The Chinese economy is changing. Many economists are expecting that economic growth in China fueled by investments in industry, real estate and in infrastructure will decline even further in the coming years. The Chinese government also anticipates this development, and believes GDP growth will remain in between 6 to 7 percent for the years to come.
To encourage development of the Chinese economy and to become less dependent on the construction- and manufacturing industries, the Chinese government aims to stimulate more qualitative growth by redefining the focus of the economy on domestic consumption. Even Xi Jin Ping explains that ‘for the next five years, development should not be focused on its pace, but on its growth volume, and predominately quality’. The Chinese government have named this development the ‘New Normal’ and explained that on one hand the Chinese economy must accept lower growth, but on the other hand must learn how-to and strive to become more sustainable (via domestic consumption).
Though the Chinese economy is growing at a stronger pace than many European countries and even the rest of the world, the opinion outside-of-China about the economic developments within China remain largely negative. News about the ‘housing bubble’, fluctuations on stock exchange in China, rising debt of Chinese enterprises, and decline within manufacturing industries etc., do not paint a good picture of the Chinese economy. There seems to be a broad consensus that economic growth is expected to decline even further and the future of China accordingly does not look bright.
Impact on Benelux companies in China?
A lot has been said and written about the developments of the Chinese economy, however not much is known about the impact on Benelux (i.e. Belgium, the Netherlands, and Luxembourg) companies active within China and how they foresee these changes. What consequences will the ‘New Normal’ have on Benelux companies active within China, and what impact shall this have on the results and expectations of these companies? Do they expect these changes will have a negative impact on their business, or are Benelux companies even positive about the developments of the Chinese economy?
In collaboration with 1421 Consulting and the Benelux Chamber of Commerce, we (MS Advisory) have asked via the Sino Benelux Business Survey 2016 these questions to Benelux companies active within China and have investigated the impact of the changes of the Chinese economy. Starting from early March 2016, we have distributed a questionnaire to Benelux companies active all over China and received many insights from them on their performance, expectations and opinion about the Chinese economy.
Results of Sino Benelux Business Survey
Approximately 100 companies have participated in our survey, of which 73% are directly coming from the Benelux-countries. The other companies have strong ties with the Benelux. Most companies within our survey are based in East China (59% > Shanghai, Zhejiang Province), however also many companies based in the North (26% > Beijing, Tianjin) and the South of China (13% > Guangzhou, Shenzhen). Based on revenue within China, mostly SMEs have participated in our survey. Most companies are focused on the B2B market, have been active within China on average for 9.5 years and are mostly focused on industrial sectors with services and sales of goods.
Despite the changes of the Chinese economy, the Benelux companies are predominantly positive and performing well in China. Even though some companies experience a slowdown of their business or losses in their activities, most businesses are doing well and some are still performing very well, even beating the market with their growth rate. For instance, the results in our survey indicate that approximately 45% of the companies expect to grow faster than the Chinese economy, total of 79% indicates that their Operating Margin either would remain the same or improve in 2016 and more than half of the companies expect to increase their profitability in China.
Still some challenges remain. Rising salary costs has been one of the major negative drivers of their business in 2015 and remain one of the most prominent challenges in 2016. Managing Sales volumes is a continuing challenge. Increasing rules and regulations still affect the business and participants are interested to learn more about it. More than half of the participants feel the effects of the changing economic environment. The influence on short term is not positive and particularly affects the industrial sector. Consumer-related companies are less affected but are not always selling to the Chinese customers.
We can conclude that the Benelux companies active in China have a good understanding of the changes of the Chinese economy, and they still see many opportunities and are able to perform well in this changing environment. It will become more important for these companies to adjust to the changing environment; focus on positioning in the market and towards clients will become essential to remain successful in this market.
Please click on the following link to read the full report on the Sino Benelux Business Survey.