[Note: below is Chapter 1 from Great Wall of Numbers]
Should you and your company come to China?
There is no simple clear-cut answer for everyone. As you will find out, each market segment is different from the next. Each faces a wide variety of domestic competition and regulatory hurdles. Throughout each chapter I attempt to do cursory due diligence by looking at current market statistics and use anecdotal stories to illustrate both the opportunities and challenges of setting up shop on the mainland. Along the way you will hear the experiences and opinions from a number of experts through a variety of tapped and untapped revenue sources.
For example, Jim Chanos, founder of Kynikos Associates, is a New-York based hedge fund manager and short seller. Among other cautionary tales, over the past several years he has repeated one particular story about China. A story of two American men, who spoke Chinese, made the right connections, did their due diligence and yet barely got out of China with their shirts still on.1
His is a shrewd and important tale – a twist of caveat venditor. And despite their acumen this kind of harrowing story can arguably happen anywhere. Moreover just like the US muddled on despite the 2008 financial purges and Ponzi schemes such as Bernie Madoff’s, so too will China lumber on irrespective of its booms, busts, frauds and scandals. This is not to say there will not be large purges of misallocated, unproductive assets. As Ludwig von Mises might have said, a priori you can never buck market calculation and market corrections.2 Yet this is not to say the Chinese industrialization story will collapse or meltdown either.
A potential market for revenue generation
With more than 1.35 billion people, China is the most populous country in the world and will remain so for at least another 15 years.3
Yet just because there is a large potential market does not mean you can magically sell a $1 cup of coffee to everyone and instantly become nouveau rich. Or as one of my sarcastic students told me years ago: in China, if you scam everyone in the country just once, you can become a billionaire. More to the point, as Matt Garner discusses in his forthcoming book on marketing in China, the domestic home shopping industry has been filled with these types of cons and frauds (e.g., buying a gold brick – as seen on TV – yet receiving a flimsy cardboard cut-out in the mail).4 And as I discuss later in Chapter 3, consumers are becoming increasingly savvy and vigilant to such get-rich-quick scams.
So how big is the actual market for goods and services? Following Deng Xiaoping’s “reform and opening up” in late 1978, GDP has grown from approximately $10 billion to over $8 trillion. At the same time, one estimate shows that consumer spending as a percent of GDP has fallen from 50% to just under 35% over the past 15 years; yet a newly revised government report suggests the number may be much higher at 55% and another estimate is even higher at 65%.5 Either way, there are still growth opportunities if you know where to look and are willing to take risks. After all, 35% of $8 trillion is still much larger than 65% of $1 trillion let alone $10 billion.
What does this mean for Western companies, your company? The US is the 2nd largest exporter and according to the Economics & Statistics Administration exports reached a record $2.1 trillion in 2011.6 In fact, according to BusinessWeek and Bureau of Economic Analysis, September 2012 was another record month for exports, hitting $187 billion.7 Overall exports rose an additional 4.4% in 2012.8 Yet despite the fact that as of 2012, roughly 95.5% of all potential customers (e.g., world population sans the US) and 67% of all purchasing power reside outside of the US, relatively few US firms currently export.9
Moreover, as I discuss later in Chapter 7 according to the US Department of Commerce, as of 2010 in terms of US Small & Medium Enterprises (SME):10
- Only 1% of US SMEs export
- And only 10% of those that export, export to China
There are a number of reasons for relatively low participation including nebulous legal frameworks. But it is also surprising because despite the readily accessible markets made available due to standardized shipping container sizes, liberalized trade agreements, ISO certifications resulting in ‘best practices’ and overall streamlining of supply chains, merchants across the globe – and in the US – have never had it easier than today.11
Yet if you are reading this, odds are your company does not export either. In fact, depending on the source, up to 95% of US firms simply do not even have an international market strategy.
More to the point, on top of the approximately 30,000 SMEs that do export to China, typically only the top 500 US firms generate significant sales outside of the US. Why do you and your company not export? As you will find out, your brand is probably considered a step-above locally made goods and services. In fact, as I note later in Chapter 4 and Chapter 11, luxury goods and services are one increasingly large source of income for US firms like Howard Johnson hotels and Coach handbags – both of whom have taken advantage of the local market perception that “foreign” is better quality. Similarly, in Chapter 16 I also discuss how fast-food chains like KFC and Starbucks use a number of logistical and perception strategies and now generate more revenue in China than anywhere outside the US. Can your company do the same?
