Choosing China:Insights frommultinationals on theinvestment environment2013 China Development Forumsurvey report
1 Choosing China: Insights from multinationals on the investment environmentCoping with commonchallenges throughcooperatio...
2013 China Development Forum survey report 2that PwC conduct a survey on behalf of the ChinaDevelopment Forum in order to ...
3 Choosing China: Insights from multinationals on the investment environmentForeword:a bright futureI’m delighted to intro...
2013 China Development Forum survey report 4The Chinese Government is responding actively tothis growing competitive chall...
5 Choosing China: Insights from multinationals on the investment environment
2013 China Development Forum survey report 6ContentsRedefining the foreign investment environment in China:The next 30 yea...
7 Choosing China: Insights from multinationals on the investment environmentRedefining the foreign investmentenvironment i...
2013 China Development Forum survey report 8China stands on the cusp of generationalchange in the way it attracts and view...
9 Choosing China: Insights from multinationals on the investment environmentWhat CEOs aretelling usChina’s economic focus ...
2013 China Development Forum survey report 10•	Enhanced accountability and transparency would help toovercome competition ...
11 Choosing China: Insights from multinationals on the investment environmentChina56%Turkey25%Russia19%11%South Africa12%I...
2013 China Development Forum survey report 12Brazil52%26%MexicoUnited States34%“In recent years the idea has gelled across...
13 Choosing China: Insights from multinationals on the investment environmentThe survey carried out for this reportreveals...
2013 China Development Forum survey report 141%16%29%23%12%7%12%Not sureIncrease morethan 75%Increase51%—75%Increase26%—50...
15 Choosing China: Insights from multinationals on the investment environmentFigure 7How CEOs would allocate their investm...
2013 China Development Forum survey report 16Technology companies favour BrazilThe competition for investment is further h...
17 Choosing China: Insights from multinationals on the investment environmentDomestic demand headsinvestment attractionsSo...
2013 China Development Forum survey report 18Multinationals recognise the potential created byan expanding consumer market...
19 Choosing China: Insights from multinationals on the investment environmentSource: The PwC Global CEO Panel (227 respond...
2013 China Development Forum survey report 20“GE’s been here a while; originally we were here to make stuff cheap. And the...
21 Choosing China: Insights from multinationals on the investment environmentMultinationals call forgreater transparencySu...
2013 China Development Forum survey report 22Greater transparency is seen as vital inmarket. Among the areas that will bei...
23 Choosing China: Insights from multinationals on the investment environmentA particular focus of concern is the‘Catalogu...
2013 China Development Forum survey report 24Relatively few participants (14%) believe that the regulation andenforcement ...
25 Choosing China: Insights from multinationals on the investment environmentIan Bremmer, President of Eurasia Group,argue...
2013 China Development Forum survey report 26New industries heightencompetition for talentThe ability to attract and devel...
27 Choosing China: Insights from multinationals on the investment environmentSo is China generating sufficient talentwith ...
2013 China Development Forum survey report 28Western and Centralprovinces’ potentialmoves onto radarThe wealthy and highly...
29 Choosing China: Insights from multinationals on the investment environmentHeadquarter choicesdon’t reflect market sizeT...
2013 China Development Forum survey report 30Towards long-termprosperityOur report confirms that the perceptions and strat...
31 Choosing China: Insights from multinationals on the investment environmentResearch methodologyThis report explores how ...
2013 China Development Forum survey report 32AcknowledgementsMarc AllenPresidentBoeing ChinaIan BremmerPresidentEurasia Gr...
33 Choosing China: Insights from multinationals on the investment environmentAcknowledgementsThe following individuals and...
For further informationFor further information on the ChinaDevelopment Forum survey content,please contact:Cynara TanHead ...
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional ...
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Etude PwC sur les investissements en Chine (2013)

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Selon l’étude mondiale « Choosing China: Improving the investment environment for multinationals » réalisée par PwC et la China Development Research Foundation à l’occasion du Forum sur le développement de la Chine, plus de la moitié des dirigeants interrogés (56%) ont préféré la Chine à d'autres économies majeures pour investir, notamment le Brésil, la Russie, l'Inde et les États-Unis. Les dirigeants se déclarent particulièrement attirés par la consommation en expansion de la Chine, son vivier de talents qualifiés, et les mesures incitatives du gouvernement chinois.

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Etude PwC sur les investissements en Chine (2013)

  1. 1. Choosing China:Insights frommultinationals on theinvestment environment2013 China Development Forumsurvey report
  2. 2. 1 Choosing China: Insights from multinationals on the investment environmentCoping with commonchallenges throughcooperationThe world around us is undergoing a historictransformation: From one in which a minority enjoysthe fruits of economic development to a new globalreality where a majority can share these privileges.As the middle class of developing economies such asChina, India, Brazil and Indonesia emerge as a whole,the next 20 years of humanity will bear witness to abrilliant landscape—where over half of the world’spopulation will rise to become part of the middleclass. This transformation will undoubtedly offerenterprises and individuals unprecedentedopportunity, but will also bring about a series of greatchallenges. These include the rebalancing of theworld economy, a restructuring of the internationalorder, and the sustainability of our environment andnatural resources. Such challenges require thegovernments of every nation, internationalorganisations and the private sector to build broaderand more effective avenues of dialogue andcollaboration. As key players in the globalisationprocess, multinationals play a particularly importantrole in progressing these dialogues.Ever since its founding by the Development ResearchCenter of the State Council in 2000, the ChinaDevelopment Forum has served as a platform forinternational dialogue and collaboration. With the aimof establishing “a dialogue with the world, a mutualpath for development,” the Forum is dedicated toserving delegates with a rich intellectual banquet ofvarying viewpoints that merge, collide, and mutuallyinspire. Through the Forum, we’ve established anetwork of knowledge partners that are both openminded and imbued with a rich creativity. Thedelegates who represent the various governmentministries, domestic and foreign enterprises,international organisations and academic institutionsare all indispensable members of this network. Withthe care and dedication of representatives fromnumerous fields, this network has only deepened,strengthened and grown more fruitful over time.One day, in September 2012, I suggested in a meetingwith Mr. Dennis Nally, Chairman of PwC International,
  3. 3. 2013 China Development Forum survey report 2that PwC conduct a survey on behalf of the ChinaDevelopment Forum in order to understand andassess the expectations of multinationals on China’sinvestment environment. This suggestion was greetedwith enthusiasm by Mr. Nally. PwC, officially set thispiece of research in motion by setting up aprofessional project and research team.This survey report is a shining example of thedeepening and strengthening of our network ofknowledge partners. The report encompasses theresponses of CEOs from 227 multinationals, andfeatures 11 in-depth interviews with CEOs. Not onlydoes this study reflect the engaged outlook of globalmultinationals towards their investment prospects inChina, it also deftly captures the tremendousopportunities inherent in the current transformationof China’s economic model. The expectations of theseglobal multinationals towards the optimisation ofChina’s investment environment deserve carefulreflection and consideration. I believe this report is ofgreat value in promoting understanding betweenChina and the world and in creating win-win situationsfor all stakeholders.At this time, I would like to extend my sinceregratitude to the highly professional efforts of the PwCsurvey team, as well as the staff of the ChinaDevelopment Research Foundation who supported thisresearch. My hope is that the scope of cooperationbetween the Forum’s knowledge partners will furtherexpand, our research further deepen, relationshipsbecome more enduring, platforms become morediverse and the fruits of our collaboration more richand plentiful.Lu MaiSecretary GeneralChina Development Research Foundation
