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Team Finland China Day Future Watch China signals

Team Finland Future Watch Report China

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Page 1: Team Finland Future Watch Report China

Team Finland China Day

Future Watch China signals

Page 2: Team Finland Future Watch Report China

China's Future Signals Looking 2-5 Years AheadChina Skinny 3/2013

Page 3: Team Finland Future Watch Report China

Increasing Education Needs

Disposable Income Growth versus HouseholdEducation Spending

Education spending will grow faster thanincomes overall creating a significantopportunity for tools that capitalise onFinland’s lead in education, tech andgamification

China's Future Signals Looking 2-5 Years AheadChina Skinny 3/2013

Page 4: Team Finland Future Watch Report China

Social Media-Integrated Rich MobileEntertainment

Figure source: iResearch

There are more than 500 million online smartphoneusers in China.

Of the 14.7% of Chinese smartphone users who paid foran app in the first half of 2013, 63.7% paid for a game,more than double the next highest category.

Chinese consumers’ lifestyles are ideally suited tomobile entertainment, with a high portion of publictransport users, and a low percentage doing out-of-home evening activities such as sports and going to thepub.

Over the next 2-5 years, the mobile gaming industry willgrow at a faster rate than mobile penetration overall.

China's Future Signals Looking 2-5 Years AheadChina Skinny 3/2013

Page 5: Team Finland Future Watch Report China

Soaring Staff & Operational Costsfor Businesses

Wage Inflation in China

Figure source: The Ministry of Labor and Social Security for the PRC

Labour costs in China are rising more than 10% ayear.

Related costs such as office rental are also mounting,with Beijing now the forth most expensive location inthe world.

Chinese businesses are increasingly moving awayfrom low-skilled industries such as low costmanufacturing and focusing on higher value sectors.

The shift to efficient workplaces in China over thenext 2-5 years presents significant opportunities forFinnish businesses who provide technical solutionsthat meet the need.

China's Future Signals Looking 2-5 Years AheadChina Skinny 3/2013

Page 6: Team Finland Future Watch Report China

The Trend Towards Wearable Technology

Wearable TechExpected Uses by Chinese

Figure source: Baidu

A Baidu survey discovered93% of Chinese Internetusers were aware ofwearable technology, with75% willing to purchase,although the industry isstill in its infancy.

Whilst wearable tech isnot a essential pressingneed in China, China’slarge population and loveof gadgets presents asignificant niche wellsuited to Finland’s techand sporting strengths.

China's Future Signals Looking 2-5 Years AheadChina Skinny 3/2013

Page 7: Team Finland Future Watch Report China

In-Car Telemetry Integration with EverydayLives

China's Future Signals Looking 2-5 Years AheadChina Skinny 3/2013

The China auto industry has become thelargest in the world. China is forecast to buyhalf of the world’s new cars by 2020.

China’s smartphone usage amongst the middleclass who own cars is among the highest in theworld, leading to increasing consumer demandfor integrated in-car technology.

New Vehicle & In-Car Telemetry Sales in China(Millions of Units)

Figure source: BAIH, NBS China, CAAM, IHS

Page 8: Team Finland Future Watch Report China

Rising Independent Travellers

China's Future Signals Looking 2-5 Years AheadChina Skinny 3/2013

Outbound Chinese Tourists

Figure source: CORTI, CNTA, CTA, CLSA

More Chinese tourists are going overseasevery year. In 2012, 83 million Chinesetravelled internationally, growing to 94million in 2013.

Although Chinese have traditionally joinedtour groups on overseas trips, anincreasingly confident traveller wantingnew and unique experiences is travellingindependently.

The majority of these tourists will have asmartphone, ensuring that there will be asignificant market for mobile tools thatmeet the unique needs of Chinesetravellers

Page 9: Team Finland Future Watch Report China

The Worsening Likelihood of Ill Health

China's Future Signals Looking 2-5 Years AheadChina Skinny 3/2013

China's Worsening State of Health

Health is already anindustry of primaryimportance in China,and will continue togrow over the next 2-5years based on currenttrends, presentingsignificant opportunitiesfor Finnish companies.

Health is the number 1 concernfor affluent Chinese. Savingmoney to cover future healthissues is the top reason forChina’s high saving rates.

By 2019, increasing ailments andawareness of health will createsignificant opportunities forhealthtech tools and products.

Demand for proactive solutions,online/app developers andsmartphone accessories will alsorise.

Cancer, diabetes, obesity, infertility, premature births and antibioticusage rates are all soaring, attributed to rising pollution, food safetyissues, increasingly stressful urban lifestyles and an aging population.

