Dr. Steyn MKT 4523-001 February 27, 2019
Economic Analysis
By: Grady Milligan, Junwei He, Sydney Smith, and Xuerui Mei
Table of Contents Introduction
4
Population Total Growth Rates Number of Live Births Birth Rates Distribution of Population Age Sex Geographic Areas Migration Rates and Patterns Ethnic Groups
5 5 6 7 8 12 12 13 16 17 19
Economic Statistics and Activity Gross Domestic Product Total Rate of Growth Personal Income per Capita Average Family Income Distribution of Wealth Income Classes Proportion of Population in each Class Is the Distribution Distorted? Minerals and Resources Surface Transportation Modes Availability Usage Rates Ports Communication Systems Types Availability Usage Rates Working Conditions Employer-Employee Relations Employee Participation Salaries and Benefits Principal Industries What Proportion of the GNP does Each Industry Contribute? Ratio of Private to Publicly-Owned Industries Foreign Investment Opportunities Which Industries?
21 21 21 22 24 25 26 26 27 29 29 30 30 31 32 34 36 36 36 37 38 38 39 39 40 40 41 42 42 43
International Trade Statistics Major Exports Dollar Value Trends Major Imports Dollar Value Trends
44 44 44 45 45 46 46
Developments in Science and Technology Current Technology Available Percentage of GNP Invested in Research and Development Technological Skill of Labor Force and General Population
54 54 55 56
Channels of Distribution Retailers Number of Retailers / Typical Size of Retail Outlets Methods / Scale of Operation Role of Chain Stores, Department Stores, and Specialty Shops Wholesale Middlemen Penetration of Urban and Rural Markets
57 57 57 58 58 59 59
Media Availability of Media Television Radio Print Internet Social Media Percentage of Population Reached by each Medium
60 60 61 61 61 62 62 63
Executive Summary
64
Sources of Information
64
Introduction
Over the past 30 years, China has become one of the leading forces of the world. It has one of the strongest economies internationally, just behind the United States (World Bank).
China’s economic success is only projected to continue as more time passes. As this country’s economic success continues to grow, each and every aspect of its people and economy will change. This paper is divided into 7 major chunks: the introduction, population, economic statistics and activity, developments in science and technology, channels of distribution, media, and the executive summary. Each of these sections will explain China’s growing economy in detail through which the reader is able to obtain all of the necessary information about China’s economy. This paper will discuss the distribution of people, GDP, socioeconomics, minerals, communication systems, working systems, importing and exporting, trade restrictions, technological advancement, retailers, wholesalers, and media forms. Within each of these categories, information will be further divided into more subcategories. This paper aims to explore and explain the various aspects of the Chinese economy and create a unified picture of how each piece of its economy intertwines with the other.
Population Total
China is home to the most inhabitants in the world. India, however is close behind. In 2017, China peaked at 1.386 billion people (World Bank). Comparatively, India had 1.339 billion inhabitants in 2017 (World Bank). These 2 countries constitute over one third of the world’s entire population. India is likely to surpass China in total population, as China’s population is
beginning to slow due to a shift in focus from family to economic opportunity (which will be discussed in more detail later. Refer to Number of Live Births and Birth Rates). The graph below indicates the Chinese and Indian total populations from 1960 to 2017. The graph shows the rapid rate of growth China has experienced and how India is soon to surpass China.
Growth Rates
It is no surprise that China is the most populous nation in the entire world. As of 2015, China had more than 1.35 billion inhabitants (Howden and Zhou, 232). Furthermore, China has been the most populous country globally since 1820 (Howden and Zhou, 232). However, even with the largest population, China’s growth rate is on the decline. In 1820, China had a larger population than Japan, the United Kingdom, and the United States combined 6 times over (Howden and Zhou, 232). As time has passed, China is now only 3 times bigger than the
aforementioned countries. This is due to China’s slowed population growth, especially as compared to other countries. Over the past 200 years, China’s population growth has divided in half (Howden and Zhou, 233). There are several explanations that can be offered to explain why China’s growth rate has slowed. For example, the population growth rate was stagnant between 1845 and 1870 (Howden and Zhou, 233). This time period overlapped with the Taiping Heavenly Kingdom, where the rebellion caused millions of people to die (Howden and Zhou, 233). In addition, China implemented the One-Child Policy in 1979 in an attempt to reduce the number of babies born per family. The following graphic shows how China’s rate of population growth has decreased in comparison to Japan, the United Kingdom, and the United States.
Number of Live Births
The number of live births in China has decreased drastically over the last 50 years. Even prior to the implementation of the One-Child Policy in 1979, China’s number of live births were on a quick decline. In 1970, the number of live births reached 114,257.43 (“China Number of Births, 1950-2018,” 1). As of 2015, the number of live births had dropped to 87,015.72 (“China Number of Births, 1950-2018,” 1). That’s a decrease in over 27,000 births! The number of births in 2005 was even less than that of 2015. In 2005, the number of births peaked at 81,617.40 (“China Number of Births, 1950-2018,” 1). That’s over a 32,000 person decrease from 1970. Since 2005, the number of live births has increased slightly, but it is nowhere near as drastic as the decrease since 1970. The number of births in China are increasing ever so slightly every five years or so. Specifically, between 2005 and 2015, the number of births has increased by 6.51% (“China Number of Births, 1950-2018,” 1).
Birth Rates
Just as China’s live number of births has drastically decreased over the past 50 years, so has the crude birth rate. In 1966, China’s crude birth rate was 40.17 births per 1,000 people (“China Number of Births, 1950-2015,” 1). However, in 2015, the crude birth rate reached an alltime low of 12.21 birth per 1,000 people (“China Number of Births, 1950-2015,” 1). The crude birth rate has decreased by more than 3 times since 1966. Even between the years of 1995 and 2015 (a 20-year span), the crude birth rate decreased from 15.26 births per 1,000 people to 12.21 births per 1,000 people (“China Number of Births, 1950-2015,” 1). The most drastic drop in the birth rate was between the years of 1965 and 1980. Over the span of those 15 years, the number of births per 1,000 people went from 40.43 to 21.10 (“China Number of Births, 1950-2015,” 1). Between these 15 years, the birth rate only decreased. There was no period of stagnation or increasing, which is what makes this decrease so shocking. The graph below provides the crude birth rate in China from 1950 to 2015, where the aforementioned trends will be highlighted.
