EmergingMarket China

China
LargestcountryintermsofPopulation(1.35
billion 1/6ofworldtotal)
3rd Largestinlandarea(AfterRussia&Canada)
56ethnicgroups91%HanChinese
DynamicEnvironment
Differentconsumingbehaviorsindifferent
regions
Onecountry,twosystems

ChinaEconomy
2nd LargestEconomy$14.625trillion
PercapitalGDP $10,695(88th)
Totalglobalstockmarketvalue, USA30%,
China7.38%,Japan7.05%
ChinaGDPis9.5%ofworldsGDPin2010,(as
againstonly5%in2005) (TheUSAsGDP
23.8%worldsGDPin2010)

ChinaEconomy

Uptotheendof2009,Chinahasapproved
683,000foreignfundedenterpriseswiththe
totalFDIvalueof945.4bUS$.
Accordingtothe2009reportissuedby
UNCTAD,transnationalinvestmentwentdown
by50%inBrazil,19%inIndia,93%intheUK,
57%intheUS,53%inJapanandonly2.6%in
China.
ChinarecordsNo.1inabsorbingFDIin
developingcountriesfor17years.

ChinasLocalGovernments(34)
Municipalities4
(Beijing,Tianjin,Shanghai,Chongqing)
Provinces23
AutonomousRegions5
(innerMongolia,GuangxiZhuang,Tibet,
NingxiaHui,XinjiangUygur)
SpecialAdministrativeRegions2
(HongKongSpecialAdministrativeRegion,
MacaoSpecialAdministrativeRegion)

GeographicalDivision
NortheastChina(3provinces)
EastChina(10provincesandmunicipalities)
CentralChina(6provinces,i.e.Shanxi,Anhui,
Jiangxi,Henan,HubeiandHunan)
WestChina(13provinces,municipalityand
autonomousregions)
SAR(2)

SomeImportantEventsinChina
1. 1949 thefoundingofthePeoplesRepublicof
China
2. 19661976GreatCultureRevolution
3. 1978thereformandopenpolicystarted
(initiatedbyDengXiaoping thegeneralarchitect
ofChinasreformandopenpolicy)
4. 1993theestablishmentofmarketeconomy
5. 2001 ChinasaccessiontoWTO

ChiefChineseTopleaders(from1949now)
1. MaoZedong(19491976)
2. DengXiaoping(19791989)
3. JiangZemin(19892002)
4. HuJintao(from20022012)
5.XiJinping (from2012

LegalEnvironmentinChina

ChinasLegislativeSystem
ChinasJudicialSystem
VehiclesforDoingBusinessinChina
IntellectualPropertyProtectioninChina
TheSettlementofDisputes

Chinaslegislativesystem
NationalPeoplesCongressanditsstandingcommittee
(NPCconstitutionandbasiclaws,NPCStanding
committeeotherlaws)
Statecounciladministrativerulesandregulations
Provincial(ormunicipality)peoplescongressandtheir
standingcommitteeLocalordinances
Autonomousregionalpeoplescongressandtheir
standingcommittee autonomousordinancesand
separateregulations

Chinasjudicialsystem

Thesupremepeoplescourt
Higherpeoplescourt
Intermediatepeoplescourt
Districtcourt(basiclevelpeoplescourt)

CompanyLaw
Firsteffective1July,1994
Mostrecentlyamended2005,effective1
January2006
Dealswith
Limitedliabilitycompanies
Jointstockcompanies(companieslimitedby
shares)
Foreigninvestmententerprises,excepttoextent
FIElawsotherwiseprovide

EnterpriseBankruptcyLaw
Comesintoeffect1June2007
Appliestostateownedenterprises,private
companies,financialinstitutionsandFIEs
Specialsectiononfinancialinstitutions
Lawapplicablebyreferencetoorganisations
otherthanenterpriselegalpersons

GroundsforBankruptcy
Entityisunabletopaydebtswhendueand
doesnothavesufficientassetstopaydebtsor
clearlydemonstratesthatitlackstheabilityto
meetpayments

BankruptcyLaw
Options:declarebankruptcy;undergo
reorganisation(rehabilitation);reach
settlementwithcreditors(composition)
Participationofcourtsrequired
Positionofsecuredcreditorspreserved
Priorityofpayments:liquidationdebts,
paymenttoemployees(wagesandsocial
securitybenefits);socialinsuranceandtaxes;
generalcreditors

TheVehiclesforDoingBusinessinChina

DirectsalestoChineseendusers
Tradewithcommissionagents
Representativeoffices
Sinoforeignjointventures(JV)
Sinoforeigncooperativeenterprise
Whollyforeignownedenterprises(WFOE)
Franchising

Constitution,lawsandregulations

ConstitutionofP.R.China(Art.18)
CompanyLaw
SinoforeignJointVenturesLaw
SinoforeignCooperativeEnterpriseLaw
WhollyForeignownedEnterprisesLaw
CataloguefortheGuidanceofForeign
InvestmentIndustries(2010version)

CataloguefortheGuidanceofForeign
InvestmentIndustries

Focusingonadvancedmanufacturing,high
tech,modernservices,newenergyand
energysavingsector.
Encouragedindustries
Restrictedindustries
Prohibitedindustries(e.g.gamblingand
eroticism)

7strategicindustries
1.
2.
3.
4.
5.
6.
7.

