Can Regional Companies Benefit from China's National Urbanization Plan?
Fri, 05/30/2014 - 09:12 RCN Newsdesk
China's push to unlock domestic consumption and urbanize another 100 million people presents an opportunity for the region to collaborate, understand Chinese demand, apply its competitive advantages, and win in the Chinese market.
In January 1914, Henry Ford doubled his wages to $5 a day and cut his work day from 9 to 8 hours. He created demand by paying his workers enough to afford the very cars they were building and gave them time to enjoy their newly afforded middle class lives. 100 years later China is working off the same recipe for demand creation. Simply put, China wants to force consumption by creating more free spending urbanites. To support this effort, China’s Ministry of Finance announced on March 16 its "National New-
Type Urbanization Plan" (2014-2020) with a price tag of $6.8 trillion USD. China's current urbanization rate is 53.7%, with its new goal being 60%. That is compared to a nearly 80% urbanization rate in the U.S.
This spending equates to $68,000 per person for infrastructure development, energy generation, housing, health care, education, and more. No doubt American companies will be there to provide expertise, technology and turn a profit. That is how American capitalism works.
This is all in line with China's plan to move away from Fixed Asset Investments (FAI) and wean itself off low value export manufacturing. China wants a balanced economy and to do this it will increase wages 10%-15% a year. This represents more income for highly sought after American brands. Buick sold 205,509 cars in the US in 2013 and 809,918 in China during the same time period. The American brand and anything American made is highly sought after in China.
The Chinese envy the safety of American food and the quality of American education. They enjoy American movies and wear American branded clothing. Or from another perspective there will be another 100 million people with the means to consume P&G made tooth paste, eat YUM Brands owned KFC, consume livestock raised on Ohio grown soybeans, enjoy fine whiskey distilled in Kentucky, and fly in planes powered by GE made jet engines.
This opportunity is not just for big companies. In fact, small and medium size companies account for 98% of U.S. exporters but only 1/3 of export value. There is vast untapped export potential for small and medium sizes companies utilizing resources such as the SBA Export Loan Program, Export-Import Bank resources, U.S. Commercial Service, the Northern Kentucky Chamber’s International Trade Association, the Greater Cincinnati Chinese Chamber of Commerce, and more.
To be sure, China is an irresistible market for U.S. companies but can be filled with uncertainty. This iswhy the Greater Cincinnati Chinese Chamber of Commerce is a representation of companies that offer services, have insight, expertise, and experience in China. This is demonstrated by our core membership with the likes of Duke Energy and EcoPartnership with China, Barnes Dennig's International Tax Services, Frost Brown Todd's International Services Group, GBBN Architects and Warner Architecture Studio’s extensive China experience, DHL's Express' commitment to inbound and outbound China supply chain, and much more.
Now is the time for the region to collaborate, understand the Chinese urbanization plan, apply its competitive advantages, and win in the Chinese market. We’re excited to work with local companies to create winning strategies for expanding to China and beyond by participating in Merx2014, an international best practices summit and luncheon on June 5thinformation and to register for Merx 2014 at the Mets Center in Erlanger. For more please visit www.bit.ly/merx2014
Written by Michael Kou ([email protected]), President, Growth By Export, Inc., Chairman-Elect, Greater Cincinnati Chinese Chamber of Commerce