We have heard a lot about China becoming the world’s largest this and that. In 2009, when the world was in recession, China leapfrogged the U.S. to become the world’s largest auto market. In 2010, China overtook Germany as the world’s largest exporter. This year, China is likely to surpass Japan to become the world’s largest luxury goods market.
So, it shouldn’t be a surprise when The Economist predicts that China will become the world’s largest importer by 2014. Yet, many skeptics still doubt China’s potential to be a stronghold of the world economy.
Last month, I was on BBC World News to discuss the eurozone debt crisis and whether Chinese consumers can make a difference in the world economy. My discussion partner Johathon Holslag from the Brussels Institute of Contemporary China Studies argued that Chinese consumption is still far below its production, and people should not be over optimistic about China rescuing the world economy. See the discussion video below:
Yes, official statistics show that consumption is only 34 percent of China’s GDP (compared to 70 percent in the U.S.). While the West’s economy is imbalanced with over-spending, the Chinese economy is imbalanced with under-consumption. However, this dynamic is changing. When I travel in China, I can clearly see the consumption boom in China’s large and small cities. Retail has been growing like a wildfire in recent years.
While it is not China’s role to save the world economy, it is in China’s best interest to balance its own economy toward domestic consumption. In so doing, China serves as a counter-balance of over-spending Western economies. China may not want to bail out Italy or Greece, but China can provide opportunities for these troubled economies to get their own house in order.
As matter of fact, China has already helped. The Chinese middle class is creating enormous opportunities for Western companies selling into China. Europe’s exports to China have been growing steadily. Many Western brands are doing extremely well in China.
For example, Chinese consumers prefer to pay a premium price for furniture that is made in Italy. The UK-listed retailer Burberry has opened 60 stores in China and plans to have 100 stores in the near future. Western automakers, from Volkswagen to Bentley to General Motors, are enjoying huge success in China.
In the coming years, China’s economy may slow down a little, but will still grow at least at 7 or 8 percent. There are plenty of opportunities for Western companies to take advantage of China’s growing middle class. For companies that want to export to China, here are a few useful tips:
- Check out your local Chamber of Commerce or Export Assistance Center and familiarize yourselves with legal and regulatory issues in China. These facilities also have a lot of resources and services that can help you develop China market entry strategies and find the right business partners.
- Consider rebranding or repositioning your products in China. Remember, what works in your native country may not work in China. You really need to learn about Chinese culture, understand Chinese consumers, and adapt your products and services to the China market.
- For smaller brands, e-commerce is a great way to break into the China market without significant upfront cost. China’s ecommerce has been growing at 60 percent each year in recent years. More than 100 million Chinese shopped online last year. And China’s Internet users are expected to reach 750 million in 2015.
According to Credit Suisse, China will become the largest consumer market in the world by 2020. In the past, all the predictions about China have proved to be on the conservative side. With all its problems and potential crises, China somehow has managed to astonish the world again and again.