Economic Analysis of People’s Republic of China – For the Sale of Tender Coconut Water

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A country marketing plan for China from an economic perspective and for the purpose of selling packaged tender coconut water. This document can be used by market researchers and entrepreneurs looking to start a business in China. Prepared for an International Marketing assignment.

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Economic Analysis of People’s Republic of China – For the Sale of Tender Coconut Water

  1. 1. 11/13/2011 Country Marketing Plan for China | 10048; Srikiran C. Rai SDMIMD ECONOMIC ANALYSIS OF PEOPLE’S REPUBLIC OF CHINA – FOR THE SALE OF TENDER COCONUT WATER Submitted to, Prof. R. Sukumar Submitted by, Srikiran C. Rai Roll no. 10048 Submission Date: 10/10/2011
  2. 2. Economic Analysis of China 2 Contents I. Introduction ...............................................................................................................................................5 II. Population.................................................................................................................................................7 A. Total......................................................................................................................................................7 1. Growth Rates ....................................................................................................................................7 2. Birthrates ..........................................................................................................................................7 3. Infant Mortality Rate.........................................................................................................................7 5. Life Expectancy at birth.....................................................................................................................7 6. Fertility Rate......................................................................................................................................7 B. Distribution of Population ....................................................................................................................7 1. Age structure.....................................................................................................................................7 2. Median Age.......................................................................................................................................7 2. Sex Ratio............................................................................................................................................8 3. Geographic Areas..............................................................................................................................8 4. Migration rates and patterns............................................................................................................8 5. Ethnic Groups....................................................................................................................................8 6. City-wise distribution........................................................................................................................8 III. Economic Statistics and Activity...............................................................................................................9 A. Gross Domestic Product .....................................................................................................................10 1. GDP values ......................................................................................................................................10 2. GDP growth rate .............................................................................................................................10 3. GDP composition by sector.............................................................................................................10 B. Personal income per capita ................................................................................................................10 1. GDP per capita ................................................................................................................................10 C. Distribution of Family Income.............................................................................................................11 D. Distribution of Wealth........................................................................................................................11 E. Minerals and Resources......................................................................................................................11 F. Surface & Air Transportation ..............................................................................................................11 1. Modes .............................................................................................................................................12 G. Communication Systems....................................................................................................................13 1. Types & Availability.........................................................................................................................13 H. Working Conditions............................................................................................................................14
  3. 3. Economic Analysis of China 3 I. Principal Industries...............................................................................................................................15 J. Foreign Investment..............................................................................................................................16 K. International Trade Statistics..............................................................................................................17 1. Major imports .................................................................................................................................17 2. Major Exports..................................................................................................................................18 3. Balance of Payment situation .........................................................................................................18 4. Exchange Rates ...............................................................................................................................18 5. EXIM Bank of China.........................................................................................................................18 L. Trade Restrictions................................................................................................................................19 M. Labour Force......................................................................................................................................19 O. Inflation Rates ....................................................................................................................................19 IV. Developments in Science & Technology................................................................................................20 A. Current Technology available.............................................................................................................21 B. Percentage of GNP invested in research and development...............................................................21 C. Technological skills and labour forces and general population..........................................................21 V. Channels of distribution..........................................................................................................................21 A. Retailers..............................................................................................................................................22 1. Number of retailers.........................................................................................................................22 2. Typical size of retail outlets.............................................................................................................23 3. Customary markup for various classes of goods ............................................................................23 4. Methods of operation.....................................................................................................................23 5. Scale of operations..........................................................................................................................23 B. Wholesale Middlemen........................................................................................................................24 1. Method of payment........................................................................................................................24 C. Import/Export Agents.........................................................................................................................25 D. Warehousing.......................................................................................................................................25 E. Penetration of urban and rural markets.............................................................................................26 VI. Media.....................................................................................................................................................27 A. Availability of Media...........................................................................................................................27 B. Costs....................................................................................................................................................27 1. Television ........................................................................................................................................27 2. Radio ...............................................................................................................................................27
  4. 4. Economic Analysis of China 4 3. Print.................................................................................................................................................28 4. Other Media (cinema, outdoor etc.)...............................................................................................29 C. Agency Assistance...............................................................................................................................30 VII. Executive Summary ..............................................................................................................................32 VIII. Sources of information ........................................................................................................................33
  5. 5. Economic Analysis of China 5 I. Introduction For centuries China stood as a leading civilization, outpacing the rest of the world in the arts and sciences, but in the 19th and early 20th centuries, the country was beset by civil unrest, major famines, military defeats, and foreign occupation. After World War II, the Communists under Mao Zedong established an autocratic socialist system that, while ensuring China's sovereignty, imposed strict controls over everyday life and cost the lives of tens of millions of people. After 1978, Mao's successor Deng Xiaoping and other leaders focused on market-oriented economic development and by 2000 output had quadrupled. For much of the population, living standards have improved dramatically and the room for personal choice has expanded, yet political controls remain tight. China since the early 1990s has increased its global outreach and participation in international organizations. Since the late 1970s China has moved from a closed, centrally planned system to a more market- oriented one that plays a major global role - in 2010 China became the world's largest exporter. Reforms began with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, creation of a diversified banking system, development of stock markets, rapid growth of the private sector, and opening to foreign trade and investment. China has implemented reforms in a gradualist fashion. In recent years, China has renewed its support for state-owned enterprises in sectors it considers important to "economic security," explicitly looking to foster globally competitive national champions. After keeping its currency tightly linked to the US dollar for years, in July 2005 China revalued its currency by 2.1% against the US dollar and moved to an exchange rate system that references a basket of currencies. From mid 2005 to late 2008 cumulative appreciation of the renminbi against the US dollar was more than 20%, but the exchange rate remained virtually pegged to the dollar from the onset of the global financial crisis until June 2010, when Beijing allowed resumption of a gradual appreciation. The
  6. 6. Economic Analysis of China 6 restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978. Measured on a purchasing power parity (PPP) basis that adjusts for price differences, China in 2010 stood as the second-largest economy in the world after the US, having surpassed Japan in 2001. The dollar values of China's agricultural and industrial output each exceed those of the US; China is second to the US in the value of services it produces. Still, per capita income is below the world average. The Chinese government faces numerous economic challenges, including: (a) reducing its high domestic savings rate and correspondingly low domestic demand; (b) sustaining adequate job growth for tens of millions of migrants and new entrants to the work force; (c) reducing corruption and other economic crimes; and (d) containing environmental damage and social strife related to the economy's rapid transformation. Economic development has progressed further in coastal provinces than in the interior, and approximately 200 million rural laborers and their dependents have relocated to urban areas to find work. One consequence of the "one child" policy is that China is now one of the most rapidly aging countries in the world. Deterioration in the environment - notably air pollution, soil erosion, and the steady fall of the water table, especially in the north - is another long- term problem. China continues to lose arable land because of erosion and economic development. The Chinese government is seeking to add energy production capacity from sources other than coal and oil, focusing on nuclear and alternative energy development. In 2009, the global economic downturn reduced foreign demand for Chinese exports for the first time in many years, but China rebounded quickly, outperforming all other major economies in 2010 with GDP growth around 10%. The economy appears set to remain on a strong growth trajectory in 2011, lending credibility to the stimulus policies the regime rolled out during the global financial crisis. The government vows to continue reforming the economy in the 12th Five-Year Plan adopted in March 2011 and emphasizes the need to increase domestic consumption in order to make the economy less dependent on exports for GDP growth in the future. However, China likely will make only marginal progress toward these rebalancing goals in 2011. Two economic problems China currently faces are inflation - which, late in 2010, surpassed the government's target of 3% - and local government debt, which swelled as a result of stimulus policies, and is largely off-the-books and potentially low-quality.
