China is coming back with a bang. With the reopening of its borders after a lengthy period of lockdown and a population eager to spend, the country is projected to be responsible for nearly 35% of global growth this year.
But what does that growth mean, both domestically and for investors outside China? According to China experts at INSEAD, the reopening represents significant investment opportunities, particularly for Singapore. However, with the realignment of supply chains during the pandemic, China has some ground to regain as a global hub, as other Asian countries such as Vietnam and Malaysia pick up a key share of the manufacturing and export market. As a result, the Chinese government has introduced initiatives to spur domestic investment as the post-Covid dust settles.
In this week’s episode of Payments Innovation, host Yi Nah Yeo was joined by Ruben Lim, COO of Singapore FinTech Association, to talk about the changes we’re likely to see in Chinese consumption patterns, and how ready the country now is to open its arms to the world.
Although the Chinese have long embraced consumerism, said Lim, priorities have shifted since the pandemic: “consumers are a lot sharper, they’re a lot more savvy. There’s no longer a price war, where people would just buy the cheapest things. People are now looking into quality.”
That extends to the consumption of international brands, with other countries’ favourite food stuffs or products transplanted back to China as tourists travel to global destinations.
For businesses wanting to enter the Chinese market, innovation is key. “There’s no one size fits all,” Lim observed. “It all boils down to, ‘What are you looking for? What is your service offering? Is it really a product or a service? Is it food? Is it education?’, and because they don’t do that, they look out for different things.”
One example of this is the success of Singaporean education brands in China. “They appreciate our education,” Lim commented, “or at least, they appreciate that methodology. China has a very, very strong education system as well. But they also appreciate the way Singapore has always been. And as the Chinese are better trainable, you realise that international brands have better opportunities, because then the Chinese audience are a lot more receptive.”
Everything, everywhere, all at once
While e-commerce was naturally dominant during Covid, there will always be, said Lim, “a very real need for humans to interact.” That means that in China, “the streets are still packed, people are still browsing. Omni-channel is a very real situation here, whether I buy online, I buy offline, I go to a retail shop. And so to find something online and to do a price comparison, those are becoming very, very real.”
Chinese consumers have long expected a clear level of choice. This links back to China’s longstanding position as a “leapfrog” technology market, especially in sectors like digital payments, with consumers valuing maximum flexibility and ease of access as technology becomes even more embedded.
Shoppers are not only getting smarter, Lim observed, “They’re also getting younger, because as the technology matures, as the years goes by, the people who adapt and adopt and get used to this technology, and all the applications as made available to them, are just getting stronger by the numbers.”
Building relationships from the inside out
Lim believes it has never been as difficult as outsiders have perceived to enter the Chinese market. “China has not banned anybody,” he asserted. “But they do lay down very strict data requirements and controls, which then, as a result of their business principles, it’s not suitable for some, and they make a conscious decision not to enter. That gave rise to a few smart tech companies .”
Today, in a country where strong relationships have always been critical for business success, “The ease in doing business has changed so much that right now, in China, even without a relationship, you can still get some guidance and support, even without a formal introduction, you will still be able to connect with someone; you will still be able to get things done.”
What is still important for foreign companies is to consider which area of China they want to invest in. In a vast and complex economy, understanding the politics and policies of not just the country as a whole, but individual provinces and even cities — and then finding a business partner with deep local knowledge — is key to positive outcomes.
Since it was launched in 2013, many Chinese companies have benefited from the government’s Belt and Road initiative of infrastructure investment in targeted countries. But post-Covid, said Lim, with the Chinese market experiencing headwinds, outward expansion is even more important.
When it comes to business collaboration, that growth is likely to benefit the country’s neighbours in particular: “Singapore or Southeast Asia become the first port of call,” he said. “One main reason is because geopolitically, this region is generally friendlier towards the Chinese.” A common language also plays a role, with a high number of Singaporeans speaking Mandarin. Digital payments represent a significant opportunity, with Singapore likely to become a major payments hub.
Powering forward at pace
The supply chain landscape may have shifted, with other Asian countries stealing some of China’s market share, but China remains a manufacturing powerhouse. “Their work culture in the tech sector is insane,” said Lim. “What would take us probably two months to develop, they can do it in one month. And the kind of lightning speed — to translate that to a mega supply chain, from the time you have the raw material all the way to your finished product and ship it, that is not easily replaced by setting up another plant somewhere else, because it’s the whole big chain that needs to come up with.”
Chinese innovation is also continuing at pace. “You can see China’s ambition very strongly in how they are consistent in trying to take over infrastructure so there is less dependence on the western part of the world,” said Lim. “A good example is the commercial jet, where they just came up with the C 919. And that really breaks the duopoly of Airbus and Boeing, and to some extent, Embraer. When you see a commercial jet coming up from China so quickly, that is part of where China is heading to.”
Until next time!