The decline in the birth rate has had a negative impact on the Chinese society. The birth rate in China is so low that the population is below replacement level (“China Birth Rate: Mothers, Your Country Needs You!” 1). The Chinese government revoked the One-Child Policy in 2015 in hopes of promoting the Chinese population to have more than 1 child. However, this thought process has proven to be unsuccessful (“China Birth Rate: Mothers, Your Country Needs You!” 1). An aging population provides negative implications for the Chinese society. In order for China to support their older population, they are going to have to grow their population, rather than shrink it (“China Birth Rate: Mothers, Your Country Needs You!” 1). The Chinese government is now offering incentives for families to have more children. Some of these incentives include extending maternity leave, cash offers, and tax breaks (“China Birth Rate: Mothers, Your Country Needs You!” 1). However, Chinese families consider the government’s
propaganda and incentives about growing families to be “intrusive and insensitive” (“China Birth Rate: Mothers, Your Country Needs You!” 1). The following graphic shows China’s population structure according to age, and soe projected numbers. As you can see, the age group of 15-64 (the working population) shrinks, whereas the group of those 65 and older will increase significantly.
Distribution of Population Age
As of right now, it is important for China to ensure that their population structure will be able to support the older demographic. In 2017, the percentage of the Chinese population aged 60 and older was 17.3% (“China: Population Distribution by Age Group 2017 | Statistic,” 1). In addition, the age demographic of 0 to 15 years old included 17.8% of the population. (“China: Population Distribution by Age Group 2017 | Statistic,” 1). That means that the remaining 64.9% of the Chinese population is between the ages of 16 and 59 years old (“China: Population Distribution by Age Group 2017 | Statistic,” 1). This means that 64.9% of the population is able to be in the workforce to support both the aging population and the children. It is important that the majority of the Chinese population fits within this demographic because it is pivotal for economic growth and stability. The following graphic shows the population distribution in China by age as of 2017, which highlights the aforementioned statistics.
Sex
The population structure in China is ever-changing. For example, the male to female ratio is decreasing. In 2004, there were 121 boys born for every 100 girls (Tatlow, 1). This trend has changed, though. As of 2015, there were only 113.5 boys born for every 100 girls (Tatlow, 1). While this number may not seem significant, it is when put into a national context. There are 3 graphics to follow. The first shows China’s population structure in 1970 according to age and biological sex. The second shows the same variables but in the year of 2020, which is nearly present-day. The last graphic shows the projected structure of the Chinese population in 2050 according to the same variables.
The main trend that can be seen throughout these graphics is that the younger demographic in 1970 continually shifts upward without replacement of their large number. This means that in 2050, most of the people that were between the ages of 0 and 10 in 1970 will be between the ages of 60 and 69 in 2050. This is about the age window in which people will retire and stop working. Another trend that can be seen in these graphics is the decrease in the male to female ratio. The graphic from 1970 shows a very noticeable difference between the number of men and the number of women. However, the 2050 graphic shows a more equally distributed population according to sex. The 2050 graphic also shows the unequal sex distribution in the age categories of 55 and older, where those people were children in 1970 and the ratio was far more skewed.
Geographic Areas
China’s population structure according to geography has turned from one that was very rural and agriculturally driven to one that is far more urban than rural. According to the World Bank, only 19.6% of the Chinese population inhabited urban areas (“China: Urban and Rural Population 2017 | Statistic,” 1). In contrast, over 56% of the Chinese population lived in an urban area as of 2016 (“China: Urban and Rural Population 2017 | Statistic,” 1). The largest city in China is Shanghai, and that city alone is projected to reach over 20 million people by 2025 (“China: Urban and Rural Population 2017 | Statistic,” 1). This rise in urbanism can be attributed to a growing and rising middle class. Middle class citizens are moving to more urban areas in search for work and economic opportunity. In 1970, there were only 606.33 million people in China that were living in Urban areas
(“China: Urban and Rural Population 2017 | Statistic,” 1). As of 2017, that number had jumped to 813.47 million people. Furthermore, the number of Chinese inhabitants living in rural areas dropped from 714.96 million people in 1970 to 576.61 million people in 2017 (“China: Urban and Rural Population 2017 | Statistic,” 1). This shift from rural to urban over the past 50 years can be seen in the following graphic.
Finally, the most populous region in China is Guangdong, with over 111.69 million inhabitants (“China: Urban and Rural Population 2017 | Statistic,” 1). This area is located in southeastern China along the coast. This area is highly urbanized. This region has a stark contrast between the Tibetan region, which inhabits the least amount of the population at about 3.37 million (“China: Urban and Rural Population 2017 | Statistic,” 1).
Migration Rates and Patterns
Internal migration in China has been something of historical relevance. Through countless empires, there have been many migration patterns in China over the years. For example, a peasant rebellion in the Sichuan region of China occurred in the 1640s, which meant a many people in Sichuan died (Lewis and Elman, 1). This meant that people form the neighboring areas of Hubei and Shaanxi migrated to Sichuan up until the nineteenth century (Lewis and Elman, 1). Another migration pattern occurred during the Taiping Rebellion in which Chinese inhabitants of the Yangtze valley were murdered by the opposing army (Lewis and Elman, 1). Because of this, masses of farmland were left uncultivated, which caused many people from Hubei, Hunan, and Henan to fill this area and take advantage of the arable land (Lewis and Elman, 1). From a modern perspective, there has been a large influx of Chinese moving from the Western and rural areas of China to the Eastern and urban parts of China. This movement started in the 70s, when the Chinese government instituted economic reforms (Lewis and Elman, 1). Many people who move to the East to find work stay put. However, tens of millions of migrants move back to their rural homes at certain times of the year to continue their work there (Lewis and Elman, 1). This back-and-forth causes strain on host cities in the East along the coast, and it also causes problems with the environment and security (Lewis and Elman, 1). The following graphic depicts these internal migration patterns. It shows the drastic influx of people moving East towards the coast, as well as a smaller population moving back to the Western, agricultural areas of China.
