanuatu 20.2%
Chad 20.2%
Importance of China as a supplier
Pakistan 19.7%
Turkmenistan 19.5%
United States 19.0%
Cameroon 18.7%
Australia 18.4%
Nigeria 18.3%
Bangladesh 17.8%
Madagascar 17.7%
South Korea 16.5% (2011 est.)
Sierra Leone 16.5%
New Zealand 16.4%
Uruguay 16.4%
Yemen 15.5%
Russia 15.5%
Brazil 15.3%
Indonesia 15.3%
Malaysia 15.1%
South Africa 14.4%
Guinea 14.2%
Saudi Arabia 13.5%
Ethiopia 13.1%
Libya 13.0%
Mauritania 12.9%
India 10.7%
Egypt 9.5%
BEC Code 1995 2000 2005 2010 2011 2012 Import US$
World China
% of total Italian imports coming from China 1.92% 2.71% 4.57% 7.84% 7.40% 6,58% $489,104,116,138 $32,162,562,492
Food and beverages 1 0.52% 0.90% 0.82% 1.01% 1.07% 0,93% $39,974,738,290 $373,499,228
primary 11 0.64% 0.83% 0.78% 1.09% 1.10% 1,09% $15,889,749,595 $172,602,412
processed 12 0.43% 0.95% 0.85% 0.95% 1.05% 0,83% $24,084,988,695 $200,896,816
Industrial supplies 2 1.43% 2.15% 3.86% 5.82% 5.83% 5,46% $149,516,376,786 $8,169,387,356
primary 21 1.85% 3.50% 3.59% 3.01% 2.84% 2,79% $15,450,678,693 $430,838,412
processed 22 1.37% 2.00% 3.89% 6.10% 6.18% 5,77% $134,065,698,093 $7,738,548,944
Fuels and lubricants 3 0.60% 0.19% 0.21% 0.00% 0.00% 0,00% $110,234,501,455 $2,878,300
primary 31 0.21% 0.06% 0.01% 0.00% 0.00% 0,00% $88,580,940,409 $2,555,095
processed 32 1.47% 0.65% 0.99% 0.00% 0.00% 0,00% $21,653,561,046 $323,205
Capital goods (except transport
equipment), parts 4 1.63% 2.50% 5.98% 16.44% 16.82% 15,33% $68,366,908,071 $10,481,638,826
Capital goods (except transport
equipment) 41 2.02% 2.84% 6.35% 14.11% 14.57% 16,98% $38,555,134,263 $6,547,942,768
Parts and accessories 42 1.17% 2.04% 5.42% 18.90% 19.27% 13,20% $29,811,773,808 $3,933,696,058
Transport equipment, parts and
relative accessories 5 0.34% 0.61% 0.95% 5.37% 3.81% 4,07% $45,931,548,942 $1,868,247,500
Transport equipment, passenger
motor cars 51 0.00% 0.00% 0.05% 0.46% 0.25% 0,25% $20,262,393,623 $50,509,362
Transport equipment, other 52 1.16% 0.67% 0.61% 18.17% 9.44% 9,08% $7,237,864,521 $656,995,260
Parts and accessories 53 0.51% 1.67% 2.97% 5.63% 6.15% 6,30% $18,431,290,797 $1,160,742,878
Consumption goods 6 9.10% 11.81% 16.38% 19.00% 17.48% 16,26% $69,067,204,809 $11,230,479,932
Durable 61 6.65% 8.57% 16.23% 18.74% 17.24% 16,90% $12,017,006,643 $2,030,815,510
Semi-durable 62 4.27% 19.71% 26.82% 31.87% 29.39% 27,81% $28,875,897,260 $8,029,270,003
Non-durable 63 3.14% 3.73% 4.49% 5.16% 4.72% 4,15% $28,174,300,906 $1,170,394,419
Goods 7 0.00% 0.02% 0.03% 0.09% 4.19% 0,11% $6,012,837,786 $6,879,350
Italian imports according to Broad Economic Categories
BEC
Code 1995 2000 2005 2010 2011 2012 2013
% of total Italian imports coming from China 1.92% 2.71% 4.57% 7.84% 7.40% 6,58% 6,44%
Food and beverages 1 0.52% 0.90% 0.82% 1.01% 1.07% 0,93% 0,91%
primary 11 0.64% 0.83% 0.78% 1.09% 1.10% 1,09% 1,28%
processed 12 0.43% 0.95% 0.85% 0.95% 1.05% 0,83% 0,66%
Industrial supplies 2 1.43% 2.15% 3.86% 5.82% 5.83% 5,46% 5,52%
primary 21 1.85% 3.50% 3.59% 3.01% 2.84% 2,79% 2,99%
processed 22 1.37% 2.00% 3.89% 6.10% 6.18% 5,77% 5,81%
Fuels and lubricants 3 0.60% 0.19% 0.21% 0.00% 0.00% 0,00% 0,08%
primary 31 0.21% 0.06% 0.01% 0.00% 0.00% 0,00% 0,01%
processed 32 1.47% 0.65% 0.99% 0.00% 0.00% 0,00% 0,34%
Capital goods (except transport equipment), parts 4 1.63% 2.50% 5.98% 16.44% 16.82% 15,33% 14,12%
Capital goods (except transport equipment) 41 2.02% 2.84% 6.35% 14.11% 14.57% 16,98% 15,98%
Parts and accessories 42 1.17% 2.04% 5.42% 18.90% 19.27% 13,20% 11,47%
Transport equipment, parts and relative accessories 5 0.34% 0.61% 0.95% 5.37% 3.81% 4,07% 3,23%
Transport equipment, passenger motor cars 51 0.00% 0.00% 0.05% 0.46% 0.25% 0,25% 0,05%
Transport equipment, other 52 1.16% 0.67% 0.61% 18.17% 9.44% 9,08% 3,19%
Parts and accessories 53 0.51% 1.67% 2.97% 5.63% 6.15% 6,30% 6,56%
Consumption goods 6 9.10% 11.81% 16.38% 19.00% 17.48% 16,26% 15,39%
Durable 61 6.65% 8.57% 16.23% 18.74% 17.24% 16,90% 16,22%
Semi-durable 62 4.27% 19.71% 26.82% 31.87% 29.39% 27,81% 26,37%
Non-durable 63 3.14% 3.73% 4.49% 5.16% 4.72% 4,15% 3,90%
Goods 7 0.00% 0.02% 0.03% 0.09% 4.19% 0,11% 0,62%
% of total Italian imports coming from China
Se il problema è cambiare modello di sviluppo cosa posso
fare per far crescere consumi?
Tante policy: Welfare State (salute, istruzione, pensioni)
per limitare eccesso di risparmio?
