The effect of appreciation of RMB on investment in China

The appreciation of RMB has great effect on Chinese export and import, investment policy, debt issues and the inflation problem.

China is an exporting superpower. Chinese people rely on sells of export a lot. The kinds of products we export can be simply divided into 2 parts: primary products and processed products.

The primary products, like paper, woods, ferrous metals (metals with iron), will be exported less. This is negative for the economy of the country in a short time. However, in the long terms, this is beneficial to the country because the limited resources can be saved which can help adjust the industrial structure. After all, China is not a country with rich resources. We have large amounts of people to consume them. What’s more, we may save the money for environmental problems of making primary products.

The processed products, like technological products, cars, machines, foods, toys, are highly influenced by the changes of currency prices. If the price of RMB rises, the products exported will become more expensive. The consumers in other countries will be more eager to purchase the cheaper products (maybe the products of their own country or other countries). This is hard for the country whose export occupies 30%-40% GDP. That is to say, output is quite important for the country.

These years, Chinese input has increased. We can also divide the input products into 2 parts as above.

About the primary products, we mainly talk about the energy products. The percentage of coal consumption is about 65% to 70%. Most of the coal is produced locally. That mains we basically use the energy produces by ourselves. On the other hand, the percentage of oil is about 20% to 25% according to the report of Chinese government. Most of them rely on the input. This is also not a small figure in that the energy we consume is quite huge. If the price of RMB becomes lower, the price of oil is relatively lower. We can use less money to buy more oil. In this sight, the appreciation of RMB is beneficial.

Here come the processed products. The kinds of processed products are the same as the export products. If the appreciation happens, the price of the import will become quite cheap. Chinese people will start buying more foreign products and give up their local products. This will be a great loss for the country because the market of China is very large. If you lose the market, you lose everything. The economy of the country will meet its period of stagnations.

The appreciation issue will also influence the investment policy.

The first is about the negative influences. As the prices of RMB rises, the currency will not be so attractive to foreign investors. The reason is the cost of investment is quite high. That may be good for the local company for they will face fewer competitors. They can have more freedom to control Chinese market. However, that is negative for the corporation of local companies and foreign companies. The technological research abilities of China are far from super big countries like the US and Japan. We really need to learn more from these countries. If they do not invest and supply technological support, we will lose the competitive ability in the world.

The second is about the positive influences. We have mentioned that we will lose some investment from other countries, but our investment to other countries will increase. We can find the evidence from some figures. Since the exchange reform in 2005, the appreciation of the RMB at a stage of excess domestic liquidity and the international context of economic imbalances, the government encourages the development of foreign direct investment. With close to 10% economic growth in 10 years, China’s foreign direct investment has a rapid growth. The reason of it is quite clear. The cost of external investment is quite low. The asset and resources of foreign countries become more attractive to Chinese investors. They are relatively cheap. Another reason is the lower financing cost. The lower the cost, the higher the return on invested capital.

The RMB currency changes will also arouse foreign debt problems. As we all know, China is a country with huge amounts of foreign debts. The latest number is USD863.167 billion, which exclude the debt of Hong Kong, Macau and Taiwan. So if the price of RMB becomes higher, the foreign countries need to pay less for their debt. If America borrows USD10 from China, it needs to pay back RMB60. If the RMB price appreciates, it only needs to pay back less than RMB60. That means we lose part of the money. So if the number is USD863.167 billion. A little change leads to a great loss.

Finally, the inflation problem is quite easy to understand. The rise of the currency makes the inflation mute. We can use less money to buy more products. On this aspect, it’s positive for the country.

All in all, the appreciation of RMB has good parts and bad parts. It’s good for the primary products import and export, the external investment and inflation. And it’s bad for the processed products import and export, the internal investment and foreign debt. We really need to find which currency policy will get more benefits and carry out it.

By Daxue Consulting

See more at:

http://www.sjgrand.cn/investing-china

http://www.reuters.com/article/2014/12/09/markets-china-idUSL3N0TT28R20141209

http://www.ft.com/cms/s/0/95372ce6-7f79-11e4-b4f5-00144feabdc0.html

http://gulfbusiness.com/2014/12/uae-activate-5-7bn-china-currency-swap-soon/

Chinese system of conformity assessment

The Chinese system of conformity assessment has played an essential role in the history of Chinese law. When the conformity assessment carried out, the consumers were more confident in the products they produced, thereby protecting the health of consumers and encouraging them to buy more without hesitation.

The beginning of the conformity assessment can date back to 2006. In order to reduce technical barrier to trade and facilitate bilateral trade, the government established the China National Accreditation Service for Conformity Assessment which is more helpful to the trade especially the founding of well-functioning quality infrastructure (QI).

