China Business opportunities Market approach Recommendations - May 2017 - Brussels Invest Export
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China
Mattias DEBROYER
Economic and commercial Business opportunities
Market approach
attaché
shanghai@brusselsinvestexport.
Recommendations
com
86 21 64 37 52 24
May 2017
www.brussels-in-china.comContents
Facts and Figures .................................................................................................................................. 2
China ................................................................................................................................................. 2
Shanghai............................................................................................................................................ 2
Shenzhen........................................................................................................................................... 2
China’s economy ................................................................................................................................... 3
Challenges ......................................................................................................................................... 3
Innovation ......................................................................................................................................... 3
Sectors with high growth potential ...................................................................................................... 3
Healthcare......................................................................................................................................... 3
Medical device industry ................................................................................................................ 4
Pharmaceutical industry ............................................................................................................... 4
Healthcare service market ............................................................................................................ 4
Food and Beverage ........................................................................................................................... 5
Luxury ............................................................................................................................................... 5
Environment ..................................................................................................................................... 6
Green and sustainable construction ............................................................................................. 7
E-commerce and digital marketing................................................................................................... 8
Market approach .................................................................................................................................. 8
Recommendations ................................................................................................................................ 9
What to do before coming to China? ............................................................................................. 10
1Facts and Figures
China
• GDP = 11.000 billion USD (Belgium = 410 billion EUR; USA = 18.000 billion USD )
• GDP growth (2016) = 6,7%
• GDP pro capita = 7.950 USD (Belgium = 36.600 EUR; USA = 56.000 USD)
• Inflation rate = 1,2% year-on-year (April 2017)
• Gini coefficient = 46,5 (Belgium = 27,5; USA = 41)
• Life expectancy: 72 years (men); 76 years (women)
Shanghai
• Population: 24 million
• Area: 7.000 km²
• Major language: Mandarin Chinese, with a strong presence of the local Shanghai Chinese
dialect
• Life expectancy: 80 years (men); 85 years (women)
• GDP = 380 billion USD (3% of total China GDP)
• GDP growth = 6,8% in 2016 (above national average)
• GDP pro capita = 15.900 USD (2014)
• Municipality, with 16 districts and one county (Chongming Island)
Shenzhen
• Population: 12 million
• Average age: 34 years
• Area: 2.050 km²
• Major language: Mandarin Chinese, with a presence of Cantonese Chinese
• Life expectancy: 80 years (men); 85 years (women)
• GDP = 300 billion USD
• GDP growth =
• GDP pro capita = 25.800 USD (2014)
• City in the Province of Guangdong
2China’s economy
Challenges
Ageing population. China might get old before it gets rich. By 2050, one in every three Chinese is
forecast to be aged over 60. China’s labor force reached a peak of 940 million in 2012, and
decreased to 930 million in 2014, and is expected to decrease by 16% by 2020.
Rising housing prices, corruption, pollution, food scandals and many other problems emerge as well.
Financial leverage is precipitously high, with total debt having ballooned to 282% of GDP in 2014.
Innovation
In the past decades Chinese economy grew on the basis of export and investment. After the
economic crisis of 2008 and 2009, China realised that that model does not guarantee a stable basis
for sustainable growth. In 2014, China’s president Xi Jinping stated ‘China must rely on innovation
to achieve continuous and healthy economic growth’.
The new model for economic growth is one that is based on innovation, domestic consumption,
production of products and services with a high added value. It is to be expected that China will
move to a more "smart" economic growth, which seeks to reduce reliance on energy-intensive and
high-polluting industries and rely more on high technology, green energy, and services. Slower
economic growth in combination with sustainable and qualitative growth defines what is called the
‘New Normal’ for China.
Sectors with high growth potential
Healthcare
Key drivers for growth in China’s healthcare market are:
• Chinese growing disposable income
• ageing population
• increased awareness of diseases
• growing expenditure on healthcare
• strong competition in the market, with foreign companies concentrated in the high-end
segment and Chinese companies occupying the mid-to-low end section.
The percentage of China’s ageing population (those 60 years and above) will rise from 12% in 2010
to 17% in 2020. By 2050, one in every three Chinese is forecast to be aged over 60.
The lack of competent and decent services for the growing needs of its ageing population offer
promising business opportunities for both domestic and international companies in elder
healthcare industry. Chinese government has been a major force in driving the development of
healthcare industry. With the determination to enhance social welfare system, it decided to invest
3heavily in Chinese healthcare system during China Healthcare Reform 2009. Particularly, Chinese
government has formally announced a set of policies concerning biotechnology industry.
