CHINA COUNTRY REPORT B Y: L I L LY B R A S I L I
TABLE OF CONTENTS Country Overview Economic Stability Political Stability PESTLE State of Industry Trade Agreements and Variables Transportation Suppliers Shipping Resources Lead Time And Cost How to Conduct Business Benefits Risks Sources
COUNTRY OVERVIEW LOCATION Eastern Asia. Bordering the East China Sea, Korea Bay, the Yellow Sea, and the South China Sea. Bordering Russia, Kazakhstan, Mongolia, North Korea, and Vietnam, and other countries. GOVERNMENT People’s Republic of China, a one-party communist system POPULATION TOTAL AREA LAND AREA 1,361,512,576 9,596,960 9,326,410 EDUCATION 9 years of primary school is required of all children for free but middle and high school require a small fee. 60% of high school grads then move on to attend a university. ETHNIC COMPOSITION Han Chinese (91.6%), Zhuang (1.3%), other [includes Hui, Manchu, Uighur, Miao, Yi, Tujia, Tibetan, Mongol, Dong, Buyei, Yao, Bai, Korean, Hani, Li, Kazakh, Dai and other nationalities] (7.1%) GENDER BREAKDOWN 115.88 boys to every 100 girls, large gender imbalance MEDIAN AGE 35 RELIGIONS Buddhist (18.2%), Christian (5.1%), Muslim (1.8%), folk religion (21.9%), other (0.7%) [includes Daoist (Taoist)], unaffiliated (52.2%), Hindu and Jewish (0.1%) LANGUAGES Standard Chinese or Mandarin, Yue (Cantonese), Wu (Shanghaiese), Minbei (Fuzhou), Minnan (Hokkien-Taiwanese), Various other dialects
CURRENCY Renminbi Yuan HOLIDAY National Day is 1 October (1949) IMPORT VOLUME $1.576 trillion IMPORT COMMODITIES machinery, oil and mineral fuels; nuclear reactor, boiler, and machinery components; optical and medical equipment, metal ores, motor vehicles; soybeans IMPORT PARTNERS South Korea 10.9%, US 9%, Japan 8.9%, Germany 5.5%, Australia 4.1% EXPORT VOLUME $2.143 trillion EXPORT COMMODITIES machinery, data processing equipment, apparel, furniture, textiles, integrated circuits EXPORT PARTNERS US 18%, Hong Kong 14.6%, Japan 6%, South Korea 4.5% MAIN INDUSTRIES agriculture, industry and services UNEMPLOYMENT RATE LABOR FORCE INDUSTRIAL GROWTH RATE 4% 806.3 million 6% BUDGET DEFICIT -3.4% of GDP
INFLATION RATE 1.4%
CURRENCY EXCHANGE RATE 6.2275
ECONOMIC STABILITY
Since establishing themselves as the world’s largest exporter, China has encountered many changes to their economy including moving from a centrally planned system to a market-oriented system. The first gradual reform included the liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, growth of the private sector, development of stock markets and a modern banking system, and opening to foreign trade and investment. These changes are what lead to the always increasing GDP and China becoming the largest economy in 2015 (passing the US for the first time in history). All of these changes did come with challenges though. Challenges for the Chinese economy include: - reducing the high domestic savings rate and low domestic consumption - facilitating higher-wage job opportunities for the middle class and increasing the number of college graduates - reducing corruption - dealing with the environmental damage and social strife caused by the economy’s quick transformation Today, China’s economy has experienced slow growth so the government has issued the 13th Five-Year-Plan. This plan is intended to increase domestic consumption to make the economy less dependent on the export industry, in turn benefiting China’s overall economic health.
GDP
$19.7 trillion
GDP GROWTH RATE
6.9%
GDP PER CAPITA
$14,300
GROSS NATIONAL SAVINGS
47.9% of GDP
POLITICAL STABILITY
The Communist Party of China has been in control for well over 60 years. This has meant that the government has been able to make decision and oppositions without any input or deliberation. This has made China’s relationship with other countries very unstable but because they are a large global economic leader , they were able to cut ties with ease. Today there is still instability and tension with other countries, especially surrounding the East China Sea and the South China Sea.
