Dr.Timothy_Weckesser_Presentation

China’s Rapid Progress up the Value Chain

“So in 30 years we have gone from ‘sold in China’ to ‘made in China’ to ‘designed in China’ to ‘dreamed up in China.’”

Thomas Friedman, The World is Flat

January 2008

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Unprecedented Growth ) ) ) )

Average annual GDP growth near 10% over past 20+ years Over 500,000 foreign invested companies today World’s #1 target for FDI; Over $1 billion per week Middle class between 100 and 250 million people (depends on data source) – 410 million mobile phone users – Fastest growing auto market in the world (& terrible pollution) – 5th largest pharma market by 2010…….and so on

GDP Views ) Absolute: 4th in the world ) 3rd in global output ) Per Capita: 107th place globally – so lots of room for continued growth January 2008

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Past: The World’s Workshop From ZERO 25 years ago to…. ) ) ) ) ) ) ) ) )

January 2008

30% of TVs 50% of cameras 30% of air conditioners 25% of washing machines 20% of refrigerators 34% of mobile phones 17% of digital cameras 20% of DVD players 28% of broadband routers & modems

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Transition to a Market Economy 1978 1998

2003

- Public sector employment ≥ 99% 30% 16.4% - % value add 57 43 - % of GDP 60 40 - Private sector employment ≤ 1% 70% 73.6% - % value add 43 57 - % of GDP 40 60 Source: OECD

January 2008

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Transition Number of Firms 100% 80%

Value Added

Private Private

60% Collective 40%

Indirect State

20%

Di rect Sta te

100% Collective Indirect State

0%

1998

2003

100% Private 80% Collective

Private

60%

Collective

40%

Indirect State

20%

Di rect Sta te

0%

1998

Collective Di rect Sta te

20%

Indirect State

Di rect Sta te

1998

January 2008

Collective Indirect State

Di rect Sta te Private

Indirect State

40%

0%

Private

Di rect Sta te

Employees

60%

80%

Source: OECD

2003

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2003

Huge Contribution from FIEs )

35% of industrial output (from 2.3% in 1991)

)

Control assets in 21 of 28 leading industrial sectors

)

20% of China’s tax revenues

)

25 million employees (10% of urban workforce)

)

60%-plus of exports out of China

)

750 foreign R&D centers in 2005 (near zero in late 90s)

)

Most tech transfers into China

)

Role of ETDAs (e.g. SIP)

January 2008

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Export Ratio of FIEs Total exports

Billion of US Dollars

750

Exports by foreign-funded companies

600 450 300 150 0 1997

1998

1999

2000

2001

2002

2003

2004

Year Source: National Bureau of Statistics

January 2008

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2005

11th 5-Year Plan, 2006-2010 )

Key policy focus: Develop technology-led sectors and high-value capabilities, while maintaining the manufacturing base – Increase R&D spending from 1.3% of GDP in 2005 to 2% by 2010 – Targets include biotechnology, nanotechnology, renewable energy, etc.

China currently holds 12% of the world’s patents in nanotechnology

– Tax equalization between FIEs and domestic firms, but – 150% deduction for qualified R&D expenditures – Major biotech centers in Beijing and Tianjin, etc.

January 2008

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Investment Catalog Comparison

(36% growth) January 2008

127

(12% growth)

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113

Current Trends )

University-industry collaboration on the rise: – Tsinghua University has research contracts with GE, Alcatel, Lucent, P&G, etc.

)

VC on the rise - corporate, traditional, PE – but still small

)

Major Industrial advances – – – – –

)

Exporter of power gen equipment Developer of TD-SCDMA 3G wireless standard rd 3 largest auto producer (Look for Chinese cars in US soon…)

World’s largest shipbuilder Domestic aviation and aerospace industry on the rise (Regional jet ARJ21 now in testing; Airbus A320 assembly)

Still, only a fifth of China’s top 500 companies invest over 2% of revenue in R&D (Huawei invests 10%)

January 2008

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The Future: The Entrepreneurial Challenge )

200,000 – 300,000 engineers graduating every year, compared with about 60,000 in US – In 1999, all MBA grads from Shanghai’s China-EC Business School went to work for FIEs. In 2006, 25% went with domestic firms

)

Still, China only spends about half what average OECD country spends on education and health

January 2008

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China’s Business Incubators – Invented in America )

“International” Business Incubators – In every city for returning expats

)

Shanghai National IC Design Center – Based on fact that over 80% of IC products were imported – Established in 2000 to support entrepreneurs in IC design – Provides multi-million dollar design tools & testing computers for all users at no cost – Training and general partnership with LSI Logic – Top floors for R&D, lower floors to incubate resulting companies

January 2008

© 2008 Sino-Consulting, Inc. (www.s-c-i.com)

Sino-Consulting, Inc. Thank you. Please feel free to call if you have questions Timothy Weckesser, 610-828-8060 Shiqiang Gu, 610-828-8061 www.S-C-I.com January 2008

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