With the release of quality infrastructure, the relevant department can assess the products in a standard way, which decreases the complaint from the consumers. While standard implementation is not simple like what the government think. The first problem is the unified setting and compliance. Every industry has its own benchmark and they cannot imitate from each other according to the similar principle, therefore problems fall into the relevant department. Forexample, fish and cargo belong to diverse type of product. If the department examinee them in a similar way, the fish or cargo may have problems in the future in spite of the absurd standard.  What requires the government to do is that formulate system from person to person to make the system more perfect than before, which makes people believe the system.

The second problem is the implementation of the system. Since ancient times, promulgation of the system is not excellent itself, but the problem of Law enforcement agencies such as corruption, favoritism. In this way, the absolute execution is quite important, so the government may formulate relevant regulations to restrict the officials. If they cannot perform in terms of regulation, they will be severely punished. Such methods can constrain the officials better and reduce the risk of weak implementation. Since then, the credibility of QI has been guaranteed and people do not care about the standard because only the unfair system is likely to make people worried about it.

While the excessive reliance on regulation will have a negative on officials and pose a threat to the future development, so it is not a long-term policy. The main cause is that the stiff regulation is more likely to reduce the initiative of the officials, for they are afraid of making mistakes with stiff punishments. Hence for them, slacking is a choice for amounts of them that is counterproductive for the authority. In this way, the appropriate measure is adequate punishment and better system which gives partial freedom to the relevant department. In the future they are more possible to have an efficient execution for the sake of guaranteeing the system.

The third problem is the market surveillance. When the relevant department passes the products to the markets in terms of standard, related merchant dispose of the products at will and append additives after the process of inspection. Apart from the subsequent behavior, some amounts of businessmen dare to try illegal behavior escape from inspection that not only brings a huge trouble to the consumers but also themselves. 

The point is best illustrated with the example of Shanghai Husi Food Company. The company is the one who produce the food with raw expired materials delivering to the foreign fast food restaurants such as McDonald's KFC, etc., When the government reached the factory to examine the materials, the merchants have prepared in advance such as hiding the expired food in the refrigerator or adding the qualified sample label. Therefore whether the authority checked several times, they would never find the illegal food. Examples of such incidents are not only once, but only the Husi Company was exposed to the public owing to its huge range of harm violations.

For the sake of guaranteeing the system in order, the relevant department should not remind the company of checking the products in advance, or they will never know about what they are like actually in the factory. The relevant departments need to comply with this standard to perform the implementation of this system, not individual problems individually. What’s more, officials cannot examine only once, they are able to have a spot check irregularly, which can test the real strength of the enterprise and the safety of the food. From then on, the factory is careful of producing food because the health of people is the vital element for everyone.

The Chinese system of conformity assessment is not among core subject areas in law but deserve a place in the system, for it is beneficial to people. During the last decades, global economic integration has become the focus of public concern. The system will be a good way to reduce technical barrier to trade and facilitate bilateral trade, If the government can overcome the problems like implement and market surveillance.

By SJ Grand

http://daxueconsulting.com/market-potential-china/

http://www.standardsportal.org/usa_en/prc_standards_system/conformity_assessment/ca_used_in_china.aspx

http://www.cnas.org.cn/english/introduction/12/718683.shtml

Example of naming in China

Naming can be a difficult task

What do your brand names really mean in Chinese? What do your brands want to express? According to the consultants of Sinonym in Beijing, there is no question about it: the choice of a brand name in appropriate Chinese, usually called naming in China, has a critical role to play in the branding strategy in the middle Kingdom.

You will so can in the reading of both developed examples, to understand the traps and the obstacles which are on the path of the brands in China and all the flexibility of necessary jump to stay on its legs in the operation of sinisation of the brand name!

The meaning of the Chinese name: literally, this name indicates a strong or striped horse, in the Chinese traditional culture it represent the strength on a long lasting and the elegant success. It adds to the name a dynamic and athletic connotation.

Example of Puma in branding strategy in China

The puma became the horse. The Puma is also known in certain regions under the name of cougar, lion of mountains, which occupies the continent of America, its feline icon is especially strengthened by its image in jump. Nevertheless, the name of the brand in Chinese sends back to the horse, it can cause a grave confusion of image in mind of the consumers.

Furthermore, in the Chinese culture, the horse is a soft animal in the quiet temperament, incapable to manage a troop or to show its creativity or individuality. On the contrary, the puma, is a wild and wild animal which always shows us its power, its energy and its leadership.