CHINA AND THE UNITED STATES China and the United States have a relationship that can be described as civil with hesitation. There is a lack of trust between the two nations which results in difficulty to come together on certain issues. China’s lack of trust comes from the fact that the United States is another global powerhouse and the awareness that Western nations have dominated China in the past. Especially as the Trans-Pacific Partnership is being discussed, China is concerned about an anti-China strategy. The United States’ lack of trust comes from a concern for China’s continuing rise in power and military advances (especially in their force surrounding the East and South China Sea). The United States is also concerned for China’s poor human rights and environmental standards, possibly intellectual property theft, and currency manipulation. While both countries have frequent disputes, there is a clear advantage of two powerhouses sticking together. There are economic, trade and security benefits for both China and the United States. While friction may arise, a working relationship will be maintained for the good of both parties involved.
P . E . S .T . E . L .
POLITICAL
- Since 1949, the Communist Party of China has been the ruling party in the country and currently has over 70 million members. - Since 1986, the state has been seeking to pursue an “open door” economic policy while promoting economic and social reforms.
ECONOMIC
- The government is trying to be less dependent on exports by consuming domestically to in turn improve the economy. - Weak global demand, decelerating investment, sluggish property market have caused the slow Chinese economy. In 2015, the country recorded the slowest growth rate post 1990 at 6.90%.
SOCIAL
- China has emphasized improving social security, increasing wages and providing more welfare benefits in the 13th five-year plan. - Although inequality remains elevated, it has been on a decline since 2008. But the urban vs rural income gap fell to 2.92 in 2014, which is the lowest level in the last 13 years.
Current Strengths
Current Challenges
- the CPC can enact policy unhindered - strong geopolitical influence
- roiled relationship with neighbors - terrorism by Xinjiang extremists
Future Prospects
Future Risks
- Sino-Russian relations
- human rights abuse - media censorship - US election
Current Strengths
Current Challenges
- strong fundamentals - largest recipient of FDI inflows
- re-balancing economy - overcapacity - weak private sector - can’t join MSCI
Future Prospects
Future Risks
- services sector growth - rising real estate prices
- rising government debt - growth of shadow banking
Current Strengths
Current Challenges
- increase in life expectancy - decline in poverty
- gender imbalance - urban migration
Future Prospects
Future Risks
- extension of social safety net
- aging population
TECHNOLOGICAL
- China’s recently entered the World Trade Organization and signed the Agreement on Trade-Related Aspects of Intellectual Property Rights. - The Chinese administration has attempted to become more energy efficient and clean poor implementation is hindering progress.
LEGAL
- According to the World Bank’s Doing Business 2016, China ranked 84th out of 189 economies in this global survey. - The government has pledged to liberalize services sectors including finance, education, culture and health.
ENVIRONMENTAL
- A “green strategy” is in place to decrease stress on natural resources caused by its rapid growth, development, and urbanization. - China ranked 109th out of 180 countries in its 2016 Environmental Performance Index.
