I'm sure you'll agree that, if there's a recurring theme coming out of all sides of politics, economics, business and the media in the current financial crisis, it is that China really matters, right now! It mattered before (when we were all asleep!), it will continue to matter in the future (when the dust eventually settles) but, for the world's economic engine to keep turning over the next few months, China's ability to maintain and grow productivity, consumption and investment is now critical to everyone!
In recent weeks, since returning from Russia, I have been talking to friends and colleagues in China to understand and appreciate the factors, drivers and trends that will influence China's economy in the short term. The common view appears to be:
- China's economy is expected to slow from its 2007 GDP growth rate of 11.9% to a more sustainable rate of between 8% and 9% per annum but, far from being a disaster, this is actually regarded as a good thing, allowing for inefficient factories to be closed down, inflation to be brought under control and a more stable and accessible business and investment environment for both local and foreign players. In fact, the Chinese Government has, for some time, been trying to stop the economy from over-heating. Whilst not exactly planned, this slowdown is seen to be positive, beneficial and good for the long term
- China's stockmarkets (including Hong Kong) have been hit hard by the global financial crisis and now display valuations which are highly attractive to long term investors. Most importantly, China's commitment to utilise its massive reserves to a long term program of social and economic infrastructure (driven by the long term need to urbanise up to 700 million people in future years) is good news for the resources sector and will ensure that China's contribution to global GDP will continue to grow in 2009 and beyond. Long term investors will do well to retain their current positions and look for value in the current downturn
- China's Government understands, appreciates and accepts the role it has to play in working with Foreign Governments, banks and policy-makers to find solutions to the current financial crisis. The recent Asia-Europe Summit hosted in Beijing on 24th October was the first of many opportunities in which China will play a central role in concerted international action. The next will be at the G20 meeting in Washington on 15th November and surely the Anglo Saxon world will now have no option but to include China (and other emerging countries with strong fundamentals) in future discussions about global economic policy. That might be a good thing!
What I'd like to focus on is how everyone, now more than ever, must engage with China in business, investment and trade. Here follows four areas which present opportunities for you all to consider:
1. Follow the money
In response to an economic slowdown or recession in the US and other developed countries, China will now move from an export orientated economy to one that consumes most of what it produces. Markets of all types, shapes and sizes are growing in China and not elsewhere. Where else will you find a market on a steep growth trajectory with rising consumer demand?
The strategy now must be to move away from the first tier cities of Shanghai, Beijing and Shenzhen and start researching, networking and entering large second and even third tier cities with a strong value proposition and a commitment to long term success. Don't forget that there are over 200 cities in China with populations of over 1 million people. I recently heard of a large UK retailer whose sole China strategy is to target only one suburb of Shanghai because of its attractive demographics (young professional families), high spending power and extraordinary size (a population of 1.1m people living in the Shanghai suburb of Wujiaochang). It pays to do your research!
2. Reduce costs
China is, and continues to be, a great source of lower (not necessarily the "lowest") cost goods and services. Prices have been rising in Tier one cities but there has been a concerted effort by Government to move economic activity to new regional centres. For example, I heard today of a new technology park, specialising in incubating new environmental technologies being created in Tianjin (with 20 others planned in other cities) and there are many more plans to stimulate new economic activity throughout the country.
The conclusion is clear - don't think of China as one country. It's a massive network of diverse, autonomous and highly populous cities and regions. Before you start looking for even lower cost centres in other countries (Vietnam is the name that comes up the most) do your comparisons with China's second and third tier cities before you make your decision to ignore China. You may be surprised!
3. China goes global
For some time now, the Chinese Government has been encouraging local companies to "Think Global" and have offered cash grants, preferential loans, subsidies and even Government sponsored delegations to speed up the process. The recent financial crisis has only accelerated this process with my China based friends reporting on increased interest in mergers, acquisitions and investments in foreign companies offering the prospect of new markets and global connections.
Naturally, the largest companies lead the way (Lenovo's acquisition of IBM computers in late 2004 was the first high profile Chinese global play) but the SMEs will follow and offer significant potential for foreign companies seeking to take advantage of China's new role as a global investor. Why not put your hand up to potential Chinese suitors?
4. Innovation and creativity
The next phase in China's extraordinary transformation, which is now well under way, is its move into the higher end, creative, innovative and value adding technology, manufacturing and business solutions. There is a vast amount of creative and entrepreneurial energy in China looking for new outlets and this presents many opportunities for foreign companies and investors to participate on many levels. And the good news is that, in the current climate, the entry price is much lower than it was only 3 months ago!
As I'm often reminded, it's at times like this that new fortunes are made - don't hold back now!
How we can help
We have many friends, contacts and business associates operating in China and working with foreign companies looking for opportunities in all of the above areas. They have local clients, capabilities, connections and the resources to introduce you to many of China's most proactive and influential players. They can also assist with on-the-ground research, strategic planning and market entry. Please contact me at davidthomas@thinkglobal.com.au if you would like me to facilitate an introduction for you.
Please consider:
My friend and colleague, Dr Xisu Wang from Beijing (speaker, trainer, Thought Leader and author of China's first book on leadership practice) will be back in Australia from 21st to 28th November, including an appearance with me at this year's FPA Conference on the Gold Coast on Friday 21st November. There will be many opportunities to hear him speak on China from an insider's perspective during his visit and I encourage you all to meet him. Please contact us at support@thinkglobal.com.au if you'd like to hear him speak while he is here and we'll invite you to one of our events in Melbourne or Sydney.
Best wishes
David Thomas