  7. 7. Economic Analysis of China 7 II. Population A. Total The current population of China is 1,336,718,015 (July 2011 est.), the highest in the world. 1. Growth Rates The population growth rate is 0.493% (2011 est.). China stands on the 151th place in the world in this figure. 2. Birthrates 12.29 births/1,000 population (2011 est.), stands 159th in the world. 3. Infant Mortality Rate 4.1 Total 16.06 deaths/1,000 live births, standing 106th in the world 4.2 Male 15.61 deaths/1,000 live births 4.3 Female 16.57 deaths/1,000 live births (2011 est.) 5. Life Expectancy at birth 5.1 Total 74.68 years, 95th in the world 5.2 Male 72.68 years 5.3 Female 76.94 years 6. Fertility Rate 1.54 children born/woman (2011 est.) B. Distribution of Population 1. Age structure 1. 0-14 years: 17.6% (male 126,634,384/female 108,463,142) 2. 15-64 years: 73.6% (male 505,326,577/female 477,953,883) 3. 65 years and over: 8.9% (male 56,823,028/female 61,517,001) (2011 est.) 2. Median Age 1. Total: 35.5 years 2. Male: 34.9 years
  8. 8. Economic Analysis of China 8 3. Female: 36.2 years (2011 est.) 2. Sex Ratio 1. At birth: 1.133 male(s)/female 2. Under 15 years: 1.17 male(s)/female 3. 15-64 years: 1.06 male(s)/female 4. 65 years and over: 0.93 male(s)/female 5. Total population: 1.06 male(s)/female (2011 est.) 3. Geographic Areas 1. Urban population: 47% of total population (2010) 2. Rate of urbanization: 2.3% annual rate of change (2010-15 est.) 4. Migration rates and patterns -0.33 migrant(s)/1,000 population (2011 est.) 5. Ethnic Groups 1. Han Chinese 91.5% 2. Zhuang, Manchu, Hui, Miao, Uighur, Tujia, Yi, Mongol, Tibetan, Buyi, Dong, Yao, Korean, and other nationalities 8.5% (2000 census) 6. City-wise distribution 1. Shanghai 16.575 million 2. Beijing (capital) 12.214 million 3. Chongqing 9.401 million 4. Shenzhen 9.005 million 5. Guangzhou 8.884 million (2009)
  9. 9. Economic Analysis of China 9 III. Economic Statistics and Activity Since the late 1970s China has moved from a closed, centrally planned system to a more market- oriented one that plays a major global role - in 2010 China became the world's largest exporter. Reforms began with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, creation of a diversified banking system, development of stock markets, rapid growth of the private sector, and opening to foreign trade and investment. China has implemented reforms in a gradualist fashion. In recent years, China has renewed its support for state-owned enterprises in sectors it considers important to "economic security," explicitly looking to foster globally competitive national champions. The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978. Measured on a purchasing power parity (PPP) basis that adjusts for price differences, China in 2010 stood as the second-largest economy in the world after the US, having surpassed Japan in 2001. The dollar values of China's agricultural and industrial output each exceed those of the US; China is second to the US in the value of services it produces. Still, per capita income is below the world average. The Chinese government faces numerous economic challenges, including: (a) reducing its high domestic savings rate and correspondingly low domestic demand; (b) sustaining adequate job growth for tens of millions of migrants and new entrants to the work force; (c) reducing corruption and other economic crimes; and (d) containing environmental damage and social strife related to the economy's rapid transformation. Economic development has progressed further in coastal provinces than in the interior, and approximately 200 million rural laborers and their dependents have relocated to urban areas to find work. One consequence of the "one child" policy is that China is now one of the most rapidly aging countries in the world. Deterioration in the environment - notably air pollution, soil erosion, and the steady fall of the water table, especially in the north - is another long- term problem. China continues to lose arable land because of erosion and economic development. The Chinese government is seeking to add energy production capacity from sources other than coal and oil, focusing on nuclear and alternative energy development. In 2009, the global economic downturn reduced foreign demand for Chinese exports for the first time in many years, but China rebounded quickly, outperforming all other major economies in 2010 with GDP growth around 10%. The economy appears set to remain on a strong growth trajectory in 2011, lending credibility to the stimulus policies the regime rolled out during the global financial crisis. The government vows, in the 12th Five-Year Plan adopted in March 2011, to continue reforming the economy and emphasizes the need to increase domestic consumption in order to make the economy less dependent on exports for GDP growth in the future. However, China likely will make only marginal progress toward these rebalancing goals in 2011. Two economic problems China currently faces are inflation - which, late in 2010, surpassed the government's target of 3% - and local government debt, which swelled as a result of stimulus policies, and is largely off-the-books and potentially low-quality.
