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6 White Paper on the Business Environment in China
export-oriented manufacturing among foreign invested en- able and domestic research and development15 as well as special
terprises has been tracked by AmCham South China’s annual financial support for SMEs.16
State of Business study since 2006 (the 2013 results of which
are reproduced in Part IV): in 2006, 46 percent of companies By 2011, this financial support was claimed to have had a
participating in the study reported focusing primarily on selling strong positive effect by CITIC Securities Chief Economist
goods to the domestic Chinese market. This figure reached 51 Zhu Jianfang (see below).17
percent in 2007, 57.5 percent in 2008, 72.5 percent in 2009 and
75 percent by 2010. In line with these goals, PRC Vice President Xi Jinping told
attendees of the 2010 World Investment Forum in Xiamen that
Encouraging domestic consumption has become increas- the government would “encourage more foreign investment
ingly critical for the Chinese government as overall exports—a in high-end manufacturing industries, high-tech industries,
large chunk of which are constituted by manufactured arti- modern services industries, new energy, energy-saving and en-
cles—continue to slow amid tepid economic growth in the vironmental protection industries. We will encourage foreign
west and the PRC’s worryingly chilly diplomatic relations with investors to move to and increase investment in the central and
several of its neighbors in Asia. western regions, and develop labor-intensive industries meet-
ing environmental requirements in the central and western re-
China Daily reports that “according to statistics released by gions.”18
the China Chamber of Commerce for Import and Export of
Light Industrial Products and Arts-Crafts, the total transaction Unsurprisingly, Vice President Xi’s points later reappeared
volume for light industrial products declined by 7.67 percent in the 12th Five-Year Plan.19
[between November 2011 and November 2012],” while “those
for other products, such as machinery and electric products, Modernization efforts, in fact, are not exactly new. The Na-
textiles and apparel, also declined.”11 tional Bureau of Statistics reported in 2012 that the “total value
of the high-tech manufacturing industry hit 8.8 trillion yuan in
The Ministry of Commerce reported 287 new foreign in- 2011, 5.9 times its value in 2002.”7
vestment projects in light industry over the course of 2009,
utilizing $1.69 billion.12 By 2010 that amount had reportedly One emerging aspect of high-tech manufacturing on the
jumped to $49.6 billion in FDI over the course of the year and Mainland is the increased use of robotics. China Daily reports
$28.5 billion over the first half of 2011.13 that:
Despite the rapid growth and all the benefits it carried with The average labor cost in China has nearly doubled
it, however, the majority of Chinese manufacturing has histori- in the past five years, going to more than 40,000 yuan
cally (since the “opening up”) added relatively small amounts of ($6,400, 4,900 euros) a year in 2011 from less than
value and has been highly labor- and environmentally-intensive. 25,000 yuan a year in the beginning of 2007, according
Although progress has been and continues to be made, there to global consulting firm Ernst & Young.
remain significant portions of the manufacturing industry (and
China’s economy as a whole) that, while creating jobs and con- But according to a report this year by the International
tributing to GDP, also have side-effects such as high and inef- Federation of Robotics, there were 74,300 operational
ficient energy consumption, environmental damage and, due robots in China at the end of 2011, up 42 percent from
at least in part to the government’s own macro-level develop- 2010.20
ment strategy, noticeable regional imbalances in development
and prosperity. The “Go West” plan to drive labor-, energy- and While the up-and-down seems to have potential as a hu-
environmentally-intensive activities to poorer inland provinces morous infographic, the phenomenon itself is both notewor-
and regions and the increasing emphasis on indigenous innova- thy and likely to increase in prevalence as the Mainland con-
tion and domestic consumption can be considered strategies to tinues attempts to modernize its manufacturing sector.
address these issues.