Current Strengths
Current Challenges
- international co-operation - large number of R&D institutions
- loss of graduates to more affluent countries
Future Prospects
Future Risks
- space research - increasing number of patents
- policy fragmentation
Current Strengths
Current Challenges
- decentralized court system - amendments to criminal law
- lack of safeguards to keep freedom in adjudication - product regulations
Future Prospects
Future Risks
- reform of Hukou - better governance
- weak intellectual property rights enforcement
Current Strengths
Current Challenges
- rich biodiversity - evolving environmental policies
- gender imbalance - urban migration
Future Prospects
Future Risks
-development of renewable energy
- distorted pricing
STATE OF INDUSTRY Without a doubt, China is the apparel manufacturing and exporting leader of the world. China has over 100,00 manufacturers and employs over 10 million people. In 2012, China made 43.6 billion pieces of garments with an export value of 153.219 billion US dollars. According to the China National Garment Association (CNGA), “China’s garment industry has gained an advantage in making garment products of all kinds of categories in a fast and timely manner, which secures its front ranking in the world market in terms of capacity and quality.” While China is a global powerhouse when it comes to apparel manufacturing and exporting, the market in China has continuously been slowing down. The apparel and footwear market in China experienced single-digit growth in value terms in 2015. This isn’t much of a surprise though due to the overall slow and sluggish economy. While the economy may be slow, the consumer is still very conscious and wants to stay up to date with fashion. This will allow the apparel and footwear market to have a steady performance in the coming year rather than further declining. Apparel and Textile Export Volume to the United States 392k shipments 650k volume (teu)
TOTAL APPAREL AND FOOTWEAR VOLUME mn units 2010 2011 2012 2013 2014 2015 apparel 28,619.0 31,342.2 33,986.3 35,810.4 37,142.2 38,617.5 footwear 2,570.4 2,748.6 2,929.7 3,143.3 3,344.4 3,537.1 apparel and footwear 31,189.4 34,090.8 36,916.0 38,953.7 40,486.6 42,154.6
TOTAL APPAREL AND FOOTWEAR % VOLUME GROWTH % volume growth
2014/15
2010-15 CAGR
2010/15 total
apparel 4.0 6.2 34.9 footwear 5.8 6.6 37.6 apparel and footwear 4.1 6.2 35.2
TRADE AGREEMENTS AND VARIABLES TRADE AGREEMENTS China currently has no free trade agreements with the United States and none are in the works. The TPP (Trans-Pacific Partnership) is currently in the works but the trade agreement excludes China and will most likely work against them when creating a new trade powerhouse. Though they do not have any trade agreements with the United States, China has been a member of the World Trade Organization since 2011. This means that as a member, the World Trade organization deals with all rules of trade between China and the other members involved. Their goal is to help producers, exporters, and importers conduct business as smoothly as possible. China has consistently been listed high on the World Trade Organization’s import and export ranking in world trade.
PRODUCTION AND LEAD TIME VARIABLES NATURAL DISASTERS Frequent typhoons (about five per year along southern and eastern coasts), floods, tsunamis, earthquakes, droughts, land subsidence and rare but impactful volcanic activity HOLIDAYS AND CULTURAL EVENTS New Year’s Day - January 1 Chinese New Year - first day of the first lunar month and lasts for two weeks Women’s Day - March 8 Chinese Arbor Day - March 12 Qingming Festival - April 4th or 5th of the solar calendar May Day - May 1 Dragon Boat Festival - the 5th day of the Chinese 5th lunar month National Day - October 1
TRANSPORTATION
TIANJIN PORT QINGDAO PORT SHANGHAI PORT NINGBO-ZHOUSHAN PORT
GUANGZHOU PORT
SHANGHAI PORT – World’s busiest port located in Shanghai, China. It faces the East China Sea to the east and the Hangzhou Bay to the south. NINGBO-ZHOUSHAN PORT – Handles the largest amount of tons in the world. Located in Ningbo and Zhoushan, on the coast of the East China Sea, in Zhejiang. TIANJIN PORT – Largest port in Northern China and is known as the main maritime gateway to Beijing. Located in Tianjin, China. GUANGZHOU Port – Largest comprehensive port in Southern China. Located in Guangzhou, Guangdong. QINGDAO PORT – One of the busiest ports in the world. Located on the Yellow Sea in Qingdao, Shandong Province, People’s Republic of China.
