Doing Business in China Guide

Sector-Specific Opportunities In Mainland China

Please select from the specific sectors below: 1) AIRPORTS AND AVIATION 2) AUTOMOTIVE SECTOR 3) THE BUILT ENVIRONMENT SECTOR 4) EDUCATION SECTOR

5) ENERGY SECTOR 6) HEALTHCARE SECTOR 7) RAIL SECTOR 8) RETAIL SECTOR

 

1) AIRPORTS AND AVIATION

The largest cities with clear aims and objectives in the Airports and Aviation sector include Chengdu, Hangzhou, Nanjing, Shenyang, Suzhou, Tangshan, Tianjin, Weifang, Xiamen and Xi’an. In addition there are a further 25 regional cities with growing aims and objectives, including 24 with plans to complete, expand or build new airports. For the latest advice and details on any of these regional city opportunities in the Airports and Aviation sector contact either the CBBC or UKTI.

China is in the midst of a RMB 1.5 trillion accelerated programme to increase the number of airports. Between 2005 and 2010, 33 new airports were constructed, with an equal number renovated or expanded, bringing the total number to 175. According to the Civil Aviation Administration of China, by 2015 China will have over 230 airports, requiring over 4,500 aircraft and offering a capacity to carry 450 million passengers each year. The number of airports is projected to continue increasing to 270 by 2020 and 300 by 2030. The next five years will see the greatest growth in airport development in China's history.

By the end of 2010, Beijing Airport had overtaken London Heathrow as the world's second-largest airport by passenger numbers. Shanghai Pudong is now the world's third-largest airport by cargo volume.

Chinese domestic air-cargo volume increased by 52 per cent in 2010, it is no surprise then that DHL, which already operates three global hubs in Hong Kong, Leipzig and Cincinnati, has announced a fourth global hub to be based in Shanghai, covering their China and North Asian routes.

With many Chinese cities announcing ambitious plans for airport expansion, a range of opportunities are being created for UK companies. Beginning with infrastructure development, there are many requirements such as engineering service centres, cargo and passenger-handling technology, and training for both crew and staff. There are also a multitude of opportunities to supply to Chinese and localised foreign-invested manufacturers.

Airport groups
Under the recently announced 12th Five-Year Plan, China is to form five Airport Groups, which will act as airport economic zones supporting air logistics and the aviation industry in general.

The five groups are:

1) The Northern Airport Group: The centre of this group, and a major international aviation hub, is Beijing Capital Airport. The provinces and municipalities covered will be Beijing, Hebei, Heilongjiang, Jilin, Liaoning and Tianjin. Regional hubs will be operated from Harbin, Shenyang, Dalian and Tianjin. Shijiazhuang, Taiyuan, Hohhot and Changchun will operate as supporting airports. Emphasis is being given to the development of Harbin as a hub into the North East of China and to the development of Mohe, Daqing, Erlianhot and Fuyuan for the expansion of routes into Eastern Russia.

Shenyang will finish reconstruction of the Taoxian airport terminal, complete a second runway, and open extra facilities for cargo handling and a catering centre. Two industrial parks are being created to house engineering companies and component manufacturers. Shijiazhuang will build a new terminal, extend the runways to facilitate wide-bodied aircraft, and construct new warehousing with international customs clearance.

2) The East Airport Group: The centre of this group, and a major international aviation hub, is Shanghai Pudong Airport. The provinces covered will be in the Yangtze River Delta (Shanghai, Zhejiang, Jiangsu and Anhui), Jiangxi, Shandong and Fujian. Regional hubs will be operated from Shanghai Hongqiao, Hangzhou, Nanjing and Xiamen. Qingdao will be developed as a gateway to and from Japan and South Korea. Other supporting airports will be Jinan, Fuzhou, Nanchang, Hefei and the new airport in Jiuhuashan, currently under construction.

Hefei will finish construction of the Xingiao International Airport and, as the provincial capital of Anhui, will begin planning for smaller airports within the province. Jinan will push forward with the expansion of its international airport terminal by adding better facilities for cargo handling and passenger services. Nanjing will complete the second phase of Nanjing Lukou Airport, while the airports of Liuhe, Daxiao and Tushan are being redeveloped. Nanjing is encouraging companies with technology related to navigation control systems to establish themselves in the area. Nantong is speeding up the development of Xindong Airport; due to improved road links to Shanghai Pudong, the aim is for Nantong to be an auxiliary passenger and cargo airport to Shanghai.

As stated above, Qingdao will focus on the development of links to Japan and South Korea. To facilitate this, a new airport will be constructed with larger facilities for maintenance and engineering. Weihai, another Shandong city, is expanding its existing airport to handle international services to Hong Kong, Japan and South Korea. Wenzhou, Wuxi, Quanzhou and Yantai will all expand runways and new terminal buildings. Xiamen plans to further develop its position as an aircraft maintenance service centre for large commercial aircraft, encouraging new high-tech companies in R&D and manufacturing. It will also open a second international airport.

3) The Central Airport Group: The centre of this group, a major international aviation hub, is Guangzhou Baiyun Airport. The provinces covered will be in the Pearl River Delta (Guangdong), Hunan, Guangxi, Hubei, Henan and Hainan. Regional hubs will be operated from Shenzhen, Wuhan, Zhengzhou, Changsha, Nanning and Haikou. Sanya and Guilin will be developed to promote tourism in these regions. Other supporting airports will include Bose in Guangxi Province and Hengyang in Hunan Province, which require development. Wuhan will complete the third phase of Tianhe Airport, opening new international and domestic services, it will also encourage companies involved in the development of low-altitude aircraft to establish themselves in the city. Changsha and Nanning will extend airport facilities and open new domestic routes to facilitate their position as transport hubs.

4) The Southwest Airport Group: The three cities of Chengdu, Chongqing and Kunming will form the centre of this group, with emphasis on Kunming as an international route to Southeast Asia. The provinces covered will be Chongqing, Sichuan, Yunnan, Guizhou and Tibet. Supporting airports will include Lhasa and Guiyang, with development required for Tengchong in Yunnan Province and Daocheng in Sichuan Province.

Chengdu, already a major centre of aviation development and manufacture, aims to further develop R&D and manufacturing in the city for both key components to supply Airbus and for the aircraft industries. Guiyang plans to complete the reconstruction and expansion of Longdongbao Airport.

5) The Northwest Airport Group: The two cities of Xi'an and Urumqi will form the centre of this group, with an emphasis on strengthening Tianshui (between Xi'an and Lanzhou) as an economic zone and supporting the development needs of Xinjiang Province. Urumqi will also act as a gateway to and from central and southern Asian countries such as Pakistan and Kazakhstan. The provinces covered will be Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang. Supporting airports will include Lanzhou, Yinchuan and Xining. The Xinjiang airports of Korla in Bayingol, Kashgar, and Shihezi all require upgrades, as does Yushu in Qinghai.

Xi'an will complete the construction of the third terminal and second runway at Xianyang Airport. This is required to meet the expansion of direct international flights to Europe and North America. Urumqi will complete a fourth terminal and second runway at Diwobao International Airport and start plans for a second airport. Lanzhou will start work on the expansion of Zhongchuan Airport to increase routes within China and international services to Japan, South Korea and Hong Kong.

Tianjin is the location of the first Airbus final assembly line to operate outside of Europe. The production site for A320 aircraft is a joint venture between Airbus, Tianjin Free Trade Zone (TJFTZ) and China Aviation Industry Corporation (AVIC). This facility currently delivers four A320s a month. Harbin Hafei Airbus Composite Manufacturing Centre is an eco-efficient joint venture located in Harbin that will produce composite parts for the new-generation A350 XWB jetliner. The Chinese supply chain includes Shenyang Aircraft Corporation which produces and assembles the emergency exit doors and manufactures fixed leading edges, wing interspar ribs, cargo doors and skin plates for the A320. Chengdu Aircraft Corporation supplies the rear passenger door and parts of its nose sections. Xi'an Aircraft Company produces electronic bay doors for the A320 and A330/A340, as well as the fixed trailing edges on wings for the A320 and the brake blades and medium air ducts for the A330/A340. Also in Xi'an, Hong Yuan Aviation Forging & Casting produces titanium forging parts to mount power plants on to wings. Guizhou Aviation Industrial Group produces maintenance jigs and tools for Airbus aircraft. The Airbus Beijing training centre set up in 1998 houses two full simulators, one for the A320 and one for the A330/A340. The centre trains maintenance engineers, cabin crew and pilots, many of whom come from outside China. Also in Beijing is the Airbus customer support centre, which stocks approximately 25,000 spare parts available for dispatch to airlines in the Asia-Pacific. In addition, more than 20 European and American vendors supporting Airbus customers operate out of the centre, which also has a dedicated avionics repair workshop.

Training
The importance of training for China's aviation industry cannot be underestimated. The number of skilled pilots, cabin crew, engineers, and experts in communications, logistics, safety and catering is lagging behind the growth of the industry. Airbus and Rolls-Royce recognised this very early on and established training centres with their Chinese partners. China's first low budget airline Spring Airlines has recently stated that as part of their expansion of routes to Japan and South Korea, they will enjoy the added benefit of being able to recruit overseas pilots. Qingdao and Nantong are two cities which have specified the development of training centres across all relevant fields within their next Five-Year Plan.