Ethnic Groups China is a very culturally diverse nation. How could it not be? It is the world’s most populous country. Over 90% of the Chinese population belongs to the majority: the Han (Hinsbergh, 1). The Han live in the geographic region that speaks Mandarin and Mandarin dialect. The remaining 10% of the Chinese population consists of 55 minorities that engage in different costume, festivities, and ways of life (Hinsbergh, 1). The largest ethnic minority in China is the Zhuang ethnic group (Hinsbergh, 1). This ethnic group consists of roughly 18 million people, and they live in southeastern China (Hinsbergh, 1). They speak a variation of Thai and practice ancestral religion based on Buddhism (Hinsbergh, 1). They are very well-known for their practice of rice terracing, as well (Hinsbergh, 1). The most famous ethnic minority in China is the Mongolians (Hinsbergh, 1). Historically
speaking, the Mongolians are well-known for their Eurasian conquer in the thirteenth century (Hinsbergh, 1). There are about 6 million Mongolians that remain, and they inhabit inner Mongolia (Hinsbergh, 1). They practice herding, horseback riding, and summer sporting events (Hinsbergh, 1). The Miao ethnic minority in China is most well-known for their distinctive dress (Hinsbergh, 1). Women are typically clothed in heavy jewelry and silver (Hinsbergh, 1). There are about 10 million Miao that live in the Guizhou province of China (Hinsbergh, 1). They have faced persecution in recent years, which is driving them South into Vietnam (Hinsbergh, 1). However, they engage in festivities surrounded by music and architecture that attracts tourism (Hinsbergh, 1). There are many other ethnic groups in China to discuss, but these are the characteristics of just a few. Some other ethnic minorities in China include the Hui (which are a large Muslim population), the Dong (famed for Lusheng music and architecture), the Uyger (which is the largest ethnic group in Xinjiang), the Manchu (who were the creators of the Qin empire), the Tibetans (who are descendants of a very powerful empire), the Yao (also famed for rice terracing), the Bai, the Naxi, the Dai, the Hani, the Kazak, the Qiang, the Shui, the Tujia, and the Yi (Hinsbergh, 1).
Economic Statistics and Activity Gross Domestic Product Total The total Gross Domestic Product (GDP) in China has grown exponentially over the past 30 years. In 1990, the GDP was just over 3.6 trillion USD (GDP (Current US$), 1). As of 2017, the GDP reached over 12 trillion USD (GDP (Current US$), 1). That means that between 1990 and 2017, the GDP in China increased more than 33 times over. China’s economic success is
largely the means for such an impressive GDP increase. Comparatively speaking, China is one of the top countries in the world as far as GDP is concerned. The United States had a GDP of just over 19 trillion in 2017 (GDP (Current US$), 1). Most other countries do not even come within distance of matching a GDP close to that of China or the United States. The following chart shows the GDP in China in 1990 through 2017. As the graph shows, the increase in GDP has been exponential. If we were to extrapolate, China’s GDP would appear to continue this high climb.
Rate of Growth On average, China’s GDP increases about 1.5% every year (since 2016) (“China GDP,” 1). In July of 2016, the GDP growth rate was at 1.9% (“China GDP,” 1). July of 2018 indicated a GDP growth rate of 1.7% (“China GDP,” 1). The forecasted growth rate for January of 2019 is 1.5% (“China GDP,” 1). While this growth rate is .04% less than that of July 2016, a 1.5%
growth rate still indicates a significant amount of GDP growth. The aforementioned statistics provide the GDP growth rate overall and on average. The following graph will illuminate these statistics.
The next statistics will highlight China’s GDP growth rate from a year to year point of view. In January of 2016, the annual GDP growth rate was 6.7% (“China GDP,” 1). The projected annual GDP growth rate for January of 2019 is 6.4% (“China GDP,” 1). This indicates that on a yearly basis, China’s GDP growth rate is staying fairly steady. The following graph offers the percentage of GDP growth rate from January of 2016 to January of 2019.
Personal Income per Capita The average income per person in China has increased astronomically over the past 10 years. In 2002, the per capita income in China was not even 1,000 USD (“China Household Income per Capita,” 1). However, improved conditions and economic flourishing has led to a per capita income of nearly 5,000 USD in 2013 (“China Household Income per Capita,” 1). That is an increase in per capita income 5 times over! To show an even more drastic difference, the per capita income in China in 1985 was only 262.918 (“China Household Income per Capita,” 1). That is an enormous difference compared to today’s standards. The following chart displays average income per capita in China between the years of 2002 and 2013. As each year passes, there is a significant increase in income per person.
Average Family Income The easiest way to assess the average family income for China is by province. In China there are 31 provinces, and the average family income varies distinctly between each one. For example, the average family income in the Xizang province was just over 10,000 yuan, whereas the average family income for Shanghai was nearly 50,000 yuan (Wen, 1). Across all provinces, the average income for a Chinese family was 21, 586.95 yuan as of 2014 (Wen, 1). This number implies that income inequality in China is not as large of a problem as it is for most of the rest of the world (Wen, 1). The median family income in China varied significantly from that of the mean. The median family income was 18,371.34 yuan in 2014 (Wen, 1). The reason why the mean is that much higher than the median is because the Shanghai and Beijing Provinces skew the number rather drastically. The average family income in Shanghai (in 2014) was nearly 50,000 yuan, as previously stated, and the average family income for Beijing (in 2014) was about 47,000 yuan (Wen, 1). The next closest province to Shanghai and Beijing is Zhejiang, with an average of about 35,000 yuan per family (Wen, 1). This is quite a drastic difference. The median may be more meaningful when studying the average family
income across all of China. The following graphic shows the average family income by province in China in 2014. This chart goes in numerical order of family income, from lowest to highest.
Distribution of Wealth Income Classes Like the United States, China has 3 social classes: upper, middle, and lower. The lower class has 2 groups: rural semi-proletariats and urban proletariats (Minqi, 12). The middle class consists of 2 groups, as well: the urban middle class and the petty bourgeois (Minqi, 12). Lastly, the upper class also consists of 2 groups: the capitalists and the party/state elites (Minqi, 12). As of 2018, the Chinese middle class was of the fastest-growing in the entire world
(Yang, 1). The Chinese director of the National Development and Reform Commission indicated that the number of middle class citizens is still expected to increase rapidly (Yang, 1). This can be attributed to an improved standard of living and a growing economy (Yang, 1). The rise of the middle class means that consumption is going to significantly increase which will further the positive economic condition of China (Yang, 1). In addition, the growth of the middle class promotes outbound travelling and tourism (Yang, 1). Tourism abroad increased by 7% between 2017 and 2018 (Yang, 1). As the middle class continues to grow, the upper class and lower class become more pinched. Rather than there being an equal number of citizens in each class, the increase in the number of people in the middle class will create a disparity. However, China is far from this. The disparity between the lower class and the middle class is shrinking (Minqi, 12).