All in all, the name of the brand in Latin character exceeds that in Chinese. But the first one is more represented on Google, whereas that in Chinese is more prominent on Baidu1. It demonstrates the influence of the Chinese name locally which in the battle of its translation in Chinese lost some claws and a little of its character.

http://sinonym.net/

http://marketingtochina.com/sinonym/

http://www.china.org.cn/living_in_china/news/2008-04/11/content_14936851.htm

http://daxueconsulting.com/branding-china-2/

Market research shows high-potential for coffee market in China

Market research in China : coffee market is rising

According to market research Company in China, the market of the coffee in China shows a 15 % growth on a per year basis. With 1.33 billion inhabitants, the consumption of coffee in China is only 50-70 grams per person. Four main operators of the Chinese market of the coffee are Nestlé, Kraft Food, Sara Lee and Zanetti.

Leader of coffee market in China

Nestlé, leader of the market who represents, as said by market research Company in China, about 68 % of the whole value of the sales of instant coffee in China, actively promoted the national production and stocks up in all the measure of the possible with raw materials with local sources.

The company very well managed to penetrate into the market and its brand Nescafé, including coffee loans to be served, or 3 in 1, is widely available everywhere in China.

However, during the last ten years, we also noticed an explosion of the number of new bars with coffee shop of American style opened in all the Chinese big cities.

This is the way the coffee is acquiring a more modern image and becoming a very popular drink with the young people.

Market research shows high-potential for coffee market in China

A market research company showed results that identified four more important operators of the Chinese market of the coffee and the coffee shop in China are:

·         Nestlé (leading brand: Nescafé) with more than 6 billion euros of turnover

·         Food Kraft (leading brand: Jacques Vabre and Big mother) with more than 28 billion euros of turnover

·         SaraLee (leading brand: Coffee doh Ponto) with 8 billion euros of turnover

·         Massino Zanetti (leading brand: Segafredo) with 1 billion euros of turnover

It is by 1887 when the culture of the coffee was introduced in China into the province of Yunn the year by a French missionary, but its exploitation was very limited to 1960s when the government created an exploitation of coffee Arabica on 4 000 hectares in this region.

Till the end of 1970s, less than 7 % of lands reserved for the culture of the coffee were actually exploited. It is that towards the end of 1980s when a program between the Chinese government and the United Nations Development Programme  has license to operate lands reserved for the culture of the coffee in China.

http://daxueconsulting.com/coffee-shops-in-china-2/

www.thestorecheckers.com

http://www.ft.com/intl/cms/s/0/6bc3a25e-f888-11e3-815f-00144feabdc0.html

http://english.cri.cn/12394/2014/06/18/2821s832099.htm

Market research companies in China

Any project whether it is a creation or a resumption of company has to be the object of a market research in China. This study is indeed essential and allows to answer the question " is my project worth being born in China? ". However, this analysis is often long and difficult to realize! A work of market research in China, collection of information and data must be made! Yet, many entrepreneurs do not know how to take themselves there, do not have no know-how or the time to realize her(it)! That's why more and more project leaders decide "to subcontract" the market study. They decide to make their study do. They have 2 possibilities, to resort(turn) to a specialized cabinet(office) of study or to a junior-company.

To realize their market study, certain entrepreneurs decide to make her(it) do by a cabinet(office) of study specialized in this domain or by a begun(undertaken) junior (I). These 2 methods are more expensive than if we made the study we even, but the work is of quality because realized by experts or expert apprentices!

Before passing by a market research company in China, it is necessary to have a project defined well with clear and precise objectives.

If you decide to resort to a market research company in China, you will have to draft a document collectively called "briefing" in the jargon of company, which resumes your objectives and your ideas and to put back it to the Chinese market research company so that the person who is going to take care of the study knows why how to realize you a study (know needs, target a clientele, customer expectations, potential of a market) and the purpose of this one (the contents: precise data, the analysis of the competition, the consumer profile).

http://marketingtochina.com/

http://www.cnbc.com/id/101677168

Market research : chocolate market in China

We consider that the arrival of the chocolate in China goes back to the XVIIIth century, when in 1705, the envoy of the Pope appeared in front of the Chinese emperor and made him enjoy this food, the taste of which particularly pleased the monarch. This event marks the first appearance of the "chocolate-brown" word in the Chinese historic documents.

Market of chocolate in China

The story of the industrialization of the chocolate in China counts, as for it, forty years hardly. Since the year 1990, the industry of the candy is rapidly growing, the Chinese market of the chocolate being also in phase of growth. The growth rate varies between 10 % and 15 % a year. If the volume of average consumption of the Chinese becomes established in a kilo a year, the Chinese market will be the most important chocolate market of the world.