The 13th Five Year Plan (2016 until 2020) details a number of key targets in the health and aged
care space:
• Increase the number of qualified doctors and medical assistants to 2.5 per 1,000 persons
• Increase the number of general practice doctors to 2 per 10,000 persons
• Systematically train 500,000 resident doctors to adequate standards
• Establish 1-2 public hospitals in each county
• Maintain the proportion of urban and rural citizens with health insurance above 95%
• Reduce premature mortality from critical chronic diseases by 10%
• Reduce the infant mortality rate to 7.5%, the mortality rate for children under 5 years to
9.5% and the mortality rate for childbirth to 18 per 100,000 persons.
Medical device industry
The sales of medical devices in China have increased rapidly over the last decade, reaching a total
value of CNY 255.6 billion (EUR 36 billion) at the end of 2014. In 2014, China imported medical
devices worth around 13,7 billion EUR from overseas and EU is the largest contributor as it took up
39% followed by USA with 32% and Japan with 25%.
Regulation-wise, even though China’s healthcare system and medical device regulations can often
be challenging to understand, the PRC’s government has recently implemented a set of new
measures aimed at increasing the standardisation of the market and promoting its development.
Such trends will provide EU SMEs with a new set of opportunities, provided that the right
preparation is made to face existing challenges.
Since 2005, China has been the third largest medical device market in the world.
Pharmaceutical industry
Chinese pharmaceutical industry is enjoying a steady growth and has become the world’s second
largest market by 2015. Its total sales were more than US$ 39.7 billion in 2009 and grew at a
compound annual rate of 20.5% between 2005 and 2009. It is forecast that the growth rate will be
around 16.9% between 2010 and 2014.
Healthcare service market
As people’s living standards improve, Chinese healthcare services market is becoming one of the
largest in the world. In 2009, healthcare spending in China reached US$ 215 billion. China spent an
equivalent of about 4.5% of GDP on healthcare services in 2010, which means per capita annual
spending about US$ 159, much lagged behind by developed countries. This implies for a big
potential market.
4Food and Beverage
China’s food and beverage (F&B) imports have shown strong growth in recent years and it has been
significant factor in the overall strong growth of China’s grocery retail market. China became the
world’s largest market for food and grocery retail in 2011. The Chinese F&B industry grew at an
average rate of 30% from 2006 to 2014, and the annual total production value of the industry is in
excess of US$ 1.2 trillion. The market is estimated at 440 billion EUR.
China is the world’s fourth largest importer of food after the EU, the US and Japan. As a net
importer of F&B products, China in 2011 imported US$ 73 billion (28% YOY increase) and exported
US$ 53 billion (23% YOY increase). Exports of EU food and beverages to China tripled between 2006
and 2011 from €0.9 billion (US$ 1.2 billion) to €3.3 billion (US$ 4.4 billion) respectively. Looking into
specific product sectors, it is meat products, alcoholic drinks and dairy products that are leading EU
exports to the China market, with a combined total of 66% of all EU food and drink exports in 2011.
In terms of Chinese exports to the EU, top of the list are fish, fruit and vegetable products.
Despite fragmented distribution infrastructure and growing local competition, opportunities for
European SMEs to sell their products in China are likely to grow, driven by increasing disposable
income and urbanisation, an improving logistics system, growing concerns on food safety as well as
a growing taste for foreign foodstuffs. EU SMEs can expect to find opportunities in a variety of
areas, including wine, cheese, dairy products and premium ice cream, pasta, spaghetti sauce and
other tomato products, olive oil, beer, chocolate, high-end confectionery, pre-packaged biscuits
and snacks, breakfast cereal, coffee, baby food / infant formula as well as frozen meat and seafood.
China is not a single market but a jigsaw puzzle of overlapping markets separated by geography,
culture, cuisine, demographics and dialects. Opportunities in the food and beverage market lie in
China’s urban centres rather than rural areas: First-tier cities such as Beijing, Shanghai, Guangzhou,
Shenzhen, and increasingly Chongqing and Chengdu, have seen the greatest exposure to imported
food and beverages. Multinational retail expansion has intensified competition in the richer coastal
areas, but opportunities still remain. Income is growing rapidly in second and third-tier cities,
creating a new range of opportunities.