In December 2012 I spoke with Kirt Greenburg, then-director of the SME center at the American Chamber of Commerce in Shanghai.12 According to Greenburg, “one of the reasons that there are statistically few SMEs that export is because the US has such a large domestic market capable of sustaining a large pool of local competitors fueled solely by domestic trade thus US SMEs can usually grow quite large just by focusing on North America. And coupled with obstacles such as known regulations and fears of unknown hurdles, this has prevented many SMEs from looking at ways to export. Yet there are enormous opportunities in China as it is still a large growth market.”
There are also a large number of resources and support networks. For instance, “there are several SME centers at other Chambers including the EU and New Zealand that provide open research, business connections and even resources to aggregate and leverage databases from both governments and NGOs. For example, the SBA program offers a $10,000 grant to US SMEs to ‘go and explore’ in China. Yet few people, including myself until recently, even knew this type of program exists. Many SME centers, including ours, also includes both manpower and physical space to help enable entrepreneurs and businesspeople to utilize our knowledge and business connections throughout the day. In fact, our SME center really could be described as a marketplace for ‘best practices’ and ideas in general.” Later in Chapter 15 and 20 I detail some of the other subsidies and perks that some Chinese municipalities and trade zones offer to foreign firms, specifically software and engineering companies.
In terms of why there is a relatively low percentage of SMEs that export, Greenburg noted that, “anecdotally it can be a laborious task to find domestic partners, domestic customers and domestic vendors that you can immediately trust on the mainland. Vetting a partner can take a long time because there is no Better Business Report or D&B report. Yet through the Foreign Commercial Service, this task may become relatively easier in the future. Furthermore, one of the reasons why there may only be 1% of SMEs that export in general is that there are a large amount of SMEs in the US and other countries that do not have an easily exportable service, such as one-on-one consultations at dentist offices, barbershops or music lessons.”13
This absence of independent business monitoring may present an opportunity for foreign firms that specialize in business forensics and customer reporting to provide similar services on the mainland.
This is not to say that in a role reversal, exporting products to the US is any easier. For example, Greenburg thinks “regulations for foreign firms exporting to the US would probably be just as problematic in some cases as they are in China. Furthermore, most commerce in the US is actually conducted at the state-level, which requires additional legal knowledge just as it does at the provincial level in China. Yet, one of the issues that SMEs – both foreign and domestic – have to take into consideration on the mainland is the grey regulations that vary from city to city. Whereas there is an income tax levied by the federal government on all US citizens regardless of location, in China, municipalities have considerable leeway and flexibility to implement national laws. For example, last year a new social security tax on foreign workers was passed at the national level in Beijing, yet the Shanghai municipality and many others have not begun levying the tax yet.” On a national level this specific law went into effect on October 15, 2011; I discuss tax issues later in Chapter 10.14
According to the US Department of Commerce, 91% of world GDP (sans the US) is generated by countries with whom the US does not currently have a Free Trade Agreements (FTA) with, yet FTA countries alone represent 41% of total US exports.15 While there is currently no China-US free trade agreement, there have been numerous bilateral agreements reducing trade duties and restrictions.1617 Furthermore, US firms have invested more FDI into China than any other developing country this decade and the two countries (sometimes referred to as Chimerica or G2), with $446.7 billion in bilateral trade in 2011, are among each other’s largest trading partners.18
After Canada and Mexico, China is the 3rd largest destination for US exports. In 2011, US exports to China hit a new record of $105.3 billion. Among the largest products that US firms collectively exported were agricultural, as I discuss later in Chapter 3 (in 2011, China imported $20 billion in US agricultural products). And due to the domestic demand for safe and reliable products, Chinese consumers are increasingly turning to imported products (also discussed in Chapter 3). Thus even if you have not looked at the market, there are still untapped opportunities on the mainland, including sports consulting (Chapter 8), software development (Chapter 13) and entertainment (Chapter 14).
Towards the end of the book I describe at length some of the bigger macro hurdles that foreign and domestic firms will face on the mainland. There are specific industries that will be more difficult to operate in than others. For example, at a national level Chinese policy makers consider roughly a dozen areas to be key strategic industries.19
This includes Energy, Media, Telecommunications, Railways and Finance. As a consequence the national government attempts to foster and nurture domestic firms at the expense of international and foreign competition. All told there are roughly 110,000 to 150,000 state-owned enterprises (SOEs) supported and managed by townships, cities, provinces and nationally within China (down from 1.2 million in 1995).2021 They contribute to roughly 62% of the annual GDP.22
In addition, roughly 100 SOEs such as China Mobile, Xinhua and Sinopec are afforded the equivalent of VIP status, granted financial priorities and regulatory leeway.