  10. 10. Economic Analysis of China 10 A. Gross Domestic Product 1. GDP values 1. By purchasing power parity – $10.09 trillion (2010 est.), third highest in the world. 2. By official exchange rate – $5.878 trillion, however, GDP at PPP is a better estimate 2. GDP growth rate The growth rate for the year 2010 is estimated as 10.3% 3. GDP composition by sector Figure 1: GDP composition by sector B. Personal income per capita 1. GDP per capita It is $7,600, 125th in the world 10.20% 46.90% 43% GDP composition by sector Agriculture Industry Services
  11. 11. Economic Analysis of China 11 C. Distribution of Family Income China has a Gini coefficient1 of 41.5 (2007) making it the 53rd country in the world in terms of income disparity. In comparison, India is the 83rd country in the world, faring slightly better than China. D. Distribution of Wealth Gini coefficient measures both the distribution of wealth and disparity in family incomes E. Minerals and Resources According to one source, during 2003 China accounted for the largest number of coal-mining fatalities, accounting for about 80% of the world’s total, although it produced only 35% of the world’s coal. China has substantial mineral reserves and is the world’s largest producer of antimony, natural graphite, tungsten, and zinc. Other major minerals are aluminum, bauxite, coal, crude petroleum, diamonds, gold, iron ore, lead, magnetite, manganese, mercury, molybdenum, natural gas, phosphate rock, tin, uranium, and vanadium. With its vast mountain ranges, China’s hydropower potential is the largest in the world. F. Surface & Air Transportation Transportation in mainland China has been prioritised by the government in recent decades, and has undergone intense state-led development since the late 1990s. The national road network has been massively expanded through the creation of a network of expressways, known as the National Trunk Highway System (NTHS). By 2011, China's expressways had reached a total length of 74,000 km (46,000 mi), second only to the road network of the United States. China possesses the world’s longest high-speed rail network, with over 4,618 mi (7,432 km) of service routes. Of these, 601 mi (967 km) serve trains with top speeds of 220 mph (350 km/h). Figure 2:Bullet Trains Private car ownership is growing rapidly, with China surpassing the United States as the largest automobile market in the world in 2009, with total car sales of over 13.6 million. 1 The Gini coefficient is a measure of statistical dispersion, a value of 0 expressing total equality and a value of 1 maximal inequality
  12. 12. Economic Analysis of China 12 Domestic air travel has also increased significantly, but remains too expensive for most. Long-distance transportation is dominated by railways and charter bus systems. Railways are the vital carrier in China; they are monopolized by the state, divided into various railway bureaux in different regions. Due to huge demand, the system is regularly subject to overcrowding, particularly during holiday seasons, such as Chunyun during the Chinese New Year. Figure 3:Beijing Terminal Rapid transit systems are also rapidly developing in China's major cities, in the form of networks of underground or light rail systems. Hong Kong has one of the most developed transport systems in the world, while Shanghai has a high-speed maglev rail line connecting the city to its main international airport, Pudong International Airport. 1. Modes 1. Rail a. High speed rail b. Trans-Siberian Railway c. Metro d. Suburban and commuter rail systems e. Maglev train 2. Road a. Motor vehicles b. Bus rapid transit c. Trolleybus systems d. Town tramway systems e. Electric bicycles 3. Air 4. Waterways
  13. 13. Economic Analysis of China 13 G. Communication Systems The People's Republic of China possesses a diversified communications system that links all parts of the country by Internet, telephone, telegraph, radio, and television. None of the telecommunications forms are as prevalent or as advanced as those in modern Western countries, but the system includes some of the most sophisticated technology in the world and constitutes a foundation for further development of a modern network. 1. Types & Availability 1. Telephone Telephones - main lines in use: 362 million [27 per 100 persons] (February 2008) Telephones - mobile cellular subscribers: 720 million (Aug 2009). Telephone country code: 86 On average, China's mobile subscribers increased by 4.78 million each month. From January to August 2006, mobile phone users on the mainland sent 273.67 million text messages. On December 2005, according to the Ministry of Information Industry (MII), its combined main lines and mobile lines exceeded 743 million. 2. Radio Radio broadcast stations: AM 369, FM 259, shortwave 45 (1998) Radios: 428 million [33 per 100 persons] (2000) 3. Television Television companies: 358 (2008) Television broadcast stations: 3,240 (of which 209 are operated by China Central Television, 31 are provincial TV stations and nearly 3,000 are local city stations) (1997) Televisions: 493.90 million [38 per 100 persons] (2003) 4. Internet Internet country code: .cn Internet hosts: 13.57 million (2008) Internet service providers (ISP): 3 (2000) Internet users: 420 million (June 2010) Broadband Internet users: 363.81 million (June 2010) Personal computers: 52,990,000 units [4 per 100 persons] (2004) As of 2007, ITU data puts China's broadband speed at 1Mbit/s. By June 2007 China's broadband users had reached 122 million. As of December 31, 2005, there were an estimated 37,504,000 broadband lines in China. It represented nearly a world share of 18%. 5. Mobile The number of mobile phone web users in China was 73.05 million by June 2008, making up about 30% of China's 253 million internet users. Chinese mobile phone users access the Internet mainly via WAP
  14. 14. Economic Analysis of China 14 Numbers of active WAP users and WAP sites with independent domain names amounted to 39 million and 65,000 respectively by March 2007. It is expected that in 2008 there will be 230 million WAP users in China with a total market valued at RMB 22 billion. H. Working Conditions A new labor contract law in the People's Republic of China went into effect on January 1, 2008, following a series of staff-sacking scandals in many companies. The Ministry of Human Resources and Social Security of the People's Republic of China is the responsible government department for administrating this law. According to the new 98-article-long "Labor Contract Law", employees of at least 10 years standing are entitled to contracts that protect them from being dismissed without cause. The new law also requires employers to contribute to employees' social security accounts and sets wage standards for employees on probation and working overtime. China's new labor contract law targets, primarily domestic companies that do not have labor contracts and that generally fail to comply with China's old laws. Foreign companies have had a stronger track record of signing contracts with employees and bringing to China their global work rules and environmental, health and safety practices. According to statistics from the All-China Federation of Trade Unions in 2008, 40 percent of private- sector employees lack labor contracts and there are many cases of wage default and forced labor. In the textile industry, mass-produced clothing is often made in what are considered by some to be sweatshops, typified by long work hours, lack of benefits, and lack of worker representation. While most examples of such conditions are found in developing countries, clothes made in industrialized nations may also be manufactured similarly, often staffed by undocumented immigrants. Despite the strong reactions that "sweatshops" evoked among critics of globalization, the production of textiles has functioned as a consistent industry for developing nations providing work and wages, whether construed as exploitative or not, to thousands of people.
