Is China on Your Radar?
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EUSME Centre Is China on your radar? t 1 por Re ? - na hi C r fo y d a e r u o y e r A www.eusmecentre.org.cn EUSME CentreEUSME Centre Are you ready for China? Published by: EU SME Centre 37 Maizidian West Street Room 910, Sunflower Tower Chaoyang District, Beijing 100125 P.R. China Phone: +86-10-85275300 Email: [email protected] Internet: www.eusmecentre.org.cn The EU SME Centre is a project funded by the European Union Is China on your radar? 1. Is China on your radar? 2 2. China backstory 3 3. Top reasons why EU SMEs must consider China 4 3.1. China is the world’s fastest growing and second largest economy 4 3.2. China is the number one growth market outside the EU for European companies 5 3.3. China’s second and third tier cities offer vast opportunities 6 3.4. A fast growing consumer market 6 3.5. European products enjoy a strong brand image in China 7 3.6. China’s economic restructuring 7 3.7. Challenges bring opportunities 8 3.8. EU SMEs in China are succeeding 8 3.9. Improved logistics 9 3.10. Ample support provided by different entities 9 4. China’s many markets 10 4.1. Choice of location: Things to consider 13 5. China’s 12th Five-Year Plan: An economy in transition 15 5.1. Opportunity knocks: The strategic emerging industries 16 5.2. Other key issues related to the 12th Five-Year Plan that will create opportunities for SMEs 16 5.3. The 12th Five-Year Plan and top ten encouraging trends for EU SMEs 18 6. Opportunities by sector 19 6.1. Automobiles and autoparts 19 6.2. Chemicals 20 6.3. Construction 20 6.4. Education 22 6.5. Energy 23 6.6. Food & beverages 24 6.7. Healthcare 25 6.8. ICT (technology and telecommunications) 26 6.9. Travel 27 6.10. Machinery equipment and components 28 6.11. Renewable energy 29 6.12. Retail and logistics 30 6.13. Transportation 31 6.14. Textiles and apparel 32 7. Key challenges for EU SMEs in China 33 8. Going forward 35 9. Appendices 37 9.1. EU SME business sentiment in China 37 9.2. Gauging your readiness 37 9.3. European Member States supporting organisations 38 Sample questions from the online quiz Are you ready for China? 1. Is China on your radar? Of the 24 million EU SMEs that exist only around 250,000 are currently exporting to China and far fewer are investing. This goes to show that for many EU SMEs, China is just not on their radar. There are many reasons for this, ranging from the distance to market to the many challenges (regulatory and cultural) of doing business in China. However, we believe that there is one overriding reason - the lack of reliable information available on the market which makes it difficult for EU SMEs approaching the market to assess both the opportunities and challenges of doing business in China. This report seeks to rectify this situation by providing EU SMEs with clear information and advice by way of concise thematic overviews and checklists which will enable them to grasp more quickly the potential in the Chinese market. The report also contains a number of links which will allow EU SMEs to explore more deeply particular areas of interest. Introduction to the EU SME Centre diagnostic kit Are you ready for China?. Four To help European SMEs entering the Chinese market to make an informed decision, the EU SME Centre has published a series of diagnostic business tools entitled reports introducing different aspects of market entry are accompanied by an online quiz tailored to help entrepreneurs check their level of readiness regarding the market and pointing them towards SMEsfurther to resources gauge their to preparedness improve their in understanding doing business of in less China. well-known business areas. The series is designed to work as a step-by-step introduction to the Chinese business environment, allowing This report, Is China on Your Radar? , is the first in the series of four aimed at helping EU SMEs understand and ideally enter the China market. It highlights China’s economic development, the opportunities and challenges it has created and relevant government policies. It also offers a variety of case study examples, practical recommendations andExporting references goods, for further information. Online quiz: Ways to enter the services and Knowing your Gauging your Is China on your radar? Chinese market technology to the partners in China readiness Chinese market Online quiz - Gauging your readiness: An electronic learning module to help you assess your knowledgeReport 1 - Isof China the Chinese on your business radar? environment. : A general introduction to China’s macroeconomic framework andReport what 2 it- meansWays forto enterEuropean the SMEs,Chinese including