Yet even within these government champions are opportunities for outside, international participation. While most Fortune 500 multi-national companies have permanently established a presence on the mainland, there is still ample room for foreign SME’s and consulting firms to participate in a bevy of other industries such as education, social media, athletics and even in government procurement. In fact, in 2011, government procurement amounted to about $179 billion.23 And following a series of reforms, foreign firms are now permitted to bid on government procurement projects. With that said, China is currently not a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA).24
So if you are a bidder in a procurement project, be cognizant and aware that you will be unable to make a case and petition the WTO in the event that issues arise.25
With a $8.28 trillion economy, despite a seemingly Byzantine regulatory climate, capturing even a small portion of market share means there may be opportunities and rewards for those creative and enterprising enough to locate them.26 As I note later in Chapter 5 and Chapter 10, policy uncertainties and hurdles will create challenges for both foreign and domestic companies.
For example, China Securities Regulatory Commission (CSRC) – the equivalent of the SEC – routinely compels a dozen or more SOEs to prop up the stock market, to prevent the Shanghai stock index from falling below 2000; which it momentarily did for the first time in four years in November 2012.2728 While this revelation is neither new nor proprietary it creates a dilemma for investors who are “more concerned with the decisions of regulators than the valuation of companies.”29 This would be akin to refocusing on (and lobbying) referees at a sport event rather than the actual game.
Another requirement for nearly all imported goods is obtaining the CCC or China Compulsory Certificate. This mandatory CCC mark, which typically takes 4-8 months to receive, is administered by the Certificate and Accreditation Administration, which maintains a list of products that are required to meet this certification process.3031 Failure to obtain and complete the application ends with a denial of market entry. Another issue is proper labeling and packaging. For example, beginning April 2013, all imported medical devices will be required to have packages and labels written in Chinese. Failure to do so will again prevent the manufacturer and sponsor from being able to market their products on the mainland.32
Taxes and duties are another issue that is sometimes overlooked. The General Administration of Customs (海关总署) periodically revises a list of products and their corresponding tariff rates. For example, as of April 15, 2012, while some goods are taxed at 10% (e.g., food, beverages, leather garments, furniture), others are levied up to 50% (e.g., cosmetics, tobacco, alcoholic beverages) and still others such as luxury goods are charged a 60% tax rate.33 In some cases if you import goods worth less than 5,000 yuan ($800) then you may not have to pay a tax on them.34 One personal anecdote involves sending jewelry (gold and diamonds) from the US to China via FedEx in December 2011. The jewelry was held up in customs at Shanghai’s Pudong airport because of import restrictions; I was required to pay a duty tax due to its value exceeding the 5,000 yuan limit. And as I note later in Chapter 11, it is these types of taxes which incentivize Chinese consumers to travel overseas to buy goods which can then be claimed as “personal belongings” upon return, thus removing tax liabilities and saving money. There are also 15 special economic zones (经济特区) also called free-trade zones that are allowed to set their own import regulations and duties and as a consequence are relatively popular for establishing joint-ventures and foreign trade operations.3536 In addition to areas such as Shanghai’s Waigaoqiao and Ningbo’s free trade area, these zones also include the special administrative regions (SAR) of Hong Kong and Macau and are credited for the subsequent economic booms in each of the mainly coastal cities.
Another nebulous challenge which varies from location to location is transaction costs involving government and quasi-governmental support and approval.37 In some industries in order to start-up a business you may not only have to acquire businesses licenses but also directly work with governmental bodies to set up operations. In some instances you may even need to have a government policy and market policy, or in other words, you need to have resources and labor to interface with policy makers as well as with market participants. There is no set generalized rule about these transaction costs and thus discussing these issues with a lawyer is highly recommended since the Foreign Corrupt Practices Act (FCPA) and UK Bribery Act are both actively enforced (see Chapter 10).
