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A Presentation on Country Analysis (CHINA

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Presented by: Presented To: Prof. Preeti Salvi Shah Priyank Dhimant Vyas Velani Shruti Mrunal Vaza Nandha Sachin

Source : PERC’s Asian risk Prospectus for year 2009

History
• Optimum war and the decline of the Qing Dynasty (1839-1900) • Early years of the Republic • War against Japan and World War II (1937-1945) • Civil War (1945-1949) • Early years of People’s Republic of China • Reforms of Economy • Present

Some basic information
• • • • • Official Name : People’s Republic of China China is a Geocentricity Capital City : Beijing Major Cities : Shanghai,Guangzhou, shenzhen, Tiamzin Official Language : Mandarin Chinese, Other Major Language like (Cantonese, Fuzhou, Shanghaiese • Currency :Renminbi (RMB),it means “People’s Currency” one, two, five, ten, fifty and a hundred Yuan; one, two and five Jiao; and one, two and five Fen.

GEOGRAPHICAL FACTOR

• Natural Hazards : frequent typhoons, damaging floods, tsunamis, earthquakes, droughts, land subsidence • Climate : extremely diverse, hot in south to cold in north • Mountains and hilly land take up 65 percent of the total area • Area = total: 9,596,960 sq km land: 9,326,410 sq km water: 270,550 sq km • Coastline :14500 Km • World’s fourth largest country(after Russia,canada,US)

Which Provinces of China to Invest in /Trade with?
Area 1. Coastal Area 2. Inner China 3. Border Provinces POSITIVE FACTORS Economically Prosperous. Potential for Future Investment and Trade Close proximity with Thailand Interested in Trade and Investment with Thailand. New Markets with Potential. NEGATIVE FACTORS Highly Competitive Market. Lack development, Poor. Limited Market

4. North Eastern Provinces

Far Proximity from Thailand.

Political System
 Chinese communist parties(CCP) and eight registered small parties  Political pressure group and leaders
 China democracy Party  No substantial political opposition group exists

 Cabinet : State Council appointed by the National People's Congress (NPC)  Elections: president and vice president elected by the National  People's Congress for five-year terms; elections last held 15-17 March 2008; premier nominated by the president, confirmed by the National People's Congress.

Legal System
• based on civil law system; derived from Soviet and continental civil code legal principles; legislature retains power to interpret statutes • Judicial Branch : Supreme People's Court (judges appointed by the National People's Congress); Local People's Courts (comprise higher, intermediate, and basic courts); Special People's Courts (primarily military, maritime, railway transportation, and forestry courts)

Intellectual Property Rights
• China did not enact its first patent laws until 1984 • Items like computer softwares, animal, plants, food, beverages, atomic energy related innovations, chemicals, pharmaceuticals are not included in patent law • Process of filing for patent – First to File

Political risk
Confiscation Risk
Govt. take ownership without compensation like in case of coke

Operational Risk Political instability
Social unrest Policies of host government Attitude of nations

Bribery and Corruption
• • • • • • • • Top 7 Rankings 1. Nigeria 2. Pakistan 3. Kenya 4. Bangladesh 5. China 6. Cameroon 7. Venezuela • • • • • • • • Bottom 7 Rankings 45. Australia 46. Netherlands 47. Switzerland 48. Singapore 49. Norway 50. Canada 51. Finland
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Minimize the political Risk
• Stimulation of the local economy For e.g. Coke purchase raw material & labor from local market • Sharing Ownership For e.g. Cathay Pecific sell a new public issue to allow chinese investors for invest • Being civic minded, For e.g. H.G. Heinz spent 94000$ for infant Nutrition studies

Trade Barriers
• Distribution channel takes longer time to reach the product in the hand if customer • Banned on direct selling(for e.g. in case of Amway) • Reason:
– Fear of Grey Marketing and fake goods – criminals have used direct marketing to spread heretical religion and start secret societies; – Anti social activity – Fraud and corruption

• Foreign firm can not wholly own retail outlets and can not engage in wholesale activities • Newspaper is controlled by govt. and are used for propaganda

Examples
• Canon Inc., for example, has historically had to use its Hong Kong office as the primary sales arm in servicing China because of regulatory constraints on mainland sales and distribution. • One option is to emulate the Chinese practice of building dedicated distribution networks that can be used to smooth the supply chain, get closer to customers and gain better control of marketing and communications through to the point of sale. • Kodak has been a pioneer. In 1998, it negotiated a deal with the Chinese government to take over three large state-owned enterprises in the photographic industry and integrate them with Kodak's existing operations into a holding company.

