It is well known that China has long faced ‘over-population’ and that the government has instituted policies to curb population growth; the most famous of which has been the ‘one-child’ rule instituted in 1979. While this policy has accomplished its specific purpose of lowering the current population by an estimated 400 million people, it has also brought many unforeseen complications. China is now faced with an aging population and an unbalanced gender ratio – problems which have serious long-term economic and social implications.

The negative effects of an aging population will be two-fold - First, as the workforce shrinks due to retirement, economic growth will be curbed. Secondly, the growth in China’s dependency ratio (the # of people too unable to work/# of people of working age) could cripple China’s (already limited) social service programs.

Many economists attribute China’s unmatched population growth to its seemingly limitless supply of labor. As the Chinese workforce ages, it will be increasingly difficult for China to sustain the level of economic growth that it is currently achieving; growth tends to slow as a country’s population ages

Currently, only city dwellers are covered under China’s pension laws. Meanwhile, rural elderly must depend on children for support, it’s one of the reasons that these families are allowed to have more than one child. It is estimated that by 2050 the dependency ratio in China will be .70; this means every 10 Chinese workers will have to support 7 people who cannot work.

Because most Chinese families, especially in rural areas, see females as liabilities – many are aborted before birth. Government statistics show that currently, there are 117 boys born for every 100 girls in China (well above average for industrialized nations.) Obviously, this is going to make it harder for men to find women to marry as time moves on. The frustration that this causes could lead to great civil unrest; it could also lead to population migration, as men feel the need to find marriageable females in other cities or countries.

China has only recently taken notice of the problems and begun to institute change; however, the government refuses to scrap the ‘one-child’ program. Even if it does ease the policy, it would not have much affect, as children can be too large a burden for the typical Chinese family to handle. Some of the fixes that China is implementing include offering subsidies to families that have female offspring, offering subsidies to rural families that have more than one child, educating the population about the benefits of having female children, and becoming aggressive in seeking returns on pension fund management.

China is facing quite a paradox – the population growth that drives their economic growth is also overpopulating their cities. They cannot avoid this problem, their population has to peak at some point and their economic growth (at least that attributed to labor) will slow. They can counter this effect by focusing on technology and capital expenditures that will provide an infrastructure for growth that will not rely so heavily on labor. As far as the gender ratio is concerned, the government must convince the citizenry that females are not a liability especially as the Chinese economy continues to modernize. Instilling faith that the subsidies will be consistent and reliable for the long-term will also help the Chinese people change their perception.

Submitted By Felipe Hernandez

Summary: Article
Yum Brands Inc, of Louisville, KY, which owns KFC and Pizza Hut has developed a new restaurant named East Dawning. East Dawning is a bright, clean fast-food restaurant with an eye on efficiency and an atmosphere similar to American-style fast food chains. According to surveys commissioned by Yum Brands, locals disliked the atmosphere at existing Chinese fast-food places which are described as cramped, dirty, and hot.

Yum Brands has experience operating in China with KFC which opened its first location in China in 1987. Approximately 16% of Yum’s profits come from the Chinese market where they operate 2,000 KFC and Pizza Hut restaurants – 3 times as many as McDonald’s. During this time, KFC has learned a lot – tweaking flavors to appeal to local tastes. They have spiced up their chicken (which was already popular in China) and added traditional dishes such as a soupy rice called congee.

In 2004, Yum opened the first version of East Dawning as a test. This test proved to be a failure as it was too slow. The food cooled down before it could be served and traditional dumplings could not be prepared fast enough. Yum closed the location within a year. Version 2 of East Dawning opened up about a year ago with a focus on being “more Chinese” serving traditional Chinese drinks instead of soda and offering about 50 different menu items to accommodate different regional tastes of their customers.

Detractors say that East Dawning will fail since Yum Brands is underestimating the complexity of Chinese food. Yum wants to have standard menus at all East Dawning locations, but critics claim that is an overly simplistic approach. Further, some Shanghai residents say they are not willing to pay East Dawning’s prices. A typical meal includes an entrée, soup and a vegetable costs approximately $2.30 which is comparable to a meal at KFC.
East Dawning also faces local competition such as Yonghe King.
Yum hopes to begin television advertising and has aspirations to expand in China. They also look to the future to replicate the East Dawning concept in other Asian countries.

Commentary:

It looks to me like Yum Brands is trying to beat the Chinese at their own game – preparing Chinese food. It seems to me that this will be an uphill battle. The article doesn’t comment on what a similar meal would cost at a local competitor such as Yonghe King, but if the price difference is significant, I don’t see how East Dawning will be widely accepted. Also, the article does not comment on the quality of the food as compared to the local fare. Again, if the food isn’t significantly better, I think East Dawning will not appeal to the masses.
I hope to track down either an East Dawning or a Yonghe King (or both) to do a side by side taste test. Any and all classmates are invited to assist.

I also question Yum’s strategy to enter the market in the big cities. I think about a city like San Francisco – not many fast food restaurants as compared to local restaurants. Now compare to a small town – the ratio of fast food to local restaurants is reversed. Would East Dawning do better in smaller markets where there is less competition? Of course, perhaps if Shanghai residents don’t want to pay $2.30, a more rural citizen may not be able to pay $2.30.

One remaining item to note from this article. Yum represents that they would like to expand to other countries, yet they only have four restaurants currently. This is compared to the 10 East Dawning locations they hoped to have opened by the end of 2005. Yum claims they are having trouble finding locations. My gut tells me that they could find locations if they were ready to open more locations. I think perhaps East Dawning is not going to be the success Yum Brands is hoping for.

Questions to contemplate and comment on:

1. What would your reaction be if a Chinese company setup shop in the USA and attempted to compete with us head to head on something that you identify as 100% American. Let’s be complete traditionalists…a Chinese firm creates a pie shop that focuses on Apple Pie. The Chinese Apple Pie has a flaky crust and the most flavorful apples you could imagine. This company starts to take market share away from Marie Callendars, Baker’s Square, AND Mom! How do you feel about this?

2. Another product that could be considered 100% American would be the automobile. Has Japan effectively come to our country, setup shop here, and beat us at our own game of building and selling cars? Every major Japanese car company has a multitude of automobile manufacturing plants spread across the USA. Is this any different than what Yum Brands is trying to do with East Dawning?

3. Now consider the sale of IBM’s Thinkpad division to Lenovo. IBM, a stalwart of American ingenuity, no longer owns the Thinkpad name or reputation they built over the past couple decades. IBM voluntarily sold to Lenovo, a Chinese company. Is this bad for the USA or is it allowing the whole world to operate as one market?

Submitted by Erik Slayter