Market Information

China food safety agreement
Following a number of cases of contamination involving Chinese products imported from China, the United States and China have now signed an agreement designed to improve the safety of food exports.

Essentially, the document covers registration, certification and verification. It requires Chinese food and ingredient producers to register with local authorities, who are themselves required to share data with the Department of Health and Human Service (HHS), and it also requires the authorities to notify their counterparts of events affecting the food chain. It is also understood that the Chinese authorities are to develop an electronic tracking system to follow products from production to export.

Source:  www.functionalingredientsmag.com

China is an increasingly important player in the world economy. However, nearly 40 percent of executives in Asia say their companies do no business in China today, according to a McKinsey survey, and a third say that even if the country’s growth rate fell to zero their company’s revenue would not be affected.

Executives also see significant threats to China’s continued growth; these include a shortage of talent and weak enforcement of commercial laws and regulations. But many respondents say that the country can address its challenges sufficiently.¹

Assessing and addressing the threats

When respondents are asked to consider how quickly China should respond to the threats to its continued growth, more than 80 percent say China must address those threats within five years. The majority (60 percent) say China is likely to be able to do so, although only 12 percent see it as “very likely” (Exhibit 5). Respondents in China are the least likely to be optimistic; less than half say the country is very or somewhat likely to be able to address the problems sufficiently. Executives whose companies are currently generating revenue in China but whose offices are located elsewhere are somewhat more optimistic: 69 percent see it as very or somewhat likely that China will sufficiently address the threats it faces.

Notes

¹ The McKinsey Quarterly conducted the online survey in January 2007 and received 253 responses from C-level executives in Asia.

Source: Doing business in China: A McKinsey Survey of executives in Asia

Chinese factories feeling the pressures of rising energy costs and raw material costs may soon be relaying that increase to American consumers. After years of dominating the production scene for inexpensive goods, Chinese suppliers are now raising prices amidst a weakening dollar and new regulatory policies, further threatening inflation.

Source: Rising Costs in China to Fuel US Inflation

via Biz China Update - News, Reports on 2/13/08

International Business Convention (IBC) China Market Focus: Outdo Your Rivals: Branding & Competing in the China Market (24/01/2008)

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CHINA’S domestic consumption has replaced investment to become the biggest driver of economic growth for the first time in seven years. Last year, domestic consumption contributed 4.4 percentage points to the 11.4-percent increase in the nation’s gross domestic product, compared with 4.3 percentage points of investment and 2.7 percentage points of net exports, said China Securities Journal yesterday, citing unidentified official with the National Bureau of Statistics. Data released earlier showed the nation’s retail spending rose 16.8 percent to 8.92 trillion yuan (US$1.24 trillion) in 2007, up 3.1 percentage points from a year earlier. Fixed asset investment expanded 24.8 percent to 13.72 trillion yuan, 0.9 percentage point higher compared with a year ago, while the trade surplus grew 47.7 percent to US$262.2 billion, 26.3 percentage points slower in pace. “The rise of domestic consumption is the result of many years of efforts to support spending while curbing investment, with a goal to reduce dependence on external factors,” said Ba shusong, a researcher with the State Council Development Research Center. Since the Asian financial crisis in 1997, China has earmarked a strategy to reduce reliance on investment and exports and turn to consumption through tax cuts, minimum wage rises and improved education, welfare and health care. But investment had still remained a leading driver of economic development despite various efforts in the past decade. In 2006, investment contributed 4.6 percentage points to GDP growth, 0.3 percentage point higher than consumption. Zhang Xinfa, an analyst with China Galaxy Securities Co, estimated consumption will contribute more to the economic growth in the future. However, some analysts suggested that higher consumption growth does not mean a weakened investment sector. “In five years at the minimum, investment and exports will still be major contributors to China’s economic growth, at least of parallel importance to consumption,” said Li Maoyu, an analyst with Changjiang Securities Co. Last year, disposable income for city dwellers jumped 17.2 percent to 13,786 yuan and earnings for rural households rose 15.4 percent to 4,140 yuan, according to official data.

Source: Domestic consumption drives GDP for 1st time

via Shanghai Daily: Business by Wang Yanlin on 1/31/08

SHANGHAI pledged to increase gross domestic product to more than two trillion yuan (US$276.3 billion) in the next five years, the city mayor said today. Per capita GDP is expected to surpass 100,000 yuan by 2012, Mayor Han Zheng said at the annual plenary meeting of the Shanghai People’s Congress this morning. The service industry, which will be the heart of the city’s economy by then, is expected to account for more than 80 percent of GDP in urban areas, Han said. The added value of the service industry aims to exceed 1.1 trillion yuan by 2012, Han said. The city will also continue providing financial support for innovation and scientific research to boost economic development, Han added. Research expenditures will increase to three percent of the city’s total GDP, Han said.

