Hawaii Pacific Export Council

U.S.-China Trade: Opportunities and Challenges for U.S. Business

OVERVIEW
• International Trade Administration
• China Trade: Opportunities
• Best Prospect Sectors
Support for U.S. Companies
• China Trade: Challenges
• U.S. Response: Three-Pronged Strategy
• ITA MAC’s China Work & Key Contacts

B. U.S.-China Trade: Opportunities
Chinese Middle Class Growth Trajectory

B. Opportunities: Hawaii

C. Best Prospect Sectors

Support for U.S. Companies
Travel and Tourism
Education and Training
Banking Services
Franchises
Medical Equipment
Retail Food/Snacks/Fisheries
Safety and Security
Marine Industries
Construction
Automotive
Water and Waste Management
Oil &Gas / Power Gen / Coal

INDICATIONS
Import U.S. goods to balance trade
RMB 6.6 = $1 by 2009
10th NPC – HU’s “Harmonious Society”

–Medical / Education / Environment
Consumer spending to drive economy
–Growing middle class
–Retail sales up 20% in ’07
–70% of GDP by 2015
Age > 65 = 1995 10% / 2030 22%

Best Prospects
TRAVEL & TOURISM

Best Prospects
EDUCATION / TRAINING
o 67,000 Chinese students in 2007
12% of foreign students

o E-Learning major opportunity
Ministry of Education – “All Schools Connected”
550,000 K-12 schools / 200 M students by 2010
67 universities – E-learning degrees

o Short-term training & workshops / Business Ed. /
Materials & equipment / Lend & exchange faculty /
Educational consulting services

Best Prospects
BANKING SERVICES

Best Prospects
FRANCHISING

Best Prospects
MEDICAL EQUIPMENT

Best Prospects
RETAIL FOOD / SNACKS / FISHERIES

Best Prospects
SAFETY & SECURITY

Best Prospects
MARINE INDUSTRIES

Best Prospects
CONSTRUCTION

Best Prospects
AUTOMOTIVE

Best Prospects
WATER & WASTEWATER MANAGEMENT

Best Prospects
OIL & GAS / POWER GEN / COAL

AISA PACIFIC PARTNERSHIP FOR CLEAN DEVELOPMENT & CLIMATE
2ND TIER URBAN MARKETS

Not just Beijing, Shanghai, & Guangzhou
Another Key Market Driver
2ND TIER URBAN MARKETS
 260+ cities of 1M or more
 Top 14 Second Tier Markets
– 8% population / 54% imports
 Growing 2% faster than national GDP
 Partnership with Chinese Council for the Promotion of International Trade
– Help U.S. business succeed in China

Top Secondary Markets

In China… Everything is possible, nothing is easy. ~ Boccio’s Theorem

U.S. COMMERCIAL SERVICE China

U.S. COMMERCIAL SERVICE China

U.S.Commercial Service - China
19 Cities
– 5 CS Offices
– 14 Secondary markets

150 U.S. & locally- engaged staff

D. Challenges
•Trade deficit
•Economic nationalism
•IPR
•Standards
•Transparency
•Product safety

1. Challenges: China Trade Imbalance

2.Challenges: Economic Nationalism
3. Challenges: Intellectual Property Rights
4.Challenges: Standards
5.Challenges: Transparency
•U.S. commends China on efforts to increase transparency:
•April: NPC mandatory notice & comment for draft laws.
•May: Chinese FOIA
•June: Chinese SED IV commitment - notice & comment on draft State Council rules.

• … but much work remains:
• U.S. businesses still face unclear laws, unfair administration, ambiguous criteria, delays in approval, and insufficient notice about rule changes.

World Bank Transparency Index 2004
(Top 10 Economies in real terms)
6. ProductSafety
• Growing concerns about product safety
• Two agreements were signed last December
• Working with China to improve oversight over the quality of goods and ensure safe supply chains

E. U.S. Response: Three-Pronged Strategy
• Aggressive engagement through bilateral fora: JCCT and SED
• Strict enforcement of trade laws, coupled with robust trade promotion
• Use of multilateral channels to resolve disputes
1. U.S.-China Trade Dialogues

2. Enforcing Trade Laws
• Commerce currently maintains 63 orders on imports from China - 26% of total antidumping/countervailing duty orders currently in effect
• 19 new initiations in 2007 compared to 4 in 2006. 13 initiations in 2008 (up to 7/24)
• Dollar value of trade affected in 2007 was nearly $8 billion

3. Use Multilateral Channels
• Brought 6 cases against China with the WTO Dispute Settlement Body: semiconductors, industrial subsidies, auto parts, IPR enforcement, IP market access, financial information distribution
• Filed 1 case in 2008 and 3 cases in 2007
• Closed 1 (semiconductor), suspended 1 (subsidies), and winning 1 (auto parts in July)

