Nation attracts companies with huge opportunities and opening-up measures
Yann Bozec, a French citizen and president for the Asia-Pacific region at Tapestry Group, a luxury goods company based in the United States, has two new year wishes.
He wants to add 100 stores across China by 2025 and deploy more resources to spur sales through digital channels and duty-free business at Hainan Free Trade Port in Hainan province.
Bozec, who has lived in Shanghai for 15 years and manages sales for more than 360 stores owned by the group's brands such as Coach and Kate Spade, said that as most Chinese customers are digitally connected, his company needs to adapt to changing trends in the country.
"In addition to pushing business digitally, we plan to continue expanding our distribution, particularly in third- and fourth-tier cities, while looking for more opportunities in major city markets," said Bozec, who is also president and CEO of luxury design business Coach China.
A long-term thriving market for numerous multinationals' global strategies, China has evolved from a large consumption market and low-cost manufacturing country to an important regional export base, an innovation center and a key part of the global supply chain.
This transformation has been fueled by decades of growth, trade globalization and Chinese consumers' growing purchasing power.
Wei Jianguo, vice-chairman of the China Center for International Economic Exchanges in Beijing, said that despite facing external uncertainties and disruption due to the COVID-19 pandemic, China will remain attractive to multinationals this year, as its massive market and opening-up measures will boost business confidence despite globally subdued investment sentiment.
"One of the key tasks for multinationals is to be clear about the positioning of the Chinese market in their global business map. For many of them, such as France's L'Oreal Group and Germany's BMW Group, China has become their second home market or even their largest global market," Wei said.
Sang Baichuan, dean of the Institute of International Economy at the University of International Business and Economics in Beijing, said many global companies have discovered that Chinese consumers and the business environment are constantly changing due to factors such as an industrial upgrading boom, changed business modes, and demand for personalized products.
As a result, these companies have adopted localized business strategies and appointed more Chinese executives as heads of their branches in China, Sang said.
In tandem with recognized brand awareness, sales channels and economy of scale, multinationals had a first-mover advantage after they entered China several decades ago. Although facing fierce competition from domestic rivals, they will remain competitive in this huge market as long as they adjust quickly, Sang added.
Zhang Xiaoyu, president for China at Arkema, a French manufacturer of specialty materials, said, "With China further optimizing its COVID-19 control policies and vowing to make greater efforts to maintain steady foreign investment growth, we remain confident and ready to contribute to the development of local industry."
Early last month, Bostik, a subsidiary of Arkema, announced a plan to increase its investment by 400 million yuan ($58 million) in new businesses and to develop new products in Shanghai.
Opening wider
Given the resilience and potential of the Chinese economy, last month's tone-setting Central Economic Work Conference vowed to make greater efforts to attract and use foreign capital, widen market access, promote further opening-up of modern service industries, and grant foreign-funded enterprises national treatment.
The meeting pledged that China would actively seek to join high-standard economic and trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Digital Economy Partnership Agreement.
Zhao Ping, deputy head of the Academy of the China Council for the Promotion of International Trade, said, "To reach these goals, China will further adhere to standard economic and trade rules, create a more market-oriented and law-based business environment, and open even wider to global companies this year."
Actual use of foreign direct investment in China grew by 9.9 percent year-on-year to 1.16 trillion yuan from January to November last year, Ministry of Commerce statistics show.
This growth was bolstered by new opening-up policy measures, fast-growing sectors such as healthcare, high-end manufacturing and modern services, multilateral trade initiatives and high-standard business platforms, including the Regional Comprehensive Economic Partnership and the annual China International Import Expo.
Meanwhile, investment in China from the Republic of Korea and Germany rose by 122.1 percent and 52.6 percent year-on-year respectively, while such investment from the United Kingdom grew by 33.1 percent.
Jens Hildebrandt, executive director of the German Chamber of Commerce in north China, said the Chinese market is of paramount importance to many German companies.
"German businesses will keep investing in China. They expect growth in many industries, especially in the fields of decarbonization, e-mobility and connected driving," he said.
In Beijing, Wang Wen, executive dean of the Chongyang Institute for Financial Studies at Renmin University of China, said global businesses operating in China, particularly manufacturers, will continue to set up digitally enabled plants, establish innovation centers and seek more market share in their respective industries, including automotives, consumer goods, green development and high-end manufacturing.
Bosch, a German multinational engineering and technology group, is heading in that direction. In the second quarter of this year, the company will complete phase two of its united automotive electronic systems plant in Taicang, Jiangsu province.
Chen Yudong, Bosch's president for China, said: "China is playing an ever-greater role in the world. For example, the automotive industry is leading the transformation toward electrified and connected mobility."
