China's Major Markets: Forecasts 2002-2005

Countries covered: China This new report looks at market sizes across all consumer sectors up to 2005, while addressing the main issues confronting China's economy and society over the next five years.

As China enters 2002, the country is faced with a number of new realities. All of them appear are encouraging from a business perspective. These include:

• China’s successful accession to the World Trade Organisation (WTO);
• The improved relations with the USA & Europe;
• The prospect of relatively smooth political change at the forthcoming Party congresses and;
• Expected strong economic growth in 2002.

WTO accession is now a done deal and China has entered 2002 with the initial hype over accession finished and the opportunity to start to see how well China will live up to its obligations. Foreign firms are starting to take China more seriously. The main benefits are expected to be:

• The start of the process of liberalising a number of markets to foreign competition. Given the expected downturn in exports resulting from the economic slowdown in the USA and Europe, WTO should provide the boost to FDI inflows that may make up the gap.
• Greater transparency amongst Chinese companies as both outside investors, potential joint venture partners and domestic institutions such as CIRC, the Ministry of Finance and others demand it.
• A knock-on effect for Hong Kong that has already seen an influx of foreign companies establishing regional headquarters. Once again Hong Kong may be able to recapture its role as the ‘bridgehead’ into China - though this may only be a temporary phenomenon - Shanghai is breathing down Hong Kong’s neck.

The improved relations between China and the US are extremely welcome and should continue following the February 2002 Sino-US Summit. How many of analysts in summer 2001, after the travails of the Belgrade Embassy bombing, the spy plane incident in Hainan, Charlene Barshevsky, Chris Patten and Pascal Lamy’s often strained negotiations in Beijing, not to mention the depressing messages that had been coming out of institutions such as the Ministry of Information Industries (MII) that seemed to discourage reform and raised the specter of a return to protectionism, foresaw the current thaw in relations and the bonhomie between Jiang and Bush II in Shanghai at October 2001’s APEC Summit.

Of course September 11th, or as the Chinese call it 9-11, changed all that. China appears to be broadly on the American wavelength. There has reportedly been some sharing of intelligence between the People’s Liberation Army (PLA) and the Central Intelligence Agency (CIA) and some expressions of tacit support as well as Chinese aid donations to Afghanistan. For China the whole event can be seen as a win-win situation. The public price for Chinese support is for America to formally classify Muslim separatists in Xinjiang, Uigher Nationalists and those calling for a reformed East Turkistan state as terrorists. China has ramped up the executions of so-called ‘splittists’ since 9-11 and more openly attacked the proponents of an East Turkistan state. The private price for America is to quiet voices talking about human rights, Tibet and any calls for sanctions or trade restrictions. At APEC Bush II reaffirmed Clinton’s ‘One China’ policy publicly after a year of seemingly ditching the previous administrations China Friendly policies and pledging greater support for Taiwan. Relations with China now appear to be more Clintonite than the line we had been getting from the new policy wonks in Washington such as Rice and Rumsfeld.

2002 sees the transition of power in China. Jiang stands down as Communist Party (CPC) Chairman and then a year later as President. The next generation leadership stands seemingly ready. A year ago analysts voiced concerns about several contenders that appeared to be making the running. Certainly Li Peng thought he should get called to the job. Li is now apparently out of the running due to his bad history. This appears to leave just Hu Juntao. Hu seems to have the makings of a leader in many respects - strong Beijing education, a major appointment in Tibet and in Gansu before arriving in Beijing. Therefore he can cover minorities, poverty, rural issues and internal party matters. On the other hand he has yet to go to America, is untested in terms of relations with Taiwan and is little known overseas.

Despite a high profile visit to Western Europe in October/November 2001 he didn’t get the press coverage Beijing hoped for what with other events crowding him off the front page. However, most of the western leaders and diplomats he met reported him well briefed and knowledgeable. It appears that, the Europeans at least, believe that Hu is a man they can do business with. Expect to see him positioned front and centre at the February Summit and taking a stronger role at the Ministry of Information Industries (MII).

However, aside from the top echelons of the leadership and the need for removal vans at Zhongnanhai, it is actually the numerous changes that will occur at regional, provincial and municipal level that will be crucial.

