China’s guidelines for foreign manufacturers

My last post detailed a number of encouraged, restricted and prohibited agriculture and mining opportunities in China as listed in the “2012 Foreign Investment Industrial Guidance Catalogue,” recently implemented by the National Development and Reform Commission and the State Administration of Commerce. The publication contains a list of the areas China is encouraging, restricting and prohibiting foreigners to be involved in.

As I said last time, think of it as China’s economic menu for the next five years and, except for the occasional blue plate special, it should stay fairly consistent. But remember, the management reserves the right to change items and prices without notice.

The efforts of Dezan Shira & Associates must be acknowledged for their translation of the original Chinese text.

It would actually be easier to list the things which are restricted or prohibited as it’s much shorter. A summary of encouraged areas will be more useful. In the next post there will be a reference to a full translation of the catalogue for those nights you are either consumed with charting your future or can’t sleep. The following list is devoted to manufacturing areas foreigners are “encouraged” to go into in China.

Any kind of food processing involving new ingredients, additives, flavorings, beverages is encouraged except genetically modified offerings and things using restricted natural herbs or involving the production of nationally protected Chinese products. The emphasis is on organic, elderly, childrens and health products.

Textiles, natural and synthetic, wood and paper
Any kind of improved materials, which offer advantages over existing offerings is encouraged. As is any kind of production improvements which reduce wastes and improve efficiency. China is still the big Panda when it comes to processing textiles and paper. In the past few years smaller shops and those with a high quotient of manual labor have moved from China to India, Vietnam, Malaysia and other lower wage countries. This trend will accelerate as wages and the value of the Renminbi rise. There are still however, large state and foreign owned factories which are able to use their economies of scale and existing plants to pump out vast quantities of products. With a greater eye on the environment these firms are having to boot strap environmental fixes onto existing plants to comply with stricter government enforcement. Many of these plants were not leading edge designs to begin with and are in need of processes with a quick return on investment that deal with energy and water consumption and waste issues. Material recovery for use in reprocessing is one example.

Basically anything with new or improved applications or that reduces environmental impact is encouraged. There is really very little which is not in demand. The issue is getting your investment in and out within a time frame you are comfortable with. As with everything else there will be increased scrutiny of wastes created and resources used. As production facilities tend to be capital intensive these are welcomed by the local governments more than the local people. Location selection is key for both logistical and political purposes.

The identified targets in this area may surprise you. In addition to cures for everything from HIV to the common cold, large and small animal care is on the encouraged list. With a pet population larger than the number of people in the U.S., it is hardly surprising that it is being put on the priority list.

The government continues to plod along on its dairy and meat industries, animal feed and care is still a growth industry. The difficulty here is distribution and price as local farmers are very price sensitive and not very well informed. The key is to get in through the local government, but this is not easy and can often be an unpleasant and time consuming process.

China still suffers from one of the highest rates of hepatitis infection in its older populations and is constantly in search of new ways of dealing with this chronic malady.

High blood pressure, cancer, diabetes, AIDS and viruses round out the top concerns. Because of the expanding health care net there is a large appetite for cheap disposable diagnostic test kits. Vitamins are also a big growth area.

Glass, plastic and ceramics
The emphasis is on new technology which can address packaging, agricultural and production needs in the high tech and building areas. As China presses ahead with its third tier economic strategies it wants to have more domestically produced materials and technology. Anything which transfers technology to China and has practical applications will be welcome. Keep in mind the checklist of things you have to do to protect yourself.

Manufacturing machines and equipment
A number of Wisconsin companies need to keep an eye on this list as it signals China’s direction as it plans the growth of its domestic economy. Crawler cranes, 400 tons and above, high pressure hydraulic lines, controls and pumps, CNCs, robots, high speed gears for large windmills and re-manufacturing of machinery are all areas where Wisconsin has interests. If you have existing business lines in China that involve these areas, you need to take notice that competition is on its way.

Specialized manufacturing and transportation equipment
This combined category has 102 specific items which include everything from heavy mining equipment to highway and bridge monitoring systems and yachts. Reading this list carefully will give you a good idea of where China is heading, as the specific machines and processes involved indicate a prioritized government direction. A little follow up research could reveal opportunities. For example; item 75, “manufacturing equipment for hydrogen manufacturing, storage, transportation and testing.” To make it on the list as an “encouraged” activity this has to be an internal priority which China is actively pursuing. The $64,000 question is in what direction. And what can you supply?

Telecommunications, energy, technical instruments and logistics
Again there are more than 100 different areas which the government has prioritized. The clear trend is the larger the undertaking the more likely it has to be a joint venture. Examples would be: civil airports, marine transportation services, highway and high speed rail maintenance services, nuclear energy plants, etc. Yes China intends to go forward with a nuclear energy program, so it might be time to study some old engineering records and see what was required to build and maintain these types of projects.

This was a short skim of a large area which needs to be pursued if you have the interest. Again if you have something to offer that fits the “encouraged” list, start panning your move. If you can identify the opportunities which will flow from these initiatives, start getting prepared.

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