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CHINA TODAY -

Problems, Challenges

and Opportunities

Dr. Graham Jackson

Head, International MBA Program,

University of Haifa

gjackson@univ.haifa.ac.il

March 2013

Haifa University,

Dr. Graham Jackson

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“When China awakes, the world will tremble” Napoleon Bonaparte , 1800 (?)

“When China awakes, they’ll all want Gucci” Graham Jackson 2000

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Dr. Graham Jackson

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A SHORT HISTORY OF CHINA

• The First Emperor of China, QínShǐHuángdì created a system that made him and his dynastic successors extremely rich and almost everyone else extremely poor

• The Founder and Chairman of the Communist Party of China, Máo Zédōng created a system that made everyone equally poor

• The leader of China’s economic reform, Dèng Xiǎopíng created a system that today enables everyone to be un-equally richer than ever before.

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Dr. Graham Jackson

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“TO GET RICH IS GLORIOUS” Deng XiaoPing (1993)

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Dr. Graham Jackson

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CHINA’S ECONOMY IN THE GLOBAL CONTEXT

Dr. Graham Jackson

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HOW BIG IS CHINA’S ECONOMY? Source: Wikipedia / International Monetary Fund (Oct. 2011)

GDP per

Capita

Population GDP

(2010)

Country Rank

US $ millions US $

trillions

46,860 310 14,526 USA 1

4.382 1341 5,878 CHINA 2

42,783 128 5,458 JAPAN 3

40,274 82 3,286 GERMANY 4

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Dr. Graham Jackson

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CHINA – THE FACTORY OF THE WORLD

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Dr. Graham Jackson

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WHEN WILL CHINA OVERTAKE THE USA?

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WHERE’S THE MONEY? Source: http://baidu.com/p/1398073413 (2010)

Disposable

Income

per Capita

(RMB)

GDP per

Capita

(RMB)

Population

(millions)

City Rank

159825 315788 7.0 Hong Kong 1

39513 57606 8.2 Dongguan 2

36500 111045 10.3 Shenzen 3

36230 83390 23.0 Shanghai 4

34300 96868 12.7 Guangzhou 6

34065 80000 9.1 Hangzhou 7

33070 102398 10.4 Suzhou 11

32900 81583 19.6 Beijing 8

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Dr. Graham Jackson

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CHINA’S INEQUALITY GAP (GINI), 2012

China = 0.47 (gradually rising over the last ten years ) USA = 0.47 (rising slowly) Israel = O.39 (2009) 251 $ billionaires

2.7 million $ millionaires

~12% = 160 million rich people

~24% = 340 million middle classes

~64% = 900 million poor people

~ 250 million live in cities with > 750,000 population

~ 250 million live in smaller cities and towns

~ 850 million live in poverty in the countryside

Sources: World Bank and Huron Rich List, 2011

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Dr. Graham Jackson

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CHINA’S STRENGTHS

“The Chinese socialist system’s

advantages enable us to take decisions

efficiently, organize effectively and

concentrate resources to accomplish

large undertakings.”

Prime Minister Wen Jiabao, March 2010

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Dr. Graham Jackson

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CHINA’S WEAKNESSES

Endemic Corruption by CPC officials

Regional Inequality (The Urban-Rural gap)

Pollution of the Environment (Air, water, soil)

Strong growth depends on massive imports

of commodities and raw materials

Underdeveloped health services

Underdeveloped social security system

Recently increasing inflation (in real terms)

Housing bubble

Aging population

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Dr. Graham Jackson

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Chinese Premier Wen Jiabao talks with a petitioner

during the first ever visit of a government leader

to China’s top complaints department,

“The State Bureau for Letters and Calls” People’s Daily, 25 January 2011

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Over 180,000 “Mass Incidents” per year

Street riots by small-business owners and workers against

increasing local taxes in Zhejiang Province, 27.10.2011

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Air Pollution in Beijing , February 2013

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WHAT ARE THEY DOING ABOUT IT?

- China’s 12th Five-Year Plan,

Published 5 March 2011

-The new national leadership from

March 2013 onwards: ????????

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Dr. Graham Jackson

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CHINA’S 12TH FYP 2011-2015: PRINCIPLES

• GDP Annual Growth Rate target of only 7%

• Raise average household income by an annual

average of about 7% and close the income gap

by increasing minimum wages by 13% annually

(end of the era of “Cheap Labor”)

• Promote domestic consumption over

infrastructure investments and exports

• Hold inflation down to about 4% per year

• Increase social security nets

• Promote measures to conserve energy

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Dr. Graham Jackson

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CHINA’S 12TH FYP 2011-2015:

WHAT IT MEANS FOR BUSINESS

https://www.mckinseyquarterly.com/article_print.aspx?L2=7&L3=10&ar=2832

Higher wages and better conditions for workers

Higher levels of domestic consumption

Development of a better health care infrastructure

More emphasis on strategic high-tech industries

More (controlled?) urbanization

Growth of Services

B2B and B2C business opportunities

Higher level of uncertainty

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NEW STRATEGIC INDUSTRIES

BENEFITING FROM R&D AND OTHER SUBSIDIES

• Biotechnology

• Alternative energy / CleanTech

• High-end equipment manufacturing

• Energy conservation (e.g. LED lighting)

• Environmental protection (e.g. better water treatment)

• Electric vehicles

• New materials

• Next-generation IT

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A SELECTION OF PROBLEMS FOR

WESTERN COMPANIES IN CHINA

• Guanxi relationships allow Chinese businessmen to get

preferential treatment and advance information of new

government rules and regulations

• Easier for Chinese businesses to understand local needs

and adapt their product specifications, range, quality,

designs, performance, taste, etcetera

• Stealing foreign IP, including theft of company designs

copying and cyber-espionage - all protected by local

Chinese courts helped by “commissions”

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Dr. Graham Jackson

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HOW TO SUCCEED IN CHINA

According to Kai-Fu Lee, leader of

Microsoft Research Asia (MSRA), 1998-2005

• Understand Chinese culture and norms

• Develop mutual respect

• Create trustworthy relationships

• Make a long-term commitment: contribute first in order to benefit later

• Hire leaders and senior managers with Guanxi

• Nurture local managers and talented workers

• Be flexible and open to local needs and practices

• Find ways to support the local economy

• Align your strategy with the Government’s goals

• Be humble

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Dr. Graham Jackson

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Thank you for your attention !

Dr. Graham Jackson

Head, International MBA Program,

University of Haifa

gjackson@univ.haifa.ac.il