  15. 15. Economic Analysis of China 15 I. Principal Industries 1. Machinery manufacturing 2. Energy industry 3. Automobile – Output for 2009 was over 13.7 million units. 4. Steel 5. Textile 6. Labor intensive light industries Industry produced 53.7 percent of the People's Republic of China’s gross domestic product (GDP) in 2005. Industry (including mining, manufacturing, construction, and power) contributed 46.8 percent of GDP in 2010 and occupied 27 percent of the workforce in 2007. The manufacturing sector produced 44.1 percent of GDP in 2004 and accounted for 11.3 percent of total employment in 2006. China is the world’s leading manufacturer of chemical fertilizers, cement, and steel. By 2002 the share in gross industrial output by state-owned and state-holding industries had decreased with the state-run enterprises themselves accounting for 46 percent of China’s industrial output. The greatest sustained surge in growth occurred during the first decade, with the rate averaging 22% annually during 1949–60. During 1961–74, the yearly growth rate fell to about 6%, partly as a result of the disruptions brought on by the collapse of the Great Leap Forward (which accompanied the withdrawal of Soviet technicians in mid-1960) and of work stoppages and transportation disruptions during the Cultural Revolution. Growth averaged 10% from 1970 to 1980 and 10.1% from 1979 to 1985. Major policy reforms of 1984 further accelerated the pace of industrial growth, which reached 20.8% by 1988. After a brief retrenchment period in 1989–90 as government policies prioritized inflation control over other concerns, expansion of the country's industrial sector resumed apace, exceeding 20% in 1992 and 18% in 1994. Industrial output was officially up 13.4% in 1995, with state enterprises contributing the majority.
  16. 16. Economic Analysis of China 16 J. Foreign Investment In the early 1980s, China restricted foreign investments to export-oriented operations and required foreign investors to form joint-venture partnerships with Chinese firms. From the beginning of the reforms legalizing foreign investment, capital inflows expanded every year until 1999. Foreign-invested enterprises account for 58–60% of China's imports and exports. In 1991, China granted more preferential tax treatment for Wholly Foreign Owned Enterprises and contractual ventures and for foreign companies, which invested in selected economic zones or in projects encouraged by the state, such as energy, communications and transportation. In 1998, foreign-invested enterprises produced about 40% of China's exports, and foreign exchange reserves totaled about $145 billion. Foreign-invested enterprises today produce about half of China's exports (the majority of China's foreign investment come from Hong Kong, Macau and Taiwan), and China continues to attract large investment inflows. However, the Chinese government's emphasis on guiding FDI into manufacturing has led to market saturation in some industries, while leaving China's services sectors underdeveloped. From 1993 to 2001, China was the world's second-largest recipient of foreign direct investment after the United States. China received $39 billion FDI in 1999 and $41 billion FDI in 2000. China is now one of the leading FDI recipients in the world, receiving almost $80 billion in 2005 according to World Bank statistics. In 2006, China received $69.47 billion in foreign direct investment. By the end of September 2008 China replaced Japan for the first time as the largest foreign holder of US treasury securities with a total of $585 billion, vs Japan $573 billion. China has now surpassed those of Japan, making China's foreign exchange reserves the largest in the world.
  17. 17. Economic Analysis of China 17 K. International Trade Statistics International Trade in China grows strongly every year. The fifteen largest Chinese partners with their total trade (sum of imports and exports) in billions of US Dollars for 2009 are as follows: 1. Major imports 1. Textile fibres, unfinished textile products 2. Iron and steel 3. Manufactured goods 4. Machinery
  18. 18. Economic Analysis of China 18 5. Transport Equipment 2. Major Exports 1. Foodstuffs 2. Petroleum 3. Textile Products 3. Balance of Payment situation China’s current account balance is $305.4 billion (2010 est.), the highest surplus reported in the world, shows that China is the largest exporter in the world. 4. Exchange Rates China has huge reserves of foreign exchange and gold mostly because it pegs its currency to the dollar. This keeps the Renminbi artificially devalued. After keeping its currency tightly linked to the US dollar for years, in July 2005 China revalued its currency by 2.1% against the US dollar and moved to an exchange rate system that references a basket of currencies. From mid 2005 to late 2008 cumulative appreciation of the renminbi against the US dollar was more than 20%, but the exchange rate remained virtually pegged to the dollar from the onset of the global financial crisis until June 2010, when Beijing allowed resumption of a gradual appreciation. The current exchange rates are: Renminbi yuan (RMB) per US dollar - 6.7852 (2010) The latest rates are: Renminbi yuan (RMB) per US dollar - 6.34768 (11/11/2011) 5. EXIM Bank of China The Export-Import Bank of China (China Exim Bank) is one of three institutional banks in China which chartered to implement the state policies in industry, foreign trade, diplomacy, economy and finance to provide policy financial support so as to promote the export of Chinese products and services. It was founded in 1994, and is subordinated to the State Council. China Eximbank does not publish figures for overseas loans. However, U.S. officials estimate that it finances more than the total export financing of the Group of Seven industrialized nations combined. The Financial Times estimates that in 2009 and 2010, China Eximbank and China Development Bank (CDB) together signed loans of at least $110 billion to other developing country governments and companies, more than the World Bank over a similar period. China Eximbank does not abide by export financing guidelines promulgated by the OECD, sparking criticism from competing export nations. According to U.S. Export-Import Bank Chairman Fred Hochberg, "They're winning deals in part because they're not playing by the rules."
