Internal consumption: broadening the market
One of the most important goals of the XII° five year plan is to decrease China’s dependence on export, to develop and apply strategic reforms that will boost internal consumption. Considering this aim, one of the goals of the XIII° five year plan (to reach the ambitious amount of 12.000 USD income per capita) will certainly lie in the incentive of EU companies in organizing themselves to seize China’s opportunities.
Considering that the Chinese government heavily relies on protective regulations to increase the development of Chinese society, technologies and brands “made in China” in order to become more competitive at an international level, EU companies may find it hard to enter the market.
Anyway, European companies shall not forget that the percentage at the level of 3,76% (out of 7,4% of the GDP in 2014) corresponded to domestic consumption, which means that the opportunities in China for EU companies may be interesting, especially in specific sectors.
Bilateral cooperation sector: general info
China and Europe have opened up a dialogue on free trade bilateral agreement, in the framework of Eu-China 2020 Strategic Agenda (Nov. 2013). Considering that the bilateral trade among the two parties exceeds 1 billion Euro per day, this can represent a step forward to a even stronger cooperation.
Yet, what can be considered a good sector (or sectors) to concentrate your efforts? Generally speaking, the most relevant sector for EU companies, a sector considered important for business relationships within EU-China can be identified as follows:
- Food and beverage (some categories of the market): due to the increase of domestic consumption, this sector may be interesting, especially in second tier cities. It is not to be forgotten that due to the tightening of control measures and a more sober and moderate approach to public officers and governmental activities (such as convivial events, banquets) by the Government, there was a negative growth on wine and alcoholic goods.
- Pharmaceutical sector: due to a greater awareness of healthcare, a general improvement of life condition and a rise in life expectancy is projected, and an increase in the import of certain specific categories such as high tech and high quality medical devices (diagnostic/ mini surgery devices), cardiovascular/cancer/infective disease drugs is expected.
- Luxury: in spite of restriction policies approved by the Chinese government on a more austere attitude of the politicians, this sector may become more interesting especially in the second and third tier cities that are creating new marketsdue to the urbanization development.
- Green energy and environment protection: this sector is still growing in importance in China because of a greater awareness of sustainable development as well as sustainable urbanization, and being also one of the most sensitive issues for Chinese governmental policies. It was stated that by 2020, 18% of total domestic demand shall be covered by sustainable energies. Pay attention to the photovoltaic sector that is experiencing a decrease in growth.
- Machinery and Automotive sector: these sectors represent a greater portion of EU’s Export to China, taking about 44 % of it all. Machinery is slightly decreasing in export, while the automotive sector will probably have an increase of 6 – 10% in the next 5 years.
- Innovative technologies and products. China is manufacturing the majority of modern smartphones and other telecommunication equipment, although a lot as OEMs. China is experimenting in the field of manufacturing fibre optics based on the know-how and patents of the leading technology developers.
Protection policies and trade disputes
In China, the level of protectionism is proportional to the strategic sensitivity of the sectors. The most controlled sectors are mainly within steel, automotive, chemical, telecommunication systems, rails, and energy industries. But why? The reasons are obvious. The Chinese government intends to foster Chinese industries in China on the one hand, and on the other is wishing to protect Chinese companies abroad. Moreover, many Chinese companies believe that they have acquired enough skills to achieve their goals without having foreign partners. Last but not least, some sectors more directly connected to the military domain are considered to be extremely sensitive because of the Chinese national security policy.
Trade disputes can be relevant issues especially in some sectors and can present obstacles in bilateral trade and investment relationships as shown:
CeSIF - Fondazione Italia Cina, “La Cina nel 2015: Scenari e Prospettive per le Imprese”.
EUCCC, “Position Paper”, European Chamber Publication
EUCCC, “Business confidence survey”, European Chamber Publication