Re­brand­ing The econ­omy

Thou­sands of pri­vate small- and medium-sized en­ter­prises are look­ing to break into China’s im­port mar­ket. But are Chi­nese con­sumers con­vinced by their prod­ucts?

NewsChina - - COVER STORY - By Li Jia

For nearly 12 years, Colin Yang from Bei­jing has been try­ing to sell Chi­nese prod­ucts to con­sumers over­seas on be­half of sev­eral com­pa­nies. In 2017 he founded his own busi­ness in Bei­jing which helps Chi­nese com­pa­nies ex­pand their in­ter­na­tional op­er­a­tions through ex­ports or out­bound in­vest­ment. How­ever, he has be­come a buyer of for­eign prod­ucts re­cently – for both his busi­ness and his fam­ily.

At the Chi­nese In­ter­na­tional Im­port Expo (CIIE) in early Novem­ber, be­lieved to be the first of its kind in the world, Yang bought a US med­i­cal check-up ma­chine for ba­bies, a Ger­man 3D printer, a Ger­man fry­ing pan and two Ja­panese air pu­ri­fiers. He will sell the first two pieces of equip­ment to do­mes­tic hos­pi­tals and use the other two for his fam­ily and of­fice be­fore be­com­ing a dis­trib­u­tor for the brands in China. He signed an agree­ment with a Fin­nish pro­ducer of air pu­ri­fiers. He has also found equip­ment for sev­eral other Chi­nese com­pa­nies. As he told Newschina, he has been pay­ing close at­ten­tion to China's im­port pol­icy for the past two years when China re­peat­edly de­clared its will­ing­ness to im­port more from the rest of the world. Like the coun­try it­self, he wants to shift from ex­port-ori­ented growth to a bal­ance of im­ports and ex­ports.

Raven Wu, an over­seas sales man­ager for Guang­dong Cheer­son Hobby Tech­nol­ogy Co. Ltd., a small drone maker in Shan­tou, Guang­dong Prov­ince, did not buy any­thing at the Expo. In­stead, he took home his im­pres­sion of some new tech­nol­ogy trends in the in­dus­try, and has more con­fi­dence in start­ing his own busi­ness im­port­ing con­sumer goods like health sup­ple­ments and cos­met­ics.

China's pri­vate com­pa­nies, the ma­jor­ity of which are small- and medium-sized en­ter­prises (SMES), have played a cru­cial role in China's rise as the world's largest ex­porter by in­te­grat­ing into the global sup­ply chain of multi­na­tional cor­po­ra­tions, thanks to China's pol­icy of en­cour­ag­ing ex­ports and low la­bor costs fol­low­ing its re­form and open­ing-up. Their ex­ports sur­passed those of China's State-owned en­ter­prises (SOES) in 2006 and for­eign-funded en­ter­prises in 2015.

China's trade sur­plus in daily con­sumer goods, for ex­am­ple, reached US$405.6 bil­lion in 2017, con­tribut­ing 96 per­cent of the coun­try's to­tal trade sur­plus that year. Sixty-two per­cent of ex­ports in this cat­e­gory were gen­er­ated by 216,000 pri­vate com­pa­nies, ac­cord­ing to a re­port is­sued at the CIIE by the China Cham­ber of Com­merce for Im­port and Ex­port of Light In­dus­trial Prod­ucts and Arts-crafts.

The cases of Yang and Wu sug­gest the same could hap­pen in the coun­try's im­port mar­ket. China's pri­vate en­ter­prises have to date been buy­ing half as much as their for­eign-funded peers in China, and about the same as SOES. Huge con­tracts were signed be­tween Chi­nese giants and in­ter­na­tion­ally es­tab­lished brands dur­ing the one-week CIIE in Shang­hai. How­ever, the po­ten­tial of pri­vate Chi­nese SMES should not be over­looked. Their in­creas­ing de­mand for im­ports also means op­por­tu­ni­ties for for­eign brands, whether es­tab­lished or un­known in China.

More im­por­tantly, what Chi­nese con­sumers and pri­vate SMES are in­ter­ested in buy­ing from the rest of the world are not just bet­ter goods and ser­vices, but also a broader vi­sion of the world.

