China's Dirty Little Secret
Last time I was in China, two American consultants all but whispered to me "the secret nobody wants China to know:" American companies make greater profits in China than they do in the United States. Both people then cited to an AmCham survey which got plenty of press when it came out earlier this year. So do not blame me for blowing the secret.
And now the Wall Street Journal says the same thing, in an article, entitled, "China Begins to Fulfill Its Potential for Big Profits Foreign Firms Are Cashing In After Years of Anticipation As Growth Transforms Nation."
China now "represents not only a fast-growing source of revenue for many multinational companies, but also a rising source of profit." For example, China has become "the world's biggest market for cellphones, with more than 500 million wireless subscribers; that makes it crucial to companies such as Nokia Corp. and Motorola Inc." It is now second to the U.S. in number of Internet users, which makes it important to companies like Sun Microsystems, which expects its China revenue in China to double within three years, surpassing Japan as its biggest Asian market. "China is the second-biggest market, after the U.S., for personal computers and cars. It also accounts for a huge share of the global demand for commodities such as iron ore, driving growth for mining interests such as Rio Tinto."
U.S.-China Business Council and European Union Chamber of Commerce revealed that more than 80% of respondents reported their China operations were profitable last year.
The secret is out.
Comments
We'll see how long those big profits last as China's IRS, SEPA and China's labor law enforcers continue to turn the screws on foreign companies.
How much of their profit comes from lax enforcement?
Posted by: nanheyangrouchuan | October 15, 2007 8:40 AM
This is an interesting development.. there has never been another place that takes in imported products like the US.. Japan had its protectionist tendencies, and both Japan and Europe having different physical standards (smaller spaces). Finally, a country that actually buys lots of American-designed products..
Posted by: Andy | October 15, 2007 2:23 PM
It is also easier to make profits and greater profits when you can pay your employees skimpy wages (sometimes missing a few checks), no contribution to health insurance or even payroll/social safety net taxes (called "san jin" by the Shanghai gov't...social security, medicare and unemployment taxes that employers pay to the city gov't) and other such meddlesome things that exist in the West. Very David Copperfield of western businesses in China.
Posted by: nanheyangrouchuan | October 15, 2007 7:35 PM