  4. 4. 3 Choosing China: Insights from multinationals on the investment environmentForeword:a bright futureI’m delighted to introduce this insightful researchstudy of how multinational companies perceivethe investment opportunities in China – and theirexpectations of the changes that the ChineseGovernment might make to enhance thoseopportunities. I’d like to thank the ChinaDevelopment Research Foundation for workingclosely with us to produce this report.As Chairman of PricewaterhouseCoopersInternational Limited, a prominent organisation withmembers from around the world and with a stronginterest in, and commitment to, the Chinese market,I have read the findings with particular interest. AndI’ve found it especially encouraging that many of mycounterparts in other industries share my optimisticview of China’s long-term economic prospects.As the study highlights, foreign investment in China iscurrently at a defining moment. On the one hand,China’s economic progress in recent decades has beenbreathtaking: in just four years’ time, we project thatit will overtake the US as the world’s largest market inpurchasing power parity terms. And a major factor inChina’s rapid growth has been its spectacular successin attracting foreign direct investment (FDI). In 2012,China attracted US$111.7 billion of global FDI.Equally positively, more than 70% of our surveyparticipants with operations in China plan to increasetheir investment here over the coming five years.China being a recipient of foreign investment candeliver mutual value to its stakeholders. Goingforward, it’s clear that FDI will remain key to China’seconomic well-being. As the country moves up thevalue chain, shifting from ‘made in China’ to‘designed in China’ and finally to ‘innovated in China’,will lead to significant opportunities for all parties.But recent changes to the global economic landscapemeans China will face new challenges in attractingforeign investment. International investors areincreasingly focused on emerging markets as theyovertake developed countries to become the drivingforce for growth in the global economy. The choicesavailable to multinationals are also widening, asIndia, Brazil, Turkey and several African nationsbecome more competitive in attracting foreigninvestment.A further consideration is that China faces the mostintense competition for foreign investment in many ofthe sectors that it is targeting most actively. In somesectors, such as consumer, industrial products andservices, our survey participants continue to regardChina as having the best growth prospects. Butcompetitors such as Brazil are closing the gap – to theextent that our interviewees in technology companiesnow regard Brazil as offering better growth prospectsthan China.
  5. 5. 2013 China Development Forum survey report 4The Chinese Government is responding actively tothis growing competitive challenge by taking steps toboost domestic consumption, double per capitaincomes by 2020 and reinforce social security. Manyof the international companies surveyed in our reportbelieve that these measures have increased China’sattractiveness as an investment destination.Asked about further measures by the ChineseGovernment to further improve the country’sattractiveness as a place to invest, our respondentsvoice a broad wish list of enhancements – headed by‘improving transparency and anti-corruptionmeasures’, and ‘reducing intervention in the economyand allowing an increase in private competition’.A further area that stands out in our study is theintensifying war for talent. As local Chinesecompanies mature and expand – often into othermarkets – international inward investors are facinggrowing competition for the best Chinese candidates,reflected by staggeringly high staff turnover rates.Significantly, the international companies we spoke toaccept that this is primarily a challenge for them, notfor China: they need to work out how to attract,develop and retain the best local talent including byoffering them opportunities to work internationally.Our respondents also highlight other opportunitiesfor China to improve its attractiveness. For example,less than 10% of the smaller companies in our study– those with operations in fewer than five countries– have operations in China. By moving to become amore knowledge-oriented economy, China could wininvestment from the smaller and specialist foreigntechnology companies that are currentlyunderrepresented. And relaxing the restrictionsimposed on foreign investors in China could ensure areciprocal opening-up of markets, both for Chineseoutbound and multinational inbound investors,creating a ‘win-win’ scenario on each side.Overall, it’s clear that China faces growing competitionto its global leadership in FDI. But, given China’s abilityto capitalise on its natural advantages, I believe thisescalating competitive challenge presents anopportunity as much as a threat. And crucially, ourstudy confirms that international companies are readyand willing to work in partnership with localcompanies and policymakers to ensure theirinvestments deliver value both for themselves and forChina. In an increasingly competitive world for FDI, thefuture for China remains bright.My sincere thanks go to the CEOs from around theworld for contributing their valuable time andinsights. I’m especially grateful to the business leaderswho took part in the in-depth interviews. You can seesome of their comments in the report.Dennis M. NallyChairmanPricewaterhouseCoopers International Ltd.
  6. 6. 5 Choosing China: Insights from multinationals on the investment environment
  7. 7. 2013 China Development Forum survey report 6ContentsRedefining the foreign investment environment in China:The next 30 years.................................................................................7What CEOs are telling us......................................................................9Number one target for investment.......................................................11Multinationals missing full implications of change...............................18Multinationals call for greater transparency.........................................21Intellectual property concerns.............................................................24New industries heighten competition for talent....................................26Western and Central provinces’ potential moves onto radar..................28Headquarter choices don’t reflect market size.......................................29Towards long-term prosperity.............................................................30Research methodology.......................................................................31Acknowledgements............................................................................32
  8. 8. 7 Choosing China: Insights from multinationals on the investment environmentRedefining the foreign investmentenvironment in China:The next 30 yearsChina has reached a critical stage in its development. Its growing middle class andtransformation into a consumption-driven market have prompted many foreign firms toreassess how they do business there. To capitalise on this major opportunity, both sidesare walking a common path to adapt to this new reality. Finding new ways to worktogether through mutual trust and cooperation can lead to a sustainable future.A generation ago, China’s reformers took a decision to engage with the globalcommunity. The result? Few nations in recent history can match China’s economicachievements over the past 30 years.Foreign-invested enterprises andChina’s transformationAs multinationals or foreign-investedenterprises (FIEs) invest in China todevelop their businesses, they have alsomade significant contributions to China’seconomic progress, resulting in a win-winsituation. Not only have they providedcapital, technology and managementexpertise, they have also nurtured localtalent, helping to drive the modernisationof China’s industries. They have also madea significant contribution to employment.1FIEs support for long-term businesssustainability is further reflected in theirreadiness to actively compete andcollaborate with Chinese domesticcompanies. Competition has promptedcompanies such as Haier to improve theirbusiness practices and become moreefficient. It also led to the emergence ofglobal brands such as Lenovo, ZTEand Huawei.1 ‘China 2012 FDI inflows slow, stay on track for $100 billion.’ Reuters, 19 November 2012.Chinese companies can also benefit fromthe technical expertise, standards andmanagement best practices and customerservice capabilities of globalmultinationals to cater to a growingmiddle class in China and abroad. Moreimportantly, foreign enterprises helpdevelop Chinese home-grown talent,which plays a significantrole in building a culture of innovationin China.Encouraging mutual trust and co-operation between government andenterprise may be important in attractingthe optimal type of investment. Greaterprivate sector involvement in research anddevelopment (R&D) can help unlockChina’s innovation potential. Steps toalleviate concerns over technologytransfer, the rule of law and enforcementof laws protecting intellectual propertyrights will help to foster such anenvironment, and encourage thedevelopment of more home-growninnovation.“We are bringing 15 new vehiclesto China by 2015. We are doublingretail and production capacityhere. In doing all this, we also areproviding good jobs and careers,and becoming a key part of thecommunities in which we operate.This is Henry Ford’s original visionfrom more than 100 years ago andwe are so proud to be delivering thisvision to China today.”Alan Mulally, President and CEO,Ford Motor Company
