Sector information and Business Opportunities

Sector information and Business Opportunities

 

Agriculture and forestry

Chinais a vast country with nearly one fifth of the world’s population, but 7% of the world’s cultivated land.  Only 34% of the land in China can be cultivated.  China’s achievement in hybrid rice technology enables China to maintain 95% self-sufficiency in China's grain supply.  Hybrid rice has a yield advantage of over 10% over conventional rice.

 

Agriculture has been liberalised from its previous restrictions and now has a more entrepreneurial footing.  In 1978 Deng Xiaoping implemented the following reforms:  

• The household responsibility system replaced the commune system.  Farmers are now contracted to cultivate allotments and are given the freedom to choose what is grown.
• The state monopoly for the purchase and marketing of agricultural products was ended.
• Many restrictive policies were abolished, allowing farmers to develop a diversified economy in rural areas and run township enterprises

 

To maintain the country’s stability, farmers’ wellbeing is at the top of the government’s agenda.  To narrow the income gap between rural and urban populations, the government took steps by abolishing the 2600 year old agricultural tax and increased subsidies to farmers by 14%. 

 

Forestcover has grown from 8.6% of the land base in 1949 to over 17.5% in 2000. Mature forests are decreasing, however, while the share of plantation and commercial forests continues to rise in response to government policies. China has three major forest areas: the northeast (Heilongjiang, Jilin, and Inner Mongolia), the southwest (Sichuan and Yunnan), and the southeast (Guangdong, Guangxi, Fujian, Jiangxi, and Hainan).

 

Energy

China’s burgeoning energy sector has been driven by its booming economy over the past two or more decades.  RMB500–600 billion is currently being invested in power generation and the same in grid construction.  While China’s energy consumption per capita is still low compared to other countries at 66% of the world average and at 14% and 25% of the US’ and Japan’s consumption respectively, current trends suggest that by 2030 China will have overtaken the US to become the world’s largest energy consumer. 

 

Fossil fuel is the mainstay of China’s energy production.  Coal and oil make up 70% and 21% respectively of its energy mix.  Nuclear power and renewable energy account for less than 10%.  Government policies point favourably towards alternative power sources.  China’s Renewable Energy Law was introduced in January 2006.  It decrees that 20% of total national energy consumption should come from renewable resources by 2020.

 

While coal is the dominant fossil fuel resource in China, it is economically unsustainable, and environmental problems abound.  Despite its abundance, China’s per capita fossil fuel reserves are only half of the world average.  This means that China was obliged to start importing coal for the first time in 2007.

 

Investment in electricity generation accounts for over 60% of the total investment in the entire power sector.  This reflects the increase in its power generating capacity by 14% in 2007 - and its ongoing growth is set to continue large-scale.

 

All major power generation companies are state owned and China’s two power grids: State Grid and China South Grid are controlled by the State. 

 

Oil is increasingly becoming the focus of China’s geopolitical strategy.  The construction of several gas fired plants is planned.  Other projects include the West to East Gas Project, coal liquefaction and natural gas exploration. 

  

 A strategy of open bidding is designed to select the most experienced partners to drive forward China’s nuclear power development.  China’s nine completed nuclear power generating units now account for about 2.3% of the total power output.  It is planned that a further 30–35 nuclear reactors will be built by 2020, which will then represent 4% of the country’s total generating capacity.

 

Renewable energy is a major thrust of China’s energy development.  By 2020 renewable power sources are expected to account for 10% of total energy supply.  Wind power, hydro power and solar thermal energy are a key focus.  As such, it is predicted that the supply of renewable energy will double between 2010 and 2020.

 

 

Construction

Construction is a flagship industry in China.  The sector’s total annual output has sustained a 21.7% increase since the year 2000 and contributes 7% to national GDP.  There are currently 128,000 construction related businesses employing 28 million employees.  While the current number of residents living in cities and towns stands at 45% of the total population, this figure will increase to 60-70% by 2020. 

 

Huge resources and energy are ploughed into the production of building materials in China.  Specifically, wall building materials and cement products have the highest output, and construction waste is considered a big problem.  The government has developed plans to recycle construction waste, with a target utilisation rate of 30% by 2020.