Yet despite all of these known hurdles (more of which are discussed in later chapters), and what your due diligence may discover, there still may be a profitable case for doing business on the mainland. Failure to do so, your firm could follow the unfortunate footsteps of Caterpillar, who recently took a $580 million write-down at a subsidiary that acquired a Hong Kong listed firm (ERA Mining) off an acquisition price of $654 million.3839
Yet for perspective, China is the world’s largest car market, the largest motorcycle market, the largest smartphone market, the largest art selling market, the largest online game market, the largest population of online shoppers and even the largest gambling market.40 How large are these potential markets? For instance, in 2009, China surpassed the US as the largest vehicle market globally and approximately 19.3 million automobiles were sold in China in 2012.41 By 2015 it is estimated that the Chinese car market will be larger than the US, Japan and Germany combined.424344 And by 2016, McKinsey & Company – a global management consulting company – estimates that China will surpass the US as top luxury car market.45 There are now 240 million vehicles on the mainland and 20 million more vehicles will be sold this year.46 Furthermore, according to Michael Dunne, an Asian-based car market consultant, “[of] the projected 2.3 million American-branded cars Chinese will buy this year , an astonishing 96% will be made in China.”47 And this growth rate has largely occurred in less than a decade. For example, in 2004, the market for Land Rover vehicles on the mainland was a mere 1% yet has subsequently surged to 20% of Land Rovers total sales last year.4849 There have been similar growth rates in other areas. For instance, with 290 million smartphone owners, this market itself is expected to double in size within the next year.50 Can you provide goods and services within these segments?
One term you may see throughout the book is the yuan (renminbi or RMB) which is the name of the currency in China. As of March 2013 approximately 6.22 RMB was equal to $1 USD. How often does this fluctuate? In the first half of 2012 it depreciated by almost 1.5% but in October 2012 it gained back .75%. While all major currencies in the Post-Bretton Woods monetary system fluctuate relative to one another, the key takeaway is that the RMB itself is not free-floating.51 It is managed on a band peg set daily by the People’s Bank of China (e.g., the central bank pegs the rate each day and the currency can move up to 1% in either direction).52
What are the average annual salaries of Chinese residents? As I noted later in Chapter 15, according to 2011 official figures, the per capita disposable income for rural residents was $1,100 and their urban counterparts was $3,430.535455 But there is also a significantly large outlier at the top-end, according to Hurun’s 2012 list of richest people in China there are now more than a million USD millionaires on the mainland, a number that is estimated to increase to 1.9 million by 2015.5657 And according to a recent Boston Consulting Group study, the number of affluent Chinese (those with disposable incomes of at least $20,000 to $1 million) will double from the current 120 million to 280 million by 2020.58 While these numbers will probably fluctuate and may even dip due to fallout from real-estate bubbles, this suggests that there are potential customers at various price points your company is looking to sell at.
I should also point out that I purposefully avoided analyzing most industries that are nationalized as well as those directly affected by the recent investment business cycle, specifically residential real-estate and commodity exchanges.
Gaining and trading guanxi
While I mention it in passing several times, guanxi (关系) is a unique cultural phenomenon involving personal connections and trust networks and I think Matt Garner describes the phenomenon most concisely for Western audiences:
[Guanxi is] one of the big cultural disconnects I would always see between American and Chinese business people. Americans are results oriented. But Chinese are relationship oriented. When the Americans come they have a specific set of objectives to meet. They come to the table with those goals and hope to meet them in a few days. Asians, on the other hand, typically want to first make the relationship. It’s like a marriage arrangement. You want both sides to know and trust each other first. This is especially true in China since contract enforcement mechanisms in most of the country are still developing, thus making trust and mutual respect mission critical. A first round negotiation is more of a meet and greet than anything that gets tangible results.59
While building rapport and trust is important for all long-term business relationships in any country, guanxi is a unique cultural trait that is established first before any business transaction is carried out. Moreover, such a relationship (guanxi) can only be built and reinforced over time through repeated virtuous performance, and not easily given to quick introductions and a handshake (as is the practice in the West). Hence the seemingly endless rounds of elaborate dinners, karaoke nights and mahjong sessions to establish and maintain guanxi. For example, Anschutz Entertainment Group (AEG) is an American company that operates the Staples Arena in Los Angeles and the Mercedes-Benz Arena in Pudong, Shanghai. As part of their long-term expansion plan they have hired local salespersons and managers to build guanxi and relationships with local suppliers and officials. In doing so, they can cement mutual trust among all stakeholders and provide a communication channel for all future business. In addition it is an expandable resource as whomever you have established guanxi with can now introduce you to their own trust networks and connections.