Luxury
China is the No. 1 luxury spender worldwide, representing 31% of worldwide purchases (Bain & Co),
leaving both the US and EU market far behind (both 18%). The lucrative China market has
presented abundant opportunities for global luxury players to further establish their presence
across the country. Recent years have seen an increase of experience based luxury, with a strong
increase of online shopping, while traditional luxury is scaling back. Shanghai is the 11th city
worldwide and growing, with 4,5 billion USD sales (NY: 22,3 billion USD sales).
Despite the slowing of the increase of sales in 2016 and the anti-graft campaign, and its subsequent
impact on the luxury sector, China’s consumer sector continues to demonstrate huge growth
potential. The demand for luxury goods in China is booming driven by a number of positive factors
such as:
5• A growing number of affluent and middle class
• Rising household disposable income and
• higher luxury spending, and
• increasing number of travelling Chinese.
Household disposable income in China has grown consistently over the years. According to the
National Bureau of Statistics of China (NBS), growth of household disposable income has been most
prominent in the highest income segment, followed by the high income and upper middle income
segment, all registering double-digit compound annual growth rates of 14.5%, 12.8% and 12.1%
respectively. These groups of individuals often have a voracious appetite for luxury goods and are
the biggest spender on luxury goods. It is expected that the household income will continue to rise
as the Chinese government strives to double the per capita household income by 2020 to stimulate
domestic consumption.
Chinese individuals with more than RMB 10 million (US$ 1.6 million) broke through the one million
mark for the first time in 2012, reaching a record 1,020,000 individuals, an increase of 3% over the
previous year, according to Rupert Hoogewerf, founder of the Hurun Report, a luxury magazine
which publishes China’s annual rich list. China is also home to 63,500 super-rich, defined as
individuals with RMB 100 million (US$ 16 million), an increase of 5.8% from that of last year. On the
other hand, the burgeoning middle class is one of the major forces driving luxury consumption in
China. The middle class, which is more sophisticated and westernized, has higher income to support
their international and sophisticated life style. McKinsey & Company projected that the number of
middle- and high-income urban households in China will increase from 181 million in 2012 to 472
million in 2020.
More than two-thirds of luxury spending by Chinese mainlanders was made overseas in 2013, an
increase from 2012. Chinese consumers are engaging using online forums to discuss and research
luxury brands. Digital media has been a tool used frequently to engage Chinese high-end
consumers. Women are an important target market for luxury players, as their purchasing power
rises and as they start to seek a wider range of products.
Chinese government has been focusing on promoting the development of small- and medium-sized
cities and towns in recent years. Smaller cities with population less than 1.5 million will be the
major force driving China’s economy growth in the next two decades and they can form strong
clusters with huge economic potential. The rising consumption in these cities will create huge
demand for luxury goods. In fact, many luxury companies have already stepped into those cities.
While in tier 1 cities, people prefer low-key brands instead of household names. This trend opens a
door for new but unique European brands.
Environment
The Chinese government has indicated its desire to shift to a more “smart” economic growth, which
seeks to reduce reliance on energy-intensive and high-polluting industries and rely more on high
technology, green energy, and services.
6Driven by growing urgencies in energy security, food and water supply, and pollution on an
immense scale, the green tech industry has become the top priority among China’s strategic
industries. To sustain economic growth while reversing its negative impact on the environment,
China is pushing ahead with its green tech policies and spending. Within just a few years, China has
emerged as a green tech leader at the centre of almost every green tech market. By the end of
2010, China became the world’s largest investor in clean energy at CNY 354 billion (US$ 58.3
billion), installed 44.7 GW of wind power and built 8,358 kilometers of high speed rail. China is
making ambitious moves, not only seeking to securely meet domestic needs but also to capture
global green tech markets.
Common to the initial stage of the green tech industry in many countries, effective policies and
enforcement of these policies are still in their early stages in china. In this fast growing and
changing green tech market, the main market opportunities for EU SMEs will be found in areas
where the large SOEs or multinationals have not yet invested and where SMEs can leverage their
know-how and technologies. China is welcoming highly advanced technologies regarding
environment protection and energy saving from outside world. Advanced products / services for
niche demand, close monitoring of green tech policies and good relationship with provincial
governments are key to success in this challenging market.
Green and sustainable construction
Over the last 30 years, China has experienced unprecedented economic development, with annual
growth averaging around 10 percent. Accompanying this growth, modern energy, transport, and
public service infrastructure is rapidly being built across the country to serve the Chinese people.
