Actually, Now Has Never Been a Better Time to Invest in or Sell to China
International media is over-analyzing ‘Xi Jinping’s Crackdown’ while the China consumer market is booming. We introduce ‘Expat Connect’ to help join the dots.
Op/Ed by Chris Devonshire-Ellis
Media attention on China is always intense but can reach such deafening proportions that it drowns out those in the know, that is, the real China hands who are on the ground. When China is over-analyzed, often with a political point to make, it can interfere with the true picture of what is really going on – and for businesses – the correct investment decision to make. Getting this wrong can impact employment, profits, and shareholder interests. Let’s look at some of the ‘bad China’ media takes and then compare that with ‘good China’ or what the data shows objective market watchers.
China’s tech crackdown
Yes, China has issued regulatory notices to curb some of the activities in Chinese-developed technology. However, while the knee-jerk reaction (from the West, who ought to have been pleased) has been one of shock horror, China is merely getting its sights aligned in the development of new technologies that will change the way we all live. Consequently, with new competition rules now in place, only the strong will survive. There is also the aspect of certain companies rising too fast, gaining too much power too quickly. These have had their wings clipped and have subsequently suffered stock market value losses as a result. In the United States, where stocks must always rise, the idea of the Chinese government being able to make decisions that impact negatively this quarter’s balance sheets and investments is viewed with horror.
Yet no one has raised the United States’ own failings in this. ‘Too big to fail’ in the banking services sector, active consideration of the breaking up of Facebook, and historically, the decision made to break up the Bell Telecommunications Company – for the same reasons as China is doing now. The United States tends to act after a major structural failure occurs in a particular industry – China prefers to adjust as it goes along. Companies, such as Tencent, will get over this ‘hiccup’ and are more, not less, likely to be better streamlined, focused, and competitive than before.
Xi to ‘adjust the income of the very wealthy’
This is completely against the capitalist grain, where to get rich is the American dream. Step forward then, Jeff Bezos, a man so wealthy he can spend hundreds of millions on blasting himself into space, just for the kick of it. The United States already has NASA, while space tourism is an industry only for the super-wealthy. One cannot imagine such a move happening in China, where public opinion against the wastage of resources would be immense. China already has put men in space, is building a space station, and has plans to put a man on the moon without the need for a crazy capitalist to waste huge amounts of money to blast himself 78 miles high for a few minutes. The battle here is rampant capitalism vs. socialist pragmatism and exposes America’s tolerance of an utter waste of resources.
The Chinese crackdown on education
This was termed as a backward step in much of the media commentary, not least because certain private education companies were negatively affected. Again, it’s that capitalists focus on short-term profit showing its head. What was happening was that the private education system in China was largely unregulated and had become greedy. Tutoring fees were way out of line with Chinese familial income levels. China regulated the industry, and some businesses were negatively impacted. It’s not abnormal, and actually common-sense – regulations in this sector can be relaxed later when it learns to behave itself.
As for the introduction of ‘Xi Jinping Thought’ as an educational subject, hopefully, PE lessons will be directly afterward. But then the United States has an entire educational career built around ‘political science’. There is no real difference, although I do feel that dropping English from the curriculum was a mistake, although it is also a possibility that perhaps Spanish will be introduced to replace it. After Mandarin Chinese, Spanish is the world’s most spoken language. If China were to place Spanish on its national curriculum that would really wind up Washington.
Not having English as a mandatory subject in Chinese schools won’t have any major impact. The Chinese will have studied the percentage take-up of mandatory lessons among students and have filtered out those with just no capability so they don’t waste their educational time and can spend it on something more productive. For those students who do want to study English, it remains an optional subject and frees up time for those who wish to study other Asian languages, such as Japanese, Korean, Arabic, or Bahasa among many others. China’s Belt and Road with 147 countries as clients have changed the educational language demographics for the country.
To give an example of the stupidity of many Western media towards China and the ‘armchair advisory’ that is increasingly being promoted as an authoritative voice, I give you this observation from the British Guardian concerning China and Afghanistan security and trade: “The Taliban could open up the Wakhan Corridor”. This is complete nonsense, and it is obvious to the regionally knowledgeable that the author has never been there. The Wakhan Corridor is in fact a remote, high-altitude desert area, only open a few months of the year due to extreme weather conditions and impassable to anything bar pack animals. There are no roads or any services whatsoever for over 450 km.
At the Chinese end, it is completely sealed off with barbed wire fencing and Chinese security guards. It is this level of misrepresentation, that when it starts to emerge into critiques of Chinese policy and economics, can be so damaging and impinge upon the corporate world’s ability to spot opportunities.
