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China Today

This presentation gives a flavor of how China achieved such a phenomenal growth in short time.

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China Today

  1. 1. China today This presentation summarizes development process of Chinese economy A M Choudhari COO, L&T (China)
  2. 2. <ul><li>&quot;I hear and I forget. I see and I remember. I do and I understand.&quot; Chinese proverb </li></ul>
  3. 3. <ul><ul><li>I summarize China’s fast development model as SSFC : Scale, Speed, Focus approach and low Cost </li></ul></ul><ul><ul><ul><li>Scale: China has created huge capacities and thus is quickly able to cater to ever increasing demand from the entire world. </li></ul></ul></ul><ul><ul><ul><li>Speed: Is seen every where, in decision making as well as implementation. In just about a decade, it has 40000 Kms of express ways, fast trains running at 350 Km/Hour, over 150 airports, huge network of over bridges/cable bridges almost of same quality as any developed nation, 780 GW of power generation capacity, the list is un ending. </li></ul></ul></ul><ul><ul><li>No religion, cast system helps in staying progress focused. </li></ul></ul><ul><ul><li>Single political party helps in quick decision making and political accountability in expediting decisions. </li></ul></ul>
  4. 4. <ul><ul><li>Think tank of experts at the top and executors at lower level. Execution is precise and without questioning the decisions. </li></ul></ul><ul><ul><li>Do or die attitude, be it winning highest Olympic gold medals or attracting FDI or constructing an over bridge in a record time. </li></ul></ul><ul><ul><li>Single child policy since 1976, has helped in improving per capita income, literacy and health. </li></ul></ul><ul><ul><li>Export house to the entire world. China has amassed foreign exchange reserves to a whopping 3 trillion USD. 700 billion USD loan given to the US is giving China political leverage. </li></ul></ul><ul><ul><li>Lately China has changed the focus to attract only technology driven FDI and R&D centers. </li></ul></ul>
  5. 5. Business environment in China <ul><li>Political </li></ul><ul><li>Social </li></ul><ul><li>Economic </li></ul><ul><li>Technical </li></ul><ul><li>Business </li></ul>
  6. 6. Political <ul><li>CCP – single major party </li></ul><ul><li>Economy opening in 1978 </li></ul><ul><li>Deng Xiaoping said “we do not mind whether it is white cat or black cat provided it catches mice” </li></ul><ul><li>High political accountability </li></ul><ul><li>Anti corruption drive </li></ul><ul><li>Quality drive </li></ul><ul><li>Quick decisions fast implementation </li></ul><ul><li>Olympics, Expo success </li></ul>
  7. 7. Political <ul><li>Media </li></ul><ul><ul><li>State owned </li></ul></ul><ul><ul><li>Delicate issues controlled by Government </li></ul></ul><ul><ul><ul><li>Dalai lama </li></ul></ul></ul><ul><ul><ul><li>US forcing China for Yuan appreciation </li></ul></ul></ul><ul><ul><li>Image improvement stories are also presented well </li></ul></ul><ul><ul><ul><li>Olympics </li></ul></ul></ul><ul><ul><ul><li>Handling of 2008 earthquake </li></ul></ul></ul><ul><ul><li>Govt. – trying to tame and control internet </li></ul></ul><ul><ul><ul><li>Google exited China market </li></ul></ul></ul><ul><ul><ul><li>Netizens circumvent the control </li></ul></ul></ul><ul><li>High corruption but not zero sum game </li></ul><ul><li>Houku </li></ul><ul><ul><li>Government control to reduce inflow in to big cities. </li></ul></ul>
