Today this entry is dedicated to the analysis of the importance of the Chinese market for the foreign investors and in particular for European companies. As an Italian citizen working in a Chinese Law Firm it is interesting to note how my compatriots and other European citizen find extremely attractive my position. Sometimes I feel like I am a special professional or resource for companies from Europe. Business is business but sometimes little practical advices can make the difference, though the information to provide to the clients are available from different sources, in particular from Institution such as the European Chamber of Commerce. I have to thanks the EU Chamber of Commerce for the useful information I found which I put together for realizing today’s entry (
http://www.europeanchamber.com.cn/en/home
).
China continues to be a key market for European companies and remains a crucial element in their global business strategy. However, in order to continue to operate successfully in China they are forced to adapt to changing market conditions.
China is a pillar for generating global revenue
As the Chinese market grows, European companies’ share of revenue from China continues to rise and continues to contribute significantly to the proportion of global sales:
• In 2009, less than a third of respondents from a survey conducted by the EU Chamber of Commerce reported a percentage of global revenue generated in China of higher than 10%; this year the number has reached 45%.
• More than a quarter of companies stated they were generating 25% or more of their global revenues in China, compared to 17% in 2009.
(
http://www.europeanchamber.com.cn/en/publications-business-confidence-survey
)
Foreign direct investment rose for the third month in a row in April with more money coming from European countries for the first time this year rather than the United States, (source: Ministry of Commerce
http://english.mofcom.gov.cn/
). Foreign firms pumped $8.43 billion into China last month, up 0.4% from a year earlier, according to the ministry. While the pace slowed from the gain of 5.65% in March and 6.32% in February, it was much better than January’s fall of 7.3%.
What do investors like? They like wage growth and the rise of the Chinese middle class.
According to a report by consulting firm KPMG, China has become the top destination for sourcing among multinational companies outside their home country with these companies moving more of their research units close to production bases. This year, the U.S. China Business Council conducted a survey of multinationals who have a presence in China and each one said that China was their number one investment choice.
All told, European companies are the most enamored with China.
During the January-April period, investment from European Union companies rose 29.7% to $2.5 billion, while corporate investments from the United States rose 33.2% to $1.4 billion.
From January to March there were
4,822 foreign investment projects
approved in China, down from 5,379 in the first quarter of 2012.
China is a priority in companies’ global strategies
While market conditions are changing and competition is increasing, China is still key in European companies’ global strategies. This is supported by the fact that 94 per cent of respondents stated that China was either increasingly important in their global strategy or has the same level of importance as it did the previous year.
Reasons commonly cited as to why China is still largely important for companies’ global strategies are the opportunities in the Chinese market:
“The Chinese market offers opportunities of which the other markets can only dream.”
“China is seen as one of the most promising markets of strategic importance and has huge potential for growth.”
Domestic consumption is key in driving Chinese GDP. The benefit of this is visible in the consumer goods and services industry where 74 per cent of companies consider China be an increasingly important market, compared to the average of 64 per cent.
Some sectors more than others perceive China to be increasingly important:
• Among industrial companies, 72% of machinery companies stated China was becoming increasingly important in their company strategies, and 73% of automotive companies.
• Among consumer goods companies, 70% of financial services stated China was becoming increasingly important in their company strategies, 93% of pharmaceutical companies, and 79% of food & beverage companies.
In China for China, betting on domestic consumption
It is evident that European companies are in China for China, particularly because they see great opportunities arising from domestic consumption.
European companies respond to the changing market conditions in China
Companies see value in scale and plan to keep investing in China, betting on growing domestic consumption and a growing need to be closer to their market:
• 86% of respondents said they are considering expanding their current operations;
• 41% are considering mergers and acquisitions.
Western China is of growing interest for European companies. Two of the top-three destinations for expansion are located in the Western PRC provinces: Sichuan placed as the top destination for planned expansions (85 companies), and Chongqing as number three (70 companies).
Coastal areas remain key markets for European companies, and a large number seem to be consolidating their presence by expanding in the more mature markets in the east. Indeed, the remaining eight destinations in the top ten are eastern provinces.
Some areas appear to be favoured by specific industries:
• In Guangdong, consumer goods firms make up for 38% of companies planning to expand in the area, in Shandong the figure is 40%.
• In Chongqing, industrial firms make up for 44%, 50% in Jiangsu, 57% in Zhejiang, 48% in Shenyang and 41% in Tianjin.
Of the companies considering expanding to other provinces, the majority (73 per cent) are expanding to other provinces to be closer to their customers.
For all the reasons stated above and for others that we are going to examine tomorrow China is attracting an increasing number of investments, however sometimes the foreigner investors need to be aware of the differences existing not only in the way of doing business but also of the differences in culture, if they really want to grasp the opportunities China is offering to them.
Cristiano Rizzi