Page 10: Team Finland Future Watch Report China

Smarter Environmental Intelligence

China's Future Signals Looking 2-5 Years AheadChina Skinny 3/2013

Daily Average PM2.5 Pollution 2013China's Worst 10 Cities

Figure source: China's Ministry ofEnvironmental Protection, ALA, WHO

China’s environment is among the worst inthe world• Just 1% of China’s 700 million urban dwellers

breathe air considered safe by the EuropeanUnion.

• 90% of China’s cities’ groundwater is pollutedto some degree

Rising non-renewable electricityconsumption and car usage will continue toworsen pollution levels over the next 2-5years.

Tools that can measure, monitor and addressChina’s pollution at any level stand tosignificantly benefit.

Page 11: Team Finland Future Watch Report China

Food Production Corporatisation

China's Future Signals Looking 2-5 Years AheadChina Skinny 3/2013

Food Consumption Trends in China

Figure source: SSBc

As a key Government focus, there will besignificant investment into efficient farming inChina, creating large opportunities forsynergies between heavy machinerymanufacturers and tech companies.

Part of this shift will be the trend movingaway from small individual farmers tocompany-operated farms, who will start toutilise connected technology to monitor andproduce food more efficiently over the next2-5 years.

China’s rising middle class are eating more food every year, with Chinaforecasted to account for almost half of the global increase in food demandbetween now and 2050.

Page 12: Team Finland Future Watch Report China

The Food Safety Movement

China's Future Signals Looking 2-5 Years AheadChina Skinny 3/2013

China's Food Safety Issues & Sentiment

Figure source: PEW Research

Finnish tech firms have opportunities fromboth• B2B standpoint, such as agricultural

technology and processes, and• B2C such as tech developers and food

producers working together to createcompetitive advantages selling to Chineseconsumers through smartphone and webtracking of food origins, to packaging.

China’s infamous 2008 melamine dairy scandalbrought China’s abysmal food safety standardsto light.

Social networks and state media have raisedawareness further and as consumers becomewealthier, they are demanding safer food.

Page 13: Team Finland Future Watch Report China

Macro view on manufacturingShifting landscape from 1970 to 2009

Renewing manufacturing in China includingthe industrial internet. China Materialia 3/2014.

Page 14: Team Finland Future Watch Report China

Macro view on manufacturingSince 2010, China is first in total value added from

manufacturingRank Country/Region (Millions of $US) Year

World 9,963,056 20101 China 1,924,961 20102 United States 1,800,500 20113 Japan 1,091,175 20114 Germany 610,184 20105 South Korea 315,885 20126 Italy 306,196 20107 Russia 260,435 20128 Brazil 253,642 20129 France 253,608 2009

10 India 235,248 201211 United Kingdom 229,615 201012 Indonesia 210,176 201213 Mexico 198,199 201214 Spain 172,433 200915 Canada 169,120 200816 Thailand 124,345 201217 Turkey 122,743 201218 Australia 108,163 201219 Argentina 84,360 201220 Poland 76,421 2010

http://data.worldbank.org/indicator/NV.IND.MANF.CD/countries/1W?order=wbapi_data_value_2010%20wbapi_data_value&sort=desc&display=default

Renewing manufacturing in China includingthe industrial internet. China Materialia 3/2014.

Page 15: Team Finland Future Watch Report China

Various manufacturing sectors evolve differently

The manufacturing sector should be subdivided into various categories when thinking abouttrends. Looking at China, we use the following 9 categories:- Aerospace and defense- Automotive and transportation- Chemicals and process industries- Telecommunications- Energy, Utilities and Mining- Forest, paper and packaging- Metals- Information technology- Semiconductors and electronics

1

2

3

4

5

6

7

8

9

10

2014 2016 2018 2020 2022 2024

Glo

balC

ompe

titiv

enes

s

Year

Aerospace and defense

Automotive andtransportation

Chemicals and processindustries

Telecommunications

Energy, Utilities and Mining

Forest, paper and packaging

Metals

Information technology

Semiconductor andelectronics

Renewing manufacturing in China includingthe industrial internet. China Materialia 3/2014.

Page 16: Team Finland Future Watch Report China

China goes from low-cost to high-quality manufacturer

5-Year Plan contains clear direction. “…more emphasis on value added manufacturing across sevenpriority industries: new energy, energy conservation and environmental protection, biotechnology, newmaterials, new IT, high-end equipment manufacturing, and clean energy vehicles.”

It is thus a national economic imperative to move up the value chain, and “multinational companies havebeen quick to grasp the opportunities that China’s economic evolution provides. The number of R&Dcenters in China funded by foreign companies rose from one in the early 1990s to more than 750 by2005.”