  19. 19. Economic Analysis of China 19 L. Trade Restrictions In recent decades, the PRC has played an increasing role in calling for free trade areas and security pacts amongst its Asia-Pacific neighbors. In 2004, the PRC proposed an entirely new East Asia Summit (EAS) framework as a forum for regional security issues, pointedly excluding the United States. In spite of the fact that in 2000, the U.S. Congress approved "permanent normal trade relations" (PNTR) with China, allowing Chinese exports in at the same low tariffs as goods from most other countries. Both Bill Clinton and George W. Bush asserted that free trade would gradually open China to democratic reform. Bush was furthermore an advocate of China's entry into the World Trade Organization (WTO). China has a significant trade surplus with the United States, its most important export market. In the early 2010s, U.S. politicians argued that the Chinese yuan was significantly undervalued, giving China an unfair trade advantage. M. Labour Force Labour Law in the People's Republic of China has become a very hot issue with the soaring numbers of factories and the fast pace of urbanization. The basic labour laws are the Labour Law of People's Republic of China (promulgated on 5 July 1994) and the Law of the People's Republic of China on Employment Contracts (Adopted at the 28th Session of the Standing Committee of the 10th National People's Congress on June 29, 2007, Effective from January 1, 2008). The administrative regulations enacted by the State Council, the ministerial rules and the judicial explanations of the Supreme People's Court stipulate detailed rules concerning the various aspects of the employment relationship. Labour Union in China is controlled by the government through the All China Federation of Trade Unions, which is also the sole legal labour union in Mainland China. Strike is formally legal, but in fact is discouraged. O. Inflation Rates The inflation rate at consumer prices is 3.2% (2010 est.)
  20. 20. Economic Analysis of China 20 IV. Developments in Science & Technology A question that has been intriguing many historians studying China is the fact that China did not develop a scientific revolution and Chinese technology fell behind that of Europe. Many hypotheses have been proposed ranging from the cultural to the political and economic has argued that China indeed had a scientific revolution in the 17th century and that we are still far from understanding the scientific revolutions of the West and China in all their political, economic and social ramifications. Some like John K. Fairbank are of the opinion that the Chinese political system was hostile to scientific progress. Needham argued, and most scholars agreed, that cultural factors prevented these Chinese achievements from developing into what could be called "science". It was the religious and philosophical framework of the Chinese intellectuals which made them unable to believe in the ideas of laws of nature. More recent historians have questioned political and cultural explanations and have focused more on economic causes. Mark Elvin's high level equilibrium trap is one well-known example of this line of thought, as well as Kenneth Pomeranz' argument that resources from the New World made the crucial difference between European and Chinese development. Thus, it was not that there was no order in nature for the Chinese, but rather that it was not an order ordained by a rational personal being, and hence there was no conviction that rational personal beings would be able to spell out in their lesser earthly languages the divine code of laws which he had decreed aforetime. The Taoists, indeed, would have scorned such an idea as being too naive for the subtlety and complexity of the universe as they intuited it. Similar grounds have been found for questioning much of the philosophy behind traditional Chinese medicine, which, derived mainly from Taoist philosophy, reflects the classical Chinese belief that individual human experiences express causative principles effective in the environment at all scales. Because its theory predates use of the scientific method, it has received various criticisms based on scientific thinking. Even though there are physically verifiable anatomical or histological bases for the existence of acupuncture points or meridians, for instance skin conductance measurements show increases at the predicted points. Today, science and technology establishment in the People's Republic of China is growing rapidly. Even as many Chinese scientists debate what institutional arrangements will be best for Chinese science, reforms of the Chinese Academy of Sciences continue. The average age of researchers at the Chinese Academy of Sciences has dropped by nearly ten years between 1991 and 2003. However, many of them are educated in the United States and other foreign countries. Chinese university undergraduate and graduate enrollments more than doubled from 1995 to 2005. The universities now have more cited PRC papers than CAS in the Science Citation Index. Some Chinese scientists say CAS is still ahead on overall quality of scientific work but that lead will only last five to ten years. Several Chinese immigrants to the United States have also been awarded the Nobel Prize, including: , Samuel C. C. Ting, Chen Ning Yang, Tsung-Dao Lee, Yuan T. Lee, Daniel C. Tsui, and Gao Xingjian. Other overseas ethnic Chinese that have achieved success in sciences include Fields Medal recipient Shing- Tung Yau and Terence Tao, and Turing Award recipient Andrew Yao. Tsien Hsue-shen was a prominent
  21. 21. Economic Analysis of China 21 scientist at NASA's Jet Propulsion Laboratory; while Chien-Shiung Wu contributed to the Manhattan Project (some argue she never received the Nobel Prize unlike her colleagues Tsung-Dao Lee and Chen Ning Yang due to sexism by the selection committee). Others include Charles K. Kao, a pioneer in fiber optics technology, and Dr. David Ho, one of the first scientists to propose that AIDS was caused by a virus, thus subsequently developing combination antiretroviral therapy to combat it. Dr. Ho was named TIME magazine's 1996 Man of the Year. However, the fact remains that many Chinese rue the absence of a native Chinese scientist among Nobel laureates, the genesis of which lies in the tradition laden culture. A. Current Technology available In 1992, the Shenzhou manned spaceflight program was authorized. After four unmanned tests, Shenzhou 5 was launched on 15 October 2003, using a Long March 2F launch vehicle and carrying Chinese astronaut Yang Liwei, making the PRC the third country to put a human being into space through its own endeavors. In 2008, China successfully completed the Shenzhou 7 mission, making it the third country to have the capability to conduct a spacewalk. China maintains an active lunar exploration program - it successfully launched the Chang'e 1 and Chang'e 2 lunar survey probes in 2007 and 2011 respectively, and is planning to launch a lunar rover in 2013, as a precursor to a possible manned lunar landing in the 2020s. In September 2011, the first Chinese space station module, Tiangong 1, was successfully launched, marking the first step in a decade-long project to construct a large manned space station.