A vast potential for this market in China

This market, endowed with a vast potential, is not exploited yet. We consider that it will be rapidly expanding in twenty years. In 2008, the Chinese candy produced 1.2 million tons of candies and chocolate. This volume is increasing by 15 % compared with 2007. Turnovers were 38.6 billion yuans (approximately 4 billion euros) and burned of 24 % compared with the previous year. The total profit was, as for him, 5.4 billion yuans (540 million euros), that is a 34 % increase compared with 2007.

Furthermore, the volume of chocolate consumed in China is at present only 40 in 70 grams. In comparative title, the Swiss consumes 11.6 kilos of chocolate a year and a person; the Spaniards, the Americans, the Germans consume at least 10 kilos of chocolate a year and a person; the Japanese and the Koreans, 2.8 kilos a year and a person. These indicators allow underlining the remarkable potential of the Chinese market of the chocolate.

http://marketingtochina.com/sj-grand-celebrates-10-years-china-new-projects/

http://daxueconsulting.com/market-of-chocolate-in-china/

http://www.sjgrand.cn/wfoe-china

http://www.chinabusinessreview.com/chocolate-fortunes/

http://www.euromonitor.com/chocolate-confectionery-in-china/report

Cash flow

Cash flow is an important concept in modern financial management. It refers to the movement of money into and out of a business plan, a financial project and a product within a certain period of time（a quarter or a full year）. Generally, through a series of economic activities such as internal business, investment and financing, a company works out its sum of cash flow. Here, cash is not what call in our daily life as ready money in hand. It’s mentioned as cash stock , cash reserved in banks, equivalents of cash, etc. If an investment is defined as a cash equivalent, it must fulfill simultaneously fours conditions: short limit time, quick circulation and easy transformation into expected money, small risk of value changing.

On the basis of origins and functions of cash flow, we count three kinds as seen below:

1)  Operationalcash flow. Operational activities refer to direct production, product and service sales . Money generated in these business make up the majority of companies’ net income. Besides , output cash flow in operational activities includes buying goods, paying labor, paying taxes, etc. Considering that business varies from the nature of industries, we have other definitions and evaluated areas, especially for finance and assurance industry.

2)   Investment refers to a long-term construction od assets, not including investment or activities within cash equivalents. Long-term assets indicates fixed assets, intangible assets and other properties that have at least one year’s or a business cycle’s time limit. Here, the investment activities contain both material investment and financial investment. Usually, cash received from investment activities are mostly : cash regained from investment, investment profits, etc. Cash spent on investment activities are：the purchase and construction of fixed assets, intangible assets and other expenditures on long-term assets.

3)   Financing activities refers to operations that result in changes of market research companies’ capital and debt’s dimension and composition. Generally speaking, cash is received from the issue of debt and equity, and cash is put out as dividends and share repurchases, etc.

 The following chart is cash flow statement of Bejing North company:

北方公司现金流量表分析案例

北方公司2009年现金流量统计如下表（单位：万元）：

year	2009	备注
Operational cash inflow	22690
Operational cash outflow	19816
Operational cash flow net inflow	2874
Investment cash inflow	16
Investment cash outflow	810
Investment cash net inflow	-794
Financing cash inflow	568	All is debt repayments without any dividends or shares.
Financing cash outflow	812
Financing cash net inflow	-244
Sum fo cash flow	23275
Sum of cash outflow	21437
Sum of cash inflow	1838

When we analyze the statement, it includes analysis of inflow structure and outflow structure, as well as the proportion between them.

a.Analysis of inflow structure

Among the total inflow, cash received from operational activities represent 97.48％, investiment activities0.08％, financing activities 2.44％. From here we see that operational activities contribute a lot to cash inflow, however the other two do a little.

b.Analysis of outflow structure

Among the whole outflow, cash spent on operational activities represent 92.43％, investment activities 3.78％, financing activities 3.79％. Thus it can be seen that the companies’ expenditure is concentrated on operational activities.

c.Analysis of proportion between inflow and outflow

According to the statement, operational inflow is 226900000,outflow 198160000, so the proportion between them is 1.15. It means that 1 RMB outflow returns 1.15 RMB. For investment activities, the inflow is 160000, outflow is 8100000. So the proportion is 0.02, which shows that the company is in a developing phase. In financing activities, the proportion of 0.70(568/812) means repayment is superior to debts. Relating the inflow with the outflow, we come to know that the company’s essential cash inflow and outflow are generated by operational activities. Besides, the operational net inflow is used to make up for expenditures of investment and financing. Apart from these analysis, we can also work out company’s cash profit rate with the help of the statement.

Through information implicated in the statement, Cash flow guides management’s financial decision-making. It provides suggestions on investment strategies. It serves also as a proof of company’s financial credibility. As cash is flowing all the time, so it manifest to some extent the force of repayment and reaction of a company. Cash flow is also applied to define a bankrupt point. For some time, it is a criterion to assess the value of a company.