In realtà la Cina è in linea con paesi che hanno traiettorie di
sviluppo simile
Problema vero è eccessivo risparmio delle aziende per far
fronte ad investimenti.
La causa è un sistema finanziario chiuso che da poche
opportunità d’investimento ma anche d’indebitamento se sei
impresa privata.
Tassi interesse liberi permetterebbero una allocazione
migliore delle risorse. (più consumi)
Cambiare modello di sviluppo
Financial system reform Interest rate are a policy instrument
Administrative constraints are a policy instrument
A close financial system has been crucial for Chinese growth till today
Shift to a new system is not easy
• This system has been very important for the winners of the last decades. How can they change it without losing the support of this strong “constituency”
• But this system also caused overcapacity in many industries
• It also contributed to create the real estate bubble
• It helped banks and local govern to create high level of debts.
• Shadow banking is a ill reply to this system
Liberalize interest rates in China (Collier
2014) • For borrowers, capital would be allocated according to its
returns and not due to the whims of the state
• Savers across the country would no longer be forced to
accept below market returns.
• Less pressure on real estate that is on of the few options
for savings
• Consumers would have more money in their pockets, and
the much hoped for rebalancing of the economy from
industry to consumption would be given a quick kick.
So: win –win?
Not so much
• Remember China wants to keep a tight control on Rmb.
• And remember that all financial institutions are interlinked:
private firms, State owned enterprises, PBOC, State
Banks, Ministry of Finance
Go back to real economy
• What happens when a Chinese company sells something
abroad?
• The company is paid with a foreign currency
• The Central bank has to change this foreign currency in
Rmb that the firm can deposit, for example, in commercial
banks
• So commercial banks have more deposit thus more
reserves, and this can increase the level of loans.
• More reserves imply a monetary expansion, ceteris
paribus
Go back to real economy
• monetary expansion put pressure on inflation
• If you want to avoid inflation (and China, also for historical
reasons doesn’t like inflation) you need to “sterilize” the
monetary expansion linked to exports
How to prevent inflationary monetary
expansion? We have two main options:
1. selling bonds to the banks and thus preventing the
expansion of the monetary base
2. To raise the Reserve Requirement Ratio (RRR),
withdrawing funds from the system
But at what cost?
• Bonds had to be sold at a price that is the interest rate
• PBOC ha a lot of US treasury bonds in its pocket that provide
very low returns. Returns are lower than the one that would be
accepted by commercial bank to buy Chinese Central Bank
Bills. (difference in general is between 1% and 2%)
• This “sterilization” process cost around 1 trillion Rmb each year
• (The larger the trade surplus, the larger are the foreign
exchange holdings, the higher is sterilization cost)
So….?
• This system cannot work.
• The cost for the PBOC is too high. It could go bankrupt in
a a few years
• So What?
• There is a tacit deal between the PBOC, commercial
banks (remember, State owned).
The deal Commercial Banks agree
• to buy central bank bills at below market rates,
• to park a large chunk of their capital (now at around in 20%) in
the PBOC in the form of reserves (RRR).
Meanwhile, to ease the burden on the banks, the PBOC has
allowed them to
• freeze deposit rates at low level, thus guaranteeing a profit
from the spread between deposit and lending rates.
Everybody happy? No!
• Consumers are unhappy (interest rate are usually lower than
inflation rate)
• We will see that private firms could be unhappy
• Sometime also banks can be unhappy
What happens if China liberalizes interest
rates? • Consumers very happy because deposit rate will go up.
This will bust consumption because they need to save
less for future necessities due to higher interest rate (the
effect of higher interest rate on consumption is a bit more
complicated than that)
• Commercial banks will lose a large part of profits that
today are guaranteed by interest rate spread
How much the four big commercial banks
could lose? Two possible interest rate scenarios to compare with retail
deposits of commercial banks (1.86%):
1. interest paid to borrow money from the Central Bank and
from other banks (2.17%) => (2.17-1.86 => drop over 50%
of net income)
2. general rate paid to borrow funds from other sources
(3.56%) => (3.56 -1.86 => loss of 104.7 billion)
How can PBOC helps banks?
1) Reduce the RRR
2) Agree to pay a higher interest rate for bank bills
3) Guarantee the state banks interest spread.
Lower RRR
• RRR to 6% as it is for global banks
• Cash could be generated from new loans that are available
due to the lower RRR
• If we use the rate of 3.13% the Bank of China pays for debt
securities, total bank profits would rise 24% to 538.8 billion
RMB.
• Using the higher rate paid for loans of 5.62%, the profit rises
59% to 689.4 billion RMB.
• (but remember inflation)
Agree to pay a higher interest rate for bank
bills or Guarantee the state banks interest
spread.
• Chinese public debt could increase fast
• PBOC could end in financial distress
Everybody happy? State owned and
private firms • if interest rate is free will be an important instrument to
focus resources where returns are higher, risks are lower,
and were resources are more needed
• State owned firms has a privileged access to loans due to
political network. For Soes a free interest rate means
higher interest rate and lower profit and investment
• For private firms it is the opposite. Lower interest rate
means higher profit, probably higher investment in the
long run
But…
• Soes are very powerful and well connected
• If State Owned bank that hire more than 15 million people
and State Owned firms (30% of manufacturing production,
large tax contributors, strong links with the Communist
party) are unhappy with this reform difficulties may arise.
AND WE HAVE KEPT
EXCHANGE RATE
FIXED….
What would happen with a free exchange
rate? • Who knows…..
• Hot money could be a huge problem
• Rmb could appreciate weakening exports
• But someone thinks it could soon devaluate
LE IMPRESE
STRANIERE IN CINA
strategie
68
• (still) a growing Economy
• Asia new engine of global growth
• A large market
• A difficult market
• An important market for “made in Italy”:
machineries, luxury goods, etc.
Why China?
Chi investe in Cina
Ma i numeri, come detto, son da prendere con le molle
Investing in China Go to
China?
Buy
Produce
Sell
Go to China
• Understand your industry in your home country
and in China (am I ready to pay for a good
research paper and to hire the right people like
consultants, lawyers, etc?)
• Do you know your company? Who is going to
manage entry and operations in China? Do you
have the right people?
• Do you know China? (no you don’t, and even
what you know will change fast)
Go to China wrong
Go to China Right
“IF YOU KNOW THE ENEMY AND KNOW YOURSELF,
YOU NEED NOT FEAR THE RESULT OF A HUNDRED
BATTLES. IF YOU KNOW YOURSELF BUT NOT THE
ENEMY, FOR EVERY VICTORY GAINED YOU WILL ALSO
SUFFER A DEFEAT. IF YOU KNOW NEITHER THE
ENEMY NOR YOURSELF,
YOU WILL SUCCUMB IN EVERY BATTLE”
Sun Tzu: “Art of War” 6th century BC
STRATEGY
Organization Location People Institutions
Produce (Jv / Wfoe/Rep
Off?)
