China – Commerce and Canada-China
Business
-
For ‘Living and Learning in
Retirement’ - Week #5
February 10th 2017
Dr. Alan C. Middleton
1
China in the Year of the Fire Rooster!
(4714) and beyond
January 28th 2017 – February 15th 2018
(Hard work is the key to obtaining
success)
Commerce – Economy
• Second largest economy in the world (13.3% of
Global World Product); GDP growth 6.9% 2015,
estimated to have been 6.7% in 2016 (World Bank)
• Big regional differences in both economy
(Guangdong, Jiangsu, Shanghai) and culture (nonHan 8% of population e.g. Xinjiang: Uyghur)
• Significant impact on world economy (e.g.: consumes
50% world’s copper; produces 52% world’s
aluminum)
• Government saving/GDP - 51%; Private saving 55%:
Household 33%, Corporate 22%
• Individual savings rate 30.6% 2015
• Consumption share of GDP growth: 55% in 2013 to
73% in first half 2016
• Since 1978 more than 700 million people lifted out of
poverty
• Urban disposable income growth down to 7% pa
• Monthly real wages 2,250/month = 27,000/year
3
Commerce - Economy
• 2015/16 accounted for 41% of global growth
• Growth in global Foreign Direct Investment: 2015
Chinese companies invested $111b; encouraged to over
$1.4 trillion next decade
• October 1st 2016 RMB joined IMF’s global currency
basket (dollar, euro, pound, yen) for drawing rights
• Service economy now 51% and +8.4% 2015
• But government debt high 247%/GDP due to major
credit expansion and Deficit officially at 3%/GDP may
rise to 8%-10% in 2016/17
• Huge infrastructure spending evident especially high
speed rai: 8 x 8 network 20,000 to 35,000kms by 2025
• Free Trade Zones (FTZs) now expanded to 11:
Shanghai, Tianjin, Fujian, Guangdong, in 2016:
Chongqing, Henan, Hubei, Liaoning, Sichuan, Shaanxi,
Zhejiang
Commerce - Economy
• Establishment of the Asian Infrastructure
Investment Bank (AIIB) to focus on cross Asia
transportation infrastructure - the ’New Silk
Road’ – “One Belt, One Road” (OBOR), as well
as the Silk Road Fund and the New
Development Bank (Brazil, India, South Africa
and China)
- land route (the ‘Belt’) and sea route (the ‘Road’)
- $4 trillion to be invested/loaned in the 60 OBOR
countries; currently 900 deals under way worth $890b
- includes gas pipeline from Bay of Bengal through
Myanmar to south west China; Russia a Siberian gas
project; Romania the Cernavoda nuclear power
plant; Mongolia Oyu Tolgol copper mine
Commerce – the Business Environment
2016
• Competitiveness (IMD) – China #36; Canada #10
• Competitiveness (WEF) – China #28; Canada #15
• Global Innovation Index (INSEAD) – China # 25;
Canada # 15
But
• Business Environment (EIU) – ten criteria of policies
enabling competition, labour rights, tax equity, trade
etc. – China #50 – 6.4/10 (Canada #4 – 8.3/10)
• Doing Business (World Bank) – ten criteria of policies
including starting a business, credit availability,
construction permits etc – China #78 (Canada #22)
• Index of Economic Freedom (Heritage Institute) –
policies that promote trade, economic freedom,
competition, property rights – China #144 -52%
(Canada #6 – 78%)
6
Commerce - Worlds 500 Largest
Corporations 2015 (Revenue)
US: 134 companies
China: 103
Japan: 52
France: 29
Germany: 28
UK: 26
South Korea: 15
Switzerland: 15
Netherlands: 12
Canada: 11
Source: Fortune August 2016
7
Commerce – China’s Largest
Corporations 2015 (Revenue)
#2. State Grid
$330b
#3. China National Petroleum
$299b
#4. Sinopec Group
$294b
#15. ICBC
$167b
#22. China Construction Bank
$148b
#25. Hon Hai Industry
$141b
#27. China State Construction Engineering $140b
#35. Bank of China
$122b
#41. Ping An Insurance
$110b
#45. China Mobile Communications $107b
#46. SAIC Motor
$107b
#54. China Life Insurance
$101b
#57. China Railway Engineering $99b
#62. China Railway Construction $96b
Source: Fortune Global 500 August 2016
8
Commerce – China’s Largest Corporations
2016 (Market Capitalization)
#1 Tencent
Internet
HK$1,981b
#2 Alibaba
Consumer Services – on line
$1,961
#3 ICBC
Banking
$1,811
#4 China Construction Bank
$1,481
#5 Petro China Oil and Gas
$1,471
#6 Agriculture Bank of China
$1,171
#7 Bank of China
$1,121
#8 Ping An