Proportion of Population in each Class China has nearly 1.4 billion inhabitants. Of these 1.4 billion citizens, over 400 million are part of the middle class (Yang, 1). This number is only expected to rise. As this number grows, more Chinese citizens rise out of the lower class (Yang, 1). About 40% of the Chinese population belonged to the middle class as of 2014 (Minqi, 12). This number has grown dramatically over the years. For example, the middle class in China only consisted of roughly 7% of the population in 1952 (Minqi, 12). At that same point in time, about 90% of the population belonged to the lower class (Minqi, 12). China has made some extraordinary economic improvements to lessen the disparity between its social classes. Even the upper class is growing. For example, the upper class was about 5% of the Chinese population in 1952, but it now consists of about 10% of the population (Minqi, 12). The upper class is not growing nearly as fast, but that is because the upper class in China is typically descendants of the previously rich and top officials (second
generation) (Wan, 1). While this social class is not experiencing the same rate of growth as the middle class, the social classes in China are still balancing out more than they ever have before. Even still, over 30 million people in China live in poverty (Jennings, 1). While this number has decreased significantly over the years, China still has many improvements to make to reduce the number of people in poverty. The following graph shows the Chinese population per social class from 1952 to 2014. This helps illuminate the aforementioned numbers and visually represents the lessening disparity between each class.
Is the Distribution Distorted? The social classes in China are distorted. As previously mentioned, the disparity is not as great as it once was, but there is still a lot of work to be done. The economic improvements have contributed greatly to the reduction of the social class disparity (Yang, 1). In addition, the disparity is likely to lessen even more. As the middle class continues to rise, the lower class
continues to shrink. Hopefully, the percentage of people in the lower class will balance with that of those in the middle class. There will likely always be a distortion between the upper class and the other 2 classes. This is because the upper class in China consists solely of people born into money (Wan, 1). Because of this, the percentage of the population in the upper class is unlikely to rise significantly. While there is hope to balance out the gap between the middle and lower classes, balancing the upper class along with those 2 is very unlikely.
Minerals and Resources China’s landmass and geographic location make it bountiful in minerals and resources. Some of the minerals that China mines the most of includes rare-earths, zinc, tungsten, tin, talc, phosphate rock, magnesium, lead, steel, graphite, coal, cement, aluminum, and iron (“China: Mining, Minerals and Fuel Resources,” 1). Because of China’s vast supply of minerals, they are able to export much of what they excavate. Most of their exports include rare-earths, tungsten, graphite, barite, and antimony (“China: Mining, Minerals and Fuel Resources,” 1). From an economic perspective, 25% of China’s intra-national trade consists of minerals (“China: Mining, Minerals and Fuel Resources,” 1). Furthermore, 4.3% of China’s population works within the mining industry (“China: Mining, Minerals and Fuel Resources,” 1). With regard to rare-earths, China is home to over 90% in the world (“China: Mining, Minerals and Fuel Resources,” 1). In 2010, 87,000 tons of rare-earths were mined and used for consumption in China (“China: Mining, Minerals and Fuel Resources,” 1). Much of these precious metals are exported. As of 2010, 51.7% of the rare-earth exports went to Japan, 15.8%
went to the United States, 5.1% went to the Netherlands, and 4.4% went to France (“China: Mining, Minerals and Fuel Resources,” 1). The Chinese government has created 11 rare-earth mining zones in the Jiangxi and Guangzhou provinces. As far as metals are concerned, China is most known for producing aluminum, cobalt, nickel, iron, and copper (“China: Mining, Minerals and Fuel Resources,” 1). In 2010, China produced 332,680 tons of unwrought aluminum alloy, which is used in many other forms of manufacturing throughout the country (“China: Mining, Minerals and Fuel Resources,” 1).
Surface Transportation Modes China's traditional surface transportation method is human resources transportation, the most common of which is the sedan chair and rickshaw(Hays). However, with time goes by, these basic vehicles have gradually withdrawn from the historical stage because of their inconvenience and backwardness. Since China's reforming and opening, China's economy has developed rapidly and the government has become more and richer, so they have invested most of their money in the construction of city infrastructure. Nowadays, China's main modes of transportation are six types: railway, highway, inland river, sea, air, and pipeline.
Availability First, let's talk about railway transportation. Railway has a large carrying capacity, strong continuity, high driving speed, low freight, and the operation is generally not affected by natural conditions such as climate and terrain. Road transportation is suitable for short and medium-distance passenger and cargo transportation. Although road transportation has a small carrying capacity and high transportation cost, it has greater flexibility and continuity and is suitable for medium and short-distance passenger transportation and transportation of high-grade industrial and agricultural products. Road transport has also been the most common surface transportation in China. Inland river and maritime transport have the characteristics of large carrying capacity, low transportation cost, small investment, but slow running speed, reduced flexibility, and continuity. River transportation is suitable for the transport of large and long shelf life cargoes. Air transportation has the advantages of high speed, low investment, no restrictions on local terrain conditions, and long-distance transport. It also has disadvantages such as small
carrying capacity, high transportation cost, and vulnerability to climatic conditions. It is suitable for long-distance passenger transportation and high-end, foreign trade Pipeline transportation has the characteristics of large transportation volume, low transportation cost, poor flexibility and it takes a long time to build. It is suitable for oil transport, natural gas, and other liquid and gaseous materials with large transportation volume and relatively stable supply.
Usage Rates Unlike the United States, in China, most Chinese travelers choose to take a car or a train instead of an airplane. This is because, first, the cost of flying is higher, and secondly, the comfort of the aircraft is relatively low. If it is not an emergency or long-distance travel. Most Chinese do not choose to travel by plane. Also, because the Chinese government invested a significant amount of money in infrastructure construction in the early years, the most efficient surface transportation mode in China has been converted from road transport to railway. The railway here mainly refers to the CRH -China Railway High-Speed. Due to the difference in politics, China's railway transportation is managed by the China Railway Administration, which means that it is controlled and maintained by the Chinese government. Because China Railway High-Speed looks like bullets, there is another name for this train, the bullet train.