Technologies
Production
site?
Human
resources
Relations with
suppliers and
clients
Laws and
regulations
Taxes
Institutional
networks
Buy Direct buying?
Third parties?
Supply Chain
Where to
buy?
Where to
localize a
purchasing
office and
warehouse
?
Who are our
supplier?
Who are our
buyers?
Laws and
regulations
Institutional
networks
Buy from Soes
Sell Direct sales?
Distribution
networks
Where to
sell?
Sales network
Who are our
clients?
Distribution
Sell to Soes
Public procurment
Business organization: entry model
Rep. Off.
Branch office
JV
Wholly Owned foreign enterprise (Wofe) - Foreign Invested Commercial Enterprises (FICE)
M&A
Rep. Off.– Branch Office
Rep. Off.
• All operations have to be officially managed by the head quarter abroad (or any other official entity outside China).
Rep Off. Can only do:
• Management of clients
• Marketing
• Coordination activities
• Consulting activities
• More constraints since 2010
Branch Office
• Usually support for Wofe
• Can be a cost center (invoices)
• Opportunity for service companies like foreign banks in Pudong
JV Pros
• You can exploit the network relations of your Chinese partner
• Local governs welcome more JV than Wfoe
• In some sectors is the only possibility to enter the Chinese market (see Catalog for the Guidance of Foreign Invested Enterprises)
Cons
• Less control on operations and strategies
• IPR under threat (not only if you do JV)
• Partner selection?
• Personal Relations are more important than shares
• Different goals and growth trajectories
Wofe Pros
• Operations more under control (if you have the right
people)
• IP protection
• You can choose where place your investment
• (easier shut down)
Cons
• Not very supported
• Lack of network relations, lack of market knowledge
Wofe: what you need to start
• Legal Name and Structure
• Company Registration Document
• Proof of Shareholder Existence
• Name of WFOE in Chinese and English
• Lease of Space for the WFOE
• Scope of Business
• Feasibility Study
• Registered Capital
• Management
• Documentation for each person
• Proof of financial status
M&A
• Not Much and getting worst
• Very complicated process.
• Antitrust is a policy tool
• Buy what?
• Why is it on sale?
• Shanghai stock Exchange very foggy
M&A
Due diligence:
• Need a strong team. You cannot outsource all the
process but you need support of local expert in reading
Chinese balance sheets.
• Senior managers have to be particularly involved In the
process because, at the end you cannot take a decision
only on numbers.
• You have to contact more person than you usually do in
“easier” markets (managers, workers, costumer,
distributors, supplier, industry experts, consulting firms,
go between that know the local environment)
When you have to worry
• Unclear source of capital
• Opaque ownership structure (check also if they have other
activities in the same industry)
• Inconsistent data
• Poor regulatory track record
• Weak internal controls regarding corporate governance and
business ethics
• Dependency on political relationship
• Possible criminal links
• When things are too easy
Dezan Shira
ITEMS WFOE/ JOINT VENTURE REPRESENTATIVE OFFICE
Minimum Capital Starts from 100K RMB Not register capital
Business Scope Specific Industry: Trading WFOE; Consulting
WFOE, Manufacturing WFOE(*1) etc.
Liaision; Quality Control; Factory
Visits
Office In an office building which can register
business
Shanghai: Grade A building; Beijing:
office building
Working Visa 1 year multi-entry Visa(*2) 1 year multi-entry Visa
Recruiting Staff recruits staff directly Through Local HR agency: FESCO,
CIIC
Taxation Turnover tax; Income tax, Dividend tax (*3) approx. 10-15% (*4) on expenses;
individual income tax
Maintenance Monthly; Quarterly; Annually Monthly; Quarterly; Annually
Bank Account
Access & receive money; pay bills; issue
cheques; withdraw cash in China; RMB
account and foreign currency
Can only receive money from parent
company; Can only pay for
expenses; Can't pay for products
Invoicing Official invoice in China Can't issue invoice or receipt
Receiving payments World Wide Not allowed to receive payments
from clients
Liability of equity
participants Limited to amount of registered capital
Parent Company must be
established for over 2 years (*5)
FDI by Vehicle Type
Year Number of Projects Utilized FDI Value ($ billion)
2011 2010 % Change 2011 2010 % Change
Total FDI 27,712 27,406 1.12 117.7 108.8 8.16
EJVs 5,005 4,970 0.7 21.4 22.5 -4.81
CJVs 284 300 -5.33 1.8 1.6 8.69
WFOEs 22,388 22,085 1.37 91.2 81.0 12.63
Foreign-invested
shareholding
ventures
35 51 -31.37 1.6 0.6 152.83
Not included banking and financial services
Source: USCBC
Catalog for the Guidance of Foreign
Invested Enterprises
• Catalogue of Encouraged Foreign Investment Industries
• Catalogue of Restricted Foreign Investment Industries
• Catalogue of Prohibited Foreign Investment Industries
• (industries don’t included in this catalog are usually permitted)
in few years you can have huge changes
investments higher than $100m need central government approval
implementation at local level can be fuzzy
linked with 5 year plan goals
(Defense Telecommunications oil electricity coal transoceanic shipping airlines under state control, Sasac)
Produce in China:
•Produce in China?
•Where to produce,
•Alone or in JV?
•What to produce,
•For who?….
