How China Will Change Your Business By Kristina Erickson and Sam Porter
The Chinese Onslaught • Harder to find products made in the US than in China • China exports a much greater quantity than it imports • Production moved into China because of low labor costs.
China is Bigger than it Looks • In 2003, China’s official GDP was 1.4 trillion dollars • Competition for local funds may cause numbers to be underrepresented or downplayed • Underground economy is quite large
Yuan to the Dollar • China has huge reserves of foreign currency, especially the US dollar • China can artificially keep the exchange rate of its currency low • Domestic manufactures estimate that they may depress it up to 40% against the US dollar • CIA believes that Chinas GDP is actually around $6.6 trillion
Major Growth • Since China’s reform, GDP has grown by 9.5% annually • China even experienced good economic growth during the 2001-02 economic downturn • People’s willingness to embrace ideas and commit to making them happen
A Sound Investment • In 2003, China attracted $53 billion in foreign investment compared to $40 billion in the US • A 40% increase in exports and imports from companies operating in China in 2003 • China is the third largest trading country in the world
Playing Rough • China’s exports in wooden furniture increased from $360 million to $1.2 billion • This caused one in three workers in the trade in America to lose their jobs • Currently China makes 40% of the furniture sold in the US
The Sky is the Limit • Belief in a plan that the Chinese government will drive companies out of business • Work ethic and an entrepreneurial sense that drives many people • Entrepreneurs in China see an opportunity and take advantage of it
Tech Savvy • The real problem is not that China makes cheap common goods • So much technology is shared among countries • China has easy access to technology and has the talent to build anything
R&D Race • Currently the US still leads in cutting edge technological research funding -$3.7 billion to finance nanotechnology • In consumer research, China has been quickly closing the gap -Right behind U.S and Japan on spending • Cheap labor and a very large population outmatch the US
“China Price” • Massive manufacturing power allows China to effectively set prices. • This occurs because the world is now very connected and jobs can easily be moved • This allows manufactures to check prices, and China can undersell many domestic firms.
Expensive Raw Materials • Demand for raw materials has caused prices to rise • China is purchasing huge amounts of materials • The U.S becomes more productive with better machines, software, and techniques
Walmart • 50-85% of merchandise comes from abroad • China’s low cost manufacturing allows for huge assembly lines and great economies of scale • Helps suppliers achieve price cuts when they sell in large quantities
Piracy • Theft of technology due to little policing of intellectual property • Providing expertise, machines and software to China • Helping assemble biggest “illegal” manufacturing complex in the world
Codependency • Chinese need low priced Yuan to keep export machine going, yet consumers suffer • Americans acquire more goods while Chinese consumers do not want to buy abroad • China lends America all the money it needs to spend
Questions?? • Do you think China can continue to be competitive in the future? • Do you think the United States dependence on China is healthy? • Do you think this is mutually beneficial or is one side really getting the better deal?
References • https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html • http://classes.bus.oregonstate.edu/ba499/elton/Articles/How%20China%20will%20change%20your%20business.pdf