Currently, China has 665 million urban residents, up from 191 million just 30 years ago. Although
China’s cities have modernized significantly in recent years, more needs to be done. The most
significant challenge will be accommodating the 350 million new urban residents expected to
migrate to cities in the coming 20 years.
Every year, the equivalent of one megacity, such as Shanghai or Beijing, will be created in China.
Rapid urbanization will be accompanied by significant pressure to provide jobs and economic
opportunities, housing, public services, and improved quality of life. Meeting these needs will, in
turn, require extensive efforts to solve current and future problems related to energy efficiency,
transport and congestion, solid waste, and water and air pollution.
In 2014 the Chinese government conceived the plan to invest heavily in sustainable building. By
2020 more than 5 million supplementary green square meters should be added, which is 5 times
more than 2013.
In certain Chinese cities high-end sustainable real estate projects have been realized that should
meet the European standards without any problem.
7The present developments in the field of sustainable building offer thus an enormous potential for
Brussels architects, engineering firms and construction companies. These firms can make the
difference with unique design, advanced technologies and knowledge and know-how.
E-commerce and digital marketing
When doing business in China, you need to be aware of the tremendous importance of e-
commerce and digital marketing for your sales, and thus for your success in China.
China’s E-commerce sector has grown at a remarkable rate during the last decade. After a slow
start, the industry took off around 2004 as new payment mechanisms (predominantly Alipay) and
Alibaba’s platforms (Taobao and Alibaba) began to catch the attention of the fast growing number
of internet and mobile phone users.
Now, after more than a decade of rapid growth, China’s online retail sector has become the largest
globally, having surpassed the US some two years ago. At the end of 2015, following a year-over-
year (y-o-y) increase of 36.2%, the GMV of China’s online shopping market reached approximately
EUR 513 billion (CNY 3.8 trillion), nearly 80% bigger than the US2 and almost half (47%) of the world
total.
After ten years of accelerated growth, E-commerce has become a common feature in the everyday
life of Chinese consumers. From the relatively low base when online sales only made up about
0.15% of all retail in 2004, online transactions have grown to make up about 13.5% of total retail
revenues at the end of 2015. Today, more than 380 million consumers shop online in China, and it
is predicted that over 50% of domestic consumption will be conducted online within ten years
(source: EU SME Center Beijing, How to sell your Food & Beverage Products Online in China).
Market approach
When tapping into the Chinese market, your market entry strategy will define your success.
Whichever strategy you choose, it will be essential for you to find the right partner.
Different market approach strategies are possible:
(i) Export to China through an agent, or a distributor
(ii) Exporting to China via online sales
(iii) Exporting to China via franchise or licencing
(iv) Investment via a representative office
(v) Investment via a Joint Venture with a Chinese partner
(vi) Investment via a fully owned company (WOFE)
More information is available upon request.
8Recommendations
General
Always bring and take care of your passport.
Make sure you are reachable by cell phone or by Wechat. Bring a power bank.
Position of women in business
Genderwise, Chinese society is very diversified. Women assume responsibilities at high levels both
in politics as in business.
Appointment for meetings
Arrive early, which is 15 minutes prior to your appointment. Arriving late is seen as (very)
unprofessional, even if meetings may be confirmed only 1 or 2 days in advance.
For your transfer to your appointment, schedule 1 hour of travelling. You can easily lose 30 minutes
given the heavy traffic and sometimes lack of taxis.
In China 1st floor is the European ground floor. 2nd floor is the European 1st floor. If the office where
you will have the meeting is located at the 1st floor, this means that will need to look for at the
ground floor.
Make sure you have the contact details of your contact person in case you are late.
Before you go
Show some interest for the customs of the country and learn some Chinese. Your business partners
will appreciate.
Decision maker
Try to identify the decision maker in the company, by trying to see clear through the titles and
positions in the company.
Make your homework
Show that you know the Chinese market.
Business cards and Wechat
Make sure that you :
9(i) Always carry business cards, and more that usual
(ii) Exchange business cards at the beginning of the meeting
(iii) Have bilingual business cards (with a Chinese name)
(iv) Have your title and position in the company mentioned
Even though business cards remain an key element in chinese business, maintaining relations with
your business partners is done via Wechat. Make sure you add your business partners to your own
personal Wechat account.
What to do before coming to China?
• Get a visa
• Bring business cards (more than enough), in Chinese
• Install a VPN (suggestion: Express VPN) on smartphone and laptop
• Contact your bank to unblock your bank cards so that you can get money out of the wall
• Create a Wechat account
• Learn some basic Chinese
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