The UK has a long history of implementing the highest standards for training in the industry. These are talents which can be transferred to the developing Chinese market.

Construction and design
Terminal 3 at Beijing International Airport was designed by architects Foster+Partners and built by the engineering group Arup. Arup were also involved in the design & construction of Shenzhen Bao'an Airport.

With such a high-profile example of UK expertise and with the number of airport construction projects under development in China, there are opportunities for many more UK architectural firms and engineering companies to be involved in the development of China's airport expansion plan.

Supply chain
Integration into the local supply chain provides opportunities with multinationals such as Boeing, Airbus, Bombardier (Shenyang) or Embraer (Harbin) or with divisions of China's AVIC and COMAC. A localised presence is a factor in gaining and maintaining sales. This can be either through Joint Venture with a local partner or as a Wholly Owned Foreign Enterprise.

Rolls-Royce recognises that the market outlook for China is excellent as Chinese airlines are forecast to double their share of international air traffic to 16 per cent in the next 20 years. They already supply all of China's major airlines including Air China, China Eastern, China Southern, HNA Group (Hainan), Sichuan Airlines and Xiamen Airlines. The Trent 700 engine, which powers the Airbus A330 is particularly successful in China as the fuel efficiency – whether deployed in long or short haul routes – make it an ideal solution to China's increasing number of international and domestic routes. A symbol of Rolls-Royce's strong relationship with the Chinese aviation industry is the training facility in Tianjin operated by Rolls-Royce and CAAC. It was opened in 1997 for the training of technicians, engineers and managers. Xian XR Aerocomponents is a high-tech joint venture with the Xian Aero Engine Company. XR Aerocomponents casts and machines turbine nozzle guide vanes (NGV) for use in the BR710 for the Gulfstream V and Bombardier Global Express, and the BR715 for the Boeing 717, and the Tay engine powering the Gulfstream IV and Fokker 100. Xi'an Aero Engine is also an approved classified parts supplier to Rolls-Royce. Sichuan ChengFa Aero Science and Technology in Chengdu is a strategic supplier to Rolls-Royce for rings, sheet metal and fabrications. Beijing Aero Lever Precision Limited produces VSV levers for Trent, V2500 and BR700 series engines. Shenyang Liming Aero-Engine Group Corporation produces heat shield rings for the BR700 series.

 2) AUTOMOTIVE SECTOR

The family car, previously the preserve of China's wealthy minority and government officials, is now no longer a luxury household item. Over the next few years, as the Chinese government commits itself to increasing domestic consumption and levels of disposable income in both urban and rural regions, automotive sales and the demand for after-sales services will continue to grow at a substantial rate across the country.

China is also the world's largest market for automotive after-sales services, component supply, imports of luxury marques and the adoption of technological innovation.

Electric vehicles (EVs)
The Chinese are investing heavily in electric and hybrid cars. As Western and Japanese manufacturers and their joint venture operations in China dominate the automotive sector with combustion-engine driven cars, the country's domestic industry sees opportunities in the transition to firstly hybrid and eventually full electric vehicles.

ln June 2010, five cities – Shanghai, Changchun, Shenzhen, Hangzhou and Hefei – were established as pilot cities for the EV purchase subsidy. The subsidy was set at RMB 50,000 for plug-in hybrids and RMB 60,000 for fully electric vehicles. This pilot project has now been extended to 25 cities. In Beijing, the goal is to have 30,000 EVs on the road by the end of 2012: 23,000 pure electric cars and 7,000 plug-in hybrids.

It is believed that details of the 12th Five Year Plan related to EVs include advances in key electric-vehicle technologies, such as batteries, electric motors and electric control systems, with a focus on the development of light pure electric vehicles over the next five years. The Plan aims to:

• Reduce production costs of batteries by 50 per cent

• Have one million EVs on China's roads by 2015

• Expand the country's annual production capacity of power batteries to 10 GW

• Establish a system standard for EVs

• Increase the number of model EV cities to more than 70 by 2015

• Install over 2,000 charging stations and 400,000 charging bays in the model cities

For batteries, the Plan dictates power battery modulation as the solution and advocates moving towards mass production capability. It also establishes a goalpost for the development of whole-vehicle integration technology to achieve a breakthrough in the performance and price ratio of hybrid vehicles to gain greater market share.

Another goalpost includes the innovation of the technology support infrastructure with advances in light electric vehicle technology platforms and electric vehicle standard systems, focusing on battery recharging and replacement technology.

In addition to EV sales subsidies, cities are subsidising construction costs for charging stations and other elements of EV infrastructure.

These moves are likely to be welcomed by Chinese auto manufacturers who have launched EVs including BYD (HQ and R&D facilities in Shenzhen, R&D sites in Shanghai and two manufacturing plants in Xi'an); Zotye (Yongkang, Zhejiang Province) and Chery (VVuhu, Anhui Province).

Current EV sales have been hampered by higher sales costs compared to conventional cars. The sales subsidy programme, publicly visible infrastructure and the rising cost in petrol are all factors likely to help sales of EVs within the next five years.

Although Chinese domestic companies such as BYD are at the forefront of battery and motor technology, there are a number of significant areas where the UK can support the ongoing development of the EV market. They include the utilisation of composite and lightweight materials; the development of vehicle to "X" communications; vehicle to grid; traffic management/vehicle guidance; car-to-car accident avoidance; and interactive entertainment and productivity systems.

Motor insurance
Motor insurance makes up almost 70 per cent of the non-life insurance industry in China. Regulations heavily restrict foreign firms' activities in this area, particularly in the compulsory third party liability insurance market. Access to this segment is expected to liberalise in the coming years, and will open up an enormous potential market for firms with the capacity to provide such services.

The aftercare market
Chinese customers are increasingly focused on car care and maintenance, leading to the expansion and development of the automotive aftermarket. This includes areas such as: repair and maintenance equipment, parts and components, remodeling, care and maintenance, aftermarket electronic products, second-hand sales, and training for technicians. 

Chinese domestic companies engaged in the automotive aftermarket, especially in remodeling and electronic products, are usually small scale, lacking their own research, core technology, technical know-how and IPR protection. They are typically Overseas Equipment Manufacturers (OEMs) of international brands or suppliers of low/mid-end products. The key players are and will continue to be global manufacturers. Bosch, for example, operates 855 car service stations in China, making it the largest independent automotive aftermarket service network in the country.

UK companies, such as BP, have already established a presence in China's automotive aftermarket, targeting in particular the medium and high-end market in car care and maintenance. The market remains open for more UK companies to get involved as Chinese consumers increasingly adopt the concept that vehicles need ongoing care and maintenance, and not just repair when they break down.

It is now common to see Chinese consumers turning to the types of products and services, known for superior quality at affordable prices, which UK companies are well-positioned to offer. Although the prices of UK products and services are higher than local prices, most Chinese customers believe that the extra cost is justified. With mass production, lower Chinese tariffs and lower international transportation costs, UK products will also become more affordable.

Supply chain
Shanghai and the neighbouring provinces of Jiangsu, Zhejiang and Anhui (the Yangtze River Delta) are the main centres for component manufacturing within China, accounting for 44 per cent of national production. Other major production centres include Chongqing, Sichuan and Changchun (Liaoning Province).

The world's auto manufacturers have a strong presence in the Chinese market through joint ventures with local companies. Many have expanding operations and partnerships in the cities outside of China's traditional automotive heartlands.

For example, VW, which has production sites in Changchun and Dalian, has announced a new production plant in Foshan and plans to build EVs in China from 2013; GM has production in Liuzhou (Guangxi Province), Qingdao and Yantai and plants in Harbin and Changchun; Peugoet-Citroen has two production plants in Wuhan; Ford has vehicle assembly in Nanchang (Jiangxi Province), engine manufacturing in Nanjing and plans to build a new transmission plant in Chongqing.

Of the Japanese manufacturers, Nissan opened a new SUV plant in Zhengzhou in 2010; Honda has assembly in Guangzhou and Wuhan; while Toyota has plants in Tianjin, Changchun and Guangzhou and is opening a new R&D centre in Changsu (Suzhou, Jiangsu Province).

There are a number of Western companies with strong and geographically expansive Chinese operations in the manufacture of components. GKN, for example, was the first Western firm to invest in the Chinese automotive components industry. It now has 13 operations across the country, including the manufacture of drive shafts in Chongqing and Wuhan. Similarly, Bosch has 11 manufacturing operations and opened its fifth R&D centre in Changsha in 2012.

Though approaching the market through existing relations with foreign companies active in China is a clear option for UK firms, this does not inhibit approaches to Chinese domestic manufacturers.

Luxury imports
Alongside growth in the sales of domestically produced cars, the Chinese market for imported luxury cars continues to expand dramatically. Imports of foreign cars nearly doubled in 2010, reaching nearly $31 billion or 813,600 units. Despite very high import taxes, sales have nevertheless exploded because of the prestige attached to foreign car ownership in China. High-end auto manufacturers have identified China as their most important growth market at a time of stalling demand elsewhere, with the annual Shanghai Auto Show now occupying a central place on the calendars of the leading global luxury carmakers.

