Headline

Bildbeschreibung

China: Great Expectations

– Great Contradictions

August 2014

German Centre Tenants

130 companies and commercial tenants

100 % occupancy (30.000 gross sqm)

German States:

North Rhine-Westphalia (20 companies)

Baden-Württemberg (14 companies)

Bavaria (13 companies)

Lower Saxony (7 companies)

2

August 2014 3

German Centre Concept

The GC is a platform, a network

Information and Service Centre

Competence Centre

Event Centre

Offices, apartments, shops, restaurants

A home away from home

“The House of Convenience”

Idea: Living, Working & Leisure

August 2014 4

Impressions

China: Yesterday – Today…

China 10 years ago Today

GDP worldwide 7th place 2nd place

Global banks ranking – acc.

to market capitalization,

profits and deposits

Not listed Ranked 1st, 2nd, 6th, 9th, 30th,

37th, 40th, 42nd, 50th and 53rd

(of 60)

RMB ranked among global

transaction currencies

ONE year ago: 20th 7th (2nd for trade currencies)

Currency reserves 1st place (USD 240 bn.) 1st place (USD 3,66 trillion)

Biggest market for... Steel (since 1996), concrete,

…

cars, smartphones, gold,

personal computers, pork,

beer, …

Percentage of world

population

EU: 7.0%

China: 20.2%

EU: 7.1%

China: 19.1%

August 2014 5

…Tomorrow: Model?

August 2014 6

Model USA Model China

Free Market Economy Socialist Market Economy

Freedom, Democracy Central Communist State

Human Rights Basic Rights “Chinese Style”

Property Land Use Rights

Military Protectionist Power …

Reserve Currency Trade Currency

World Police …

August 2014

The 5th Generation

Xi Jinping + Peng Liyuan

President + Spouse

Successor of Hu Jintao

7

Li Keqiang + Cheng Hong

Prime Minister + Spouse

Successor of Wen Jiabao

Expectations – Contradictions

Infrastructure High speed trains, highways,

subway systems

Curbed internet capacities

Car Industry car market is economic factor Traffic gridlock, exhaust

fumes

Currency RMB is int’l trading currency

Big banks highly profitable

Not freely convertible

Mountain of bad loans

Environment Increase alternative energy use

from 21% to 30%

Air pollution of more than

500

Job Market Rise in basic salary: 13%/year

One-Child-Policy

Reduction of jobs

Aging society

Society Harmonious Society Rich cities, poor countryside

Soccer Passionate fans, Stadiums,

Funds

Scandals, disappointing

sportive performance

August 2014 8

Great Expectations

August 2014

© Harm Bergen, Licensegarden

9

August 2014

HR Cost

Calculation Base for Social Security in Shanghai

2005 2011 2012 2013

2,235 RMB 4,331 RMB 4,692 RMB 5,036 RMB*

Minimum Monthly Salaries 2014

Shanghai Beijing Chongqing Shaanxi

RMB 1,820 RMB 1,560 RMB 1,150 – 1,250 RMB 970 – 1,280

*610.58 EUR

10

August 2014 11

Individual Income Tax China

Level Category IIT %

Calculation

Deduction

1

- 3%

-

2

1,500 10%

105

3

4,500 20%

555

4

9,000 25%

1,005

5

35,000 30%

2,755

6

55,000 35%

5,505

7

80,000 45%

13,505

* * * *

* * * *

Tax Free: RMB 3,500

IIT Formula:

(gross salary – tax free) x IIT% - calculation deduction =

payable IIT

Example for RMB 40,000:

(40,000 – 3,500) x 30% - 2,755 = 8,195

August 2014

2nd Tier Cities

Source: China Daily online Source: The China Business Review online

12

Taicang

Jiangsu Province; 80km northwest of Shanghai

947,000 inhabitants (400,000 migrants)

823 km2 area; only natural Yangtze port with

39km coastline

3,500 foreign invested companies; highest

concentration of German companies in China

(200)

2012 GDP: 15.3 bn USD (Shanghai: 321.2)

Economic growth in 2012: 10.3% (Shanghai:

7.5%)

August 2014 13

August 2014 14

China’s Currency

Fixed exchange rate with USD until 2005 at 1:8.33

Since mid-2005 based on basket of currencies; 4 main currencies: USD,

EUR, JPY, KRW. Exchange rate with USD still strongly controlled.