F. ITA MAC China Work: Compliance
• Sector-Specific Casework:
e.g., Redundant regulation of imported medical devices

• 3 elements:
 Pro-active Monitoring
 Compliance Action
 Outreach

ITA China Work: IPR
• China IP Webinar Series: http://www.stopfakes.gov/events/china_webinar_series.asp
• August 12 Webinar on “Olympic Logo Campaign and the Future of Trademark Protection in China”
• To subscribe to China IPR News for U.S. Industry, email Chinaiprnews@mail.doc.
• To register online for free one-hour consultation with a private attorney: http://www.abanet.org/intlaw/china_program2.html
• China IPR Toolkit, online guide to registering, protecting,enforcing your IP in China http://beijing.usembassy-china.org.cn/ipr.html

ITA China Work: Programs, Capacity Building, Missions
• Capacity building:
 Transparency roundtable – leading to NPC notice & comment decision in April;
 Anti-Monopoly Law Program;
 Standards & Conformity Assessment Program;
 Program for Entrepreneurial Growth;
 Telecom Law Program (fall)
• Trade missions: Health Care Mission; APP missions

F. ITA Contacts
Your first resource is: www.export.gov/China or 1-800-USA-TRAD(E).

Considering entering the market?
– Contact your local U.S. Export Assistance Center (USEAC):
– John Holman, Hawaii USEAC Director
– Email: John.Holman@mail.doc.gov– Phone: (808) 522-8041

Facing trade barriers while exporting to China?
– Call your USEAC or contact OCEA:
• Nicole Melcher
• Email: Nicole.Melcher@mail.doc.gov
• Phone: (202) 482-2515

U.S.Commercial Service-China

U.S.
China Business Information Center at export.gov/china
800-USA-TRADE

CHINA
http://www.buyusa.gov.china/en
Export.China@mail.doc.gov

This was information is submitted by The Hawaii Pacific Export Council Vice Chair, Mr. Johnson Choi.

This is a great observation made on the current issues that all International Business Managers should read.

Dear Fellow DEC Member:

It is written by 2008 SBA National Exporter of the Year - National Winner. Hope you will enjoy it.

Johnson Choi, MBA, RFC.
2008 SBA Minority Small Business Champion of the Year - National Winner
http://www.hkchcc.org/sba.htm
President
Hong Kong.China.Hawaii Chamber of Commerce
“Hawaii-China Guan Xi, We Get Things Done?quot;
Offices in Honolulu, San Francisco, Hong Kong and China
http://www.hkchcc.org
Vice Chair - Hawaii Pacific Export Council (HPEC)
http://www.hkchcc.org/hawaiipacificdec.htm

Click Here: Oil and China.pdf (21KB)

Simon Galpin, Associate Director-General, Invest Hong Kong, HKSAR Government

“Hong Kong - Your Best Partner and Risk Manager in China”

China is the single most important and fastest growing marketplace, as well as manufacturing base, for US products and services. Come learn how you can make use of Hong Kong as your business platform and how to take advantage of the Closer Economic Partnership Arrangement (CEPA) between Hong Kong and Mainland China.

Hong Kong is an integral part of China. Nevertheless, we still retain our advantages of rule of law, separate IP protection legislation, level playing field, full currency convertibility, international business practices, low taxes, government transparency and free flow of information - all critical elements to making sound business decisions.

Today, Hong Kong is ranked as the world’s third largest major financial center by The Global Financial Centers Index and it is also the largest capital raising center for Mainland Chinese enterprises with over US$125B raised since 1993. Meanwhile, 30% of Mainland China’s foreign trade flows through Hong Kong and over 75% of international buyers of consumer products source Chinese products via Hong Kong.

Furthermore, Hong Kong is the southern gateway to the largest economic production powerhouse in Mainland China as well as the preferred location for overseas and Chinese companies managing their operations in Asia Pacific.

Mr. Galpin is the Associate Director-General of Invest Hong Kong, the award-winning investment promotion agency of the Hong Kong SAR Government that advises prospective and existing foreign investors considering or already using Hong Kong as a conduit to do business in Asia-Pac.

Simon Galpin joined Invest Hong Kong in March 2001 as Associate Director-General Investment Promotion; Simon’s Division is responsible for attracting and retaining foreign direct investment in the following five priority sectors:

* Information Technology,
* Telecommunications, Media & Multi Media,
* Technology (especially Biotechnology and Electronics),
* Tourism & Entertainment and
* Consumer, Retail and Sourcing

Simon is also responsible for Invest Hong Kong’s operations in: the Americas, India, Middle East, South East Asia and Japan.

