Miller China Trade

China – International Trade Matt Miller March 1st, 2005

Outline : History/Background Current Demographics Labor Market Economics International Trade

Background History Timeline : 1949 – People’s Republic of China (PRC) founded 1953-57 The Transition to Socialism 1958-60 The Great Leap Forward 1966-76 The Cultural Revolution Decade 1966-68 The Militant Phase 1969-71 The 9 th National Congress Party to the Demise of Lin Biao 1972-76 End of the Era of Mao Zedong 1976-78 The Post-Mao Period 1979-82 Four Modernizations of China 1980-88 Reforms 2001 – Admission to the WTO

Capital: Beijing Largest City: Shanghai

Demographics: 4 th Largest Country in the World Highest Population ≈ 1.3 Billion people Speculation that figures underestimate true total population Geographic area slightly smaller than U.S. Age Structure 0-14 years = 22.3% of population 15-64 years = 70.3% of population 65 years and over = 7.5% of population Median Age = 31.8 years Population Growth Rate = 0.57% (2004 est.) Birth Rate = 12.98 births/1,000 population Death Rate = 6.92 deaths/1,000 population

Sex Ratio At birth = 1.12 males/females Total Population = 1.06 males/females Infant Mortality Rate = 25.28 deaths per 1,000 live births Life Expectancy at birth = 71.96 years Literacy Rates = 90.9% over 15 years of age can read and write Multi-ethnic nation - 56 recognized ethnicities Han Chinese = 93% of total population Several different Chinese dialects Demographics:

Labor Market Labor Force ≈ 778.1 Million (2003) Labor Force by Occupation: Agriculture = 50% Services = 28% Industry = 22% Unemployment Rate 2003 = 10.1% (CIA.gov) World Factbook 2003 = 4.4% (Official NBS figures) NBS figures do not include underemployment or the migrant population Major Industries Iron & Steel, Coal, Machine Building, Textiles & Apparel, Petroleum, Cement, Footwear, Toys, Food Processing, Automobiles, Consumer Electronics, Telecommunications, etc.

Economy GDP - $1.409 Trillion USD (2003) 6th GDP (PPP) - $6.449 Trillion USD (2003) 2nd GDP Real Growth Rate = 9.1% (2003) GDP per Capita = $1,227 USD (2003) 113th GDP per Capita (PPP) = $5,000 (2003) 91 st Population below poverty line = 10% (2001) Distribution of Household Consumption Income/Consumption Lowest 10% = 2.4% Highest 10% = 30.4% (1998) 9.1% 8.0% 7.5% 8.0% 7.1% 7.8% 2003 2002 2001 2000 1999 1998

Economy GDP Composition by Sector (2003) Industry & Construction = 52.9% Services = 32.3% Agriculture = 14.8% Ave Rural income ≈ 1/3 of Urban areas Currency = Renminbi (yuan) Inflation on the rise due to high food prices CPI hit 5.3% in July & August 2004 after averaging 3.6% in the first half of 2004. Steepest rise in over 6 years. 1.2% -0.8% 0.7% 0.4% -1.4% -0.8% 2003 2002 2001 2000 1999 1998

Economy Gross Fixed Investment = 43.4% of GDP (2003) Budget (2003) Revenues = $265.8 Billion USD Expenditures = $300.2 Billion USD Government Deficit: (figures in Billions of RMB) Budget Deficit ≈ 2.7% of GDP Public Debt = 30.1% of GDP (2003) Tax Revenues increased 20.3% in 2003 from 2002 Foreign Reserves = $403.3 Billion (2003) - up 40% from 2002 319.8 315.0 251.7 249.1 174.4 92.2 2003 2002 2001 2000 1999 1998

Foreign Investment in China Despite the government’s efforts to cool the economy, FDI in China continues to rise In 2004, the total number of contracts signed was up 15% In 2004, the contracted amount of FDI rose 42.7% Retail investment has increased Wal-mart 7-Eleven Financial Institutions – HSBC Holdings

Foreign Investment in China Government is trying to spur investment in northeastern & western China Intel Corp. announced a $375 million chip testing & packaging facility in Chengdu Other major investors in Western China include: Ford Motor Co. Tenneco Automotive Lear Corp. High Tech companies are also establishing operations in western China

Origins of FDI in China (2004) $1.89 Billion Taiwan $2.43 Billion United States $2.95 Billion Japan $3.51 Billion South Korea $3.79 Billion British Virgin Islands $10.84 Billion Hong Kong Amount Country of Origin

Trends and Issues to Watch Power Shortages continue R&D Investment keeps rising Rising costs of popular destinations Trading & Distribution rights – New rules Regulatory Developments Anti-Monopoly Law Bankruptcy Law Direct Selling Law