With the typical purchaser of luxury goods in China being much younger than their counterparts in other countries, it appears that the market in high-end foreign cars is far from maturing. Rolls-Royce, for example, sold 800 cars in China in 2011 — an 800 per cent increase on sales of two years earlier — and is opening new dealerships in Chongqing, Tianjin and Wuhan.

Similarly, China is now Bentley's second most important market outside the US, with 13 dealerships across the country and the Continental Flying Spur — costing some RMB 3-4 million — its most popular model. Moreover, Jaguar Land Rover wants extended its number of Chinese dealerships to 100, including a new flagship store in Beijing, to meet a growing demand that produced sales of 30,000 in 2010. Aston Martin, meanwhile, plans to establish itself in China as a wholly foreign-owned subsidiary in order to develop further its in-country brand following a 50 per cent increase in sales in 2010.

Alongside increased sales, the growing demand for foreign cars in China also presents opportunities for UK companies engaged in the aftercare market. Replacement parts and components, care and maintenance services, and car accessories and remodelling cannot be readily sourced from domestic companies. With Chinese owners keen to ensure they get the most from their investments in foreign and luxury cars, UK firms will likely find an increasingly receptive market for their high-end aftercare products and services.

 

3) THE BUILT ENVIRONMENT SECTOR

The largest regional cities with clear aims and objectives in the Built Environment sector include Changchun, Chengdu, Dongguan, Hangzhou, Hefei, Nanjing, Shenyang, Suzhou, Tangshan, Tianjin, Wuhan and Wuxi. In addition there are a further 23 regional cities with growing aims and objectives, including 18 with sewage and water processing projects. For the latest advice and details on any of these regional city opportunities in the Built Environment sector contact either the CBBC or UKTI.

Growth across China is most noticeably demonstrated by the huge amount of construction cranes, that even the casual visitor cannot help but notice. This building work is largely to accommodate the huge amount of people who have moved, and continue to move, from the countryside to the cities.

China's urbanisation has constituted the world's largest-ever human migration. Over 200 million people have moved to the country's cities in the last 10 years, swelling the total number of urban residents to 666 million. This trend is set to continue, with some projections suggesting a further 300 million will urbanise by 2035.

China's built environment will need to continue its breakneck speed of development to continue to accommodate this influx of new urban citizens. In addition, an increasingly affluent class of citizens will demand increasingly complex solutions for the built environment that surrounds them. This is going to continue to offer a wide range of opportunities for UK companies.

UK firms have won built environment-related business across China, and have been well served by looking outside of the traditional cities. UK companies have been involved in some of China's most famous modern buildings as well as large numbers of lower profile projects across China.

Building for an urban billion
The influx of people into China's cities has pushed up the demand for housing. Private property has become more common, while property has also become a common investment vehicle. This, combined with rising wealth in regional cities, has led to a sustained surge in the residential building market and a rapid increase in prices. Growing wealth has also led to increasing levels of consumerism, while urbanisation has boosted the absolute market size in cities, leading to a boom in commercial and mixed-use building.

However, increasing prices have caused concerns of a bubble, and the government has taken measures to try and cool the market. Price increases, and the cooling efforts, have been more marked in the major cities, but growth in regional cities seems to be following a similar course.

Another problem is that rising prices have stretched poorer parts of society. The government has been addressing this by emphasising the need to build 'affordable housing'. Hefei has announced that 10 million sqm of low-income housing will be built over the next five years, while 462,000 apartments will be launched as “low-income housing' in Shijiazhuang. 

Both quality and quantity
Quantity is vital, and cheap building will undoubtedly continue. However, as wealth and experience have increased there is a growing drive for quality building across many regional cities, and this is now being incorporated into planning.

Ordos has announced that it will spend RMB 15 billion by 2015 to help it become the most 'liveable city' in its region – attracting foreign brands like Shangri-La and Starbucks is part of this strategy. Similarly, Shenyang has declared its aim to be an “old-age friendly” city, and will provide more public facilities for older people.

The preservation and incorporation of cultural and architectural heritage is a part of this, and is increasing in importance. For example, Nantong has pledged to “protectively develop old urban areas and protect historic relics”, while Changchun has earmarked RMB 2 billion for the latter.

Low carbon development and eco-cities
Part of this quality drive will include devising and executing green building projects and an increasing focus on eco-friendly development. Mass urbanisation and industrialisation have had a large impact on the environment in China. There are, however, an increasing number of building solutions which can lessen the ecological impact of the built environment. These range from green standards, to processes, materials, building management systems, technologies and techniques. Many of these are areas where the UK is strong. This is recognised in China, and there is an eagerness to work with UK expertise in this field.

Green spaces
This environment is central to much government planning in China, forming an important part of the next Five-Year Plan, both at central and local levels.

Many regional cities aim to be Eco or Forest-Cities. Part of this drive includes targets to increase forest coverage across their administrative regions by 2015. They have also set ambitious targets for green spaces within cities.

Some of these green spaces will be dedicated green communal areas. For example, Changsha aims to build over 100 community public gardens, Yangzhou plans to build 30 parks and Xi'an will construct more than 20 parks in the next five years.

Some of these targets will be met by green spaces being incorporated into general projects. Designers will increasingly need to factor this into plans when bidding for projects. Decisions taken by local officials may be influenced by how the final development will affect their targets.

Five Year Plans
Many cities have announced plans to spend heavily on infrastructure over the next five years. Nanjing will invest RMB 390 billion in infrastructure rebuilding and river regulation, Baotou will invest RMB 12 billion in infrastructure projects and Zibo will invest RMB 8.2 billion. Jinan intends to build 16 urban complexes covering 40 square kilometres of land and Tianjin plans to develop a new coastal area. In Changchun, RMB 5 billion will be invested in building a bonded zone and RMB 30 billion will be spent on building a central business district.

Green buildings
New buildings will increasingly look to incorporate the latest technology and techniques in order to lessen their environmental impact.

There have been lots of announcements at both national and local levels that new building will become increasingly green. However, the methods and standards that will be used are not always clear.

Energy
It's not just buildings that need to be developed for China to continue its growth. Many cities are struggling with power shortages, and will look to increase their energy capacity in coming years. Jiangmen has already announced that more than RMB 11 billion will be invested in power grid construction.

Water supply and waste treatment
There are business opportunities for UK companies with the ability to work on projects to improve water supply, wastewater and sewage systems, and refuse disposal.

Access to tap water will increase across China. Xi'an, Wenzhou and Nanchang have all announced plans to build new waterworks plants.

Wastewater and sewage treatment will also be improved. New water-treatment plants are planned for Tianjin, Zibo, Changzhou and Xi'an, while Xiamen, Zhuhai, Wuhan, Kunming and Guiyang will extend plants and capacity. Wenzhou has announced plans to invest RMB 5 billion to expand sewage treatment, while Wuhan, Dongying, Foshan and Wuxi also have plans for expansion.

Cities also need better refuse disposal systems for both household and industrial garbage. Xiamen has announced plans for building plants for the treatment of household refuse as well as an incineration plant. Wenzhou intends to invest RMB 2.3 billion by 2015 in rubbish treatment.

Green building in Dongguan Dongguan has made a range of announcements on its green building plans. The city aims to build 0.5 million m² of green buildings, convert 2.5 million m² of existing buildings to green buildings and make energy-conservation standards for buildings compulsory. As well as the construction phase, green building also needs to be factored into ongoing management and maintenance. As a result, Dongguan intends 100 government buildings will use monitoring systems to ensure efficiency.

Water conservation
Water shortages are becoming a particular problem in the drier north. The Chinese government is working on a range of water conservation projects, including the 'South-North Water Diversion Project', which will affect a large number of regional cities. Part of the Middle section links central China to Beijing. The Eastern section is largely an upgrade to the Grand Canal, and is set to flow up to Tianjin, with another strand going into Shandong.

Tourism
Another growing opportunity will be in tourism. Certain regional cities are already internationally famous as tourist destinations such as Xi'an, home of the Terracotta Warriors. Domestic tourism remains a huge business, and cities across China are looking to promote themselves as tourist destinations, and require high standard facilities to attract higher value visitors.

Harbin plans to generate 15 per cent of its GDP (RMB 96 billion) through tourism by 2015. it hopes to become an international tourist city, and the government plans to invest RMB 18 billion in related projects. Cities such as Ordos want to attract international hotels to promote their image as tourist centres.

Metro and passenger rail projects Changsha intends to open two lines in 2013 and 2014, with three more lines to follow, with a total length of 140.3 km. Chengdu will add five more lines Nanjing is investing RMB 100 billion in building two metro lines. Shenyang will extend its existing lines, and build three more. Suzhou will finish two lines, and commence building three more. Tianjin have five lines under construction. Wenzhou intends to spend RMB 62 billion on 77.6 kilometres of passenger traffic rail. Over the next five years building will begin and RMB 10 billion is to be invested. Wuhan will build 140 kilometers of rail in the main city area to link the different parts of the city. Three passenger lines will be built in Xiamen, totalling 85 kilometres. Urumqi will build a new passenger rail line, and Nanchang will build two lines of 29km and 23km.

