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Understand-China 2011 Update Complete 7/25/2011

understand-china.com1ChinaBlog is pleased to announce the new and improved Understand-China.com. Through extensive research, the website has been refreshed and updated to provides the most comprehensive and up-to-date information available for businesses and investors looking to do business in the China. Understand-China’s vast network now contains over 250 pages of information with additional features and has taken more than 300 hours and 6 weeks to update.

Understand-China continues to be the only one-stop-shop website providing concise and relevant information for companies looking to do business in China, invest in the Chinese marketplace, set up greenfield operations in one of China’s industrial regions, or understand the Chinese manufacturing industry.  Updates include new data for the 24 top regions including statistics for each of their Foreign Direct Investments (FDI), Gross Domestic Products (GDP), Logistical Data, Real Estate information, Industrial Expenses, Labor Costs and various other categories of data. For several excellent examples of updated data, please view the provincial profiles of Beijing, Shanghai, Shenzhen, Tianjin, Hong Kong. Understand-China also includes twenty other provinces, special economic zones and Chinese special administrative regions.

Please let us know what you think of the update!

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Vietnam & India Sourcing: Advantages and Disadvantages 3/2/2011

China India Flags

So you are already sourcing from China…have you ever thought of sourcing from India? What about Vietnam? Are buyers trending away from China? What are the advantages and disadvantages of sourcing from other developing countries like these? Let’s explore!

A survey was recently released by Global Sources reporting on how China’s increasing labor costs and the fluctuation of the yuan have impacted buyers’ sourcing strategies overseas.

Over 380 buyers were surveyed and more than 50 percent of respondents said they have seen higher prices as a result of the yuan’s appreciation. But are they changing their strategy? The answer is yes… somewhat.  More than 50 percent of buyers say they are planning to step up their sourcing from India and Vietnam sometime in the future. (It did not indicate whether or not they plan to decrease their China sourcing however.)

The truth is: Vietnam and India are becoming increasingly attractive for foreign enterprises due to their low-cost and abundant labor supply.

What does this mean to American companies?

Places like Vietnam and India could be a viable option for your company if you specialize in low-end products. Industries that are labor intensive can also be successful in these countries due to the large labor pool (bigger than China’s) and the low cost of labor. Industries like textiles (clothes, shoes, sheets etc) have been successful at increasing savings by moving production to countries like India where the workforce is robust and there is a large percentage of English speaking workers (20% higher than China’s workforce). Also, India’s income tax will decrease this year in order to be more competitive with China.

Although the numbers do indicate an uptick in sourcing from these developing countries, do be forewarned: This is not the ideal plan for everybody. India and Vietnam are still in their youth, and fall short in a number of critical manufacturing areas in comparison to the United States and China. The traditional means to becoming a manufacturing powerhouse no longer stand alone. Not only will a country need to be strong in labor, energy and materials, but the country will also need to have a strong-willed work force with innovative thinkers.

Another critical aspect that must be taken into consideration is the different countries’ logistics infrastructure.  The logistics infrastructure in China for example is much more developed and sophisticated than in India or Vietnam.  We typically find that sourcing from China is much more efficient because of the hundreds of billions of dollars invested over the last 20 years in roads, highways, ports and airports.  With that being said, if quick turn-around and reliable, timely shipping and receiving are a must for your business, China might be a better choice.

China India Vietnam
Total Airports 502 352 44
Major Ports 130 12 14
Railways 77,834 km 64,015 km 2,347 km
Roadways 3,583,715 km 3,320,410 km 171,392 km

It is to be noted however, that although India has the third largest road network in the world, about 2.6 million km or almost 75 percent of their roads are considered rural. Travel by roadway in India is also often times considered dangerous; people do not abide by traffic laws, roads are bumpy and uncared for and traffic is intensely crowded. In fact, the National Highway make up only 2% of the nation’s roadway length, but handles about 40 percent of the roadway traffic.

Beyond logistics, the 2nd most common issue when looking beyond China is your raw material supply chain.  As nearly every major industry’s supply chain has shifted to China over the last 20 years, so have the raw materials companies/suppliers.  When evaluating a move away from China, it’s important to understand whether or not your source of raw material is available in your next destination.  If you don’t, you very well may end up finding out that while you are benefiting from cheaper labor elsewhere, you are offsetting those savings by your increased logistics and duties costs as you ship your raw materials in from China.

China also excels at supporting large-scale investment projects – something that Vietnam and India struggle with due to their infancy in the manufacturing arena as well as the large government bureaucracies that you must deal with.  If a company wanted to expand and build a new facility to ramp up production in China, it could take 6 months, whereas in India it could take 2 to 3 years.

In conclusion, China is still the manufacturing powerhouse for most, and will remain so for quite a few years to come.  However, we are likely to see a shift in the type of manufacturing China is involved in. They are now encouraging investments in high tech industries and research and development enterprises. Their goals is to move towards a more sophisticated manufacturing region that can garner higher wages and eventually propel more and more people into the coveted middle and upper classes.

We would love to hear how your company’s overseas buying strategy has changed (or hasn’t changed)!

