China Market

Market Overview

The Chinese economy is roughly half that of the United States with a comparable

land mass. Following more than three decades of economic growth, fueling an

industrial and urban boom, China claims 171 cities with populations of 1 million or

more, while the U.S. has nine such cities.

While China’s GDP growth is slowing, it remains among the world’s top performers

expected to reach 7.5 percent in 2012, with analysts targeting similar growth in

2013. In response to this growth, U.S. exports to China have increased 468 percent

since China’s 2001 World Trade Organization (WTO) entry, and it is likely to

maintain its position as the third-largest buyer of American goods after Canada

and Mexico in the coming year. Small and medium-sized enterprises (SMEs) are

the leading exporters to China, representing 92 percent of American businesses

exporting to China (35 percent of value), with overall export product categories led

by machinery, computers and electronics, chemicals, transportation equipment, and

waste and scrap.

China’s economy has seen enormous benefits from fixed asset investments. This

investment-led growth, however, is widely perceived as non-sustainable and China’s

leadership addressed this concern in its 12th Five-Year Plan (5YP), which came out

in 2011. The plan continues through 2015 and aims to increase consumer spending

from approximately 35 percent of GDP to 50 percent by 2015. In comparison, about

70 percent of the United States’ GDP is derived from consumption, whereas 63

percent of Brazil’s GDP is driven by consumption. The rebalancing of China’s

economy should create opportunities. Environmental protection, energy efficiency, high-end

manufacturing, biotechnology, are also areas of high priority in the 12th 5YP.

China’s inbound foreign direct investment (FDI) reached US$116 billion in 2011,

and stood at US$83.4 billion for the first three quarters of 2012, down 3.8 percent

from a year earlier, according to China’s Ministry of Commerce. Meanwhile, China’s

outbound direct investment (ODI) in the first nine months of 2012 totaled US$52.5

billion, up 28.9 percent year-on-year. China’s 2011 investment in the U.S. amounted

to US$3.8 billion according to the Bureau of Economic Analysis. In 2012, analysts

expect Chinese investment in the U.S. to surpass all previous annual totals. China’s

Ministry of Commerce reports that ODI is expected to register an annual growth rate

of 17 percent from 2011 to 2015, reaching US$150 billion in 2015.

China’s rapid economic growth, especially in the urban areas, has led to a booming

consumer market for high-end goods and services, including tourism and education.

China will account for about 20 percent of global luxury goods consumption by

2015, or US$27 billion. About 80 percent of people buying luxury items in China

are 45 years or younger, whereas that percentage is only half for the United States.

By 2020, China’s middle class is expected to account for around 45 percent of the

population, or approximately 700 million people.

Despite these remarkable changes, China is still a developing country with

significant economic divisions between urban and rural areas, albeit one with

vast potential. The number of migrant workers remains high. In 2011, the urban

population exceeded that residing in rural areas for the first time, with 691 million

urbanites (more than double the U.S. population) versus 657 million rural dwellers.

As of 2011, the per-capita disposable income of urban residents was US$3,454 and