The Chinese Market and How Japanese Corporations Should Respond

ABSTRACT

Currently, China's economic scale (GDP) is 11% of the US and 28% of Japan, and its per capita GDP is 40 times smaller than Japan's. During the 1990s, however, compared to the average annual growth of Japan and the US at 1.3% and 3.5% respectively, China averaged 10.3%. Yet, in the workings of this stellar economic performance lurk many risks that threaten to obstruct the sustainability of this growth including a fragile financial system, an unreformed habit of overinvestment, rising anxieties about employment, and a widening economic disparity. China's ability to avoid these risks and realize sustainable growth is now being called into question.

"Giant latent markets" are emerging form the present economic growth. As a result of the expansion of industry and consumption, many markets including information products (e.g. mobile phones and PCs), cars, and residences have achieved eye-opening growth, some of them approaching and even overtaking their Japanese counterparts. The car industry in particular has far eclipsed the mark projected by the Chinese government itself, and is now predicted to overtake the Japanese market, becoming 2nd after the US, by 2005. The factors supporting this rapid growth in the markets are rises in the incomes of city residents, and policy leanings on income distribution toward laborers, the sophistication of the consumption due to advances in globalization and digitalization, and finally large-scale infrastructural provisions along with corporate facility investments.

However, "inequality" is the defining word for China's markets. In China's consumer structure, those in the top 20% income bracket own 66% of all financial capital, and in the age group of 35 to 45, wealth is disproportionately in the hands of those with special skills, technical expertise, and high educational backgrounds. Though China's economy primarily consists of Beijing in Northern China, Shanghai in Eastern China, and Guangzhou and Shenzhen in Southern China, there are many other important cities such as Suzhou, Wuxi, Ningbo, Shaoxing, Jiaxing, and Huzhou with high income earning residents and populations of over 1 million that are rich in business opportunities. Although China's technology product structure is currently made up of proliferating goods and low to mid level technologies - and hardware more than software is the industrial mainstay - this product structure can easily change as technology turnover is fast.

Very often in China market supply cannot keep up with the quantities necessitated by an expanding demand. In the face of rapid enhancement in its market structure, China's delays in industrial and technological capabilities as well as its lack of resources reveal a limit in its future ability to fulfill it own demands. Thus, Japanese corporations are favored with the opportunity to create new business that would capitalize on these limitations. Looking at the Chinese market from this perspective, this report will consider the factors of 1. product competitiveness, 2. placement power, 3. capital strength, 4. risk management ability, and 5. human resources. This report will also suggest and evaluate the use of several business models that pertaining to Japanese corporate efforts to expand themselves through sales and production activities in China.