Structural differences in China cost structure
20%
10%
10%
22%
8%
10%
50%
15%
12%
Made in USA Made in China
~40% potential savings
Raw materials
Other direct
costs
(labor, land,
energy, …)
Equipment
depreciation
Overheads
Profit
On raw materials there might
be some cost disadvantages
in China
Labor cost is the major cost
advantage
Some opportunities for
equipment cost reduction
exist but are still untapped
-
-
-
Savings depend on cost structure and can vary across
product categories. Categories with high labor content
are the ones that benefit most from sourcing in China
10%
Structural differences in China cost structure
20%
10%
10%
=
=
50%
15%
Made in USA Made in China
~??% potential savings
Raw materials
Other direct
costs
(labor, land,
energy, …)
Equipment
depreciation
Overheads
Profit
things change fast
Where to produce
Geography of industrial clusters
Coastal regions of East China are the aggregation area of manufacturers across a
number of sectors
500km
Heilongjiang
Jilin
Liaoning
Tianjin Beijing
Shandong
Shaanxi
Shanghai
Zhejiang
Jiangxi
Hubei
Chongqing
Guizhou
Guangxi Guangdong
Fujian
Xinjiang
Qinhai
Tibet
Yunnan
Gansu
Hainan
Inner Mongolia Jilin
Sichuan
Shanxi
Henan
Ningxia
Anhui
Hunan
Taiwan
Hebei
Hong Kong Macau
Electrical home appliances
Electronics goods
Textiles
Toys
Light machineries
Auto cars
Telcommunications
Food& beverages
-
-
-
-
-
-
-
-
Electrical devices
Electric home appliances
Auto parts
Auto cars
Valves& accessories
Toys& gifts
Light machineries
Leathers
-
-
-
-
-
-
-
-
Engineering goods
Construction machines
-
-
Construction machines
Electronic goods
Food& beverages
-
-
-
Auto car
Auto parts
Pharmaceuticals
Electronics
Construction machines
Electrical home appliances
Textiles
Plastics
-
-
-
-
-
-
-
-
Electrical home appliances
Agriculture machinery
Auto parts
Construction machines
Food& beverages
-
-
-
-
-
Telecommunications
Auto cars
Electronic goods
Valve& accessories
-
-
-
-
Auto cars
Auto parts
Mechanics
-
-
-
Telecommunications
Auto cars
Valve& accessories
Heavy engineering devices
-
-
-
-
Light machinery
Auto cars
Valve& accessories
Electrical devices
-
-
-
-
Heavy industrial equipments
Mechanicals
-
-
Industrialized area
Most important industrialized
area
Jiangsu
Source: ISI, China Info Bank
Investment zone
Special Economic Zone
Pros
• Infrastructure
• Location
• Test Lab for new reform
• Flexibility
• Status
• Cluster
• (taxation)
Cons
• Cost of land
• Cost of labour
• Few local partner
• Control for limitations on
local market
• Some are in
disadvantaged areas
• Double check if it is real
Investment zones
Free Trade Zone (FTZ)
• Close to port industrial
areas, technology parks
• Support incentives, easier
burocratic operations for
foreign companies
Export Processing Zones (EPZ)
• No import duty, vat exemption.
• You can trade within the zone.
• Generally, you cannot sell in
China
• Need to transform products
• There are zone where you can
store and modify products and
you pay duties only when you
sell products in China
Economic Technological Development Zone
New Shanghai Free Trade Zone
• Waigaoqiao Free Trade
Zone;
• Waigaoqiao Free Trade
Logistics Park;
• Pudong Airport
Comprehensive Free Trade
Zone;
• Yangshan Free Trade Port
Area.
• The Plan provides that the Shanghai FTZ will adopt a
“negative list” approach towards foreign investment
management, meaning foreign investment in all sectors
should be allowed unless listed as prohibited or restricted
under the “negative list.” A “negative list” which details the
different treatment of foreign investors and Chinese
investors will be created and issued by the Shanghai
government at a later date.
• Improving financial system
• Improving legal system
•
Source: Dazen Shira
To start with….. The ban on game console was in place since
2000. now consoles assembled in the Zone can
be sold nationwide. It is roughly 15 billion US$
market!
Is cost of labour still a
competitive advantage?
Minimum Wage
(curse of) labour
• Chinese workers prefer to work either for large domestic
Soe or large Chinese private company. Second, they want
to work for large MNC possible with well-known brand.
Third they want to work for Chinese smaller company and,
last for small foreign companies.
• Training is very important, more than you can think
• Labour Turnover is an issue
• Shortage of labour is starting to be a problem
• As a consequence salaries are increasing very fast
• Expatriate are very expensive
New legal environment for work force
New labour contract law in 2008
• More long term contract
• More protection for workers
Some space for unions (2% of total salary)
40 working hours per week plus overtime (150% to 300%
of normal wages)
Social Insurance programs (pensions, medical insurance,
etc.. 35/40% of salary cost)
How to reduce turnover
• Incentive scheme: pension, healthcare insurance, etc.
• Training (included Mba)
• Try to pay bonuses after Chinese new year (when most
workers change job)
Labour: cultural differences
• (lack of) Initiative
• Harmony
• Status and self-respect (save face)
• Communication (lost in translation and hierarchy)
• Ethic code
• Nationalism
Expatriates
• Usually you don’t have china experts in your company: is it better
a china expert from outside or an insider that goes to China?
• Expat costs are extremely high (salary plus incentive packages)
• With or without families?
• It is easy to find people that likes Shanghai. Try with Zibo (and it
could be much worse)
• It happen that foreign managers become too Chinese
• Some time you need to send technicians full time and this can be
even more complicated.
• Overseas returnee (second generation and “Haigui” Sea turtles)?
Guangxi
• It start from the concept of “Mianzi” face, or self-respect
• It is the network of your personal relations. You can consider it like some
concentric circles, starting from the family going to business and institutional
relations.
• It implies mutual cooperation and needs to be cultivated
• If you ask a favor you have to give it back.
• There is exchange of presents (same level, you can ask what the other likes,
you can give also coupons) for Chinese new year and special occasion. It Is
not corruption but can be very close to it.
• It is very useful in an unknown market with a “variable” rule of law, with a
complex burocracy.
• Guangxi needs time to grow, you cannot sell it. There is a limit to transitivity.
• You start always from a disadvantageous position compared to long term
expat and Chinese native.
• Guangxi are important but don’t overestimate
TO BUY IN CHINA /SUPPLY CHAIN
RANK PORT, COUNTRY VOLUME 2010 (MILLION-TEUS)
VOLUME 2011 (MILLION-TEUS)
1 Shanghai, China 29.07 31.74
2 Singapore, Singapore 28.43 29.94
3 Hong Kong, China 23.70 24.38
4 Shenzhen, China 22.51 22.57
5 Busan, South Korea 14.18 16.17
6 Ningbo-Zhoushan, China 13.14 14.72
7 Guangzhou Harbor, China 12.55 14.26
8 Qingdao, China 12.01 13.02
9 Jebel Ali, Dubai, UAE 11.60 13.01
10 Rotterdam, Netherlands 11.14 11.88
11 Tianjin, China 10.08 11.59
12 Kaohsiung, Taiwan, China 9.18 9.64
13 Port Kelang, Malaysia 8.87 9.60
14 Hamburg, Germany 7.91 9.04
15 Antwerp, Belgium 8.47 8.66
16 Los Angeles, U.S.A. 7.83 7.94
17 Keihin Ports, Japan* 7.48 7.64
18 Tanjung Pelepas, Malaysia 6.47 7.50
19 Xiamen, China 5.82 6.47
20 Dalian, China 5.24 6.40
Consumer price in the US
To Buy in China: suppliers
• (Buy in China? – buy directly in China)
• Large Soe and private firms
• Small private firms
• MNC local sales and production networks
• Different level of qualities (and minimum quantities)
• (Buy for Chinese operation of for the entire group?)
supplier
• You may not be an interesting client: your order can be too small, you can ask quality they cannot deliver at the cost you want.
