Department of Commerce 2nd Tiered Cities


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By Karl Kailing, Department of Commerce

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  • Department of Commerce 2nd Tiered Cities

    1. 1. China’s 2 nd -Tier Cities: The Next Frontier for US Companies 2008 CONFERENCE ON BUSINESS STRATEGIES AND TRADE WITH CHINA Monterey, Ca. March 21, 2008
    2. 2. U.S. Commercial Service <ul><ul><li>Our mission: </li></ul></ul><ul><ul><li>To promote the export of goods & services from the United States, particularly by small- and medium-sized businesses </li></ul></ul><ul><ul><li>To represent U.S. business interests internationally </li></ul></ul><ul><ul><li>To help U.S. businesses find qualified international partners </li></ul></ul>The U.S. Commercial Service is the trade promotion unit of the International Trade Administration, with trade specialists in 107 U.S. cities and in more than 80 countries.
    3. 3. <ul><li>You’ll find Commercial Service officers and trade specialist living and working in: </li></ul>157 trade experts on the ground in China to help <ul><li>Beijing </li></ul><ul><li>Shanghai </li></ul><ul><li>Guangzhou </li></ul><ul><li>Shenyang </li></ul><ul><li>Chengdu </li></ul><ul><li>Hong Kong </li></ul>
    4. 4. What are 2 nd -Tier Cities?
    5. 5. “ The 2 nd -Tiers” <ul><li>Aside from the three megacities – (Beijing, Shanghai, and Guangzhou)… they are : </li></ul><ul><ul><li>Tianjin -Ningbo -Chongqing </li></ul></ul><ul><ul><li>Dalian -Xiamen -Kunming </li></ul></ul><ul><ul><li>Harbin -Qingdao -Xi’an </li></ul></ul><ul><ul><li>Nanjing -Wuhan -Shenzhen </li></ul></ul><ul><ul><li>Hangzhou -Shenyang -Zhuhai </li></ul></ul><ul><ul><li>Chengdu </li></ul></ul>
    6. 6. 8, 19, and 54 By the numbers with China’s 2 nd -tier sixteen. They account for…
    7. 7. <ul><li>8% of China’s Population </li></ul>
    8. 8. <ul><li>19% of China’s GDP </li></ul>
    9. 9. <ul><li>54% of China’s Imports </li></ul>
    10. 10. 2 nd -Tier Growth
    11. 11. 2 nd -Tier Growth -- Compared
    12. 12. 2 nd -Tiers: Dominating China’s Demand for US & Foreign Goods <ul><li>8% total population, </li></ul><ul><li>54% of China’s imports from the world </li></ul><ul><li>(and 49 % from the US’) </li></ul>
    13. 13. There’s More than the Numbers… There’s the Trends <ul><li>Not just Beijing, Shanghai, & Guangzhou </li></ul><ul><li>The “spillover” </li></ul><ul><li>effect </li></ul>
    14. 14. US Export Markets Taking Off… Chongqing - Vehicles 178% Xi’an - Machinery 114% Tianjin - Vehicles 92% Nanjing Medical Instruments 70% Machinery 143% Qingdao - Electrical machinery 78% Dalian - Electrical machinery 120% % = ’05-’06 increase of U.S. exports Kunming – Semiconductor manufacturing equip 233.7% Hangzhou – Electronic Components 229%
    15. 15. Understanding the “New” Chinese Marketplace <ul><li>Grandpa’s China; Beijing, Shanghai, Guangzhou…and the countryside </li></ul><ul><li>The Olympic China; Industrial clusters by geography, new megalopolises, and a resilient middle class </li></ul>
    16. 16. Cluster #1: The Yangtze River Delta <ul><li>Deng Xiaoping’s T-Shaped Strategy </li></ul><ul><li>21% of China’s GDP </li></ul><ul><li>China’s Commercial Backbone </li></ul><ul><li>Being compared to the US’ Eastern Corridor </li></ul>
    17. 17. Cluster #2: The Pearl River Delta <ul><li>Shifting from China’s manufacturing capital to its services one </li></ul><ul><li>7% of China’s GDP </li></ul><ul><li>Saturation is pushing business outward from HK and Guangzhou </li></ul>
    18. 18. Clusters 3&4: Bohai River Delta and Central China <ul><li>Bohai: Beijing, Tianjin, Dalian…up to Harbin </li></ul><ul><li>Central: Their “Rust Belt”…Chongqing, Chengdu, Xi’an, Kunming </li></ul>
    19. 19. What Drives 2 nd -Tier Cities?: Consumption <ul><li>Consumption growth outpaced investment growth in China for the first time in seven years (2006): </li></ul><ul><ul><li>Consumer spending: 4.4% </li></ul></ul><ul><ul><li>Investment: 4.3% </li></ul></ul>
