Home>>Opinion
Last updated at: (Beijing Time) Friday, April 02, 2004

A Chinese opportunity for capital: the Chinese economy in the eyes of a foreigner

Dr. Jonathan R. Woetzel is a senior director of the Shanghai branch of Mckinsey & Company. As a consultant specialist who has been working in China for 15 years Jonathan Woetzel keeps on giving advices to people. Following is his view of the Chinese economy.


PRINT DISCUSSION CHINESE SEND TO FRIEND


Dr. Jonathan R. Woetzel is a senior director of the Shanghai branch of Mckinsey & Company. No sooner had he finished helping a Chinese flagship enterprise to get listed in the New York Stock Exchange than he began a campaign to promote his newly published book Capital China.

As a consultant specialist who has been working in China for 15 years Jonathan Woetzel keeps on giving advices to people.

Chinese market competition fierceness is unmatched by any other world markets.
He believes every business in China has to realize that competitive advantage has replaced governmental relations to become a pass to success. For every trade, investment, innovation and integration are the key to victory. None of the other markets is comparable to the Chinese market in terms of fierceness of competition.

In industries where competition is intense e.g. the high-tech and consumer electronics industries, China moves very fast in designing and the application of new technologies. For the world's leading companies, they will be the real competitors in the future. In capital-intensive industries such as iron and steel, auto and transportation industries, integration and reorganization have been put on the agenda. The Chinese enterprises need to pay more attention to the clients and also need to realize profits through global alliance. Energy companies should be prudent when investing in China because the economic situation in regard to global natural gas and coal markets is changing constantly. In the flourishing retail industry, the traditional retail sector is facing unprecedented profit pressure. So it needs to ensure its survival through reform. In the financial service and media circles, the new comers, domestic or overseas, are more active in coping with the new situation arising from China's increasing prosperity. The State-owned companies must now undergo complete reform and compete with these new comers.

When speaking of Chinese strategy for enterprises, Jonathan Woetzel believes the most common mistakes are the failure to keep pace with the market change. For example, class-B and class-C cities i.e. cities each with a population between 500,000 and 3 million have the fastest consumption growth, but many companies only pay attention to coastal cities. They may thus miss the fastest growing markets.

His suggestion to the CEO of companies not yet established in the Chinese market is: fast and steady - he who strikes first gains the advantage. Investments should have long-term plan, but the goal is to realize profits now - unprofitable things shouldn't be done. As for the CEOs who have already been in China, his suggestion is that they earnestly support their employees, because the latter are the key deciding their success in China.

When predicting the general economic situation in China, Jonathan Woetzel says if China can achieve success in the second-round economic restructuring, the global market will be changed enormously.

He believes the next three to five years will be the golden period for transnational companies to achieve success in China. If they miss the opportunity they will see rivals from China rising worldwide in the near future.

Capital China offers increasing opportunities
All kinds of difficulties encountered in the process of banking reform have made the Chinese government realize that in adjusting capital supply and demand, especially in reinforcing investors' confidence in profit returns, the capital market is the more effective mechanism. In view of this, the government has begun to study and formulate relevant policies in order to support and develop a healthy and flowing capital market. Chinese companies' financing methods have gradually transformed from traditional bank loans to a securities and bond market. More and more Chinese are investing their money in stocks or other investment means with fixed returns instead of putting it in savings. Faced with the great opportunity, the Chinese capital market is expected to further expand and become an increasingly important source of capital for Chinese enterprises.

The Chinese industries under the severe test of WTO
Internet, banking, insurance and securities industries will undergo "explosive" development. There are great business opportunities for these industries. The Chinese government has in recent years relaxed market control in some areas (home appliance for instance) or conducted forceful restructuring on some industries (telecommunication service and oil industry). These measures are already promoting the rapid reform and China's entry into the WTO can only further speed up this reform process.

Disadvantage is also an opportunity, it depends on your capacity to grow
In order to protect the domestic market and establish a practical international competition platform, Chinese enterprises need to strive to advance toward the world so as to enlarge their scale enough to meet the fierce international competition. In terms of scale Haier, TCL and Konka are about 5 percent to 10 percent that of the real international companies such as Sony and Philips. Generally the international sales of these Chinese companies account for less than 10 percent of their revenue. The figure for international enterprises exceeds 60 percent. Expanding toward the developed market will provide the Chinese companies with the best leeway for reversing this situation.

The auto age fixes China up with developing wheels
Although China sold more than 2.1 million automobiles in 2000 and is the country that buys the most four-wheel automobiles following the first six ones, its sedan market is still in its infancy. In fact, the yearly sales of sedan cars on China's mainland are only 600,000 or so. There are only less than 10 sedans for every thousand persons - far below 250 in China's Taiwan region and more than 500 in Germany and the USA. With improvement in transportation facilities and establishment of new sales and retail channels, plus the opening up of the auto market as well as China's entry into the WTO, demand will expand along with the growth of the Chinese economy. According to China's National Bureau of Statistics, China's production of sedan cars in 2003 for the first time exceeded 2 million to reach 2,068,900. It took China only one year to scale the two million pass. It was up 80.7 percent year on year.

Scattered Chinese retail industry will face integration
The various Chinese retail patterns all have large leeway for integration. In China the top 50 retail companies account for less than 5 percent of the national retail market. In America this figure is 30 percent. China's top-notch chain stores are mostly concentrated in Shanghai and Jiangsu Province. Judged by international standard, local companies are very small - far lower than the world level. Take Lianhua for example, its sales volume in 2000 reached US$1.3 billion (11 billion yuan). It had more than 1,000 stores, including joint ventures with Carrefour. However its gross sales volume was only that of 20 Wal-Mart stores. Again, the average sales volume of each of Carrefour's big markets worldwide is more than two times that of the average level of a chain store of Lianhua - China's leading retailer. Carrefour has more than 580 big markets whilst Lianhua has only 20.

The Chinese stock market under the bubbling shadow
There is an unsubstantial element in the Chinese stock market. Firstly, the market is yet to be fully developed. Retail investors promoted most of the growth in the 1990s and still account for more than 80 percent of the investment in the Chinese stock market. Secondly, the market still has the problem of insufficient supply. The quota system adopted by the local governments has long limited the issuance volume each year and is biased toward State-owned companies in terms of listing opportunity. Marketable stocks constitute only 33 percent of the total assets in China's stock markets, this makes it very easy for individual stocks to be put under man-made manipulation. The rest of the stocks are controlled by the State, which is likely to cause major conflicts of interests among the parties concerned. Meanwhile, the volume of business grows at an average annual rate of 36 percent, which is comparable to China's Taiwan and S. Korean markets (or Nasdaq market in 2000). Due to the excess purchase by the new IPO (initial public offer), the price difference between the primary market and the secondary market is maintained. Currently, China's securities market is overheated judged by whatever definition.

By People's Daily Online


Questions?Comments? Click here
    Advanced






Port-railway link to boost economy

Uruguayan president meets China's trade delegation

S.Korean and Japanese managers favor Chinese economy, Survey





 


Israel's killing of Yassin fuels conflict: Commentary ( 2 Messages)

How the US could improve its image abroad ( 14 Messages)

US urged not to fingerprint Chinese ( 10 Messages)

China hunts corrupt officials who abscond overseas ( 3 Messages)

Seven Chinese activists land on Diaoyu Islands ( 4 Messages)



Copyright by People's Daily Online, all rights reserved