Prior to joining Invest Hong Kong, Simon spent 10 years with Scottish Enterprise (the UK Government’s economic development agency for Scotland) and was involved in setting up their network of offices in Asia.

Simon has also worked for retail, shipping and logistics companies in London, Liverpool, Taiwan and Sydney.

Simon has a MBA from University of Sheffield and an MSc from the University of Glasgow in Local Economic Development.

Co-Sponsors:

Pacific and Asian Affairs Council (PAAC)
Shidler College of Business, University of Hawaii at Manoa

Senior bankers attracted to Asia’s financial hub - Hong Kong

Hong Kong’s skyline flashes the high concentration of banks and financial institutions for which the city is famous
Top bankers are relocating to Hong Kong from such major financial centres as New York and London, in an apparent move by international financial institutions to focus their business on Asia, the region seen with the best profit potential.

The latest global bank to announce a senior executive posting is Swiss investment bank Credit Suisse. The bank confirmed in May the head of its financial institutions group, Vikram Gandhi, will move from New York to Hong Kong this summer. Credit Suisse said Mr Gandhi will continue running the global financial institutions group business from Hong Kong. “This high-growth region continues to perform above expectations, and we see even more opportunities in the coming years,” said Credit Suisse global co-heads of Investment Banking Jim Amine and Marc Granetz in an internal memorandum, as reported recently in The Wall Street Journal.

Important market
“For the financial institution business, Asia Pacific is as important as Europe and America. That’s why we’re relocating some of our senior executives here,” said Josephine Lee, Director of Corporate Communications at Credit Suisse Hong Kong.” Credit Suisse has 21 locations in the region.

The move by the Zurich-based institution is part of a recent trend in the banking sector to move top executives to Asia, a region largely unscathed, to date, by the subprime mortgage crisis in the United States. Germany’s largest lender, Deutsche Bank, announced in March that its Global Head of Equity Trading, Noreddine Sebtine, is relocating to Hong Kong from New York to assume regional responsibility for the equities business in Asia.

The German bank, which has already seen a 60 per cent increase in Hong Kong staff numbers over the past three years, recently announced plans to further expand its Hong Kong operations and increase headcount from 1,500 up to 4,000. “We are experiencing rapid growth in the region and in Hong Kong in particular,� said Colin Grassie, Deutsche Bank’s CEO Asia Pacific. As part of its expansion plans, the bank intends to triple its office capacity in Hong Kong by 2010, leasing 18 floors of the International Commerce Centre in Kowloon.

Sign of the times
Industry watchers say it is a sign of the times. “When you see the banks move out a [chief executive], that’s the time you say it’s a huge structural change. But they are trying to put senior people out there to take advantage of the growth, and it will be interesting to see more senior-level appointments such as at the executive board level,� according to David Williams, a London-based investment banking analyst at Fox-Pitt Kelton, in an interview with the South China Morning Post.

The growing economic impact of the region, including Hong Kong, will be the focus of an international conference to be held in Hong Kong early next year. Organised by the Hong Kong Special Administrative Region and the Hong Kong Trade Development Council, the Asian Financial Forum will be held 19-20 January 2009. At the two-day event, distinguished business and economic leaders will exchange views on trends and developments in Asian financial markets.

Hong Kong’s international investment position remains strong with net external financial assets of 4.07 trillion HK dollars (522.06 billion U.S. dollars) at the end of 2007, a government press release said on Tuesday. According to a press release from Hong Kong Census and Statistics Department, the figure is 41 billion HK dollars (5.26 billion U.S. dollars) up on the same period a year earlier. The figure corresponded to 252 percent of gross domestic product. The department said that ratios of both Hong Kong’s external financial assets and liabilities at end-2007 to GDP remained substantial, at 1,318 percent and 1,066 percent, showing Hong Kong is a highly externally oriented economy with considerable cross- territory investment and also a major financial center in the region with considerable cross-territory fund positions. Hong Kong’s external financial assets amounted to 21.3 trillion HK dollars (2.73 trillion U.S. dollars) at the end of 2007, up 6.3 trillion HK dollars (808.11 billion U.S. dollars) or 42 percent on 2006, with direct investment accounting for 37.6 percent of the total. Both external financial assets and liabilities rise sharply in the year, showing the generally favorable economic environment and the buoyant performance in many stock markets during the year, the department said.

Johnson W. K. Choi, MBA, RFC
2008 SBA Minority Small Business Champion of the Year - National Winner
http://www.hkchcc.org/sba.htm
USA: 1188 Bishop St, Ste 3403, Honolulu, Hawaii 96813 (from May 15, 2007)
China: 31-35 Yongjia Rd, #520, Shanghai 200030
Hong Kong SAR: 253 Des Voeux Rd #1305, Central
San Francisco USA (415) 691-6138; Hawaii USA:(808) 524-5738; China:(86) 1316-297-7837; HKSAR:(852) 8171-3118; USA Toll Free Fax (877) 852-8548
Company Affiliations: http://www.johnsonchoi.com/resume.htm

Are You China Ready?

