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Economic Development in China and Potential Risks

NTT Com Global Watch vol.1, Revised March 2015

Many countries are focusing an intense gaze on China as "the world's consumer market" due to its exceptional economic growth. Many multinational companies are establishing new operations in China and are increasing the number of production bases, local subsidiaries, and retail outlets targeting the domestic Chinese market.

Business in China: Long-term Business Considerations

Given that China overtook Japan to become the world's No. 2 country in terms of gross domestic product (GDP) in 2010, there is no question that China will become even more of a global economic leader in the future. At the same time, however, there are several potential issues when you think about long-term business; for example, increasing prices of goods, land, and the risk of a real estate bubble caused by the economic growth, in addition to unstable political conditions. Since 2010, there has been a growing awareness of the risk of overconcentration in China, due in part to frequent labor disputes, increasing wages, and a deterioration in the relationship between China and Japan resulting from the disagreement over the Senkaku Islands.

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China overtook Japan to become the world's second largest economy in 2009 and is still growing.

Source: United Nations' National Accounts Main Aggregates Database


Recently, "China plus one" has become a key word among companies expanding their operations in Asia. The idea is that, by making parallel investments in other countries in addition to China, they are able to distribute risk. Southeast Asia, particularly countries in the Mekong region, has emerged as "plus one."

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It is clear that the nominal GDPs of Thailand and Vietnam have been rapidly growing in recent years.

Source: United Nations' National Accounts Main Aggregates Database

 

 

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The Greater Mekong Subregion gaining Attention as New Option

The Greater Mekong Subregion, which comprises five countries and two provinces in the Mekong region - Thailand, Vietnam, Cambodia, Laos, Myanmar, and the Yunnan and Guangxi provinces in China - has gained attention internationally. It has numerous elements of a new economic region, including low cost labor and abundant land and natural resources. Most notably, the area around the Southern Economic Corridor that connects Thailand (Bangkok), Cambodia (Phnom Penh) and Vietnam (Ho Chi Minh City) has become an active distribution route with developed trunk line and related infrastructures, and is expected to demonstrate even further economic growth.

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The area around the Southern Economic Corridor connecting Thailand and Vietnam has gained attention as a new economic region

Just as in China, companies from around the world have already expanded into the Greater Mekong Subregion and have set up bases there. Information and communications technology (ICT) tools are essential to facilitate interaction between local companies and their head offices, but the infrastructures have not been sufficiently established to keep up, causing some serious problems in starting and continuing operations for these companies.

 

 

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Demand for High Quality Networks and NTT Com's Asia Strategy

Thailand and Vietnam, which have experienced exceptional growth, and Cambodia, whose proximity and low-cost base supports these two countries' economic activities, are now attractive business locations. These countries are gradually improving their infrastructures to better support business activities. At present, however, the state of the ICT infrastructure is far from sufficient.

This is a serious concern among companies that are expanding their business in the region and those planning and looking into establishing a new local presence.

 

In Vietnam, where the ICT infrastructure is insufficient, in addition to issues regarding the stability and speed of the Internet environment, services cannot be used for a long time, posing numerous issues to business use.

 

Due to insufficient infrastructure and issues regarding the stability and speed of the Internet environment, services in Vietnam cannot be used for a long time, posing numerous issues to businesses.

 

Although the service quality has been improved by replacing ADSL with optic fiber (FTTH), problems related to the unstable electric power environments and natural disasters such as typhoons and lightning still remain. There are also many man-made disasters such as service termination or suspension due to insufficient management or road construction, and outages due to maintenance conducted without notice or with sudden notice. Similar situations are also occurring in neighboring countries, so many companies have expressed a strong desire for quality improvements.

 

Meanwhile, there is an urgent need to provide high quality service and reliable infrastructure platforms in order to support stable business continuity amid a rapid increase in network traffic. As part of its efforts to respond to these needs, NTT Com began providing Internet connection services for companies in Cambodia in March 2011. NTT Com continues to expand the high-quality ICT infrastructures provided in the Mekong region and other Asian regions. In April 2011, it began collaborations with the Vietnam Internet Network Information Center (VNNIC), a government agency, in providing Internet connection services in Vietnam.

 

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