The GDP growth rate is far better than in the west
China has been recovering well from the pandemic. The first six months of 2021 saw growth at 12.7 percent although an H2 decrease is expected to average out at an overall 2021 GDP growth rate of 8.5 percent. That is better than the pre-pandemic 2019 China GDP growth rate of 6.1 percent. Yet you wouldn’t believe it according to reports by the Wall Street Journal (“China’s economy is losing steam“), Reuters (“China’s economic growth to halve“), or Goldman Sachs (“Lower China growth forecast on Delta virus outbreak“), which failed to note that Chinese cases of Delta COVID are in the hundreds and have been falling (just five new cases yesterday), while the United States is heading towards 200,000 new daily cases (CNN, here.)
Why the difference in reporting? Because they only take quarterly figures as their benchmarks and fail to see the larger picture.
Incidentally, China’s 2021 GDP growth forecast at 8.5 percent is higher than that of the United States at seven percent (described as “sizzling” by S&P Global and “stellar” by the New York Times). The European Union is forecast to grow at 4.8 percent in 2021 (described as “higher growth” by Reuters and “a rebound with a bang” by Bloomberg.
Misleading? Yes. Fortunately, there are solutions I will discuss in my summary.
The Chinese consumer market is booming
In addition to possessing the world’s highest major economy GDP growth recovery, the Chinese consumer market is also growing – great news for global exporters. According to Statista, in June 2021, the accumulated value of imports to China amounted to around US$230 billion. This indicated a 36.7 percent increase in import value compared to the same period of the previous year.
As of pre-pandemic 2019, China was the world’s third-largest importer of merchandise products, representing 13.1 percent of global imports. Over the last decade, the value of imported items to China has also significantly increased – China’s consumers have become wealthier and are spending more per item.
In 2020, ASEAN and the European Union were China’s most important trade partners with import values of goods from ASEAN about US$325 billion and from the EU about €235 billion. Over 85 percent of China’s imports from the EU were manufactured goods, with the balance being machinery and transport equipment. The United States exported about US$200 billion of products to China in 2020, leaving well in third place. June’s figures showed the US exported US$12.1 billion to China, meaning the US market share of exports to China appears to be decreasing – a result of the tariff wars instigated by former US President Donald Trump, and currently continued by the Biden administration, which numerous US businesses are actively upset about. More than 3,500 US companies, including Coca-Cola, Disney, and Ford, as well as smaller American manufacturers, have filed lawsuits against the US administration over its tariffs on China, marking a record number of suits lodged at the US Court of International Trade, based in New York. Hearings are scheduled this year.
Whichever way you look at it, China is a hot market and businesses should be selling to it. Yet here are a couple of random media headlines:
Readers will be aware of many more, meaning I will refrain from posting them. The message, however, is clear: China as a consumer market is seriously hot, and foreign investors should be looking at the export opportunities.
Foreign investment into China is at record levels
Not surprisingly, it wasn’t discussed much in Western media, but China became the world’s largest recipient of foreign investment last year, making it in dollar value terms, a preferred FDI destination for growth opportunities than either the United States or Europe. That statistic was provided by the United Nations Conference on Trade and Development (UNCTAD) in January 2021, where it was noted that “China has surpassed the United States to become the world’s largest FDI recipient, with inflows rising by 4 percent to US$163 billion in 2020.” That report can be read here.
Our own article here explains the reasons this has happened, which include the increases in Chinese consumer spending as mentioned earlier, but also digs deeper into Chinese policy of actively seeking free trade and other trade agreements at a time when the United States and EU have been disengaging. Overall, corporate businesses are smart and have resources at hand to show where the opportunities are – most agree, in complete contrast to the position taken by Western media and politicians, that China is the place to be.
There are lessons here. Firstly, some Western media have evolved, possibly because of political bias, to become a coordinated mouthpiece for political views, and either deliberately, or through lack of knowledge, misrepresent the China opportunity. Most China watchers understand this; however, it does muddy the waters for new-to-China investors overseas without either the experience or resources to hand.
Happily, there are ways around this misinformation, in that China today has a greater population of experienced expatriates with their feet on the ground that can give proper advice than ever before. Many are happy to provide tips, encouragement, and intelligence to new-to-China businesses, and especially those from their own country of origin.
Most will provide some opinion and give some advice for free and can either later assist with services for a fee or introduce you to a contact that can help. I have had a 25-year professional career in China, I am well known and have a wide circle of friends and contacts in different industries. Readers interested in China but unsure where to go for advice can drop me an email: firstname.lastname@example.org and I’ll be happy to discuss, and if required, make professional introductions to fellow expats in China who are in the know. (I can also do the same for Asia overall, having also worked in Hong Kong, Singapore, and India, while our firm has 32 offices throughout China, ASEAN, and Southeast Asia).
China and Asia are great markets to be in. The fundamentals are all in place, and if as a business or an individual, you wish to explore the potential and opportunities – and make money – it is time to get connected. Drop me a line – there’s no catch – and let’s get some intelligence to the entrepreneurs out there with an eye on Asia.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at email@example.com.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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