BUSS4 China - China-Britain Business Council

The China-Britain Business Council (CBBC) partners with UKTI to promote trade between the two countries. Their mission is “...to help UK companies of all sizes and sectors, whether new entrants or established operations, access the full potential of the fastest growing market in the world.” They publish a regular magazine called Focus, and I have been through a few recent editions looking for nuggets of information to add to the files of research for BUSS4 Section A answers. Here is a summary of what I have found – I hope that some of it is useful:

Government and Data

• The annual meeting of the National People’s Congress and Chinese People’s Political Consultative Conference in March 2014 set 7.5% as the target for this year’s economic growth, and agreed to focus reform on the financial industry as well as reform of government administration and the fiscal system
• Crucial plans for foreign investment from that meeting:
  • Opening up to Foreign Investment will be deepened especially in services, trade and finance
  • Foreign investors will be given equal treatment
  • The Shanghai Free Trade zone is the experimental ground for reform
• That meeting also looked at the relatively poor rural population. It now plans that
  • a hundred million rural dwellers will be relocated to urban areas,
  • a hundred million rural homes will be rebuilt and
  • a hundred million will be encouraged to move to cities around the (relatively undeveloped) centre and west of China.
• Foreign Direct Investment into China rose by 16% year-on-year to January 2014
• The number of male births per 100 female births in China is 120, compared to a ratio of 100:104 in the UK and US
• China and the UK signed a Tax Treaty in 2012 which means that for UK businesses, income and capital gains from 1 January 2014 are liable to less tax in China, and the business environment is now more competitive with the low tax environment of Hong Kong and Singapore.

Companies and business opportunities

• Apple’s share of the tablet market dropped by 40% in the 2^nd quarter of 2013
• 28 cities and city clusters will promote the use of ‘new energy’ cars and vehicles in China (such as electric cars) through subsidies to both users and manufacturers
• China’s mobile gaming market in 2013 was worth RMB11.24bn – a year-on-year increase of 246%
• Shopping malls: in 2013 68 new malls were opened in 1^st and 2^nd tier cities, but there are signs of over-supply amongst luxury retailers.
• Online retail: now accounts for 7.4% of total retail sales in China and rose by 37% in 2013. Set to become the world’s largest online market by total value ‘shortly’.
• China’s over-60 population is forecast to increase from 194 million in 2012 to 340 million in 2030 – there is a huge market for elderly care provision in the country.
• Singles Day - The gender imbalance (see data above), rising divorce ratesand people remaining since longer all contribute to a very large ‘singles’ market, with a growing disposable income. Alongside this, 61% of online shoppers are aged 18-30. All this adds up to a huge online shopping opportunity on the annual Singles Day – on which individual consumers treat themselves to luxury buying. Online retailers offer special deals to Singles and slash prices by up to 50% for 24 hours. As a result, in 2012 more than 72 million packages were shipped on Singles Day – 70% of China’s deliveries for the full year. (and leading many employees of the packaging and delivery industry to quit in advance of the inevitable ensuing logistical nightmare!)

Advice on doing business in China

• “China is a highly segmented market, not only demographically but also with respect to regions and city tiers. …the real China lies in 3^rd, 4^th and 5^th tier cities. They hold the majority of consumers” (Kelvin Chen, Eastwest Public Relations)
• There is a lack of finance and credit available to Small and Medium enterprises in China – it is estimated that only 5% are able to get the finance they need, while 44% cannot do so (compared with 18% and 22% respectively in the UK). The government has plans to open up the banking sector to private investors in an effort to overcome this.
• Mike Tattersall, retail analyst at UBS: “the problem with China is how attractive it is. It’s so big and its long term pot is so large that all the international retailers are looking at the same metrics. All the lights go green and they all pile in at the same time. Everyone is throwing capital at is so you have more and more competitors at the same time. Like-for-like growth is very difficult to come by and gross margins are tough.”

Human Resources

• Wages continue to rise in China
• Staff turnover in China is twice the level in the global market due to a shortage of qualified and experienced staff, who are head-hunted by the opposition at higher wages
• Multinationals in China are increasingly appointing local staff to their management teams, and need training programmes to focus on developing their international exposure in order to prepare them for those roles.