• Don’t think you can have the same relations even if you work with subsidiaries of the same multinational company you work in your domestic market.
• Supplier change very fast
What to do
• Adapt supplier selection to your operation in the country coordinated with the rest of the group.
• Keep back up. (probably you need to buy from more than one supplier even when one would be enough and more cost effective)
• Quality control are important also to check supplier development.
• Quality control are an extra cost but cost less than in Europe. Can be very useful
Quality check controls
Lead time monitoring
Suppliers qualification
Fiscal and Custom rules
New suppliers scouting
Communication and Cultural Diversities
China: some critical activities
The most famous case: China, the world’s factory
FACTORIES
CHINA: KNITTING DEPARTMENT
CHINA: TECNOLOGICAL ADVANCED FACTORY
Focalize on some specific item
Visit at local Trade show: focalized meeting
Visit and qualification of supplier: vendor list
Prices offer comparison
Sampling order and standard quality levels
Supplying contracts
Quality check controls
Deliveries
Don’t forget to heavily involve your domestic organization in the process
Sourcing Process:
Sourcing Strategies
swot / china supply chain Strenghts:
1) Number of suppliers
2) Competitive advantage; slogan: -
40% china vs europe/usa
3) logistic structures for supporting
the local purchasing policies
Weaknesses:
1) Quality level of the purchases
2) Level of service (deliveries on time)
3) total cost ownership: slogan: even if
the
purchases prices are lower then in
Europe,
what is the final supply chain costs?
Opportunities:
1) operate on the supplying market could be a fast
way to learn about the final market structure
and demand
2) The reduction costs advantage can support
a more high potential of final sells and/or high
profit margins
3) The right supply chain worldwide network
can be a good way to save the industrial
structures also in the origin western country.
(for ex. Buy components in China and
assembly them in Europe)
Threats:
1) know how protection
2) time to market vs worldwide supply
chain: if the the time to market is fast
(on the basis of final demand requests)
the management of worldwide supply
chain is to hard to get ( higl level of
stock)
3) low knoledge of country system
and the local laws.
Sourcing vs Manufacturing
– Are unable to match local cost
structure and quality
– Find that suppliers allow greater
responsiveness to market changes
than
in-house manufacture
– Seek fast access to market and
suppliers are readily available
– Need to dedicate scarce production
resources elsewhere and reduce
management complexity
•Choose sourcing
when you..
– Need to protect proprietary technology
– Can achieve superior cost structure,
and command premium for the
difference in quality
– Feel it is critical to control the
distribution of end products
– Believe outsourcing will not create a
formidable competitor longer term
•Choose manufacturing
de-localization when you…
Fonte: Mckinsey
Things change fast also for supply chains
• Changes in volumes affect your SC
• Changes in costs affects your SC
• Change in your final markets may change your SC
• Where you produce affects your SC
Nearshoring in the US
What Has Changed?
• Rising wages in formerly low cost regions
• }China labor rates climbed 5X from 2000 a 500% increase
• }Wages are expected to grow 18% each year (est to 2015)
• Flat or decreasing wages in the US
• Increasing fuel costs
• }Oil prices have tripled since 2000 8tady lowering)
• }Cheaper Natural Gas in the US - 4X higher in China
• Productivity boom in the US
• }Plant enhancements with increasingly automated technology
• }More efficient manufacturing practices
• }Union concessions on wages
• Changing consumer behaviors
• }Customers don’t want to wait for customized products
remember
Supply Chain is often crucial for profitability (for many firms it is
more than 60% of total costs – transport and logistic cost goes
from 3% to 5% of total revenues, cost of inventories can be
around 10% of total revenues)
In an economic downturn SC management is even more
important:
• How financially stable are your suppliers?
• Who holds the balance of power?
• Could their exposure to you cause their own distress?
• Could their credit insurance be pulled leaving them no choice
but to curtail or even cease supply
• How lower volumes affects your and SC costs?
TO SELL IN CHINA
Luxury goods / fashion industry
Distribution in the fashion market
Cunsumers and market
The Brand
Distribution channel
Source: Mckinsey Global Institute
One billion people will live in China’s urban centers by 2030.
350 million people will be added to China’s urban population by
2025, of which 240 million will be migrants.
By 2025, China will have 219 cities with population exceeding
one million and 24 cities with more than five million
inhabitants.
Consumers and market - Urbanization
The Brand – How to be developed
• Fast market with need to have fast development plan in a big geographical area ( same country, different provinces with different customers profile ).
• Needs to invest in Brand awareness to ensure capillary deployment of the knowledge of the brand.
• Leverage on brand distinctive factors
• Good capability to invest in the market to make sure that brands will have time to wait for the return of the investment.
• Needs for intellectual brand protections
• Comparing purchasing
abroad, domestic
consumption is up
• More and more competitors
within the fashion brands
appeared in 2nd & 3rd tier
cities
• The e-commerce is more
important but still is not the
main player of the network
• Gifting consumption is one of
the most important parts of
fashion market. NEW anti-
corruption policies are
affecting luxury goods
The Brand: Main trends of China’s Fashion market
Rare quality retail channel and environment
Suffering in recruitment & retention of sales staffs in
2nd & 3rd tier cities
Lack of cooperation experiences with luxury
brands
The Brand - The capacity of man power & limited retail space
The Brand – Current Trends
• Trend is to cover the market in the 2nd /3rd tier cities with boutiques in the mall.
• Big Brand makes statement in 1st tier city.
500 square meters Channel Boutique store opened in Shanghai Peninsula Hotel in 2009
Gucci new 1600 square meters flagship store opened in
Golden Eagle Shanghai on June 6th, 2009
LV Shanghai P66 renovation to the whole 1-3 floors.
Distribution Channel – Current Trends
• Distribution of fashion product is mainly done in mono-brands boutiques in big mall or by shop in shop and corners.
• Opening boutiques is very expense and it is essential to make a good decision based on the right return of investments.
• Life time of mall is much shorter then the one in western countries and market volatility strongly affect the brand development.
• Need to carefully balance the possibility to use sole distributions agreement and franchises to expand the network.
• Good knowledge of the culture and territory with strong need to develop “guanxi”
LE IMPRESE CINESI L’impresa pubblica
L’impresa privata
Le imprese cinese nei mercati globali
Conoscete Wenzhou?
La concorrenza cinese è diversa?
