Does Price Competition Matter in China?

As everybody knows, China is growing very rapidly since the opening of the country in 1978.The real Gross Domestic Product (GDP) of China in 2006 has more than 13 times larger than that of 1978. If we suppose the real GDP in 1978 is 100, then we can get 1335 in 2006. Also, the real growth rate of China is almost 10％ annually during the same period ( Ke,2006) and people in the world are amazed to know it. It is often said that the sum of China's GDP will surpass Japan's within a decade or less, if China continues to grow. With the continuation of the growth of Chinese economy, many companies in the world, especially US, European and Japanese companies have already gone into China either to produce goods for exporting back to home country or to foreign countries (export market-oriented) or to produce goods for Chinese domestic market (domestic market-oriented) or both, in any case, exploiting the use of inexpensive labor forces. In fact, foreign countries, of course the main actors are multinational corporations (MNCs) , have heavily invested in China. For example, the total accumulated amount of foreign direct investment (FDI, stock base) from Japan to the world has amounted to $449.6bn. in 2006, of which China has received $30.3bn. (6.3％) , the fourth rank, following the U.S. ($156.4bn., 34.8％) , Holland ($45.4bn., 10.1％) , and U.K. ($31.6bn., 7.0％) . Even on the flow basis, China has received $63.0bn. of inward investment in 2006, of which the most important investing country to China is Hong Kong, totaling $20.2 bn. in 2006, followed by UK-held Virgin Island ($11.2 bnJ ,the second rank, Japan ($4.6bnJ ,the third rank, South Korea ($3.9bnJ and the U. S. ($2.7bn) . (China Statistical Yearbook 2007; JETRO White Paper: Trade and Investment 2007) Based on the above-mentioned facts, we consider the competitive situations among companies from different countries in China. Do they compete head-to-head? Or, do they compete in another way? Through the executives' perception on competition, we try to deal with how they feel their competitive situation in China, based on a questionnaire survey which was sent to Japanese executives in charge of managing manufacturing subsidiaries in China during September to October in 2004 to investigate how subsidiary executives feel their competitive situation there and what kind of strategy they should pursue in the coming years. This paper comprises 4 sections. The next section shows how we collected companies' data, operating in China, and what kind of criteria we have employed to do the research and the basic features of responding companies. The third section deals with the perception of executives on how they perceive their conditions of Chinese market in relation to the competition with their competitors. And we also introduce Porter's Five forces model to investigate why they feel about their market. The final section argues that we have to consider how Japanese executives respond to the competitive situation. Hence, a managerial implication will be discussed from the standpoint of Japanese executives.