Trade benefit
SEZ for manufacturing, banking, exporting, importing, foreign investmen.
Provide more liberal environment Company enjoy considerable administration autonomy and offer numerous activities Co. get advantage of lower production cost, reduce both duties, freight charges

International organization & Participation
ADB,APEC,APT,G24,ASEAN,IMF,WTO,WHO, UNESCO,SAARC, BIS

Economic
• Market oriented economy • Chinese government faces numerous economic development challenges like:
sustaining adequate job growth for tens of millions of migrants new entrants to the work force workers laid off from state-owned enterprises reducing corruption and other economic crimes containing environmental damage and social strife related to the economy's rapid transformation

Tax Syatem
• VAT applies to enterprises engaged in importation, production, distribution or retailing activities. • The general VAT rate is 17% but necessities, such as agricultural and utility items, are taxed at 13%. • Certain limited categories of goods are exempt from VAT.

Gold Reserve

FDI and MNC
• China has absorbed huge amount of foreign investments. • Billions of dollars and 350,000 foreign-invested enterprises • Between them, McDonald's and Kentucky Fried Chicken have almost 700 branches. • Kodak has half of the market for film and photographic paper, with Fuji holding most of the rest. • Procter & Gamble is the biggest seller of shampoo, while foreign manufacturers, led by Motorola, Ericsson and Nokia, have 95% of the market for mobile phones, the world's biggest market in terms of handset sales. • Coca-Cola says that China is about to become its biggest Asian market. Some estimates put foreign involvement at about one-tenth of the whole economy. • In China, annual exports are equivalent to at least 23% of GDP, making China the world's ninth-largest exporter

Investment Opportunity
• Negotiation with Govt. to get tax benefit • High no. of SEZ and Protected zones are Established • Priority sectors include transportation, communications, energy, metallurgy, construction materials, machinery, chemicals, pharmaceuticals, medical equipment, environmental protection and electronics. • China encourages reinvestment of profits. A foreign investor may obtain a refund of 40 percent of taxes paid on its share of income, if the profit is reinvested in China for at least five years. • Where profits are reinvested in high-technology or export-oriented enterprises, the foreign investor may receive a full refund. Many foreign companies invested in China have adopted a strategic plan which requires reinvestment of profits for growth and expansion.

External Debt

Attitude towards Foreign Banks
• Fully opened for foreign bank • Access its RMB retail business and lifts all geographic and client constraints • Also allows subsidiary and branches of foreign banks

SocioCulture Environment
• Great wall, Grand Canal, Karez irrigation system are the symbol of rich culture which build 2000 years ago. • Culture is socially shared • Girl children must have small feet • Lack of shared common culture common values • Culture is enduring • Chinese do not consume beef at all

Language
Mandarin is national language Written language uniform and number if dialects Chinese pay more attention to visual information processing as well as the writing of a name Chinese read from right to left

Chinese are strict punctuality for social occasions & business appointment Language of Friendship Language of Religion (Christian, Muslim, Buddhist, Buddhism, Taoism, Catholicism and Protestantism ) Language of Color Language of Gift

Language of Negotiation
State Northwestern, eastern mandarin, Gan, Minnan Negotiation Power (traits) Business Mindset

Hakka

Not so good at business

Yu, Wu, Xiang

Stubborn, argumentative, hot tempered, competitive, adventurous

Subculture
2 & 4 number are known as “Easy” & Death” respectively Green baseball caps were offered as premium
Road drive side: •Mainland China: on the right •Hong Kong: on the left •Taiwan: on the right

Surname comes first (for e.g. Huang Zhirong addressed as Mr. Huang

• Chinese Opera Performance • The working days are from Monday to Friday. Most people do not work on weekend. Official hours are from 8:00 am to 17:00pm with one hour for lunch.

Culture Adaptation
• Kentucky Fried Chicken's (KFC), which provides fast and cheap foods in the US, built its first store in Beijing twelve years ago. In China, the customers go to KFC for a special occasion or a family gathering, and therefore, expect better surroundings, a higher hygienic standard and higher quality food and service. So KFC in China played classical piano music and made it a place for young couples’ special event. • Wal-Mart, the world's largest department-supermarket chain store, opened eight stores in less than four years in China. It found that instead of locating in suburbs which offer large spaces and lower rents as in the United States, it had to find city-center sites or those in heavily populated areas, as most Chinese do not drive. The stores also needed to carry different food items in different cities due to varied eating habits between south and north.

Behavior of Chinese People
Chinese consumer give more emphasis on convenience of location, sales person’s manner and less emphasis on stores return policy Each region have different language, heroes, local capital, and different behavioral traits and tastes

STATE Gavi Nations, Northern, southern, Northwestern, southwestern mandarin nation Wu & Eastern Mandarin nations Hakka Northern Mandarin Minan Yu, Wu, Minnan, Hakka

THEMES USED FOR SALE THE PRODUCT Simple, old-fashioned, frugal themes

Luxury themes Independence Gentle humble image Adventure Hardworking, innovative, aggressive

Transportations
• • • • • • Airports : 467 Heliports :35 Pipeline: Gas – 26344 Km, oil -17240 Km Railways :75438 km Roadways :1930544 Km Waterways :110000 Km Communications Telephone(main line in use) :365.4 mn Mobile Cellular :547.28 Internet user :253 mn

Thank You