Insurance
$0.751
#9 China Life Group Insurance
$0.681
#10 Sinopec
Oil and Gas
$0.671
Source: HSBC as at
20/09/16
9
Commerce – State-Owned Industries
(SOEs)
• SOEs still account for about 40% of
commercial assets
• High debt loads (now gross debt 5 times
EBITDA) and low return on assets
• Especially in strategic industries: financial,
communication, resources
• Massive overcapacity in many sectors
especially steel so Baosteel and Wuhan Iron &
Steel merging to Baowu (#2 globally to
ArcelorMittel)
• Huge employers: China National Petroleum
1.64 million, State Grid Corp 0.92 million,
China Post 0.90 million, Sinopec 0.90 m
10
Commerce – State-Owned Industries
(SOE)
• Moving towards mixed ownership but the
State Owned Assets Supervision and
Administration Commission (SASAC) still vow
to “prevent the loss of state assets”
11
Commerce – Private Sector
• Private sector conglomerates like Legend
Holdings (Mr. Liu Chuanzhi) emerging: own
31% of Lenovo, also 15% of Hankou Bank,
48% of Union Insurance, almost 100% of
Zeny logistics, EnsenCare homes, Joyvio
agriculture & food, Funglian wines & spirits
• Innovative companies beginning to
emerge: Yulong Eco-Materials: waste to
make bricks; Semiconductor Manufacturing
International of Shanghai in server chips
• e – based food supply chains emerging e.g.
Joyvio tracks fruit from planting to
delivery; Alibaba farmers to consumers
with online produce delivery (Jutudi)
12
Commerce – the emerging ‘Tech’ sector
The big four privates get bigger:
• Alibaba(rev. $12.3b, profit $3.1b): stake in
Meituan group buying company plus through
its Taobao subsidiary, the Taobao Rural
Service Centre targeting rural e commerce;
leading buy out bid for department store
chain Intime Retail
• Baidu ($8b, profit $2.1b): owns Nuomi group
buying company, food delivery, laundry pickup, appointment booking
13
Commerce – the emerging ‘Tech’ sector
• Tencent ($12.8b, profit $3.9b): games 50%
of revenue, owns WeChat (806 million active
accounts); launching “Xiaochengxu” ‘little
program’ a one stop app. Backs Dianping
group buying company and Alibaba and
Tencent cooperating with Didi Kuaidi
• Xiaomi: smartphones (currently 90% of
revenue) and smart appliances: the internet
of things
The “Apple” of China; sales $12.5billion; the
worlds largest private start up at $45 billion.
100 million monthly users of its games, app’s
and services. However smartphone sales in
decline
14
Commerce – the emerging ‘Tech’ sector
- Didi Kuaidi 2015, 1.4 billion rides plus on
demand bus services, taxi, private car,
shuttle van; plus offering holiday period
competitively priced inter-city rides,
integrated with WeChat
- purchased Uber China: combined company
Uber will have 17.7% stake but only 5.9%
voting rights
15
Commerce - Communication
• China is the second largest advertising
market in the world after the US – China
$74 billion, (US $184 billion; Canada #10
at $9 billion)
• ‘The Great Firewall’ (50,000 + ‘Net’ police)
not holding back:
- 800 million mobile phone subscribers
- 668 million internet users
- 250 million microbloggers (twitter)
16
Commerce - Miscellaneous
• ‘Internet of Things’ spending to rise from
$193b in 2015 to $361b in 2020
• Chinese corporate giving growing: now over
$100b (US = $380b) e.g. Alibaba stock
options, Tencent
But:
• Chinese labour productivity still just 15 – 30 % of
OECD average
• Only 36 robots per 10,000 manufacturing workers
(global = 72; Sth. Korea = 360)
• Cybercrime a major issue: hacking community
estimated at 400,000
• Executive pay and bonuses very short term
• Growth at all costs, still too dominant a strategy
17
Commerce – Globalizing
• Chinese SOEs and entrepreneurs moving
internationally:
$111 billion in 2015, $134 billion in the first
nine months of 2016; now significantly ahead
of inward foreign investment
- China Cinda Asset management acquired
Nanyang Bank, Hong Kong ($8.8b)
- China Life lead sovereign wealth funds
acquisition of Starwoods Hotel’s 280 limited
service hotels
- HNA Group (airlines and shipping) in April
2016 purchased Carlson hotels (Radisson)
bid to buy 25% of Hilton
18
Commerce – Globalizing
