By Graeme Davies
The Chinese economic phenomenon of the past two decades has been primarily driven by an aggressive policy of export-led growth and government investment in the economy. But that will only get a country so far, and China has travelled a very long way over the past 20 years. But one of the major challenges facing the new Chinese leadership is to redress the imbalance between export growth and domestic consumption.
Indeed, the Chinese have gained a reputation as prodigious savers and consequently the domestic economy has failed to keep pace with its export growth.
The most recent statistics show that between 1990 and 2010, Chinese GDP grew at 10.5 per cent a year while consumption lagged at 8.6 per cent a year, which is behind its close neighbours among Asia’s tiger economies.
But a commitment by the new leadership of China to boost domestic consumption, and thus create a more sustainable economy, is likely to see this rate of growth accelerate and the government needs China’s domestic economy to be more vibrant if the company is to better survive any future global economic shocks. And for companies who sell into the Chinese economy, rather than those who have set up there simply to take advantage of low cost labour for manufacturing export goods, this can only be a good thing.
Recent signs suggest that the transition may be gathering pace. For the past five months the Chinese manufacturing sector has been expanding, with the gain attributed to domestic companies restocking rather than a noticeable expansion in exports. If this trend continues it will confirm that a major opportunity is opening up for foreign companies to gain a foothold in the Chinese domestic market. To date, this has not been an easy task and it remains difficult.
Typically, companies need to find a local partner with whom to work due to restrictions on foreign companies operating directly in China and the track record of such partnerships is mixed to say the least. But, as China’s domestic economy matures, opportunities will open up for different types of companies than the manufacturers who have traditionally thrived there.
Indeed a recent delegation representing Welsh healthcare companies such as Bluebay Medical Systems, Dentron and Medical Connections amongst others visited China to drum up trade and the Welsh Government is currently gathering interested parties for another trade mission to Chongqing in March, later this year.
As China continues to modernise its economy there will also be opportunities for companies who provide services such as surveying and consultancy and other service businesses – even creative businesses are now opening up their eyes to the opportunities on the ground in China.
On top of the opportunities for companies looking to establish themselves in the Chinese domestic economy, its development could also open up further export business for Welsh companies.
Welsh exports to China, Hong Kong and Taiwan totalled £500m in 2010, but this could be boosted significantly if the Chinese domestic economy continues to develop and suck in more exports. Indeed, the Chinese government is keen for this to happen to help balance out its huge trade surplus, which suggests we are only in the early stages in terms of the opportunities China is likely to provide for our companies in the years to come.