[249] China is furthermore considering a manned mission to Mars, and plans to begin robotic exploration of Mars in November 2011. China is also actively developing its software, semiconductor and energy industries, including renewable energies such as hydroelectric, wind and solar power. In an effort to reduce pollution from coal-burning power plants, China has been pioneering the deployment of pebble bed nuclear reactors, which run cooler and safer than conventional nuclear reactors, and have potential applications for the hydrogen economy.[253] In 2010, China developed Tianhe-IA, for a time the world's fastest supercomputer, at the National Supercomputing Center of Tianjin. China also operates the Nebulae supercomputer, which was also among the world's top 10 supercomputers in 2010. B. Percentage of GNP invested in research and development According to the latest Twelfth Five-Year Guideline, 2011–2015, has vowed to spend 2.2% of GDP on research and development by 2015, up from 2% in 2010. C. Technological skills and labour forces and general population Although there is no research giving levels of technological skill in the Chinese labour force, we can say that since the Chinese are taught a subject on Technology and Computing during senior secondary, they can be considered reasonably tech-savvy. V. Channels of distribution While China is an ideal place for manufacturing to many foreign companies, it is also a big market. In 2007, China’s retail sales reached RMB 7.5 trillion, 16.7% higher than 2006. As the Chinese become more
  22. 22. Economic Analysis of China 22 affluent, they become more concerned about the quality of service and convenience - not just the price. This new phenomenon, coupled with intensifying competition and economies of scale, has resulted in the rapid growth of chain store retailing in China. In 2006, chain store retail sales reached RMB 1554.9 billion, accounting for more than 24.2% of China’s total retail sales. This was nearly four times the ratio of chain store retail sales to China’s total retail sales in 2002, when the share of chain store retailing was only 6.5%. A. Retailers China does flaunt a wide array of retail formats, each at a different level of evolution and development: 1. Department stores: These stores were popular earlier on, but are facing intense competition now and are battling to stay ahead. (Golden Eagle, Parkson, Beijing Cuiwei, Shenzhen Suibao) 2. Hypermarkets: The development of hypermarkets has been led by international retailers, who are now spreading their wings to tier 2 and 3 cities, as markets in tier 1 cities reach saturation. (Wal-Mart, Carrefour, Vanguard, Tesco, Metro, RT Mart Shanghai, Trust-Mart) 3. Supermarkets: This highly fragmented market dominated by domestic players, is witnessing cut- throat competition, often leading to weeding out of the weaker players coupled with strategic consolidation. (A-Best Supermarket, Baijia Supermarket) 4. Convenience stores: Though still in the development stage, this format is witnessing increasing competition, mostly among domestic chains. (Quick of LianHua, Alldays & Kedi of NGS) 5. Specialty stores: Electronics/Appliances: This segment is clearly dominated by domestic players, with limited foreign investment. (GOME, Suning) 6. Discount stores: Still evolving, this format remains concentrated in tier 1 cities. The first discount store was introduced by Carrefour in 2003. 7. Franchising: Constituting about 3% of China’s total retail market, franchising seems to have tremendous potential for future growth. (KFC, McDonalds, 7-eleven, Pizza Hut) 8. Direct selling: With direct selling rules introduced in 2005, providing the much needed legal framework, the potential for further growth remains immense. (AMWAY, Mary Kay, Avon) 9. Online retail: Online shoppers grew 68% between 2009 and 2010 to 185 million. Online retail sales have been predominantly consumer-to-consumer transactions. However, with over 29% of its population using the internet, online retail sales are poised to grow over 30% per year. (Taobao, Alibaba, eBay) 1. Number of retailers Supermarkets are the most important type of chain store in China. In 2006, supermarket sales reached RMB 359.2 billion, accounting for more than 42% of total chain store retail sales (excluding gas stations). Specialty stores and department stores rank second and third respectively. In 2006, these three types of chain stores accounted for nearly 95% of total chain store retail sales (excluding gas stations)
  23. 23. Economic Analysis of China 23 2. Typical size of retail outlets Wal-Mart, Tesco, BestBuy, Home Depot, IKEA furnitures have stores averaging 100,000 sqft.2 3. Customary markup for various classes of goods The goods are sold at an exorbitant price to the westerners. Sometimes even at a 5000% premiuim. 4. Methods of operation In China, consumer goods sales are divided into three categories: 1. Retail & wholesale 2. Food & beverage and accommodation 3. Others 5. Scale of operations In 2006, chain store retail sales reached RMB 1554.9 billion, accounting for more than 24.2% of China’s total retail sales. This was nearly four times the ratio of chain store retail sales to China’s total retail sales in 2002, when the share of chain store retailing was only 6.5%. 2 http://www.wikinvest.com/concept/Rise_of_China's_Middle_Class
  24. 24. Economic Analysis of China 24 B. Wholesale Middlemen Prior to 1992, foreign retailers were prohibited from setting up joint ventures or wholly-owned subsidiaries for wholesale or retail trade in China. Loosening its tight regulations somewhat, in July 1992 the State Council permitted foreign investment in retailing on a trial basis in Beijing, Shanghai, Tianjin, Guangzhou, Dalian, Qingdao, as well as the five Special Economic Zones (Shenzhen, Zhuhai, Shantou, Xiamen, and Hainan). By 1997, about two dozen foreign-invested stores in China had been approved by the central government to conduct business. However, hundreds of foreign invested retailing as well as wholesaling enterprises had already established themselves in Chinese cities, having sought approval from the provincial or municipal authorities. 1. Method of payment In 2010, China’s currency, the renminbi, picked up pace toward becoming a world currency. In June the Chinese government extended its renminbi trade settlement scheme to include 18 provinces and cities, as well as Guangdong province and Shanghai, which are now allowed to handle all international service transactions and imported goods’ purchases. Also, around 70,000 mainland-based entities were approved to settle deals in Chinese currency for their exported goods, up from just a few hundred before. If Hong Kong is any indication, these reforms seem set to greatly expand the renminbi’s international role.
