For the past decade, China has grown to become one of the world’s top investment destinations. Multinational corporations not only witnessed China’s miraculous economic growth, but also reaped substantial profits from it.
The huge Chinese market, abundant resources and increasingly friendlier business environment have made China a sustained growth engine for multinational corporations.
A Golden Market
“I think China is probably more important than anywhere else in the world,” said Charlie Denson, president of Nike Brand, an affiliate of Nike Inc, the world’s leading sportswear and equipment supplier.
For the past decade, the Chinese market has become one of the most important markets for almost every ambitious multinational corporation.
“China has become more and more attractive to foreign investors since its entry into the WTO more than 10 years ago,” said Ronald Christie, senior vice president of Novo Nordisk, a world leading company in diabetes care and healthcare.
“China’s WTO accession has opened doors wide for foreign investors to access the world’s largest emerging and most potential market.”
With more than 1.3 billion people and increasing consumer demand, the Chinese market has been known for its huge capacity and limitless potential.
“In China, a city might be as large as a country in other parts of the world,” said Ralph Haupter, CEO of Microsoft’s Greater China Region.
China’s total retail sales of consumer goods increased from nearly 3.8 trillion yuan in 2001 to more than 18 trillion yuan in 2011, an increase of more than four-fold, and are still growing.
The alluring part of the Chinese market is not only its vast size.
“The important thing is that the Chinese market is really maturing,” said Brenda Lei Foster, president of the American Chamber of Commerce in Shanghai.
“The Chinese market has become more transparent, more secure and more predictable,” said Dominique Pouliquen, CEO of Alstom China.
Like many other senior executives of multinational corporations, Pouliquen repeatedly stressed the importance of the Chinese market.
Yaqin Zhang, Corporate Vice President of Microsoft and Chairman of Microsoft Asia-Pacific Research and Development Group, called China “the second home of Microsoft,” saying that China is not just a market, a R&D and talents center to Microsoft, but the second home and headquarters.
Increased Share of Wealth
With China’s huge market and abundant resources, multinational corporations have found a sustained growth engine and witnessed increased share of wealth.
According to statistics from China’s Ministry of Commerce, from 2001 to 2010, profits of foreign companies in China increased by an average of 30 percent on a yearly basis, and their cumulative profits reached $261.7 billion during that period.
The international sporting goods brand Nike has been involved in China for over 30 years, with more than 7,000 retail stores established in that country. Its sales surpassed $2 billion in 2011 in the world’s most populous nation, making China the biggest market outside the United States for the Beaverton, Ore.-based company.
Wal-Mart, the world’s leading retail chain, has maintained double-digit growth in the number of new stores in China during the past few years, with more than 350 supermarkets scattered across over 120 cities in that country. By Dec 6, 2011, the American retailer corporation’s sales volume in China had accounted for nearly 10 percent of its global sales, according to Ling Li, Wal-Mart China Senior Director of Corporate Affairs.
“US companies reaped fat profits from China, and they now have more access to join the market and grow with it,” said Robert Poole, vice-president of the US-China Business Council’s China Operations.
A survey conducted in early 2012 by the American Chamber of Commerce in Shanghai showed that 78 percent of the polled US companies in China were profitable last year, and two-thirds said that their sales growth in China exceeded that of their operations worldwide.
The poll also showed that 80 percent of the companies surveyed registered a year-on-year revenue rise, with 35.7 percent posting double-digit growth.
According to K.C. Fung of the University of California, Santa Cruz, American foreign direct investment reaps returns of 13.5 percent in China, compared with 9.7 percent worldwide.
“For multinational corporations, the return on capital (ROC) in China is higher than that in most other countries. That is the ultimate reason why they flocked to China to invest,” said Mingshen Shi, one of China’s most influential business commentators.
“Besides, foreign investor could not only reap high returns from China’s vast market, but also capitalize on China’s economic growth in a sustained fashion by establishing sales channels in the market.”
“The rapidly growing Chinese market and the country’s cheap labor have greatly elevated multinational corporations’ global competitiveness and brought them fat profits,” said John Duggan, a long-time China watcher and established American attorney.
An Attractive Environment
Since its accession into the WTO over a decade ago, China’s foreign investment environment has been constantly improving.
Insiders noted that after its WTO entry, China has created a favorable investment environment for foreign businesses by lowering tariffs, reducing transaction costs, improving related laws and regulations and various other means.
The State Council clearly stated in the Several Opinions on Further Improving the Work of Utilizing Foreign Investment issued on April 2010 that China will expand the areas opened to foreign investment, optimize the industry and regional foreign investment structure and enhance the investment and management efficiency to foster a sound investment environment.
“Much support has been given by China’s central and provincial governments to support the development of foreign invested enterprises,” said Ron Christie, president of Novo Nordisk Greater China.
Moreover, the central document also stressed that foreign companies in China are put on equal footing with their Chinese counterparts and treated equally.
“For a long time, foreign businesses have enjoyed many preferential policies, which have helped them grow rapidly,” said Sun Weimin, vice-chairman of Suning Appliance Co Ltd, China’s leading retailer of household appliances.
Since joining the WTO over a decade ago, China has opened almost all manufacturing industries and more than 100 service sectors to foreign capital.
“Restrictions on foreign companies have gradually been removed,” said Long Yongtu, China’s former chief negotiator with the WTO. “China has made substantive progress in opening up the market, making it more transparent and equal.”
