China 2014 in transition for the tampere chamber of commerce

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Presentation on contemporary issues affecting foreign investments to China in 2014.

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  • This dramatic shift in China‘s population profile has four major economic and social implications for the years immediately ahead. The first is the end of labor force growth. Over the past three decades of hyper-rapid development in China, the country‘s working age population rose by over two-thirds—growing by an average of about 1.8% a year. By contrast, as we have already seen, China‘s total working age population is set to fall between 2010 and 2030. (By Census Bureau projections, China‘s working age manpower will be peaking in 2016—just 5 years from now; by 2030, it stands to be shrinking by almost 1% a year).Furthermore, as noted above, China‘s manpower pool will be graying over these years; in fact, by 2030, there would be more than four older (50-64 years) prospective workers for every three younger counterparts (15-29 years)—a complete inversion of the current ratio.19 With a smaller and much greyer Chinese workforce on the horizon, sustaining the growth rates of the recent past would be a truly counterintuitive proposition.Second, there is the broader issue of rapid and pervasive population aging. Though Chinese authorities may have clamped down on births for three decades, the country will be experiencing a population explosion of senior citizens over the next twenty years (progeny of the pre-population control era). In 2010, about 115 million Chinese were 65 or older; by 2030, the corresponding number is projected to approach 240 million—meaning that China‘s cohort of senior citizens would be soaring at an average rate of 3.7% per year.By 2030, according to Census Bureau projections, China‘s median age will be higher than the USA‘s—and according to projections by Chinese demographers, over 22% of rural China‘s population will be 65 or older. (In aged Italy and Germany today, the corresponding proportion is 20%.) How China‘s coming tsunami of senior citizens is to be supported remains an unanswered question. As yet, China has no national public pension system in place, and only the most rudimentary of public provisions for rural health care. Meeting the needs of its rapidly growing elderly population, however, will undoubtedly place economic and social pressures on China that no country of a comparable income level has ever before had to face.Read more at http://globaleconomicanalysis.blogspot.com/2012/05/chinas-population-poised-to-crash-in.html#r553eXGarRIxHfiX.99 
  • This dramatic shift in China‘s population profile has four major economic and social implications for the years immediately ahead. The first is the end of labor force growth. Over the past three decades of hyper-rapid development in China, the country‘s working age population rose by over two-thirds—growing by an average of about 1.8% a year. By contrast, as we have already seen, China‘s total working age population is set to fall between 2010 and 2030. (By Census Bureau projections, China‘s working age manpower will be peaking in 2016—just 5 years from now; by 2030, it stands to be shrinking by almost 1% a year).Furthermore, as noted above, China‘s manpower pool will be graying over these years; in fact, by 2030, there would be more than four older (50-64 years) prospective workers for every three younger counterparts (15-29 years)—a complete inversion of the current ratio.19 With a smaller and much greyer Chinese workforce on the horizon, sustaining the growth rates of the recent past would be a truly counterintuitive proposition.Second, there is the broader issue of rapid and pervasive population aging. Though Chinese authorities may have clamped down on births for three decades, the country will be experiencing a population explosion of senior citizens over the next twenty years (progeny of the pre-population control era). In 2010, about 115 million Chinese were 65 or older; by 2030, the corresponding number is projected to approach 240 million—meaning that China‘s cohort of senior citizens would be soaring at an average rate of 3.7% per year.By 2030, according to Census Bureau projections, China‘s median age will be higher than the USA‘s—and according to projections by Chinese demographers, over 22% of rural China‘s population will be 65 or older. (In aged Italy and Germany today, the corresponding proportion is 20%.) How China‘s coming tsunami of senior citizens is to be supported remains an unanswered question. As yet, China has no national public pension system in place, and only the most rudimentary of public provisions for rural health care. Meeting the needs of its rapidly growing elderly population, however, will undoubtedly place economic and social pressures on China that no country of a comparable income level has ever before had to face.Read more at http://globaleconomicanalysis.blogspot.com/2012/05/chinas-population-poised-to-crash-in.html#r553eXGarRIxHfiX.99 
