All you need to know about business in China

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All you need to know about business in China


Alot of people view China business as mysterious. Relax. Consumers behave pretty much the same everywhere. Competition is pretty much the same everywhere. You just need to ignore the hype and focus on the basic fact that in China today, there are six big trends (exhibit). That’s it. Six trends shape most of the country’s industries and drive much of China’s impact on the Western world. They are like tectonic plates moving underneath the surface. If you can understand them, the chaotic flurry of activity on the surface becomes a lot more understandable—and even predictable.To get more latest china business news, you can visit shine news official website.

These trends move businesses on a daily basis. They’re revenue or cost drivers that show up in income statements. Deals, newspaper headlines, political statements, and the rising and falling wealth of companies are mostly manifestations of these six trends, which aren’t typically studied by economists and political analysts. In fact, we happen to think that Chinese politics or political economics are wildly overemphasized by some Westerners in China. So let’s tell a story about each of these megatrends, with some important caveats. They’re not necessarily good things. They’re not necessarily sustainable. For every one of them, we can argue a bull and a bear case. Most lead to profits or at least revenue. Some may be stable. Some lead to bubbles that may or may not collapse. We are only arguing that they are big, they are driving economic activity on a very large scale, and understanding them is critical to understanding China and where it’s headed.

Urbanization is arguably the most important phenomenon shaping modern China. More than 300 million people have moved from the country to cities in the past 30 years, and an additional 350 million are on the way. China has 160 cities with populations of more than one million and 14 with more than five million. Increasingly, these cities are becoming linked, creating urban areas with 30 million people or more—the size of many European countries. Before long, there will be one billion city dwellers in China, placing intense demands on infrastructure such as transportation and public services, as well as on critical resources like clean drinking water. Already, a staggering 40 percent of Chinese rivers are seriously polluted and unfit for use. In an attempt to reverse that, China will invest $636 billion in water-related projects through 2020.

At the same time, urbanization is creating a great deal of wealth. Some 350 million people have moved out of poverty since 1990 in China, with disposable income per capita rising 300 percent during that period. Perhaps the clearest illustration of wealth generation is in real estate, where investment rose to $980 billion in 2011 from just $120 billion in 2003. In fact, by focusing on building basic modern apartments for China’s rising middle class, the country’s leading developer, China Vanke, built some 80,000 apartments in more than 25 cities in 2012—and recorded annual sales topping 97 billion renminbi (about $16 billion).

China is the world’s largest manufacturer, with more than $2.2 trillion in manufacturing value added. It makes 80 percent of the world’s air-conditioners, 90 percent of the world’s personal computers, roughly 70 percent of the world’s solar panels, 90 percent of the world’s mobile phones, and some 65 percent of the world’s shoes. Manufacturing makes up 40 percent of the Chinese economy and directly employs 130 million people. But its traditionally low labor costs are rising, and there is aggressive movement from low-tech assembly to high-tech manufacturing, as well as from the more expensive coastal areas into cheaper central and western China. In addition, Chinese companies’ strategy of building big and selling cheap may not be enough to win in Western markets against companies with both established market share and brand equity, which is the primary barrier preventing Chinese manufacturing scale.

Yet it’s perilous to underestimate Chinese manufacturers and the benefits of scale. Perhaps the most global Chinese company today is telecommunications giant Huawei Technologies, which grew rapidly by developing lower-priced equipment for second- and third-tier cities and avoiding competition from global manufacturers in major markets. When Huawei expanded abroad, it targeted less-developed areas in Southeast Asia, Africa, and Eastern Europe that had been neglected by major global players. By the time Huawei became the world’s top telecommunications-equipment company in 2012, it was earning more than two-thirds of its $36 billion in revenue outside of China. And at home, its scale has allowed it to make more sophisticated products and move into first-tier cities.

The American middle class was the world economy’s growth engine throughout the 20th century. Now, the engine is the Asia–Pacific region, which will account for two-thirds of the world’s middle class by 2030. While Chinese consumers’ focus on “value for money” has driven the rise of companies such as apartment builder China Vanke and Tingyi Holding Company—the business behind China’s dominant instant-noodle brand—buying habits are changing. As urbanization accelerates, consumer spending is becoming more like that of the West’s middle class. Urban Chinese are shopping to meet emotional needs, driving a skyrocketing demand for middle-class goods, food, and entertainment.

As an example, China consumed more than 13 million tons of chicken in 2012—more than the United States. Tyson Foods’s China operations has facilities able to process more than three million chickens per week, and Chinese chicken consumption, which grew by 54 percent from 2005 to 2010, is expected to grow an additional 18 percent annually during the next five years. For additional evidence, look no further than the fact that the largest Chinese acquisition of a US company had nothing to do with technology, cars, or energy. In 2013, Chinese Shuanghui International spent $7.1 billion to buy American Smithfield, the world’s largest pork producer and processor. It’s not surprising, then, that agribusiness is one of China’s hottest new industries.

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