  9. 9. 2013 China Development Forum survey report 8China stands on the cusp of generationalchange in the way it attracts and viewsforeign investment. And it is thisinvestment that will have a critical role inshaping its future. At this stage, there are afew key questions to be pondered. How canChina best optimise its foreign investmentenvironment? How can foreign investmentbe directed in a way that better facilitatesChina’s economic transformation, whileleading to mutually beneficial outcomes?What investments are needed to attractand develop the best talent? How caninvestments in R&D and innovation allowChina to move up the value chain?We hope our study can help to addresssome of these issues.The global CEOs we surveyed andinterviewed for this report tell us thatreform is moving in the right direction. Thekey element now is the forging of mutualtrust and good faith between governmentand foreign enterprise, to ensure thatChina continues along its path towardslong-term prosperity.2 Xu, Bin. Foreign Competition and Productivity of Chinese Firms. Shanghai: China Europe International Business School and University of Florida, 2003.“China’s ambitious economic plans, as outlined at the 18th Party Congress,call for greater urbanisation as a path to prosperity. IBM is proud to beworking closely with local authorities in China to build Smarter Cities thatare efficient, safe, and environmentally friendly.”Virginia M. Rometty, Chairman, President and Chief Executive Officer,IBM CorporationMany of our in-depth interviewrespondents, including General Electricand Boeing, have stressed the importanceof collaboration in building their businessin China and in assisting Chinese partnersto grow and compete on an internationallevel. In fact, technological collaborationwith multinationals such as GeneralElectric and Boeing is playing a role in thegrowth of the Commercial AircraftCorporation of China (Comac), which isthe first major entrant to the globalcommercial aircraft market in many years.But China is in the midst of an economictransformation, aimed at boostingdomestic consumption to diversify andstrengthen its economy. It aims to increasethe contribution of technologicaladvancements to GDP growth in creating‘an innovation-based economy’. So whileforeign investment has helped China togreatly expand the capacity and potentialof its economy over the past 30 years,China is now faced with another question:How can the country channel and directFDI in the future to better complement thiseconomic transformation, and lead towin-win outcomes?Moving up the value chain“The first big challenge for China is tocontinue moving up the value chain,” saidOECD Secretary-General Angel Gurría onhis official visit to China in March 2012.As China increases its capacity to innovateand transforms into a leading knowledge-based economy, what role will foreigninvestment and foreign-investedenterprises play in this transformation?Research has shown that foreigncompetition and collaboration can helpboost China’s global competitiveness, anddevelop and pioneer next-generationtechnologies. One study suggests thatforeign ownership is a predominant factorin the transfer of foreign technology, inturn boosting total factor productivity(a measure of long-term technologicaldynamism) growth among Chinese firms.2
  10. 10. 9 Choosing China: Insights from multinationals on the investment environmentWhat CEOs aretelling usChina’s economic focus is shifting from low-cost labour to an expanding middle class,from ‘made in China’ to ‘designed in China’, and with it the nature of the opportunitiesand challenges for foreign enterprises.Existing players are moving quickly to capitalise on the opportunities opened up byChina’s economic transition. The new focus of growth could also create fresh openingsfor smaller and specialised high-tech businesses. But higher labour costs may make someareas of production less sustainable for foreign enterprises. The move up the value chaincould also heighten the sensitivities over technology transfer and the protection ofintellectual property rights.The findings from the CEO survey carried out for this report confirm that China is seenas offering the strongest growth prospects among a range of leading global markets,which include India, Brazil and the US (see page 11). But China is facing strongcompetition for international investment, especially within the high-tech sectorstargeted for growth. The survey also highlights a number of barriers and concerns thatwill be important to address if China is to make the most of its global investmentpotential.When asked what the Government could do to improve the investment environment,‘improving transparency and anti-corruption’ headed the list. This was followed by‘reducing intervention in the economy and allowing an increase in private competition’(for more details please see page 21).Drawing on the findings from this report, we believe that these are the key strengths andopportunities that China can build on, and the issues and potential threats it shouldaddress as it seeks to promote foreign investment and commercial development.
  11. 11. 2013 China Development Forum survey report 10• Enhanced accountability and transparency would help toovercome competition issues and make it easier for foreignenterprises to plan ahead• Phasing out the forced transfer of technology and allowingjoint ventures to forge their own partnership arrangementswould strengthen mutual trust and encourage greaterinvestment• Giving multinational companies that are established in Chinaand employ local people the same status and accessto the market as domestically based counterparts wouldstrengthen their commitment to the market• Relaxing the conditions set out in the ‘Catalogue for theGuidance of Foreign-Invested Industries’ would allow greaterpolicy and commercial freedom, and ensure a reciprocalopening up of markets for Chinese outbound andmultinational inbound investorsOpportunities• Mounting competition for foreign investment from other fastgrowth markets, especially in sectors targeted for growth• Concerns over protection of intellectual property rights coulddiscourage high-tech businesses from committing investment• If China does not open up further to inbound investment itmay face further restrictions on Chinese outboundinvestmentStrengths• Recognition of China’s new leadership’s continuedcommitment to “deepening reform and opening up”• On track to becoming the world’s biggest economy• Number one target for foreign companies, especially amongconsumer, industrial products and services groups• Strength of domestic demand, though considerable potentialfor further growth• Accelerating investment in research and development (R&D)Weaknesses• Concerns over technology transfer and protection ofintellectual property rights• Concerns over the pace of liberalisation• Lack of transparency in areas such as target setting and theawarding of contracts• High level of red tape in areas including licensing and workpermit approval• Perception of favouring domestic companiesThreats
  12. 12. 11 Choosing China: Insights from multinationals on the investment environmentChina56%Turkey25%Russia19%11%South Africa12%IndonesiaIndia37%Source: The PwC Global CEO Panel (227 respondents)Note: The results exceed 100% because each respondent chose more than one destination for investment.Number one targetfor investmentChina remains the number one target for investmentworldwide. But other leading economies are pushing ithard, especially within the key sectors China is targetingfor growth.Figure 1Which three of these key markets would you invest in?Target growth markets