 

4) EDUCATION SECTOR

The education and training dimension of China's regional cities is important for two reasons. First of all it offers business opportunities for UK providers of higher, vocational and further education, but just as important, it provides pointers for UK firms who are seeking business locations with a particular education or skills profile.

Future outlook
Higher Education – According to the outline of China's National Plan for Medium and Long-term Education Reform and Development (2010-2020), China's higher education sector will continue to play a key role in China's modernisation drive. The sector has experienced rapid 'expansion since the late 1990s, resulting in China now having the world's largest higher education system. But quality has not kept pace with provision, and China is paying greater attention to this issue with a view to achieving its aspiration of developing world-class universities.

Looking ahead, China's universities will place a greater emphasis on career development and entrepreneurship education and will revamp their post-graduate programmes to make them more accessible and relevant to national needs. in particular there will be a focus on the practical application of scientific research and its rapid introduction into production. Research into philosophy and social sciences, however, will also receive attention.

Through the Higher Education Rejuvenation Plan for Central and Western Regions, there will be a stress on the development of the higher education sector in inland areas, and colleges in the East will be encouraged to support their central and western counterparts.

Project 985 and Project 211 (national initiatives to cultivate world-class institutions) will continue to play an important role in the building of first class universities, and higher education institutions will be encouraged to cooperate with foreign institutions by opening joint research centres and participating in international academic organisations.

Vocational Education – Vocational education is recognised by the Chinese government as a key channel to boost economic growth and promote employment. The Chinese government plans to expand vocational education and incorporate it into its socio-economic development and industrial development programmes. Improvements in the quality of teaching and the development of standards are a priority, along with making sure, through greater collaboration with industry, that student learning is employment-oriented.

The government plans to legislate for the involvement of enterprises in, for example, the evaluation of teaching quality and the provision of occupational training. Incentives will also be provided to encourage enterprises and industry associations to invest in vocational education and run vocational schools. There also will be a major drive to improve vocational education in rural areas.

It is planned that graduates of vocational schools will hold both a diploma and a `vocational permit' in order to be eligible for jobs. Graduates will also be encouraged and incentivised to continue their studies whilst working.

Further or Continuing Education – In China, further education is viewed as part of a life-long learning system for those who have completed school education. The current emphasis is to develop non-degree further education and also expand diploma-granting further education.

Whilst further education for adults of working age will be recognised and incentivised, there will also be an emphasis on the provision of further education for the aged and as well as efforts to expand community education in urban and rural areas. Distance learning will also be encouraged through television and the intemet. A framework will be developed to accommodate the accumulation and transfer of academic credits in further education.

Opportunities for UK institutions

Higher Education – According to their municipal Five Year Plan, emerging provincial Chinese cities such as Tangshan, Taizhou, Dongying, Hefei and Shaoxing are encouraging their universities to cooperate with foreign counterparts, whilst cities better known for their industrial capability such as Dongguan, Foshan and Suzhou are also seeking to develop university education and encourage foreign cooperation.

Nantong is trying to attract foreign universities to set up branches and, along with Tianjin, Foshan, Taizhou and Yangzhou, is planning to boost post-graduate education. Dongying is looking to attract foreign higher education research institutions to cooperate with its local universities. Tianjin will focus on 985 and 211 projects, while Wenzhou intends to establish sports and foreign language universities. Tangshan is also seeking private investment to develop its universities. Ningbo is seeking to develop university majors in harbour logistics, shipping/navigation and the marine economy.

Vocational Education – Those cities seeking international cooperation in general to improve their vocational colleges include Changsha, Xiamen and Hohhot, whilst a number of cities also state specific sectors where collaboration is sought, such as Daqing (petrochemical and automotive manufacturing), Shenyang (equipment manufacturing) and Jinan (nursing). Large scale developments planned include an 'equipment manufacturing vocational education pilot city' and occupational skills centre in Shenyang and a 'vocational education' park in Ordos.

Further and Adult Education – Further education is specifically mentioned in the Five Year Plans of Hohhot, Datong and Zhongshan, whilst adult education is mentioned in those of Weihai, Xining, Hohhot and Zhongshan.

Market access
Higher Education – UK universities are continuing to attract Chinese students to the UK via direct recruitment, education exhibitions and agents, but the environment remains fiercely competitive. In the meantime, Chinese institutions are very keen to form broad based partnerships with UK universities which include not only joint research and degree programmes (such as 2+2), but also teacher training and the two-way exchange of staff and students.

Joint programmes taught in China require approval from China's Ministry of Education. Since many universities in the better known cities of Beijing and Shanghai already have foreign links, UK universities may experience a greater willingness to cooperate from institutions in China's regional cities.

All Chinese universities are highly conscious of the rankings of their potential partners. There are signs that some Chinese universities are willing to work with foreign Professional 'Institutions” to accredit Masters, Bachelors and Technical level courses.

A university may establish a presence in China via a Representative Office or a Wholly Foreign Owned Enterprise (WFOE). Whilst the activities of a Representative Office are limited to liaison and business development, a WFOE is permitted to engage in any revenue generating activities expressly included in its business license. If the university wishes to establish a Representative Office, the subsidiary company must have been in existence for at least two years, though this restriction does not apply to WFOEs. Foreign universities are also permitted to establish joint campuses in China, though this is a far greater commitment and requires approval at the highest level.

Vocational and Further Education – Vocational education now falls in the encouraged category of foreign investment, so more partnerships with Chinese may be expected. Opportunities for cooperation will particularly relate to priority sectors in regional cities, whether this be automotive, construction, finance or healthcare.

Vocational education in some cities is viewed as lacking structure, quality and relevance, so cooperation in the broad areas of curriculum design, employer engagement and teacher training will be well received. Foreign cooperation in the vocational education sector will require approval by either the local Education Bureau Or the Bureau of Human Resources Et Social Security.

UK institutions wishing to cooperate with Chinese partners will face difficulty receiving approval from the Chinese authorities unless they are included on a list of 'accredited institutions' held by the Chinese Embassy. Currently the UK's non-HE providers which award their own degrees or award degrees affiliated to universities are not included in this list (and as such do not have their degrees recognised in China). However, if such institutions are able to secure a supporting letter from a UK government department, this may be sufficient to secure local approval for a joint programme.

Conclusion
Although China's education system is experiencing growing pains during its rapid expansion, the government is committed to ensuring that it meets the needs of the national economy and fulfils the aspirations of students. Foreign involvement is now encouraged more than before. With a global reputation for excellence, UK institutions are well placed to offer their expertise and enter into profitable partnerships. UK firms considering entry into China's regional cities can also be assured that education, skills and employability are high on the agendas of local governments.

 

5) ENERGY SECTOR

The largest cities with clear aims and objectives in the Energy sector include Baotou, Dongying, Harbin, Ordos and Shijiazhuang. In addition there are a further 30 regional cities with growing aims and objectives. For the latest advice and details on any of these regional city opportunities in the Energy sector contact either the CBBC or UKTI.

Whilst daunting, the challenge of meeting China's energy needs presents a wealth of opportunities, particularly in meeting demand through improved energy efficiency. China is the world's fastest-growing consumer of power, and energy demand continues to rise as the economy expands.

This has caused periodic power shortages, putting pressure on central and local governments to make additional supplies of energy available to consumers. China produced three billion tonnes of coal in 2009, 50 per cent of the world's total, and coal is used to generate 79 per cent of the nation's electricity.

China's staggering rate of growth has a substantial impact on the environment, as well as putting tremendous pressure on the global oil and natural gas markets, raising energy prices worldwide.

China recognises that it cannot continue to increase its energy usage at the same rate as its economic growth. Government plans are to cut energy consumption per unit of economic growth by 16 per cent and to emit 17 per cent less carbon dioxide emissions per unit of economic growth. China also aims to increase the use of non-fossil fuels from 8.3 per cent in 2010 to 11.4 per cent by 2015 and to raise the overall use of clean energy. This is part of the country's wider plan to reduce carbon intensity by 40 to 45 per cent by 2020 from 2005 levels. This government policy provides a rare opportunity to provide powerful environmental improvements while developing a solution to an economic problem.

Oil & gas
Oil makes up 17 per cent of China's energy mix. However, at present production levels, currently exploited national oil reserves will only last until about 2025. Ninety eight per cent of total crude distillation capacity is controlled by China's two oil giants, Sinopec and PetroChina. State Owned Enterprises (SOEs) account for 66 per cent of the well-drilling equipment market. Other Chinese private SMEs make up another 19 per cent of the market, producing mainly individual stand-alone equipment. Foreign companies account for 15 per cent of the market and supply advanced complete-set equipment. Key international players have established their presence in China mostly through partnering with Chinese companies.

Most of China's technology is focused on the exploitation and processing of its domestic light crude oil. However, limited domestic reserves have forced China to exploit more of its heavy crude reserves and to import increasing quantities of heavy crude oil. This type of oil is more difficult to recover from the ground, more difficult to refine, and more polluting than light crude, thus requiring advanced technology from abroad. China currently imports half the crude oil it uses and this is expected to rise to 65 per cent by 2020.

