Industries

Curtain Call: Prospects for Foreign Investment in China’s Culture and Entertainment Industry

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By Tongyu Zhang

The Chinese government recently published a series of official measures to boost the development of the country’s culture and entertainment industry, including the Opinions on Promoting the Upgrade of Cultural and Entertainment Industry and the Film Industry Promotion Law (effective on March 1, 2017). China has seen rapid growth in the culture and entertainment industry in recent years, owing to government support as well as a growing middle class consumer base. According to a recent report on the Entertainment & Media (E&M) industry by PwC, China’s E&M market has increased by 50 percent since 2010 and is forecast to rise at a compounded annual growth rate (CAGR) of 8.8 percent over the next five years. The internet advertising, film, and video game segments will be the main intra-industry dynamics that will drive growth, with a projected CAGR from 2015 to 2020 of 13.9 percent, 18.9 percent, and 7.4 percent, respectively. However, as the Chinese government aims to use the cultural sector as a ‘soft power’ tool, such political intentions will inevitably lead to a certain extent of sensitivity for foreign participation in China’s culture and entertainment industry.

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Navigating Cross Border e-Commerce Regulations in China’s Pet Food Industry

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By Weining Hu

Cute cat and funny dog eating foodOn April 8, 2016, Chinese authorities released an updated “positive list” for goods imported through cross border e-commerce (CBEC). Pet food, specifically dog food and cat food, are included on the list for the first time. This new regulatory update presents a substantial e-commerce opportunity for foreign pet food companies, as pet food can now be imported more easily via one of China’s 13 free trade zones or sold directly on business-to-consumer (B2C) or consumer-to-consumer (C2C) e-commerce platforms such as Tmall and JD.com. However, uncertainties and risks accompany these new opportunities, as new integrated tax policies for CBEC and the pre-existing “negative list” exert impacts on foreign investment.

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China’s Wastewater Treatment Industry: Opportunities for Foreign Investors

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By Jake Liddle

In recent years, China has increased its focus and efforts towards combating the high levels of environmental pollution in the country, the result of its accelerated economic growth. In 2012, China declared war on pollution, and put aside RMB 3.7 trillion for the battle, with over half of the funds reserved for water pollution. The 13th Five Year Plan targets this issue, and in 2015, the government published the Water Pollution Prevention and Control Action Plan, aiming to halt heavily polluting sectors from contaminating water sources.

However, China’s most recent environmental report remains negative, suggesting that 61.5 percent of groundwater and 28.8 percent of key rivers were classed as ‘not suitable for human contact’. The contamination is largely caused by industrial and agricultural industries, and the resulting pollution has permeated the earth down to the water table. The report found that usable and safe water is scarce, and over half of China’s cities suffer from water shortages, especially in the arid northern regions. While China has 20 percent of the world’s population, it only possesses seven percent of the world’s water resources. What’s more, these water resources are not reliable and are distributed unevenly among provinces and administrative regions.

For China to reverse the state of its severe water pollution, high-grade wastewater treatment technologies are in great demand.

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Mapping the Rise of China’s Commercial Drone Industry

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By Daniel Schaefer

Commercial droneDrones are a young and multifaceted industry that have only recently begun to show their true potential. Particularly in China, drones are now being used to change the business landscape and alter how companies conduct their operations in a wide variety of commercial sectors, from agriculture to mining to cinematography.

China is leading the rise of the drone industry, with five out of the world’s top 11 venture capital-funded drone companies residing in the country. Foreign companies are already beginning to participate in the Middle Kingdom’s drone market – in August 2015, Intel invested US$60 million in Chinese drone manufacturer Yuneec. Although the regulatory environment is still developing and can be restrictive for certain usages, growth in the industry shows no signs of abating.

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New Horizons: Investing in China’s Civilian Airport Industry

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By Tongyu Zhang

china airportA recent guideline issued by the Civil Aviation Administration of China (CAAC) has encouraged private investment into China’s civilian airports. Along with reducing the number of state-owned and state-holding airports, private investors now have full access to the construction and operation of civilian airports as well as their affiliated facilities. Intermediate services, such as consulting, designing, and maintenance of airports, are now also open to qualified private and foreign entities. In addition, the approval mechanism for private investment into terminals, logistics, and other operations have been removed. The guideline also emphasized innovation of financing methods for the construction and operation of airports, especially in regards to the public-private partnership (PPP) structure.

As stated by the CAAC, in 2015, the civil aviation industry transported 436 million passengers and around 6.3 million tons of cargo and mail, and maintained steady performance growth despite the pressure of the slowing global economy. With an estimated market value exceeding US$1 trillion, China is expected to become the world’s largest aviation market over the next two decades, according to US plane makers Boeing. A positive regulatory environment, in conjunction with policies such as the 13th Five Year Plan and the ‘One Belt, One Road’ initiative urging for larger and more efficient aviation services, provide vast opportunities for private investment in China’s airports. However, strict supervision from government authorities and a relatively limited track record for foreign companies participating in such projects act as considerable obstacles for foreign investors.

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Q&A: Investing in China’s Food and Beverage Industry

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By Dezan Shira & Associates

A cursory glance at a few key statistics will quickly reveal the size and potential of China’s food & beverage industry. In 2011, the Middle Kingdom overtook the U.S. as the world’s largest consumer market for food & beverage products. Driven by a string of food scandals, a preference for foreign goods that are perceived to be safer shows no sign of abating, with 71 percent of Chinese people considering food safety a concern in 2015. And the country increasingly has the means to purchase foreign products – average disposable income levels continue to rise at an exponential rate, doubling from RMB 15,000 in 2008 to RMB 31,000 in 2015.

In this article, we aim to answer some of the most commonly asked questions regarding investing in China’s rapidly developing food & beverage industry.

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The Benefits of Cluster Manufacturing – China’s Advantage

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By Ari Chernoff

As wages continue to rise in an increasingly service oriented economy, China looks to manufacturing clusters to bolster the nation’s labor-intensive industries.  Offering clear lines of communication and reduced transportation costs, cluster manufacturing provides economic stability by bringing together an array of businesses from across the supply chain.

While China looks to transition to a more consumer-based society, its manufacturing base faces increasing pressure from low-cost ASEAN members like Vietnam and Indonesia.  Yet in China’s coastal provinces, investors will find well-established infrastructure that much of ASEAN lacks.  The Middle Kingdom’s ability to provide the resources for reliable manufacturing in close proximity to like-minded businesses and institutions are essential arguments to China’s continued manufacturing competitiveness.

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City Spotlight: Innovation in Shenzhen

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By Mike Vinkenborg

Formerly a fishing village, Shenzhen has rapidly emerged into the thriving metropolis it is today. Since the city’s designation as a Special Economic Zone (SEZ) in 1980, Shenzhen has continuously been growing at a high speed. The population has increased from 30,000 in 1979 to over 10 million today, and Shenzhen’s property prices are growing at the highest rate not only in China, but also globally, hitting a growth rate of 62.5 percent in 2015 with no signs of slowing down.

The city is rapidly replacing low-end labor-intensive factories with emerging sectors, having cleared up over 17,000 of these factories since 2011. According to Shenzhen’s 13th Five Year Plan, the city will spend more than RMB 110 billion on research and development by 2020, representing over 4.25 percent of its annual GDP – numbers only met by high-tech hubs such as Israel and South Korea.

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