How export opportunities with China are changing and growing

The era of double-digit economic growth in China is over, but the future for business and export opportunities in China for Canadian companies is still very promising. EDC has forecast China's gross domestic product (GDP) to grow well ahead of the rate for the developed world and several other emerging markets, a point reiterated by panelists at the Fortune Global Forum on October 15th. 

 “Four decades of rapid growth has completed the industrialization process,” said Chen Dongsheng, chairman and chief executive officer (CEO) of the Taikang Insurance Group. 

Dongsheng was one of several panelists who took part in the session, “China and The World: A New Era for Business,” at the event in Toronto. He and co-panelists discussed how investment and export strategies are changing, as China recalibrates its growth strategy to one focused on quality.

"China is turning from a high-speed to high-quality economy," said Dongsheng. "It is transforming from investment to consumption."

China is Canada’s largest trading partner after the U.S., purchasing $25 billion of Canadian goods and services annually across a number of sectors. Canada’s strong trade and tourism relationship with China is also evident in the number of arrivals to Canada from China last year. A record 682,000 people from China visited Canada in 2017, an increase of 12% from the previous year, making China the second largest source of overseas visitors to Canada.

On the consumer side, the rapid expansion of the Chinese economy in recent years has lifted hundreds of millions of people out of poverty and created the fastest growing middle class in the world. As the middle class grows, these consumers are becoming more sophisticated in favour of premium offerings, be it food products or consumer goods. 

“The service sector will continue to grow,” Louisa Cheang, vice-chair and CEO of Hang Seng Bank, told the Fortune Global Forum audience. “This sector is now half of the GDP of China and it will continue to grow the middle class.”

Canada has a good reputation in China as a provider of quality goods that meet safety standards.

E-commerce represents a key growth opportunity for Canadian small business.“We are quite confident about the e-commerce market,” Vincent Qiu, chief executive officer of Baozun told the Fortune Global Forum audience in Toronto. Baozun is one of China’s leading e-commerce platforms.

“Consumption today is powerful in China,” Qiu added. "Online retail grew by more than 28 per cent in the first half of this year. That’s twice as fast as retail growth.”

“The middle class is still in favour of quality products purchased online and rural consumers are also coming online,” said Qiu.

On the industrial side, the Chinese government’s Made in China 2025 initiative, which aims to move the country up the manufacturing value chain from the “world’s factory” into a high-tech powerhouse, has created new partnership opportunities for companies with advanced technologies, according to Invest in Canada, one of the sponsors of the Fortune Global Forum.

Finally, the government’s massive One Belt One Road initiative to invest in infrastructure inside China’s trading partners in Asia and beyond will have an impact on the economy of the entire region.

China’s rapid economic expansion of the last years often came at a high cost to the environment through air and water pollution. One of the government’s three major economic policy goals in achieving better “quality” of growth is reducing pollution.

This represents a major opportunity for companies in Canada’s cleantech sector, including: water and wastewater management, soil protection, environmental remediation, air pollution, green energy, and renewable energy.

China’s spending on cleantech is projected to grow from $270 billion today to $2 trillion by 2020. However, the challenge for Canadian producers is to ensure that solutions can be scaled up to meet the needs of some of China’s large environmental challenges.

The growth of the private sector in China creates space for international companies to partner with established firms in China, said Afsaneh Beschloss, Founder and CEO of RockCreek, an investment management firm based in Washington, D.C.

“At RockCreek, we invest a lot in China,” Beschloss told the Fortune Global Forum audience. “We’ve been looking at health, education, clean energy, consumer(s)…”

“Basically, if you think about it [China has] a 1.4 billion population, with 200 million in the middle class,” Beschloss added. “If you look back 10 to 15 years ago, the largest companies were large, government-owned companies — state-owned enterprises. Today, companies like Alibaba, are private sector, and they’re totally meeting the needs of the middle class.”

Another important area of opportunity for Canadian companies that will grow significantly is with our high-quality food and agri-food products. The rise of the middle class in China—which has grown from 29 million to almost half a billion people in the last 18 years—is driving demand for high-quality imported foods, an area where Canada has a good reputation in China for governance around food safety.

Exports of Canadian meat products to China, for example, have increased 27% over the last eight years, lifting its export share to 13% of the total Canadian food products shipped to the country.

The Chinese market is still an emerging market, however, and the needs of consumers in emerging markets like China’s are different than those in the West. Canadian businesses need to be able to adapt their products and solutions to meet those needs. Often that means offering a simpler version of the product or providing payment solutions.

Many of the older challenges to doing business in China remain. The country has improved regulations and enforcement around protection of intellectual property (IP) rights in recent years. However, the IP protection framework in China is very different from Canada’s and can be challenging to navigate. For example, a trademark using Roman characters that is protected can still be registered in Chinese characters, so it is a good idea to register marks in both English and Chinese.

Canadian businesses need to ensure their IP rights are protected before entering the Chinese market.

Canadian businesses also need to understand how Chinese business relationships are developed and how they function for the long term. Patience and a personal touch are critical.

Nova Scotia-based Acadian Seaplants Limited (ASL) is an excellent example of a Canadian company well positioned for success in China. The biotech company and the largest independent manufacturer of marine plant products of its type in the world, and can therefore help meet China’s demand for agri-food products, as well as products that are high tech.

ASL reduced some of the risks of expanding into new markets like China by obtaining credit insurance.

“We started off slowly, using EDC credit insurance so we could move into one market after another, without worrying about the risk of non-payment,” says President and CEO, Jean-Paul Deveau.

The company also developed a currency hedging plan to manage currency fluctuations.

Similarly, Gidney Fisheries Limited is now capitalizing on Chinese demand for premium imported seafood products with its fresh and frozen lobster. As the company grew internationally, it also relied on accounts receivable insurance as it began to expand into riskier territory in Asia.

“In addition to accounts receivable insurance, we use EDC for its insights into markets, which is very helpful to us,” says President and General Manager Robert MacDonald. “We can’t know all the markets and EDC has people all over the world who can look into companies and would-be customers for exporters.”

Expanding your business to China requires a long term strategy. You will need to build relationships and navigate the sometimes-ambiguous process and bureaucracy with customers, partners and government officials.

EDC’s Market Entry Advisors for China can help you get a foothold in the country and find the right partners who will help you through China’s bureaucracy.

Finally, you may also need somebody on the ground, so send somebody you fully trust – ideally someone fairly senior in your organization who can come and stay here for a couple of years.