Current government policies cover several areas: the emphasis on the use of high-efficiency technologies to develop low-grade oil & gas resources and improve oil recovery ratios; the replacement of fuel oil (light oil) with clean coal, petroleum coke and natural gas; the more rapid development of coal-to-liquids projects; the development of oil bases and expansion of oil pipelines and networks; and the adoption of petroleum-saving and consolidation policies in the electric power, petrochemical, metallurgical, building material, chemical, and transport industries.

The biggest growth area in petrochemical refining is ethylene production. All major Chinese producers already use ethylene steam-cracking technology constructed by or licensed from foreign companies. The large SOEs are mostly interested in acquiring patented technological processes and technical expertise. Tianjin has announced plans for a new ethylene project for completion by 2015.

Lanzhou, Chengdu, Daqing, Urumqi and Hohhot are all existing centres of onshore oil drilling, with plans for increased output and technological development. Typical energy-saving technologies in demand are likely to include: optimised operation technologies to water filling systems; comprehensive energy-saving technologies for oil and gas-enclosed collection and transmission; and recovery and reutilisation technologies for discharged natural gas.

Natural gas makes up almost 4 per cent of China's total energy consumption. This is growing rapidly due to increases in demand from the chemicals industry and household use. The 12th Five-Year Plan implies that natural gas consumption will rise to 8.3 per cent or 260bcm by 2015.

The cities of Changsha, Changchun, Chengdu, Dongying, Zhuhai, Daqing, Weifang, Urumqi and Hohhot all have plans for further gas exploration and technological upgrades within the next five years. The cities of Dongguan, Hangzhou, Harbin, Jinan, Suzhou, Tianjin, Wenzhou and Xi'an each have plans for improved local storage and distribution.

As China imports approximately 20 per cent of its gas supplies as Liquefied Natural Gas (LNG), major port facilities are required for handling, storage and processing. The Dagushan LNG project in Dalian and the Jiufeng LNG project in Dongguan began production in the third quarter of 2011, and Dongying and Ningbo have stated that they will develop new port facilities by 2015.

China has over 20 trillion m³ of shale gas reserves. Development of the country's inland shale gas is a promising market. The regions identified for exploitation are Sichuan (Chengdu), Inner Mongolia (Ordos), Heilongjiang, Jilin, Liaoning, Hubei, Xinjiang, Guizhou and Shandong (Dongying), although many are hampered by poor logistics or scarce water resources.

PetroChina aims to produce 500 million m³ of shale gas by 2015, while Sinopec intends to have combined production capacity of 2.5 billion m³ of shale gas and coalbed methane gas by the end of that year.

Clean & renewable energy
Within just a few years, China has emerged as a global leader standing at the centre of almost every clean and renewable energy market. It is an area which relevant UK investors or companies cannot ignore.

Propelled by China's economic expansion and ambitious policies, these markets have grown swiftly. For example, by the end of 2010, China had become the world's largest investor in clean energy, at RMB 354 (£35 billion), and had installed 44.7 OW of wind power. The 12th Five-Year Plan and other policies will propel further expansion in coming years.

Solar
China plans to boost solar capacity 20-fold by 2020, from 800 MW in 2010 to more than 20 GW. Capacity will increase to 10 GW within the next Five-Year Plan, including more development in western China, with technologies beyond the crystalline silicon (c-Si PV) solutions the country has favoured so far.

China is home to four of the worlds ten largest manufacturers of solar panels by volume (Trina Solar (Changzhou), Yingli, Suntech (Wuxi) and JA Solar) and is the global leader in this area. Within its city Five-Year Plan, Changsha emphasises its intention to develop solar panel manufacturing.

The first provinces to develop large-scale grid-connected projects, using primarily domestically produced crystalline silicon PV panels, will be Xinjiang, Gansu, Inner Mongolia, Qinghai, Ningxia and Shaanxi. As technology and power-generation costs decline, it is likely that China will install a mix of solar technologies to achieve its 2015 and 2020 solar-power generation targets.

Many cities have specific solar-power initiatives, including the installation of solar panels on the roofs of business park buildings, such as: Changchun, Changsha, Chengdu, Hefei, Jinan, Nanjing, Ningbo, Shenyang, Suzhou, Tangshan, Weifang, Wuhan, Wuxi and Changzhou.

Offshore Wind
China's offshore wind market only began in 2009 with the construction of the Donghai Bridge Wind Farm near Ningbo, but government targets call for swift growth to 30 GW by 2020. Offshore wind capital costs in China are projected to be at least double onshore costs, resulting in the bids for four new developments not being high enough to continue. These projects may be subsequently awarded higher tariffs by the government to ensure profitable operation, just as with early onshore wind farms. For foreign equipment and service providers, the market may be favourable, but due to pricing constraints there may be limited opportunities for overseas turbine manufacturers.

Onshore Wind
Although China is both one of the world's leading wind-power generators and one of the fastest installers of new wind-generating capacity, the amount of energy it generates from this method is tiny compared with that from coal or hydro. Even by 2020, wind power generation will not be a major energy source. China has recently announced the scrapping of subsidies to power generators who use domestic parts at the expense of imports.

Beijing-based Longyuan Power Group is the country's largest wind-power equipment manufacturer and wind-farm developer, with existing farms in Xinjiang (Urumqi), Gansu, Inner Mongolia (Baotou), Hebei, Liaoning (Shenyang), Jilin, Fleilongjiang and Fujian. Other companies have developed wind farms in Yantai, Nantong and Daqing, and there are plans for development in Quanzhou, Wuxi, VVeifang, Tangshan, Nanjing and Jinan. Charigzhou, Wuhan, Suzhou and Ningbo all have plans to develop and manufacture wind-power equipment.

LM Wind Power, a world leader in rotors, has its China headquarters in Beijing and operations in Tianjin, Urumqi and Qinhuangdao. Vestas, which also has its Chinese headquarters in Beijing, has six factories in Tianjin and another three plants in Jiangsu and Inner Mongolia.

Biofuels
China expects biofuels to meet 15 per cent of its transportation energy needs by 2020, with a call for a combined ethanol and biodiesel output of 12 million tonnes. Ethanol output is currently around four million tonnes, and biodiesel some two million tonnes. Currently, more than 75 per cent of China's ethanol output is sourced from corn, with the remainder coming from wheat and sorghum.

Guildford-based TMO Renewables has signed deals with two Chinese state firms to develop pilot plants producing cellulosic ethanol. The aim is to use a process using enzymes to break down cassava crop waste to produce cellulosic, or second-generation biofuel, an alternative transport fuel meant to be more efficient than biofuels made from corn.

Geothermal Power
According to the Ministry of Land and Resources, geothermal power is expected to provide 1.7 per cent of China's total energy requirement by 2015. China began utilising geothermal energy in the 1970s, with the first power station in Tibet. The industry has been held back due to the high capital investment requirements, the geographical spread of hotspots and technological immaturity.

ln 2011, China began exploration of shallow-lying hotspots in 29 provincial capital cities, including Shijiazhuang, Shenyang, Changsha and Zhengzhou.

Biomass
Since biomass energy is renewable, clean and environmentally friendly, and derived from organic raw materials like animals, plants and microorganisms as well as their discharges and wastes, it is an ideal solution for China's rural farmers, it is also convenient to store and transport and is abundant in supply, particularly in the eastern regions of China, which are distant from the major coal-producing areas.

Cities identified as having strong local government support for the development of biomass energy include: Changchun, Changsha, Daqing, Hefei, Jinan, Ningbo, Tianjin, Wuhan, Nanning, Quanzhou and Zhongshan.

Hydro Power
China envisages hydro power as the most important source of renewable energy in the foreseeable future. It aims to have 300 GW of hydro power generation installed by 2020, utilising 75 per cent of the nation's hydro power potential. Expansion beyond this is unlikely to be commercially viable.

Smart grid
China's ambitious plan to invest RMB 3.45 trillion to build a strong and smart grid by 2020 ensures that it will be one of the world's largest smart-grid markets. Each of the cities covered in this report have announced upgrade plans in this area.

Ambitious renewable energy and energy-efficiency targets, as well as growth projections for electricity demand, require a more advanced grid than exists today. State Grid, the world's largest utility and provider of 80 per cent of China's electricity, released its Smart Grid Plan in 2009, providing a roadmap through 2020 that ensures the country will remain one of the world's largest smart-grid markets. Smart-grid solution providers face difficult market conditions, where low-cost solutions and strong relationships with local grid companies define success.

Nearly all completed wind farms are now connected to the grid. The problem has shifted to excess intermittent supply. New UHV power lines will partially address the problem by shifting power elsewhere; by 2015, China will invest RMB 500 billion to construct 40,000 kilometres of UHV transmission lines. Management and forecasting tools that maintain grid stability are also needed, such as active and reactive power-flow control and low-voltage ride-through (LVRT) technology.

Plans to install 500 million low-cost Automatic Meter Readers (AMR) before 2015 will lead to a requirement for more sophisticated Advanced Meter Infrastructure (AMI) meters to be installed within the same period. China's meter market is restricted to a handful of already-present players. Grid companies rely on suppliers with low prices, a quality track record, local after-sale customer service, and relationships with internal grid company departments.