  • This dramatic shift in China‘s population profile has four major economic and social implications for the years immediately ahead. The first is the end of labor force growth. Over the past three decades of hyper-rapid development in China, the country‘s working age population rose by over two-thirds—growing by an average of about 1.8% a year. By contrast, as we have already seen, China‘s total working age population is set to fall between 2010 and 2030. (By Census Bureau projections, China‘s working age manpower will be peaking in 2016—just 5 years from now; by 2030, it stands to be shrinking by almost 1% a year).Furthermore, as noted above, China‘s manpower pool will be graying over these years; in fact, by 2030, there would be more than four older (50-64 years) prospective workers for every three younger counterparts (15-29 years)—a complete inversion of the current ratio.19 With a smaller and much greyer Chinese workforce on the horizon, sustaining the growth rates of the recent past would be a truly counterintuitive proposition.Second, there is the broader issue of rapid and pervasive population aging. Though Chinese authorities may have clamped down on births for three decades, the country will be experiencing a population explosion of senior citizens over the next twenty years (progeny of the pre-population control era). In 2010, about 115 million Chinese were 65 or older; by 2030, the corresponding number is projected to approach 240 million—meaning that China‘s cohort of senior citizens would be soaring at an average rate of 3.7% per year.By 2030, according to Census Bureau projections, China‘s median age will be higher than the USA‘s—and according to projections by Chinese demographers, over 22% of rural China‘s population will be 65 or older. (In aged Italy and Germany today, the corresponding proportion is 20%.) How China‘s coming tsunami of senior citizens is to be supported remains an unanswered question. As yet, China has no national public pension system in place, and only the most rudimentary of public provisions for rural health care. Meeting the needs of its rapidly growing elderly population, however, will undoubtedly place economic and social pressures on China that no country of a comparable income level has ever before had to face.Read more at http://globaleconomicanalysis.blogspot.com/2012/05/chinas-population-poised-to-crash-in.html#r553eXGarRIxHfiX.99 
  • This dramatic shift in China‘s population profile has four major economic and social implications for the years immediately ahead. The first is the end of labor force growth. Over the past three decades of hyper-rapid development in China, the country‘s working age population rose by over two-thirds—growing by an average of about 1.8% a year. By contrast, as we have already seen, China‘s total working age population is set to fall between 2010 and 2030. (By Census Bureau projections, China‘s working age manpower will be peaking in 2016—just 5 years from now; by 2030, it stands to be shrinking by almost 1% a year).Furthermore, as noted above, China‘s manpower pool will be graying over these years; in fact, by 2030, there would be more than four older (50-64 years) prospective workers for every three younger counterparts (15-29 years)—a complete inversion of the current ratio.19 With a smaller and much greyer Chinese workforce on the horizon, sustaining the growth rates of the recent past would be a truly counterintuitive proposition.Second, there is the broader issue of rapid and pervasive population aging. Though Chinese authorities may have clamped down on births for three decades, the country will be experiencing a population explosion of senior citizens over the next twenty years (progeny of the pre-population control era). In 2010, about 115 million Chinese were 65 or older; by 2030, the corresponding number is projected to approach 240 million—meaning that China‘s cohort of senior citizens would be soaring at an average rate of 3.7% per year.By 2030, according to Census Bureau projections, China‘s median age will be higher than the USA‘s—and according to projections by Chinese demographers, over 22% of rural China‘s population will be 65 or older. (In aged Italy and Germany today, the corresponding proportion is 20%.) How China‘s coming tsunami of senior citizens is to be supported remains an unanswered question. As yet, China has no national public pension system in place, and only the most rudimentary of public provisions for rural health care. Meeting the needs of its rapidly growing elderly population, however, will undoubtedly place economic and social pressures on China that no country of a comparable income level has ever before had to face.Read more at http://globaleconomicanalysis.blogspot.com/2012/05/chinas-population-poised-to-crash-in.html#r553eXGarRIxHfiX.99 
