United States launches Golden Key Plan: Promote 4000 SMEs to enter China
Yesterday, the American Chamber of Commerce in South China released the “2012 South China Regional Economic Situation Special Report” which indicated that despite the global economic slowdown, businesses in southern China still maintained a high level of profitability, and are budgeting to increase investment 20% over last year. The American Chamber of Commerce therefore estimates that over the next three years (2012 – 2014), businesses will invest 11.7 billion USD expanding operations in southern China.
According to reports, the American Chamber of Commerce in South China currently has 461 member companies, engaged in businesses related to Sino-US trade. According to a survey of its member companies, there are more and more U.S. small and medium enterprises (SMEs) coming to invest in China. American Chamber of Commerce in South China President Harley Seyedin says less than 1% of U.S. companies were engaged in export to China in the past, but with the current global economic slowdown and the prominence of the Chinese market, more SMEs are engaging in export to China. It is reported that American President Obama is currently implementing a “Golden Key” program, planning to promote 4000 SMEs to enter China, and promote U.S. exports to China. However, with regards to the export of technology to China, American Chamber of Commerce in South China Treasurer Tim Wen confesses that the U.S. government and companies are both exercising caution.
Investment in China to rise 20% this year
American Chamber of Commerce in South China President Seyedin says despite the global economic slowdown, companies in the southern China region are still maintaining high profit levels, and plan to increase budgets by 20% over last year for investment. What more, based on past experience, he claims the actual investment will exceed those budgets.
The survey conducted by the Chamber of Commerce of its member companies show that global earnings somewhat decreased on average for the companies surveyed last year, while profits for American companies in Southern China increased 30% on average, and added 544,000 employees. 88% of respondents said they were “profitable” or expect to be “profitable” within two years. Amongst “profitable” businesses, about 70% of corporate profits met or exceeded expectations. In the past year, the 2012 budgets of nearly all respondents have been increased, rather than reduced.
Why are southern China corporate profits growing despite global market trends? Seyedin believes, first, approximately 70.5% of the surveyed companies primarily “provide products or services to the Chinese market”, with less than 30% of the enterprises serving export markets outside of China, and as a result are relatively less affected as a whole by external conditions. Second, although China’s economic growth has also slowed, there is still abundant room in the market. “Studies have shown that China has over a hundred first and second tier cities such as Guangzhou where 30 million people live in a 1 hour radius around city center,” says Seyedin. “As a result, Guangdong’s economic prospects are very bright, and there is a lot of room for growth for companies here.”
The American Chamber of Commerce estimates businesses will invest 11.7 billion USD over the next three (2012-2014) to expand operations in southern China. The vast majority of companies plan to expand investment in China. The survey shows that only slightly more than 15% of the respondents have no intention of investing this year, whereas last year’s figure was 25%. Moreover, Seyedin predicts the number of companies hiring new employees will decline this year, but the number of new employees will continue to grow. This year’s survey discovered that the number of businesses with less than 50 employees has been rising year after year, reaching 40% in 2012, whereas the number of surveyed companies with over 500 employees has correspondingly decreased in the same period.
U.S. companies have also experienced “structural adjustment”
Seyedin says that of the businesses expanding their Chinese investments, apart from investment businesses, the major areas of investments are going into technology and product research and development. “The future trend is to hire fewer people, invest more in R&D funding, and depend on increasing production capacity and high technology for success,” he says, “the times of relying on cheap labor, low environmental costs and land costs has ended, at least in southern China. Within 2-3 years, it’ll also be true for Northern China, central China, and other regions.”
In fact, US-China Chamber of Commerce member companies are also experiencing “structural adjustment”. Seyedin explains that in 2003, less than 23% of the enterprises were targeting the Chinese market, with the rest all involved in export, but now the makeup has reversed, with less than 30% of the enterprises in export, and many companies currently moving their relatively low-end production capacity to other countries.
With regards to regions of investment, the number of companies intending to invest in the Yangtze Pear River Delta region and Guangdong area has dropped the most; while the proportion of respondent companies intending to invest in northern regions remains the same as last year. Similarly, the percentage of businesses intending to invest in western regions and southern China regions (not including Guangdong and Guangxi) also remains essentially unchanged. In the Guangdong region, compared to the results of last year’s survey where around 80% of respondents were headquartered in Guangzhou and Shenzhen, this number has dropped 12 percentage points this year. The difference mainly reflects the decline in the number of companies headquartered in Guangzhou, while “other regions” has correspondingly increased, continuing to maintain its third position.
Decline in companies with headquarters in Guangzhou?
Why have the number of companies with headquarters in Guangzhou fallen? Seyedin explains it is a false impression caused by discrepancies in survey sampling and believes the number of companies with headquarters in Guangzhou in actually increasing. For example, last year, America’s General Motors established its R&D headquarters in Guangzhou. However, are the number of company headquarters in other cities growing faster than Guangzhou? Treasurer Tim Wen believes the gap between Guangzhou and other Pear River Delta cities is narrowing, that with the increase of SMEs coming to invest in China, they are considering the costs of establishing their presence in cities, and other cities may be offering more favorable investment conditions than Guangzhou.
Overall, the Pearl River Delta still dominates. “Local market opportunities in southern China” is still the primary factor of consideration for the surveyed companies with regards to establishing a presence in southern China, with other factors being “proximity to Hong Kong”, “availability of high-quality management and professional personnel”, and “more open than other parts of China” respectively. What was most important was that “transportation and logistical advantages”, one of the top five factors for surveyed companies who had chosen to operate in the southern China area, has been replaced this year by “southern China has better infrastructure”.
However, this year’s overall market situation is not as optimistic as in past years. Compared with last year, those who believe the overall business environment “needs improvement” has doubled since last year, accounting for 14% of respondents. Moreover, 24% of respondents believe there has been a “major decline” and “somewhat decline”. In other words, slightly more than half of the respondents believe the business environment has not improved since last year, the first time this has happened since the American Chamber of Commerce began its annual research surveys.
America’s “Golden Key” Program:
Promote 4000 SMEs to enter China
The American Chamber of Commerce survey shows that in comparison to past years, the companies surveyed this year were younger. Accordingly, the percentage of companies that have been operating in China for less than 2 years increased from last year’s 6.6% to this year’s 9.8%. “Now every week we are receiving a lot of SMEs, all seeking advice on investing in China,” a representative of the U.S. Consulate in Guangzhou added.
Why are the numbers of SMEs coming to China increasing? American Chamber of Commerce in South China President Harley Seyedin explains that previously less than 1% of U.S. companies engaged in exports to China, but with the global economic slowdown and the prominence of the Chinese market, more SMEs are changing their businesses, attempting to also export to China, even coming to China to set up factories. During an interview with this Southern Metropolitan Daily journalist, American Chamber of Commerce in South China Treasurer Tim Wen revealed that U.S. President Obama is currently implementing the “Golden Key” program, designed to promote 4000 SMEs to enter and invest in China. The main business of these SMEs will be to introduce American products and services such as coffee, red wine, etc. into the Chinese market.
Previously, when Obama had begun his administration, he had launched a “double exports plan” with the purpose of increasing American exports, especially exports to China. The aforementioned “Golden Key Plan” is related to the “double exports plan”. However, in terms of technology exports to China, Treasurer Wen admits that U.S. government and businesses are relatively cautious. In terms of civilian technologies, Wen says, U.S. companies are particularly concerned with China’s problems with intellectual property protection.
This article is originally from Southern Metropolitan Daily.
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