By the end of 2017, the national railway operating mileage has reached 127,000 kilometers, including 25,000 kilometers of high-speed rail, accounting for 66.3% of the world's total high-speed rail(Sohu). The average speed of China High-Speed train is 200 to 350 kph(124217mph).China High-Speed trains have three types: G, D, or C trains. The Bullet-shaped train are white(ChinaHighlights).
Ports First, Shanghai. Shanghai is China's water and land transportation center. Shanghai Port is at the midpoint of the Chinese mainland coastline. The 10,000-ton ocean-going giant ship is open to traffic all year round. The port area is mainly distributed on both banks of the Huangpu River. From the upstream to the lower reaches of Wusongkou, the port area is intermittently allocated about 60 kilometers. Now handling over 35 million TEU(Twenty-foot Equivalent Unit) containers per year, Port of Shanghai continues to grow with more plans afoot to increase capacity(Matt), making it one of the largest ports in the world. Second, Guangzhou. Guangzhou is China's southern gate and has been one of the critical ports for foreign trade since ancient times. It is the outer port of Huangpu is the largest port in south China. Ships of more than 20,000 tons can be berthed from the Pearl River Estuary to the port, and there are 22 berths of 10,000 tons ship.
Third, Tianjin. Tianjin Port is located on the west bank of the Bohai Bay. At the entrance of the Haihe River, it is the gateway to the capital Beijing. The ranks of Tianjin Port is 4th among all ports in the country(Matt).
Communication Systems Types With the rapid development of China's economy and the increasing popularity of communication in the world, China's communication system has changed from the previous letters which transported by horse and man to the communication system that is synchronized with the world. Like the rest of the world, there are five main ways of communication in China, namely Telephone, Internet connections, and Email.
Availability Telephone can meet people's daily communication needs. When people communicate with their friends and relatives, they only need to pick up the phone and dial their phone number. With the development of technology, 3G and 4G appear, telephone communication is no longer just limited to text and sound, people can make video calls over 4G networks. Although the telephone is convenient and cheap, the development cycle of the telephone is long, and the construction of the primary signal also takes a particular time. Besides, the requirements for the telephone are getting higher and higher. The Internet was the product of the late 20th century, and it has achieved rapid development in just 20 years. The world can be called the Global Village, and a large part of it influences the Internet. People can view news, view photos and see what they want to know through the Internet. Through the Internet, people can understand what is happening in the world at home. Like the rest of the world, China's Internet also has the drawback of slow Internet speed and unstable signals. Moreover, China's Internet has a wall bullied by the government which the government blocks Chinese citizens from viewing things they don't want citizens to see. Email is a product that emerged from the development of the Internet. People use Email to send some files or photos, and the hand-write letters are gradually replaced by Email. Of course, Email also has some disadvantages. When some companies know that your Email address has passed, they will continue to send you spam mail. Usually, people set some options to block some emails. But sometimes people will accidentally block the Email that they want to know, which leads to the missing of some information.
Usage Rates In China, the most common way to communicate is by phone, because now the telephone
is equivalent to a mobile computer, not only for communication but also for watching videos and reading news. According to China: Mobile Users 2018, there are more than 1559.13 telephone has been used in China at 2018. Five communications companies dominate China's communications market which are China Mobile Communications Corporation, China unicom, China Telecom, China Tietong and China Satcom.
Working Conditions Employer-Employee Relations In China, the relationship between employees and employer is more subtle because of the particularity of Chinese culture. A lot of things between the employer and the employee are not
directly spoken face to face but will be expressed or told in another way. In China, the relationship between employees and employer is more like a cooperative relationship. Without an employee, there is no employer. Without an employer, there will be no employees. This is a mutual help relationship. There are of course some exceptions. Some employees think that the employer hires me to create benefits for the company, so I am likely to be fired at any time. Similarly, some employers also believe that I spend a lot of money to hire and train employees, but they may change jobs at any time because of higher wages or other reasons. So in general, the relationship between Chinese employer and employees is a phenomenon of mutual competition and corporation
Employee Participation In the past, employees' participation in the company was low. The general situation was all the employees need to do what the boss said. Most employees did not have the right to participate in the company's decision and planning. But as time goes on, more and more Chinese companies are becoming more formal. The participation of employees in the company has also increased. According to Smith, The evidence collected in Zhejiang Province show that despite moves toward formal, private ownership of TVEs, these firms will retain a high degree of employee financial participation, and to a lesser but significant degree decision-making voice, generally unmatched outside the OECD. These evidence fully demonstrate that most Chinese companies are strengthening their employees’ participation in the company.
Salaries and Benefits Although the Chinese economy has developed rapidly in recent years, China's per capita income is still far behind in the rest of the developed countries. According to China Average
Yearly Wages, the average wages in China is 74318 CNY/Year in 2017, compared to 2016, 68993 CNY/Year. Average wages increased a lot.
Principal Industries What Proportion of the GNP does Each Industry Contribute? If a circle represents the Chinese economy, then the prototype will be divided into three different economic categories, namely Primary industry(agricultural sector), Secondary industry(Construction and industry), and Tertiary industry(Service sector and manufacturing). Before the reforming and opening of China, four out of five Chinese worked in agriculture(Bajpai). Then the economy developed rapidly, and more and more people gave up agriculture and turned to the construction and industry. However, in recent years, China's environmental pollution has been severe. Under the government's call, the number of people participating in the construction and industry has gradually decreased, and more and more people have chosen the service industry.
Ratio of Private to Publicly-Owned Industries In the early days of China's establishment, most of the enterprises at that time were stateowned enterprises, there are two reasons, first, at that time China was poverty, the people did not have enough funds to build private enterprises, and the second was because China was a socialist country. But China is now different from China at the time. Now China's private companies contribute two-thirds of China's total GDP, and 25% of laborers work in private companies(Admin).
Foreign Investment Opportunities Considering the particularity of China's reforming and opening policy, the Chinese government encourages foreign companies to invest in China and provides them with a series of preferential treatment. As a result, a large number of foreign companies have flooded into China, bringing a lot of FDI –136 billion dollars in 2017 (China: Foreign Investment) and jobs opportunities to China, and China's consumer market has also met the needs of these foreign companies.