  25. 25. Economic Analysis of China 25 C. Import/Export Agents For small and medium sized companies, the best way to enter the China market is through a reputable or well-known agent or distributor. These companies are located regionally and typically have large sales network. Thus they will be able to have a better understanding of the China’s market and can provide assistance in developing distribution strategies in China and the region. In this way, new products can be launched easier into the market and distribution network can be set up rapidly without any problems dealing with distribution rights and licensing. D. Warehousing Retail warehouse and logistics properties are attracting new interest from overseas companies despite slower demand for other industrial space during the financial downturn. China has the world's fastest- growing consumer market for perishable foods and pharmaceutical products, but its per capita refrigerated warehouse space is less than one-tenth of most developed countries, statistics show. The location of major warehousing facilities are shown below
  26. 26. Economic Analysis of China 26 E. Penetration of urban and rural markets In China, a much greater number of items are vying for limited retail shelf space in both urban and rural areas. And consumers are being bombarded with products and promotions by any number of domestic and multinational companies. Statistics highlight the product and purchasing frenzy best: In 1998, only 9 percent of rural households and 72 percent of urban homes had refrigerators; by 2008, these numbers had ballooned to 26 and 91 percent, respectively. What’s more, appliance penetration outside the cities recently got a boost when the Chinese government launched an initiative that gives rural consumers a subsidy of as much as 13 percent for purchasing a major appliance.
  27. 27. Economic Analysis of China 27 VI. Media Media of the People's Republic of China (alternatively Media of China, Chinese Media) primarily consists of television, newspapers, radio, and magazines. Since 2000, the Internet has also emerged as an important communications medium. In spite of heavy government monitoring, however, Chinese media has become increasingly commercialized, with growing competition, diversified content, and an increase in investigative reporting. Areas such as sports, finance, and an increasingly lucrative entertainment industry face little regulation from the government. Media controls were most relaxed during the 1980s under Deng Xiaoping, until they were tightened in the aftermath of the 1989 Tiananmen Square Protests. They were relaxed again under Jiang Zemin in the late 1990s, but the growing influence of the Internet and its potential to encourage dissent led to heavier regulations again under the government of Hu Jintao. Reporters Without Borders consistently ranks China very poorly on media freedoms in their annual releases of the Press Freedom Index, calling the Chinese government as having "the sorry distinction of leading the world in repression of the Internet". For 2010, China ranked 168 out of 178 nations. A. Availability of Media This has been covered under types and availability of communications in China. B. Costs It costs about USD10 to publish a 1 sq inch of ad on a newspaper. 1. Television Cable Television: Residents of the Chinese mainland now receive more than 20 outside television channels by satellite, including Chinese-language services of CNN, Star TV, and the United States Information Agency. In the southern province of Guangdong, 97 percent of the households have television sets, and all—except those in a few parts of the city of Guangzhou, where reception is poor—have access to Hong Kong television through cable networks. Some local stations even intercept the signals and insert their own commercials. Beijing is unable to effectively monitor, let alone control, the illicit cable operators who have sprung up since the early 1990s. As of 1995, about 1,000 of the 3,000 cable stations in mainland China, linked to perhaps 50 million homes, were unlicensed. Satellite Dishes: The administration of satellite receivers falls under the jurisdiction of the State Administration for Radio, Film, and Television, which stipulates that foreign satellite televisions channels may only be received at high-end hotels and the homes and workplaces of foreigners. Foreign satellite televisions channels may seek approval to broadcast, but must be "friendly toward China." Foreign television news channels are, in principle, ineligible for distribution in China. 2. Radio Talk radio in mainland China allows a much freer exchange of views than other media formats. In effect, talk radio has shifted the paradigm from authorities addressing the people to people addressing the
  28. 28. Economic Analysis of China 28 authorities. For example, until 1991 the 14 million inhabitants of Shanghai were served by only one radio station—Radio Shanghai—which primarily aired predictable, pro-government propaganda. Today, there are over 100 talk radio stations throughout the Shanghai area. 3. Print The number of newspapers in mainland China has increased from 42—virtually all Communist Party papers—in 1968 to 382 in 1980 and more than 2,200 today. By one official estimate, there are now more than 7,000 magazines and journals in the country. The number of copies of daily and weekly newspapers and magazines in circulation grew fourfold between the mid-1960s and the mid-to-late 1980s, reaching 310 million by 1987. These figures, moreover, underreport actual circulation, because many publishers use their own distribution networks rather than official dissemination channels and also deliberately understate figures to avoid taxes. In addition, some 25,000 printing houses and hundreds of individual bookstores produce and sell nonofficial material—mostly romance literature and pornography but also political and intellectual journals. China has many newspapers but the front runners are all State-run: the People's Daily, Beijing Daily, Guangming Daily and the Liberation Daily. The two major news agencies in China are Xinhua News Agency and the China News Service. Xinhua was given power to censor and edit the news of the foreign agencies in 2007. Some saw the power of Xinhua as making the press freedom weak and it allowed Xinhua to control the news market fully. Much of the information collected by the Chinese mainstream media is published in neicans (internal, limited circulation reports prepared for the high-ranking government officials), not in the public outlets. Magazines and journals published in mainland China also have become much less inhibited in their coverage. These publications appear to enjoy more freedom than newspapers, which in turn have more leeway than radio (other than talk radio) and television. Magazines now print internal police reports on jailings of religious leaders and other dissidents. The State is unwilling to shut down such publications because it worries about public reaction, is anxious to avoid drawing more popular attention to the magazines, and knows that its own resources are already stretched thin. Chinese journalists in Hong Kong on occasion have written politically controversial articles for mainland intellectual journals without encountering problems. Such opportunities have abounded because of the range of publications on the Chinese mainland and because party officials there are too busy with weightier matters to review such journals systematically.