market specific opportunities by industry sector. enterprises. : An overview of different modes of entering the Chinese market, from exporting to investing, from joint ventures to wholly foreign-owned Report 3 - Exporting goods, services and technology to the Chinese market : A closer look at importReport regulations4 - Knowing and your processes, partners including in China practical tips and best practices. : A concise guide to due diligence in China. From verifying a company’s administrative and legal standing to checklists for visits to the partner’s premises, it covers all areas basic due diligence is concerned with. To find out more, please visit www.eusmecentre.org.cn/content/diagnostic-kit Page 2 Is China on your radar? 2. China backstory 1949 1966-76 1978 1986-90 1986-89 1990 Start of the reform In the past decade, Ten years of and opening up period under Deng China’s “Open-door reform and country to foreign Calls for political policy” opens the China’s annual Establishment upheaval during the Chairman Mao by creation of economic growth of the People’s Cultural Revolution; Xiaoping followed concerns over Shanghai Stock investment and corruption averages at 10.1%; Republic of China economy rising inflation and Zones develops the market passes away in 1976 Special Economic Exchange re-opens 1992 1997 1998 2000 2001 2003 2004 Premier Zhu Rongji reforms SOEs China joins the Kong get hit by In the past decade, Deng dies; the China and Hong Southern Tour Kong in 1997 and Deng Xiaoping’s return of Hong World Bank: 600 leading to millions World Trade the SARs virus China’s annual starts operation of million Chinese economic reforms of unemployed Organisation; outbreak; China since 1981 reinvogiorates Macau in 1999; restructuring and economic growth lifted out of poverty and massive average import China doesn’t fall bankruptcies averages at 10.7% victim to the Asian tarriffs fall to 9.8% the massive Three Financial Crisis Gorges Dam Plant 2008 2009 2010 2011 2012 2030 China hosts the In the past decade, Summer Olympics 60 years since the Japan to become Xi Jinping and Li China becomes the China announces China celebrates China overtakes The Party selects World Bank predicts to much acclaim; Communist Party China’s annual economic growth the world’s second Keqiang as China’s largest economy in RMB 4 trillion economic crisis came to power averages at 10.5% largest economy next leaders the world by 2030 stimulus to put off Page 3 Are you ready for China? 3. Top reasons why EU SMEs must consider China 3.1. China is the world’s fastest growing and second largest economy China's annual growth rate 2002 to 2012 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* Annual growth rate Source: International Monetary Fund (IMF) 1 Since 1979 the People’s Republic of China has been experiencing a fast pace economic development, becoming today the second largest economy in the world after the United States of America. With a compound annual growth rate (CAGR) at around 10% - even higher in Central and Western China -, China’s gross domestic product (GDP) growth rate reached its climax in 2007 (14.2%), decelerating only in the last three years primarily as a result of the global financial and economic crisis. Such a sound and outstanding performance has produced a steady increase in average household income, endowing Chinese families with more disposable resources for their expenditures and foreign enterprises with a newRecommended set of business reading: opportunities. • China Economic Outlook , International Monetary Fund (IMF) • www.imf.org/external/country/CHN/rr/2012/020612.pdfEconomic Survey of China 2010 , Organisation for Economic Co-operation and Development (OECD) • www.oecd.org/economy/surveys/economicsurveyofchina2010.htmInvestment in the People’s Republic of China, KPMG • www.kpmg.com.cn/en/IssuesAndInsights/Documents/Investment-in-China-201204.pdfChina: Structural Reforms for a Modern, Harmonious, Creative High-income Society , in “China 2030: Building a Modern, Harmonious, and Creative High-Income Society”, World Bank www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2012/02/28/000356161_201202280013 03/Rendered/PDF/671790WP0P127500China020300complete.pdf 1 Both in terms of nominal gross domestic product (GDP) and purchasing power parity (PPP) Page 4 Is China on your radar? 3.2. China is the number one growth market outside the EU for European companies EU's trade balance with China 150 9.5 9 130 8.5 110 8 90 7.5 70 7 Billion EUR 6.5 Percentage points 50 6 30 5.5 10 5 2007 2008 2009 2010 2011 Exports (billion EUR) Share of total EU exports (%) Source: Eurostat, 2011 Europe and China have developed strong trade relations.