Page 44 - 2018 White Paper on the Business Environment in China
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8 White Paper on the Business Environment in China
the Chinese Mainland, the figure would be US$5.47 resources, setting up global R&D in China, and being a
billion. This would indicate a distributor / retailer mark- leader in CSR in China. This suggests that the impact of
up on the order of US$4.53 billion. From press reports, major foreign companies on China can be much larger
we estimated that P&G invested on the order of US$2.5 than is generally understood. For many U.S. and other
billion from 1988 to 2015 in China (Reingold). From foreign companies their ability to “make their case” for
this information, we have made rough estimates of the the benefits they bring China could be greatly enhanced
economic impact of P&G on China’s economy. by incorporating such analysis.
Assuming that one-third of the US$2.5 billion capital Conclusions
investment went into land and construction, one-third
into supporting services, and one-third into machinery There are several direct conclusions that come from
and equipment (and further assuming that one-half the present analysis.
of the machinery and equipment was imported and
therefore had limited China impact), we estimate that China is at a Crossroads When it Comes
the total cumulative impact of P&G’s capital investments to Foreign Investment
in China was US$2.15 billion in value added (essentially
the GDP contribution) and 247,863 full time equivalents China is sending mixed signals when it comes to
in job-years (1 job for 1 year). We note that these are foreign investment and foreign companies. While official
cumulative not annual effects. Averaging the cumulative pronouncements claim that China is still open to foreign
employment impact over 30 years, for example, would companies, actions on the ground that are making
give an average impact of over 8,262 jobs per year just operating in China more difficult, and industrial policies
in terms of the impact of the physical developments that seem designed to displace foreign companies
associated with capital investment. rather than cooperate with foreign companies indicate
the opposite. Decisions made over the next several
Taking the estimates of P&G’s Chinese Mainland years could set the path for China’s relations with foreign
sales and distributor and retail margins listed above companies for decades. This makes “making the case” for
and applying the relevant multipliers, we estimated the value generated by foreign investment and foreign
the impact of the operations and sales of P&G in China companies of crucial importance.
were roughly US$11.28 billion in value added and over
612,000 in employment in 2014 alone. We recognize Economic Impact Analysis Gives a Much
that these are rough estimates, but they do suggest the More Complete Picture than FDI Flows
magnitude of the impact a major foreign company can
have on China’s economy. We note in particular that the The most widely reported figure when it comes to
US$11.28 billion in GDP impact for 2014 alone was more the impact of FDI on host economies are the FDI flow
than 4 times P&G’s total cumulative investment in China figures. However, these pale in comparison with value
from 1988 to 2015. generated by the operations of the investing entities.
According to the NBS, USFDI into China in 2014 was
These estimates show that the typical numbers US$2.4 billion. However, the U.S. BEA reports that the
that foreign companies quote when they discuss value added (GDP contribution) of just MOUSFAs in
their presence in China, investment totals and direct that same year was US$66 billion, or 27.9 times the NBS
employment, can hugely understate their total impact reported USFDI inflow.
on China’s economy.6 We note also that the economic
impact estimates do not include any quantification ESA has estimated the total economic impact in
of the value that P&G’s many other contributions to terms of value added for all USFAs in 2014 as US$437,408
China in terms of developing products and segments, million, or 4.2% of China’s GDP, and 185 times the NBS
supporting suppliers and distributors, bringing green registered USFDI inflow in that year. The total economic
standards to China, fostering development of modern impact of FIEs / FAs from all countries was on the order
marketing and advertising in China, training human of 33% of China’s GDP or on the order of US$3.5 trillion.
6 While some companies may do a similar analysis for internal pur-
poses, our experience is that this is rare. We are familiar with only one
similar study in the public domain and that was completed in 2000
and has not been updated.
44
the Chinese Mainland, the figure would be US$5.47 resources, setting up global R&D in China, and being a
billion. This would indicate a distributor / retailer mark- leader in CSR in China. This suggests that the impact of
up on the order of US$4.53 billion. From press reports, major foreign companies on China can be much larger
we estimated that P&G invested on the order of US$2.5 than is generally understood. For many U.S. and other
billion from 1988 to 2015 in China (Reingold). From foreign companies their ability to “make their case” for
this information, we have made rough estimates of the the benefits they bring China could be greatly enhanced
economic impact of P&G on China’s economy. by incorporating such analysis.
Assuming that one-third of the US$2.5 billion capital Conclusions
investment went into land and construction, one-third
into supporting services, and one-third into machinery There are several direct conclusions that come from
and equipment (and further assuming that one-half the present analysis.
of the machinery and equipment was imported and
therefore had limited China impact), we estimate that China is at a Crossroads When it Comes
the total cumulative impact of P&G’s capital investments to Foreign Investment
in China was US$2.15 billion in value added (essentially
the GDP contribution) and 247,863 full time equivalents China is sending mixed signals when it comes to
in job-years (1 job for 1 year). We note that these are foreign investment and foreign companies. While official
cumulative not annual effects. Averaging the cumulative pronouncements claim that China is still open to foreign
employment impact over 30 years, for example, would companies, actions on the ground that are making
give an average impact of over 8,262 jobs per year just operating in China more difficult, and industrial policies
in terms of the impact of the physical developments that seem designed to displace foreign companies
associated with capital investment. rather than cooperate with foreign companies indicate
the opposite. Decisions made over the next several
Taking the estimates of P&G’s Chinese Mainland years could set the path for China’s relations with foreign
sales and distributor and retail margins listed above companies for decades. This makes “making the case” for
and applying the relevant multipliers, we estimated the value generated by foreign investment and foreign
the impact of the operations and sales of P&G in China companies of crucial importance.
were roughly US$11.28 billion in value added and over
612,000 in employment in 2014 alone. We recognize Economic Impact Analysis Gives a Much
that these are rough estimates, but they do suggest the More Complete Picture than FDI Flows
magnitude of the impact a major foreign company can
have on China’s economy. We note in particular that the The most widely reported figure when it comes to
US$11.28 billion in GDP impact for 2014 alone was more the impact of FDI on host economies are the FDI flow
than 4 times P&G’s total cumulative investment in China figures. However, these pale in comparison with value
from 1988 to 2015. generated by the operations of the investing entities.
According to the NBS, USFDI into China in 2014 was
These estimates show that the typical numbers US$2.4 billion. However, the U.S. BEA reports that the
that foreign companies quote when they discuss value added (GDP contribution) of just MOUSFAs in
their presence in China, investment totals and direct that same year was US$66 billion, or 27.9 times the NBS
employment, can hugely understate their total impact reported USFDI inflow.
on China’s economy.6 We note also that the economic
impact estimates do not include any quantification ESA has estimated the total economic impact in
of the value that P&G’s many other contributions to terms of value added for all USFAs in 2014 as US$437,408
China in terms of developing products and segments, million, or 4.2% of China’s GDP, and 185 times the NBS
supporting suppliers and distributors, bringing green registered USFDI inflow in that year. The total economic
standards to China, fostering development of modern impact of FIEs / FAs from all countries was on the order
marketing and advertising in China, training human of 33% of China’s GDP or on the order of US$3.5 trillion.
6 While some companies may do a similar analysis for internal pur-
poses, our experience is that this is rare. We are familiar with only one
similar study in the public domain and that was completed in 2000
and has not been updated.
44