Coal
Coal makes up 79 per cent of China's energy mix. In addition to coal-fired power generation, coal is critical to the development of China's metallurgical, building materials (cement) and chemical industries, as well as residential use.

The vast majority of coal mining equipment used in China is produced domestically. Chinese companies are developing the capacity to manufacture high-tech mining equipment, such as super-power electric haulage shearers, hydraulic support systems, and armoured face conveyers. Nevertheless, most of the mining equipment produced in China still remains behind that of other countries with respect to mining efficiency, equipment quality, environmental protection of mines, and safety.

Though few of the regional cities in this guide include coal mining or coal fired power stations as a priority within the next five years, China will still need to continue to invest heavily in coal production and power generation. Likely areas of investment will be development of new mines, improvement of coal mine safety, clean coal processing technology, coal conversion technology and coal bed methane capture.

Cities that have stated developments in the coal sector include Weifang and Wuhan which are promoting clean coal processing, Urumqi to adopt methane capture, and Changsha, Tangshan, Hohhot and Datong which plan to develop new mines and expand production.

 

6) HEALTHCARE SECTOR

The largest regional cities with clear aims and objectives in the Healthcare sector include Chengdu, Harbin, Nanjing, Shenyang, Tianjin, Wuhan and Xi’an. In addition there are a further 28 regional cities with growing aims and objectives, including 17 with major hospital build plans. For the latest advice and details on any of these regional city opportunities in the Healthcare sector contact either the CBBC or UKTI.

In the context of urbanisation, a rapidly ageing population and an ominous rise in cases of non-communicable diseases (such as obesity and cardiac and pulmonary conditions), there is growing awareness in China of the need to improve and modernise the existing healthcare system. The Chinese government has identified improving the quality of healthcare services and the harnessing of new technology as key priorities going forwards. The aim is to dramatically improve healthcare service quality and, importantly, to adopt new technologies that will enable virtual healthcare services to overcome service disparities.

Accordingly, $124 billion has been earmarked for investment in 2011 and hundreds of billions of dollars budgeted up to 2020. The aim is to achieve universal healthcare coverage by 2020, as well as to establish an extensive network of major hospitals and village clinics and to prioritise the development of primary care and preventative healthcare systems.

The Chinese healthcare market is currently estimated to be worth RMB 1.5 trillion, a figure that McKinsey & Co predicts could exceed RMB 4 trillion per annum within 10 years. China is moving forward with its universal healthcare coverage plan, intending to reduce the portion of medical fees shouldered by individuals to below 30 per cent of total national health expenditure by 2015.

Design, construction and management of healthcare facilities
Increasing the number and quality of facilities will underpin many of the other developments that China hopes to make in the provision of healthcare. Thousands of new hospitals have already been built under a huge investment programme, and this construction activity, as well as the rebuilding and refurbishment of large numbers of existing facilities, will continue.

As well as architecture, design and construction, these projects will also include supply-chain opportunities in pharmaceuticals, medical equipment, e-health, ICT, diagnostics, training and facilities management. In addition to public facilities, the involvement of private healthcare providers is also being encouraged by the government. There are already a large number of these, though they are generally smaller in size.

Whereas joint ventures were previously mandatory for entry into this sector, since 2011 wholly owned foreign-owned medical facilities have begun to enter the market. Foreign investment in this area is being specifically encouraged in the central and western areas of China.

E-health
Investment in healthcare IT has boomed in China over recent years. Spending is expected to continue to rise as it is still a comparatively low percentage of operating revenues when compared to developed markets.

Seventy three per cent of spending has been within hospitals themselves. Much future spending will be directed at establishing Regional Healthcare Information Networks (RHIN). These will be data centres and telecommunications networks designed to share data and clinical services among geographically dispersed communities.

As well as driving efficiency, e-health is seen as a way to bridge the geographic divide in the quality of healthcare provision across China. However, e-health spending has been predominantly made in the wealthier eastern provinces. Rural spending on healthcare IT has been minimal.

Most systems purchased are administrative. Only the most sophisticated hospitals have systems which include clinical diagnosis, decision support and electronic patient records.

Purchasing decisions are decentralised, and many systems lack standardisation and interoperability, thus increasing costs. The exception is the facilities of the People's Liberation Army, which have a unified technological approach for many IT platforms and services.

Competition is fragmented particularly as spending decisions are localised and at the discretion of individual hospitals. The vast majority of Chinese firms working in e-health are small.

While big budgets for healthcare IT systems are in the pipeline, there is reason to exercise caution. Poor investments have been made in the past and inexperience in procurement continues to pose risks. There is also concern as to whether the available products are suitable for the needs of the healthcare industry.

Despite this, IT in clinical services and hospital management is bound to increase. Digital medical records will become more widespread; standardisation and integration are likely in the medium term; and regional healthcare information networks will become increasingly important. Moreover, procurement and implementation procedures will improve, and consultants in IT planning and implementation will have a greater role.

Medical equipment
China is now the world's third-largest market for medical equipment. Sales reached $14.7 billion in 2009 and are estimated to grow a further 12 per cent in 2010-2014. For 2011 alone, Espicom estimates market growth was in the region of 13.6 per cent, one of the highest rates in the world. However, for an overseas manufactured device to be sold in China, foreign companies must go through a rigorous registration process which can be time consuming and costly.

In addition, local Chinese medical equipment manufacturers are growing fast and investing significant amounts to develop their business and increase their market share nationally (and internationally).

Despite increased local competition, there are still opportunities for overseas manufacturers of medical equipment because of their advanced technology and a preference for foreign products among hospitals and patients. There is evidence that Chinese consumers trust Western brands over domestic ones and are willing to pay more for them – this perceived 'brand value' can be exploited.

Training
The refurbishment of existing healthcare facilities and the on-going construction of new ones have led to increased demand for the training and recruitment of hospital staff. These include upgrading skills, new medical practices and techniques, training in the use of new equipment, hospital management processes and good healthcare practice. This presents opportunities for the delivery of training programmes locally, in the UK and on-line.

Unlike in the West, many hospital administrative staff in China also have medical qualifications, but the Ministry of Health has recognized it is important to have professionals that have specific, formal skills in health management. As a result, short-term training centres have been set up in many cities.

In addition, the Chinese Ministry of Health wishes to establish educational partnerships between UK and Chinese nursing schools. The aim of such partnerships will be to develop the Chinese nursing curriculum through the training of nurse trainers who will deliver it; to develop short courses for head nurses in China; and, potentially, to send a cohort of middle-ranking nurses to the UK to complete nursing qualifications.

Health insurance
The need to expand healthcare coverage and quality is creating increasing opportunities for private health insurance providers. Premium healthcare has become a big business and has become part of the general boom in the consumption of luxury goods and services once unavailable in China.

Although private insurance still accounts for only a very small amount of total healthcare spending, this is not an insignificant figure considering the size of the Chinese market. Spending on private insurance continues to grow steadily in absolute terms.

At the other end of the market, the government has announced a rural co-operative medical insurance programme. Under this, new participants are set to receive a premium of no less than RMB 300, an increase of RMB 144.70 from 2010. Poorer patients with severe medical conditions will be reimbursed at least 90 per cent of their medical expenses.

Opportunities are growing for companies operating as policy providers and as third-party administrators. Health insurance firms are also working increasingly closely with hospitals on payment systems.

Pharmaceutical and R&D
China is one of the world's fastest-growing markets for the sale of pharmaceutical drugs and for investment in medical research and development. There exists considerable potential in the market to develop cost-effective drug treatments and to sell pharmaceutical products.

UK pharmaceutical firms are already active in China and ambitious programmes have been launched into researching some of the world's most widespread and serious diseases, including those, such as gastric and liver cancer, that are increasingly common in Asia. Investment in RD has been strongly encouraged by the Chinese government and this, along with the rapidly increasing size of the domestic market, makes China an attractive site for overseas investment.

Having an in-market presence gives firms the opportunity to develop close links with hospitals and other institutions conducting clinical research and, of course, to better sell their products and services. As competition from both international and domestic companies intensifies, having established relationships with local firms and hospitals, and a presence on the ground to maintain these relationships and offer after-sales support, will become increasingly important.

Market access
Although considerable opportunities exist, there remain significant regulatory barriers for companies looking to enter the Chinese healthcare sector. Intellectual property protection is improving, but remains a concern.

In its recent report on public procurement in China, the EU Chamber of Commerce in China (EUCCC) cited the following main challenges for overseas suppliers in the medical equipment sector:

• Increasingly sub-central level bidding

• Evaluation criteria: few advance details given to bidders and over-emphasis on lowest price

• Pricing controls

• No access to evaluation reports

• Unsatisfactory appeals processes

Although there is no doubt that the life sciences market in China is a complex one, it is important to not forget the central importance given by the government to the reform and modernisation of the sector. This high-level support means there will be significant opportunities for UK companies that possess experience and expertise. As with all aspects of doing business in China, careful strategic planning, sensible allocation of time and resources and a commitment to the long term is crucial to future success.   