 

City regeneration and sustainable development are relatively new concepts for China’s urban planners.  Decision makers in urban planning are now realising the importance of  cities’ cultural heritage, environmental protection, integrated communities and sustainable development.  Although China has 12,300 design institutes skilled in creating good quality design and planning applications for ordinary buildings, most lack experience in large-scale, social, mega high-rise, special and high level buildings.

 

 

Railways

The railways are divided into two parts:  Railways, which are the main lines connecting cities and provinces; and Metro/Light Rail Transit (LRT), which refers to urban transport.  In the decade running up to 2007, China allowed 6 increases in speed to achieve 200km/h on 13,000km of main lines.  In August 2008, the fastest train ran between Beijing and Tianjin at 350km/h and by the end of the year operating routes totalled 80,000km, ranking number 3 in the world after Russia and Germany.  By 2020, the target is 120,000km.

 

The upgrade of existing lines will include 8,000km for double track laying and 15,000km to be electrified.  The total investment will be RMB1,250 billion.  The development will also cover the construction of 548 railway passenger terminals/stations.  By the end of 2008, the total number of employees employed by the national railways was 2,084,300.  Local and regional railways are mainly funded and operated by regional or provincial firms.  China’s access to the WTO has allowed foreign investment to share or control the holding, or soley operate the railway transport companies.  This leaves the State only controlling holdings for the key lines. 

 

By the end of 2007, 713.93km of metro/light track and 25 lines were operating in 10 mainland cities.  Average passenger flows are 3 million (5 million during the Olympics).  In the next 5 years, China will build 500-600km of metro/light transit lines at an investment of RMB170bn.  From 2010-2015 the total length of planned projects will be 1,700km at an investment of over RMB500 billion.

 

Motorways (“expressways”)

Chinahas always treated motorways as one of the most important means of accelerating the development of its infrastructure.  The expressway network of china is one of the longest in the world. The total length of china’s expressways is 60,300km at the end of 2008. Expressways in China are a fairly recent addition to a complicated network of roads. China did not have an inch of expressways before 1988. Until 1993, very few expressways existed.  Chinahad been carrying out an ambitious plan to build up a 35,000km of national trunk highway system before 2020, 70% of which are expressways. This project was completed by the end of 2007, 13 years ahead of the original plan.

 

Ports and docks

China’s aim is to make big improvements to the overall layout of ports, modernise existing ports and widen the investment opportunity within the sector to make it more commercially attractive to potential investors, expanding its development.

 

 

Chinahas 16 major shipping ports with a capacity of over 50 million tons per year.  The ports in China bordering the sea are mainly used to transport coal, containers, imported iron ore and grain.  Deep-water container docks have been built in Dalian, Tianjin, Qingdao, Shanghai, Ningbo, Xiamen and Shenzhen.  The total throughput of some of the large ports has exceeded one hundred million tons.  Shanghai, Shenzhen, Qingdao, Tianjin, Guangzhou, Xiamen, Ningbo and Dalian are now ranked amongst the world’s best 50 container ports. Shanghai was the largest port in the world according to its ranking in 2005. It aims to be an international shipping hub by 2020.  Foreign trade cargo was 1.35 billion tons and container cargo saw a throughput of 74.41 million.  By 2010, 35% of the world’s shipping is expected to originate from China.

 

Mainland China plays host to 28 foreign-invested container ports, and major investment is required in the future to deliver the MOC’s expansion plans.  Ports are also developing into other areas such as the construction of logistics parks and complexes, and other coastal industries.  Foreign investment and expertise is required for integration and in the smaller, inland ports.  As many of the ports are old, terminals need upgrading and information-based

port management systems are essential, creating many opportunities for foreign participation.

 

Airports and aviation

The international carrier division of the Civil Aviation Administration of China (CAAC) was renamed Air China in 1988.  It is the only airline to carry the national flag on its entire fleet.

In 2002, the government merged the nine largest airlines into three regional groups based in Beijing, Shanghai and Guangzhou, respectively: Air China, China Eastern Airlines and China Southern Airlines.  They operate the majority of China’s external flights.

