‘Made in China’ is fast becoming ‘sold to China’ — and SA should take note
As China’s 1.4-billion potential consumers insist on quality in what they buy, global exporters are getting involved, and SA should be in on the deal
Much has been said in recent years about the opulence of China’s new elite, and their outsized impact on anything from Swiss luxury watches to designer handbags and super yachts. Less recognised is how consumption in China is becoming more sophisticated and inclusive, as wealth spreads from urban centres to rural heartlands, bolstered by better-educated new generations who are both web-savvy and worldly-wise.
As rising protectionism and trade tensions create growing unease for businesses around the world, there is no better time for South African companies to take a fresh look at these new consumers and their potential to drive demand for goods from half a world away.
HSBC’s annual Navigator report predicts the value of China’s goods imports to grow at about 8% a year on average between 2017 and 2030, reflecting both demand for intermediate goods for processing and final goods to satisfy China’s increasingly wealthy population.
This is as China is bidding farewell to growth based on exports and state-led investments, and increasingly encouraging its 1.4-billion people to consume. Slowly but surely, the old model of “Made in China” goods heading to markets around the world is shifting to one where China is itself becoming a destination for products made elsewhere.
China is already a top export destination for goods from SA, including ore, steel, iron and mineral fuels, as well as wood pulp, fruit, nuts and raw hides among the top exports. China is SA’s largest goods export market with a value of $7.4bn in 2017, or 9.5% of total exports.
Symptomatic of this rebalancing was the recent China International Import Expo (CIIE) in Shanghai. Previous China-based trade fairs were all about what Chinese companies could sell to the world. This event, by contrast, focused on foreign companies showcasing products from food and medicines, to consumer electronics and cars selling into China — 30 of these were from SA, which was designated as a “guest of honour” country.
Starbucks sees coffee drinkers in China helping the country overtake the US as its top market, while Tesla is targeting Chinese drivers, who are forecast to account for about half of the world’s electric-vehicle sales by 2025
Indeed, President Xi Jinping used this recent event to make a new pledge to boost China’s imports with a commitment to buy $40-trillion worth of goods services over the next 15 years.
China’s buying power has exploded in the 40 years since Beijing enacted economic reforms and opened up the country to foreign investors. In 2017, per capita disposable income for urban households was 36,396 yuan ($5,600) — more than a hundred times more than in 1978. Rural household incomes, too, have soared.
And these Chinese consumers have not just become richer; they are also increasingly health-conscious, care about the environment, and are more discerning about brands and the quality of what they buy, according to a McKinsey report.
Companies are taking note. Starbucks sees coffee drinkers in China helping the country overtake the US as its top market, while Tesla is targeting Chinese drivers, who are forecast to account for about half of the world’s electric-vehicle sales by 2025.
Then there is the e-commerce phenomenon, which has helped consumption become more broad-based. Operators, such as Alibaba and JD.com, are helping bring global goods from wealthy coastal regions to smaller cities and towns inland. Nowadays even mums and dads in hard-to-reach rural areas can buy branded milk powder and diapers for their babies, through the creative use of village-based goods depots and delivery by tricycles — or even flying drones.
To be sure, selling into a vast, complex and rapidly evolving market like China is not without challenges. As the economy matures, incomes aren’t rising as fast as they once did. And today’s trade tensions naturally affect business and consumer confidence.
What’s more, foreign companies need to be able to react to constantly shifting tastes and head rapid developments in e-commerce and digital payment tools. And they need to brace for intensifying competition from nimble and increasingly hi-tech local companies. Tesla, for example, faces a host of local electric-car players competing to become the “Tesla of China”, while in the coffee arena, Beijing-based Luckin is snapping at Starbucks’ heels, opening hundreds of outlets since its launch less than a year ago.
But none of this should obscure the enormous long-term potential that 1.4-billion shoppers represent for exporters from around the world. From the millennial brunching in a Shanghai café to the parent waiting for diapers in a Hunan village, China’s consumers are becoming ever more affluent and discerning. Now more than ever, they represent an essential market for businesses everywhere. This is why South African companies with international ambitions should visit China soon.
• Liao is president and CEO of HSBC China.