  13. 13. 2013 China Development Forum survey report 12Brazil52%26%MexicoUnited States34%“In recent years the idea has gelled acrossthe overwhelming majority of UScompanies that, ‘If I don’t win in China,I don’t win’,” said Marc Allen, President,Boeing China.Mr Allen’s comments reflect theimportance of China for global business.China is seen by survey participants as3 PwC. ‘16th Annual Global CEO Survey: Dealing with disruption – Adapting to survive and thrive.’ 2013.offering the best prospects for growth(see Figure 1) and more than 80%anticipate that their revenues in thecountry will increase in 2013. This echoesthe findings of PwC’s 16th Annual GlobalCEO Survey, in which China once againtopped the list of countries seen as havingthe biggest potential for businessexpansion.3“China is a very important marketto Ford Motor Company. By mid-decade, many third parties expectthe automotive industry in China togrow to 28 million vehicles each year,surpassing the Americas and Europe tobecome the largest auto market in theworld. It is important to Ford MotorCompany’s future that we positionourselves, in conjunction with ourpartners, to deliver great products forthese customers.”Alan Mulally, President and CEO,Ford Motor Company
  14. 14. 13 Choosing China: Insights from multinationals on the investment environmentThe survey carried out for this reportreveals that North American companiesare most likely to have investments inChina (see Figure 2).Similarly, confidence in China’s prospectsis strongest in North America (more than80% of participants from the region seeChina as a top three investment priority);though at least 40% of participants frommost other regions are targeting China(the only exception is the Middle East)(see Figure 3).“Investment conditions in Chinaare generally very good. Economicgrowth remains high and China isstill very competitive compared toother countries, as demonstrated bythe high level of foreign investment.”Jean Lemierre, Senior Advisorto the Chairman, BNP Paribasand Former President, EuropeanBank for Reconstruction andDevelopmentFigure 2Investment status of CEO respondents (by region) in ChinaSource: The PwC Global CEO Panel (227 respondents)Note: The figures in the graphs in this report have been rounded to the nearest percentage sooverall percentages may total 101% or 99% in some cases.Source: The PwC Global CEO Panel (227 respondents)Source: The PwC Global CEO Panel (90 respondents who have investments in China)4 PwC M&A 2012 Review and 2013 Outlook, published January 2013.Has investments in China No current investments in China14% 86%39% 61%40% 60%40% 60%100%43% 57%57% 43%Asia Pacific (23)Central andEastern Europe (10)Latin America (55)Middle East (6)North America (28)Western Europe (84)Africa (21)Investment in Chinaby regionStrategies for growthAs Figure 4 highlights, M&A andgreenfield development are the favouredgrowth strategies (more than 40% ofparticipants citing each), though morecollaborative ecosystems characterised byalliances, joint ventures and licensedproduction are likely to be an importantroute for many. The value of inboundacquisitions fell in 2012, following therecord highs of 2011, but is expected topick up again in 2013.4In a further vote of confidence, more than70% of the survey participants that haveoperations in China plan to step up theirlevel of investment over the next five years(see Figure 5).Organic growth models Inorganic growth modelsFigure 3Proportion choosing China as one of the three markets offering the best prospects forgrowth for their business and a top target for investment.82%17%45%70%65%52%WesternEurope(84)NorthAmerica(28)MiddleEast(6)LatinAmerica(55)Central andEasternEurope(10)AsiaPacific(23)Africa(21)55%New productresearch anddevelopmentLicensing todistributors/franchisingFacilitiesexpansionsGreenfieldinvestments44%28%38%51%38%22%30%34%Mergers andacquisitions43%11%Strategicalliances37%26%Next 5 years CurrentlyJointventures38%36%New productresearch anddevelopmentLicensing todistributors/franchisingFacilitiesexpansionsGreenfieldinvestments44%28%38%51%38%22%30%34%Mergers andacquisitions43%11%Strategicalliances37%26%Next 5 years CurrentlyJointventures38%36%Figure 4Considering the options below, what are your three main growth models in Chinacurrently? What are your three main growth models in China in the next five years?
  15. 15. 2013 China Development Forum survey report 141%16%29%23%12%7%12%Not sureIncrease morethan 75%Increase51%—75%Increase26%—50%Increase1%—25%No change0%Decrease26–50%Number of creditsFigure 5CEOs planning on changing the level of investment into China in the next five years.Source: The PwC Global CEO Panel (90 respondents who have investments in China)Investment plansBut the survey also stresses the extent towhich multinationals are re-assessingwhere they allocate resources globally asthey seek the best investmentopportunities. We asked participants tostate how they would divide up theirinvestment funds between their top threetarget markets. More than 30% of theparticipants targeting China forinvestment would commit half or more oftheir available funds to the countryFigure 6If you were given 10 credits to invest in your three markets targeted for investment,how many of these credits would you invest in China?2%12%26%27%23%8%2% 1%10987654321Number of creditsSource: The PwC Global CEO Panel (128 respondents who chose China as one of their three top markets to invest in)Allocation ofinvestment in China(participants allocating five or morecredits),5which is encouraging (see Figure6). But for most participants the spreadbetween the targeted countries is muchwider, highlighting the competition fromother markets.As Figure 7 highlights, China is behind theUS in its share of participants’ investment‘wallet’, though it comes out ahead ofBrazil and India.5 Participants were asked to share out 10 nominal credits across their chosen three target markets.
  16. 16. 15 Choosing China: Insights from multinationals on the investment environmentFigure 7How CEOs would allocate their investment across markets out of a total of 10 credits.Source: The PwC Global CEO Panel (varying base sizes contingent on those who allocated at least one credit to a particular market)Allocation of investmentin global markets50%0%Number of creditsEconomies1 2 3 4 5 6 7 8 9 10 AverageUnited States (78) 3% 13% 21% 24% 21% 9% 4% 1% 1% 4% 4.31China (128) 2% 12% 26% 27% 23% 8% 2% 0% 0% 1% 3.95Mexico (58) 7% 23% 23% 26% 14% 4% 2% 0% 0% 2% 3.47Brazil (119) 7% 24% 29% 21% 13% 3% 2% 0% 0% 1% 3.34South Africa (26) 8% 19% 46% 15% 8% 0% 4% 0% 0% 0% 3.12Indonesia (28) 0% 39% 36% 7% 18% 0% 0% 0% 0% 0% 3.04Turkey (56) 0% 43% 27% 20% 9% 2% 0% 0% 0% 0% 3.00Russia (43) 5% 26% 42% 23% 5% 0% 0% 0% 0% 0% 2.98India (84) 4% 32% 42% 19% 2% 1% 0% 0% 0% 0% 2.88
  17. 17. 2013 China Development Forum survey report 16Technology companies favour BrazilThe competition for investment is further highlighted by the strong showing for Brazil.Brazil is only just behind China in growth prospects (see Figure 1). China is seen byconsumer, industrial products and services companies as offering the best prospects (seeFigure 8), reflecting its well-developed manufacturing base. But Brazil is favoured bytechnology businesses and the financial services sector, highlighting the challengesChina faces in attracting investment into these two target sectors.Figure 8Top four growth markets chosen by CEOs in each sector.China Brazil India UnitedStates58%48%37% 37%China Brazil India UnitedStates64%40%28%80%China Brazil India Turkey48%55%33% 33%Consumer, industrial products and services Financial servicesTechnology, information,communication and entertainmentSource: The PwC Global CEO Panel (225 respondents from consumer, industrial products and services, financial services, and technology, information,communication and entertainment companies)Base: All respondents (158) Base: All respondents (42) Base: All respondents (25)“Dow Corning is in China to supportour customers here and becauseour expertise and technology andinnovation portfolio are a goodmatch to the trends that are shapingthe economy here and the prioritiesof the Chinese Government.”Jeremy Burks, Greater ChinaPresident, Dow CorningThe challenge of building up China’starget sectors is heightened by the fact thatmany of them are already a source ofpotential trade tensions and protectionistmeasures around the world includingaerospace, electronics and renewableenergy. The frictions are highlighted bythe instances of inbound Chineseacquisitions being barred in the US. TheEU is generally seen as being more open.But a recent European Union Chamber ofCommerce in China report into outboundChinese investment in the EU highlightedconcerns among Chinese companies overthe potential for new restrictions. Theseinclude concerns that possible barriersfaced by EU companies in China couldresult in retaliatory measures preventingChinese companies from makingacquisitions or building up theirbusinesses in the EU.6Freer access for foreign enterprises withinChina in return for making it easier forChinese companies to build up theirbusiness abroad is going to be increasinglyimportant in an ever-more interlinked andinterdependent global economy. “Helpingmultinationals win in China is important toChina,” said Mark Hutchinson, Presidentand CEO, General Electric China.6 ‘Chinese outbound investment in the European Union’, published by European Union Chamber of Commerce in China, January 2013.Target markets bysector
