NRI Papers
No.81 October 1, 2004
  China's Rapidly Growing Market: Issues and Suggested Responses  
       From a short-term perspective, the Chinese economy has experienced unstable factors such as a financial environment of overheated investments. However, the mechanisms supporting high growth in a mid- and long-term perspective are fully functioning. Positive approaches to investment in China should definitely be maintained.
        In the past one or two years, the upper-middle class (with an annual household income of 50,000 yuan to 100,000 yuan), which is just below the wealthy class, has increased its significance as the stratum involved in purchasing real estate and durable consumer goods. If the wealthy class and the upper-middle class were combined, the estimated size of the resulting market would be 70 million persons.
       Chinese companies that have acquired capabilities in small towns and rural areas are increasing their assertive moves into large cities by targeting the upper-middle class. Because of these moves, the market share of foreign capital companies in large cities for some products has been dropping rapidly.
       In contrast with the move of some Chinese companies from rural to urban areas, some foreign capital companies have begun to enter small towns and rural areas to find new growth opportunities. However, because the business structures and expertise are totally different from those for urban areas, additional knowledge is required to successfully move into small towns and rural areas. Accordingly, an accelerated trend has been seen among foreign capital companies to establish partnerships with private local companies that are strong in sales as well as in low-cost production.
       With progress being made in market expansion as well as an intensification of competition, Japanese companies must quickly make management decisions with respect to complex problems, such as withdrawal from business operations having no prospect of winning, strategic alliances to establish the foundations of business operations, measures to deal with risks including feelings towards Japan and measures to secure competitive personnel.
       To properly respond to these complex problems, Japanese companies must be able to reach decisions in China as a whole, not individually at each office and not in Japan, which is distant from reliable sources of information. In other words, it is necessary to reestablish a structure to manage all business operations in China on a comprehensive basis.
I Continuing Favorable Conditions Seen in China's Economy
  1 Overheating of Investment and Soft Landing
  2 Mechanisms Supporting Sustainable High Growth
  3 Olympic Games and World Exposition Bringing about Special Demands
  4 Business Opportunities Brought by Northeast Revitalization
II Rapidly Expanding Markets and Intensification of Competition
  1 Expansion of the Bottom Layer of the Wealthy Class and the Rise of the Upper-Middle Class
  2 Chinese Companies Extending Their Coverage of Rural Areas to Include Urban Areas
  3 Foreign Companies Have Begun Taking Aggressive Approaches in Small Towns and Rural Areas
III Issues Facing Japanese Companies in a Rapidly Changing
  1 Taking a Comprehensive Approach to "Selection and Concentration
  2 Strategic Partnerships with Private Companies
  3 Responding to Risks Involving the Issue of Feelings towards Japan
  4 Rearranging Human Resource Strategies
IV Need for Strengthening Regional Management Functions


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