State of Business in S China (Amcham 2015)

7/26/2019 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.)

[email protected]

www.amcham-southchina.org


3/41

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


5/41


STUDYRESULTS


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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.


8/41


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.


9/41


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.


10/41


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



Less than $1 million

2015 2014 2013

0%

5%

10%

15%

20%

25%

30%

35%

40%






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.


11/41


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



Profitableand meeting

budget

expectations

(49%)

Profitable but

not meeting

budget

expectations

(47%)

2015



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.


12/41


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.


13/41


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%






No investments made

2015 2014 2013

0%

5%

10%

15%

20%

25%

30%

35%

N/A






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.


14/41


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.


15/41


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






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.


16/41


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






Decrease < No change > Increase

2015 2014


0%

5%

10%

15%

20%

25%

30%

35%

0%

5%

10%

15%

20%

25%

30%

35%

No change







2015 2014


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.


17/41


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


18/41


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


19/41


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?


20/41


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.


21/41

ECONOMICOVERVIEW


22/41


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


23/41


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)


24/41


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.


25/41


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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.

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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40%

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20121

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NEC

IBM

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4. Guangxi Zhuang Autonomous Region

Link to South Asia

As t

State of Business in S China (Amcham 2015)

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