• Chinese SOEs and entrepreneurs moving
internationally:
- Lenovo: world’s largest PC maker+;
revenue $67b, 75% outside China
- Huawei: appliances/smartphones; revenue
$63b, 55% outside China
- Power China: energy conglomerate;
Revenue $43b; 25% outside China
- Haier: appliances, 10% of global ; revenue
$33b: purchased GE Appliances
- Midea: high quality white goods; revenue
$22b; 36% outside China (eg: Kuka robotics)
- WH Group: food processing and meat
packing $21b; 71% outside China
19
Commerce – Globalizing
• Chinese SOEs and entrepreneurs moving
internationally:
- Dalian Wanda : own AMC in the US
purchased UK Odeon Cinema chain ($1.2b),
and Dick Clark Productions
- GSR Ventures: Xindayang: electric cars,
purchased Philips Lumileds (LED lights) and
Boston Power batteries
- Wanxiang Group : clean tech: electric cars
(Karma Auto) and batteries (A123)
- Hanergy Holding, hydropower producer:
MiaSole thin film solar cells
- State Grid Corp of China bidding for CPFL
Energia of Brazil $13b
20
Commerce- Globalizing
But:
• Beginning of a ‘push-back’ based on concern
about limited access to China market, plus
protection of strategic industries:
- Australia blocking a power network bid
- UK review of nuclear plant financing
- US national security issues blocking Royal
Philips NV unit acquisition
- German concern over acquisition of Kuka
AG robot maker
21
Canada - China Merchandise Exports
2015/16
2015
Woodpulp, paper
17.0%
14.7%
US
75.59% Oil seeds, fruit, grain
8.2%
China
4.11% Wood, wood articles
Ores, slag, ash
7.1%
$14.3 billion (-25%)
Mineral fuels, oils
3.6%
Imports: $48.7 b
Fertilizers
3.6%
(- 13%)
Organic chemicals
3.4%
January – Sept. 2016
Fish, crustaceans, molluscs
$14.1b
3.2%
Cereals
3.2%
Imports: $47.1b
Boilers, mechanical appliances
3.1%
Top Ten % of total 2015:
Source: Statistics Canada Merchandize
Trade 2015 and Trade Data Online,
67.3%
th
Industry Canada November 14
2016
22
China - Canada
• Have a Foreign Investment Promotion and
Protection Agreement (FIPPA)
• Financial and Strategic Dialogue context
agreed September 2016
• Could move to Closer Economic Partnership
Agreement (CEPA) as a prologue to an FTA
• FTAs 10 years to negotiate…Australia’s
signed in 2015
23
China - Canada Government Priority Sectors
– Agriculture/Agri-Food
– Biotech
- Education
- Finance/Financial Services
- Global entry by Private Sector and SOEs
- Health/Retirement
- IT/Analytics
- Natural Resources, especially Mining
- Services
- Transportation
24
24
China Business
• We are foreigners so not as trustworthy as
locals, but we can prove dependable if
- We make an effort to learn and understand
- If we deliver on what we say we will do
- We develop strong guanxi networks
- We understand the importance of certain rituals
(entertaining etc)
- (like anyone) we demonstrate the benefit to
them of dealing with us
- We are price competitive…not cheap
- We are patient
- We do not get caught up in local corrupt
practices
25
China Business
• We help with their ambitions: e.g. go global
• We stay ahead with technology, processes and
creativity/innovation
• We recognize ‘country of origin’ biases and
manage brand reputations accordingly.
• We utilize all available help eg: Canada
Embassy and Consulates, CCBC, Asia Pacific
Foundation, successful companies and
connections in/with China.
26
Our China Strategy 2017/2018
-
Education
Government(s)
Health care (especially retirement)
Mining
State-owned Industries in finance,
agribusiness and transportation
- Private Sector
27
27
Biography: Dr. Alan Middleton
•
•
•
•
•
•
•
•
•
B.Sc. Hons. Sociology (LSE) , MBA and Ph.D. (York) in Business Administration;
Currently Executive Director, Executive Education Centre, Schulich School of Business (SEEC),
York University and Assistant Professor of Marketing;
23 years working in marketing and advertising with UOP Inc., Esso Petroleum and J. Walter
Thompson in UK, US, Norway, Japan and Canada. Last roles were President/CEO JWT Japan and
Executive V.P. and Board Director of the worldwide JWT Company organization, subsequent to
being President of Enterprise Advertising Associates in Toronto.