  8. 8. Social <ul><li>Pragmatic, result oriented society </li></ul><ul><li>Many have English names in addition to Chinese </li></ul><ul><li>Priority to order over freedom </li></ul><ul><ul><li>Houses demolished over night for road widening </li></ul></ul><ul><ul><li>Standardization of roads, service stations, trees </li></ul></ul><ul><li>Single child policy since 1976 has effected in low fertility rate </li></ul><ul><li>Mortality rate (death of children under 5 / 1000) has reduced to 21 </li></ul><ul><li>Younger generation – atheist and do not follow any religion </li></ul><ul><li>Compulsory primary education </li></ul><ul><li>East China developed </li></ul><ul><li>Per capita income @ 2000 USD, skewed favorably towards east China </li></ul><ul><li>Rich are more rich but poor are also richer </li></ul>
  9. 9. Economic development - 1 <ul><li>Phenomenal development during last 30 years </li></ul><ul><li>Now 3 rd largest economy next only to the US and Japan. Surpassed Germany in 2009 </li></ul><ul><li>GDP grew from 100 bil USD in 1978 to 4.3 trillion USD in 2009 </li></ul><ul><li>Red carpet for FDI (Foreign Direct Investment) created huge FDI growth </li></ul><ul><li>Trade surplus 2000 Billion USD </li></ul><ul><li>Average 8% GDP growth during last 30 years ( double digit during last 5 years) </li></ul>
  10. 10. Economic development - 2 <ul><li>By 2004, FDI was at 1097 USD over taking the US for most popular destination for FDI earlier </li></ul><ul><li>Per capita rose to 2013 USD in 2008 </li></ul><ul><li>Foreign funded companies were at 51000 </li></ul><ul><li>450 fortune 500 companies were in China </li></ul>
  11. 11. Economic development - 3 <ul><li>Focused infrastructure development </li></ul><ul><ul><li>40000 km of high ways </li></ul></ul><ul><ul><li>300 airports </li></ul></ul><ul><ul><li>680 GW installed capacity </li></ul></ul><ul><ul><li>350 kmph train speed ( Wuhan to Gongzhou 1100 Km in 3 hours) </li></ul></ul><ul><ul><li>23 nuclear plants under construction </li></ul></ul><ul><ul><li>Tallest building </li></ul></ul><ul><ul><li>Olympic stadiums </li></ul></ul><ul><ul><li>36 Km long bridge </li></ul></ul><ul><li>Now increasing focus on social infrastructure as well </li></ul><ul><li>3 of the top 12 banks are from China </li></ul><ul><li>China has about 15% of the world coal reserves </li></ul>
  12. 12. Some statistics % indicates world contribution 163 24,904 242,569 Internet subscribers 2007 - 000 26 55 74 PCs / 100 persons 2004 22 75 76 Mobile phones / 100 persons - 2008 24% 30% 1% Ship building 2006 3% 40% 15% robots industrial 2005 45% 45% 0% digital camera 2004 40% 45% 15% colour tv 2004 10% 20% 20% 4 wheelers 2006 12% 40% 8% machine tools2005 20% 1% 12% Wheat 50% 0 0% Rice 34% 9% 8% Crude Steel China Japan US  
  13. 13. Technology development <ul><li>Special benefits for import of technology </li></ul><ul><ul><li>Encouraged status </li></ul></ul><ul><ul><li>Hi Tech status </li></ul></ul><ul><li>Dependence on imported technology continues. Number of patents registered are quite low. </li></ul><ul><li>Today most of the fortune 500 companies have their presence in China </li></ul><ul><li>Many IPR issues were reported earlier, now there is reduction due to stricter control by government </li></ul><ul><li>Increasing mobile phone and internet users </li></ul><ul><li>Monopoly on the net </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li> </li></ul></ul><ul><ul><li> </li></ul></ul>
  14. 14. Encouraging business environment <ul><li>Tough competition between SEZs ( Special Economic Zones) </li></ul><ul><ul><li>Tax cuts ( Corporate tax, Income tax, VAT) </li></ul></ul><ul><ul><li>Free housing </li></ul></ul><ul><ul><li>Free office / factory space, reduced land cost </li></ul></ul><ul><ul><li>Low starting time </li></ul></ul><ul><ul><li>Other concessions </li></ul></ul><ul><li>FDI targets given to SEZs (government accountability) </li></ul><ul><li>Red carpet for technology </li></ul><ul><li>Impressive infrastructure in east </li></ul><ul><li>International schools </li></ul>
