china business report 2013-14 highlights by amcham shanghai
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A summary of the China 2013-14 Business Report, published in Feb 2014 by the American Chamber of Commerce in Shanghai. Edit: Added analysis by Beijing-based IP/IT lawyer, law professor Stan AbramsTRANSCRIPT
China Business Report 2013-14�
Highlights By AmCham Shanghai
上海美国商会2013-‐2014年度中国商业报告
50+ YEARS OF EXPERIENCE & KNOWHOW IN CHINA BUSINESS
Exec. Summary
! Heading Towards a Service Economy ! In 2013, the experiences and ac4vi4es of U.S. companies in China are more
than ever resembling developed markets. More companies are involved in the service sector, and there is a con4nuing shiC from the pursuit of manufacturing for export, towards producing and distribu4ng goods for the domes4c market, as well as rapid growth of the services sector.
! In 2013, services accounted for more than half (52 %) of U.S. companies’ revenue – an 11 point jump from the year before. The growing importance of services to the boNom line is in contrast to manufacturing, which dropped 10 percentage points in 2013 to make up only 37 % of companies’ revenue
! Shanghai Data (by the Shanghai Sta4s4cs Bureau) ! Economy +7.7%, service sector +9.1%, manufacturing sector +5.3% in Q1-‐3 / 2013
! Services 61.6% of the Shanghai economy in Q1-‐3 / 2013 (60.4% in 2012)
! Manufacturing accounted for 38.0 % in Q1-‐3 / 2013 (39.0% in 2012, 41.4% in 2011)
! => Shanghai increasingly shiCs to higher value-‐added ac4vi4es
Exec. Summary
! Financial performance ! Surveyed companies (N=399) recorded excellent top-‐line performance
indicators in 2013. Among respondents, ! 67% reported revenue growth over the previous year, and ! 74% of companies said their China opera4ons were profitable.
! Three out of four companies (75 %) reported a posi4ve cash flow in their China opera4ons, up 3 percentage points
! U.S. companies remain commiNed to the China market, with 86% of companies repor4ng an “op4mis4c” or “slightly op4mis4c” outlook for their 5-‐year business prospects in China.
! However, the shape of business growth and expecta4ons of leadership con4nue to evolve
Exec. Summary
! Common trends ! In China for China – con4nuing a trend from previous years, 59% of
companies say they primarily are in China to compete in the growing domes4c market
! Growth is slowing, but profitability is spreading – although profit margins were roughly flat compared to the previous year, more companies (74%) said they were profitable in 2013 than in previous surveys
! Increasing compe;;on – strong compe44on from Chinese and interna4onal players reflect an increasingly compe44ve China market
! Greater opportuni;es in services and for SMEs – U.S. companies, including a growing number of SMEs, are tapping into a fast developing services economy
These trends represent economic reform being implemented across the country and the leading role Shanghai-‐based companies are playing in responding to and par4cipa4ng in these trends.
Exec. Summary
! Persistent Business and Regulatory Challenges ! Rising costs – for the third consecu4ve year, rising costs remained the top
business challenge, with 89% of companies responding that a number of increasing costs in China hinders their business.
! Human resource constraints and Local compe;;on ranked No. 2 and No. 3, respec4vely
Similarly, top legal and regulatory challenges in 2013 remained unchanged from those over the past three years. Generally consistent with previous years,
! 80% of respondents cited bureaucracy as the No. 1 challenge, with ! 72 % declaring difficul4es from an unclear regulatory environment and
! 70 % were concerned over problems with tax administra;on
Exec. Summary ! Key responses An analysis of the issues raised by U.S. companies responding to the survey indicates that companies in China are focusing on three key ini4a4ves:, ! Strengthening the core – Companies are focusing on key opera4onal issues to
make opera4ons more efficient and compliant to provide a plagorm for further investment and growth;
! Knowing the customer – As baseline market growth slows, companies are finding crea4ve ways to change their growth strategies, stay ahead of the compe44on and increase market share; and
! Integra;on – As global markets improve, companies are relying less on rapid growth in China to support global performance and are instead looking for ways to integrate China further into their global opera4ons and focus on China as a unique and dis4nct business opera4on.
Together, these ini4a4ves form a cohesive response by U.S. companies to an ongoing transi4onal phase in the business environment in China – one led less by export-‐ and investment-‐led growth to one sustained by consump4on and services.
Business Performance by Industry
Business Performance by Sector
Business Challenges by Industry & Sector
Regulatory Challenges by Industry & Sector
Analysis ! By Beijing based IP/IT lawyer, law professor Stan Abrams ! No one will be surprised by most of the trends highlighted by the survey: higher
costs, lower revenue, cauNous aOtudes about economic slowdown and government reform;
! However, it’s probably worth to take a close look on the labor issues: higher compensaNon is an old story, but I was surprised just how difficult it is these days for companies to find qualified staff. #1 problem for many companies!
! Majority of respondents say that IP enforcement is either ineffecNve or totally ineffecNve. Given that the highest response type back in 2010 was “Don’t Know,” I find it difficult to ascertain what people actually understand about this issue. A clear majority also say that IP enforcement has improved or stayed the same in the last five years. So the bar was so low five years ago that even with improvement, the system is sNll completely useless? There is a clear trend here of a rising sense that the system is ineffecNve. This has risen from 33% of respondents in 2009 to 54% this year, dropping slightly from a high of 58% in 2013 (the “totally ineffecNve” numbers have risen as well). That would be ueerly depressing -‐ has the system deteriorated significantly over the past few years? I have to wonder whether there is a percepNon/reality gap here.
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