15 July 2010 | By: Charmaine Tan
 Speaking at the recent iadvisory seminar, ‘Doing business in West China,’ Chua Kay Chuan, Group Director, International Operations (China), IE Singapore said that China’s economic growth is expected to accelerate in the coming decade, and that the injection of investments will shift from the traditional coastal regions to the western regions.
China is the world’s third largest economy and is experiencing rapid and continuous growth.
Despite the global economic crisis, foreign direct investments and trade volumes for Q1 2010 increased as compared to the same period in 2009. This shows that the Chinese economy has rebounded quickly from the global economic crisis.
Government policies
China’s central government wants to narrow the income gap between the different regions in China and has been creating policies that will encourage the flows of investment further inland. Desmond Yeo, Manager, International Operations (China), IE Singapore shared that the recent development of Chongqing’s Two Rivers New Zone and the government’s announcement of the injection of more than US$100 billion in infrastructure development into the western regions of the country highlighted the commitment to develop the region.
Transportation and logistics remain difficult in the less developed cities in China. However, this is expected to change as preferential policies to establish an environment that is conducive for doing business in the western regions are set.
Large consumer market
With 12 regions that account for 71 per cent of China’s total land area, and 29 per cent of China’s population, west China presents a ready market and available labour force for businesses. The region is ideal for the fast moving consumer goods (FMCG), manufacturing, tourism, education, transport and logistics, and lifestyle sectors.
The iadvisory speakers spoke about Chengdu, the capital of Sichuan, as the next important hub city. Chengdu has a strong consumption culture and its residents spend more of their disposable income. With a considerable market size – Chengdu’s population size is more than twice that of Singapore’s – many retailers have been attracted to the area and have established their presence in the area. In addition, with five leading universities in Chengdu, there is a ready supply of skilled and educated labour force for companies to tap into.
Abundant natural resources and lower costs
The interest in the region is growing and multinational companies (MNCs) together with small and medium enterprises (SMEs) are already moving their factories to western cities to leverage on the lower operating costs and available natural resources. Ching Mia Kuang, Managing Partner, SBA Stone Forest China, said that the lower land prices of tier two and three cities and the lower enterprise income tax make the western China region an ideal location for companies to set up operations. Furthermore, annual average salary in tier two and three cities is about half that of tier one cities.
However, despite the lower labour costs in western China, the Chinese government is increasingly interested in protecting employee rights. The recent strikes by Foxconn employees over wage and working conditions highlight the need to protect the rights and interests of employees.
Saturated first tier cities
SMEs that are more financially constrained compared to more established MNCs can gain access to the Chinese market by bypassing the highly competitive and saturated first tier cities like Beijing and Shanghai, and expanding into second and third tier cities.
Building good relations in China
Understanding local business customs are essential for companies that are interested in the China market and the success of businesses in China depends largely on the establishment and maintenance of relations with the Chinese. James Goh, Regional Vice President, UPS Asia Pacific Region HQ emphasised on the importance of understanding the power structure of the Chinese government, and the differences in culture and mindset. He advised businesses to understand the complex level of relations in China. Caroline Berube, HJM Asia Law and Co reiterated Goh’s advice, saying that the process of doing business in China is complicated and that legislations and guidelines are interpreted differently at different levels. Ng Gim Choo, Managing Director, Eton House International Holdings Private Limited, shared that besides having a strong business concept and passion, understanding the Chinese mindset and forging warm relations will ease one’s entry into China.
Intellectual Property (IP) rights
As a developing nation, China’s laws and regulations are constantly evolving. This can lead to confusion about legislations and legal proceeding. Berube advised businesses to be familiar with the laws regarding IP rights and to be aware of any changes. While the application process may be long and complicated, the registration of trademarks are important for the protection of the legal rights of companies doing business in China.
The importance of the Chinese economy will continue to grow. China’s banking regulator has allowed certain banks to settle cross border trades between China and Association of Southeast Asian Nations (ASEAN) member nations in RMB. This will facilitate trade and investment flows, and decrease the risks of exchange rate fluctuations. This is an important step towards making the RMB an international currency in global trade.
The huge growth potential in west China has seen a shift of interest in the coastal cities to the western region. Singapore companies can leverage on historical and cultural links with China, and on the free trade agreement signed between both countries that will boost trading and investment flows. |
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