Notable Policy Activity
Another method by which to address these issues has turned
out to be the 2009 stimulus effort itself; the plan associated Continuing Changes to Tax Policy
with the manufacturing industry, however, explicitly included A new round of tax refunds were eliminated on July 15,
the goal of generating 3 million jobs in light industry over three
years, in addition to “structural adjustment” and industrial up- 2010, covering 406 products mostly “considered to be high pol-
grading.14 luting, high energy consumption or domestically sourced goods
that are scarce,” according to Deloitte, who further noted that
The plan also entailed the closure of highly-polluting and in- “compared to the 2007 reduction in the export VAT refund,
efficient manufacturing operations, tax incentives for the export this round of changes is relatively prudent;”21 nevertheless, a
of machinery, the import of technology not domestically avail-
204
export-oriented manufacturing among foreign invested en- able and domestic research and development15 as well as special
terprises has been tracked by AmCham South China’s annual financial support for SMEs.16
State of Business study since 2006 (the 2013 results of which
are reproduced in Part IV): in 2006, 46 percent of companies By 2011, this financial support was claimed to have had a
participating in the study reported focusing primarily on selling strong positive effect by CITIC Securities Chief Economist
goods to the domestic Chinese market. This figure reached 51 Zhu Jianfang (see below).17
percent in 2007, 57.5 percent in 2008, 72.5 percent in 2009 and
75 percent by 2010. In line with these goals, PRC Vice President Xi Jinping told
attendees of the 2010 World Investment Forum in Xiamen that
Encouraging domestic consumption has become increas- the government would “encourage more foreign investment
ingly critical for the Chinese government as overall exports—a in high-end manufacturing industries, high-tech industries,
large chunk of which are constituted by manufactured arti- modern services industries, new energy, energy-saving and en-
cles—continue to slow amid tepid economic growth in the vironmental protection industries. We will encourage foreign
west and the PRC’s worryingly chilly diplomatic relations with investors to move to and increase investment in the central and
several of its neighbors in Asia. western regions, and develop labor-intensive industries meet-
ing environmental requirements in the central and western re-
China Daily reports that “according to statistics released by gions.”18
the China Chamber of Commerce for Import and Export of
Light Industrial Products and Arts-Crafts, the total transaction Unsurprisingly, Vice President Xi’s points later reappeared
volume for light industrial products declined by 7.67 percent in the 12th Five-Year Plan.19
[between November 2011 and November 2012],” while “those
for other products, such as machinery and electric products, Modernization efforts, in fact, are not exactly new. The Na-
textiles and apparel, also declined.”11 tional Bureau of Statistics reported in 2012 that the “total value
of the high-tech manufacturing industry hit 8.8 trillion yuan in
The Ministry of Commerce reported 287 new foreign in- 2011, 5.9 times its value in 2002.”7
vestment projects in light industry over the course of 2009,
utilizing $1.69 billion.12 By 2010 that amount had reportedly One emerging aspect of high-tech manufacturing on the
jumped to $49.6 billion in FDI over the course of the year and Mainland is the increased use of robotics. China Daily reports
$28.5 billion over the first half of 2011.13 that:
Despite the rapid growth and all the benefits it carried with The average labor cost in China has nearly doubled
it, however, the majority of Chinese manufacturing has histori- in the past five years, going to more than 40,000 yuan
cally (since the “opening up”) added relatively small amounts of ($6,400, 4,900 euros) a year in 2011 from less than
value and has been highly labor- and environmentally-intensive. 25,000 yuan a year in the beginning of 2007, according
Although progress has been and continues to be made, there to global consulting firm Ernst & Young.
remain significant portions of the manufacturing industry (and
China’s economy as a whole) that, while creating jobs and con- But according to a report this year by the International
tributing to GDP, also have side-effects such as high and inef- Federation of Robotics, there were 74,300 operational
ficient energy consumption, environmental damage and, due robots in China at the end of 2011, up 42 percent from
at least in part to the government’s own macro-level develop- 2010.20
ment strategy, noticeable regional imbalances in development
and prosperity. The “Go West” plan to drive labor-, energy- and While the up-and-down seems to have potential as a hu-
environmentally-intensive activities to poorer inland provinces morous infographic, the phenomenon itself is both notewor-
and regions and the increasing emphasis on indigenous innova- thy and likely to increase in prevalence as the Mainland con-
tion and domestic consumption can be considered strategies to tinues attempts to modernize its manufacturing sector.
address these issues.
Notable Policy Activity
Another method by which to address these issues has turned
out to be the 2009 stimulus effort itself; the plan associated Continuing Changes to Tax Policy
with the manufacturing industry, however, explicitly included A new round of tax refunds were eliminated on July 15,
the goal of generating 3 million jobs in light industry over three
years, in addition to “structural adjustment” and industrial up- 2010, covering 406 products mostly “considered to be high pol-
grading.14 luting, high energy consumption or domestically sourced goods
that are scarce,” according to Deloitte, who further noted that
The plan also entailed the closure of highly-polluting and in- “compared to the 2007 reduction in the export VAT refund,
efficient manufacturing operations, tax incentives for the export this round of changes is relatively prudent;”21 nevertheless, a
of machinery, the import of technology not domestically avail-
204
