Seminar explores China’s business climate

Monthly lecture series sponsored by the U.S.-China Institute examines China’s role in the global economy.

The spring semester China Seminar Series kicked off late last month as Wendy Cai, managing director of the U.S. Chinese Services Group at Deloitte, explored the burgeoning China market and its role in the global economy.

Cai began by comparing China and India, two countries that are widely recognized as growing economic giants in Asia. While the populations of both countries represent about 20 percent of the world’s people, China’s gross domestic profit is three times higher than India. The amount of money coming into the country from foreign investments is more than four times higher in China than in India.

A country well known for its high rate of savings, China also has more disposable income among its residents, which is attractive for businesses trying to gain a foothold in the Far East.

Both countries are quickly developing as major players in an increasing global environment as China’s 11 percent gross domestic product (GDP) increase in 2006 is a 14-year high, while India’s nearly 10 percent increase during the same year represents an 18-year high – the second-highest increase on record in India.

Currently, China is the world’s fourth-largest economy. The country’s GDP has doubled every seven years since 1987.

According to Cai, China’s GDP, which was ranked 30^th in the world in 1980, will pass the United States for the top spot by 2050. India will rank as the world’s third-largest economy, right behind the United States.

One of the drivers of this growth is an increase in trade. Since China joined the World Trade Organization in 2001, U.S. exports to China have been growing by more than 20 percent a year.

The New England region, historically a manufacturing hotbed, has been especially active in exporting to China over the last few years. Since 2000, the dollar amount of exports from New England to China has increased 240 percent. In Rhode Island alone, exports to China in 2006 totaled $61 million, up from $18 million in 2000.

One reason is the stark difference in wages. The local average monthly manufacturing wage, in U.S. dollars, is $4,233 in New England compared to $221 in China.

The outlook is encouraging for U.S. businesses in China. A survey last year by the U.S.-China Business Council showed that more than 90 percent of respondents are optimistic about their business prospects over the next five years. More than 80 percent said their 2006 revenues increased over the previous year.

Cai encouraged American-based businesses to take part in the growing trend toward mergers and acquisitions in China.

“Foreign investors can either participate in the roll-up of China’s fragmented industries or watch from the sidelines as their competitors do,” says Cai.

Chinese businesses could also look to compete with American businesses by gaining market share in the U.S., enticing investors to back companies that are part of China’s high-growth markets, or recruiting talent to work in China to help serve the country’s 1.3 billion people.

“The whole world is looking at China,” says Cai.