China Business 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 for U.S. companies that provide consumer products and services. Environmental protection, energy efficiency, high-end manufacturing, biotechnology, are also areas of high priority in the 12th 5YP.
U.S. exports to China stood at US$70 billion, January-August 2012, suggesting a slight end-of-year increase over the 2011 total of US $103 billion. The U.S. trade deficit with China widened to US$295 billion in 2011 reached a new high of US$21.9 billion, up 13 percent from 2010. China is the largest U.S. overseas market for agriculture, fish and forestry exports. Just five years ago, China was the fifth largest destination for the U.S.. Given China's rising incomes and demand for raw materials and finished foodstuffs, the U.S. Foreign Agriculture Service forecasts that China's imports will continue to grow well into the future.
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 the per-capita disposable income of rural residents stood at US$1,105. Next ->
Source: US Commercial Services