Is this merely the exception rather than the rule? No. For LinkedIn, out of its 200 million global userbase, only 1% comes from China. Why? Professor Wei Wuhui of Jiaotong University opines that, “I don’t think the Chinese middle class has the same needs in terms of professional networks as people in the West, because of the concept of guanxi. In China people do not want to meet with people they don’t know. The Chinese have a culture based on relationships among family members and close friends.”60 Thus do not necessarily count on using Western networking methods to procure and build contacts – or as the expression goes, when in Rome.
And as Larry Chang, Charles Zeng and other entrepreneurs point out in interviews later on, one of the biggest challenges for any foreign firm is initially building these social connections, these trust networks that every Chinese businessperson and consumer has. Yet overcoming this cultural challenge is a struggle for anyone even mainland residents. As the saying attributed to Joseph P. Kennedy and Knute Rockne notes, “when the going gets tough, the tough get going.” If becoming a successful entrepreneur was easy, we would all be fùwēng (富翁).
Takeaway: With the 2nd largest economy and an increasing demand for foreign-made products and services, China may be a new source for customers and revenue generation. As detailed in the following chapters each industry has differing market access characteristics. Furthermore, there are a variety of ways to sell your products directly to Chinese consumers, even without physically opening an office on the mainland (see ExportNow in Chapter 7). Yet there are any number of policy and domestic hurdles that may present challenges to all foreign companies – challenges that as I repeatedly stress throughout the book require you to do your due diligence before making any substantial investments. Furthermore, how you attract brand awareness, generate leads and manage customer relationships are tactical decisions that will vary according to industry – some of which are detailed in the following chapters.
- The name of the book is Mr. China: A Memoir by Tim Cissold. During his April 12, 2010 show, Charlie Rose interviewed Jim Chanos, Chanos briefly discussed the story:
“There’s been a couple wonderful books, including one called “Mr. China” about two investment bankers who set up shop right after Tiananmen Square. They spoke Mandarin, they were connected. They hired the kids of the high party officials. And they couldn’t have gotten it more right from a big-picture point of view. And they wrote this book a number of years later on how they were lucky to get out with their skin. They were completely bankrupted by China.” [↩]
- Economic Calculation in the Socialist Commonwealth by Ludwig von Mises [↩]
- Due to the one-child policy and outward immigration, according to UN demographers, ceteris paribus China will hit a peak population within the next 20 years. India will likely eclipse China during this time frame in large part because its birth rate remains above the 2.1 replacement mark. In contrast, China’s birthrate is effectively 1.47 per mother. This is further discussed in Chapter 18. See also Birth rule could be relaxed from China Daily, Peak toil from The Economist and One-child policy shift won’t usher in China baby boom from Reuters [↩]
- Red Flags: My Years in a Chinese Company by Matt Garner (forthcoming) [↩]
- See China’s Golden Rule of Consumption by Yukon Huang and China unlocks right kind of growth from Financial Times and Chinese shoppers are thriving from Financial Times [↩]
- U.S. Exports Top Historic High of $2.1 Trillion, Support 9.7 Million Jobs from the Economics & Statistics Administration [↩]
- See Record Overseas Sales Boost U.S. Growth from BusinessWeek and U.S. International Trade in Goods and Services from the Bureau of Economic Analysis [↩]
- Surprise! U.S. economy likely grew in fourth quarter from Reuters [↩]
- Another reason to export is that the long-term potential for emerging market annual consumption is expected to reach $30 trillion by 2025. See Winning the $30 trillion decathlon: Going for gold in emerging markets from McKinsey Quarterly [↩]
- Opportunities for U.S. Small and Medium Business in the China Market from the American Chamber of Commerce in Shanghai [↩]
- The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger from Marc Levinson [↩]
- American Chamber of Commerce in Shanghai SME Center [↩]
- See Better Business Bureau, Dun & Bradstreet, US Commercial Service and the 2012 US Commercial Service report: Powering Export Growth [↩]
- Foreigners Set For Social Benefits from Shanghai Daily [↩]
- Free Trade Agreements from the International Trade Administration [↩]
- US lawmaker urges investment treaty pact with China from Reuters [↩]