US conglomerate 3M Co, which operates in the fields of industry, healthcare and consumer goods, is eager to compete with its established global rivals in China. In the first quarter of this year, the company will set up a $2.5 million thermal runaway barrier, or TRB, production line at its Hefei plant in Anhui province to supply more products for new energy vehicle producers in China.
The US company said TRB material is used in batteries for electric vehicles, or EVs, and effectively enhances battery thermal management performance and reduces the risk of batteries overheating.
Tony Shen, global segment leader for ePowertrain at 3M Automotive and Aerospace Solutions, a 3M subsidiary, said mass production in China will enable 3M to respond more quickly to growing demand in the local EV market.
Empowered by China's industrial and supply chains, foreign manufacturers using either high-tech or low-tech are keen to expand their market presence in the country, in view of the long-term prospects. They see strong demand emerging in China and the Asia-Pacific region.
Gao Lingyun, a researcher at the Chinese Academy of Social Sciences' Institute of World Economics and Politics in Beijing, said such companies include Siemens from Germany and Panasonic Holdings Corp from Japan, as well as low-tech businesses from the home appliances, garments and toy production sectors.
Although production costs are rising for foreign companies in China, Gao said the nation has established an efficient and well-established manufacturing ecosystem to ensure high productivity. This system includes a well-developed logistics infrastructure such as ports and roads as well as an educated and well-trained labor force.
Export value rises
In addition to operating local businesses, foreign-funded companies in China saw their export value grow by 2.4 percent year-on-year to 6.87 trillion yuan from January to November last year, according to the General Administration of Customs.
After its sales revenue in China rose by 20 percent on an annual basis in 2021, Wilo Group, a German provider of pumps and pumping systems, plans to open a new plant in Changzhou, Jiangsu province, in the first half of this year. The company's products will be sold in the Chinese and Asia-Pacific markets.
Lyman Tu, Wilo's vice-president for China and Southeast Asia, said China will likely become the group's largest market this year.
According to a business report released last year by the Chinese Academy of International Trade and Economic Cooperation, a Ministry of Commerce think tank, China is able to reduce some of the manufacturing costs for domestic and global manufacturers, ranging from innovation and logistics to market development and obtaining raw materials.
On Dec 21, Danish shipping and logistics services provider A.P. Moller-Maersk said it would invest $174 million to build its first green and smart flagship logistics center in Shanghai. The facility is expected to be operational next year.
Last week, German express service provider DHL Express put its latest China gateway into operation in Wuxi, Jiangsu province.
Tian Haitian, general manager of the Jiangsu cluster for DHL Express, said the new gateway, located in the cargo terminal at Sunan Shuofang International Airport, will be a crucial part of the company's regional network in the Yangtze River Delta region and will facilitate global trade in China.
In addition to multinationals from developed countries, companies from developing and resource-rich nations are treating China as a priority market for their global expansion programs by adding investment and partnering with domestic companies to develop markets in two-way or multiple directions.
These companies include Indonesian ride-hailing and e-commerce enterprise PT GoTo Gojek Tokopedia, agricultural and retail business Charoen Pokphand Group Co, which is based in Thailand, and Ajlan &Bros Holding Group, or ABHG, a conglomerate based in Saudi Arabia.
Mohammed bin Abdulaziz Alajlan, deputy chairman of ABHG, said the company is looking forward to strengthening cooperation with Chinese partners this year in 5G, artificial intelligence, big data, biotechnology, financial technology and automation.
Lin Meng, director of the Modern Supply Chain Research Institute, which is part of the Chinese Academy of International Trade and Economic Cooperation, said that compared with other global markets, China boasts leading industries such as artificial intelligence, e-commerce and digital payment.
Such industries help foreign companies expand in China's advanced industrial cluster and increasingly efficient innovation hub. To enhance their earning strength, the companies have developed their business modes and engagement in China, Lin said.
Moreover, she said that with Chinese consumers' growing disposable income and willingness to spend, there is strong demand for international brands. For example, China is a lucrative and key market for luxury companies.
In addition to markets for high-end consumer and industrial goods, the mid-market has become highly competitive in China, with multinationals entering this field with more capital and sales staff members.
Dong Yan, a researcher at the Chinese Academy of Social Sciences' Institute of World Economics and Politics, said this situation has forced domestic businesses to take different approaches to compete with overseas competitors.
For example, domestic companies, particularly those in the soft drinks and beauty sectors, have constantly drawn insights from consumer feedback to improve products and accelerate new product launches to discover best-selling items. By going digital, they have gradually gained a foothold in markets dominated by companies such as Starbucks, Coca-Cola and Unilever, Dong said.
This trend has inspired foreign companies to learn how a new brand or specific product creates good growth value in a mature market, she added.