Question 1: Jonathan, this is the fifth edition of your Global Market Briefings Series "Doing Business in China".  This is also the third of these new updates that we have had the pleasure to review at www.business-in-asia.com and I must say I found the new edition which has just been issued in late 2006 to be much easier to work with than your earlier editions while still covering subjects with respect to China in detail as your Doing Business with China guide does so well.  Can you tell us a little about your new edition, the changes and how you feel you succeeded in improving what was already an excellent guide?

Answer: Thank you for your positive comment, Chris. Other readers familiar with earlier editions have given us similar playback. The difference in approach for the revised fifth edition is that we decided to avoid 'reinventing the wheel' and to make best use of the most up-to-date publishing software that we could find to deliver the product. In terms of content we updated only those chapters in Parts 1 to 7 of the book where there had been significant changes in the regulatory regime and business regulations. In Part 8 we focused exclusively on updating selected key industries: for the automotive industry, individual chapters on automobiles, trucks and buses and auto-components; for banking, both domestic and foreign-invested banks; developments in the securities industry; steel production and core minerals; and the oil and gas industry. The enhanced IT technology enabled us to deliver the new edition online, with all the updated chapters highlighted and flagged, either in PDF format or in hard copy.     

Question 2:  Over the last 20 years, the average annual rate of growth in China has been 10 per cent or more.  This year, GDP growth is up some by some reports over 12 percent.  Can China continue to grow the economy at this rate throughout the next decade and if so or if not, what does this change in growth hold for China, the region and the World?

Answer: I see no reason why China should not maintain a 10 per cent average annual rate of GDP growth for the foreseeable future. Of course, the task gets ever harder as the level of GDP in absolute numbers rises each year,
and much depends on how successful the government is in its quest to stimulate domestic consumer expenditure. China's GDP growth is certainly good for the ASEAN countries from which it draws much of its imports but the impact on the rest of the World is more debatable. For sure, U.S. and EU consumers will continue to enjoy the benefit of low cost clothing and other consumables and durables imported from China. No doubt U.S. and EU manufacturers will increase their efforts to hold back Chinese imports by persuading their governments to introduce protective tariffs and quotas or direct subsidies, but these measures are constrained by WTO rules and there are limits to the number breaches that the governments concerned are prepared to sanction. More positively, as the standard of living of Chinese consumers rises, opportunities for U.S. and EU manufacturers to export their premium products and innovative technology to China will grow while domestic demand may mop up some of China's export production capacity.    

Question 3:  China now produces 75 percent of the world's toys, 58 percent of the world's clothes, 29% of the world's mobile phones plus countless other high percentage numbers of various products from low to even high tech.  Chinese national and business leaders have now put the world on notice that it is not satisfied only producing lower technology products but also wants access to high technology and plans to compete worldwide in this sector.  Is such speeches only words, and if not what are the implications for this new push for market share in high tech products for Japan, the EU and the U.S.?

Answer: China's progression up the manufacturing value chain was inevitable and the invasion is happening already in consumer durables such as personal computers, TVs and domestic appliances. It was recently announced that China now spends more annually on R&D except for the U.S., having pushed Japan into third place. Setting aside neo-protectionist measures, big business will no doubt react pragmatically, as it always does, to its own benefit. I foresee growing M&A activity involving Chinese companies, both as targets and predators. The process will be stimulated by the arrival of more and more Chinese company listings on U.S. and EU stock exchanges, notably in New York and London. The degree to which China will tolerate foreign company stakes in its key industries will be affected by the policies that the U.S. and the members of the EU adopt towards reciprocal investments from China.   

Question 4:  Recently the Chinese government announced new policies respecting pricing of land for industrial use that acted to nearly double the floor price of industrial land country-wide.  Also, recently the government announced decisions to stop reimbursing lower tech industries for VAT refunds.  Also, there have been discussions in the newspapers that the Central government will soon abolish the more favorable treatment given to foreign companies in terms of exemption from income tax during the initial years.  Do these changes indicate a decrease in Chinese government hunger for FDI and how do you see these changes affecting new investment?

Answer: The significance of FDI's role as the engine of growth and source of international standards of product quality for modern China's economy may be fading, but I see these changes as a positive move, in line with WTO obligations, to level the playing field for competitive enterprises, whatever the source of funding. As to the 'price' of industrial land, for which only rights of use rather than freehold can be acquired, this move is mainly designed to curb over-investment in speculative development. 

Question 5:  According to a 2004 report from the United Nations Conference on Trade and Development (UNCTAD), China is now the fifth most likely country from which outgoing FDI is expected to come in the future after the United States, Germany, the UK and France and even now exceeds Japan in terms on expected new external investment.  Do you see this change as significant?  Will the investment only be in raw materials and energy or does it in fact indicate that China will be more aggressively engaged in all sectors in the world economy in the years to come?