Mid-2008 – mid-2010 CNY – USD kept stable as form of crisis intervention.

Since then gradual appreciation against USD

Exchange rate of August 08, 2014: 1 USD = 6.16 RMB; 1 EUR = 8.25 RMB

Multiple currency agreements, e.g. with:

Argentina, Australia, Brazil, Hong Kong, Indonesia, Iceland, Japan,

Kazakhstan, Malaysia, Mongolia, New Zealand, Pakistan, Russia,

Singapore, South Korea, Thailand, Turkey, Uzbekistan, UAE, Belarus

August 2014

Main objective: become an international trading currency

Daily RMB trading band against USD doubled to 2% on March 16, 2014

15

China Invests:

2012: China becomes 3rd most important investor abroad (77 bn USD)

13% of Chinese Foreign Investment is in Europe; 55% of which in Eastern

Europe, 29% in Western Europe, 12% in Southern Europe and 4% in Northern

Europe. Asia: ca. 65%

54% of Chinese companies in Europe concentrated in 10 cities –28% of those in

Bucharest…4 of these are German: Hamburg, Düsseldorf, Frankfurt, Berlin

2013: of 7,148 Chinese companies in Europe 82% are invested by individual /

family investors; 18% by corporate investors. Of those, 15% by privately owned

enterprises; only 3% by state owned enterprises.

2013: 86% of Chinese companies in Europe work in the service sector; 3% in

high-tech production, 3% in low-tech production and 8% in knowledge intensive

services

47% posted losses, 53% turned profits

August 2014 16

Source: Euro-China Investment Report 2013/14, Antwerp Management School

Germany Invests:

August 2014 17

New Pudong Free Trade Zone:

China (Shanghai) Pilot Free Trade Zone; officially opened on 29 Sept. 2013

Areas affected:

Approval processes

Currency convertibility

Trading transactions

Access to information

August 2014 18

Which Contradictions Remain?

Communist Party – economic success

Unequal chances – harmonious society

Copyright infringements – innovative abilities

Strict birth control – provision for old age

Modern society – traditional values

Small people – big cars

China: big, well-known, good

Germany: specialized – niche – high-tech

Pilot projects – legal certainty

Int’l / German investment needed – reduction of economic dependencies

August 2014 19

Conclusions I

Trend: Growing revenues & HR cost, sinking margins

Growing importance of 2nd & 3rd tier cities as locations / motor for growth

German companies will have to pay better attention to Chinese competition

Growing competitiveness of Chinese companies; active in EU markets in the

medium term

Overblown budget expectations must be reduced

Increased efficiency becomes important objective

China moves up the value creation chain

August 2014 20

Conclusions II

Chinese brands still weak; hampers international competitiveness

Environmental pollution a burden for China as investment location

RMB must be counted on medium term

New FTZ: Politically motivated pilot project; direction specified by gov’t

Size of the country makes contradictions in economy & society inevitable

August 2014 21

Despite all contradictions & differences confidence prevails

“It was the greatest contribution towards the whole of the human

race, made by China, to keep its 1.3 bn people from hunger. […]

There are some bored foreigners, with full stomachs, who have

nothing better to do than point fingers at us…First, China doesn’t

export revolution; second, China doesn’t export hunger and poverty;

third, China doesn’t come and cause you headaches, what more is

there to be said?”

August 2014 22

“Economic growth is key to every issue at hand. Without growth, we will see no

increase in employment nor in people’s incomes. The government should leave

what can be handled by the market to the market and create a fair environment

for enterprises to release market vitality and social creativity.”

Prime Minister Li Keqiang, March 2014

Quote on Foreign Policy

Quote on The Economy

Vice President Xi Jinping, February 2009

August 2014

Indonesia

Moscow Shanghai

Delhi Gurgaon

Mexico

Beijing

Singapore 谢谢

Thank

You!

23