Chain of Change

One of the ma­jor pur­poses of China's com­mit­ment to im­port more is to up­grade its in­dus­tries to move up the global value chain. To achieve this, in­stalling bet­ter equip­ment, such as ro­bots, is a nec­es­sary step. Xing Houyuan, deputy pres­i­dent of the China Out­sourc­ing In­sti­tute of the Min­istry of Com­merce of China, found in her field re­search that large- and medium-sized pri­vate man­u­fac­tur­ers in South China's Pearl River Delta area – a man­u­fac­tur­ing pow­er­house – be­gan to do this to im­prove their ef­fi­ciency in 2009 in the af­ter­math of the global fi­nan­cial cri­sis. She be­lieves this trend will move north to­ward the coastal Yangtze River Delta and the Bo­hai Eco­nomic Rim.

As Raven Wu told Newschina, de­ploy­ing new tech­nolo­gies and equip­ment is typ­i­cally started by lead­ers and then fol­lowed by smaller op­er­a­tors along the sup­ply chain of an in­dus­try.

This rip­ple ef­fect seems to be turn­ing into a reality. Mr Li, who runs an elec­tronic prod­uct man­u­fac­tur­ing com­pany with about 500 staff in Cen­tral China's An­hui Prov­ince, al­ready has some im­ported equip­ment from the US, Ja­pan and Italy. He told Newschina he found some new equip­ment at the Expo that may help up­grade his fac­tory.

Dr. Frank Beer­mann, Chief Op­er­at­ing Of­fi­cer and Pres­i­dent of DMG MORI China, a Ger­man-ja­panese ma­chine tool sup­plier with global op­er­a­tions, said like in other mar­kets the ma­jor­ity of their Chi­nese clients are SMES. The com­pany brought their prod­ucts and ser­vices to China 20 years ago. In the past 10 years, Chi­nese man­u­fac­tur­ing SMES have in­creas­ingly de­manded qual­ity ma­chine tools with a higher ac­cu­racy and longer life. “The time of low-end ma­chines for Chi­nese man­u­fac­tur­ing SMES is over,” he told Newschina at the CIIE.

Ac­tu­ally, even some small man­u­fac­tur­ers have to buy im­ported high-end spe­cial pur­pose equip­ment if they want to make a par­tic­u­lar part, for in­stance, a valve for a wa­ter pump, Wang Guiqing, vice pres­i­dent of the China Cham­ber of Com­merce for Im­port and Ex­port of Ma­chin­ery and Elec­tronic Prod­ucts (CCCME) told Newschina at the CIIE. Chris­tian Dong, sales man­ager of the East China area for France Rob­valve Group, said right now their clients are big SOES, but he re­ceived some in­quiries from small Chi­nese com­pa­nies dur­ing the CIIE.

An­other pur­pose of China's new im­port pol­icy is to have more sup­plies of con­sumer goods for the do­mes­tic mar­ket. As the

sto­ries of Yang and Wu show, small dis­trib­u­tors are al­ready seiz­ing the op­por­tu­nity. Bi Jian­wei, an of­fi­cial with the Shan­dong pro­vin­cial del­e­ga­tion, said small com­pa­nies such as lo­cal fruit whole­salers need this kind of op­por­tu­nity to meet for­eign sup­pli­ers more than big ones do.

New Menus

Xing Houyuan hopes Chi­nese com­pa­nies will im­port more ser­vices, in­clud­ing R&D and de­sign and con­sul­tancy, to im­prove man­u­fac­tur­ing pro­cesses. This will bring op­por­tu­ni­ties for for­eign ser­vice providers, es­pe­cially those yet to build their pres­ence. Dr Lu Ji­ahui, in­no­va­tion and strat­egy Asian lead with Cam­bridge Con­sul­tants, which pro­vides so­lu­tions for com­pa­nies with tech­ni­cal prob­lems, said they have very big clients in the US and the EU, but are still un­known in China. One of their re­cent projects in China was help­ing a lo­cal startup turn ideas into a vis­i­ble prod­uct on a very tight sched­ule. Lu's team is pool­ing en­gi­neers in the UK and Sin­ga­pore, and seek­ing Chi­nese man­u­fac­tur­ers to do this. She said China was some­what like Sil­i­con Val­ley where ex­cel­lent ideas and fund­ing abound, but tech-savvy star­tups do not know much about how to trans­late their ideas into some­thing mar­ketable and how to pro­mote their prod­ucts on the mar­ket.

