Sari Arho Havrén: China is changing – Future Watch follows

4/23/2014

China is certainly moving fast: two months are like a year in Finland. There are plenty of things to monitor politically, economically, demographically, and socially. "Just name it" and something new is in the air. First thing in the morning I cannot help but check my Twitter and soon after that I'll read the South China Morning Post, which is probably Asia's highest-quality newspaper, on my iPad.

The China of Communist Party General Secretary Xi Jinping is fundamentally different from all previous Chinas. This is why it is more important than before for our knowledge and understanding to be up to date. Xi Jinping has taken the rudder like a master, although his power has not yet been solidified. Lurking in the background are former Presidents Hu Jintao and Jiang Zemin. For this reason Xi Jinping has set up committees outside the Politburo through which changes are being made on a trial-and-error basis. Building the brand includes talk about the China Dream, an unyielding attitude toward island disputes with Japan, and the campaign against corruption. The present state has even been described as a modern cultural revolution.

About 400 Finnish companies operate in China (Hong Kong included), and our investments in China are greater than those of OECD countries on average. The Team Finland Future Watch report "China Growth Paths" was published in March. The report offers an excellent foundation for keeping tabs on changes in China. It has a special focus on examining the changing business environment of Western and Central China, but also the development of all of China on a 2-5 year timeline.

It is no longer news that China is turning from being the world's factory into the world's largest market. Many have taken fright of the slowing down of China's rate of growth, but one has to keep in mind that China still has the fastest growth rate in all of Asia, even though the present growth figures are unfortunately inaccurate. Next year growth is officially expected to reach 7.5 % but in reality the figure is probably closer to 5.5 %. Lurking in the background of the discrepancy are errors in Chinese statistics, which will gradually rectified (without losing face).

However, the growth figures should not be focused on excessively, as the structural change that is under way also offers possibilities. Demographic changes in China serve as a major driver. The biggest labour reserve in the interior of China has already been used, and the change in the population structure is leading to a shortage of industrial population and a surplus of those with a university education. On the other hand, China no longer supports production of a low degree of processing - there is an aim to ascend in the value chain.

The greatest migration to the east coast is a thing of the past. In the coming years the cities of the interior of China will experience the greatest relative growth, by up to more than 100 million residents by 2020. Development in the interior of China is investment-driven, but as social security develops, growth in personal consumption will increase. China will have 800 new regions where consumers' disposable income will be higher in five years than it is now in Shanghai.

The changes have pushed global companies to prepare for the future using the so-called China-plus-1 strategy. New growth markets are being aggressively sought in parts of Asia other than China. There also seems to be a trend to lead all Asian business in a comprehensive manner, and not just activities in individual countries. Naturally this does not mean that any moves would be under way to leave China, as it is simply not possible to be absent from China when competing internationally.

Internationalisation and changes in the population structure mean that Chinese companies are seeking to raise the quality of automation and products that have been produced to correspond to the requirements of the "mid-market" segment. New opportunities to sell production technology and components to the Chinese are opening up for Finnish companies, but they must be adapted to the local level of technology and cost.

The increasing internationalisation of Chinese companies is already a megatrend which gives us a window of about five years either to collaborate, or to compete with the Chinese. Global companies are rethinking their strategies. At the same time, Chinese state-run and private companies are searching for possibilities for corporate purchases and the opening of new markets. Finnish companies have a significant opportunity in this.

With respect to China, Finnish companies also need to ponder how to position themselves in international competition, in operating with the Chinese both in China and outside of the country. The time in which Finnish or Western customers were the ones being served, also as subcontractors, is getting to be a thing of the past. Eyes need to be turned toward Chinese and Asian customers. Competition on the global market will require the understanding of the Asian end user, and a value promise in the eyes of the Asian customer.

Sari Arho Havrén
Consul, Innovation
Tekes Shanghai

Team Finland Future Watch – Prospects for developing business activities

The China Growth Track report is part of the Team Finland Future Watch service, which brings international advance information for companies to take advantage of. With the help of the information the company is able to develop its business activities and channel its development work. The Future Watch service is especially aimed at SMEs which seek international growth, and which participate in the Growth Track programme or in programmes of Tekes. The services are set up for groups of companies, but individual companies are the ones that utilise the information.

Read the report "China Growth Paths – Understanding Future Business Trends in China", Team Finland Future Watch Report, 3/2014 (pdf)

Team Finland Future Watch service

Eeva Landowski

 

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