China's total consumption will equal two-thirds that of the US level and account for about 12% of the

world total by 2020. Chinas economy will be driven more by consumption than production in 10 years due to the support of the six factors: demographics, urbanization, infrastructure, social security, education and consumer finance. There is still room for further improvement of infrastructure, in addition to Chinas massive investment on infrastructure in recent years. China's enormous deposits held by residents will be released and give an unprecedented push to consumption, with the progress and reform of the pension, health care and education systems along with the further construction of a social safety net. China's urbanization will rise from 47 percent to 63 percent. Driven by the urbanization process, China will see its fixed asset investment double and its consumption triple by 2020. China's economy is predicted to exceed that of the US in 2016, according to the IMF. Given the US's severe national debt and a looming second dip in its economy, China may well become the world's biggest economy earlier than predicted. That said, TCCC's investment today is likely to match expected robust consumer demand. TCCC's CEO commented, Clearly, I think, with the consumer fundamentals and our strong position in China, we're just getting started. - Euromonitor 2011 Coca-Cola recorded 26% sales growth of soft drinks in China is since last 5 years. China now accounts for 7% of Coca-Cola's soft drinks global retail value sales (2011, Financial Report- TCCC). In terms of market share, Coca-Cola commands around 16% of China's soft drinks retail sales compared to PepsiCo's 5%. This major share shift is due to its three mega brands Sprite (US$1.9 billion), Coca-Cola (US$1.6 billion) and Minute Maid (US$1.3 billion), whilst PepsiCo has only one in the country, Pepsi (US$1.3 billion). TCCC has actively exploring new beverages other than carbonates in China, and its recent successes include Minute Maid flavored milk drinks, which enjoyed retail value sales of US$132 million in 2010. and has since launched the product in more than 20 countries, building a brand worth $1 billion. Over the next five years, with its latest investment plan in mind, TCCC is likely to take further steps in terms of testing varieties of beverages such as drinkable milk products. All the products sold in China are produced by its domestic factories. Localization of production is a significant feature of Coca-Colas business strategy allowing local bottlers/packagers to adjust flavor and sweetness according to local tastes. Coca-Cola China Ltd has a leading position in the carbonates, fruit/vegetable juice, bottled water and RTD tea. Sales of RTD tea and fruit/vegetable juice are growing much faster than those of carbonates in China, thus Coca-Cola China Ltd has gradually switched its attention from carbonates to non-carbonated soft drinks. All manufacturers are facing the same kinds of challenges related to rising labor and commodity costs. China, like many other fast-growing emerging economies, is facing problems such as a shortage of clean water and electricity and social problems such as corruption. Water supply problems could hinder the production of soft drinks, for instance. The rising cost of electricity may have a direct impact on the usage frequency of coolers. Finally, the occasional re-occurrence of nationalism and anti-Western

feeling could make TCCC an easy target, although this would be nothing new for the multinational. Nevertheless, close links with central government and partnering mega state-owned Chinese companies could perhaps lessen the risk and make doing business in China relatively more comfortable. China's per capita disposable income is projected to increase at the fastest rate of any country between 2010 and 2015, by an impressive 56%.