 

7) RAIL SECTOR

The largest regional cities with clear aims and objectives in the Rail sector include Changchun, Changsha, Chengdu, Dalian, Nanjing, Qingdao, Tianjin, Wuhan and Zhengzhou. In addition there are a further 26 regional cities with growing aims and objectives, including 22 with major rail developments (metro, light-rail, rail). For the latest advice and details on any of these regional city opportunities in the Rail sector contact either the CBBC or UKTI.

China is one of the world's fastest-growing rail markets and railway transport is of great importance to its economic success.

Rail is paramount to China's performance in trade and commerce, being the mode of transport for 56 per cent of all the country's freight. Some 3.7 billion tonnes of goods were delivered by rail in 2010, a 9.3 per cent increase on 2009. Rail also accounts for a third of China's total passenger transport, with 1.7 billion passengers using its vast railway network in 2010, a 10 per cent increase on 2009. Over the 40-day period of Chinese New Year in 2011, 5.7 million passengers travelled on the rail network each day.

In recent years, the Chinese government has invested heavily in railway infrastructure. Actual accumulative Fixed Asset Investment (FAI) in rail for 2010 reached RMB 834 billion, of which RMB 709 billion was directed to infrastructure (an increase of 19 per cent on 2009.) The Ministry of Rail announced that China's railway sector will continue to receive high levels of investment, following which a further RMB 600 billion was set aside for 2011.

By 2012, 26,000 kilometres of new railway was completed and in operation, with over 9,000 kilometres designated passenger lines.

China is also one of the world's fastest-growing developers of urban rail (including metro and light-rail transit). Ten Chinese cities currently have combinations of urban rail, with a total length of nearly 900 kilometres. The State Council has approved new urban rail construction and expansion in 25 cities to a total length of 2,500 kilometres by 2015. The total length of light-rail transit alone is expected to reach 5,000 kilometres by 2020.

China's railway planning and regulatory framework should be viewed as operating in two tiers. The main lines connecting cities and provinces are primarily under the management of the Ministry of Railways and its subordinate regional bureaux. Each regional bureau (or group of companies) is responsible for infrastructure investment, the development and purchase of rail equipment and the operation of services under the authority of the central Ministry. The second tier are the local railway networks developed and managed by regional governments (provincial and municipal), and these are typically metro and light-rail transfer systems.

China Railway Group Ltd (CRG) is the world's second-largest infrastructure company and delivers most of China's railway infrastructure projects. Ninety five per cent of the country's modern railway, 10 per cent of its roads and over 60 per cent of its urban light-rail projects were either built by CRG or one of its 40-plus subsidiaries. These are based in the most important regional rail transport hubs, including Beijing, Tianjin, Shanghai, Zhengzhou, Wuhan, Harbin, Shenyang, Jinan, Guangzhou, Chongqing, Chengdu, Xi'an and Lanzhou. These are also cities where the Ministry of Railways has bureaux.

There are currently two major players in China's railway equipment and rolling-stock manufacturing sector. In 2000, China Railway Rolling Stock Industries was divided, generally based on geography, into two competing groups, China Northern Rail (CNR) and China Southern Rail (CSR).

CNR's subsidiaries are based in Beijing (HQ), Qiqihar, Harbin, Changchun, Shenyang, Dalian, Tangshan, Tianjin, Datong, Taiyuan and Qingdao. CSR's subsidiaries are based in Beijing (HQ), Qingdao, Shijiazhuang, Luoyang, Zhuzhou, Nanjing, Chengdu and Hong Kong. Both CNR and CSR are involved in the manufacture and development of locomotives, rolling stock, high-speed rail and light-rail transit systems. Foreign companies, such as Bombardier, Siemens and Kawasaki Heavy Industries, primarily operate in joint ventures with subsidiaries, partners and contractors to CRG (for infrastructure), CNR and CSR.

High-speed rail
China's ambition to build faster railways began in the early 1990s. In 1997, the Ministry of Railways began a series of six "Speed Up" campaigns which increased the average speed of many of the country's passenger and freight lines.

However, the development of China Rail High-Speed Rail (CRH) really took off in 2003 when the State Council approved the Ministry of Railways "Medium to Long-Term Railway Network Plan" for railway expansion. This called for a 34,000 kilometre expansion of the national rail network to 120,000 kilometres by 2020.

The total expansion, costing RMB 5 trillion, includes plans to construct a 16,000 kilometre high-speed passenger rail network. There will be four north-south and four east-west main lines and an additional 19 inter-city CRH lines with a top speed of 250-350 kilometres per hour.

The Beijing-Shanghai High Speed Railway is a landmark project in CRH history. Built over just 31 months between 2008 and 2011, the 1,318 kilometre line is currently China's single most expensive project, costing RMB 221 billion. The railway opened in July 2011, operating at two speeds: 200 kilometres per hour and 300 kilometres per hour. At the higher speed, the railway has reduced the journey time between China's political and economic capitals to less than five hours.

It's worth noting that the operating speeds have been reduced and ticket prices have been increased from the original plans. The reason for this is believed to reflect the impact that city-city CRH has on air traffic. Since CRH has become available, air passenger numbers have been impacted on the Chengdu-Chongqing and Wuhan-Nanjing routes.

Given that it already has the world's largest high-speed rail network, China is well on track to realise its ambitions in this area. It completed a network of 13,000 kilometres by the end of 2011 with another 12 lines built, and by 2012, the new network connected most major cities in eastern and central China, as well as strategic cities in western regions, including Kunming, Chongqing, Chengdu and Xi'an. The network is expected to continue to grow by as much as threefold in the next 10-20 years.

The rapid development of the CRH network will bring a number of long-term benefits, despite the high cost of construction. The new CRH passenger lines will vastly increase China's capacity of rail freight; provide an economic and energy-efficient alternative to air and road travel; greatly integrate most of the country's medium and large-sized urban centres; and further enhance consumer markets and trade across its regions. For instance, most of the major cities in China, including Beijing, Shanghai, Guangzhou, Shenzhen, Chongqing and Chengdu will have four-hour connections to Central China's transport hub of Wuhan by 2012. This is driving airports and air carriers to reposition their service, with a greater emphasis on international destinations.

LRT and metro
The Chinese urban rail market is developing rapidly. Ten cities have already built various metro systems, comprising over 4,000 engine and carriage units. More than 30 cities have put forward plans for urban rail development, while 28 cities have already started projects of extension or new build. RMB 200 billion will be invested by 2015, and a further RMB 600 billion by 2020.

By 2015, China will become the world's largest urban rail market, with over 2,500 kilometres of track and over 9,000 units.

Examples of LRT projects in development for completion by 2015 include: Chengdu (two new lines, three extensions); Harbin (two new lines); Jinan (50 kilometres LRT); Nanjing (six lines); Ningbo (two new lines); Shenyang (four new lines, one extension); Tianjin (Seven new lines, five extensions); Wuhan (two new lines); and Xi'an (three lines).

Opportunities
There are significant opportunities for UK companies to participate and partner with Chinese service providers in construction, design and engineering consultancy for station new-build and upgrade projects. Shenyang, Tianjin, Qingdao, Nanjing, Hefei and Wuhan are amongst the many regional cities which have major new stations and upgrading projects planned for the next few years.

ln the railway engineering sector, most of the projects and opportunities are not directly open to foreign companies. However, there are existing UK and international companies supplying and partnering with various subsidiaries of CRG, CNR and CSR in areas of signalling, locomotive design, electronic systems and provision of turnkey engineering solutions.

China is also increasingly seeking opportunities in international markets, particularly in developing countries. CNR Changchun, for example, has won the contract awarded by the Rio de Janeiro government to supply 30 EMUs (Electric Multiple Units) worth $165 million as part of Brazil's infrastructure improvement projects ahead of the World Cup and Olympic Games in 2014 and 2016.

Chinese railway companies have the appetite to work with UK capability in overseas projects – not just in developing economies, but in markets across the globe.

Operating in China's centralised railways sector could be challenging, even though there are only a few state-owned companies. Navigating your way through the planning and decision-making process, identifying the break-in point in the supply chain and building partnerships all takes time. The Ministry of Railways has not yet fully adopted international practices in many areas, including certification, independent verification and validation, and risk and safety management. To participate in projects may require matched funding of multi-lateral foreign loans, and foreign companies may have to set up joint ventures as manufacturing or R&D centres in order to satisfy market-entry requirements. 

 

8) RETAIL SECTOR

Domestic consumption drives growth
China's domestic consumption will be robust and grow rapidly in the next five to ten years. Key contributing factors include rapid urbanisation, continuous reform in the social welfare system and concerted government efforts to promote domestic consumption.

Since the global financial crisis, China is increasingly rebalancing its economy, reducing its dependency on exports and investment and increasing domestic consumption as a percentage of GDP. China's private consumption currently only accounts for 37 per cent of GDP, much lower than any of world's major economies. However, the average annual growth of consumption was 6.9 per cent between 1998 and 2006, the highest rate globally. There is clearly extensive room for China to boost its domestic consumption significantly.

Chinese household disposable income is set to rise with the country's continuous industrialisation and urbanisation, and a number of measures were set out in the 12th Five-Year Plan to increase household income and spending. A number of provinces recently raised minimum wages and it is widely anticipated that the threshold of personal income tax will soon be increased.

