【正文】 ed to more productive sectors ?Government’s created 100M+ rural job opportunities since 1980?Huge numbers of rural migrant workers have flooded into cities since the 1980s, in Shanghai alone the number is more than 2 millionSource: Statistical Year Book Required Fulltime Labor Force: 191MSurplus Labor Force: 137MSource: Oxford AnalysisSocial Political Environment Rural Reform169。 2023 Deloitte Consulting 23Increasing unemployment will bee the burden of local government and may jeopardize social stabilityUnemployment in China Is Expected to Be Severer in The Next Several YearsUnemployment Keeps GrowingThe unemployment rate will increase for 3 reasons? WTO exacerbate the short term unemployment。? Industry integration and FDI exclude the cheap labor? Internal population migration reshape the job market, aggravating unemployment in urban areasChallenges and Threats?Government’s statistics normally neglect the “rural surplus labors” and “early retirees”, which amounts to 14 million in total?Unemployed workforce are rather limited in their skills and knowledge。 these problems disable them from seeking a job again?Government plays limited roles in building up the social welfare system, corporations are expected to fill up the remaining gapSource: The Economist Intelligence Unit (EIU)Hidden unemployment rate is estimated to be over 10%ActualForecastSocial Political Environment Unemployment169。 2023 Deloitte Consulting 24There are a vast disparities between East and West, with most of the economic development taking place in coastal regions. However, the government is increasing its attention to developing the poorer western regions (unit: 12 million US$)10,000 and above4,000 10,0002,000 4,0002,000 and belowShanghaiSICHUANBeijingHUBEILIAONINGGUANGDONGHEBEISHANXISHAANXI JIANGSUANHUIJIANGXIFUJIANYUNNANGANSUHEILONGJIANGJILINXINJIANGSHANDONGNINGXIAQINGHAINEIMENGGUHENANZHEJIANGGUANGXITIBETHAINANHong KongGuangzhouXiamenNingboNanjingDalianQingdaoQinhuangdaoHUNANGUIZHOUHangzhouSource: China Statistical Yearbook 2023Gross Output value rangeProvincial gross outputSocial Political Environment East West Divide169。 2023 Deloitte Consulting 25Return on investment in China is real but will likely take a long time for most panies, particularly those that lack deep cultural understanding of the market? Fiction: Success in China requires panies to invest and forego profits today to position for the future? Fact: Success in China requires long term mitment, and the most successful panies demand a mercial returnFDI inflows and profit repatriation in China19912023? In 2023, nearly USD 30 billion in profits were repatriated.? Using accumulated FDI inflows over the previous ten years as a base, this implies a return on investment of around 8%? 2/3 of FDI is aimed at domestic consumers? Many firms are realizing China related profits outside of China? Many firms are learning to leverage China’s capabilities to enhance global performanceProfits are being madeSource: Goldman SachsCommercial Environment Return on China Investment169。 2023 Deloitte Consulting 26%Source: National Bureau of Statistics, PRC。 CDI analysis (crossborder transaction only)China MA deals are on the rise, especially with privately held paniesExamples of recent MA dealsBuyer Seller Industry Value (USD m)Huaneng Power Int Shandong Huaneng Power Electric power 1,450Emerson Electric Avansys Power, owned byHuawei TechnologiesPower Systems 750Flextronic Int NatSteel Broadway Manufacturing 364Alcatel Shanghai Bell Tele 300Li Fung Colby Group Holdings Trading 282CCT Multimedia Haier Group Tele 185Source: CDI ChinaCommercial Environment MAGrowth rate of MA value in Mainland China Now is the ideal time for MA in China? China has a vast appetite for capital especially the privately owned panies, where most of MA deals are on the rise–China’s banks continue to primarily allocate funds to the largely inefficient SOEs–The stock markets as an alternative funding source to bank loans are fundamentally unsound–Currently some 500 to 1000 panies are waiting to be listed on the domestic market? The attractiveness for foreign investment is in MA deals especially in the manufacturing industries (semiconductors, home appliances, machinery etc)? By acquiring or merging with a Chinese pany (which produces parably lowtech products with high growth prospects) some foreign investors have acquired capabilities to run multiple product lines.169。 2023 Deloitte Consulting 27An acquisition can be carried out by either equity or asset transfer. In the case of SOEs, asset transfers are more monMA options pros cons Regulatory approval processEquity acquisition ? The only equity acquisition option available for purely domestic pany? Simpler and fewer administrative burden pared to asset acquisition ? Subject to the full approval of the Chinese authorities? Assume all the existing or contingent obligations/liabilities of, and restrictions applicable to, the target pany? Asset valuation? Antitrust approval? Approval authority review process ? Registration processAsset acquisition ? ‘cherrypick’ the preferred parts of the target? Tax holidays or other preferential treatment available for newly established FIEs? Not subject to approval of any PRC authorities (except certain asset types)? Complex ? Separate approval required if new FIE to be established? Tax consideration, transfer of assets may be taxable in PRC? Commercial presence in PRC required? Asset valuation for state owned asset? Custom approval for taxexempt equipment ? Separate approval required for intellectual property rights? Potential registration require