  • China 2014 in transition for the tampere chamber of commerce

    1. 1. China 2014: In Transition & In Transformation Juha Moilanen, Chinaworks Finland For the Chamber of Commerce, Tampere 14 Feb.2014 @ Technopolis Yliopistonrinne 50+ YEARS OF EXPERIENCE & KNOWHOW IN CHINA BUSINESS
    2. 2. CONTENT CHINA 2013 IN NUMBERS 3RD PLENUM OUTCOMES DEMOGRAPHIC & ECONOMIC OUTLOOK YEAR OF THE HORSE: INDUSTRIES IN FOCUS BOOMING E-COMMERCE THE END OF THE HEYDAY FOR LUXURY BRANDS?  Juha Moilanen 2014
    3. 3. CHINA 2013 IN NUMBERS  Juha Moilanen 2014
    4. 4. China 2013 In Numbers GDP +7.7% Forecast for 2014: +7.5% Electricity Consumption 5320 TWh, 3940 kWh/capita, (+7.5% year-on-year), at price 0.36-0.64 CNY/kWh Finland: 15740 kWh/capita CPI +2.6% (Government target: below 3.5%) Trade Balance: +260 bn USD, +12.6% y-o-y Forex Reserves 31 Dec.: 3820 bn USD, +17.0% y-o-y Retails sales based on receipts (fāpiào): 3840 bn USD Urban consumption 86.4% of this, 3318 bn USD (+12.9% y-o-y) Rural consumption 502 bn USD (+14.6% y-o-y)  Juha Moilanen 2014
    5. 5. China 2013 In Numbers Unemployment Government counts only a subset of those unemployed in cities and no one at all outside them Urban: officially 4.1%, excludes private enterprises and migrant workers (same as 2012) Total Urban Unemployment: 6.1% (CIA estimate) A total of 13.1 million new jobs were created in urban areas Foreign estimates put the overall unemployment incl. rural areas somewhere in the range of 15-20% (see e.g. http://thediplomat.com/2014/01/chinas-gdp-growth-says-little) Potentially the biggest threat for social stability and cause for unrest  Juha Moilanen 2014
    6. 6. OUTCOMES OF THE 3RD PLENUM  Juha Moilanen 2014
    7. 7. The 3RD Plenum The 3rd Plenum of the 18th Central Committee of China's Communist Party. Held 9-12 Nov. 2013 behind closed doors Third Plenums are seen as very important because the First Plenum introduces each new leadership the Second Plenum tends to be personnel- and Party constructionfocused the Third one is usually seen as the first plenary session at which the new leadership has basically consolidated power and can introduce a broader economic and political blueprint High expectations as the new leadership, President Xi Jinping and Premier Li Keqiang had ahead of the meeting repeatedly stated that the Third Plenum will introduce comprehensive and unprecedented economic and social reforms.  Juha Moilanen 2014
    8. 8. The 3RD Plenum Key economic outcomes: Markets are allowed to play a “decisive” role in the economy: the list of factor prices to be liberalized is specified and extended to include transportation and telecommunication, besides water, oil, natural gas and electricity. SOE Reform: e.g. state-owned enterprises will pay 30% of their dividend to the Social Security Fund by 2020, up from 10-20% at the moment. All investors will be allowed to enter any industry other than those on the “negative list”, which is the new mechanism being tested in the Shanghai free trade zone and will lead the path of China's service sector eventual liberalization. More SEZs to come? Private investors can set up banks. Common consensus on the main disappointment: No commitment to a more concrete timetable.  Juha Moilanen 2014
    9. 9. The 3RD Plenum Key social outcomes: One child policy further loosened: two child policy? Hukou system will be further relaxed Appraisal of local governments' performance will focus more on aspects other than GDP, such as pollution, excess capacity and debt. Rural land for non-agriculture uses that is collectively owned by farmers will be allowed to enter the land market at same prices and with same rights as state-owned land. This revolutionary change would undermine local governments' monopoly over land markets and boost farmers' income, thus providing them with the start-up capital to settle in cities. The labor camp system will formally be abolished. Vertical integration of the judiciary system.  Juha Moilanen 2014
    10. 10. DEMOGRAPHIC & ECONOMIC OUTLOOK  Juha Moilanen 2014
    11. 11. Demographic Outlook  Juha Moilanen 2014
    12. 12. China’s Senility Bubble !  Juha Moilanen 2014
    13. 13. Breathtaking Pace of Urbanization Shanghai alone encompasses about 11 million migrant workers, 9 million of them long-term, in addition to its population of 13 million. Over 50% of the workforce is migrant. According to McKinsey & Company, the urban population will grow to 850 million (from the current 730 million) by 2020 with 20% of that population comprising of 1st generation migrant workers from rural areas.  Juha Moilanen 2014
