The numbers on China's forecasted growth are staggering. According to HSBC between
2010 and 2030 per capita GDP growth in China will be 227%. In the US it will be a paltry 18%. Consider how China's growth will change global economic dynamics. According to Standard Chartered Bank in 2000 the US was the global output leader, producing 31% of output. China and India combined produced less than 5%. In 2030 the US is expected to produce 12%. China alone is expected to produce 24% and be the new global output leader. It's safe to say that China is the new land of opportunity.
I've heard politicians in Seattle say that the city is optimally located for trade with China. While Seattle is certainly closer than New York, the challenges that US businesses will face in order to succeed in China go far beyond whether goods travel 8000 or 11,000 miles.
Here is a sample of the challenges:
Per capita income based on purchasing power parity (PPP) is about $47,000 in the United States and $7500 in China. The goods that the Chinese want to buy will often be very different than those sold in the US and they will often have lower attractive price points.
The Chinese Communist Party (CCP) with 72 million members, not only represents the forces of political power, but also business power. The CCP is considered the world's largest business association. The private sector and public sector in the United States are quite separate. It is often said that in China it's important for a business to have a "red hat" on their team. How do American businesses cultivate relationships with red hats -- legally? Lobbyists, by the way, are not an answer.
Corruption is endemic in China and is said to be part of their history. The Chinese from time to time, make a point of imprisoning (or worse) corrupt officials but it's difficult to extinguish something that is pervasive -- even cultural -- and something that has been considered a perk of CCP membership. Managing corruption in China can be a big challenge for US companies, because bribing a public official (even if it is an ordinary practice) is very illegal.
Freedom of speech is something the US takes very seriously. China, on the other hand, is the great censor. The Propaganda Department, which is one of the three most powerful government organizations in China, takes its role of controlling the media very seriously. It would be easy for an American business person to run afoul of the Propaganda Department by saying something that is politically incorrect, particularly because there are many things that are off limits in China that in the US we wouldn't think twice about. for example, being critical of public officials, regulations or civil rights.
The US is the world's leading advocacy for democracy. China is ruled by Communism and authoritarianism runs deep. Decisions that affect businesses can be made over night and enforcement of regulations can seem selective. How does an American business prepare or try to prevent something that may appear to be arbitrary and devastating.
China is currently negotiating preferential trade agreements with many countries. Nothing, however, is in the works for the US and the chances this will change soon are slim. The relationship between the US and China has been testy, particularly on the currency front, but also because the US has defended Taiwan (the Republic of China) against aggression by China (the People's Republic of China). Having to compete against foreign suppliers who have preferential trading agreements presents additional challenges for US businesses.
China has about four times the US population. It has seven principal languages and many more dialects. It also has 113 cities with populations over million. For US companies this presents the challenge of where to target because different locations offer different opportunities with unique requirements for success.
The US has a near-unlimited supply of reliable sources for data that can be used to research opportunities. China makes data available and it is often unreliable which can make it challenging for US businesses to make good decisions.
The US is a champion of protecting intellectual property (IP). It knows that protections must be afforded to the innovators of IP to encourage invention. The Chinese don't share this view and even though they have agreed to protect IP, according to the US Trade Representative enforcement of IP rights in China "remains largely ineffective and [a] non-deterrent." The challenge for American businesses is that they must assume responsibility for protecting IP because they cannot rely on Chinese enforcement.
Sixty-six percent of the world's counterfeit goods are produced in China. A full 8% of China's GDP is based on goods piracy. The Chinese have given signs of cracking down, but this is a problem that is as hard to tackle as corruption. This leaves American businesses with the responsibility of making it difficult to counterfeit their products.
China is undoubtedly the land of opportunity and it will be for decades, but it is a land very different from the United States. When doing business in China, American business people can end up navigating differences that span politics, economics, regulations, and social cultural conventions. Just take a look at this question on the Chinese driving license exam:
352. If another motorist stops and asks you for directions, you should:
a) Not tell him
b) Reply patiently and accurately
c) Tell him the wrong way
Taking on China can be the opportunity and adventure of a lifetime. It's important to prepare diligently to profit and enjoy the experience.
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