Optimistic about China Despite its Slowing Economic Growth and Rising Costs

On November 20, 2013, I attended an event in Seattle, Wash. entitled "Update on Issues in the US-China Relationship," which was co-hosted by the Washington State China Relations Council and the Trade Development Alliance of Greater Seattle. Erin Ennis, Vice President of the US-China Business Council (USCBC), a Washington, DC-based organization representing approximately 220 US companies selling American goods and services in China, focused her presentation on the USCBC 2013 China Business Environment Survey Results.

According to a press release dated October 10, 2013, the USCBC "surveys its member companies each year to gauge China's business climate and assess the top challenges faced by companies doing business there." The press release explains, "As China's economy has slowed over the past year, USCBC’s survey results indicate that companies face business and market access issues in an economy that for the past five years has been a rare bright spot in a difficult global downturn."

Ms. Ennis noted that the growth rate of China's economy is slowing and cost increases are the most significant challenge of member companies. Reading from the report, she said, "Fewer companies in this year's survey report that their profit margins in China are better than that of their global rates, and fewer companies report double-digit revenue increases compared to previous years."

Ms. Ennis said competition with Chinese companies in China is listed second among the ten challenges identified by member companies (see list below). The report's Executive Summary explains that "most multinational companies in China contend with other foreign competitors as well as both state-owned and private Chinese companies. Survey respondents expressed concern over the benefits that Chinese companies (both state-owned and private) receive that are not available to foreign companies."

Interestingly, while intellectual property rights (IPR) are a regular topic in the U.S. media, IPR enforcement is listed fifth among the ten challenges identified by member companies. The report says, "Problems with licensing occur at the central, provincial, and local levels and affect almost every aspect of doing business in China. Licensing issues often overlap with other issues in the top 10, including uneven regulatory implementation, lack of national treatment, and insufficient transparency in government rule drafting and decision making."

While my colleagues and I at ROI3 recognize the slowing pace of China's economic growth, we continue to remain optimistic about the opportunities to monetize our mobile software-as-a-service in the world's second largest economy and one of the world's largest mobile telecommunications market. As outlined in previous posts on this blog, China currently has over 300 million 3G subscribers and will see smartphone shipments exceed 460 million units by 2017 including 440 million 4G users by 2017. We are committed to producing localized mLearning apps and content that will empower smartphone and tablet users in China to improve their lives.

The top 10 challenges cited by USCBC member companies are:

#1  Cost increases
#2  Competition with Chinese enterprises (state-owned or private)
#3 (tie)  Administrative licensing
#3 (tie)  Human resources: Talent recruitment and retention
#5  Intellectual property rights enforcement
#6  Uneven enforcement or implementation of Chinese laws and policies
#7  Nondiscrimination / National treatment
#8  Transparency
#9  Standards and conformity assessment
#10  Foreign investment restrictions

Aaron Rose serves as President and CEO of ROI3, Inc., a Seattle, Wash.-based company that empowers people in emerging economies through innovative, technology-based solutions. He is also the editor of Solutions for a Sustainable World.