  18. 18. 17 Choosing China: Insights from multinationals on the investment environmentDomestic demand headsinvestment attractionsSo how does China compare with other keymarkets across a range of investmentdrivers? Figure 9 reveals the main reasonsFigure 9Which of the following factors most influenced your selection in each country?Source: The PwC Global CEO Panel (227 respondents)Attractions for investmentand growthwhy multinationals are targeting aparticular country for investment andgrowth. China’s biggest attraction is itsexpanding domestic demand (34% ofparticipants citing this), though the ratingfor Brazil (81%) is much higher in this area.India scores poorly in its share ofinvestment wallet (see Figure 7). But ahigher proportion of participants citedgrowing domestic demand as a spur forinvesting in India rather than in China.India also has a more skilled talent poolaccording to participants, which is an areathat is likely to be significant in attractinginvestment into high value-added sectors.Such comparisons do of course need somequalification. China is a much biggermarket than India or Brazil. The countriesare also at different points in theirdevelopment as China seeks to create abetter balance between consumer-ledgrowth and export-led and investment-ledexpansion that has been its mainstay, whileIndia and Brazil look to move the otherway. Moreover, China wins high ratingsacross a broader range of areas than Indiaor Brazil, suggesting that its attractions toinvestors may be more evenly spread.Nonetheless, the comparisons suggest thatwhile China has many attractions tomultinationals, it is less strong in anumber of key areas that may need to beaddressed. If China’s improvements inthese areas are not obvious, the countrycould be overtaken by other markets in thecompetition for investment, especially insome of the sectors most closely targetedfor growth.China(128)Brazil(119)India(84)UnitedStates(78)Mexico(58)Turkey(56)Russia(43)Indonesia(28)SouthAfrica(26)Expanding domestic market and demand 34% 81% 46% 23% 29% 23% 60% 39% 38%Level playing field with local competitors 30% 24% 23% 28% 26% 30% 19% 32% 15%Government incentives 27% 22% 18% 27% 31% 25% 16% 21% 31%Skilled talent pool 27% 18% 35% 27% 26% 21% 23% 18% 38%Lower labour costs 26% 18% 48% 24% 21% 23% 21% 25% 19%Favourable tax regime 22% 5% 23% 28% 22% 20% 12% 21% 23%High quality and cost competitive suppliers 21% 18% 11% 31% 22% 29% 16% 11% 31%Proximity to supply chain 20% 20% 14% 22% 19% 25% 26% 14% 15%Advanced infrastructure 20% 11% 12% 23% 22% 25% 14% 18% 12%Low level of bureaucracy and regulations 17% 6% 11% 22% 31% 23% 9% 14% 23%100%0%
  19. 19. 2013 China Development Forum survey report 18Multinationals recognise the potential created byan expanding consumer market. But theimplications of higher incomes needed to sustainthis growth may be less well appreciated. Therealso appears to be surprisingly little focus on theopportunities opened up by the move to aninnovation-based economy.When asked to identify which three of the commitments outlined atthe 18th National Congress of the Communist Party of China wouldhave the most significant impact on their company, the drive toincrease domestic demand came first (see Figure 10). This reflectsthe chief reason why international groups are targeting China,outlined in the previous section. China’s rising consumption is alsogoing to be a critical element of economic growth worldwide.Multinationals missingfull implications ofchange“We invest where we see growth and stable andpredictable conditions for our businesses. A fair,transparent and open business environmentand sufficient protection of intellectual propertyrights are also of great importance to us. Theavailability of a skilled workforce, the quality ofinfrastructures, as well as open markets and thepromotion of trade are further considerations.”Peter Löscher, President and CEO ofSiemens AG, and Chairman of the Asia-PacificCommittee of German Business (APA)
  20. 20. 19 Choosing China: Insights from multinationals on the investment environmentSource: The PwC Global CEO Panel (227 respondents)Figure 10Top issues for CEOs from the list of key areas of commitment identified during the 18th NationalCongress of the Communist Party of China.Impact ofgovernmentpriorities48%Economic developmentdriven by domestic demand,particularly consumerdemand43%Deepen financial reformand promote the steadyliberalisation of foreignexchange controls and interestrate policyDoubling per capitaincome by 2020(both urban and ruralresidents)41%Lower carbonintensity andmajor pollutants’emissions level18%Addressing systemicbarriers that standin the way ofdevelopment32%Sustainable development ofadvanced manufacturing, modernservice and key emergingindustries; transformation oftraditional industries26%Increase the contributions oftechnological advancementsto GDP growth in creating aninnovation-based economy18%
  21. 21. 2013 China Development Forum survey report 20“GE’s been here a while; originally we were here to make stuff cheap. And thenthere’s the ‘How do we access the China market?’. And then the third phase is,‘How can we innovate here?’. And we’re in that innovation phase now.”Mark Hutchinson, President and CEO, General Electric ChinaThe commercial potential of continuingfinancial reform is also recognised. Keydevelopments include the continuinginternationalisation of the renminbi andrelaxation of interest rate controls. Foreignbanks had their most profitable year in2011, though market share is still less than2%.7The economic transition will open upimportant opportunities for product andservice development within financialservices, with foreign institutions able tobring product design and riskmanagement expertise to bear.“The challenge China faces is to keepa balanced growth model that allstakeholders can benefit from. Theincome divide is a crucial elementhere, along with the increasing rolethat China will have to play as acontributor to global stability, in anever-more interlinked world.”Claudio Facchin, Senior Vice-President, ABB Group, Head ofABB North Asia Region, Chairmanand President, ABB China Ltd.“China will eventually have tocommit to a major overhaul ofits domestic capital market, andallow companies to use more of thismarket. And to do so, perhaps skillslike ours could be useful in helping tobuild the Chinese capital market.”Jean Lemierre, Senior Advisorto the Chairman, BNP Paribasand Former President, EuropeanBank for Reconstruction andDevelopmentTechnology opportunitiesdownplayedIf low labour costs were one of the mainattractions in the first wave of foreigninvestment, there will be fewer suchopenings as the government seeks to moveup the value chain and double incomes by2020 (number three in the list of prioritieswith the greatest impact cited in Figure10). But the implications of this shift in thecost base may not be fully appreciated asyet. Our survey shows that low labourcosts are still seen as a major reason fortargeting China, with only India seen asmore favourable in this respect.China’s move up the value chain andcommitment to green development areseen as having a much lower impact,despite the opportunities to bringexpertise and technology to bear in a newwave of investment. Even amongtechnology, information, communicationand entertainment companies, less than30% of participants feel that the move to amore innovation-oriented economy willhave a significant impact on their business.The lack of focus is echoed in PwC’s latestglobal CEO survey, in which only 19% ofthe business leaders targeting China for“Well, I think the West has got itwrong, because I don’t think theWest really understands whathappens, and we’ve had the 12thFive Year Plan on the table forabout two years, and yet we’ve onlyjust woken up to the fact that whatthey’re saying is they want higherquality, lower quantum growth.”Sir Martin Sorrell, ChiefExecutive, WPP7 ‘Foreign banks in China’, published by PwC, July 2012.8 PwC. ‘16th Annual Global CEO Survey: Dealing with disruption – Adapting to survive and thrive.’ 2013.It will be important for policymakers tohighlight the commercial potential createdby the commitments to innovation andgreen development and look at ways toencourage greater interest. Policymakershave tended to favour large foreigncorporations capable of bringing insignificant amounts of capital and exportreach – one of the clearest findings in oursurvey is how few (less than 10%) ofsmaller companies (operations in fewerthan five countries) have operations inChina. A more knowledge-orientedeconomy would benefit from some ofsmaller and specialist foreign technologycompanies that are as yet under-represented in China.investment and growth said thatincreasing innovation and RD capacity isa priority.8Comparable figures for Indiaand the US are higher.Are foreign enterprises missing valuableopportunities in China? Could there alsobe barriers that are discouraging foreigninterest? As we explore later in the paper,some of the concerns highlighted bysurvey participants include the protectionof intellectual property and the clarity anddirection of regulation.