23 years as an academic/marketing trainer and consultant. Taught marketing courses at
Schulich School of Business , York University in Toronto; Rutgers Graduate School of Business in
US; Chiangmai , NIDA and Yonok Graduate Schools of Business in Thailand ; IDEA Graduate
School in Buenos Aires, Argentina; Moscow State University and Academy of National Economy in
Moscow and Nizhny Novgorod, Russia; and Southwest Normal and Sichuan Universities in China.
Research topics in branding, private labels and e brands internationally;
As a trainer and consultant have worked for Bell, Manulife Financial, ACNielsen, Nortel, Pfizer
Warner- Lambert, Quaker Foods, Unilever amongst many others;
Co-author of ‘Advertising Works II’ , co-founder of the ‘CASSIES’ and co-editor of the CASSIES I
Case Book, author of publications on MarCom PBR, MarCom ROI and MarCom client-agency
relations and in 2012 “Measuring Marketing Communications Effectiveness in an ever changing
world – the role of the MarCom Dashboard for the ACA/ICA. Co-author of ‘Ikonica –a fieldguide
to Canada’s brandscape’, author of “Brand Traitors” a chapter in ”The Disloyal Company” and
“City Branding and Inward Investment” a chapter in “City Branding”.
In January 2005 was inducted into the ‘Marketing Hall of Legends’ in the Mentor category, in
2012 was awarded the ACA Gold Medal and the Queen Elizabeth II Diamond Jubilee Medal, in
2015 the International Association of Business Communicators Toronto chapter award.
Member of the Honorary Trustees of the Royal Ontario Museum (Trustee 1996-2002) and on the
ROM Marketing Advisory Committee (2008-date). Alan is on the Board of AIESEC-Canada and the
ABC Life Literacy Canada Board having been its Chair 2003-2009. He is on the Board Marketing
Committee of Sunnybrook Hospital and is a Research Committee member of Ontario Tourism
Marketing Partnership and the Scientific Committee of Leger Marketing. He is Chair of the
Judging Committees for the Marketing Hall of Legends and the Product of the Year Awards. He
sits on the Advisory Council of the Centre of Excellence in Financial Services, TFSA.
Previously Alan was a member of the United Way of Greater Toronto Marketing Committee
(1992- 2006) and on the branding committee of Toronto International Film Festival, the Ontario
Ministry of Health ‘Healthy Ontario.com’ committee and Chair of the Editorial Advisory
Committee of Marketing Magazine.
Sources
• Asia Pacific Trend Bulletin from trendwatching.com
“Longhua Funeral Parlour” sourced 8/7/16
• Australian National University E-Press (2013) China: A New
Model for Growth and Development
• Business Week magazine : various editions stories
• Canada China Business Council Daily News: various editions
• Doctoroff T. (2012) What Chinese Want
• The Economist Special Report-Chinese Society, July 9th 2016
• Economist magazine : various editions stories
• Gerth Karl (2010) As China Goes So Goes the World
• Fortune magazine: various editions stories
• Globe and Mail, Nathan Vanderklippe E commerce
explosion: China clicks its way to a new economy, Nov. 29
2013
• Griffiths Michael B. (2013) Consumers and Individuals in
China
• Hurun (2012) China Most Valuable Brands
29
Sources
• McKinsey & Company “What can we expect in China in 2017”
by Gordon Orr, Commentary January 2017
• McKinsey & Company “China e – finance growth” Podcast
July 2016
• McKinsey & Company, McKinsey Corporate Banking
“Disruption and Connection – Cracking the Myths of China
Internet Finance Innovation” July 2016
• McKinsey & Company “What’s driving the Chinese
consumer” Podcast April 2016
• McKinsey Consumer & Shopper Insights (2012)
• MERICS/Mercator Institute for China Studies “China’s Core
Executive – Leadership styles, structures and processes
under Xi Jinping” June 2016
• Philips R.A. & Kim E.P. eds “Business in Contemporary
China” pub. Routledge 2016
30
Sources
• Song Kun (2008) The influence of Chinese cultural values on
consumer perceptions and behavioral intention towards an
apparel mass customization website
• Trendwatching Asia Trend Bulletin 5 Unmissable Asian
Consumer Trends for 2014, December 2013
• Zenith Optimedia June 2016 Global Advertising Expenditures
31