China boasts one of the oldest, most advanced civilizations on Earth, with a history going back as far as 2070 B.C. Though, even as the country has experienced great economic and infrastructure growth, over its history, alternating periods of civil unrest, famine and foreign occupation have plagued China.
After Mao Zedong established the People’s Democratic Dictatorship socialist system after WWII. In 1978, his successor Deng Xiaoping focused on economic development and quadrupled the country’s output by 2000. Starting in the 1990s, China increased its participation in global organizations and assumed a prominent position in global political and economic activities.
China is the fifth largest country in the world, with a total land area just slightly smaller than that of the U.S. It has the largest population in the world of over 1.4 billion as of January 2019.
Manufacturing in China
China is the world leader in the gross value of industrial output. Key industries include mining, iron, steel, aluminum, coal, machinery, arms, textiles and apparel, oil, cement, chemicals, consumer products, footwear, toys, electronics, food, transportation equipment, automobiles, railcars, ships, aircraft, telecommunications equipment, satellites and commercial space launch vehicles.
The industrial production rate has been growing at slightly over 10.3% as of 2018. Industry employs about 28.7% of the workforce.
Other Important Industries
Service industries employ about 43.5% of the labor force. Key services include transportation, wholesale and retail trade, hotels, catering and food service, financial services and real estate.
China is also the world leader in agricultural production. About 27.7% of the workforce is engaged in agriculture. Rice, wheat, potatoes, corn, tobacco, peanuts, tea, apples, cotton, pork, mutton, eggs, fish and shrimp are the top agricultural commodities.
Supply Chain Infrastructure for Manufacturing
Communication is relatively easy in China, though the country’s landline telephone systems are not robust, with only 14 subscriptions per 100 inhabitants. The cellular penetration makes up for it with 107 subscriptions per 100 inhabitants. Most businesses and users access the internet on mobile devices.
China also has a robust transportation system that makes it easy to transport goods around the eastern half of the country and supports exports and imports. The west is mountainous and sparsely populated. The supply chain infrastructure in western China is not as strong as it is in the east.
China has 4,338,600 km of paved roadways, including 136,500 km of expressways allowing goods to move freely around the country.
China moved 19.806 billion ton-km of freight by air in 2015. The country has 463 airports with paved runways, simplifying the ability to move goods quickly. China also has 47 commercial heliports.
As of 2015, the country had over 121,000 km of traditional railways, which served as the second largest network in the world. By the end of 2018, China had more than 29,000 km of high-speed rail, which still serves as the longest high-speed railway network in the world. With 110,000 km of navigable inland waterways, China’s ability to move goods quickly is unmatched, despite the vast size of the country.
The unemployment rate in China was 5% in Q1 2019 and increase slightly from prior levels. The workforce is overwhelmingly urban, with 59% of the population living in urban areas. The most highly populated cities include Shanghai, Beijing, Chongqing, Guangdong, Tianjin and Shenzhen.
China’s workforce is highly literate, with more than 96% of the population able to read and write. Most people complete 14 years of schooling. The workforce has been shrinking as the population ages, and wages have been rising to attract scarce workers. College graduates now account for nearly half of the workforce, making it harder to fill the lower paying manual jobs that once formed the backbone of the Chinese manufacturing sector. As a result, Chinese manufacturing companies are turning to technology to improve output and productivity.
The Chinese GDP has been growing at just under 7% for the last several years. Inflation is low at about 1.6%.
In 2018, China exported $2.48 trillion RMB of goods. Its principal export trading partners are the U.S., Hong Kong, Japan and South Korea. Primary export commodities include electrical machinery, computers, telecommunications equipment, apparel, furniture and textiles. China ranks number one in the world for exports.
China imported $2.14 trillion RMB in 2018, making it the number two importing country in the world. Import partners include South Korea, Japan, the U.S., Germany and Australia. Import commodities include electrical machinery, integrated circuits, computer components, oil and mineral fuels, optical and medical equipment, metal ores, motor vehicles and soybeans.
Taxes in China can be quite high, reaching up to 67% of business profit through direct and indirect taxes and required fees. High tech companies may be required to pay an additional 5% over the rate other corporations pay. Taxes are also complicated, requiring on average of 142 person-hours to complete the filings.
In theory, it’s relatively easy to start a business in China, but without local representation, it can be a very expensive and lengthy process. Many companies choose to open businesses in China as joint ventures rather than trying to navigate the process on their own.
Getting Down to Business
Doing business in China has many advantages and an equal number of challenges. Access to such a large and wealthy economy can be extremely attractive and highly lucrative, but also quite complex. QAD Internationalization enables companies to identify and overcome the challenges associated with the unique taxes, regulations and business practices in China. As an early entrant in the Chinese software market, QAD understands the nuances of this unique environment and can quickly adapt to a company’s manufacturing needs.
How would you describe the state of Manufacturing in China? Learn more about manufacturing and doing business in other great countries around the world.