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Chinese Business
Hung-Gay FUNG
University of Missouri-St. Louis
China
• The word China in the Chinese language
literally means “middle kingdom.” The
Chinese are thinking that China is the
middle (center) of the world.
• This mentality is similar to the US (in fact
we are thinking that we are the universe).
The map of China
Beijing
Beijing
Shanghai
Shenzhen
Xi’an
A small town in western China
A primary school in western area
Village
Weaving woman
Economic Data
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Population
Population growth
Urban population
Life Expectancy
Literacy rate
GDP (US$ b)
GDP growth
Current account (US$b)
Foreign reserves (US$b)
Exports (US$b)
Imports (US$b)
Inflation (CPI)
1998
1.24b
1.2%
30%
71 years
81.5%
960.9
7.8%
29.3
149.2
183.8
140.2
-0.8%
2000 2001
1.26b
1,073
7.4.%
11.8
163.9
191.3
163.8
0.4%
1,196.4
7.4%
1.83
212.2
249.9
228.1
1.6%
China 's Top Trade Partners in 2000 (US$ Billion)
Rank
1
2
3
4
5
6
7
8
9
10
Country
Japan
US
HK
S. Korea
Taiwan
Germany
Singapore
UK
Australia
Russia
Total trade
83.17
74.47
53.95
34.50
30.53
19.69
10.82
9.90
8.45
8.03
% Total Trade
17.54
15.70
11.37
7.27
6.44
4.15
2.28
2.09
1.78
1.69
% GDP
7.75
6.94
5.03
3.21
2.84
1.83
1.01
0.92
0.79
0.75
Source: General Administration of Customs, China Customs Statistics (2001)
China and Yangtze Delta
• Since 1978’s open-door policy (adopted by Deng
Xiaoping) to foreign countries, China’s growth has
been around 9% until the Asian currency crisis
• FDI- come from Taiwan, Hong Kong, Singapore,
South Korea and U.S.
• Reforms --economic and political, downsizing the
state-owned enterprises and government
bureaucracy
• Development of private and non-state owned
enterprises
Continued
• Historical High inflation
1988 (23%) and 1994 (21.7%)
• Policies to keep inflation down to 10%
– reforms led to overheated economy and wage
hike in 1980s
– government implemented a wage and bonus tax
– control inflation in 1994, using contractual
monetary aggregate and fiscal deficits.
continued
• Success factors:
– High Saving rates: 30-50% of GDP
– Growth in FDI
– accumulation of reserves (confidence) as a
result of trade surplus
– relative stable working environment (no major
revolution)
– hardworking of the Chinese people
4 Growing Regions in China
Regions
• Yangtze River Valley
GDP (%)
38.5%
Shanghai, Jiangsu, Zhejiang
• Yellow River Valley
30.2% Beijing,
Tianjin, Shandong
• North-east Areas
11.3%
Heilongjiang, Jilin, Liaoning
• Zhujian (Pearl) River Valley
Guangdong and Fujian
16.8%
Regions of Development
• Economic and Development Zones
– along the cost
– successful for the past 20 years
• Development of the West and Central China
– Railways and roads
– oil lines
Economy Structure
Composition
Industry
Service
Percentage
45 %
27 %
(commerce, construction, others)
Agriculture
28%
Banking Sector
• Central bank - People’s Bank of China
• 4 big banks - control 80 % business
– Bank of China,
– Industrial and Commercial Bank of China,
– Agricultural bank,
– China’s Construction bank
• Under financial reforms
– bad debts
Financial Markets
• Two Stock Markets
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Shanghai Stock exchange
Shenzhen Stock exchange
enables state firms to raise money
A-share vs. B-share
• Underdeveloped bond markets
Investments in China
• Two types
• Foreign Direct Investment (FDI)
– in forms of setting up plants and factory
• Portfolio investment
– in stock markets (B-share investments)
Total (Realized) FDI in China
Year
FDI ($ billion)
1984
1986
1988
1990
1992
1994
1996
1997
1998
1999
1.419
1.875
3.194
3.487
11.008
33.767
41.726
45.257
45.463
40.319
Choices of investment
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Representative office,
Joint venture,
Wholly-owned foreign enterprise
Foreign investor shareholding corporation
China and World Trade
Organization (WTO)
• Sept 17, 2001
– Accord on China’s entry into WTO is signed,
clearing China’s way to WTO
– The last big dispute between the US and EU over
the status in the Chinese market of AIG, the US
insurer is resolved
– signs bilateral deal with Mexico, the last WTO
member to sign for approval to admit China
• Nov, 2001, formal agreement was signed
WTO Effects on China
• Agriculture
– import tariff reduces from 21.2% to 17% over time
– quota and permit for trade will be phased out
– farmers may suffer most
• State-owned enterprises (SOEs) - employ over 50 %
population; face tense competition
• Automobile industries - worst hit
– tariffs cut from 25 % from current 80-100%
• Textiles - shoes, toy industries may gain (export)
• Financial services - may suffer