China offers an incredible opportunity for market growth and profit in tires, autos and other products but only for the smartest and most intrepid entrepreneurs, according to an economics expert speaking at the Clemson Tire Industry Conference March 9-11 at Hilton Head Island.
``You have to be very, very careful if you want to do business in China,'' said Dennis Byrne, professor emeritus of economics at the University of Akron. The sheer size of the Chinese market is unfathomable, Mr. Byrne said, warning that unwary Westerners may find themselves tossed out of China after having given away their most precious proprietary information.
China has a labor force of 778.1 million workers and an annual growth rate of 9.1 percent, Mr. Byrne noted. ``At that rate, their economy will double in eight years.''
He doubted that the economy could sustain that rate of growth for eight years and said the Chinese economy is in danger of overheating. Even in recession, though, he added, China's growth rate will exceed that of most other countries.
``It's almost certain that within a few generations China will have the largest economy in the world,'' Mr. Byrne said.
The Chinese government is extremely serious about expanding its infrastructure, according to Mr. Byrne. While the most recent figures show that China has only 314,000 miles of paved roads, compared with more than 4.1 million in the U.S., ``the highway figures are probably changing as I'm standing here talking about it,'' he said.
China now has the fifth-largest national auto market in the world, he added. Chinese auto production, by conservative estimates, will reach 5.2 million in 2005, and annual sales in the Chinese market could conceivably reach 40 million to 50 million in the not-too-distant future.
The country also has approximately 330 tire plants, though most of these are small and somewhat backward in their technology, making fewer than 10,000 tires annually, Mr. Byrne said. Chinese tire production amounted to about $4 billion in 2003, or about 5 percent of the world's total.
At its current rate of growth-and given its significant excess capacity-China could well become the world's largest tire-making country within a decade, he said, noting that the country plans to start importing cars this year. The first Chinese import cars, like the first Japanese import cars of the early 1960s, will be cheap and of questionable quality. But China will come up to speed on vehicle quality even faster than Japan did, he said.
``China, unlike Japan, has no legacy costs-no pensions, no standing debt,'' he said. ``They just don't have that, and they won't for a number of years.''
Furthermore, Mr. Byrne said, China insists on obtaining state-of-the-art technology from its joint venture partners, and joint ventures are the only way Western companies can gain a foothold in the Chinese market.
``The Chinese government is very wary of foreign ownership,'' he said. But at the same time, he added, Chinese law-particularly law governing business-bears little or no resemblance to Western law.
``It's a mixture of custom and statute, mostly criminal law,'' he said. ``Civil and tort law are not nearly so well-defined. China leads the world in intellectual property theft, but the Chinese don't see it that way. Their attitude is that if you buy it, you have the right to use it.''
China sees foreign investment first and foremost as a way to develop China, according to Mr. Byrne, and Chinese businessmen and officials demand a company's best technology and training techniques as a prerequisite for doing business there. ``You will give them the very things you have spent years developing, in return for some access to the Chinese market,'' he said.
For unwary companies, allowing such access can backfire, he said, citing Motorola Inc. as a textbook example. ``Motorola was one of the earliest Western companies to go to China. China demanded all sorts of technology from them, and once China got that technology, it booted them out. Motorola is back in China now, but its executives are much more careful about what they give China.''
China is getting the benefits of Western companies' R&D for virtually nothing, Mr. Byrne noted, and its labor and regulatory costs are extremely low even compared with countries such as Mexico. Other countries will attempt to make the Chinese conform to international standards of workplace and environmental safety. ``But ultimately these attempts will fail,'' he predicted. ``China will have a cost advantage in production.''