It is not a question of “if” China will transition from low-cost to high-qualitymanufacturing; it is a matter of “how soon” and “to what extent.”

http://www.kpmg.com/cn/en/IssuesAndInsights/ArticlesPublications/Pages/Global-Manufacturing-Outlook-O-201206.aspx

Political will from the top

http://www.kpmg.com/cn/en/pressroom/pressreleases/pages/statement-20120604-manufacturing-outlook.aspxhttp://www.accenture.com/SiteCollectionDocuments/PDF/China.pdf

Page 17: Team Finland Future Watch Report China

China Academy of Social Sciences – Bearing manufacturersBuilding new competitive advantages should help to give China new opportunities:• Government should provide an environment which helps to cultivate human capital.• Enterprises should promote technology innovation and research to upgrade their products and build

strong brands.

The mass production cheap bearings markets have been pretty much developed already. Further growthis possible only in a direction of high quality medium and large size bearings, produced in small andmedium series for industrial applications – machine tools, energy, including wind power, mining, off-roadmachines, metal and paper mills, aerospace etc.

China goes from low-cost to high-quality manufacturer

http://www.china.org.cn/opinion/2013-02/25/content_28049447.htmhttp://www.bearing-news.com/chinese-bearing-manufacturers-are-aiming-for-of-high-tech-high-margin-and-high-precision-bearings

“Bearing manufacturing in China is intransition from growing in terms of quantityto its development in terms of quality”

Page 18: Team Finland Future Watch Report China

Rise of active Unions

Facing a PR nightmare that included hunger strikes and threats of suicide by its workers, Foxconn hasbeen forced to allow its employees to unionize. With a Chinese mainland workforce of over 1 million, thedevelopment may have enormous ripple effects within China’s secondary sector, which accounts forroughly 45% of the country’s GDP2.http://www.reuters.com/article/2013/02/04/us-foxconn-china-idUSBRE9130EM20130204http://www.nytimes.com/2013/11/11/business/international/service-sector-gaining-steam-in-chinas-economy.html?_r=0

At present, “The official All-China Federation of Trade Unions controls all enterprise unions throughout thecountry… But pressure from Apple, as well as other major foreign firms, is projected to yield substantivereforms, unlike past efforts.https://www.wsws.org/en/articles/2013/02/13/foxc-f13.htmlhttp://www.nytimes.com/2010/06/11/business/global/11strike.html?pagewanted=all

Pressure from Chinese government – Strikes

Foxconn public issues – Pressure from Western companies

“There were 1,171 strikes and protests in China recorded by the Hong Kong-basedlabor advocacy group from June 2011 until the end of last year. Of those, 40 percentoccurred among factory workers, as China’s exports suffered a slowdown and itsoverall economy cooled.” (The China Labour Bulletin)

http://www.clb.org.hk/en/sites/default/files/Image/research_report/Searching%20for%20the%20Union.pdfhttp://www.businessweek.com/articles/2014-02-20/behind-chinas-labor-unrest-factory-workers-and-taxi-drivers

Page 19: Team Finland Future Watch Report China

Social security and other increasing costsIn order to increase Chinese household consumption, the Chinese social security system is beingimplemented aggressively. Exact numbers vary per province and cities, but the total percent of employeesalary paid to the system, including health insurance, unemployment insurance, retirement insurance,maternity insurance, worker Injury, is often above 30%.

http://www.chinabusinessreview.com/cost-of-doing-business-in-china-rises/

Other costs are also increasing, such as:- Cost of energy and quality of the power, including power rationing.- Cost of safety measures that need to be implemented.- Cost of environmental regulations.- Import and export taxes on key commodities.

Rise in social security and other costs

Page 20: Team Finland Future Watch Report China

RMB/USD exchange rateA currency move of (8.26

– 6.10) / 8.26 = 26%between the two largesteconomies in the World

Rise of the RMB

Page 21: Team Finland Future Watch Report China

Death of the lowest marginsLow-margin manufacturers, in particular in the Pearl river delta around Shenzhen, did not survive the firstphase of RMB appreciation.

To make certain the smartest companies prosperand accelerate China’s exit from low-margin, low-pay, low-tech industries, Chinese regulators havepurposefully crafted a difficult corporateenvironment.

They have authorized a yuan to appreciate,aggressively enforced labor and environmentalregulations, and increased the typical minimumsalary in 24 provinces and cities by 18 percent in2013.