International Trade China’s Trade with the World ($ Billion) % Change: 31.5% 7.5% 21.8% 37.1% 851.2 620.8 509.8 474.3 360.6 Total 412.8 295.2 243.6 225.1 165.7 Imports 438.4 325.6 266.2 249.2 194.9 Exports 2003 2002 2001 2000 1999

International Trade - Exports Exports = $438.4 Billion f.o.b. (2003) Export Commodities Machinery & Equipment, Textiles & Clothing, Footwear, Toys, Sporting Goods, Mineral Fuels, etc. Top Export Partners (2003): U.S. = 21.1% Hong Kong = 17.4% Japan = 13.6% South Korea = 4.6% Germany = 4%

China’s Top Exports (2003) ** Figures in ($ Billion) 33.7% 11.517 8.615 Iron & Steel 7 29.1% 11.555 8.953 Furniture 6 15.7% 11.651 10.069 Footwear 5 14.0% 12.239 10.734 Toys & Games 4 24.2% 41.287 33.250 Apparel 3 62.9% 73.958 45.404 Power Generation Equipment 2 33.7% 78.473 58.691 Electrical Machinery & Equipment 1 %Change 2003 2002 Commodity Rank

China maintains export bans and restrictive licensing procedures on certain items. Prohibited Exports: Musk, Copper, Platinum, Specified Chemical Compounds, and products whose export is banned under international treaties. Products subject to strict licensing controls include dual-use chemicals, chemical precursors, heavy water, and exports of fish, fresh vegetables and fruits to Hong Kong & Macao. Foreign-invested companies are restricted to exporting only products that they manufacture. Export Regulations: Chinese Export Controls

Imports = $412.8 Billion f.o.b. (2003) Import Commodities Machinery & Equipment, Mineral Fuels, Plastics, Iron & Steel, Chemicals Top Import Partners (2003) Japan = 18% Taiwan = 11.9% South Korea = 10.4% U.S. = 8.2% Germany = 5.9% International Trade – Imports

China’s Top Imports (2003) ** Figures in ($ Billion) 42.8% 16.902 11.839 Chemicals 7 19.9% 18.928 15.795 Plastics 6 84.6% 22.192 12.020 Optics & Medical Equipment 5 60.2% 23.291 14.536 Iron & Steel 4 49.8% 26.349 17.588 Mineral Fuel & Oil 3 37.1% 64.245 46.867 Power Generation Equipment 2 41.1% 92.910 65.842 Electrical Machinery & Equipment 1 %Change 2003 2002 Commodity Rank

Import Regulations: Chinese Import Controls The following items are prohibited from entering China: Arms, ammunition, explosives, counterfeit currencies, printed matter, magnetic media, films or photographs that are deemed detrimental to the political, economic, cultural, or moral interests of China, lethal poisons, illicit drugs, disease-carrying animals and plants, foods, medicines, and other articles, and old/used garments In addition rules went into effect in 1999 that further restrict or prohibit importation of certain commodities related to the processing trade.

International Trade China posted a trade deficit for the first time in over a decade in 2004 Overall trade grew roughly 39% in the first half of 2004 – same as in first half of 2003 US-China Trade expanded the largest margin the past decade Mostly due to jump in exports to U.S. Grew a record 36% In 2004, China export mix remained mostly the same except toys failed to make the top 10 export list for the first time in more than 15 years!

China’s Competitive Advantage Labor-rich country Low-skilled, Labor-intensive goods Manufacturing (Low-Tech) Capital-poor country FDI

Trade Barriers While China has an increasingly open and competitive economy, substantial barriers have yet to be dismantled!

Tariffs Import Quotas Tariff-Rate Quotas Import Licensing Export Licenses Transparency Legal Framework Trading Rights Distribution Rights Import Substitution Standards/Testing Anti-Competitive Practices Services Barriers

U.S.– China Trade In 2003, US/China Trade topped $190 Billion US Trade Deficit with China totaled $134 Billion U.S. exports to China are increasing US has benefited from China’s demand for raw materials US Cotton exports to China increased over 500%! US Soybean exports to China rose over 188%! US/China trade grew more than 30% in first half of 2004

U.S.– China Trade * Figures in $ Billion U.S. Balance: -74.7 -91.3 -90.2 -111.4 -134.9 191.7 155.6 128.6 123.9 100.9 Total 163.3 133.5 109.4 107.6 87.8 U.S. Exports 28.4 22.1 19.2 16.3 13.1 U.S. Imports 2003 2002 2001 2000 1999

U.S. Benefits Firms ---  gain a large export market Consumers ---  opportunity to purchase cheap imports from China China Benefits Obtain raw materials to convert into products for export Obtain agricultural imports from U.S. U.S.– China Trade

Miller China Trade

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