  15. 15. Employee scenario <ul><li>Survival in China </li></ul><ul><ul><li>At least little knowledge of spoken Chinese is a must </li></ul></ul><ul><ul><li>Difficult for vegetarians </li></ul></ul><ul><ul><li>Stay with family is preferred </li></ul></ul><ul><ul><li>Long duration posting is a must </li></ul></ul><ul><li>Corruption </li></ul><ul><ul><li>Bureaus, auditors – Accept gifts, super market cards before spring festival </li></ul></ul><ul><ul><li>Employees - Need to control – they are on look out for opportunity to earn while purchasing, striking a deal etc. </li></ul></ul><ul><ul><li>For approving a good order, it is normal to expect dinner, gifts, commission etc. Government is trying to control this by publishing severe punishment cases. </li></ul></ul><ul><ul><li>Hotels – No tip is expected </li></ul></ul><ul><li>Business method: Guanxi ( Relation based) </li></ul><ul><ul><li>Informal </li></ul></ul><ul><ul><li>Dinner table </li></ul></ul><ul><ul><li>80 / 20 rule ( 80% talk of weather, 20% business) </li></ul></ul><ul><ul><li>Appreciate drinking, smoking </li></ul></ul>
  16. 16. Working style <ul><ul><li>Less time wasters </li></ul></ul><ul><ul><ul><li>Absence of Politics, Religion/cast issues </li></ul></ul></ul><ul><ul><li>Focused </li></ul></ul><ul><ul><ul><li>Single track mind </li></ul></ul></ul><ul><ul><ul><li>Culturally they do not think.. Like to follow instructions </li></ul></ul></ul><ul><ul><ul><li>Not able to prioritize </li></ul></ul></ul><ul><ul><li>No follow up required </li></ul></ul><ul><ul><li>Give difficult job but do not give unrealistic targets </li></ul></ul><ul><ul><li>Direct and straight forward </li></ul></ul><ul><ul><li>Do not understand double meaning </li></ul></ul><ul><ul><li>No secrecy with customers or suppliers </li></ul></ul>
  17. 17. Requirements <ul><li>Flexibility required </li></ul><ul><ul><li>Constantly changing laws </li></ul></ul><ul><ul><ul><li>VAT refund </li></ul></ul></ul><ul><ul><ul><li>Stricter transfer pricing </li></ul></ul></ul><ul><ul><ul><li>Labour policy ( Increasing labour cost) </li></ul></ul></ul><ul><ul><ul><ul><li>Union </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Minimum social insurance </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Minimum wages </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Leave </li></ul></ul></ul></ul><ul><ul><ul><li>Interest rates </li></ul></ul></ul><ul><li>Patience required </li></ul><ul><ul><li>Establishing business may take years </li></ul></ul><ul><ul><li>Brand building </li></ul></ul><ul><li>Respect JV partner </li></ul><ul><ul><li>Treat them as equals even if you have a majority stake </li></ul></ul><ul><ul><li>Culturally in China all are equal, respect it </li></ul></ul><ul><ul><li>Do not try to compare whose culture is better. leave it at that </li></ul></ul>
  18. 18. Changing focus <ul><li>Government has now changed the track </li></ul><ul><ul><li>Focus on technology. </li></ul></ul><ul><ul><li>Red carpet only to technology driven companies. </li></ul></ul><ul><ul><li>Tightened norms of Hi Tech status </li></ul></ul><ul><ul><li>USA and Europe has cautious investment approach now </li></ul></ul><ul><ul><li>Investing in developing and underdeveloped countries </li></ul></ul><ul><ul><li>Encourage foreign educated Chinese back </li></ul></ul>
  19. 19. Separate rules for FIE <ul><li>5 day week against 6 day for Chinese companies </li></ul><ul><li>43% social security. Many Chinese companies pay less. </li></ul><ul><li>Extra payment for over time work: Many Chinese companies do not pay extra for over time. </li></ul><ul><li>Lower efficiencies than Local companies </li></ul><ul><li>Try to give as much responsibility as possible in the initial stage itself. Later it becomes difficult. </li></ul><ul><li>Consider 13th month salary is right not incentive </li></ul><ul><li>Employees and bureaus demand that the working should be strictly as per rules, increasing the cost of operations </li></ul><ul><li>Networking with other FIEs help a lot </li></ul>