    20. 20. Keeping up with the Chens <ul><li>20-30 year olds have known nothing but upward mobility </li></ul><ul><li>Luxury goods hot – from caviar to wine to Louis Vuitton </li></ul><ul><li>Western brands sell </li></ul><ul><li>‘ Hypermarkets’ and retail chains booming along with new construction </li></ul><ul><li>Studies show most consumers planning big ticket item purchases in next 12 months </li></ul>
    21. 21. 2 nd -Tier Cities are the Heart of China’s Middle Class <ul><li>Yangzhou’s per capita income doubled from 400rmb to 800rmb from 2003 to 2005 </li></ul><ul><li>Merrill Lynch estimates that 5% of the Chinese are currently in the middle-class…will be 40% by 2020 </li></ul><ul><li>And ironically…the study also shows 86% of Chinese “think” they are in the middle-class </li></ul>
    22. 22. Three Reasons to Target Emerging Markets <ul><li>Lower costs on land, labor and energy </li></ul><ul><li>Second-tier cities enjoy a higher average growth rate—2% faster than the national average </li></ul><ul><li>7% GDP growth over the next 20 years </li></ul><ul><li>Rising income & moderate savings rates will lead to a strong spending surge amongst the rapidly expanding middle class </li></ul>Reason 1: Surging demand
    23. 23. Three Reasons to Target Emerging Markets Reason 2: Greater Opportunity <ul><li>Less-saturated markets </li></ul><ul><li>Less competition </li></ul><ul><ul><li>Opportunity to establish early presence and brand-loyalty </li></ul></ul>
    24. 24. Three Reasons to Target Emerging Markets <ul><li>In the last 5 years, the Chinese government has invested $123 billion USD in China’s national expressway system </li></ul><ul><li>Strong central government commitment to improving local infrastructure and developing public projects </li></ul><ul><li>Streamlined bureaucracy, incentives, more level playing field </li></ul>Reason 3: Policy Momentum
    25. 25. Case Study Medical Devices & Equipment <ul><li>China: World’s 3 rd largest MD market (13b) </li></ul><ul><li>10-15% growth rates until 2010 </li></ul><ul><ul><li>Large aging pop - 198 m > 65 by 2025 </li></ul></ul><ul><li>U.S. in China MD market </li></ul><ul><li>Largest market share (31%) </li></ul><ul><li>US products adv. Tech & affordability </li></ul>
    26. 26. Medical Devices in 2 nd -Tiers: <ul><ul><li>Increasing affluence= Surging Demand </li></ul></ul><ul><ul><li>Low market penetration= SME Opportunity </li></ul></ul><ul><ul><li>Strong Government Support </li></ul></ul><ul><ul><li>WTO accession: Only 4-6% tariff rate </li></ul></ul><ul><ul><li>Local Distribution= Control and “Guanxi” </li></ul></ul><ul><ul><li>Highly precious products – they only want the best, and these come from the US </li></ul></ul>
    27. 27. MEDICAL DEVICES: Target Emerging Markets
    28. 28. Sectors to Watch: The US’ Traditional Leaders <ul><li>Integrated Circuits </li></ul><ul><li>Machinery </li></ul><ul><li>Heavy Machinery </li></ul><ul><li>Construction/Farm Equipment </li></ul><ul><li>Electrical Power Generation </li></ul><ul><li>Electronic Components </li></ul><ul><li>Packaging Materials </li></ul><ul><li>Paper & Forest Products </li></ul><ul><li>Machine Tools </li></ul>
    29. 29. Sectors to Watch: The Up-and-Comers: Lifestyle <ul><li>Wine! </li></ul><ul><li>Health and beauty </li></ul><ul><li>Telecom/ICT </li></ul><ul><li>Travel & Tourism up 25% </li></ul><ul><li>Medical Devices </li></ul><ul><li>Home furnishings, fixtures and appliances </li></ul><ul><li>What’s important: education, health care, retirement </li></ul><ul><li>Entertainment </li></ul>
    30. 30. A Snapshot from One “Cluster”: Hot Industries in Central/SW China (Sichuan + Chongqing) <ul><li>MNCs already active in the region: Intel at Chengdu, 575 million USD investment, Ford at Chongqing (a joint venture with Chang’an Group), total of 600 million investment, half by Ford), other include Corning, Motorola, Microsoft, Agilent, Commins. </li></ul><ul><li>ICT(IC, Software, Digital media): Chengdu is now one of the 5 ITO centers in the country (SAP, Symantec) , government encourage call centers (tax + policy support). </li></ul><ul><li>Biotech/pharmaceutical: more locally – oriented, one of the pillar industries supported by local government </li></ul><ul><li>Retail & Franchise: popular brands are coming one by one, like Levi’s, Gap, Estee Lauder, SK-II, DQ, Starbucks, Coffee Beanery, Hagendaz. 4 stores by Walmart, Best Buy, introduction of mall concept in commercial real estate. </li></ul><ul><li>Other sectors of interest: energy (natural gas), clean technologies (energy-efficient technologies), tourism. </li></ul>
