HILTON HEAD ISLAND, S.C.—China offers incredible opportunity for makers of tires, autos and other products, but only for the smartest and most intrepid enterpreneurs, according to a speaker at the Clemson University Tire Industry Conference.
"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, he said at the March 9-11 meeting, but the unwary Western company may find itself tossed out of China after having given away its most precious proprietary information.
Looking at the statistics, Byrne said China:
* has a labor force of 778.1 million workers;
* has a current annual growth rate of 9.1 percent. "At that rate, their economy will double in eight years," he said, although doubting that growth rate will continue, since China´s economy is in danger of overheating. Even in recession, China´s growth rate will exceed that of most other countries, Bryne said. "It´s almost certain that within a few generations China will have the largest economy in the world."
* is rapidly expanding its infrastructure. While the most recent figures show 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.
* now is the fifth-largest national auto market in the world. Chinese auto production, by conservative estimate, will reach 5.2 million units in 2005, and annual sales in the Chinese market could conceivably reach 40 million to 50 million in the not-too-distant future, he said.
* has about 330 tire plants. While most of these are small and somewhat backward in their technology, producing fewer than 10,000 tires annually, he said, Chinese tire output amounted to about $4 billion in 2003, approximately 5 percent of the world´s total.
China could well become the world´s largest tire-making country within a decade, Byrne said.
China plans to start exporting cars this year, according to Byrne. The first Chinese exports, like the first Japanese export vehicles of the early 1960s, will be cheap and of questionable quality. But he believes China will come up to speed on vehicle quality more rapidly than Japan did.
"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, according to Byrne, China insists on obtaining state-of-the-art technology from its joint venture partners, and such partnerships 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, 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 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, according to Byrne. He cited Motorola 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."