World Trade Groupand

Rogers Towers, P.A.

MANUFACTURING &

SOURCING IN CHINA

Country Background

Rogers Towers BailJones & Gay

China at a Glance

Slightly smaller than the US

1.3 billion people

Population growth rate of 0.9%

23 provinces / 6 special administrative regions / 5 state-governed municipalities

Counties / Cities / Villages

Rogers Towers Bailey Jones & Gay

Rogers Towers Bailey Jones & Gay

Rogers Towers Bailey Jones & Gay

Rogers Towers Bailey Jones & Gay

Rogers Towers BailJones & Gay

Chinese People

Life expectancy – 70 yrsLiteracy rate – 82%Education Requirement – 9 yrs min.Ethnic groups – many … 92% HanLanguage – 7 major dialects /

Mandarin is officialPinyin since 1979

Suffrage – 18 yrs. Old

0

1

2

3

4

5

6

7

8

9

China Aisa-Pacific US World

An

nu

al G

DP

Gro

wth

(%

)

1999

2000

2001

2002

Comparative GDP GrowthRogers Towers Bailey Jones & Gay

Rogers Towers BailJones & Gay

Economic Growth

Major causes of growth: Adoption of “socialist market economy” Emergence of private sector “mixed

ownership” Overhaul of SOE’s Emphasis on export trading Foreign investment zones

Rogers Towers BailJones & Gay

Economic Growth

Primary sectors driving growth Domestic consumption Telecommunications Construction Exports Infrastructure Capital Markets

China Foreign Trade

Rogers Towers BailJones & Gay

WTO -- What and Why

180+ member nationsPurposes: Establish agreements on tariffs, duties, quotas Prevent trade abuses Promote certainty and transparency in trade

and investment Resolution of trade disputes Assist developing nations Promote world peace through trade

Rogers Towers BailJones & Gay

Major WTO – Related Changes for China

Tariffs

Quotas and other non-tariff barriers

Anti-dumping / overproduction

Enhanced IP protection and enforcement

Transparency rules and systems

Accelerated Clean up of banking and securities markets

“Looking glass” effect

Opening up service industries

Rogers Towers BailJones & Gay

Major Exports - 2001

Apparel, clothing & footwear

Machinery, parts & transportation equip.

Textiles & yarn

Chemical industrial products

Furniture, housewares, toys, handicrafts

Food stuffs

Electrical equipment & parts

Rogers Towers BailJones & Gay

Major Imports - 2001

Electrical equipment & parts

Machinery, parts & transportation equip.

Crude oil and fuels

Plastics and plastic articles

Rogers Towers BailJones & Gay

China’s Trade with U.S.($ Billion)

0

20

40

60

80

100

120

140

1996 1997 1998 1999 2000 2001 2002 2003

US ImportsUS Exports

Rogers Towers BailJones & Gay

China’s Leading Markets

US

HK

JAPAN

EU

OTHER

US

TAIWAN

JAPAN

EU

OTHER

China’s Major Suppliers

Rogers Towers Bailey Jones & Gay

Rogers Towers BailJones & Gay

Foreign Corporate Expansions in China

Walmart

Kfc

Heinz

P&G

Pizza Hut

MacDonalds

Office 1 Superstore

Home Depot

Intel

Microsoft

Computer Associates

DuPont

Rockwell

Toshiba

Honda / Mitsubishi

Embraer Aviation

Rogers Towers BailJones & Gay

Beijing / Tianjin

Shanghai / Jiangsu /ZhejiangGuangdong / Shenzhen

Other

China’s Big 3 Trading Centers

Rogers Towers Bailey Jones & Gay

Rogers Towers BailJones & Gay

China’s Work Force Allocation(percentage of work force)

0

5

10

15

20

25

30

35

40

45

50

Industry and commerce

agriculture and forestry

other

Rogers Towers BailJones & Gay

China’s Labor Supply

1998 1999 2000 2001

Labor costUSD / hour

0.41 0.42 0.44 0.44

Recorded Unemployment*

3.10 5.50 7.0 9.0

* Does not include 150 mil. Underemployed in rural areas

Rogers Towers BailJones & Gay

Labor Over-Supply

At current GDP growth rate:

8 million new jobs / yr

Current annual rate of new workers:

12 million / yr.

Manufacturing Wages: China vs. Latin America (USD)

0 2000 4000 6000 8000

China

Guatemala

Honduras

Uruguay

Argentina

Mexico

Rogers Towers Bailey Jones & Gay

Rogers Towers BailJones & Gay

Sourcing Examples

Furniture

Clothing

Giftware

Sporting Goods

Toys

Home Goods

Metal products

Glass products

Ceramics & Plastics

Machinery & Tools

Electronics

Office Furnishings

Building Supplies

25

-8.8

-12.4-15

-10

-5

0

5

10

15

20

25

30

Example – Electronic Exports% Growth (2001-2002)

Rogers Towers Bailey Jones & Gay

Doing Business in China

Rogers Towers BailJones & Gay

Choosing Your OEM

Quality introductions

References (western and Chinese)

Due diligence:

customers / competitors / vendors

government / chamber of commerce

Site visit

Familiarity with Western practices

Rogers Towers BailJones & Gay

Due Diligence in China

OBSTACLES:

Little or no transparency

Poor record-keeping / Actg. practices

Short operating histories

Little government oversight

SOLUTIONS:

Rogers Towers BailJones & Gay

Quality Control

Who ? Manufacturer Local company employee / representative 3rd party QC service

Production samples

Payment terms

Replacement guaranty

Rogers Towers BailJones & Gay

Protecting Your Stuff

Legal Means

Patent & trademark registration

Licensing agreements

Confidentiality agreements

Practical Means

Selective technologies

Control staff / compartmentalize

Rogers Towers BailJones & Gay

Logistics Issues in China

International transport

Inland transport

Aggregation and warehousing

Cold-chain storage

Supply-chain management

IT solutions

Customs issues

Rogers Towers BailJones & Gay

Legal Representation in China

ROGERS

TOWERS, P.A.

World Trade Groupand

Rogers Towers, P.A.

MANUFACTURING &

SOURCING IN CHINA

Rogers Towers BailJones & Gay

Sourcing Examples

Furniture

Clothing

Giftware

Sporting Goods

Toys

Home Goods

Metal products

Glass products

Ceramics & Plastics

Machinery & Tools

Electronics

Office Furnishings

Building Supplies