Sources:

http://www.globalsources.com
http://www.2point6billion.com/news/2011/02/17/china-india-compared-by-al-jazeera-8606.html
https://www.cia.gov/library/publications/the-world-factbook/geos/in.html
http://online.wsj.com/article/SB10001424052748703800204576159410421853214.htmlhttp://www.business-in-asia.com/ports_in_vietnam.html
http://understand-china.com/?manufacturing=logistics-4

http://indiatoday.intoday.in/site/Story/110495/Cover%20Story/wealth-does-not-create-roads-rather,-roads-create-wealth.html

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New China WFOE Taxes 1/19/2011

China Currency - WFOE TaxBeginning on December 1st 2010, all Wholly Foreign Owned Enterprises (WFOEs) in China will now be taxed the exact same as all other Chinese businesses. The two taxes that were formerly only charged to Chinese businesses, are now being added onto the tax bill of all WFOEs.

The two new taxes for WFOEs are:

1.       The Urban Maintenance and Construction Tax

2.       The Educational Surcharge Tax

This is the result of the so-called “national treatment” movement, which is a direct result of China joining the World Trade Organization (WTO).  One of the requirements for the WTO is to give all foreign and domestic businesses the same fair treatment.

In China, however, this means that the advantages and privileges that had initially been given to the WFOEs will no longer apply.

When China started to open its doors to foreign investment, both the central and local governments instituted a multitude of incentives to attract foreign capital. Such incentives included the “duty free for 3 years” program and certain tax reductions were given for five years to some companies. They also set up different kinds of incentives based on the city and provincial regulations in which WFOEs could utilize additional incentives.

It would not be a stretch to say that some of the WFOEs came to China specifically for these privileges. Even for the companies who had to invest in the Asian market, the incentives were most likely among the top things to consider when decided where to set up shop, because the saved money trickles down to additional profit.

Everybody who moved to China for the incentives knew that they wouldn’t last forever. The incentives began disappearing about five years ago as the 3 year free tax and 5 year tax reduction policies vanished. They first disappeared from the provincial development areas and now you would be hard pressed to find certain incentives even in the big development areas.

In addition, as part of China’s “green movement,” they are now introducing more incentives for the development of sustainable, eco-friendly companies and industries. This also means however, that the more labor-intensive industries will not be able to set up companies as easily, especially those who put off large amounts of pollution as a byproduct of production. China is now favoring the high tech industries and R&D enterprises that will bring forward thinking individuals with high levels of education into the country.

The “National Treatment” movement and the additional taxes have brought some negative sentiment among businesspeople towards their bottom lines. The additional taxes will actually not be much for most businesses, however this does indicate that China is changing, and moving towards the high tech industries and those focusing on green innovation.

This shift suggests a change in paradigm for China; when the former plan was to get as many companies to invest as possible, to the new idea of encouraging fewer companies of higher quality to invest. Don’t get me wrong, there are still plenty of incentives available out there, however you should not only focus on where you can find the best investment incentives but how you are going to compete in a strengthening marketplace with strong quality products at competitive prices.

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Wheat Prices Rise as China’s Need Increases 12/20/2010

Wheat prices rise- china food inflationAs reported by Bloomberg this morning, wheat prices have increased the most in two weeks due to speculation that China, will import more wheat in efforts to curb food inflation. China, the world’s largest producer and consumer, is on track to import 4.45 million metric tons, of wheat or 500,000 more tons than last year.

As food prices continue to rise in China, it is predicted that they will work to rebuild their grain stocks  to curb inflation and fears of a food shortage. Wheat is the fourth-largest crop in the United States and was valued at $10.6 billion in 2009.

Full Article

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China Food Prices: Still on the Rise 11/22/2010

China Food Prices- Farmers Market in BeijingThis morning, an article out of the Sydney Morning Herald in Australia reports on the climbing food prices that continue to be seen in China. Farmers Markets throughout China have seen a spike in prices this year.

Some say the rise in feed and seed costs are responsible, starting a chain reaction: farmers must charge the suppliers more for the raw commodities,  who then turn around and truck it to the markets on trucks fueled with highly priced diesel, who pass on their costs on to the merchants, who then pass it on to the customers.

This food price inflation can be seen across the board, from the cost of a dozen eggs , that has risen almost 50% since the summer months, to the price of leeks that has doubled in the past year, according to one shopkeeper in Beijing. The annual food-price inflation hit 10.1% in October compared to 2009.

Causes? Economists worry that the economy is now starting to overheat as a result of the two year stimulus and the excess money floating through the economy.

Last week Premier Wen Jiabao announced food price controls on certain commodities including cotton, grain, oil and sugar and has introduced subsidies to some low-income families. Although some analysts believe these actions are designed to be symbolic, as a way to reassure the poor, they do reflect the government’s efforts to combat inflation.

The question looming in many boardrooms this month is what the impact these price increases will have on importer’s supply chains.  With China exporting billions of dollars a year of food products to companies in the United States, these increases could present an interesting challenge to this industry as a whole.  I’d be very interested in hearing what food importers are seeing out there and welcome any additional insight….

Full Article

Picture Source: AFP

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Panjiva’s Trade Data in for Month of October 11/12/2010

U.S. October Trade Shipments ChartPanjiva, an online trade platform used by sourcing and supply chain professionals to screen US import data, posted in a recent blog post that global trade activity saw a 2% decrease in global manufacturers shipping to the United States from September to October this year. This decrease marks a noticeable difference from the 3% increase that Panjiva reported during the same period in 2009.

What’s driving this decline? Most likely the weakened US dollar. As the US dollar continues to weaken against other global currencies like the Chinese Yuan, it makes it significantly more costly to import products from countries with strong currencies.

The positive result however, is that as the US dollar weakens, US exports become significantly more attractive to foreign buyers. I think we are going to see a dramatic increase in US exports over the next 12 months as the dollar doesn’t look like it’s poised to gain strength any time soon.

See Panjiva’s Post

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