- This is not an endorsement that the WTO and managed trade agreements are supposedly the manifestation and embodiment of pure free-trade. Yet some trade is better than no trade. Or as Frédéric Bastiat purportedly said, if merchants and goods do not cross borders, armies will. Yet due to relatively freer trade channels, merchants (especially in the West) have access to more potential trade channels than at any time in history. See Who Said It? by Don Boudreaux and Biography of Frederic Bastiat by Thomas DiLorenzo [↩]
- According to Eric Jay Dolin’s new book When America First Met China, this trade-based relationship goes back 225 years. See How the China Trade Helped Make America from The Daily Beast, China’s 2011 foreign trade surges 22.5% from China Daily, Statistical Communiqué on the 2011 National Economic and Social Development from National Bureau of Statistics of China [↩]
- Historically these “heavy” or “key industries” are called the commanding heights, a term that was first coined by Vladimir Lenin during the first years of the Soviet Union. See The Commanding Heights : The Battle for the World Economy by Daniel Yergin and Joseph Stanislaw [↩]
- China’s PE Industry Grows More Challenging for Foreign Players from Global Intelligence Alliance [↩]
- According to a recent estimate, by one measure state employment in China may have decreased 25% between 2002 and 2009. Although several questions remain unresolved, did the author include listed SOEs (e.g. ICBC) or LLC’s that are subsidiaries that are wholly owned by SOEs? See A Shrinking Leviathan: State Employment in China Looms Smaller Than Expected from Peterson Institute for International Economics [↩]
- It is relatively difficult to gauge the exact number of SOE contribution to GDP in part because numerous suppliers and vendors – while technically private – exclusively do business with SOEs thus further blurring the distinction between private and public. Another lower estimate is 40% of non-agricultural GDP is generated by SOEs. For comparison, in 1995 there were 1.4 million SOEs on the mainland. See China’s New Place in a World in Crisis: Economic, Geopolitical and Environmental Dimensions edited by Ross Garnaut, Ligang Song and Wing Thye Woo, A Glance At Chinese State-Owned Enterprises from CNPolitics and Beijing Lines out Rout for Central SOE Reforms from Caijing [↩]
- China government 2011 procurement totals 1.13 trln yuan from Xinhua [↩]
- China announces next step in joining Government Procurement Agreement from the World Trade Organization [↩]
- Foreign firms in the procurement business also face stiff domestic competition with “buy China” policies at various governmental levels on the mainland. See Chinese gov’t departments told to “buy China” from Xinhua [↩]
- See GDP grows 7.8% to top $8 trillion from China Daily, The state advances from The Economist and China still lags US in trade from China Daily [↩]
- In December 2012 it subsequently surged in the highest daily gains since October 2009 due to policy changes in the Qualified Foreign Institutional Investor program (QFII合格境外機構投资者). See China Scraps QFII Limit on Sovereign Funds, Central Banks from Bloomberg, China’s Stocks Drop Below 2,000 from Bloomberg and China stocks fall below 2000 to 4-year low from South China Morning Post [↩]
- On the other side of the coin is the view that these stocks are now relatively cheap or a “bargain buy.” See Analysis: “Caveat emptor” as foreigners rush to ride China rebound from Reuters [↩]
- With Great Power Comes Great Responsibility from Peterson Institute for International Economics [↩]
- Certification and Accreditation Administration of the People’s Republic of China [↩]
- For a step-by-step procedure, see Starting a Business in China from the World Bank. See also New Path for Trade: Selling in China from The New York Times [↩]
- See China gets tough on labelling and packaging of medtech by Katherine Wang and 国家食品药品监督管理局关于规范境外医疗器械标签和包装标识的通知 from the SFDA [↩]
- See China Revises Categorization of Imported Goods and Tariff Rates from China Briefing, Import taxes ‘will be cut’ this year from China Daily and China Voice: Keep China’s big spenders at home from Xinhua [↩]
- Some airlines such as Air China explain this duty free limit (5,000 yuan) to passengers who are required to declare assets upon landing. Mainland airports have similar restrictions as well. See More duty-free shops in Hainan from China Daily and Customs And Visas from Air China [↩]
- Free trade zones are clearly the way to go from China Daily [↩]
- Shanghai gives green light to duty-free store from China Daily [↩]