Intellectual property right (IPR) is fundamental to fair treatment of the knowledge-intensive foreign businesses and services, and the IPR environment in China has been noticeably enhanced.
“As a practitioner in the industry, I did see some effective measures the Chinese governments had taken to provide better IPR services to our businesses in the country,” John Duggan, a longtime China watcher and established American attorney, told this journalist.
“The perception is evolving and the money that U.S. companies lose to piracy in China has dwindled.”
Dr. Donald Shi, an American expert on software IPR protection, held a similar view.
“From what I’ve seen, the IPR environment in China has gradually been changing for the better,” Dr. Shi said to this journalist. “The IPR-related laws and regulations, the law enforcement measures and the public’s awareness of IPR have all been improving.”
A report by the European Chamber of Commerce released in Sep 2009 said that China had made progress on improving its investment environment.
Christie believed that China will continue to be a great place to do business, because the country “is expected to have continued economic growth and increasing prosperity, which will ensure it remains one of the largest and most attractive markets in the world.”
While FDI around the world tumbled during the financial winter in 2009, it kept flowing into China despite the gloomy global trend.
To put it in a bigger picture, FDI in China expanded from $46.9 billion in 2001 to $114.7 billion in 2010, and quite a few multinational corporations have been pouring large sum of money into the rising economic power.
In 2011, the computer maker Hewlett-Packard and electronics company Foxconn Technology Group declared that they would invest $3 billion in Chongqing, a city in Southwestern China; while Coca-Cola, a global leader in the beverage industry, announced in August 2011 another $4 billion investment in China over the next three years, building upon the $3 billion investment since 2009.
Foreign companies not only keep investing, but are also constantly expanding their projects in China.
In April, Samsung Electronics Co, one of the world’s leading electronics companies, announced its $7-billion-investment project in Xi’an, which is the South Korea-based electronics giant’s largest investment overseas.
Meanwhile, Ford Motor Co declared that it would increase the annual capacity at its factory in Chongqing from 350,000 to 950,000 vehicles by 2014, together with its joint venture partner Chang’an Automobile Group Co.
“A 10-million-U.S.-dolalr project was extraordinary 10 years ago, but now even projects worth billions of dollars are nothing uncommon,” said Ms. Shi, author of the book The Extraordinary Decade.
Preferential policies, widened market access, enhanced IPR protection…all these indicate that China has maintained an attractive investment environment and has been recognized by foreign companies as one of the top investment destinations.
Top Investment Destination
Over the past decade, China has become one of the world’s top foreign direct investment (FDI) recipients, with its FDI growing at an average annual rate of more than 9 percent.
The Asian giant once claimed the world’s top FDI destination in 2003, and its global FDI inflows in the first half of this year surpassed that of the United States, making China once again the world’s largest recipient of global FDI.
China has also maintained the number one spot for FDI among developing countries for 20 consecutive years.
According to statistics released by China’s Ministry of Commerce on Nov. 6, FDI in China in 2011 increased 120 percent from that in 2002, representing an average annual growth of 9.2 percent.
As of today, China has received investment from more than 190 countries and regions, and over 480 companies of the Fortune Global 500 have their investment in the world’s most populous nation.
By the end of last year, there had been 347 multinational companies that relocated their regional headquarters to China’s financial hub Shanghai, and 237 foreign investment companies and 333 research centers had been established in that city.
Latest statistics from the Shanghai Municipal Commission of Commerce showed that enterprises from the United States cover 32.6 percent of the multinational corporations with regional headquarters in Shanghai, with those from Europe and Japan covering 25.4 and 23.7 percent, respectively.
A recent survey from the European Union Chamber of Commerce in China showed that 38 percent of companies surveyed have set up their global business units (GBU) headquarters in China.
Another recent survey conducted by the European Union Chamber of Commerce in China found that three quarters of EU companies have listed China as the world’s top three investment destinations, and 63 percent surveyed planed to expand their investment in China.
“The Chinese market has become a bright spot for the global investment, especially after the 2008 financial crisis,” said Ms. Shi.
General Motors (GM), the largest carmaker in the United States, declared bankruptcy in 2009 amid the global financial crisis. In the same year, sales of the reorganized company in China registered a record high of 1.8 million vehicles, up nearly 67 percent from the previous year. In 2010, China overtook the United States as GM’s largest market.
“There are still a lot of similar cases, in which the Chinese market played the critical role in the take off of various multinational companies,” Ms. Shi added. “For instance, the rise of such global brands as Volkswagen and Samsung all hinged on the Chinese market.”
A report released in 2011 by the Economist Intelligence Unit (EIU) revealed that multinational corporations, especially multinational conglomerates, were relying on the Chinese market to bring them more revenues due to the global financial crisis.
The report was based on a survey among senior executives of 328 multinational corporations. Nearly half of the respondents said their expectations of the Chinese market were growing because of the financial crisis, and the percentage rose to 73 percent among those of the multinational conglomerates with turnover of more than $5 billion.
After a decade of staggering economic growth driven by exports and investment, China is well on track to transform itself into a consumption-led economy. In the meantime, the nation is also experiencing structural adjustments in its utilization of foreign investment, shifting the focus from quantity to quality, from speed to efficiency, a new trend that signifies vibrant opportunities for foreign businesses.
Read on: Vibrant Opportunities Amid Transition
(This is a reprint from the People’s Daily Online of the Nov. 19, 2012 edition.)