Trade in perspective
China is an extraordinary economy characterised by rapid growth and remarkable transformation. Identifying what makes the Chinese market so extraordinary may help you determine whether it’s the right market for your SME.
We regularly hear from international economic experts that China is continuing to rebalance the driver of growth in its extraordinary economy, with the aim of putting its expansion on a more sustainable path.
This more sustainable path is based on an economy in which consumption and services play a greater part of GDP growth and where greater productivity is encouraged.
With technologies, products and services, Europe’s small and medium-sized enterprises (SMEs) have the opportunity to play a part in China’s economic transformation and restructuring, be it in China’s strategic emerging industries, in innovation-led growth or in supporting Chinese workers to become more productive and skilful (EU SME Centre 2015).
Changes in China’s economy
While the headline growth figures remain impressive, several changes are occurring in the Chinese economy that have relevance and implications for SMEs viewing new market opportunities through trade with China.
China’s reputation as the ‘factory to the world’ (merchandise exports comprised more than one-third of total GDP in 2006) is evolving and maturing as China adopts more advanced manufacturing technologies. Future export growth is increasingly being led by sophisticated goods and services.
Encouragingly for offshore SMEs:
imports grew more rapidly than exports in the first quarter of 2018, in contrast to the previous year where net exports were a positive contributor to China’s growth (Lardy/PIIE 2018).
Inside China’s economy
Chinese household disposable income continues to grow faster than the Chinese economy, which points to continuing strong consumption and household spending by Chinese consumers, producing more than three-quarters of the growth in the first three months of 2018.
As the economic ‘rebalancing’ proceeds:
domestic sources of demand, particularly private consumption, are likely to become increasingly large drivers of China’s GDP growth. (Coates, et al. 2012)
Demand for services
Chinese demand for services is growing faster than growth in the economy as a whole, accounting for more than half of the growth and making a bigger contribution to growth than construction and industry.
As economies progress to higher incomes, the share of GDP contributed by services is increasing. Services in China’s GDP has increased to over 40% recently, and is expected to increase to over 50% by 2030.
More sophisticated manufactured exports require sophisticated services inputs, so developing the domestic services sector and opening the sector to foreign participants will promote greater competition in the services markets to access this expertise.
Opportunities for SMEs in China
The EU SME Centre marks the importance of China’s economy for SMEs. As China’s economy continues to grow and transform, significant opportunities have been identified for SMEs seeking to trade with China in a wide array of market sectors.
Information and communications technology
The information and communications technology industry is a national priority, and SMEs are well placed to secure new opportunities in high-value niches including mobile app development, IT consultancy, data integration and outsourcing, particularly in high-growth areas such as financial and healthcare institutions.
Food and beverage
In the food and beverage sector, SMEs can leverage the quality of their products to capitalise on the growing spending power of the ‘new, and more health-savvy’, middle and higher income Chinese consumers.
Yihaodian, a specialised food and beverage online retailer, thinks Chinese consumers are looking for ‘unique’ products and points to strong demand for fresh milk, wine, nutrition and health supplements, beef, seafood and some types of fruits such as oranges and berries (AFR 2015).
Healthcare and wellness
This growing health-consciousness combined with an ageing population and the authorities’ focus on social welfare present healthcare and wellness products and services as another opportunity.
Clean and green
Online marketplace rivals Alibaba and JD.com note that Chinese customers are looking for organic and healthy products or to make purchases that promote health and well being.
JD Worldwide predict Chinese consumers’ demand will continue to grow for maternal goods, food, cosmetics and nutritional products, and forecast the sales of Australian goods on the platform to grow at a rate of 100 per cent year on year (AFR 2015).
There are also opportunities for SMEs to contribute to addressing China’s major challenges such as pollution, clean energy, healthcare, education and food security and, as a result, sectors of particular opportunity include clean, green and sustainable energy; energy efficiency technologies; waste management; and anti-pollution technology (water, air, soil).
Australian opportunities in China
China’s economy and growing wealth offer SMEs valuable opportunities if they can meet the demands of the growing market, especially if they can meet the demand for high-quality products.
In a culture such as China’s, where the survival of an SME rests on the success of understanding the unfamiliar market, Australian SMEs can thrive by making the most of their status as a preferred trading partner (Chapman 2017).
Opportunities for those outside of Australia
For those outside of Australia, it would be worth researching specific opportunities that your expertise and specialist know-how, and the reputation of your country in the China market, can open for your SME.
Discuss changes in the Chinese domestic economy that may be having an impact on trade with China.
In your comments, discuss how these changes may improve market opportunities in China for your SME.
© Deakin University