- As a Chinese colleague recently pointed out, there is a Chinese saying guan zi liang ge kou (官字两个口). It is literally translated as ‘the character for “official” (guan) has two mouths’ – but actually means ‘there is no such thing as singular truth in officialdom.’ This explains the distinctive trait of the traditional Chinese businessperson’s distaste and disinclination to involve the official court in all matters concerning business dealings. Hence, the preference, for many centuries, among Chinese business people, has been to first establish a good and dependable relationship with prospective partners prior to the actual transaction and execution of (unofficial) agreements. The basis of a good relationship is xin yu (信誉) or a strong reputation for honesty and integrity – this is an important virtue called xin (trust) of the classical Confucian gentleman. [↩]
- See Cat Scammed: How A U.S. Company Blew Half A Billion Dollars In China from Forbes, Caterpillar Still Investigating Chinese Accounting Discrepancy from Bloomberg, Ex-chairman of firm linked to Caterpillar fraud “dismayed” from Reuters, Caterpillar Tracks a Wayward China Path from The Wall Street Journal and New twist in Caterpillar-ERA saga from Financial Times [↩]
- For an overview of common accounting mistakes that have been used in scandals in China be sure to read: The simplicity of Chinese accounting scandals from Quartz [↩]
- China is also the largest motorcycle market. See Global and China Motorcycle Industry Report, 2012 from PRNewswire [↩]
- Vehicle sales overtake Europe in 2012 from China Daily and 2012: Slowing growth, maturing market from China Daily [↩]
- An estimated 20.65 million automobiles are expected to be sold in 2013. See China 2013 Auto Sales May Accelerate This Year to Top 20 Million from Bloomberg, China Slowing Auto Sales Still Eclipse U.S.-Japan-Germany: Cars from Bloomberg and China’s vehicle sales remain in doldrums from Financial Times [↩]
- One of the issues facing policy makers is traffic congestion. Each city handles it differently, some auctioning off license plates to residents. The cost of license plates has increased as cities have become denser and more affluent. In Shanghai for example, in the recent license plate auction held in January 2013, the average price for a plate was $12,000. See Shanghai’s Newest Luxury Item: The License Plate from The Wall Street Journal and Shanghai licence plates ‘precious as gold,’ says vice mayor from South China Morning Post [↩]
- Used car sales are increasing faster than new car sales on the mainland and may be an opportunity for foreign auto dealers with experience in this segment. 4.8 million used cars were sold in China in 2012 compared with 15.5 million new cars. Used car sales are expected to double to 10 million in the next three years. For comparison, in the US the used car market is four times the size of new cars. See Coming of age: China’s used car market outpaces new sales growth from Reuters [↩]
- China to surpass US as top luxury car market: study from Agence France-Presse [↩]
- China Vehicle Population Hits 240 Million as Smog Engulfs Cities from Bloomberg [↩]
- ‘Imported From Detroit’ Is a Good Idea in China, if Only… from The Wall Street Journal. [↩]
- Modern facilities, global reach for Jaguar Land Rover from China Daily [↩]
- Many other luxury cars continue to sell well on the mainland. For example, in 2011 Chinese consumers overtook the US in purchases of Rolls Royce vehicles; although in 2012 US consumers retook the “torch” which may again be handed off in 2013. See U.S. Overtakes China as World’s No. 1 Buyer of Rolls-Royce from The Wall Street Journal [↩]
- According to Flurry, by the end of February 2013, China had 246 million smart devices compared with 230 million in the US. See iPhone 5 hits China as Apple market share slips from Reuters and China Knocks Off U.S. to Become World’s Top Smart Device Market from Flurry [↩]
- See China to pursue renminbi internationalization on market-oriented basis: central bank vice governor from Xinhua, China’s Next Step on Yuan Is Convertibility, Zhou Says from Bloomberg and Full convertibility of the yuan ruled out from China Daily [↩]
- In terms of whether the currency is undervalued or overvalued, the only way of knowing for sure what the open market rate “should be” is to float the currency. By one measure, according to The Economist’s annual Big Mac Index, despite the appreciation over the past several years, the yuan is still “undervalued” by 40%. See Calories and currencies from The Economist [↩]
- Modern China: A tale of luxury villas and displaced villagers from McClatchy [↩]
- According to estimates from the World Bank, gross national income per capita in China was $4,940 in 2011. [↩]
- Charting China’s Family Value from The Wall Street Journal [↩]
- China has 1m multimillionaires: Hurun report from China Daily [↩]
- Why Rich Chinese Are Investing Overseas (It’s Not What You Think) from The Wall Street Journal [↩]
- Report: China ‘Affluent’ Population to Hit 280 Million by 2020 from The Wall Street Journal [↩]
- Red Flags by Matt Garner (forthcoming) [↩]
- LinkedIn, others face challenges against China ‘guanxi’ from South China Morning Post [↩]
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