166
Fonte: Mckinsey
Industrial Output
168
169
170
STATE-OWNED ASSETS SUPERVISION
AND ADMINISTRATION COMMISSION OF
THE STATE COUNCIL
SASAC
171
Sasac
• Established in 2003
• It is a special commission (Ownership Agency) under the direct control of the State Council
• Supervise Soes both at central and local level (local Sasac) and implement industrial policies issued by State Council.
• Controls Soe in industries where the Govern wants to maintain full control (Defense, Telecommunications, oil, electricity, coal, transoceanic shipping, airlines) and other industries with monopoly power. There are holdings also in more competitive industries.
• Looking from our national experience it is an hybrid between IRI + ENI + EFIM and Ministero delle partecipazioni statali
Sasac and Soe
• 8.5 milion people work for central Soes • All Soes hires from 30 to 40 million people. • The number of Soes decreased from 120.000 in mid ’90 to less than 40.000 today.
• Central Soes gives 20/25% of fiscal revenue of the central Govern
• Today Soe profits represent 4% of GDP and 2/3 of profits belong to Central Soes
• Soes still produce more than 30% of Chinese industrial production
• Soes are 1/3 of market capitalization of Shanghai Stock Exchange
• Central Soes represent less than 4% of exports • Soes fixed asset investment 20%of Gdp
SASAC
Baosteel China
National Petroleum
Corporation
… … … Petro China
… …
….. …. ……
Second tier:
holding (more
than 100)
Third tier: Soe, listed
firms, etc.
La struttura di SASAC
Sasac as a policy instrument
• Efficiency of Soes (3 years budget plan – Board of Directors)
• Support Soes Oligopoly
• Support to Soes in foreign activities
• Investment in infrastructure
• Still some price control (Oil price vs Gazoline price – energy price in general)
• Sasac still an instrument to guarantee employment
• Set regulations with NDRC and other ministries
Problems of Sasac
• It is an Hybrid
• Top Managers (top 50) are appointed by the CP Central Committee
• Profits stop at “second tier” (till 2007)
• Money and power are at the second tier that is still not transparent (only few board of directors)
• Need to be either a policy instrument or a holding seeking efficiency and profits
• Power competition vs price competition
The future of Sasac
• After 4 years negotiation Sasac is going to have part of the profits generated by Central Soes
• This will allow Sasac to have its own policy based on Incentives for a new set of reforms
• but this autonomy deepen the gap between Sasac and the second tier holdings that have a strong political support.
Rank
Rank
Fortune
500
Name Headquarters Revenue
(Millions. $)
Profit
(Millions. $) Employees Industry
1. 17. Sinopec Beijing 131,636.0 3,703.1 681,900 Oil
2. 24. China National Petroleum Beijing 110,520.2 13,265.3 1,086,966 Oil
3. 29. State Grid Corporation Beijing 107,185.5 2,237.7 1,504,000 Utilities
4. 170. Industrial and Commercial
Bank of China Beijing 36,832.9 6,179.2 351,448 Banking
5. 180. China Mobile Limited Beijing 35,913.7 6,259.7 130,637 Telecom
6. 192. China Life Insurance Beijing 33,711.5 173.9 77,660 Insurance
7. 215. Bank of China Beijing 30,750.8 5,372.3 232,632 Banking
8. 230. China Construction Bank Beijing 28,532.3 5,810.3 297,506 Banking
9. 237. China Southern Power Grid Guangzhou 27,966.1 1,074.1 178,053 Utilities
10. 275. China Telecom Beijing 24,791.3 2,279.7 400,299 Telecom
11. 277. Agricultural Bank of China Beijing 24,475.5 728.4 452,464 Banking
12. 290. Hutchison Whampoa Hong Kong 23,661.0 2,578.3 220,000 Various sectors
13. 299. Sinochem Corporation Beijing 23,109.2 344.7 20,343 Various sectors
14. 307. Baosteel Shanghai 22,663.4 1,622.2 91,308 Steel
15. 342. China Railway Engineering Beijing 20,520.4 142.6 275,866 Railway
16. 384. China Railway Construction Beijing 18,735.7 70.2 245,540 Railway
17. 385. First Automotive Works Changchun 18,710.7 70.0 136,010 Automobile
18. 396 China State Construction Beijing 18,163.2 281.3 294,309 Construction
19. 402. SAIC Motor Shanghai 18,010.1 89.7 72,416 Automobile
20. 405. COFCO Limited Beijing 17,953.2 281.0 82,481 Various sectors
21. 435. China Minmetals Beijing 16,902.2 154.4 32,594 Metal trading
22. 457. Jardine Matheson Hong Kong/Hamilton 16,281.0 1,348.0 240,000 Various sectors
23. 469. China National Offshore Oil Beijing 16,038.9 3,007.1 44,000 Oil
24. 488. China Ocean Shipping Beijing 15,413.5 1,092.9 79,616 Shipping
178
179
180
Top 10 private Chinese companies
• No 1 Suning Commerce Group Co Ltd with operating revenue of 279.8 billion yuan Suning Commerce Group Co Ltd, the leading home appliance retailer in China, aims to reach sales of 25 billion y
uan ($4.03 billion) from its crowdsourcing business in 2015 and 45 billion yuan by 2017.
• No 2 Legend Holdings Ltd with operating revenue of 244 billion yuan Legend Holdings Ltd, the major shareholder in the world's biggest personal computer maker Lenovo Group Ltd,
announced it will enterChina's healthcare market as it signed an agreement with iByer Dental Group in June.
• No 3 Shandong Weiqiao Pioneering Group Co Ltd with operating revenue of 241.4
billion yuan Shandong Weiqiao Pioneering Group Co Ltd is a super
large enterprise that focuses on textiles, garments and dyeing services.
• No 4 Huawei Technologies Co Ltd with operating revenue of 239.03 billion yuan Huawei Technologies Co Ltd said first-half smartphone shipments rose 62 percent year-on
year, as it targeted the more expensivesmartphone sector dominated by South Korea
based Samsung Electronics Co Ltd and Apple Inc.
• No 5 Amer International Group with operating revenue of 233.83 billion yuan Amer International Group is a leading Chinese multinational company mainly dealing with non-ferrous metals.
• .
181
• No 6 Jiangsu Shagang Group with operating revenue of 228.04 billion yuan Shagang Group in Zhangjiagang of Jiangsu province was honored as a 2013 national-level regional leading enterprise for its innovationin working style by the Ministry of Science and Technology. It is the largest private steel company in China.
• No 7 CEFC China Energy Company Limited. Operating revenue of 209.99 billion yuan CEFC China Energy Company Limited is a private collective enterprise incorporated by Shanghai Energy Fund Investment Co Ltd andShanghai Zhong An United Investment Fund Co Ltd.