    14. 14. Demographic Outlook  Juha Moilanen 2014
    15. 15. Economic Outlook The 12th five-year-plan adopted by China’s parliament in March 2011 spells out 10 major challenges for the country 1. 2. 3. 4. 5. Resource constraints: energy and raw materials. Mismatch in investment and imbalance in consumption. Income disparity. Weakness in capacity for domestic innovation. Production structure is not rational: too much heavy industry, not enough service. 6. Agriculture foundation is thin and weak. 7. Urban/rural development is not coordinated. 8. Employment system is imbalanced. 9. Social contradictions are progressively more apparent. 10. Obstacles to scientific development continue to exist and are difficult to remove.  Juha Moilanen 2014
    16. 16. Economic Outlook Before discussing the concrete outline of the plan, the National People’s Congress sets out a theoretical approach for guidance: The Main Line: “China must rapidly engage in a complete transformation of its form of economic development.” The idea is not to refine the current system, but to completely transform the current system in the brief period of five years. This is a bold goal. The focus of transformation: From excessive reliance on exports to balance between export, import and domestic consumption. From reliance on foreign technology to reliance on domestic innovation. From reliance on “old” energy and materials and industries to creation of a low-carbon / new-materials based economy.  Juha Moilanen 2014
    17. 17. Economic Outlook Proposed solutions to recognized problems: 1. Emphasis on R&D and utilization of alternative, renewable energy sources. 2. Encourage domestic consumption, stricter requirements for FIEs. 3. Strengthen the development of minimum wages, establish a comprehensive public social welfare system incl. unemployment and pension benefits & government funded basic medical coverage for all. 4. Improve IPR enforcement and implementation of legislation in line with WTO engagements. 5. Shift from low value-adding industries into high-tech and services, create an innovation driven society by encouraging education and training of the workforce. 6. Improve the welfare of the rural population while building urban infrastructure, encourage stable urbanization by eliminating distinction. 7. Continue with liberalization and “opening-up” to the outside, but on a new track, actively participate in international economic governance.  Juha Moilanen 2014
    18. 18. Economic Outlook Key targets in practice for 2011-2015 Economic: GDP to grow by 7% annually on average Urban registered unemployment to be kept at less than 5% Increased domestic consumption Breakthrough in emerging strategic industries* Service sector value-added output to account for 47% of GDP, up 4% points Expenditures on R&D to account for 2.2% of GDP 3.3 patents per 10,000 people => implications on IPR legislation  Juha Moilanen 2014
    19. 19. Economic Outlook Key targets in practice for 2011-2015 Social & Environmental: Population be no larger than 1.39 billion Urbanization rate to reach 51.5%, up 4% points Life span per person to increase by one year Pension schemes to cover all rural residents and 357 million urban residents Minimum wage standard to increase by no less than 13% on average each year Improved democracy and legal system Improved government efficiency and credibility Non-fossil fuel to account for 11.4% of primary energy consumption Forest coverage rate to rise to 21.66% and forest stock to increase by 600 million m3  Juha Moilanen 2014
    20. 20. YEAR OF THE HORSE: INDUSTRIES IN FOCUS  Juha Moilanen 2014
    21. 21. REGULATORY FRAMEWORK FOR FDIs The government is encouraging foreign business participation in Strategic Emerging Industries development, but to what extent is a key question given China’s indigenous innovation drive. Those seven key SEIs in focus are: 1. 2. 3. 4. 5. 6. 7. New & Alternative Fuels for the Automotive Industry Information Technology Biotechnology High-End Manufacturing New Materials New Energy Environmental Protection  Juha Moilanen 2014
    22. 22. REGULATORY FRAMEWORK FOR FDIs In terms of incentives, the newly (06/2011) released draft revisions of the Catalogue for Guidance of Foreign Investment (http://english.mofcom.gov.cn/article/policyrelease/aaa/201203/20120308027837.shtml) greatly expanded the list of encouraged industries Foreign investment is encouraged in e.g. following business areas: Energy and resource saving Environmental protection Hi-tech manufacturing Transportation infrastructure development Logistics Business outsourcing Improvements in agricultural technology. The revised tax code allows tax incentives to encourage such investments.  Juha Moilanen 2014