1. Prior export experience to at least one foreign market. ( ) Yes ( ) No
2. Commitment to developing export opportunities including top management support, designation of an internal China sales manager, sales and technical staff who are willing to travel to China often, and support staff including an interpreter or translator to facilitate communication with Chinese buyers. ( ) Yes ( ) No
3. Sufficient financial resources to actively support marketing of products in China including translation of product brochures, participation in trade shows, and organization of customer informational seminars. ( ) Yes ( ) No
4. Ability to host visits by potential buyers to conclude sales negotiations, facilitate pre-contractual equipment inspections, and provide installation training. ( ) Yes ( ) No
Suggestion: If you answered NO to any questions 1-4, your company should consider identifying an export management firm with China experience or approach a different market with fewer technical, logistical, cultural and business risk hurdles before attempting business in China.
5. Ability to acquire and analyze Chinese market data, identify sources of competition including domestic and foreign firms, and ascertain distribution channels. ( ) Yes ( ) No

6. Ability to acquire familiarity with export logistics unique to China including negotiation of letters of credit, freight forwarders, export documentation and export licensing. ( ) Yes ( ) No

7. Ability to locate Chinese import regulations, safety certification and labeling requirements and cultural preferences to modify the product and its packaging.
( ) Yes ( ) No

8. Prepared an international marketing plan with realistic goals, China-specific marketing strategies, progress benchmarks and an exit plan. ( ) Yes ( ) No
Suggestion: If you answered NO to any question numbered 5-8, the China BIC website can provide more information. Please review the frequently asked questions, visit the industry information page for market research and the exporting reference page to learn about Chinese import regulations. The U.S. Commercial Service Hong Kong can advise on the pros and cons of reaching mainland China through HK.

9. Sufficient financial resources to engage the services of local attorneys or consultants to navigate China’s system of international trade regulation, develop a sales contract that is enforceable in China, undertake due diligence investigations, and address problems. ( ) Yes ( ) No
Suggestion: If you answered NO to question 9, you have determined your company is able to begin market activity, but may be unable to effectively address problems when they may arise. To learn more about how the U.S. government can help address market access barriers, challenges to bidding on major projects, or resolving commercial disputes, visit the assistance page. The U.S. Commercial Service offers customized services to undertake due diligence investigations and obtain market research concerning your product and clarify basic import regulatory issues. If you conclude that these resources are insufficient and the cost of private service providers is excessive, reconsider whether your company can sustain market activity through serious regulatory challenges.

10. Ability and financial resources to provide training for a Chinese sales agent or distributor in the United States, continuous guidance for conducting market research and planning sales
goals. ( ) Yes ( ) No
Suggestion: If you answered NO to question 10, your company may be able to explore the market, but will eventually need to augment capabilities in order to support expansion of market activity. Some new-to-market firms explore the market through direct exports while acquiring market knowledge. After this phase, a firm evaluates whether market prospects merit commitment of resources to select and manage a Chinese sales agent or distributor. The U.S. Commercial Service can help your firm identify a qualified sales agent or distributor through the International Partner Search or Gold Key Service.

11. Ability to establish a program for protection of intellectual property including trademark or patent registration, market monitoring, and enforcement strategy. ( ) Yes ( ) No
Suggestion: If you answered NO to question 11, your company’s marketing plan may assume too much commercial risk. China’s system for protecting trademarks and patents is based on a first-to-file principle. To establish a legal right to prevent others from appropriating intellectual property rights established in the United States, it is necessary to register in China. To learn more about protecting intellectual property in China, review the Intellectual Property Toolkit, located in the China BIC’s exporting page. Speaking with local legal service providers in China is also recommended. An expanded reference list of legal service providers is available through the Contact China resource guide. American companies can also receive one hour of free IPR consultation from a legal expert through the China IPR Advisory Program.

12. Commitment to providing domestic and foreign customers equivalent service quality, which may necessitate frequent travel to China by a technician or establishment of an equipment service and maintenance center with a Chinese partner. ( ) Yes ( ) No
Suggestion: If you answered NO to question 12, your company may need to commit more resources in the future to maintain the quality of service delivery or the installed equipment base. At this time, China does not permit a foreign company to establish wholly foreign-owned service and maintenance centers. Most companies with a mature market presence eventually establish a joint venture service center with a Chinese partner. An alternative approach is establishing a regional service center through markets such as Hong Kong. The US Commercial Service in Hong Kong can facilitate identifying local partners.

www.hawaiipacificexportcoucil.org