  20. 20. Key to success in China <ul><li>Get closer to people </li></ul><ul><ul><li>No intermediate social organizations in China </li></ul></ul><ul><ul><li>Only family acquaintances </li></ul></ul><ul><ul><li>Individual reports directly to state </li></ul></ul><ul><ul><li>Expect paternalistic treatment from company </li></ul></ul><ul><ul><ul><li>Medical </li></ul></ul></ul><ul><ul><ul><li>Schooling </li></ul></ul></ul><ul><ul><ul><li>Housing </li></ul></ul></ul><ul><li>Get closer to market </li></ul><ul><ul><ul><li>Willing to pay higher price for European / American products but the gap is fast reducing </li></ul></ul></ul><ul><ul><ul><li>Guanxi will help on long term </li></ul></ul></ul><ul><ul><ul><li>Factor in high cost for entertainment </li></ul></ul></ul><ul><li>Integrate Chinese culture and western technology </li></ul><ul><li>Get right Chinese people </li></ul>
  21. 21. Some micros <ul><li>Cost advantage </li></ul><ul><ul><li>Only for global quantity </li></ul></ul><ul><ul><li>Low labour , overheads and tooling cost </li></ul></ul><ul><ul><li>Low cycle time </li></ul></ul><ul><li>Order tool and components both from same supplier </li></ul><ul><li>Factor in part of tooling cost in first few component lots </li></ul><ul><li>Tool suppliers want advance payment, BG is not accepted </li></ul><ul><li>There will be quality reduction from 1 st lot and subsequent lots </li></ul><ul><li>Have every lot approved before dispatch </li></ul><ul><li>Chinese products have “Just Good” quality. Most of the products will last much lesser than similar ones produced in developed countries. </li></ul>
  22. 22. Cross cultural competence <ul><li>Do not change management too often </li></ul><ul><ul><li>It takes time to settle down in China and get a hang of the culture </li></ul></ul><ul><li>Continued focus is needed on investing in the &quot;soft side“ </li></ul><ul><ul><li>People </li></ul></ul><ul><ul><li>Systems </li></ul></ul><ul><ul><li>Training </li></ul></ul>
  23. 23. Chinese Etiquette <ul><li>Enter dining room as per rank </li></ul><ul><li>Have sip of green tea when offered </li></ul><ul><li>Take the seat when offered </li></ul><ul><li>More the dishes, more is the honour bestowed on gusts </li></ul><ul><li>Praise the food </li></ul><ul><li>Avoid Taiwan, Dalai Lama, border dispute </li></ul><ul><li>Avoid business discussion initially </li></ul><ul><li>80% weather, 20% business discussion </li></ul><ul><li>Toast is “Gumbai” </li></ul>
  24. 24. Chinese Etiquette <ul><li>When asked a favour Chinese will say no indirectly </li></ul><ul><ul><li>It is difficult </li></ul></ul><ul><ul><li>It is inconvenient </li></ul></ul><ul><li>Avoid Loss of face </li></ul><ul><ul><li>Do not say ‘you are wrong’ directly </li></ul></ul><ul><ul><li>Insulting in front of others </li></ul></ul><ul><ul><li>Treating officer as junior in front of juniors </li></ul></ul><ul><li>Get a third party friend to introduce you to develop relationship </li></ul><ul><li>Present business card with both hands and read it when received </li></ul>
  25. 25. Confucianism in China <ul><li>Confucianism is not religion but more of code of conduct </li></ul><ul><li>Chinese follow it </li></ul><ul><ul><li>Respect to seniors and parents </li></ul></ul><ul><ul><li>Duty to family </li></ul></ul><ul><ul><li>Loyalty to friends </li></ul></ul><ul><ul><li>Humanity </li></ul></ul><ul><ul><li>Courtesy </li></ul></ul><ul><ul><li>Sincerity </li></ul></ul><ul><li>Grown children duty to support their parents in old age </li></ul>
  26. 26. <ul><li>Fastest growing large economy </li></ul><ul><li>Challenging market </li></ul><ul><li>Huge business potential </li></ul><ul><li>All the best ! </li></ul>