The government's fiscal spending on social securities in the past three years has increased at an average rate of 13.5 per cent (RMB 249.1 billion, 290.6 billion and 318.5 billion between 2008 and 2010) and there are continuous reforms to improve the provision of pensions, healthcare and education, which stabilises and further stimulates domestic consumption.

Dynamic retail sector
In PwC's Annual Global CEO Survey (December 2010), China is viewed as the most important growth market among retail CEOs. Thirty three per cent of retail CEOs are looking to China for sales growth, while 44 per cent see it as important for their future sourcing needs.

The size of China's retail market was some RMB 6.8 trillion by 2009. It expanded by 200 per cent between 2002 and 2009, equivalent to an average annual growth rate of over 17 per cent. The retail market is expected to grow by about 45 per cent between 2010 and 2014, to reach a total value of over RMB 10.8 trillion.

Chinese consumers, particularly the growing middle class, are trading up and growing in sophistication. They are becoming more and more brand and quality-conscious, increasingly aspire to a Western lifestyle and are less price-sensitive than before, spending more on luxury goods.

UK brand owners and exporters have much to offer China's large, diverse and expanding retail market, although they should beware of regulatory challenges in this highly competitive sector.

Regional focus
A significant characteristic of China's retail sector is that instead of being a national market, it is rather a highly fragmented and complex series of regional markets, providing opportunities for a variety of players to become local market leaders.

A number of key sectors in China have industry leaders enjoying concentrated market shares. For example, the top three players (G3) in the telecommunications sector have a 97 per cent share of the market; the 'G10' in automotive have a 66 per cent share; while the 'G5' in banking occupy almost half of the national market. By contrast, the top 50 players in China's retail sector share only 5 per cent of the national market.

In the supermarket sub-sector, Shanghai Bailian, the largest player, has only 11 per cent of the market and has barely ventured outside its home region. None of the domestic and international players have a significant national market penetration, but rather have regional strongholds instead. Tesco, with over 30 per cent of the UK retail market (over 2,700 stores), only has some 2 per cent of the Chinese market with 105 stores, the majority of which are in the coastal provinces.

When devising strategies for market entry and development, companies must take into account China's regional complexities and set a clear regional focus.

Luxury market
China's wealthy households have reached a critical mass. By the end of 2009, 875,000 individuals enjoyed personal wealth of more than RMB 10 million (£1 million) while 55,000 had more than RMB 100 million (£10 million). Forty eight per cent of these high-net-worth individuals live in the first-tier cities of Beijing. Shanghai and Guangdong Province, and they are typically male and in their late 30s.

There is also a flourishing middle class which is likely to see its income rise. Not only will such individuals continue to save heavily, but they are also increasingly willing to spend more. China's middle-class population reached 104 million by 2011. Although there are varying definitions of "middle class" they all tend to reflect households with an income of at least $10,000 per annum, and represent people who are home and car owners, take holidays, and are more aware of international brands and trends.

These increasingly affluent Chinese consumers have a very positive attitude towards luxury goods as symbols of good taste, success, wealth and social status.

The global luxury goods industry is forecast to grow at a rate of 8 per cent (value $267 billion). Much of that projection is a result of surging demand in emerging markets, particularly the boom in China, whose luxury sector grew at 25 per cent in 2011, making it the strongest market worldwide. The industry is expected to reach RMB 180 billion ($27 billion) by 2015 and by then China will account for over one-fifth of global sales, overtaking Japan as the world's largest luxury goods market.

The world's super brands are taking the opportunity to expand in China's booming luxury goods market. Louis Vuitton now has 36 stores in 29 cities across mainland China, compared to stores in just 10 cities in 2005. Gucci has expanded even faster, growing from six stores in 2006 to 39 stores by 2010. Hermes quadrupled its stores from five in 2005 to 21 by the end of 2012. Vivienne Westwood, Alexander McQueen and Mulberry are amongst a number of UK fashion labels who have recently established a presence in Beijing. However, some are now beginning to experience a growing gap between consumer spending in major urban centres like Shanghai and Beijing, and in secondary cities where luxury brands are still a novelty, and so are considering renovating or enlarging existing stores rather than opening more.

Rolls-Royce reported an 800 per cent sales growth in China for 2010, surpassing many expectations. It expanded its dealerships and showrooms from eight to 11 cities (with new showrooms in Chongqing, Tianjin and Wuhan) and Chinese sales grew by 33 per cent in 2011. This made China Rolls-Royce's second-largest market after the US, and – following the opening in April 2013 of its largest dealership in the world, in Shenyang, spanning 12,916 ft² – it is expected to overtake the US by 2014.

Retailers have to choose the optimum moment to venture into regions and urban centres - not too early so that there is no market appetite for the products, but not too late so that you lose first-mover advantage. With an increasing number of players in the market, there is intensified competition over prime retail locations, such as larger units or those stores with street-facing facades.

The first-tier cities of Beijing and Shanghai stand out as the largest and most sophisticated market segment for luxury retail. ln addition to Beijing and Shanghai, the cities of Tianjin, Chongqing, Shenzhen, Guangzhou, Dongguan, Foshan, Hangzhou, Nanjing and Wenzhou are all recognised centres for luxury brands based on sales volume and market presence.

Emphasising the impact of regional effects both in market size and consumer trends it is interesting to note that Cartier's store in Chengdu was reportedly their number one in the world in terms of sales in 2007, ahead of even Paris, New York and Tokyo.

Opportunities also exist in smaller Chinese cities. Ordos, a city of 2 million inhabitants in resource-rich inner-Mongolia, has China's highest GDP per capita at $25,239 (2011). Although the retail footprint is relatively small, it is fast growing, with huge interest from brand owners and retail developers.

Retail services
Not only are there huge direct opportunities for UK brand owners and retailers in China, there is also great potential for UK companies to provide services to the country's retail sector.

To meet increased demand, there is growing investment in new logistic and storage facilities, modern management systems backed with relevant technologies and other aspects of a developed retail system. Urban regions away from China's coastline, lower-tier cities and townships will see higher rates of growth and higher propensity of retail spending. Networks of chain stores, shopping malls and streets have emerged in and outside of China's regional cities, and new innovative forms of retail outlets are flourishing.

The UK has particular strengths in areas such as architectural consultancy, retail management, product design and development, marketing and the disciplines of branding and advertising. Chinese global companies and brands are also emerging rapidly. Many of these firms, such as Lenovo, Li-Ning and Media, already highly successful in their home market, will venture out internationally, including to the UK and the rest of the EU. A number of sizeable UK advertising agencies are very well established in first-tier cities in China, initially following international clients but increasingly servicing Chinese companies.

Online retail and e-commerce
China's online retail market is a relatively new phenomenon as a viable means of trading. With the number of internet users at least 500 million, the country's online retail market has, in recent years, been doubling in size on an annual basis, and continues to show a rapid pace of growth.

In 2004-2010, the total online sales market, including Consumer-to-Consumer, grew by a compound annual growth rate of 95.9 per cent. This compares to 87.4 per cent for Business-to-Consumer (B2C) over the same period. However, B2C has now accelerated to become the fastest-growing segment of total internet transactions volume.

Consumers are not only using the internet as one of the most important sources of retail information (particularly for luxury goods), but are also being driven to online retailers that have earned a reputation for customer service and trustworthiness. For traditional retail companies, online sales are creating new marketing channels, helping them to access regions of China they have not yet managed to cover without the need to invest in physical presence or distribution networks.

Online-only retailers are also emerging in China, creating strong competition for traditional retailers in accessing investment and negotiating with the supply chain where their established online retail expertise and technologies are hugely valuable.

A key issue for online retail is the availability of logistic and delivery infrastructure and services, as well as weaker financial services for transaction and settlement. China also lacks experience in policing the online market place against foul play, fraud and counterfeiting.

Gaining market entry
Whist global retail companies can meet operation costs to strengthen brand awareness and market presence in China, independent brands and companies of smaller scale may find setting up a sales distribution network or formal presence in China challenging.

Though there might be a strong demand from Chinese customers, it often takes months to incorporate a Foreign-Invested Commercial Enterprise (FICE) to enable foreign invested companies operating in wholesale, retail or franchising sectors. Registration, certification and testing for imported products can be a bureaucratic process. The costs of partnering with major retailers (such as in mid to high-end shopping malls) are high.

There may be additional tax burdens for consumer goods under certain categories, such as jewellery, cosmetics, luxury watches and tobacco. It is also difficult for a foreign brand owner with China based manufacturing partner/facility to sell products in China directly unless they have also applied for the appropriate licenses and are not established as a processing company. Products manufactured for export markets still require to be "re-imported" even though the goods are physically in market.

The compounded tax and duties, combined with high operation costs for consumer brands in China results in the retail price for imported goods (particularly for luxury goods) becoming significantly higher than the same product purchased in other markets.

The issue of high transaction cost in retail trading has been noted by the Chinese authorities, and the Ministry of Commerce (MOFCOM) recently announced that they are investigating reducing tax and bureaucracies for locally manufactured foreign branded products to be retailed in China to encourage domestic consumption.

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Source - UKTI

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