  22. 22. 21 Choosing China: Insights from multinationals on the investment environmentMultinationals call forgreater transparencySurvey participants believe that a number ofregulatory and competition issues will need to beresolved if China is to maximise its investmentpotential.When asked what the government could do to improve the investment environment,‘improving transparency and anti-corruption’ headed the list by a significant margin(see Figure 11). This was followed by ‘reducing intervention in the economy andallowing an increase in private competition’. While the sector-specific findings arebroadly in line with the wider survey population, technology, information,communication and entertainment companies are especially focused on the competitionand market opening issues.Source: The PwC Global CEO Panel (227 respondents)Figure 11Areas CEOs would like the Chinese Government to focus on.Impact of governmentpriorities73%Improvinggovernmenttransparencyand anti-corruption53%Reducing economicinterventionandincreasing privatecompetition30%Speeding upcapitalmarketsreform28%Boostingdomesticconsumptionand demandCreating afavourableenvironmentfor developinginnovation andentrepreneurialtalent26% 22%Increasingincentives to dobusinessin China
  23. 23. 2013 China Development Forum survey report 22Greater transparency is seen as vital inmarket. Among the areas that will beimportant to address are the awarding ofgovernment contracts and the setting ofeconomic plans and targets.To attract further foreign investment andcreate a more welcoming environment forforeign investors and businesses, PeterLöscher, President and CEO of SiemensAG, encourages public authorities “toembrace knowledge and innovation as keysocietal values, to recognise the efforts ofinnovators and inventors, to effectivelyprotect intellectual property rights,notably through enhanced transparency,and to place greater emphasis on thequality of innovation rather than thequantity of patents”.Developments inregulationA recurring theme in the interviews is theopen licensing processes. When askedabout potential barriers for foreignenterprises and how they could beovercome, Jeremy Burks, Greater ChinaPresident, Dow Corning, said: “If you wanta vibrant business environment, you wantthe companies to seize opportunities rightaway, not have them say ‘my businesslicence does not cover this venture and Ineed six months to apply for a new one’.opportunities”.Figure 12In the following key areas, would you say that the regulatory environment in China has improved, deteriorated or stayed the same overthe past three years?Source: The PwC Global CEO Panel (227 respondents)Taxation and fiscal regulationsForeign exchange controlsRegulations on foreign investmentCapital markets regulation 4% 45% 28% 23%23%21%30%26%10% 42% 25%7% 50% 22%7% 52% 11%44% 14%Deteriorated Improved Not sureStayed the sameIntellectual property regulationand enforcement 16%“In a world that is rapidly becoming instrumented, interconnectedand intelligent, every economy’s success depends on interchange andcollaboration. That is why I encourage all governments – developed orborders.”Virginia M. RomettyIBM CorporationConcerns over pace of reformOur survey highlighted concerns over the pace of reform, with the bulk of participantsbelieving that the regulatory environment has remained largely unchanged over thepast three years (see Figure 12).
  24. 24. 23 Choosing China: Insights from multinationals on the investment environmentA particular focus of concern is the‘Catalogue for the Guidance of Foreign-Invested Industries’, which specifies whichactivities are encouraged, restricted orprohibited. This is seen as a potentialbarrier to open competition in manysectors. Several interviewees also notedhow certain policies may be making itharder for China to competeinternationally.Recognising the regulatory shiftBut some participants believe that theattitude of regulators and policymakers ischanging. Referring to innovation policyin particular, Mark Hutchinson, Presidentand CEO, General Electric China, said:“I think they [policymakers] are moreopen now. And the attitude now is moreopen too, ‘Well we need the multinationalsas well [as local companies]’, whichthey do.”Further signs of the commitment to reformcome from the recent Government WorkReport 9. The report recognised reformand opening up as the fundamental forcedriving China’s development and progress,with the need to bring about quickerchanges to the fiscal and taxation systems,and deepen reforms to the financialsystem.“I have a distinct admiration for the Chinese model. I think it hasits issues and challenges, but I think if you learn to operate in theChinese system, and try and change it from within, then you canmake progress. The Chinese do listen. They have a great strengthof listening, and they do learn, which is a big strength and one thatwe have forgotten in the West.”Sir Martin Sorrell, Chief Executive, WPP9 Delivered on 5 March 2013 at the First Session of the Twelfth National People’s Congress in Beijing.
  25. 25. 2013 China Development Forum survey report 24Relatively few participants (14%) believe that the regulation andenforcement of intellectual property rights have improved. Nearly 50% ofrespondents in a 2011 survey carried out by the Economist Intelligence Unit(EIU) were concerned or very concerned that they would be expected to giveup their intellectual property in exchange for market access.10Theseconcerns may explain why only 19% of the business leaders in PwC’s latestglobal CEO survey who are targeting China are looking to increase theirinnovation capacity.11“I’m a huge fan of China and I think they’ve done some amazing things overthe last 20 years, but the rule of law is probably the most critical thing thatthey need to fix to harness real creativity and real innovation. And that’sgoing to make the difference to it being stuck in the middle income trap orgetting to, like a Korea.”Mark Hutchinson, President and CEO, General Electric ChinaIntellectual propertyconcernsConcerns over the transfer of technology and protectionof intellectual property will need to be addressed if Chinais to move up the value chain and harness real creativityand innovation.10 ‘Multinational companies and China: What future?’, a report published by the EIU, December 2011.11 PwC. ‘16th Annual Global CEO Survey: Dealing with disruption – Adapting to survive and thrive.’ 2013.
  26. 26. 25 Choosing China: Insights from multinationals on the investment environmentIan Bremmer, President of Eurasia Group,argues that a lack of more effectiveprotection for intellectual property rightsin China could impede a push by Chinesefirms into foreign markets. Mr Bremmerbelieves that more effective protectionwould help to foster closer partnershipswith foreign enterprises and sustainlong-term investment and growth in keytarget sectors. He also believes that thekind of expertise that China may need isgoing to evolve as it reaches into newmarkets. “Increasingly we’re talking aboutsofter skills, so we’re talking aboutorganisational management, we’re talkingabout corporate governance at the highestlevels. Country risk analysis is also goingto be important as their need to securecommodities takes them into unfamiliarand potentially unstable markets,” he said.Intellectual property concerns are also akey issue raised in the American Chamberof Commerce in Shanghai’s China BusinessReport 2012-2013: “... longstanding issuesaround the enforcement and protection ofintellectual property rights (IPR) continueto hinder U.S. companies in China. Thenumber of companies that said theprotection of IPR is ‘critically important’ or‘very important’ to their businessincreased to 70 percent in 2012. Surveyresults also indicate IPR has increased as atop concern over the past 12 months with66 percent saying enforcement has stayedthe same and 6 percent responding that ithas deteriorated, a slight increasefrom 2011.”1212 The American Chamber of Commerce in Shanghai. ‘China Business Report 2012-2013.’ February 2013.