    23. 23. REGULATORY FRAMEWORK FOR FDIs Industry in Focus: Opportunities for Finnish Clean-Tech companies State Council released a national plan in September 2011 that calls for a 15-25 % reduction in particulate matter by 2017 in the three key manufacturing regions around Beijing, Shanghai and Guangzhou Investment in the improvement of the air quality alone will exceed 200 bn € during 2012-2017. By 2020, China targets having 5 million e-cars on her streets Starting 01/2014, 179 cities in China are releasing real-time information on their air quality. API avg. for Jan 2014 (PM2.5 = 2.5 µm (µg/m3)): Beijing 153 Shanghai 140 Guangzhou 161 Chengdu 224 For comparison: Finland: 5-10, Helsinki 2011:20 (= WHO limit) Beautiful Beijing (www.finpro.fi/markkinamahdollisuus/beautiful-beijing)  Juha Moilanen 2014
    24. 24. REGULATORY FRAMEWORK FOR FDIs Added to the list of encouraged industries: Vocational training, provision of consulting or intellectual property services and establishment of VC enterprises and R&D centers; Environmental pollution treatment & monitoring technology, high-tech green battery; construction and operation of renewable water plants; Unconventional natural gases exploration and development (encouraged only through joint-ventures); Key new energy cars’ parts and components: foreign ownership in such investment shall be limited to 50%; Production of natural food additives and ingredients  Juha Moilanen 2014
    25. 25. REGULATORY FRAMEWORK FOR FDIs Prohibitions No projects that rely on cheap Chinese raw materials or energy No projects that waste energy or raw materials, are excessively polluting or that rely on outdated technology No projects that center on low technology, low investment, low value added and high employment: toys, apparel, furniture, house wares, shoes… No support for such projects in the form of VAT or other tax benefits No projects that are oriented solely towards export New FDI in real estate prohibited, with remaining foreign investment in real estate strongly discouraged FDI through M&A strongly discouraged  Juha Moilanen 2014
    26. 26. REGULATORY FRAMEWORK FOR FDIs Tax neutral FDI policy since 2008 Under the old policy, foreign investors were taxed at a lower rate than domestic investors. Investors in numerous specific development zones and industrial parks were provided with various tax exemptions. All this was eliminated in the new income tax code, which mandates a neutral FDI investment framework: no incentives based on nationality. Incentives are instead provided for specific encouraged business activities. Regional investment still encouraged in the Central and Western regions. Regional tax breaks are permitted in this region as an exception for the general prohibition on regional tax incentives (see: The catalogue of Priority Industries for Foreign Investment in China's Central and Western Regions”, revised in 2013).  Juha Moilanen 2014
    27. 27. REGULATORY FRAMEWORK FOR FDIs Rising costs: Foreign businesses can expect a changed cost structure during the 12th FYP period (2011-15). Increased costs result from: VAT hikes Minimum wage development Raw material resource price reforms Tightened legislation Environment-related taxes Appreciation of the RMB yuan  Juha Moilanen 2014
    28. 28. RISING COSTS Reuters has reported that Taiwan’s Foxconn Technology Group, the major supplier of Apple’s iPhones and iPads, is set to relocate their high-end manufacturing to the United States and low-end manufacturing to Indonesia. As manufacturing prices in China rises, and labor unrest increases, Foxconn looks to diversify its supply chain. “Foxconn has no choice but to do it, China is no longer a manufacturing or sourcing hub for global MNCs, especially in the IT sector. This trend will continue and affects other industries such as textiles and light manufacturing. We’ve already seen this in Vietnam and it is now spreading to other ASEAN nations. Indonesia is attractive for Foxconn due to its large labor market.” “If companies are able to bring production levels up to 70 % of what can be achieved in China, lower wages in India & ASEAN dictate that it makes better economic and financial sense to relocate. This is exactly what Foxconn are doing.” www.reuters.com/article/2014/01/27/us-foxconn-taiwan-idUSBREA0Q01F20140127  Juha Moilanen 2014
