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The Great Transition

The Great Transition. Presented by: Jimmy Au (200097806). Chinese Economy. Since reforms began in 1979, China ’ s economy has been improving drastically:. Increase average annual GDP growth of 9% per year Increase in Foreign Direct Investment (FDI) Increase growth in Home Market

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The Great Transition

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  1. The Great Transition Presented by: Jimmy Au (200097806)

  2. Chinese Economy • Since reforms began in 1979, China’s economy has been improving drastically: • Increase average annual GDP growth of 9% per year • Increase in Foreign Direct Investment (FDI) • Increase growth in Home Market • Efficient manufacturing base for exports

  3. China’s Supporting Sectors • Low-cost Labor Force • Migration from the interior maintains low-end labor rates • Large Cadre of Technical Personnel • Improved educational institutions – expands technical talent • 1 million technicians and engineers in ‘01 vs 2 million in ’03 • Sufficient Infrastructures • Massive infrastructure investments made during ’97 Asian financial crisis • Connected large domestic markets together • Regulatory Environment • Tax/ incentives to lure investments • Transparency • WTO commitments – opportunities opening to foreign firms • Structural changes – shifting role of government from socialist economy to market economy

  4. Multinationals OPPORTUNITIES • Multinationals can finally go after the Chinese Domestic Market • WTO accession requirements obligate China to lower tariff barriers and most restrictions on domestic market access will be phased out • Foreign access in economic segments such as distribution and services • Multinationals can find new global competitive advantages • Improvements in China’s infrastructure, human capital and regulatory environments allows lower costs

  5. Multinationals CONSTRAINTS • Chinese Companies Have Weak Management–State-owned enterprises/ state intervention & political skills favored over modern management capabilities • Politics of WTO Implementation–U.S-China trade frictions, localities unprepared to take on the mandated obligations • Oversupply and Deflation–Change in growth formula • Constancy of Change–Regulations, bureaucracies, and reporting relationships • Structure of Political Power–Successful economic growth in the locality leads to fast promotions • Potential for Serious Disruption –Threat of large scale political instability (eg. nonperforming loans, under-funded social safety net, expensive environmental projects etc…)

  6. Multinationals • Three Phases of Investment for a multinational corporation’s operation in China

  7. Country Development Phase • Focus attention on properly nesting your China effort into the organization as a whole • Tailor strategies for both the national level and each locality • Adopt a “who me” attitude toward the purported advantages of forming a joint venture • Recognize and take steps to limit the particular risks of operating in the Chinese environment • Avoid irrational exuberance in responding to the opportunities China presents

  8. Questions • Where do you see China heading in the future? • Is it worth moving into China?

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