  27. 27. 2013 China Development Forum survey report 26New industries heightencompetition for talentThe ability to attract and develop talent (includingskilled people from abroad and returning Chinesenationals) are clearly crucial in sustaining China’stransition to the next level and competinginternationally.More than 40% of the business leaderstargeting China in PwC’s latest global CEOsurvey said that accessing local talent is akey objective over the next 12 months,making it the second highest businesspriority.13The challenges are set to increase asdemand and competition for technical andcreative talent continues to rise. “Humanresources are really the biggest constraint,including pilots, mechanics, etc.,” saidMarc Allen, President, Boeing China.“We’re even beginning to hear fromoperators that they are sometimes havinga hard time taking delivery of the newairplanes they need to service busy routesbecause they don’t have sufficient pilotand other resources on hand to put theplane into operation. This needs to besolved as a priority.”“The challenge for us is to develop our local presence in a muchmore potent form, and not be regarded as a foreign companyin China, as to a great extent we’re not, because we’re run bynationals, not run by expats. We have some plans for developingWPP in a different form in China, more locally based, and Ithink that in the fullness of time, I’m sure we’ll have an evenstronger position.”Sir Martin Sorrell, Chief Executive, WPP13 PwC ‘16th Annual Global CEO Survey: Dealing with disruption – Adapting to survive and thrive.’ 2013.
  28. 28. 27 Choosing China: Insights from multinationals on the investment environmentSo is China generating sufficient talentwith the right skills? The comparison ofwhat is influencing investment in keymarkets carried out for this report foundthat China is behind India on its skilledtalent pool, but ahead of Brazil,highlighting this as a key area ofcompetition (see Figure 13).Several interviewees believe that thechallenge is not how much talent is beinggenerated, but how to attract it. Asdomestic companies expand and moveinto new commercial fields they are able tooffer ever-more attractive packages andprospects. This is certainly borne out bythe staggeringly high staff turnover rates.“The quantity of production is certainlyokay. We’re actually operating inoperational bases in Chengdu and Yulin;potentially, with 1,000 technical staff inboth areas – maybe more over time, withsuccess. Chengdu, in particular, hasexcellent local universities,” said SimonHenry, Executive Director, Chief FinancialOfficer, Royal Dutch Shell Group. “Thechallenge, for us, is attracting the best andthe brightest because it’s a very competitivemarket. And then, developing people in away that motivates those individuals towork with Shell and stay with Shellthrough the long-term and become futureleaders of Shell, not just in China, butaround the world.”Figure 13CEOs indicating that talent factors are influential to their decision to invest ineach market.Talent factors mostinfluential to investmentdecisionsSouth Africa (26)Indonesia (28)Russia (43)Turkey (56)Mexico (58)United States (78)India (84)Brazil (119)China (128)Lower labour costsSkilled talent pool27%18%18%21%23%25%18%23%21%26%21%27%24%19%38%35%48%26%Source: The PwC Global CEO Panel (varying base sizes contingent on those who allocated atleast one credit to a particular market)
  29. 29. 2013 China Development Forum survey report 28Western and Centralprovinces’ potentialmoves onto radarThe wealthy and highly developed coastal clustersremain the primary focus for foreign investment,though multinationals increasingly recognise thepotential of the less developed Western andCentral provinces.The EIU’s 2011 Multinational companiesand China: What future? survey indicatedthat wealthier coastal cities remain theprimary target for growth. But foreigninvestment in the Central and Westernregions has continued to rise over the pastdecade (from 13% of FDI in 2002 to 17%in 2011).14Could this growth nowaccelerate as China’s economy continuesits transition?Opportunities are opening up for foreignenterprises as the government seeks tospread development and wealth moreevenly across the country. In particular,there could be opportunities to move theirlabour-intensive industries to the Westernand Central parts of China to reap benefitsfrom preferential treatments, whilepartnering with more developed cities tocultivate the inland market.“Overall, RD and manufacturing expansion are growing fast in inlandregions. ABB’s customer industries, such as oil and gas, electric machineryand equipment manufacturing, and power equipment will grow much fasterthan average in the West. Inland regions, especially some key inland cities withtop science and engineering universities, also provide a large talent pool.”Claudio Facchin, Senior Vice-President, ABB Group, Head of ABB NorthAsia Region, Chairman and President, ABB China Ltd.“I don’t think that competition fromneighbouring countries for labourcosts is a threat to China sinceWestern China has a strong outlookin terms of competitiveness. However,China could continue strengtheningits financial system.”Jean Lemierre, Senior Advisor tothe Chairman, BNP Paribas andFormer President, European Bankfor Reconstruction and DevelopmentRoyal Dutch Shell is one of the companiesthat stress the importance of a pan-Chinapresence. “Our head office, of course, is inBeijing and we do have other offices inShanghai and in Guangdong for thevariety of marketing and other activities– access to suppliers, for example. A lot ofthe service sectors operate out of theShanghai area. We need to be a nationalplayer, but focused where either themarkets or the resources are,” saidSimon Henry, Executive Director,Chief Financial Officer.Siemens AG is also looking to reach intonew areas and adjust its operational focusas the economy continues to evolve. “Withour large footprint and 65 regional officesacross China, we have implemented a ‘zerodistance to the customer’ approach thatenables us to capitalise on the marketopportunities in all major regions ofChina. In addition, we are expanding ourvalue chain in Central and Western China.14 Ministry of Commerce, People’s Republic of China, November 2012.15 ‘Doing business and investing in China’, published by PwC, January 2013.This setup also greatly facilitates thecontinuous expansion of our supplier basein China,” said Peter Löscher, Presidentand CEO. “At the same time, we expectChina’s urbanisation to be of increasingimportance for our business. Meanwhile,Siemens AG is further committed insupporting China’s industrial upgrade anddevelopment of renewable energyespecially offshore wind power as well asimprovement of social healthcare throughadvanced technologies.”Nonetheless, attracting companies awayfrom the coastal regions will remain achallenge when the East and South andCentral regions account for more than halfof the population and an even largerproportion of GDP.15Incentives such as taxbreaks will be important. But it will also beimportant to make the process of settingup factories and other business operationseasier and more transparent.