    31. 31. <ul><li>CS China: </li></ul><ul><li>19 Cities </li></ul><ul><ul><li>5 Commercial Service Offices </li></ul></ul><ul><ul><li>14 Secondary markets </li></ul></ul><ul><li>157 Commercial Service officers & Trade Specialists </li></ul>It’s not Whether you need to be there, it’s Where , and How
    32. 32. 14 Secondary Cities with American Trading Centers More Market Access. Same Quality Service. <ul><li>Dalian </li></ul><ul><li>Chongqing </li></ul><ul><li>Hangzhou </li></ul><ul><li>Harbin </li></ul><ul><li>Kunming </li></ul><ul><li>Nanjing </li></ul><ul><li>Ningbo </li></ul><ul><li>Nanjing </li></ul><ul><li>Qingdao </li></ul><ul><li>Shenzhen </li></ul><ul><li>Tianjin </li></ul><ul><li>Wuhan </li></ul><ul><li>Xi’an </li></ul><ul><li>Zhuhai </li></ul>
    33. 33. What can we do for you? <ul><li>Find & qualify business partners </li></ul><ul><li>Shipping/logistics difficulties </li></ul><ul><li>Tariff/tax/duty information </li></ul><ul><li>Export compliance/licensing </li></ul><ul><li>Referrals to in-country legal services </li></ul><ul><li>Advocacy support for tenders </li></ul><ul><li>Non-payment problems </li></ul><ul><li>Marking, packaging, labeling, and product testing standards </li></ul><ul><li>Market research </li></ul><ul><li>Set up government appointments </li></ul><ul><li>Product promotion </li></ul><ul><li>Facilitate with Ex-Im Bank, TDA, and Development Banks </li></ul>
    34. 34.
    35. 35. FYI: Some IPR Resources <ul><li>The US Embassy IPR Toolkit </li></ul><ul><li> </li></ul><ul><li>China IPR Advisory Program - </li></ul><ul><li>one hour free IPR consultation with legal expert </li></ul><ul><li> </li></ul><ul><li>US Patent & Trademark Office: free China conferences </li></ul><ul><li> </li></ul><ul><li>IP webinar series ( </li></ul>
    36. 36. China Webinar Series <ul><li>Past Webinars – Download at </li></ul><ul><li>Latest Trends in Brand Protection Strategies in China </li></ul><ul><li>Hiring an Investigative Firm in China </li></ul><ul><li>How to Get Executive Support for Your IPR Program </li></ul><ul><li>Analyzing Value of IP Assets and Conducting Audits of your IP Agreements </li></ul><ul><li>IP Strategies for Negotiating Licensing Agreements and the Realities of Enforcing the Terms of Agreements - spotlight on China </li></ul><ul><li>Civil IP Litigation in China </li></ul><ul><li>The Latest on Trademark Protection in China </li></ul><ul><li>Stopping Fakes at China’s Trade Fairs </li></ul><ul><li>Patent Protection in China </li></ul><ul><li>The Battle at the Border - China’s Fake Products in the US </li></ul>
    37. 37. U.S. Commercial Service “Core Services” <ul><li>Business Facilitation </li></ul><ul><li>Gold Key Matchmaking </li></ul><ul><li>International Partner Search </li></ul><ul><li>International Company Profile </li></ul><ul><li>Single Company Promotion </li></ul><ul><li>Trade Promotion </li></ul><ul><li>International Buyer Programs </li></ul><ul><li>Trade Missions/US Pavilions </li></ul><ul><li>FUSE </li></ul><ul><li>Commercial News USA </li></ul><ul><li>Customized Programs </li></ul><ul><li>Platinum Key Service </li></ul><ul><li>Advocacy </li></ul><ul><li>Business Consulting </li></ul><ul><li>Market Research </li></ul><ul><li>Market Research Library </li></ul><ul><li>Customized Market Research </li></ul>
    38. 38. Contact Us <ul><li>U.S. </li></ul><ul><li>Karl Kailing, US Commercial Service, Silicon Valley </li></ul><ul><li>[email_address] </li></ul><ul><li>408-535-2743 </li></ul><ul><li>Kully Nelson, US Commercial Service San Francisco </li></ul><ul><li>[email_address] </li></ul><ul><li>Matthew Quigley, China Business Information Center </li></ul><ul><li>[email_address] </li></ul><ul><li>Jeff Hamilton, Asia-Pacific Team Leader </li></ul><ul><li>[email_address] </li></ul><ul><li>CHINA: </li></ul><ul><li>Jennifer Lee, US Embassy Beijing </li></ul><ul><li>[email_address] </li></ul>