Yes, it is true that economic activity in China weakened in 2018 and official statistics placed real GDP growth at 6.6 percent in 2018. But, and it is a big but, China still has one of the most enviable growth rates in the world and the NZ business opportunity in China is real. Consumers in China are continuing their love affair with ‘trading up’ to expensive premium goods and some companies are registering record sales. There is evidence that they are also ‘trading down’ with increased spending on ‘discounted goods’. The potential to expand the market in China is overall, still very much a reality.
Looking at the facts what can we expect in 2019 and what opportunities could your company be taking advantage of as a result?
Size and Opportunity
- China has a population of around 1.42 billion, which is expected to continue to grow until at least 2030 and equates to 18% of the world’s population.
- The median age is 37.3 years and 60.4% of the population lives in urban areas.
- Consumption rates of consumers are expected to grow by $6 trillion before 2030
Consumer and Talent Markets
- E-commerce and shared services markets are experiencing a boom in consumer spending. Online sales grew by 28% in 2018 with ‘discounter’ companies reaping rewards from consumers ‘down trading’.
- A credit squeeze on internal Chinese investment, an increased openness to foreign investment and liberalising of trade deals may open up opportunities for overseas companies to acquire domestic companies caught out by the credit crunch.
- Companies that can adapt quickly in a slowing market are thriving.
Relevance for NZ
- The New Zealand Government recently met with Trade officials in China. The focus was on confirming a “shared commitment to the Comprehensive Strategic Partnership between our two countries”.
- Several arrangements were signed that will help New Zealand business in China. These included:
- Memorandum of Arrangement relating to science and research cooperation.
- Memorandum of Arrangement on a bilateral financial dialogue.
- Strategic plan on promoting agricultural cooperation.
- Agreement between the two Governments to eliminate double taxation with respect to taxes on income and the prevention of tax evasion and avoidance.
Opportunity – NZ Business in China
There is still a strong opportunity for NZ business in China. We have had a free trade deal with China for ten years now and exports to China have continued to grow every year. According to New Zealand Trade and Enterprise (NZTE), main sectors that are benefiting from the current economic climate in China include:
- Dairy: $4b worth of dairy products sold in China in 2018 (milk powder, butter and cheese mainly).
- Forestry:$2.9b worth of logs and wood exported in 2018.
- Meat:$1.9b worth of meat in 2018.
- Tourism: Chinese Tourists spent $1.6b here last year.
- Wine:Wine exports totaled nearly $37.4m in the year ended June 2018,
Mid-size companies contributed to these figures in nearly all sectors.
NZTE also report the rise of E-commerce in China and offer the following tips for businesses thinking of moving into the Chinese market:
- Tell and promote your story – consumers are looking for trust and authenticity. Be who you say you are, they want to know everything, including your supply chain.
- Know your product and provide evidence to back it up online – 61% of Chinese shoppers do their research on a product online before buying it.
- Keep it local. If you are selling a NZ product than make sure the product is traceable and the packaging looks the part. Keep your brand story focused and authentic.
Political Risk and Volatility
There are risks involved with venturing into any overseas market and China is no exception. The relationship between China and America continues to be unsettled, but analysts report that China is not as dependent on trade as it once was, so effects on the overall economy may be minor. Regulators are also taking steps to improve the flow of credit and “boost bank liquidity”.
Exporters will need to tread cautiously over the next few months until it becomes clear if the plans put in place by the Chinese government and regulators are working. But for the resilient business, there is no need to turn your back on the dragon yet.