• No 8 Dalian Wanda Group with operating revenue of 186.64 billion yuan After snapping up high-end properties in Madrid and allocating nearly $1 billion to build a luxury hotel in Chicago earlier this year,Dalian Wanda Group Co Ltd, China's largest commercial property developer, has unveiled a plan to invest $1.2 billion to build a mixed-use development in Los Angeles that will help it make inroads into Hollywood.
• No 9 Zhejiang Geely Holding Group Co with operating revenue of 158.43 billion yuan Chinese carmaker Geely paid 11 million pounds ($18.4 million; 13.9 million euros) in February last year for an 80 percent stake inManganese Bronze Holdings Plc, the parent company of the London Taxi Company, after buying 20 percent share in it in 2006.
• No 10 China Vanke Co Ltd with operating revenue of 135.42 billion yuan Based in Shenzhen, South China's Guangdong province, China Vanke Co Ltd is the nation's biggest listed developer
182
183
Chinese Ofdi
2011: 74,65
2012: 84,22
Source:
Unctad
2012
G20 OFI Flows/GDP ratio
is 1.7%
China OFI Flows/GDP
ratio is 0.8%
Ofdi strategies
• Resourches seeking
• Technology seeking
• Market seeking (Brands – Distribution)
• Diverisfication and strategic investments
• (looking for lower costs)
• (foreign reserve – CIC)
Constraints to growth of Ofdi
• Firm dimension (both Chinese and in EU)
• Investment structures
• Lack of competitive technologies
• Human capital
• Still minor role of Private Equity
Outward FDI
Source: Rhodium group
Chinese Foreign Direct Investment in the EU
* Source: Rhodium Group, June 2012
Cumulated China’s FDI in EU, 2003 – H1 2011 by industry
Chinese Direct Investment in the EU-27, 2000-2012
* Source: Rhodium Group, Jan and Feb 2013
Chinese Foreign Direct Investment in the EU
• China has a long-term goal of transforming its industrial base, shifting from
a country reliant on exporting lower-end commodity products to the world to one operating in advanced, higher value added domestic and global markets
• Europe is increasingly one of the most important markets for Chinese businesses as a vital source of advanced manufacturing technologies and know-how to enable China to upgrade its industrial base and facilitate businesses in moving up the value chain
• Top European companies have “state of the art” technologies and products, global brand awareness, experienced workforce and reputation as well as sales channels, which are vital to the domestic competitiveness and globalization process of Chinese companies
• However, Chinese companies have the same challenges as their European counterparts, requiring assistance in financing, executing joint ventures and acquisitions, lacking the contacts, cultural affinity and international management capabilities
• Recently, China has been dramatically accelerating its M&A activities in Europe in light of resistance in US and Japan on grounds of political and national security concerns
Chinese Foreign Direct Investment in Germany
2010
Harbin Measuring & Cutting Tool Group: Übernahme der deutschen Kelch GmbH
Neusoft: Teilweise Übernahme der insolventen Sellner Gruppe
2011
ASM Pacific: Übernahme der Siemens Electronics Assembly Systems (Januar 2011)
AVIC: 20% Beteiligung an der KHD Humboldt Wedag (Februar 2011)
Joysen: 75% Beteiligung an der deutschen Preh GmbH (April 2011)
Shanghai Electric: Strategische Allianz mit Siemens zum Thema Windenergie (Ende 2011)
2012
LDK Solar: Teilerwerb der Sunways AG aus Friedrichshafen (April 2012)
Sany Group: Übernahme des Betonpumpenherstellers Putzmeister für EUR 500 Mio. (April 2012)
XCMG: Erwerb von 52% am Betonpumpenhersteller Schwing GmbH (Juli 2012)
Weichai Power: Einstieg beim deutschen Gabelstaplerhersteller Kion (Dezember 2012)
Further examples:
- Lenovo Medion (2011), CGLT Saargummi (2011), Citic Dicastal KSM Castings (2011), Jiangsu EMAG (2010), etc.
Source: www.china-investiert.de
Chinese Acquisitions in Italy
Year Target Acquirer Sector Size
(employees) Stake
(%)
2001 Meneghetti Haier White
goods 100 100
2004 Wilson Wenzhou Hazan Textiles n.a. 90
2005 Benelli Quianjiang Automotive 100 100
2006 Elios Feidiao Electrics White
goods 54 n.a.
2007 HPM Europe
Spa Hunan Sunward Intelligent Machinery Machinery 6 51
2007 Omas srl Xinyu Hengdeli Holdings Luxury
goods 48 90
2008 Cifa Changsha Zoomlion Machinery 70 60
2009 Elba Haier White
goods 150 20
2012 Ferretti Group Shandong Heavy Industry Group –
Weichai.
Luxury
Boats 400 75
2012 De Tomaso Car Luxury Investment - Hotyork
Investment Automotive
n.a. 80
2014 Krizia Shenzen Marisfrolg Fashion Fashion n.a n.a
Source: Pietrobelli et all. plus other sources
• Pre-Report to MOFCOM (Ministry of Commerce), SAFE (State
Administration of Foreign Exchange) and
NDRC (National Development and Reform Commission) required
• Receive „Investment Certificate“ and „Travel Pass“ in order to
participate in a bid for a foreign company
• Standard approval procedure
• NDRC ( ~ 1 month)
• MOFCOM (~ 1 month)
• SAFE (~ 2 weeks)
• SASAC (State-owned Assets Supervision and Administration
Commission, only for State-owned enterprises (SOEs), ( ~ 1 month)
• Anti-trust approval (3 – 6 months)
Participation in standardized M+A-processes (auctions) often not
possible
Chinese bidders are often regarded as being not reliable
Regulatory Barriers – Complex approval
procedures
• Chinese buyers often don´t have a clear plan what to buy
• Chinese buyers are not experienced in controlling / managing portfolio
companies (very often “hands-off”, less often “autocratic regime”)
• “Strategic plan” often is missing
• Expectations with regard to potential technology transfer are often too high
• No co-operation with foreign banks
• Strong resentments in some EU countries
• Chinese investors don´t understand why they are not welcome
• Acquisitions are done from China, often no European office / bridgehead
Europeans regard that as a lack of commitment
• EU companies sometimes think of Chinese investors bringing “stupid
money”
• Negotiation techniques and language gap sometimes difficult to
accommodate
Cultural Barriers
Source MCP
• Europe will be a strategic area for “non resource based” Chinese foreign direct investments, with
Germany being most attractive, followed by UK (financial services and distribution), France and
Italy.