  30. 30. 29 Choosing China: Insights from multinationals on the investment environmentHeadquarter choicesdon’t reflect market sizeThe low number of participants that have or areplanning to site regional headquarters in Chinaraises questions about the attractiveness ofoperating in the country.The presence of an HQ is a sign of being comfortable with doing business in the countryand the quality of the living and working environment. But less than half of surveyparticipants with operations in China have or are planning to site their Asia Pacific HQin China, despite China being the largest market (see Figure 14).2%We have plans to moveour Asia Pacific regionalheadquarters to ChinaWe currently haveour Asia Pacific regionalheadquarters in China42% 42%We have no plans to moveour Asia Pacific regionalheadquarters to ChinaWe have noAsia Pacific regionalheadquarters13%Source: The PwC Global CEO Panel (90 respondents who have investments in China)Figure 14Is having an Asia Pacific regional headquarters in China part of your global strategy?A study by the European Union Chamberof Commerce in China found thatSingapore and Hong Kong are the mostcommon locations for Asia Pacific HQs,with Shanghai ranked third.16Accordingto the report, proximity to clients andmarkets is the most important criterion,followed closely by a favourable legal andregulatory environment.PwC’s Cities of opportunity study looked athow Shanghai and Beijing are positionedon a number of variables ranging fromeconomic clout, openness to innovationand ease of doing business to quality of lifefactors such as health, housing and theenvironment. Both score well in economicclout, but less well in key aspects of doingbusiness such as ease of entry andemployee regulations. The environmentalindicators also leave room forimprovement.17To attract more HQs, it will be importantto make it easier to move funds aroundand facilitate visas and work permits onthe one side and provide attractive qualityof life on the other.16 European Business in China: Asia-Pacific Headquarters Study’, published by the European Union Chamber of Commerce in China in partnership with Roland Berger, April 2011.17 ‘Cities of opportunity 2012’, published by PwC, October 2012.Siting of regional HQ
  31. 31. 2013 China Development Forum survey report 30Towards long-termprosperityOur report confirms that the perceptions and strategies of multinational companies areshifting as the economy continues to evolve, though some of the implications of thesechanges and the opportunities they open up have yet to be fully appreciated andaddressed. The CEOs also highlight some potential barriers to investment, which will beimportant to address. But the report confirms multinational companies’ willingness towork in partnership with local companies and policymakers to resolve issues and realisetheir mutual goals.This partnership, and the mutual trust and good faith needed to sustain it, are central toimproving the environment for foreign investment in China. The benefits includehelping to develop the leading-edge talent, technology and capacity for innovation thatwill ensure China realises its full economic potential and builds a prosperous future forits people.
  32. 32. 31 Choosing China: Insights from multinationals on the investment environmentResearch methodologyThis report explores how CEOs frommultinational companies view investmentprospects in China and what they thinkthe Chinese Government could do toattract more investment in support of itseconomic goals. Our aim is to fostergreater understanding betweenpolicymakers and foreign enterprises andstimulate debate on how to meet theirmutual goals. The report has beenproduced by PwC in support of the ChinaDevelopment Forum.Base: All respondents (227)Source: The PwC Global CEO Panel (225 respondents from consumer, industrial products andservices, financial services, and technology, information, communication and entertainmentcompanies)0505050516%22%17%11%33%Number of countries20+11-205-102-41How many countries does your company operate in?Number ofcountriesAfrica(21)Asia Pacific(23)Central andEastern Europe(10)Latin America(55)Middle East(6)North America(28)WesternEurope(84)1 19% 30% – 20% 50% 11% 10%2–4 29% 30% 20% 29% 17% 21% 14%5–10 5% 17% 30% 5% 33% 21% 24%11–20 29% 9% 20% 9% – 7% 11%20+ 19% 13% 30% 36% – 39% 42%Number of countries Consumer,industrial productsand services(158)Financial services(42)Technology,information,communication andentertainment (25)1 10% 38% 12%2–4 25% 14% 16%5–10 17% 19% 12%11–20 13% 2% 16%20+ 34% 26% 44%The primary research includes the viewsof 227 CEOs from PwC’s Global CEOpanel, polled at the beginning of 2013.PwC’s panel is made up of a cross-sectionof multinational companies across allsectors, company sizes and home locations(both from developed and emergingeconomies). It includes businesses withoperations in China and those without, atpresent, to provide a balancedunderstanding of what markets they arefocusing on and what part China plays intheir plans. Eleven in-depth interviewswere also carried out with executives froma number of leading corporationsworldwide. The report also draws onrecent research from internationalorganisations, trade associations andadvisory agencies to providecomprehensive and objective perspectives.We would like to thank all the participantsfor kindly contributing their time andinsights.
  33. 33. 2013 China Development Forum survey report 32AcknowledgementsMarc AllenPresidentBoeing ChinaIan BremmerPresidentEurasia GroupJeremy BurksGreater China PresidentDow CorningClaudio FacchinSenior Vice-President, ABB Group,Head of ABB North Asia Region,Chairman and President, ABB China Ltd.Simon HenryExecutive Director, Chief Financial OfficerRoyal Dutch Shell GroupMark HutchinsonPresident and CEOGeneral Electric ChinaJean LemierreSenior Advisor to the ChairmanBNP ParibasFormer PresidentEuropean Bank for Reconstruction andDevelopmentPeter LöscherPresident and CEOSiemens AGChairman of the Asia-PacificCommittee of German Business (APA)Alan MulallyPresident and CEOFord Motor CompanyVirginia M. RomettyChairman, President andChief Executive OfficerIBM CorporationSir Martin SorrellChief ExecutiveWPP
  34. 34. 33 Choosing China: Insights from multinationals on the investment environmentAcknowledgementsThe following individuals and groups in PwC and the China Development Research Foundation contributed to the productionof this report.Advisory groupLu MaiSecretary GeneralChina Development Research FoundationFang JinDeputy Secretary GeneralChina Development Research FoundationFrank LynManaging PartnerPwC China and Hong KongDavid WuPublic Policy and Regulatory Affairs LeaderPwC ChinaNora WuShanghai Office Lead PartnerPwC ChinaMatthew PhillipsFinancial Services Markets LeaderPwC China and Hong KongMark GilbraithPartnerPwC ChinaAmy CaiPartnerPwC ChinaAllan ZhangDirectorPwC ChinaCai XiaofengSenior AdvisorPwC ChinaCore editorial teamYu Jiantuo (CDRF)Herman Cheng (PwC)Jeff Deng (PwC)Christina Soon (PwC)TJ Yen (PwC)Research and data analysisThe research was coordinated byconsulting firm Meridian West,located in London, UK.Design teamStephen Chow (PwC)Artin Lin (PwC)Shawn Zhang (PwC)Project management teamXu Jinjin (CDRF)Wang Ye (CDRF)Cynara Tan (PwC)Echo Chen (PwC)Jen Flowers (PwC)Sarah Rodwell (PwC)Suzanne Snowden (PwC)Alina Stefan (PwC)
  35. 35. For further informationFor further information on the ChinaDevelopment Forum survey content,please contact:Cynara TanHead of Marketing and CommunicationsAsia Pacific+852 2289 8715cynara.sl.tan@hk.pwc.comSuzanne SnowdenHead of Global Thought LeadershipLondon, UK+44 20 7212 5481suzanne.snowden@uk.pwc.comFor media enquiries, please contact:Mike DaviesDirector, Global CommunicationsLondon, UK+44 20 7804 2378mike.davies@uk.pwc.comEcho ChenAssociate Director, Marketing and CommunicationsBeijing+86 10 6533 8700echo.chen@cn.pwc.comFor enquiries about the research methodology,please contact:Christina SoonManager, Marketing and CommunicationsHong Kong+852 2289 8761christina.sk.soon@hk.pwc.com
  36. 36. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon theinformation contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy orcompleteness of the information contained in this publication, and, to the extent permitted by law, PwC does not accept or assume any liability, responsibility or duty ofcare for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.© 2013 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity.Please see www.pwc.com/structure for further details. HK-20130115-1-C1www.pwccn.com

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