For­eign SMES are also seek­ing a pres­ence in the China mar­ket. Kevin Chung, man­ag­ing di­rec­tor of More than Me­dia, an out­door ad­ver­tis­ing firm from Lon­don spe­cial­iz­ing in bill­board and dig­i­tal events man­age­ment, which grew from a small startup with about six staff to 200, is happy to have re­ceived a lot of in­quiries about their 3D holo­graphic de­vice shown at the CIIE. It will be in­stalled in late Novem­ber at an IFS shop­ping mall in Chengdu, Sichuan Prov­ince in China's south­west. Their first China of­fice is sched­uled to open in Shang­hai in Jan­uary 2019. As Xing said, ex­ports are of­ten the first step which paves the way to­ward in­vest­ment, par­tic­u­larly for for­eign SMES.

Smaller coun­tries are im­prov­ing their pro­file. “What is Bangladesh?” asked sev­eral visi­tors at the coun­try's pavil­ion at the CIIE, where tea and bags made of jute, as well as jeans and bed­ding for in­ter­na­tional brands were on dis­play. Some visi­tors bought the tea. The coun­try presents it­self as “Asia's low­cost pro­duc­tion base.” Abu La­hel, as­sis­tant man­ager of the Bangladesh Eco­nomic Zones Au­thor­ity, re­peat­edly stressed to Newschina that they want to at­tract high-tech ori­ented in­vest­ment, such as au­tomak­ing, as the tex­tile sec­tor is sat­u­rated. Most of the in­quiries they re­ceived from Chi­nese in­vestors were none­the­less in the tex­tile sec­tor.

For­eign foods may have much more chance of prof­it­ing from Chi­nese con­sumers than any other prod­uct. China's food im­ports reached over US$60 bil­lion in 2017, with a 15 per­cent an­nual in­crease on av­er­age in the past two decades, ac­cord­ing to a re­port re­leased dur­ing the CIIE by the China Cham­ber of Com­merce for Im­port and Ex­port of Food­stuffs, Na­tive Pro­duce and An­i­mal By-prod­ucts. The value was more than China's ex­ports of food­stuff that year.

The US is the largest source of China's food im­ports. Dairy prod­ucts were the third­largest cat­e­gory of Amer­i­can food im­ported into China in 2017. How­ever, there is no US milk in China. Jaime Cas­tañeda, US Dairy Ex­port Coun­cil Trade Pol­icy Se­nior Vice Pres­i­dent, told Newschina at the CIIE that reg­u­la­tors of the two coun­tries are work­ing on de­tailed rules of their agree­ment on food safety for liq­uid milk, and US milk pro­duc­ers are very keen to en­ter the China mar­ket.

China's im­ports of daily con­sumer goods, though lag­ging far be­hind its ex­ports, have been ris­ing fast in re­cent years. Li Wen­feng, vice pres­i­dent of the China Cham­ber of Com­merce for Im­port and Ex­port of Light In­dus­trial Prod­ucts and Arts-crafts, noted at a press con­fer­ence dur­ing the CIIE that China mainly im­ports mid-range and high-end con­sumer goods from the EU, the US and Ja­pan. In 2017, Swiss jewel ex­ports to China soared, mak­ing Switzer­land the largest source of China's con­sumer goods im­ports that year.

New Tastes

Chi­nese in­di­vid­ual and cor­po­rate buy­ers not only value the qual­ity of im­ported prod­ucts but their link to the wider world. “I was a worker be­fore I re­tired, so I wanted to see what to­day's in­dus­trial tech­nol­ogy looks like; the ad­vanced tech­nol­ogy shown at this Expo is very im­pres­sive; I wish I could have the chance of op­er­at­ing a ma­chine tool again!” said a lady in her 60s sur­named Li in the hall dis­play­ing high-end and in­tel­li­gent equip­ment. Per­son­ally she is most in­ter­ested in “green foods,” which are free from pol­lu­tion.