Strong Economic Growth - 2001 was a good one with closing figures of between 7-8% GDP growth despite the latter half of the year seeing a slowdown in exports as the US economy slackened. There appears to be some discrepancies within the leadership as to what 2002 will yield in terms of GDP growth. The head of China’s State Development Planning Commission (the country’s head central planner) is publicly forecasting 7% growth this year after 7.3% in 2001. However, economics guru and Party big cheese Zhu Rongji is more cautious in his estimate of this year’s growth, looking at around 6.5-6.8%. The International Monetary Fund appears to be agreeing with Zhu though is even more cautious forecasting growth of 6.8% as a maximum though likely to be several points lower by years end. Whoever is correct it seem sure that growth will be over 6% which remains high by international standards and will occur at a time when the US and Europe will see only slightly recovering economies at best.

However, FDI figures remained fairly good with some strong latter half (Q3/Q4) inward investment that reflected quality over cheap labour. Applied Materials new wafer chip factory in Shanghai was a major coup proving that China can now match Taiwanese or Singaporean quality standards in this sector. Applied Material’s US$1 billion investment also was seen as an indication that American firms see China as more of a secure base for hi-tech production than previously.

All these factors: WTO and its rules and obligations; improved diplomatic relations and the resumption of normalised trade after the snafus of 2000/2001; the apparently calm political situation within the leadership and; the growing economy all combine to indicate that China’s predictability factor is improving.

And that predictability factor is crucial if you are a major corporation investing US$ billions in China, as Applied Materials, GM, Microsoft, Hewlett Packard, HSBC, New York Life and others are doing.

Market Definitions

Access Asia has published this report containing forecasts on the major markets in China between 2002 and 2005 as part of the China Contact Market Research report series. The report covers the market and current state of development of various markets in Mainland China over the next three years.

As China enters 2002 the country is faced with a number of new realities. All of them appear are encouraging from a business perspective. These include: China’s successful accession to the World Trade Organisation (WTO); The improved relations with the USA & Europe; The prospect of relatively smooth political change at the forthcoming Party congresses and; Expected strong economic growth in 2002.

WTO accession is now a done deal and China has entered 2002 with the initial hype over accession finished and the opportunity to start to see how well China will live up to its obligations. Foreign firms are starting to take China more seriously.

Certainly 2001 was a good year for China with closing figures of between 7-8% GDP growth despite the latter half of the year seeing a slowdown in exports as the US economy slackened.

Key Facts

As we enter 2002 it is becoming clear that a number of factors will shape the next few year including:

• The traditionally large investors in China feel more secure in committing large sums of investment to China - in some case up to US$1 billion and beyond;
• SME’s, many of which historically saw China as just too big, too daunting and too difficult, are now starting to rethink their China strategies.
• Sectors that previously shied away from investing too heavily in China such as semiconductors or hi-tech that feared poor quality or copyright theft are now feeling more confident and investing heavily.

Core Contents

• The main economic, business, political and market factors facing China between 2002 and 2005
• China’s Business Environment in 2002
• What to Expect in 2002
• Forecasts of the market to 2005
• Consumer confidence indicators
• Social Tensions
• China & Globalism
• Over 40 markets forecast, each with forecast trends and forecast sales between 2002 and 2005
• Looking Further Ahead - developments in China between 2005 and 2010

Sector Coverage

• Airlines
• Auto financing
• Auto parts
• Automobiles
• Baby foods
• Baked foods
• Banking
• Beer
• Brokerages
• Camera film
• Canned foods
• Car rental
• Catering
• Cereals
• Chilled foods
• Computer equipment
• Confectionery
• Cosmetics & toiletries
• Credit cards
• Dairy foods
• Debit cards
• Dried foods
• Fast-food
• Flowers
• Frozen foods
• Gambling
• Home furnishings
• Home improvements
• Hot drinks
• Hotels
• Insurance
• Internet
• Lotteries
• Mobile telecoms
• Pagers
• Paper
• Petrol stations
• Plants
• Pulp
• Retailing
• Savoury snacks
• Soft drinks
• Software
• Soya products
• Spirits
• Sugar
• Telecommunications
• Tobacco
• Tourism
• WAP telecoms
• Water purifiers
• Wine
• Writing instruments

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