China has experienced phenomenal economic development over the last 30 years through an approach of scale, speed, and low cost. It has rapidly built up huge industrial capacities, infrastructure networks like highways and airports, and power generation capabilities. Decision making and implementation are very quick due to a single political party system and emphasis on execution without questioning. This fast growth has made China the world's second largest economy and third largest trading nation.

1. China today This presentation summarizes development process of Chinese economy A M Choudhari COO, L&T (China)

2. "I hear and I forget. I see and I remember. I do and I understand." Chinese proverb

3. I summarize China’s fast development model as SSFC : Scale, Speed, Focus approach and low Cost Scale: China has created huge capacities and thus is quickly able to cater to ever increasing demand from the entire world. 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. No religion, cast system helps in staying progress focused. Single political party helps in quick decision making and political accountability in expediting decisions.

4. Think tank of experts at the top and executors at lower level. Execution is precise and without questioning the decisions. Do or die attitude, be it winning highest Olympic gold medals or attracting FDI or constructing an over bridge in a record time. Single child policy since 1976, has helped in improving per capita income, literacy and health. 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. Lately China has changed the focus to attract only technology driven FDI and R&D centers.

5. Business environment in China Political Social Economic Technical Business

6. Political CCP – single major party Economy opening in 1978 Deng Xiaoping said “we do not mind whether it is white cat or black cat provided it catches mice” High political accountability Anti corruption drive Quality drive Quick decisions fast implementation Olympics, Expo success

7. Political Media State owned Delicate issues controlled by Government Dalai lama US forcing China for Yuan appreciation Image improvement stories are also presented well Olympics Handling of 2008 earthquake Govt. – trying to tame and control internet Google exited China market Netizens circumvent the control High corruption but not zero sum game Houku Government control to reduce inflow in to big cities.

8. Social Pragmatic, result oriented society Many have English names in addition to Chinese Priority to order over freedom Houses demolished over night for road widening Standardization of roads, service stations, trees Single child policy since 1976 has effected in low fertility rate Mortality rate (death of children under 5 / 1000) has reduced to 21 Younger generation – atheist and do not follow any religion Compulsory primary education East China developed Per capita income @ 2000 USD, skewed favorably towards east China Rich are more rich but poor are also richer

9. Economic development - 1 Phenomenal development during last 30 years Now 3 rd largest economy next only to the US and Japan. Surpassed Germany in 2009 GDP grew from 100 bil USD in 1978 to 4.3 trillion USD in 2009 Red carpet for FDI (Foreign Direct Investment) created huge FDI growth Trade surplus 2000 Billion USD Average 8% GDP growth during last 30 years ( double digit during last 5 years)

10. Economic development - 2 By 2004, FDI was at 1097 USD over taking the US for most popular destination for FDI earlier Per capita rose to 2013 USD in 2008 Foreign funded companies were at 51000 450 fortune 500 companies were in China

11. Economic development - 3 Focused infrastructure development 40000 km of high ways 300 airports 680 GW installed capacity 350 kmph train speed ( Wuhan to Gongzhou 1100 Km in 3 hours) 23 nuclear plants under construction Tallest building Olympic stadiums 36 Km long bridge Now increasing focus on social infrastructure as well 3 of the top 12 banks are from China China has about 15% of the world coal reserves

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. Technology development Special benefits for import of technology Encouraged status Hi Tech status Dependence on imported technology continues. Number of patents registered are quite low. Today most of the fortune 500 companies have their presence in China Many IPR issues were reported earlier, now there is reduction due to stricter control by government Increasing mobile phone and internet users Monopoly on the net Baidu.com QQ.com Alibaba.com

14. Encouraging business environment Tough competition between SEZs ( Special Economic Zones) Tax cuts ( Corporate tax, Income tax, VAT) Free housing Free office / factory space, reduced land cost Low starting time Other concessions FDI targets given to SEZs (government accountability) Red carpet for technology Impressive infrastructure in east International schools

15. Employee scenario Survival in China At least little knowledge of spoken Chinese is a must Difficult for vegetarians Stay with family is preferred Long duration posting is a must Corruption Bureaus, auditors – Accept gifts, super market cards before spring festival Employees - Need to control – they are on look out for opportunity to earn while purchasing, striking a deal etc. 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. Hotels – No tip is expected Business method: Guanxi ( Relation based) Informal Dinner table 80 / 20 rule ( 80% talk of weather, 20% business) Appreciate drinking, smoking

16. Working style Less time wasters Absence of Politics, Religion/cast issues Focused Single track mind Culturally they do not think.. Like to follow instructions Not able to prioritize No follow up required Give difficult job but do not give unrealistic targets Direct and straight forward Do not understand double meaning No secrecy with customers or suppliers

17. Requirements Flexibility required Constantly changing laws VAT refund Stricter transfer pricing Labour policy ( Increasing labour cost) Union Minimum social insurance Minimum wages Leave Interest rates Patience required Establishing business may take years Brand building Respect JV partner Treat them as equals even if you have a majority stake Culturally in China all are equal, respect it Do not try to compare whose culture is better. leave it at that

18. Changing focus Government has now changed the track Focus on technology. Red carpet only to technology driven companies. Tightened norms of Hi Tech status USA and Europe has cautious investment approach now Investing in developing and underdeveloped countries Encourage foreign educated Chinese back

19. Separate rules for FIE 5 day week against 6 day for Chinese companies 43% social security. Many Chinese companies pay less. Extra payment for over time work: Many Chinese companies do not pay extra for over time. Lower efficiencies than Local companies Try to give as much responsibility as possible in the initial stage itself. Later it becomes difficult. Consider 13th month salary is right not incentive Employees and bureaus demand that the working should be strictly as per rules, increasing the cost of operations Networking with other FIEs help a lot

20. Key to success in China Get closer to people No intermediate social organizations in China Only family acquaintances Individual reports directly to state Expect paternalistic treatment from company Medical Schooling Housing Get closer to market Willing to pay higher price for European / American products but the gap is fast reducing Guanxi will help on long term Factor in high cost for entertainment Integrate Chinese culture and western technology Get right Chinese people

21. Some micros Cost advantage Only for global quantity Low labour , overheads and tooling cost Low cycle time Order tool and components both from same supplier Factor in part of tooling cost in first few component lots Tool suppliers want advance payment, BG is not accepted There will be quality reduction from 1 st lot and subsequent lots Have every lot approved before dispatch Chinese products have “Just Good” quality. Most of the products will last much lesser than similar ones produced in developed countries.

22. Cross cultural competence Do not change management too often It takes time to settle down in China and get a hang of the culture Continued focus is needed on investing in the "soft side“ People Systems Training

23. Chinese Etiquette Enter dining room as per rank Have sip of green tea when offered Take the seat when offered More the dishes, more is the honour bestowed on gusts Praise the food Avoid Taiwan, Dalai Lama, border dispute Avoid business discussion initially 80% weather, 20% business discussion Toast is “Gumbai”

24. Chinese Etiquette When asked a favour Chinese will say no indirectly It is difficult It is inconvenient Avoid Loss of face Do not say ‘you are wrong’ directly Insulting in front of others Treating officer as junior in front of juniors Get a third party friend to introduce you to develop relationship Present business card with both hands and read it when received

25. Confucianism in China Confucianism is not religion but more of code of conduct Chinese follow it Respect to seniors and parents Duty to family Loyalty to friends Humanity Courtesy Sincerity Grown children duty to support their parents in old age

26. Fastest growing large economy Challenging market Huge business potential All the best !