 

The Eleventh Five-Year Plan (2006-2010) is fast-tracking the regional airport projects in middle west and main airport projects in the western region.  By 2008, China’s airports provided services for over 120 airlines with 406 million passenger/times.  There were 160 commercial airports, including 8 new airports built in 2008 with a new terminal area totalling 1.18 million square metres.  Beijing Capital International Airport is ranked number 8 in the world, accommodating 55.93 million passengers.  Shanghai Pudong Airport is placed 5th for cargo throughput.  2010 will see 140 airport projects in operation, including 50 new airports.  By 2020 it is anticipated that there will be 244 airports in total, including 13 airports with annual passenger capacity of over 30 million, 6 airports for 20-30 million, and 10 airports for 10-20 million passengers.

 

 

Automotive industry

Machinery and transportation equipment have been the key products leading the boom in China’s exports.  These combined sectors have led the export table in the past 10 years.  Together their export value exceeded US$673 billion in 2008.

 

As for the automotive industry itself, 9.3 million vehicles were produced in 2008, of which 5 million were saloon cars.  There were 8303 automotive enterprises in China at the end of 2008.  China is now the 2nd largest auto producer and 2nd largest auto market in the world.

 

To accelerate the use of clean car technologies and reduce exhaust pollution, the government launched a R&D campaign for key “clean car” technologies.  Now, test demonstrations of electric cars are underway in cities such as Beijing, Wuhan, Tianjin and Weihai.  The International Fuel Cell Bus Demonstration Project, supported by the United Nations, is underway in Beijing and Shanghai.

 

Environment

China’s environment and ecology has suffered huge problems in urban and rural areas because of its massive population and strong economic growth over the past two decades.  Acid rain, contaminated rivers, polluted air and hazardous solid waste have seriously affected public health and long term sustainable development.  Economic experts estimate that environmental pollution costs the Chinese economy around US$28 billion annually.

 

Central government has been promoting environmental policies to improve energy efficiency by 20% and reduce emissions by 10%.  It also aims to increase the use of renewable energy by 15% by 2020.  Public awareness of environmental issues has also increased.  The Chinese government pledged RMB4 trillion to improve environmental protection, infrastructure and reconstruction of earthquake-hit areas.  RMB350 billion will be spent on ecological projects.  A further RMB11 billion was announced in 2009 to boost environmental protection.  Vehicle emissions are the primary cause of air pollution in China, as 1,000 new cars are estimated to be on the roads every day.

 

The development of new technologies, products and management experience, coupled with the changing role of the government department demanding higher quality standards, has opened up the market to foreign companies providing environmental consulting.  It has also imposed low tariffs to introduce foreign advanced environmental protection technologies and products, and has allowed foreign service producers to enter the market through joint ventures and wholly-owned companies.

 

The aim is to reduce energy consumption per unit of GDP by 20% by 2010, increase utilisation of renewable energy to 10% by 2010 and to 16% by 2020.

 

 

Over the next 5-10 years, amid increasing environmental pressures due to continuing urbanisation and industrialisation, central government has set key objectives to manage environmental protection and keep it under control:

• prioritise safe drinking water and river treatment
• manage urban wastewater and solid waste treatment
• control air pollution, focusing on reducing CO2emissions
• protect rural areas from pollution, notably soil pollution
• enforce the protection of the ecological environment

 

 

Science and hi-technology 

The rapid development of China’s Science and Technology industry is largely centred on research and development.  China has built thousands of new high-tech development zones, and a great many sci-tech research results have been put into use in production.  By 2020, China’s overall investment in research and development is forecasted to reach 2.5% of GDP, compared with 1.3% in 2005.  The independent innovation capability, the comprehensive strength in learning basic science and frontier technology will smooth the way for China to become a truly innovative country in its own right.

 

Nanoscience and nanotechnology, in particular, has received considerable focus since the mid-1980s.  Over 3,000 researchers now work in this sector.  The Chinese Academy of Sciences and the China National Science Foundation are influential in this area and support the Nano Science and Technology Centre, which is focused on nano science and technology study and development.

