School of Business

International Business Regions: China

Economy

Lecture Week 5

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International Business Regions: ChinaEconomy

Learning Outcomes Week 5

• China’s development since 1979 and the

transformation from an Agricultural to a Service

Economy

• Banking Sector: situational analysis & challenges

• Housing Market: ready to pop?

• Convertibility of the RMB: threat to US$ hegemony

and a shift in trading status quo?

• Innovation & spearheading R&D

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International Business Regions: ChinaEconomy

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International Business Regions: ChinaEconomy

Make up of Chin’s GDP 2013/14

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International Business Regions: ChinaEconomy

Banking

• 78% of all Chinese banks are state owned• Banks regulated by the China Banking • Regulatory Commission (CBRC)

• The big 5 state banks are: • Industrial & Commercial Bank of

China (also the largest bank globally)

• China Construction Bank• Bank of China• Agricultural Bank of China • Bank of Communications

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International Business Regions: ChinaEconomy

Graph showing % of Non Performing Loans

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International Business Regions: ChinaEconomy

Shadow Banking

DEFINITION: ‘The financial intermediaries involved in facilitating the creation of credit across the global financial system, but whose members are not subject to regulatory oversight.’

• Shadow banking accounts for 40+% of lending in China

• Loans are made via various vehicles:

1. Trust Companies2. Small Lending Companies and informal lending

circuits3. Wealth Management Products

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International Business Regions: ChinaEconomy

0 20 40 60 80

1950

2000

2013

2030

Urbanisation growth as % of

population since 1950

Urbanisation

growth as % of

population since1950

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International Business Regions: ChinaEconomy

Housing/Property

Home ownership is <60% in Tier 1 cities. Since April 2010 buyers have a mandatory down payment

20-30% -1st Home 40%-60% - 2nd Home

No mortgages for 3rd Homes

Source: Deutsche Bank (2011), BBVA (2011)

70% of Chinese now own their own home

Source: May 2013 - Jones Lang Wooten research by Amy Pan

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International Business Regions: ChinaEconomy

Global Convertibility of RMB

“The Renminbi [is expected] to become a top three global currency for trade settlement by 2015 and to be fully convertible in five years.” - HSBC, 2013

• RMB trade settlement:In 2012 accounted for 12% of China’s total trade – up from 9% a year earlier.

• Offshore trading centres: Hong Kong, London, Frankfurt & Singapore

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International Business Regions: ChinaEconomy

Innovation

“[China will] step up science and technology innovation and improve the technological

sophistication, quality and brand awareness of Chinese industry.”

- Li Keqiang, Premier of China, World Economic Forum,Tianjin 10 September 2014

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International Business Regions: ChinaEconomy

Types of Innovation

• Cost Innovation• Process innovation: a big focus in China• Application (app) innovation: low hanging fruit• Supply chain innovation• Product innovation: incremental to radical• Business model innovation: often copied and adapted

• New product innovation is Research & Development led

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China’s Research & Development Spending

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