Source: City’s GDP to surpass 2 trillion yuan in 5 years

via Shanghai Daily: Metro by Lydia Chen on 1/24/08

New Zealand is close to a free-trade agreement with China and Trade Minister Phil Goff is confident a deal will be signed in April after final details are worked through.

Source: Goff confident of China trade deal

via: NZ Herald

THE Minhang District People’s Court yesterday sentenced three Fujian Province natives from three to seven years in prison for selling fake cigarettes. The court also fined Xiao Zhongmei, Zheng Shufu and Li Yinghua 150,000 yuan to 200,000 yuan. The trio bought and sold fake cigarettes at a profit from April this year and were caught in June. Police seized 2.12 million yuan worth of cigarettes.

Source: Fake smokes   via Shanghai Daily: Metro by on 12/21/07

1. Take the get rich quick stories lightly: A launch in China, while holding phenomenal potential also takes a lot of heart to see through. There are dangers like misreading Chinese consumer habits, copycat competitors setting up faster than lightning, long periods of no visible returns, struggles with a workforce from a totally different culture, the list rolls out continually. Once the down sides are understood however, the potential sales campaign (considering good points and bad) can be conducted with a clear mind.

2. Look at your strategy: Does your company really want to explore new sales market? Total commitment is needed to break into a Far East Asian market place such as China. How far into the future do you look? The “We’ll clean up quickly here” mentality is often followed by excessive cash burn and a bemused collapse. Give yourself a 5 to 10 year horizon to build a worthwhile business; patience pays untold dividends in China.

3. Compare your offering: You will be going head to head against others in the most fiercely competitive market in the world. Your product or service offering needs firstly to be something that’s hard to emulate, secondly, have equal or better quality than theirs and thirdly, have something of the mystique of being foreign to the Chinese consumers. Foreign companies that reach kudos level in the Chinese high street have these traits (e.g. KFC, Starbucks).

4. Do your Market Research: The Chinese middle class is growing fast. While perhaps around 50-100m people right now, some predict it to be 250m people by 2011 and 520m by the year 2025. The clever ones are starting now, testing and learning, finding out what works and what doesn’t. When your learning period has identified your sweet spot in the market, then you can roll out wider scale (note: B&Q have used this strategy for the last 7 years to great effect).

5. Do your sums: No company can survive for long selling at less than cost price. Plan your financials thoroughly. Start with a 5 to 10 year ball park long range forecast, blending it with your overall company objective. Then break this down to the quantifiable first 2 years, getting real figures supplied by real people in China. Make sure that these figures are not being supplied by potential suppliers that could be understating costs so as to maximise the chances of getting your business.

6. Do your due diligence: This is a high priority in China. It’s a long distance from here and there are many pretenders. Make sure the business partnerships you build are with competent people who are in the place they say they are, can do the things they say they can, and have a good track record of getting things done properly. Get copies of their business licence, check references thoroughly, go to their office, meet them, and ask them the tough of questions before any deals are struck.

7. Talk to other operators: These tend to be the closest relating people to you that you will find in China. Although some of them could be in competition with you, most Brits I have met in China have been very helpful. There are many expat and business chambers that will lend a supportive hand and help out with knowledge. US and European organisations are also very helpful.

8. Watch the high street first hand: Spend some time watching how the Chinese shop. If you can take a local Chinese friend along to help you understand the mechanics of how people do business in the high street do so, it will expedite your understanding of how it works..

9. Formalise your network: Pay particular attention to your Chinese partners. Don’t forget that this is their market and you are the outsider. They are helping you to come into their world. When the time comes, spend time training them to fit well with your company but remember always that they’re the ones who really know the people who dwell in this market, not you. Make him or her earn your trust by complying with solid company procedure, and then trust them to do the job.

10. Keep learning: The fact that nothing stands still in China opens up some veryinteresting opportunities for fit businesses. Mighty western giants sometimes have toperform tactical withdrawals while small sole traders can sometimes build hundred people companies. Why? Because the small guys ask questions and listen for answers and some of those giants think that they already have the answers because they are successful in other markets, this almost guarantees spectacular failure. If you want to sell successfully into China do yourself a favour; never stop learning about the market and the interesting people in it.

For more information visit the Modern Management Worldwide website at

www.momaworldwide.com

Chinese Domestic enterprises were urged yesterday to focus on using new business models to sharpen their competitive edge, as more foreign companies entered the domestic market.

“More and more transnational companies have entered the domestic market with competitive business models, posing a strong business threat to their domestic counterparts,” Liang said.

Via: People’s Daily online:  Try your hand at new business models, firms told