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Market Trends: The Chinese Economy on the Move

Preparing for China’s emerging middle class
Chen Ming-Jer, Professor of the University of Virginia’s Darden Graduate School, highlighted that "the middle class is the twin brother of China’s private sector, it will be the market of the future.” According to even the most conservative analyses, the Chinese middle class will encompass at least 200 million individuals by 2020, with a per capita GDP that is equivalent to that of Europe and the US. This was one of the key statements made at the interactive session "Opportunities in China´s Private Sector - From SOE (State Owned Enterprises) to Privatisation”.

According to Professor Chen, foreign entrepreneurs should prepare themselves for the rise of the Chinese middle class and for a Chinese market that focuses mainly on products and services. And, last but not least, they should position their companies in the "Global Triad”: the EU, the US and China. Chen: "In doing so, foreign enterprises should ask themselves two questions. First, what is my motivation for going to China? Second, have I done all my homework?” He went on to stress that for companies that are well prepared, it is never too late to enter the Chinese market. The panel’s message was clear: the Chinese Communist Party regards developing the country’s private sector as one of its primary tasks.





Opportunities in the Chinese consumer market
China is the world´s 6th largest consumer market. For this reason, a whole panel focussed on the enormous "Opportunities in China’s fast growing Consumer Sector”. "However, the big regional differences within the country make it impossible to speak about the ’Chinese average’ or the ’typical middle-class Chinese consumer”, stressed Patrick T. Siewert, Group President East and South Asia at the Coca Cola Export Corporation. "At present, there is strong demand for food, household services and cosmetics, with the consumers becoming increasingly brand conscious”, added Hans-Otto Schrader, member of the OTTO Group’s Board of Management.


Access to new markets
Chinese and German companies have very different reasons for investing in each other’s countries. This was the conclusion of the panel "China expands abroad: Mergers & Acquisitions in Europe”. Whereas European firms mainly invest in China in order to benefit from lower labour costs, the key motives for Chinese investors appear to be access to new markets, state-of-the-art-technology and qualified personnel, explained Max von Zedtwitz, Professor for Technology and Innovation Management at Tsinghua University and the University of St. Gallen. According to Ludwig Schmucker, Managing Director at Berenberg Consult, another popular target for Chinese acquisitions in Europe is well-known brands that are currently having financial problems (e.g. Rover - SAIC and TCL - Schneider). As Stefan Matz, Director International Business at the Hamburg Business Development Corporation, explained, "establishing overseas branches is relatively easy for Chinese companies, whereas acquisitions of formerly German-owned enterprises often still generate more problems than benefits.” Jiang Zhou, Managing Director of Huapeng Trading, who successfully invested in an industrial company in eastern Germany, pointed out that bureaucracy and environmental regulations are the greatest obstacles for Chinese firms wanting to invest in German enterprises. On the other hand, Jiang reported, German Chambers of Commerce and Business Development Corporations give excellent support to foreign industrial investors.


China on track to becoming fully motorised
"By 2020, there will be about 130 million cars in China” estimated Bernd Leissner, President of the Volkswagen Group China and member of the panel "Developing China´s Automotive Industry”. For many years, China’s private-sector automotive market was insignificant, whereas today it accounts for 70 percent of all car sales in China. The People’s Republic is therefore clearly well on its way to becoming an automotive society, which in turn has major repercussions on other sectors of the Chinese economy as well as on the country’s daily life.

As Leissner pointed out: "Just importing oil is not the solution. China has to think about new forms of energy, and traffic control will also be a key issue.” John F. Perkowski, Chairman & CEO of ASIMCO Technologies added: "In two to four years, the Chinese automotive industry will have a sufficiently large pool of wellqualified workers.” The technology gap between China and Europe will have closed because many young Chinese are planning to pursue careers in engineering. Perkowski predicted that in the long run, China may even become a technology leader in this industry." While Chinese consumers are very cost conscious at present, they also tend to want to have ‘the latest and greatest’.”


Lack of legal framework in media sector
The fast-growing Chinese market for newspapers, magazines and television is opening up for foreign investors. "There are attractive investment opportunities in this sector”, according to Heike Holbig, Senior Research Fellow at Hamburg’s Institute of Asian Affairs, "however, the industry is still under government control.” Bruno Wu, Group CEO of Sun Media Holdings, highlighted that "there are particularly good investment opportunities for foreign firms in the non-political news segments, such as sports and culture.” The panel "China’s Emerging Media Markets”, came to the conclusion that the main risks are posed by the lack of a sound legal and regulatory framework as well as a lack of transparency concerning intellectual property rights.


Facing future challenges
The interactive panel, "China in Europe/Europe in China” also delivered a clear message: the Sino-European relationship shows distinct differences to that which exists between China and the US. China and Europe face common future challenges, explained Andreas Kreimeyer, member of BASF’s Board of Executive Directors. Companies with many years’ international experience and a sound background of doing business with China – especially European-owned companies — will have an advantage over their competitors in terms of gaining access to Chinese consumers.

For Klaus Ebermann, head of the EU-Delegation to China, the situation is clear: "Europe is China’s number one trading partner and the two regions have a lot in common. Both value the concept of multilateralism and the philosophy of a multipolar world.” As Capt. Wei Jiafu, President and CEO of COSCO, summed up: "The immediate consequence to draw from this panel is to go to China at once.”