China Business Report 2013-14�

Highlights By  AmCham  Shanghai  

上海美国商会2013-­‐2014年度中国商业报告  

50+ YEARS OF EXPERIENCE & KNOWHOW IN CHINA BUSINESS

Exec. Summary

! Heading  Towards  a  Service  Economy  !   In  2013,  the  experiences  and  ac4vi4es  of  U.S.  companies  in  China  are  more  

than  ever  resembling  developed  markets.  More  companies  are  involved  in  the  service  sector,  and  there  is  a  con4nuing  shiC  from  the  pursuit  of  manufacturing  for  export,  towards  producing  and  distribu4ng  goods  for  the  domes4c  market,  as  well  as  rapid  growth  of  the  services  sector.  

!   In  2013,  services  accounted  for  more  than  half  (52  %)  of  U.S.  companies’  revenue  –  an  11  point  jump  from  the  year  before.  The  growing  importance  of  services  to  the  boNom  line  is  in  contrast  to  manufacturing,  which  dropped  10  percentage  points  in  2013  to  make  up  only  37  %  of  companies’  revenue  

!   Shanghai  Data  (by  the  Shanghai  Sta4s4cs  Bureau)  !   Economy  +7.7%,  service  sector  +9.1%,  manufacturing  sector  +5.3%  in  Q1-­‐3  /  2013    

!   Services  61.6%  of  the  Shanghai  economy  in  Q1-­‐3  /  2013  (60.4%  in  2012)  

!   Manufacturing  accounted  for  38.0  %  in  Q1-­‐3  /  2013  (39.0%  in  2012,  41.4%  in  2011)  

! =>  Shanghai  increasingly  shiCs  to  higher  value-­‐added  ac4vi4es  

Exec. Summary

! Financial  performance  !   Surveyed  companies  (N=399)  recorded  excellent  top-­‐line  performance  

indicators  in  2013.  Among  respondents,  !   67%  reported  revenue  growth  over  the  previous  year,  and    !   74%  of  companies  said  their  China  opera4ons  were  profitable.    

!   Three  out  of  four  companies  (75  %)  reported  a  posi4ve  cash  flow  in  their  China  opera4ons,  up  3  percentage  points  

!   U.S.  companies  remain  commiNed  to  the  China  market,  with  86%  of  companies  repor4ng  an  “op4mis4c”  or  “slightly  op4mis4c”  outlook  for  their  5-­‐year  business  prospects  in  China.  

!   However,  the  shape  of  business  growth  and  expecta4ons  of  leadership  con4nue  to  evolve  

Exec. Summary

! Common  trends  !   In  China  for  China  –  con4nuing  a  trend  from  previous  years,  59%  of  

companies  say  they  primarily  are  in  China  to  compete  in  the  growing  domes4c  market  

!   Growth  is  slowing,  but  profitability  is  spreading  –  although  profit  margins  were  roughly  flat  compared  to  the  previous  year,  more  companies  (74%)  said  they  were  profitable  in  2013  than  in  previous  surveys  

!   Increasing  compe;;on  –  strong  compe44on  from  Chinese  and  interna4onal  players  reflect  an  increasingly  compe44ve  China  market  

!   Greater  opportuni;es  in  services  and  for  SMEs  –  U.S.  companies,  including  a  growing  number  of  SMEs,  are  tapping  into  a  fast  developing  services  economy  

 

These   trends   represent   economic   reform   being   implemented   across   the  country   and   the   leading   role   Shanghai-­‐based   companies   are   playing   in  responding  to  and  par4cipa4ng  in  these  trends.  

Exec. Summary

! Persistent  Business  and  Regulatory  Challenges  !   Rising  costs  –  for  the  third  consecu4ve  year,  rising  costs  remained  the  top  

business  challenge,  with  89%  of  companies  responding  that  a  number  of  increasing  costs  in  China  hinders  their  business.    

!   Human  resource  constraints  and  Local  compe;;on  ranked  No.  2  and  No.  3,  respec4vely  

 

Similarly,  top  legal  and  regulatory  challenges  in  2013  remained  unchanged  from  those  over  the  past  three  years.  Generally  consistent  with  previous  years,  

!   80%  of  respondents  cited  bureaucracy  as  the  No.  1  challenge,  with  !   72  %  declaring  difficul4es  from  an  unclear  regulatory  environment  and  

!   70  %  were  concerned  over  problems  with  tax  administra;on  

Exec. Summary ! Key  responses  An  analysis  of  the  issues  raised  by  U.S.  companies  responding  to  the  survey  indicates  that  companies  in  China  are  focusing  on  three  key  ini4a4ves:,  !   Strengthening  the  core  –  Companies  are  focusing  on  key  opera4onal  issues  to  

make  opera4ons  more  efficient  and  compliant  to  provide  a  plagorm  for  further  investment  and  growth;  

!   Knowing  the  customer  –  As  baseline  market  growth  slows,  companies  are  finding  crea4ve  ways  to  change  their  growth  strategies,  stay  ahead  of  the  compe44on  and  increase  market  share;  and  

!   Integra;on  –  As  global  markets  improve,  companies  are  relying  less  on  rapid  growth  in  China  to  support  global  performance  and  are  instead  looking  for  ways  to  integrate  China  further  into  their  global  opera4ons  and  focus  on  China  as  a  unique  and  dis4nct  business  opera4on.  

 

Together,  these  ini4a4ves  form  a  cohesive  response  by  U.S.  companies  to  an  ongoing  transi4onal  phase  in  the  business  environment  in  China  –  one  led  less  by  export-­‐  and  investment-­‐led  growth  to  one  sustained  by  consump4on  and  services.  

Business Performance by Industry

Business Performance by Sector

Business Challenges by Industry & Sector

Regulatory Challenges by Industry & Sector

Analysis ! By  Beijing  based  IP/IT  lawyer,  law  professor  Stan  Abrams  !   No  one  will  be  surprised  by  most  of  the  trends  highlighted  by  the  survey:  higher  

costs,  lower  revenue,  cauNous  aOtudes  about  economic  slowdown  and  government  reform;  

!   However,  it’s  probably  worth  to  take  a  close  look  on  the  labor  issues:  higher  compensaNon  is  an  old  story,  but  I  was  surprised  just  how  difficult  it  is  these  days  for  companies  to  find  qualified  staff.  #1  problem  for  many  companies!  

!   Majority  of  respondents  say  that  IP  enforcement  is  either  ineffecNve  or  totally  ineffecNve.  Given  that  the  highest  response  type  back  in  2010  was  “Don’t  Know,”  I  find  it  difficult  to  ascertain  what  people  actually  understand  about  this  issue.  A  clear  majority  also  say  that  IP  enforcement  has  improved  or  stayed  the  same  in  the  last  five  years.  So  the  bar  was  so  low  five  years  ago  that  even  with  improvement,  the  system  is  sNll  completely  useless?    There  is  a  clear  trend  here  of  a  rising  sense  that  the  system  is  ineffecNve.  This  has  risen  from  33%  of  respondents  in  2009  to  54%  this  year,  dropping  slightly  from  a  high  of  58%  in  2013  (the  “totally  ineffecNve”  numbers  have  risen  as  well).  That  would  be  ueerly  depressing  -­‐  has  the  system  deteriorated  significantly  over  the  past  few  years?  I  have  to  wonder  whether  there  is  a  percepNon/reality  gap  here.  

See  more:  hNp://4nyurl.com/pxnqnl6  

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