SUPPLIERS
BESTWAY INTERNATIONAL TRANS PHONE - +86 867552551063 , +86 53282682816 , +86 862082118573 EMAIL - hdmicables@126.com CUSTOMERS - 41 customers including Unitrans Consolidated Inc., South East World Wide Ltd. And Fred Meyer Inc. PRODUCTS - Garments, garment materials and wearing apparel
JIANGSU GUOTAI INTERNATIONAL GROUP GUOMAO CO, LTD PHONE - +86 512 5869 6087 EMAIL - chenbin@gtig.com , info@gtiggm.com CUSTOMERS - 2,428 customers including Glii Apparel Group Ltd., Kmart Corporation, Jerry Leigh Inc. PRODUCTS - womens, mens, childrens cotton, polyester and knit clothing
NINGBO BROTHERS APPAREL CO, LTD PHONE - +86 574 6578 0558 EMAIL - brother@brother-group.com CUSTOMERS - 57 customers including Evy of California, Mighty Fine Inc. and China Direct World Sourcing, LLC PRODUCTS - cardigans, knitted pullovers, knitted dresses and knitted pants
CHANGSHU WINTOP IMP. EXP. CO, LTD PHONE - +86 512 5281 8710 EMAIL - scott@wintop-fashion.com CUSTOMERS - 125 customers including Around the World Apparel Inc., New Horizon Trading Inc., Wintop Fashion USA Inc. PRODUCTS - ladies knitted, knitted pullovers/jackets, polyester knitted and cotton polyester knitted
SHIPPING RESOURCES
SEA FREIGHT
AIR FREIGHT
COSCO CONTAINER LINES
CHINA AIRLINES CARGO
No.378, Dong Da Ming Road Shanghai 200080 China 86-21-35124888
Fleet Size - 19 Locations/Destinations - 38
CHINA SHIPPING
Fleet Size - 22 Locations/Destinations - 59
Nontvale, NJ United States 201-505-6900
APL LIMITED 1111 Broadway Oakland, CA 94607-5500 United States 510-272-8000 erep_america@apl.com
CATHAY PACIFIC CARGO
FEDEX EXPRESS Fleet Size - 688 Locations/Destinations - 375+
LEAD TIME AND COST
SHANGHAI, CHINA TO LONG BEACH, CALIFORNIA
BY SEA
BY AIR
Lead Time – about 17 days Cost - $1,267.20 - $1,400.59
Lead Time – 12.08 hours Cost - $2,534.01 - $2,800.75
HOW TO CONDUCT BUSINESS
Relationships & Communication - Intermediaries are crucial to build trust and establish reliability. - Send prep materials (written in Chinese) to introduce your company, products and services. - The Chinese will want to get to know you before doing business. - Be very patient. - Rank is highly valued in business relationships and communication. - Gender bias is the norm, except for in business. - All communication must be official and formal. - The Chinese prefer face-to-face meetings. - Distinguish times for business and socializing and never let them mix.
Business Meeting Etiquette - Appointments are mandatory and should be made 1-2 months in advance. - Intermediaries must arrange the formal introduction if the two parties have not met before the meeting. - Arrive at meetings on time or preferably early. - Pay attention to the agenda and stay on task. - Meeting tend to be loud with many distractions but never tell them to quiet down or turn off a cell phone. - Guests are escorted to their seats in order of rank - Bring your own interpreter. - Written material should be available in both English and Chinese. - Visual aids should only be done with black type on white background so that colors are not misinterpreted.
Business Negotiation - Only senior members of your negotiating team can speak. - Business negotiations are slow. - Chinese are non-confrontational and will not give an upfront answer. - Never lose your temper when negotiating. - Business is hierarchical and decisions must be approved by the higher ranks outside of the meeting. - The Chinese are shrewd negotiators.
What to Wear? - Business attire is conservative and simple. - Men should wear dark colored suits. - Women should wear suits or dresses with a high neckline. - Women should wear flat shoes. - Never wear bright colors as they could be misinterpreted.
Business Cards - Business cards are exchanged after the formal introduction. - Have one side of your business card translated into Chinese. - Offer the card in both hands with the Chinese side facing up. - Look closely at every business card given to you to show respect. - Never write on someone’s business card without permission.
BENEFITS
Enormous work force Highly skilled workers Large number of factories with a multitude of specialties Fast and reasonable shipping Continuing a long relationship of importing and exporting Global economic powerhouse Low production cost
RISKS
Low human rights standards Low environmental standards Lack of trade agreements with the United States Communist government regulations Vast range of quality standards across factories Lead time is expected to vary due to natural disasters and frequent holidays
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SAVANNAH COLLEGE OF ART AND DESIGN FASM 420 - GLOBAL SOURCING PROFESSOR DONALD LEVY