Which Industries? China's production costs are very cheap because China has a large number of employees, and some Chinese companies need to learn advanced management method from foreign companies to develop themselves, China's production costs are very cheap. However, due to Chinese political reasons and the law is not perfect, and some Chinese government's help to China's independent enterprise's protection. These foreign companies generally choose business services, manufacturing, trade, new technologies, real estate, and financial intermediation(China: Foreign Investment).
International Trade Statistics Major Exports Since China joined the WTO, China’s trade in the world has become more frequent. Because China has a large labor force, China can produce plenty of products through such labor with relatively low prices, so that China has a comparative advantage in world trade. The Chinese government has used this advantage to strengthen foreign trade continuously. According to China’s Top 10 Exports, More than 50% of China's major export products are electronic products, and the rest of the products are divided equally between furniture and daily necessities.
Dollar Value The People’s Republic of China shipped US$2.272 trillion worth of goods around the globe in 2017(China’s Top 10 Exports). The proportion of exports from different industries will be shown in the picture below.
Trends Among China's Top 10 Exports, China has increased its exports of toys and games. Their growth rate is 26.4 percent, and plastic products have risen by 13.3 percent compared with the previous year. The vehicles industry is the third fastest increase in top 10 exports which were 11.4 percent. However, the clothing and accessories decreased by 3.3 compared with the previous year(China Top 10 Exports). This shows that China will strengthen the export of hightech products and reduce the exports of daily necessities.
Major Imports Compared with the continuous increase in China’s total exports, the total amount of products imported by China has not risen so fast. Because China's manufacturing is also maturing, many products can be manufactured by China itself, and the price is relatively low. According to China’s Top 10 Imports, the top three imports of China in 2017 are mainly for electronics and natural resources such as oil and gas. Dollar Value In 2017 the total imports of China were US$1.841 trillion, compared to 2016, this number increased 15.9 percent. However, this amount reflects a -5.6 percent decrease since 2013(China’s Top 10 Imports). The proportion of imports from different industries will be shown
in the picture below.
Trends China is a developing country; development requires a lot of industrial production, which means that China's demand for natural resources is robust. According to China’s Top 10 Imports, the most significant increase in top 10 imports are mineral fuels which are 40.2%, the ores, slag and ash category also increased by 32.7 percent. The slowest growth of top 10 imports was optical, technical and medical which are only 5.1 percent increase(China’s Top 10 Imports). From these data, it is not difficult to see that China's demand for natural resources will gradually increase with the development of China.
Balance of Payments Situation Balance of Payments of China is a record of China’s economic transactions with the rest of the world. Usually countries have a deficient on either capital account or current account and a surplus
on the other account. (Simon) However, China was unusual between 2008 and 2012 in having a surplus on both, which explained the very strong growth of foreign reserves which have stopped growing, might shrink in future. (Simon) After 2012ďźŒcurrent account of China become fluctuated and even be deficit, which means import was greater than export, at the beginning of 2018.(China Current Account) The capital account of China reduced after 2012 and at the end of 2015, it was very close to zero which means the money flow was close to be balanced between flowing in and out.
(China - Net Capital Account.)
Exchange Rates The exchange rate between U.S dollar and RMB fluctuate between 6 and 7 in last decade. Chinese government try to limit exchange rate in this area to keep the price advantage of Chinese goods. Now, on February 25th2019, the exchange rate between U.S dollar and RMB is 6.7503 RMB/U.S. Dollar. (China / U.S. Foreign Exchange Rate) The relative constant exchange rate reduces the exchange risk in international trade and there are also many ways to hedge exchange rate risk. The trend of exchange rate become relatively more fluctuated recently as the Trade War between the U.S. and China.
Trade Restrictions Embargos There is no particular embargo between the U.S. and China except arms. The U.S and the European Union stopped exporting arms to China after 1989, due to the Chinese government’s violent suppression of protests in Tiananmen Square.
Quotas China sometimes will set import limitation in international trade to protect domestic markets which tends to be considered as protectionism. For instance, on June 12, 2018, China’s National Development and Reform Commission published an official notice issuing 800,000 tons in additional cotton import quotas subject to a sliding duty. (Haas, Benjamin, et al.)
Import Taxes & Tariffs Import taxes and tariffs are the policies that most frequently be used by Chinese government to
protect domestic market. In China, goods are not labeled with tax in the receipt so that import taxes and tariffs are reflected in the price of goods. It also makes Chinese people commonly regard import goods as expensive and high-quality goods.
Licensing Licensing is another key factor if people want to do business in China. Decades ago, when China just started its market economy, whether a company can get a license depended on its “Guanxi”. Now, market criterions in China are more completed than before. Whether a company can get a license depends on its capability though “Guanxi” may still work on some specific situations.
Custom Duties Customs duties include import and export duties, with a total of 8,294 items taxed, according to China’s 2016 Customs Tariff Implementation Plan (“2016 Tariff Plan”). Customs duties are computed either on an ad valorem basis or quantity basis. (Dezan) We focus on import duty rates because our company will export our laptop to China.
Duty rates on import goods consist of:
●
Most-favored-nation duty (MFN) rates;
●
Conventional duty rates;
●
Special preferential duty rates;
●
General duty rates;
●
Tariff rate quota (TRQ) duty rates; and,
●
Temporary duty rates
(Dezan)
Extent of Economic Activity not Included in Cash Income Activities Countertrades Countertrade is international trade by exchange of goods rather than by currency purchase. China has countertraded with other countries since the beginning of 1988. The United States accounts for 26 of 80 total countertrade transactions (32.5%) and other major players in the Chinese countertrade arena include the USSR, UK, France, Japan, West Germany, and Australia. (Palia, Aspy P, and Oded Shenkar). The Chinese usually use countertrade to import capital goods and finished products and export finished consumer products and semi-finished goods to developed nations and inputs and semi-finished goods to developing countries. (Palia, Aspy P, and Oded Shenkar)
Foreign Aid Received In 1978, China borrowed 220 million dollars in soft loans from Japan. China spent money on building up social infrastructures. In 2001, China received 1.4 billion U.S dollars worldwide. Nowadays, China still receives foreign aid constantly.