 

 

Hi-Tech development is concentrated in the following areas:

• Electronics and information technology

• Bio-engineering and new medicine

• New materials and applications

• Advanced manufacturing technologies

• Aero and astronautics

• Marine engineering

• Nuclear applications

• New energy resources and high-efficiency energy-saving technologies

• Environmental protection

• Modern agriculture

 

 

Information industry:

 

Telecoms

Telecommunications has undergone rapid growth in China, monopolised by three state-controlled operators:  China Mobile, China Telecom and China Unicom.  The country had approximately 981 million telephone subscribers, 641 million mobile phone subscribers and 340 million with fixed line connections by the end of 2008.

 

The recent restructuring of the telecoms industry and issuing of 3G licences and spectrum have led to the consolidation of 3 operators as full-service operators, and US£41 billion investment is being made into 3G deployment.

 

The telecommunications network, a basic transmission network with large capacity and of high speed, is in place.  It covers the whole country through optical cable which serves as the main technology for transmitting information, with satellite and digital microwave as supplementary systems.  

 

Chinahas also been involved in the construction of several international land and sea-bed optical cables - for instance, the construction of the 27,000km Asia-Europe optical cable is the world’s longest land system of its kind.

 

Internet

The commercial internet networks are provided by:

• ChinaNet (China Telecom)

• China GBN (Netcom/Jitong)

• CMNet (China Mobile)

• CNCnet (China Netcom – now part of China Unicom)

 

Industry facts:

• By the end of 2008, the number of internet users had reached 298 million, amongst which those using broadband had now reached 214 million.

• The number of people who use the internet via their mobile phones reached 117 million.

In May 2008, the number of .CN domain names had overtaken .de of Germany, and the number of .CN domain names had reached 10 million by the end of the year.

The internet has overtaken the national state broadcaster CCTV to deliver advertising in China, generating revenues of US$2.64 billion for 2008 alone.

• China’s total e-commerce sale revenue is predicted to reach RMB1 trillion by 2012.

 

There are many internet cafés in China, even in smaller cities.  Internet services and businesses include many aspects such as internet education, internet banking, online business dealings, internet news, and internet video services, charged mailing services and VOIP telephony, text messaging services, services for qualified personnel, online enquiry services, and internet games.  However, the government still controls internet content.

 

Broadcasting

Chinahas the largest subscriber base for cable TV in the world, amounting to 160 million households.  Digital cable pay TV has been less successful due to poor content.  However, industry growth is expected to come from the expansion of the digital cable network, estimated to reach 102 million homes by 2013.

 

Financial services industries

In the 1990s, China’s financial industry developed through market-based reforms, opening its markets to foreign participation and leading to an increasingly competitive and innovative financial sector.

 

By the end of 2007, there were 51,645 banking and financial institutions and organisations operating in China (40,815 for banking, 8,574 for insurance and 1,019 for stock exchange).  These include 3 policy banks, 4 state-owned commercial banks, 13 share system commercial banks and other forms of banking institutions including a large number of rural credit co-operatives.  At the same time, the total sum of the capital fund of RMB, foreign currency banking and financial institutions in China reached RMB83.8 trillion by the end of 2007.  Foreign capital banks are increasing their foothold in China day by day.  By the end of 2008 the total assets of foreign capital banks amounted to $1930.94 billion US dollars, around 2.44% of the total sum of the assets of all the financial institutions in the Chinese banking industry. 

 

• The central bank and the bank regulators

In 2003, the central bank - the People’s Bank of China (PBOC) was separated into two sections: the PBOC and China’s Bank Regulatory Commission.  The PBOC now operates as China’s Central Bank and it is under the auspices of the State Council.  The PBOC operates independently, but reports its decisions to the State Council.  All financial operations are regulated by The Bank Regulatory Commission.

 

China’s specialised banks have previously primarily dealt with commercial lending and low-interest, long-term loans made to businesses.  In 1994, however, the Chinese government announced significant changes to the banking system.  Under these reforms, the four major specialised banks: the Industrial and Commercial Bank of China, Bank of China, the Agricultural Bank of China and the Construction Bank of China, became purely commercial entities.  They can now operate as individual profit centres and can offer a full portfolio of services.   China recently restructured the shareholding of the four wholly state-owned commercial banks to allow for partial international ownership.