Although SMES rarely re­place new ma­chines un­til they find do­ing so is worth more money than hir­ing more work­ers, those fol­low­ing the new trend have much more chance of win­ning in fu­ture com­pe­ti­tion than those ig­nor­ing it, Raven Wu said. Zhang Meizhen, deputy pres­i­dent and sec­re­tary gen­eral of Zhuhai Cham­ber of Com­merce of Im­porters and Ex­porters told Newschina that most of the 400 or so mem­bers of her del­e­ga­tion to the CIIE were SMES that wanted to “learn” from the world's in­dus­trial de­vel­op­ment.

The learn­ing curve may also ap­ply to for­eign brands. It is not re­al­is­tic to ex­pect im­ports will flood into China right af­ter the Expo. Xing stressed that the de­mands of Chi­nese con­sumers are highly di­verse, and sup­pli­ers have to win their hearts with things that are worth money. Ms Wang, a se­nior in her 60s, told Newschina: “Chi­nese peo­ple are more used to woks than pans.”

Rita Ai, who is re­spon­si­ble for brand op­er­a­tions at Euroeat China, a Fin­nish startup pro­mot­ing Fin­nish food and con­sumer prod­ucts in China, found their licorice sweets at­tracted many stu­dents with their “bit­ter and

weird” taste – they used them to play tricks on their friends. She told Newschina that her team has to con­vince their Fin­nish brand own­ers to be pa­tient in ex­pand­ing into the China mar­ket.

Nav­i­ga­tor: Made for China, a re­port re­leased at the CIIE by in­ter­na­tional bank­ing gi­ant HSBC, high­lights that “un­der­stand­ing lo­cal busi­ness cul­ture and adapt­ing to lo­cal tastes is the top chal­lenge faced by for­eign com­pa­nies.” At a fo­rum at the CIIE, Tony Domingo, se­nior vice pres­i­dent of Nestlé Greater China Re­gion, de­scribed Chi­nese con­sumers as “global con­sumers” who are shop­ping for brands from around the world.

The Chi­nese mar­ket is in­creas­ingly com­pet­i­tive. Zhao Genglai, gen­eral man­ager of Zhuhai Shunxin Elec­tric Equip­ment (Bus Duct) Co. Ltd said do­mes­tic equip­ment mak­ers were also im­prov­ing their prod­ucts and ser­vices, so for­eign sup­pli­ers have to of­fer some­thing re­ally good and unique to suc­ceed in China.

Many con­sumers, even in a me­trop­o­lis like Shang­hai, can­not af­ford ex­pen­sive brands. While the booth of a Ger­man cook­ware brand was crowded, sev­eral lo­cal visi­tors said they would not buy a pan worth more than half their monthly pen­sion.

While con­sumers need higher in­comes to af­ford bet­ter goods and ser­vices, ei­ther home made or im­ported, SMES need more in­cen­tives and re­sources to in­vest in mov­ing up the value chain. SMES and an­a­lysts have called for a sta­ble reg­u­la­tory frame­work, in­clud­ing stan­dards of en­vi­ron­men­tal pro­tec­tion and la­bor con­di­tions. There is wide con­cern that sud­den sweep­ing crack­downs on sub­stan­dard en­vi­ron­men­tal pro­tec­tion and la­bor con­di­tions with­out a grace pe­riod would ei­ther cause mas­sive shut­downs or leave SMES strug­gling for sur­vival, with lit­tle con­sid­er­a­tion for long-term strat­egy. Bet­ter pro­tec­tion of in­tel­lec­tual prop­erty rights is also ur­gent to en­cour­age in­no­va­tion, an­a­lysts and mar­ket in­sid­ers say.

Chi­nese con­sumers and pri­vate firms will con­tinue to un­der­write China's growth. Their po­ten­tial is yet to be fur­ther un­leashed.

A vis­i­tor shakes hands with a robot hand dis­played by Ger­man tech­nol­ogy com­pany Schunk Group at the China In­ter­na­tional Im­port Expo

Peo­ple ex­am­ine a “fly­ing car” from Slo­vakia dis­played at the China In­ter­na­tional Im­port Expo in Shang­hai on Novem­ber 8, 2018

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.