China: A Must-win Market

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“China has telescoped into one generation what other countries took centuries to achieve. No country (let alone one of continental proportions) has tried to accomplish so much in such a short time. China’s unique attempt to complete two transitions at once—from a command to a market economy and from a rural to an urban society—is without historical precedent.” The World Bank, China 2020: Development and Challenges in the New Century

In the late 1990s, it was widely reported that half of the world’s cranes were located in a single city: Shanghai. Visitors to that city during those years would have believed it; after all, what other metropolis was being developed faster or further than Shanghai, where the skyline was utterly transformed within the span of one decade? Consider the expansion of the transportation infrastructure alone: since the mid-1990s, China’s largest city (population of 20 million, with suburbs) has gained a second international airport, a three-line subway system with 11 additional lines under construction, the Inner and Outer Ring roads, two major elevated freeways, and an elevated mag-lev light rail system. And that says nothing of the rapid morphing of many city neighborhoods, from dark, low-rise concrete homes to glistening apartment buildings, from quiet rice paddies to roaring office parks.

The construction boom in Shanghai is merely the most dramatic example of a vast economic transformation under way throughout China. From its position of international isolation at the end of the Cultural Revolution, the country has risen to assume its current status among the world’s largest trading nations. Perhaps most remarkable: while developing nations typically experience periods of boom and bust, China has enjoyed a steady growth-rate above 9% since the 1980s. Wealth has increased so rapidly in China’s major cities that the average per capita annual income in, for example, Shanghai in 2003 exceeded US$5,700 while China overall averaged US$1,100. Government sources predict that by 2007 per capita gross domestic product (GDP) in Shanghai will reach US$7,900. (When purchasing power parity is factored in, the average income of Shanghai residents already approaches US$15,000.)

Outside the largest cities, China’s transformation is less dramatic but still sweeping. James D. Wolfensohn, then president of the World Bank Group, visited China in 1995 and again in May 2002. After traveling from the underdeveloped west of the country to the prosperous south and east, and meeting with top leaders—then-President Jiang Zemin and Premier Zhu Rongji—as well as private businesspeople and local families, Wolfensohn declared the progress of China in five years to be “impressive and remarkable.” He said, “In a relatively short time, China has emerged as a country of truly global stature, having joined the World Trade Organization [WTO], strengthened ties with ASEAN, and won the right to host the 2008 Olympics. This is a more dynamic, more confident China—and rightly so. The simple fact is that more than 250 million people in the past 20 years have been lifted from poverty here. The problems confronting China have not been totally overcome—far from it—but the magnitude of this achievement in a single generation is such that other countries should learn from it.” The economic development of China is not lost on multinational corporations (MNCs). For companies the world over, the nation is increasingly seen as a critical component in their global strategy. The Middle Kingdom (a literal translation of the Mandarin-language country name “Zhong Guo”) now reigns as the world’s largest destination for foreign direct investment (FDI), attracting nearly US$50 billion in 2002 and overtaking the United States for the first time in history. By 2007, annual FDI into China is expected to reach nearly US$65 billion. The investment inflow has sped China’s move toward market capitalism, shifting the composition of the economy away from state-owned enterprises (SOEs) toward private companies and encouraging the influx of foreign participation through joint ventures and wholly foreign-owned enterprises (WFOEs).

Business leaders throughout the West already know that China now offers potentially the most attractive investment environment in the world, serving up a heady mix of consistently healthy GDP growth rates plus newly opened industry sectors, political stability, fast-developing human resources, and exploding consumer wealth.

For a growing number of MNCs, this dramatic and ongoing economic transformation increasingly means one thing: China is now, in the words of one top manager profiled in this book, a “must-win market”. The nation is critical both as a manufacturing base for export and as a destination market itself. In the three decades since Deng Xiaoping opened China’s borders to international trade, MNCs increasingly have made this region a focal point within their global business strategy. The urgency among global players entering or expanding in the nation has only heightened since the country’s 2001 entry into the WTO.

Courtesy, China CEO: Fernandez, Juan and Laurie Underwood (2006). China CEO. Singapore: John Wiley & Sons (Asia). ISBN -13 978-0-470-82192-3