    29. 29. VAT During 2012-13, the Chinese Government was embarking upon one of the most ambitious tax reform programs in the recent history. The grand plan is to replace Business Tax with VAT across the whole services sector in mainland China (financial and real estate sectors by 2015). Impacts also in how VAT can be reclaimed upon exports, and at what level Producers of value-added goods receive higher VAT rebates which encourages exports, whereas producers of basic materials get lower VAT rebates, thus discouraging exports. For “deemed self-manufactured products”, the VAT refund rate will be the VAT levying rate (normally 17%), unless otherwise provided by the State Administration of Taxation. Separate treatment for trading companies.  Juha Moilanen 2014
    30. 30. MINIMUM WAGE INFLATION Shenzhen, RMB/month 2000 1800 1600 1400 1200 1000 800 600 400 200 0 2010 2011 2012 2012 2013 2014 Chart from Dezan Shira  Juha Moilanen 2014
    31. 31. MINIMUM WAGE INFLATION Why is China Expensive? China’s youth labour supply has started to decline China’s wages are rising China’s currency is appreciating rapidly China’s land and other production costs are rising rapidly China’s SMEs find it difficult to obtain capital Source: Silk Road Associates: The End of Made-in-China?  Juha Moilanen 2014
    32. 32. MINIMUM WAGE INFLATION Dezan Shira: “Based on the review of minimum labor costs, determined by the legal minimum amount stipulated in 15 different countries, and added together with the pertinent mandatory welfare payments due, it is apparent that since the introduction of the revised labor law in 2008, China’s workers are now amongst some of the best paid in Asia.”  Juha Moilanen 2014
    33. 33. TYPICAL OFFICE SALARIES, 2011 Title Experience Qualifications Monthly salary range (RMB) VP, HR 15 years+ in mgmt Master’s degree 70000 – 90000 Director, HR 10 years+ in mgmt University graduate 60000 – 80000+ Manager, HR 5 years in mgmt University graduate 20000 – 35000+ Office manager 3+ years University graduate 17000 - 27000 Business manager 5+ years University graduate 19000 - 32000 Training manager 5+ years University graduate 17000 - 26000 Senior secretary 5 – 8 years College and above 10000 - 14500 Secretary 3 – 5 years College and above 6500 - 9500 Senior 2 – 4 years College receptionist The table shows typical median cash salaries paid in 2011 by job category for local staff in offices in Guangzhou, Shanghai and Beijing. Salaries are based on a 13-month per year payment. Source: J.M. Gemini, Guide to China Market Salaries, Fourth Quarter 2011. 3000 - 5500 1€ = 8.2 RMB 1 RMB = 0.122 €  Juha Moilanen 2014
    34. 34. CNY – EUR CONVERSION RATE Data from xe.com  Juha Moilanen 2014
    35. 35. CNY – USD CONVERSION RATE Data from xe.com  Juha Moilanen 2014
    36. 36. IN SPITE OF RISING WAGES… McKinsey: Vehicle production is projected to soar in China and South Asia by 2020, reflecting a broader trend where more than two-thirds of global manufacturing activity takes place in industries that locate close to demand.  Juha Moilanen 2014
    37. 37. BOOMING E-COMMERCE  Juha Moilanen 2014
    38. 38. BOOMING E-COMMERCE “"I can not separate myself from Taobao now. It is becoming a lifestyle, or it is life itself”. -Mei Xiao, a civil servant from Wuhan. May, 2013As the country's largest online shopping platform, Taobao (a C-2-C portal similar to eBay) alone features nearly one billion products and has nearly 500 million registered users. It sells 48,000 products each minute and its maximum daily turnover reached 4.38 billion yuan (US$713 million). Taobao delivers 20 million parcels every day, accounting for 70% of the country's total. According to statistics from the Ministry of Commerce, it is estimated that China's online commerce industry raked in more than 1.1 trillion yuan (US$175 billion) in revenue in 2012. Per capita consumption in online shopping estimated to reach 10’000 yuan (1’220 €) in 2013, according to Alipay.  Juha Moilanen 2014
    39. 39. BOOMING E-COMMERCE Taobao, a member of Alibaba Group, overtook Amazon as the world’s biggest online retailer by sales volume, netting > 1000 billion RMB = 120 bn. € in 2012. Taobao is basically a platform for > million small B-2-C and C-2-C shops: like eBay without the auction aspect T-Mall is focusing in large-size and luxury brand manufacturers  Juha Moilanen 2014
    40. 40. BOOMING E-COMMERCE Distribution network is functioning surprisingly well, with door-2-door-deliveries within a couple of days in most cities  Juha Moilanen 2014
    41. 41. BOOMING E-COMMERCE Alipay payment method enables easy and safe online payments. The consumers transfer funds from their private bank account to their Alipay account, thus not having to disclose their credit card details on the internet.  Juha Moilanen 2014
    42. 42. BOOMING E-COMMERCE Chinese customers expect to be able to contact the retailer directly when online. For this purpose, Alibaba has created a Aliwangwang chat-feature. This is especially important for retailers to win the shoppers’ trust, since defected products are rampant in the China market. At the same time, the shoppers are able to haggle the prices.  Juha Moilanen 2014
