China - Market Information
China is a very important market that all businesses should be looking closely at. In 2006, Britain exported £3.3 billion of products and services to China, making it our 15th largest export market. Recently, our exports to China have been growing at an annual rate of around 15%, compared with growth of 5% for UK exports to the rest of the world.
China’s consistently impressive annual growth is now being driven from a more diverse economy, including by the spending power of its new group of 250m middle-class consumers. Big though this number already is, it is expected to dramatically increase in the future, making China a substantial market not only for high end consumer goods, but also for all of the creative design, packaging, advertising services that will be needed to sell them.
Despite having an average per-capita income of only £900 per year, China is in fact the world’s third largest market for luxury goods, behind Japan and US. Even the darker side of China’s growth, the widespread environmental degradation, is bringing opportunities. 70% of China’s lakes and waterways cannot be used for drinking water, for example, and China lacks the technologies to deal with many such air and water pollution problems.
China is sucking in many commodities, including 33% of the world’s iron ore and 25% of the world’s steel. Industrial products provide one of the biggest opportunities for exports. China needs a very wide range of new technologies and if you have a high quality industrial product, you stand a reasonable chance of finding opportunities in China. To illustrate this, consider the fact that the US has a $240bn trade deficit with China, but has a trade surplus in 8 out of 10 high-technology product categories. The US deficit is made up of consumer products such as electronic games, DVD players and laptop PCs. In may other segments there is relatively balanced trade with China.
Click here for a graphic with the OECD predictions for growth for 2010.
The UK’s main exports to China are in precision instruments (medical and optical) electronic and mechanical equipment, and ICT. Design, construction, legal and accounting services are also all doing well. As domestic competition intensifies, Chinese companies are looking for new ways to give them an edge. The need for better internal processes, more sophisticated customers and the need to be able to sell abroad is also increasing the demand for a range of business, design and marketing expertise.
There is an additional reason why UK businesses that proactively get into China will benefit in the longer term. UK businesses should begin to prepare for the next wave of competition coming out of China as much as on shorter-term export opportunities. The ambition of Chinese companies to take on the world is truly astonishing and like many other economies, the UK needs to get ready for it. In a May 2008 survey published by McKinsey, 77% of Chinese companies said they expect their foreign revenues to increase significantly over the next three years and 60% of Chinese business leaders are aiming to be ‘global competitors’. In other words, most Chinese companies, of whatever size, are not merely seeking some more exports as domestic competition hots up, they want to achieve global impact!
The British manufacturing sector is already feeling this effect of course, but may be hoping that China’s low-cost production advantage will be eroded as wages and fuel costs rise. But with masses of low cost labour left in the west of China, this may not happen very soon. The emergence of these new ambitious Chinese companies can be turned into an opportunity. Many Chinese companies lack the resources to make the leap to becoming a global competitor: they lack technology and the skills to innovate quickly; leadership and managerial skills; and they particularly lack the ability to build brands and sell effectively abroad.
Time spent selling into or manufacturing in China can not only help increase exports or reduce costs but can help a British company better understand and take on the competition emerging from China. There may even be opportunities to identify and develop profitable relationships with the many Chinese companies that have global ambitions and capabilities.