• Shift in the investment policy from “Securing of natural resources” (e.g. USD 94 bn invested in Africa
between 2005 – 2011 *) to “Upgrade of the Chinese industrial basis”
• Industrial “brands” are in the focus of Chinese attention
• Increasing political support for outbound M+A-transactions
• But still only No. 9 in global ranking of foreign direct investors (No. 1 = USA, No. 6 = Germany) *
• Activities of Chinese Private Equity players will remain low, no buyout deals with Chinese
participation to be expected in the next few years
• Great opportunity for EU small and medium-sized companies to participate in the Chinese market,
potentially with a Chinese strategic partner. (bud need to be considered by Chinese companies)
• Chinese investors focus on automotive industry, aircraft (aerospace) industry, producers of capital
goods in Europe
• EU companies with much potential in the healthcare industry, in environmental technologies and
high-tech machinery
Outlook – Chinese activities in the EU buyout market
* Economist Intelligence Unit, “China Going Global Investment Index”, 2012
Source MCP
• Strong development of the Chinese Private Equity Market since 2003/2004
• Important players are Hony Capital, CDH Capital, Citic Industry Fund, Citic Capital, Fosun, Goldstone
Capital, Jiuding Capital, New Horizon etc.
+ subsidiaries / offices of a number of European and American Private Equity Firms
• KKR, Goldman & Sachs, Warburg Pincus, EQT, Morgan Stanley, CVC, TPG, Carlyle etc.
• Focus on minority deals / growth financing, investing both in US-$ and RMB
• a Leveraged Buyout-market in China does not exist, since (typical) acquisition finance is not
available
• Hype in Pre-IPO financing since 2007/2008, high numbers of IPOs in China (Shenzhen, Shanghai),
Hong Kong and abroad
• High valuations and short holding periods made investing in Private Equity “ a save bet” for a few
years
• Fraud cases / issues of underperformance led to a lack of trust, starting at foreign stock markets
(New York, Frankfurt), then also affecting the Chinese stock market in 2010
• Only 1 out of 13 Chinese IPOs (+ 27 listings) on the Frankfurt stock exchange today trading above
issue price *
• Since November 2012, the stock markets in Shenzhen and Shanghai are closed for new IPOs
• Currently pipeline of more than 600 companies waiting for their IPO, i.e. Private Equity portfolio
companies waiting for their exit, another 7.500 unexited minority investments in the books of
Private Equity Investors in China **
The Chinese Private Equity Market
• Frankfurter Allgemeine Zeitung, July 16th, 2013
** Brian Zhou “The Future of China´s Private Equity Industry”, 2013
Source MCP
• Up to date, very few transactions of Chinese Private Equity Players abroad
• Examples in Europe:
• Hony participated as minority investor in the acquisition of Cifa (2008)
• Fosun - public to private takeover of Club Med together with Axa Private Equity (2012/2013)
• Citic Industry Fund participated as minority investor in the acquisition of Putzmeister by Sany
Corp. (2011)
• Hina Capital Management participated as minority investor in the acquisition of Kiekert by
China North Industries Corp.
• CIC acquired 10% of Heathrow Airport (2012)
• PTC Wuhan acquired 100% of Steyr Motors in Austria and then transferred to an industry player
a few months after the acquisition (2012)
• Other Chinese outbound Private Equity investors:
• Cathay Capital (China to France)
• Beijing Hosen
• First Eastern Investment Fund (China to UK)
• Mandarin Capital (China to Italy + Germany, with majority of fund being European money)
The Chinese Private Equity Market – Activities abroad
Source MCP
Impact of Chinese Fdi in EU
• New capital
• Employment
• Consumer welfare
• Shareholder value
• Productivity effects?
• Keeping China’s market open
• Convergence
Is it all good?
• Exposure of Europe to China’s wild macroeconomic swings
• Technology and assets transfer
• Asymmetries between EU and China
• Less control on value Chains / Headquarters effects
• Different attitudes towards European countries
• Difficult to put together politics and business
Source: Fox and Godement 2009
US Barrier
• In 2003, Hong Kong-based conglomerate Hutchison Whampoa dropped its plan to acquire American telecom company Global Crossing after the Committee on Foreign Investment in the United States launched an investigation into the deal citing national security concerns.
• In 2005, China National Offshore Oil Corporation had to drop its acquisition bid for California-based oil company Unocal because of American politicians' opposition, which was based on fears that the deal would pose a national security threat.
• In 2008, Chinese information and communications technology solutions provider Huawei partnered with US asset management company Bain Capital to acquire US-based digital electronics manufacturer 3Com. But the deal fell through, again, because of US national security concerns.
• In 2010, Huawei was stopped from purchasing the mobile wireless network division of Motorola. And in 2011, it had to pull out of a deal to acquire bankrupt US server company 3Leaf Systems on the recommendation of the inter-agency committee.
• On September 28, 2012, President Barack Obama signed an Executive Order prohibiting the acquisition of four wind farm companies in Oregon by Ralls Corporation, a Delaware corporation, the Sany Group, a Chinese company, and two Chinese citizens who wholly own Ralls and hold senior executive positions at Sany. The Order also prohibited the ownership, whether directly or indirectly, of any interest in the wind farms or assets by Ralls, Sany Group or either of the two Chinese Nationals.
China Daily
• In the middle of 2012, Huawei has over 7,300 staff based
in Europe, more than 780 of them are in R&D.
• Huawei has 70,000 research & development (R&D) staff
globally, which comprise more than 46 percent of
Huawei's total employees worldwide
• invests more than 10 percent of revenues in innovation
• 2 Regional offices: Düsseldorf for Western Europe; Warsaw for Central and Eastern Europe & Nordic Europe
• 41 legal entities to cover local business and keep close to customers
• 10 R&D centers throughout Europe:
• Stockholm: Mobile system design, Algorithm/IRF design, Chipset design
• Gothenburg: Microwave , base station
• Lund: Terminal chipset design
• Berlin:Standard
• Munich:MBB Solution, Antenna ,Software Platform, Optical, Future Network Research
• Milan:Microwave, Optoelectronics
• Brussels: Carrier Software
• Ipswich: Optoelectronics
• Nuremburg: Energy
• Paris: Standard
CHINA GOES TO
AFRICA
Raw materials
Raw materials
Housing
Infrastructure
Few industrial investments
Food for china, local Chinese
communities but also local people
This is the real problem
FOCAC meetings
Weak position in world trade and
investment agreements? China was a big winner after the wto admission in 2001,
but now…
• Transatlantic Trade and Investment Partnership (US EU)
• Trans-Pacific Partnership (China out of it)
• China is negotiating similar agreements both with EU (first
trade partner) and the US but will China be successful?
New Silk road
China EU
• E new Investment Agreement (under the Lisbon treaty it is an
exclusive competence of the EU)?
• A new Trade Agreement?
• A CIFUS (Committee on Foreign Investment in the United
States) for EU?