    43. 43. BOOMING E-COMMERCE And of course, these features need to be available for mobile shoppers, too!  Juha Moilanen 2014
    44. 44. BOOMING E-COMMERCE WeChat (WeiXin): A mobile apps with 300 mn users in China + 100 mn worldwide 1. Online storefront with minimial fee for opening public account 2. Deeply customazible to meet everyone’s needs 3. Includes a mobile wallet – in-app payment function 4. Can buy anything from movie tickets or taxi rides to online investment funds 5. ”Virtual HongBao” account  Juha Moilanen 2014
    45. 45. BOOMING E-COMMERCE www.GoGlobe.com Data from 2013.  Juha Moilanen 2014
    46. 46. CHINA’S E-COMMERCE GOES MOBILE IN 2014 E-commerce becomes M-commerce. Jack Ma (Alibaba’s founder): “The mission of Alibaba’s mobile department is to eliminate Taobao – by replacing it with Taobao mobile”. Now all Chinese e-commerce firms realize that it’s time to move the business to mobile devices, before rival companies get the chance to steal a lead. On November 11, China’s largest online shopping festival – the equivalent of Cyber Monday in the US – took place. On the two Alibaba-owned stores T-mall and Taobao, Chinese consumers spent $5.7 billion in a single day, setting a new record for global e-commerce. 25 % of all purchases were made using mobile devices. Research from Observer Solutions reveals that China’s retail m-commerce sales reached RMB 43.3 billion ($7.1 bn) – in Q3/2013, +141.9% y-o-y. Growing off a relatively small base, m-commerce is expected to explode in 2014 given the rapid increase in mobile internet users, increased internet accessibility through mobile devices, and constantly improving mobile payment solutions in China. 460 million mobile web users, 242 million online shoppers (CINIC)  Juha Moilanen 2014
    47. 47. THE END OF THE HEYDAY FOR LUXURY BRANDS ?  Juha Moilanen 2014
    48. 48. THE END OF HEYDAY FOR LUXURY BRANDS?  Juha Moilanen 2014
    49. 49. THE END OF HEYDAY FOR LUXURY BRANDS? Chinese President Xi Jinping has ordered an end to lavish spending by officials on everything from luxury hotels to lavish funerals. He has even gone so far as to ban luxury advertising in state media. Rolex and Zegna no longer appear on government officials after China’s new railway minister Sheng Guangzu, “Mr. Watch” was arrested, having appeared in photos wearing watches whose combined value is more than double his annual salary. Also vice-minister of health and vice-principal of State Administration Academy are being investigated for alleged corruption. According to state media, more than 37,000 government officials have been placed under investigation. The anti-corruption campaign has ensnared also executives working for foreign and Chinese companies, and employees at companies like GlaxoSmithKline, Danone and statebacked oil company PetroChina have all been implicated.  Juha Moilanen 2014
    50. 50. THE END OF HEYDAY FOR LUXURY BRANDS? Bain & Co. Luxury goods sales: • 2012: +7% • 2013: +2%  Juha Moilanen 2014
    51. 51. THE END OF HEYDAY FOR LUXURY BRANDS? “Restrained bling-bling” an emerging trend for officials Swiss watch manufacturers exports to greater China dropped 8.5 % in the first 11 months of 2013 as the country cracked down on the use of luxury goods as bribes and illegitimate gifts. Rémy Cointreau, maker of $3,000-a-bottle Louis XIII cognac, warned investors that operating profits would fall at least 20 % in 2013 y-o-y as a result of what it described as “a sharp slowdown in China”. Premium liquor sales has flopped. Shuijingfang, one of China’s most exclusive brands of the spirit baijiu, the Communist party’s favourite tipple, now sells half its product range at Rmb 500 a bottle or less – a price point at which the company previously sold nothing. China's catering sector grew at its slowest pace in more than two decades in 2013 as diners avoided splashing out in luxury restaurants during an anti-corruption campaign targeting official excess. Catering in China grew 9 % last year, the weakest growth in 21 years, Xinhua news agency reported Sales of Chinese specialty dishes has plummeted by as much as 70%, and exotic Chinese dishes like shark fin have been banned from official functions.  Juha Moilanen 2014
    52. 52. 谢谢 THANK YOU ! Finland Office fi.linkedin.com/in/juhamoilanen facebook.com/ChinaWorks China Office Osuusmyllynkatu 5 33700 Tampere, Finland Tel: +358 40 5253111 juha.moilanen@chinaworks.com www.kiinakoulutus.fi Room 3406, Block B, Central Plaza No. 22 Jian She Da Ma Lu 510060 Guangzhou, P.R China Tel: +86 20 8349 9613 Fax +86 20 8359 2972  Juha Moilanen 2014

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