China’s Rapid Progress up the Value Chain
“So in 30 years we have gone from ‘sold in China’ to ‘made in China’ to ‘designed in China’ to ‘dreamed up in China.’” Thomas Friedman, The World is Flat
January 2008
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Unprecedented Growth ) ) ) )
Average annual GDP growth near 10% over past 20+ years Over 500,000 foreign invested companies today World’s #1 target for FDI; Over $1 billion per week Middle class between 100 and 250 million people (depends on data source) – 410 million mobile phone users – Fastest growing auto market in the world (& terrible pollution) – 5th largest pharma market by 2010…….and so on
GDP Views ) Absolute: 4th in the world ) 3rd in global output ) Per Capita: 107th place globally – so lots of room for continued growth January 2008
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Past: The World’s Workshop From ZERO 25 years ago to…. ) ) ) ) ) ) ) ) )
January 2008
30% of TVs 50% of cameras 30% of air conditioners 25% of washing machines 20% of refrigerators 34% of mobile phones 17% of digital cameras 20% of DVD players 28% of broadband routers & modems
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Transition to a Market Economy 1978 1998
2003
- Public sector employment ≥ 99% 30% 16.4% - % value add 57 43 - % of GDP 60 40 - Private sector employment ≤ 1% 70% 73.6% - % value add 43 57 - % of GDP 40 60 Source: OECD
January 2008
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Transition Number of Firms 100% 80%
Value Added
Private Private
60% Collective 40%
Indirect State
20%
Di rect Sta te
100% Collective Indirect State
0%
1998
2003
100% Private 80% Collective
Private
60%
Collective
40%
Indirect State
20%
Di rect Sta te
0%
1998
Collective Di rect Sta te
20%
Indirect State
Di rect Sta te
1998
January 2008
Collective Indirect State
Di rect Sta te Private
Indirect State
40%
0%
Private
Di rect Sta te
Employees
60%
80%
Source: OECD
2003
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2003
Huge Contribution from FIEs )
35% of industrial output (from 2.3% in 1991)
)
Control assets in 21 of 28 leading industrial sectors
)
20% of China’s tax revenues
)
25 million employees (10% of urban workforce)
)
60%-plus of exports out of China
)
750 foreign R&D centers in 2005 (near zero in late 90s)
)
Most tech transfers into China
)
Role of ETDAs (e.g. SIP)
January 2008
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Export Ratio of FIEs Total exports
Billion of US Dollars
750
Exports by foreign-funded companies
600 450 300 150 0 1997
1998
1999
2000
2001
2002
2003
2004
Year Source: National Bureau of Statistics
January 2008
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2005
11th 5-Year Plan, 2006-2010 )
Key policy focus: Develop technology-led sectors and high-value capabilities, while maintaining the manufacturing base – Increase R&D spending from 1.3% of GDP in 2005 to 2% by 2010 – Targets include biotechnology, nanotechnology, renewable energy, etc.
China currently holds 12% of the world’s patents in nanotechnology
– Tax equalization between FIEs and domestic firms, but – 150% deduction for qualified R&D expenditures – Major biotech centers in Beijing and Tianjin, etc. January 2008
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Investment Catalog Comparison
(36% growth) January 2008
127
(12% growth)
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113
Current Trends )
University-industry collaboration on the rise: – Tsinghua University has research contracts with GE, Alcatel, Lucent, P&G, etc.
)
VC on the rise - corporate, traditional, PE – but still small
)
Major Industrial advances – – – – –
)
Exporter of power gen equipment Developer of TD-SCDMA 3G wireless standard rd 3 largest auto producer (Look for Chinese cars in US soon…) World’s largest shipbuilder Domestic aviation and aerospace industry on the rise (Regional jet ARJ21 now in testing; Airbus A320 assembly)
Still, only a fifth of China’s top 500 companies invest over 2% of revenue in R&D (Huawei invests 10%)
January 2008
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The Future: The Entrepreneurial Challenge )
200,000 – 300,000 engineers graduating every year, compared with about 60,000 in US – In 1999, all MBA grads from Shanghai’s China-EC Business School went to work for FIEs. In 2006, 25% went with domestic firms
)
Still, China only spends about half what average OECD country spends on education and health
January 2008
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China’s Business Incubators – Invented in America )
“International” Business Incubators – In every city for returning expats
)
Shanghai National IC Design Center – Based on fact that over 80% of IC products were imported – Established in 2000 to support entrepreneurs in IC design – Provides multi-million dollar design tools & testing computers for all users at no cost – Training and general partnership with LSI Logic – Top floors for R&D, lower floors to incubate resulting companies
January 2008
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Sino-Consulting, Inc. Thank you. Please feel free to call if you have questions Timothy Weckesser, 610-828-8060 Shiqiang Gu, 610-828-8061 www.S-C-I.com January 2008
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