  29. 29. Economic Analysis of China 29 4. Other Media (cinema, outdoor etc.) With China's liberalization in the late 1970s and its opening up to foreign markets, commercial considerations have made its impact in post-1980s filmmaking. Traditionally arthouse movies screened seldom make enough to break even. An example is Fifth Generation director Tian Zhuangzhuang's The Horse Thief (1986), a narrative film with minimal dialog on a Tibetan horse thief. The film, showcasing exotic landscapes, was well received by Chinese and some Western arthouse audiences, but did poorly at the box office.[31] Tian's later The Warrior and the Wolf (2010) was a similar commercial failure. Prior to these, there were examples of successful commercial films in the post-liberalization period. One was the romance film Romance on the Lu Mountain (1980), which was a success with older Chinese. The film broke the Guiness Book of Records as the longest-running film on a first run. Jet Li's cinematic debut Shaolin Temple (1982) was an instant hit at home and abroad (in Japan and the Southeast Asia, for example).[33] Another successful commercial film was Murder in 405 (1980), a murder thriller. Feng Xiaogang's The Dream Factory (1997) was one of the first to bridge the gap between critical acclaim and successful commercialism. The Dream Factory was heralded as a turning point in Chinese movie industry, a hesui pian (Chinese New Year-screened film) which demonstrated the viability of the commercial model in China's socialist market society. Feng has become the most successful commercial director in the post-1997 era. All of his films made high returns domestically while he used ethnic Chinese co-stars like Rosamund Kwan, Jacqueline Wu, Rene Liu and Shu Qi to boost his films' appeal. Today, owing to the influx of Hollywood films (though the number screened each year is curtailed), Chinese domestic cinema faces mounting challenges. Though the industry is growing, few domestic films save those by Feng make the box office impact of major Hollywood blockbusters like Titanic (1997). In January 2010 James Cameron's Avatar was pulled out in some theaters for Hu Mei's biopic Confucius, but this state move led to a backlash on Hu's film. Zhang Yang's 2005 Sunflower also made little money, but his earlier, low-budget Spicy Love Soup (1997) grossed ten times its budget of ¥3 million. Likewise, the 2006 Crazy Stone, a sleeper hit, was made for just 3 million HKD/US$400,000. In 2009-11, Feng's Aftershock (2009) and Jiang Wen's Let the Bullets Fly (2010) became China's highest grossing domestic
  30. 30. Economic Analysis of China 30 films, with Aftershock earning RMB 640 million (US$97.4 million) and Let the Bullets Fly RMB 730 million (US$111 million). C. Agency Assistance Mainstream ad agencies in China are: 1. Chinese Advertising Networks – Baidu Union. Description: As one of the biggest advertising networks in China, Baidu Union is run by the largest Chinese search engine Baidu.com. Baidu union now offers 4 types of advertising for publishers, naming Baidu Union promotional advertising, Baidu Union searching advertising, Baidu Zhidao advertising and Baidu Union new type advertising respectively. Who should try: if you have website with daily unique visitors number above 1,000, you can try Baidu Union on your website. It’s a waste to publish Baidu Union advertising on website with daily unique visitors number under 1,000 as you can hardly make any actual revenue through it for the small traffic. Websites are not allowed to join Baidu Union until they have gotten an ICP license issued by the Chinese government. Payment: Baidu will pay you as your account reaches RMB 100 Yuan. Baidu pays Chinese webmasters by wire transfer through banks or post offices. Revenue comparison: considering the big exchange rates between USD and RMB, average PPC revenue of Baidu is lower than that of Google. 2. Chinese Advertising Networks – Alimama Description: Alimama is a prestigious advertising network run by Jack Ma’s Alibaba Group. Alimama offers Pay Per Click advertising, Pay Per View advertising, Pay Per Action advertising and etc.
  31. 31. Economic Analysis of China 31 Who should try: The entry threshold for Alimama is low so that Webmasters of small websites can join the advertising networks easily. Payment: Alimama pay its advertising publishers every month no matter how much the webmasters have earned through its own payment processor Alipay Zhifubao. 3. Chinese Advertising Networks – Google Adsense I strongly suggest webmasters outside the Mainland China to publish Google ads on your websites to eliminate threshold barriers from China’s local players such as Baidu and Alimama as Google Adsense also supports both simplified Chinese and traditional Chinese. There are nearly 100 hundred click per sales (CPS)affiliate programs in China’s online advertising market at current. there is no leader as big as Commission Junction China up for now. Let me list some of them for you in case you may need. 4. Chinese Affiliate Program – Dangdang Category: Books & Culture 5. Chinese Affiliate Program – Joyo Category: Books & Culture 6. Chinese Affiliate Program – Linktech Category: diversified industries 7. Chinese Affiliate Program – Weiyi Category: diversified industries
  32. 32. Economic Analysis of China 32 VII. Executive Summary China was a predominantly agrarian economy. China pursued the policy of aggressive growth from the 1970s by pegging their currency to the dollar. This helped fuel their export oriented fiscal policy and this has helped power the growth of their economy and the industrial base. Although the labour conditions and human rights in China remains an issue, we have seen that China is not a purely communist economy. They have opened their markets and reaped huge benefits from the policy. This liberalization has seeped into other parts of the country ranging from media to human rights. Today China is the second third largest economy in the world in terms of GDP value. But in spite of that it ranks low in per capita income. There are major constraints on trade in China ranging from import restraints and intellectual property protection policies. Sources of information are censored and hence there is a limitation to advertizing also.
  33. 33. Economic Analysis of China 33 VIII. Sources of information 1. Economy of the People's Republic of China http://en.wikipedia.org/wiki/Economy_of_the_People's_Republic_of_China 2. CIA World Factbook, China https://www.cia.gov/library/publications/the-world- factbook/geos/ch.html 3. Media of the People's Republic of China http://en.wikipedia.org/wiki/Media_of_the_People's_Republic_of_China 4. Telecommunications industry in the People's Republic of China http://en.wikipedia.org/wiki/Telecommunications_industry_in_the_People%27s_Republic_of_C hina 5. China-based Internet and Web Marketing Consultant http://www.webprochina.com/2010/05/chinese-advertising-networks-and-affiliate-programs- list/ 6. Geography of China, Natural Resources http://en.wikipedia.org/wiki/Geography_of_China#Natural_resources

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