Labor Force Size Labor force, total in China was reported at 785,368,461 in 2017(China - Labor Force, Total). It
means that there are 785,368,461 people ages 15 and older who meet the International Labour Organization definition of the economically active population. Labor force in China continuously grew from 2006 to 2016 as the growth of economy make more and more people meet the standard of labor force. Due to decreasing of birth rate, total labor force in China dropped in 2017 and this trend may continue over ten years as the birth rate decrease continually.
(China - Labor Force, Total)
Unemployment Rates Unemployment Rate in China decreased to 3.80% in the fourth quarter of 2018. (“China Unemployment Rate.�) It is the lowest rate in recent 10 years.
( “China Unemployment Rate.�) The decreasing labor force and low unemployment rate indicate that the advantage of labor force in China may disappear in the future and China is converting from a labor intensive country to capital intensive country as the growth in economy.
Developments in Science and Technology Current Technology Available An important area of consideration for available technology in a country is the internet penetration of that country. The number of internet users in China has grown from about 137 million in 2006 to 772 million in 2017 (statista). This has some regional variation, where areas like Beijing approach total internet access, and regions like Yunnan have less than half. The ease of internet access can be partially attributed to the rise of smartphones. The amount of mobile internet users in China increased from 50 million in 2006 to 500 million in 2013 (statista). Alibaba Group is major internet pioneer in China, and is the largest operator of payment platforms and online shopping sites.
China has become a global powerhouse in the science and technology sectors.One contributing factor is the surge in college degrees earned in the fields, leading to a bolstered technological workforce in the nation. China has practically always lead the world in undergraduate degrees in science and technology, but has also pulled ahead of the United States in doctorate degrees over the last ten years (Veugelers). This important factor has influenced technological developments and productivity across the board. China has aimed to be the global leader in science and innovation by 2050.
Percentage of GNP Invested in Research and Development The research and development expenditure as a percentage of the GDP in China has been on a steady rise for the last twenty years. Investment from the private and public sectors into R&D consisted of about 0.563% of China’s GDP in 1996, and has risen to 2.107% in 2016 (The World Bank).
What effect does this investment have on the economy at large? One major result of investing in R&D is bolstering the Total-Factor Production of the given organization. TotalFactor Production measures the amount of output produced for a certain amount of input of both labor and capital. In China, “TFP driven by innovation and technological progress (independent of foreign investment) accounts for about 5 to 14 percent of GDP growth� (Yueh 2017).
Technological Skill of Labor Force and General Population A possibly harmful development of the labor market in China is that there are many people available at the top and bottom educational levels, but a dearth in the middle (University of Pennsylvania). This has resulted in some labor shortages in high-skilled blue collar positions requiring moderate levels of education and technological savvy. Additionally, there is somewhat
of a disconnect between the skills college graduates are attempting to enter the work force with and the necessary skills for those positions. As companies’ technology advances, the collegiate educators stay behind the curve, putting graduates at disadvantage. The general population has a good baseline familiarity with technology in China. The prevalence of smartphones and aforementioned penetration of the internet have provided a lifelong exposure to technology for the younger Chinese generations. The basic understanding of and familiarity with technology is largely present, but the disconnect comes from the more highly technical skills that aren’t being taught as much as employers would like.
Channels of Distribution Retailers Number of Retailers / Typical Size of Retail Outlets The retail market in China is composed largely of small to medium sized retailers, unlike the few mega corporations that dominate retail in the United States. In 2008, China had about 549,000 retail stores with an average amount of employees of only 15 (Lu). Of those retailers, auto, fuel, and auto part retailers were the most lucrative and faced less severe competition. One factor contributing to the lack of cross-provincial, large-scale retailers is local market access barriers that complicate spreading too widely. E-commerce is blossoming into a real market force at about 12.4% of commercial activity in 2017, and is more prone to being dominated by a few bigger companies like Alibaba Group (Duncan).
Methods / Scale of Operation There are several types of store-based retailers that operate in China. I will briefly outlines how each type of retail store functions in China. Conventional grocery stores service a
fixed, typically residential area, and carry mainly food and drink goods. Open market stores line the streets with stands or stalls that can sell anything from all types of food goods to jewelry or clothing. Chinese department stores are fairly large stores that often include built-in extra facilities like restaurants and tend to sell various commodities, such as clothing, cosmetics, or appliances. Super markets operate like larger conventional grocery stores with a greater variety of goods sold and a much larger facility. Convenience stores are highly space efficient, widely popular stores with cheaper fast food and personal commodities. These convenience stores are largely dominated by franchises, as opposed to directly managed. Speciality stores focus on one specific type of product, emphasizing comprehensive knowledge about the given products and high quality service.
Role of Chain Stores, Department Stores, and Specialty Shops Chain stores in China tend to offer a set suite of products, often food goods, at a slightly lower price than non-chain alternatives. However, they typically do not possess the same level of expertise that other types of retailers do on their products. They appeal to customers seeking a quick, cheap stop where they know what they’re looking for and do not need to receive help from a knowledgeable source. Department stores offer a more customer-centered experience. They tend to include a restaurant, cafeteria, or other tertiary shop to draw people in and keep them around for longer. They focus on providing a great deal of options for whatever type of product they sell. Speciality shops also focus on a single type of product, but offer less selection that department stores tend to. However, they tend to employ experts in the field of their products that can provide their expertise, and know how to get the right product in the hands of the customer for what they need. They try to serve as the go-to location for consumers seeking knowledge about their specialty.
Wholesale Middlemen Before the 1990’s, around 80% of all Chinese goods were distributed through stateowned marketing channels (Luk). Wholesalers would operate in around three tiers, with each following tier servicing a smaller region. This three tier system substantially slowed down the movement of goods on China, and was an overall burden on the economy. At the time, many retailers were required to purchase all of their merchandise from these wholesalers, regardless of whether or not the goods were sufficient in quality. Reform of this system attempted to reduce the number of gatekeepers each product had to go through to get in the hands of a retailer and increase competition in the marketplace to lessen the control the state held over the market.
Penetration of Urban and Rural Markets Within China, there is a great disparity between the income levels of urban and rural citizens. One cause of this divide is the long-standing restrictions on urban-rural migration through the household registration system and significant biases to welfare policies in urban areas (Sun). The migration restrictions are not as present anymore, but the long-term effects of those policies still affect rural families to this day. The overall standard of living has increased across the board, but is certainly skewed towards the benefit of urban centers. Using the theory of Maslow’s hierarchy of needs, the more impoverished, rural regions of China are seeking to fulfill the lower needs, like physiological and safety needs. As such, the market penetration of products that fulfill those needs is strong in all of China. Food, housing, and clothing can be found across the nation. However, more luxury goods that apply to needs like esteem and self-actualization mostly operate in large city centers. The disposable income is just not there for rural Chinese citizens to have demand for such products.