 

 

• Stock exchange 

On 19th December 1990, the Shanghai Stock Exchange was officially opened, followed by the Shenzhen Stock Exchange on 3rd July 1991.  The opening of these two stock exchanges marked the beginning of stock trading in mainland China.  China’s reform of the share structure of listed companies in 2005 has led to improved liquidity in the domestic stock markets.  These reforms have also significantly enhanced corporate governance.

 

Healthcare

The greatest potential areas for Western companies entering the healthcare market in China are the main cities, focusing specifically along the East coast.  In addition, South West China is regarded as having a strong capability in research and development in the healthcare and pharmaceutical sector.  There is greater demand for better healthcare products and services due to the country’s economic growth and ability to pay.  Total expenditure in healthcare is expected to grow 20% year on year until 2010.  However, the majority of Chinese (780 million) living in rural areas have limited access to healthcare resources.

 

The healthcare system in China is very fragmented.  Previously, it was based on the US healthcare model, where hospitals were self-supporting through their revenue generation, and had to cover the majority of their operational costs.  Today, however, this model is changing and the industry is moving towards the UK system based on primary care delivered through a community health system.

 

Over the next 5 years the government will prioritise the following areas:

• Development of a primary care system
• Construction of rural healthcare facilities
• Management training for hospital directors and clinical training for rural health staff
• Improvement in the community health system to provide long-term care for chronic diseases patients
• Surveillance and reporting systems for infectious disease control

 

Foreign investment into hospitals and clinics is very limited and slow at this stage due to barriers such as restrictions on medical insurance coverage, high registration capital and complicated registration procedures. Foreign invested healthcare companies for medical devices and pharmaceuticals are prevalent and contribute to around 40% of the industry’s total revenue.  Major worldwide foreign investors have set up operations, including the UK, which ranks 5th in Europe for healthcare equipment export to China.

Sales of pharmaceutical products account for over 60% of total healthcare costs in China, compared with 9% in the UK.  70% are sold through hospital prescriptions.  However, following recent scandals, under the new government reforms, it is trying to move the pharmacies out of the hospitals to reduce their reliance on drug sales to generate their income.

 

Education and training

Economic growth and government investment is fuelling the expansion of the education and training sector in China.  There is huge demand for English and other foreign languages, business and management, vocational training, corporate training and other functions.  The UK already has a strong reputation for education in China through private training organisations, universities and the British Council, and there are some 80,000 Chinese students studying in the UK.  Yet China is still in the process of raising its spend on education to 4% of GDP.

 

There are many opportunities in the education and training sector in the form of collaboration with Chinese institutions to set up higher education/vocational centres, delivering joint courses, student recruitment and other partnerships.  Some UK universities have already established campuses in China, offering full degrees from overseas. 

 

Other opportunities exist in the areas of training government officials, sector-specific training for government departments/administrators, developing high-tech and laboratory equipment and creating English language learning materials.  Corporate training providers can also deliver courses directly to organisations, however, providers should be aware of the difficulty for Chinese customers in having to pay in foreign currency, for which they need approval from the government.  Therefore, a local presence is often preferred and competition is fierce.

 

Tourism

Huge numbers of national and international tourists are attracted to China each year.  According to the preliminary calculations of the World Travel and Tourism Council (WTTC), China’s travel and tourism industry should continue to increase by over 10% year on year over the next 10 years.  China is set to become the world’s 4th largest economic centre for tourism.  In addition, based on predictions from the World Tourism Organisation, by 2020, China will become the world’s largest tourist destination.  As China’s civil aviation, railways, inland waterways and motorway networks are developing rapidly, the availability of convenient travel connections for national and international tourists is increasing.  To cater for the differing levels of tourist requirements, a large number of hotels have been newly built, refurbished and enlarged giving a total of approximately 8,880 starred hotels throughout China. 

 

 

 

 

 

 

 

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