Market Information

 

The Chinese market is big, and growing. The population of The Peoples Republic of China count around 1,3 billion people. But for most consumer related businesses, the Chinese market contains only a fraction of this vast population. Breaking into the mass market of China can be extremely challenging, mostly because China is not like any other market in the world. Businesses should take that into consideration before entering this Promised Land.

Consumer market
In 2005 China imported goods and services for about 650 billion US$. The import is expected to pass 700 billion US$ in 2006. The domestic production in China is also both considerable and increasing. By looking at these figures, businesses currently tend to think of China as the worlds most attractive market.

But the average spending power of the Chinese population, tells a completely different truth. Only about 60 million people out of Chinas total population has an average spending power comparable to the West. In 2005 the per capita GNP in China rounded 1400 UD$, which in a Chinese perspective is a big success. But the average of the GDP also points at the big social differences apparent in the Chinese society. There are a lot of poor people hidden in these numbers.

For comparison, the 2005 per capita GDP world average were around 6.000 US$. In Norway the per capita GDP was close to 50.000 US$. In 2003 the UN reported that 46 percent of the Chinese population had an average consumption of less than 2 US$ per day. Even if the growth continues at eight percent annually and the social cleavage is substantially diminished, China will still need several decades before its population will have a spending power around today’s world average.

Capital market
The development of the Chinese capital market still lags behind those in industrialized countries. A large proportion of the banking system is still on public hands, and suffers from that. The process of privatization and rationalization has started, but will need some time before it takes full effect. The possibilities of corporate financing through the Chinese banking system, is therefore limited, especially for small and medium sized enterprises.

The market for venture capital is also under developed. When added to the problems in the banking system, this sums up to some real financial challenges for enterprises that want to enter this market. Over the last years there has been made a legislative opening for foreign bank branch offices in China. This will see to some improvement of the situation. The first Norwegian bank will open its first branch office in Shanghai during 2006.

Labor market
The labor market in China has seen quite some improvement over the last years. Restrictions on labor mobility do seem to drive a wedge between urban and rural labor markets though. The Chinese need an official permission before they can obtain permanent urban residence. The OECD therefore considers government labor market policies as a barrier to improving the labor market further. The OECD also assumes that the differences between the rural and urban labor markets will increase, rather than decrease, over the next years.

Geography/ demography
Even if China is one country, it can hardly be considered as one market. As the world’s third largest country (in extension) it contains domestic differences as big as between countries in Europe. China contains a wide range of regional differences in culture, language, ethnicity, income, standard of living and preferences. The Chinese infrastructure also makes it hard to view China as a united consumer market. At best, China can be considered a collection of separate markets. The wealthiest part of the population seems to be found in the big cities on the East coast of China, while poverty seems to be the biggest problem in the West.