Media Availability of Media Access to different forms of media provide most of the world with a massive expanse of information. But rather than free access to unlimited information, media in China largely serves as the government’s mouthpiece. The communist party attempts to control what people can and can not hear or see through television, the internet, and printed media. China spends a lot of money on media targeted to international audiences in an attempt to control the message going out of China, while not allowing much foreign media into the country to control the message coming in as well (BBC News). This has become harder and harder for the Chinese government to maintain, due to increased globalization and constantly improving technology. So yes, most forms of media are widely available to the people of China, but with the caveat that it is not free flowing information by any means.
Television Television is wildly popular in China, which is the world’s largest television market at over 378 million households with a TV (CASBAA). The average time a viewer spends watching TV is about 3 hours a day. The television market is highly competitive, with over 3,300 channels on a local, regional, and national level (BBC News). International channels are only allowed full viewing in Guangdong province and select hotels or foreign residential communities (CASBAA). Chinese Central TV, which is state-run, is China’s largest media company and heavily influences the television industry.
Radio Radio broadcasting is also heavily controlled, monitored, and censored by the Chinese government. China has over 2,600 radio stations, all of which are state-owned (BBC News). The official radio station of the People’s Republic of China is the China National Radio (CNR). It has seven channels running for purposes like news, business, or music. For outgoing radio, there is the China Radio International (CRI). This station is also state-owned and broadcasts messages in many languages which promote the positive image of China.
Print Print media like newspapers receives the same attention from the Chinese government as the other forms of media. China has about 1,900 different newspapers (BBC News). Most cities publish their own newspapers through the local government and also carry the Communist Party Daily. Magazines are still quite popular in China as well, with topics ranging from things like fashion to business news.
Internet With around 772 million users, China boasts the largest amount of internet users in the world (BBC News). However, internet use, along with most types of media, is heavily regulated and monitored in China. The China Internet Network Information Centre states that 97.5% of China’s internet users access it via their smartphones. In China, there are three powerhouses on the internet, that are referred to collectively as “BAT”. Baidu is a major search engine, Alibaba is an e-commerce giant, and Tencent owns the popular messaging service WeChat (BBC News). The government has put strong security in place preventing access to many sites and making use of circumvention methods like virtual private networks very difficult.
Social Media Many popular international social media sources like Facebook, Youtube, and Twitter are outright blocked in China. The main reason for this is that the government can not monitor or control what is being said on such sites (BBC Newsbeat). Instead, alternatives like WeChat, Weibo, and Youku are used by hundreds of millions of Chinese citizens. China has 673 million social media users in 2018, and is projected to have 799 million social media users by 2023 (Statista).
Percentage of Population Reached by each Medium There are about 378 million households with television sets in China (CASBAA).
Assuming the average household contains 3 people, that means about 1.134 billion people have access to television, or about 81% of China’s 1.386 billion people. According to Statista, 14% of the Chinese population was reached by radio broadcast in 2015, and 37.8% were reached by newspaper. With China’s approximately 772 million internet users (BBC News), that would mean about 55.6% reach for internet access. China has 673 million social media users, which translates to about 48.6% of the population using social media (Statista).
Executive Summary China still has the highest population in the world, but due to the decreasing birth rate, the population growth rate in China will be overstepped by India, which is the second highest population nation now. However, by the growth of technology and the development of infrastructure, the crude birth rate in China reduced significantly in the last 60 years. 65% of Chinese is at the age of 16 to 59 years old which can be considered as the labor force. Males are much more than females in China. People who live in urban increased obviously in the last ten years as well as the urban region. The primary trend of migration is from west to east and from north to south, as the southeast area is the most developed area in China. The ethnic groups in China are very diverse. There are 55 minorities in China, most of them are distributed in the west, southwest and north area in China. Regarding economic statistic and activity, China is the second biggest economy in the world now. China has the second biggest amount of GDP in the world, but the growth rate of GDP also reduced continuously in the last four years. Personal income per capita in China also increased in the previous 15 years as the GDP rose continually. Shanghai and Beijing are the two cities that have the highest household disposable income in China. In the distribution of wealth, as the middle class continues to grow, the upper class and lower class become more pinched in
China just like the U.S. As China is the third largest country in the territory, the minerals, and resources are very abundant in China. Because of the huge population, China also has very advanced and highly used public transportation, especially in railway transportation. Road, inland river, maritime and air transportation are also available and familiar to the public. Telephone, the Internet is indispensable in Chinese people’s daily life. Telephone signal has covered almost all inhabited places in China. The employer-employee relations become flattered in recent ten years, and employees have more participation in their companies. In 2013, the majority of industries in China is the secondary and tertiary industries. The public property ratio is exceptionally high in China as most western countries are close to zero or even be negative. The investment from foreign nations in China increasing yearly and most of them invested in leasing and business services industry. Chinese government welcomes most of the foreign investments. After China joined the WTO, the primary export of China is electronic products. In 2017, China shipped over $2,000 trillion worth of goods around the globe. The principal imports of China are electronics and natural resources in 2017. The current account of China fluctuated in recent ten years, and the capital account tended to be zero at the end of 2015. The exchange rate between the U.S. dollar and RMB also fluctuated between 6.1 to 7 in the last eight years. China does have many requirements in the license. The Chinese government also apply import taxes, Tariffs and some other duties in import goods. China usually uses countertrade to import capital goods and exported finished consumer products. The labor force in China now is abundant but as the continuous reducing in birth rate and unemployment rate. The advantage of the labor force in China is also decreasing. As for developments in science and technology, people who got first university degrees and Ph.D. degrees increased obviously from 2000 to 2012 and the percentage of GNP invested in
Research and development also increased in the last 20 years. When it comes to Chinese channels of distribution, the retail market in China is composed of small to medium size retailers. There are many department stores which include restaurants, stores, and theaters in China as well. Chinese do not have free access to unlimited information like the U.S. Media; instead, in China the media is regulated by the Chinese government and they decide what people can and can not hear or see.
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