RMB/USD exchange rate

Page 22: Team Finland Future Watch Report China

Cost comparison various countriesAfter a decade of nearly 20% annual wage increases in China, companies are moving their operations tocountries with cheaper labor, including Asian neighbors like Vietnam, Cambodia, and India, and describingit as “a matter of survival.” http://online.wsj.com/news/articles/SB10001424127887323798104578453073103566416

Competition from cheaper locales:

Page 23: Team Finland Future Watch Report China

Cost comparison various countriesCompetition from cheaper locales:

Page 24: Team Finland Future Watch Report China

Increasing productivity“Chinese wages may be rising fast, but so is Chinese productivity. The precise numbers are disputed, butthe trend is not. Chinese workers are paid more because they are producing more.”http://www.economist.com/node/21549956

From “Made in China” to “Innovated in China”

Following the Asian tigers

Like Japan and the Asian Tigers– Hong Kong, Singapore, South Korea,and Taiwan –China is trying to remake itssecondary sector, shifting fromlow-cost/low-value manufacturingto higher-quality/higher-costoperations.

Page 25: Team Finland Future Watch Report China

Consumption stable at 35% of GDP

Source: National Bureau of Statistics of China

39,7%

38,0%

36,1%

35,0%35,3% 35,4%

34,9%35,4%

32%

33%

34%

35%

36%

37%

38%

39%

40%

41%

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

2004 2005 2006 2007 2008 2009 2010 2011

Domestic Consumption (Billion RMB)

GDP (Billion RMB)

Consumption/GDP (%)

China is a global market. When you are dealing with a population of 1.4 billion people, even a nominallywealthier populace can translate into a disproportionate shift in demand for higher-quality products andservices.

2012 GDP - composition,by end use:household consumption: 35.7%government consumption: 13.5%investment in fixed capital: 46.1%investment in inventories: 2%exports of goods and services: 26.9%imports of goods and services: -24.1%

Huge and growing Chinese internalconsumption

Page 26: Team Finland Future Watch Report China

More automation and robotics

“The International Federation of Robotics tracked a 50 percent jump in purchases of advanced industrialrobots by Chinese manufacturers in 2011, to 22,600 units, and now predicts that China will surpass Japanas the world’s largest market in two years.”http://www.kurzweilai.net/migrant-workers-in-china-face-competition-from-robots

Page 27: Team Finland Future Watch Report China

Internet of things - HuaweiChinese companies like Huawei are already articulating a vision for what the newly remade IoT world willlook like: “Power companies read meters through tele-metering systems instead of visiting houses; doctorsremotely monitor the conditions of their patients 24/7 by having the patients use devices at home insteadof requiring the patients to stay at hospital; vehicle-mounted terminals automatically display the nearestparking space; sensors in smart homes turn off utilities, close windows, monitor security, and report tohomeowners in real time.”

Industrial internet becomes ubiquitous

China has shown strength in architectural innovationTo prepare for integration and maximum exploitation of IoT, companies need to focus on “architecturalinnovation,” which, “at its most basic level is the idea that you can take an existing product or process,break down its components, and modularize them. This might seem like mere reverse-engineering andmimicry, but there’s a crucial difference – by modularizing components you can also standardize themacross an industry. That means you can establish a robust supply chain of components and producegoods on a massive scale incredibly quickly.”http://www.industrialinternet.com/blog/chinas-innovation-revolution/

Industrial internet is bigger in ChinaA GE executive speculated that – with infrastructure in place – its Industrial Internet network in China“would create about $3 trillion in accumulated growth opportunities for Chinese companies by 2030.”

Page 28: Team Finland Future Watch Report China

China needs the smart grid more than any other countryChinese power generation is still mostly based on polluting coal-fired power plants.

Smart electric grid

Page 29: Team Finland Future Watch Report China

3D printing as a National priorityThe 3D printed parts market alone shows enormous growth potential through 2025, as wellas the 3D manufacturing equipment. Automobile parts are expected to account for anincreasing percentage of the 3D printed parts market.http://www.designnews.com/author.asp?dfpPParams=ind_183%2Cindustry_auto%2Cindustry_aero%2Cindustry_consumer%2Cindustry_machinery%2Cindustry_medical%2Cbid_27%2Caid_262205&dfpLayout=blog&doc_id=262205&image_number=1

3D printing

China has built the World largest 3D printersChina is already on the vanguard, building the world’s largest 3D printer, and then beatingits own record in 2014. The behemoth 3D printer will be “able to print out metal objectsapproximately 6 meters, or 18 feet in diameter.

China will be able to manufacture and assemble automobiles in fully automated facilities,going a long way towards sating the hundreds of millions of domestic auto buyers over thenext handful of decades; with inexpensive, efficient domestic vehicles instead of foreignimports.http://3dprint.com/733/chinas-huge-3d-printers-soon-able-to-print-automobile-sized-metal-objects