Energysavingandenvironmentalprotection
Newgenerationinformationtechnology
Biotechnology
Highendequipmentmanufacturing
Alternativeenergy
Advancedmaterials
Alternativefuelcars

IPRinChina
FormulationofIPRlawsandregulationsearly1980s.
ChinahasfinisheditsIPRlegislativeworkinlessthan
30years.
ChinahasreviseditsIPRlawsinlinewithTRIPS
Agreementaimingatworlddimensionandworld
standards.
(WTO:tradeingoods;tradeinservices;tradeforTRIPs)

WaysofSettlementofTradeand
InvestmentDisputes

Mutualconsultation
Mediation
Arbitration(CIETACChinaInternational
EconomicandTradeArbitrationCommission)
Litigation
theInternationalCenterforSettlementof
InvestmentDispute(ICSID)

BusinessCultureinChina
Technicalcompetenceistheprimarycriterionfordoing
businessinChina
TimeisamajorculturaldifferencebetweenmanyWestern
countriesandChina Chinesearepatientnegotiatorsand
maytakeadvantageofAmericanimpatienceortime
constraints.
Guanxi : connectionorrelationshipbetweenoramong
people.e.g.trytoestablisharelationshipwithsomebody,
orsomeonehasverygoodsocialconnectionsGood
connectionsthatresultinlowercosts,increasedbusiness,
andbetterbusinessopportunities.Inahighlycentralized
,bureaucraticstate,theuseofpersonalcontactsisthe
onlywayorimportantwaytogetthingsdone.

NegotiatinginChina
Chinaisacollectivesociety.OlderChinesemayplacevalues
andprinciplesabovemoneyandexpediency.Theyvaluethe
goodoftheircountryorgroup.
AgeandrankarerespectedinChina.Negotiatingteam
shouldbecomposedofmidlevelandseniorexecutives,
middleagedorolder.
Earlynegotiationsarelikelytofocusongeneralprinciples.
TheChinesewillbereluctanttochangethoselater.
Chineseareslowtodecideonacourseofaction,butstickto
thedecisiononceitismade
Chinesenegotiatorsexpectconcessionsbutdonotalways
makeaconcessioninreturn.
Chinaisaneutralculture.Donotdisplayemotionsduring
negotiations.

HiddenDragons
CompanieshaveMyopicInterestsinChina
Settingoffshoremanufacturingunits(low
costlabor)
SellingProducts(bigmarket)
Ignoredtheemerginggiants

Whyaren'tChinesecompanieson
Corporatecompetitionradar?
Chinesemarketisbigbutfragmented firmsare
smallNotbig/profitableenoughtocompete
oversees
LargeCorporationsarestateownedandhence
notgloballycompetitive
Privateplayerscannotbecomebigastheyare
deniedpermissiontoaccessstockmarketeasily

Hybrids
Hybridsareemerging Partlystateownedand
haveoperationalfreedom haveprofitmotive
1. Havepreferenceinstockmarketlisting
2. Allowedtomakeacquisitions
3. Preferentialtreatmentingettingbankloans
TheyweremissedbecauseinJapanandKorea,it
isprivateplayerswhodominated
Hybridsareoffourtypes

NationalChampions
Domesticleadersbuildglobalbrandsby
identifyingsegmentsthatglobalmarket
leadershavedismissedbecauseofvolumeis
tooloworprofitmarginsnegligible.
Leveragetheirexperienceinadapting
technologiesandfeaturestomeetcost
consciousChinesebuyers'pricepoints.Low
manufacturingcostsgivethemafurtheredge

NationalChampions
LackofUnderstandingoflocaltastesand
consumerhabits
Manydon'tuseproprietarytechnologies
Solution IncreasedR&Dinvestmentsand
NovelMarketingCampaigns

DedicatedExporters
Theyfocusonexternalmarkets,leveragingtheir
economiesofscale.
Firstbreakintomassmarkets,wheretheirlow
productioncostsgivethemanedge.(Pearl
RiverPiano)

DedicatedExporters
Thentheydevelopexpertisewithcrucial
technologiesoftenformingstrategic
partnershipsandacquiringrivalstomigrate
tospecialized,highvaluemarkets.(CMIC)
Thentheymasterimportanttechnologies
swiftly ExGalanz

DedicatedExporters
LackofExperienceinGlobalmarketingand
servicedelivery
Solutions OutsourcingMarketingand
developingalliances

CompetitiveNetworks
Thesenetworkscomprisehundredsofsmall,
specialized,entrepreneurialcompanieslocatedin
onelimitedgeographicalarea.Operatingasa
cohesive,interdependententity,theytakeon
worldmarkets.Withscantbureaucracyand
overhead,they'reflexible,lowcostproducers.
Theythriveinmarketsrequiringquickresponses
tochangesindemand.

CompetitiveNetworks
Tagitselfhasbecomeapowerfulbrandamong
distributorsandretailors
ManyofChina'snetworksoperatein
industrieswherechangesinstyleaffect
demand
TheyhavehiredfashionhousesinAsiaand
Europetofillthegapsintheirknowledgeand
helpthemanticipatetrends

Technologyupstarts
Chinesegovernmentbuiltalarge
infrastructureforscientificandtechnological
research,thenrequiredstateowned
laboratoriestoobtainfundingby
commercializingtheirtechnologies.In
response,researchinstituteshavespawned
companiesandencouragedscientiststo
becomeentrepreneursinemergingindustries.