Answer: I have really addressed this question when answering your Q3. Whether China will pursue investment as aggressively in developed countries as it is now in Africa and elsewhere for raw materials and energy in the future is doubtful. The distinguishing feature of its current foreign investment drive is the absence of politically correct pre-conditions. How that disregard for conventions might translate into investment in, say, the member states who joined the EU in 2004 is also an interesting question.  

Question 6: Today, economist widely expect China to overtake the United States as the world's largest exporter by 2010 and expect China's GDP to reach the US level by 2020.  Both of these dates are not far off.  Is the further rise of China inevitable and is the eclipse of the U.S. really that imminent?

Answer:  Of course, the overtaking of the U.S. by China in terms of absolute GDP is an emotive subject, although I do regard it as inevitable, by 2030 rather than 2020. However,  'eclipse' gives the wrong impression. In terms of wealth, GDP per head in China will still have a long way to go before it catches up with the U.S. and other leading developed economies. Increasing Chinese prosperity will be good for the rest of the World in that it will drive up Chinese labor rates over time and erode the present gap in price competitiveness. At some point quite soon China will have to focus on raising productivity if it wants to maintain its competitive advantage long-term.

Question 7:  In the book in a series of chapters in Part two you review China's compliance in meeting its WTO commitments over the last four plus years. Many people have commented upon the continued problems with intellectual property protection in China.  How do you view China's progress in this area and in the many other commitments it made when it entered the WTO?

Answer: Intellectual property protection in China remains a problem, for Chinese companies that are brand leaders as well as for Western companies. I doubt that this problem will be solved quickly, however vigorously the Chinese government tries to impose legal protection. It seems likely, as the tide of economic development moves West into the poorer provinces, that local manufacturers will arise who set out to copy the products of successful companies established in the prosperous Eastern provinces and to undercut them on price. As to China's other WTO commitments, the record is generally good in terms of de-regulation. However, the protectionism in foreign trade
that has revived as the Doha Round ground to a halt is likely to be a brake on China's further elimination of trade barriers.    

Question 8:  As China continues to grow and prosper and as the obligations in terms of creating a level playing field for competition improves, obviously the Chinese market becomes increasingly attractive for companies worldwide. Your book covers many aspects of this changing scene.  In 2006, how difficult is it for a foreign company to market, distribute and compete on equal terms with Chinese companies for consumer dollars?

Answer: Market entry remains difficult. Chinese consumer are brand sensitive and have an awareness and appreciation of international brands. Pricing is the key issue although it is surprising how much Chinese families will pay to eat in Western-branded fast food outlets in the major cities. As always, successful entry depends on the quality of Chinese partners and 'going it alone' is not a realistic option. However, with the explosion of private business in China (now accounting for more than 75% of GDP) and the new generation of entrepreneurs, there is a wider choice of partner. The chapters in our book offering advice on the selection of and negotiation with Chinese partners remain relevant.  

Question 9:  In Part 8 of the new edition, you cover a wide range of sectors in the economy in special sections.  These include automobiles, automotive components, banks, computer technology, energy, insurance, advertising, retailing, telecommunications, travel and tourism and many more.  When you compiled the new edition, what sectors stood out to you as offering the most improvement in conditions looking toward rapid growth?

Answer: Undoubtedly, the liberation of service industries and the relaxation of controls on foreign investment in them offer the most exciting opportunities. The recent announcement that the consumer credit market will shortly open up improves prospects for stimulating household expenditure. Already, the home improvements market has taken off and I expect that we shall soon see the emergence of a used car market and branded automotive service centers.       

Question 10: Will there be a sixth edition of Doing Business in China next year? Also, what other projects are you working on at the moment and what other books out there on China that have come out recently would you recommend to our readers interested in business and the economy in China?

Answer: With our new IT platform and the technology described earlier, we shall embark on a new series of more frequent updates online early in 2007. We are planning to deliver revised editions at regular intervals. Rather than purchase a single edition readers will be able to subscribe for the ongoing revisions. Full details will be available soon. An added bonus is that the more frequent updates will also enable us to exchange views more frequently - to which I look forward.

I shall be starting work in the New Year on a new series of entrepreneurs guides to  developing business in the three key emerging markets of China, India and Russia. The new books will supplement the existing titles in the
Global Market Briefings Series and will focus on managing the practical issues that arise in the business environment rather than regulatory detail. They will include case studies of successes and failures and will hopefully be of interest to you readers as well as ours.      

About the Inverviewer:

Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)