These days, the Chinese economy is one which often confuses business owners.
Who hasn’t seen one of those reports describing "new normal" low GDP levels, massive economic bubbles or China’s stock market crashes?
Despite all this, the Chinese market is one that is filled with opportunities for overseas businesses. China, as well as being the second largest economy in the world, is also the fastest growing major economy.
Such growth means this market will probably see steady increases in the consumption of goods and services in the years to come. The sheer size of the economy itself, combined with yearly GDP growth of 6-7%, means that China is one of the most promising markets in the world today, even with recent uncertainties facing the market.
Here are a few thoughts: Is it the right time to enter Chinese market?
The Chinese stock market’s valuations are meaningless…
We shouldn’t read too much into China’s stock market valuations and into its rises and falls, and we definitely shouldn’t consider them as a barometer of China’s economic growth.
The world takes cues from Chinese market fluctuations, as if it means anything, when in reality it means very little. Remember, the marginal investors (these are the investors that can affect stock prices) in China are uninformed, speculative, individual investors.
Chief Financial Strategist for EQIS Capital, Kenneth Kim, http://www.forbes.com/sites/kennethkim/#20873cbf316a
The Chinese economy is still growing…
In 2015, the National Bureau of Statistics recorded that the total retail sales of consumer goods in the region rose by 10.6%, with sales in urban areas growing by 10.5% and in rural ones by 11.8%. Online retail sales also surged, with a 33.3% increase compared to 2014 while retail sales also increased by 31.6%.
But shoppers are not the only ones contributing to the growth of the economy. Tourism is still a growing industry, with the World Travel & Tourism Council (WTTC) reporting that travel and tourism contributed an impressive CNY 1,620.3bn in 2014 (2.6% of total GDP) with that number expected to rise to CNY 3,100.0bn (2.8% of total GDP) by 2025.
These increases show the potential of the strong Chinese market - for instance, in the retail, hospitality, tourism, real estate, and education industries.
These increases are very much driven by the increase of disposable income in the region, particularly in the middle class as more households join the middle class sector. The National Bureau of Statistics in China reported that Disposable Personal Income in the region increased to CNY 28,844 in 2014 - an increase of CNY 1,889 from 2013.
According to the McKinsey report “The Chinese Middle Class in the Next 10 Years” (March, 2014), upper middle class households with an annual disposable income between RMB 106K-229K are becoming the main segment of middle class consumers in the region. Those upper middle class consumers have been spending more time and money on lifestyle leisure activities and travel as well as products and services. In addition to this, these consumers are also becoming more and more interested in overseas brands and online shopping. As consumption rises in this sector, so do commercial opportunities.
The Impact Differs from Industry to Industry and Company to Company
The impact of this growth on the economy varies depending on the industry you are in and the company you work for. Many industries will not see a significant change in sales growth during times of economic slow-down; in fact, as consumer spending habits change, these industries are likely to see increased opportunities.
For example, the education industry in China is becoming more and more important each year. Regardless of the economic situation, this segment is set to grow at a rapid rate. This situation was also seen after the fall of the US economy in recent years. Although the economy had fallen, more and more individuals sought higher education in order to be more competitive on the job market in the future.
The health and baby industries are two other industries that are examples of continual growth within the market despite the economic situation. Significantly increased concerns among Chinese people about counterfeits, food poisoning (e.g. recycled food oil and milk power) and air pollution have increased the demand for authentic and higher quality goods in the region. Chinese consumers have also been driven to seek out safer alternatives as the media continue to expose the sale of counterfeit goods through top-tier import buying sites, and consumers are still not ready to trust domestic brand milk products - especially pregnant mothers and those with infants.
The recent abandonment of the one child policy in China also presents tremendous opportunities for companies providing products for mothers and babies, with the Population Reference Bureau predicting a population rise of 23.4 million more than if the one child policy had not been abolished.
Investment habits are changing…
Whilst the stock market in the region is not good at present, the fall is increasing opportunities for businesses in other areas. Individuals in the market are now seeking alternative investments, such as overseas real estate, to ensure a satisfying return. This again brings business opportunities to companies in related industries.