Lead Story - All eyes on China

In Mid-November the DutchCham was able to organise their annual China Seminar as a face-to- face event. Four interesting speakers were invited to give their views on the latest developments in mainland China. In this Lead Story we recap their insights on a couple of the panel questions.

In what ways are your Chinese competitors changing? If any, are they becoming more serious challengers outside China?
Gordon: As a board member of two Hong Kong-listed Chinese companies, one a global market leader, one focused exclusively on mainland China, I see directly their rising capabilities and those of their competitors. From PCs and smartphones to emerging giants in electric vehicles and innovative biotech drugs, Chinese companies are not only winning in China; they are doing so in markets across the world.

These companies are genuinely developing their own intellectual property with teams of homegrown and internationally educated researchers. They have agile entrepreneurial leaders with a commitment to operational excellence –able for example to support a workforce of over 3 million during COVID, to source more PPE than a small country, or to seamlessly shift production of US-bound products impacted by tariffs from a plant in China to Mexico.

Natellie: According to data from the World Bank and IMF, Asian countries are expected to make up most of the top five countries in the world by size of GDP in 2024. Data also showed that China could overtake the US as the world’s largest economy by 2024. The burgeoning middle class are becoming much more educated and are hence more likely to take on higher-value jobs. In response, Chinese recruitment firms are increasingly offering specialised services that are targeted at certain hyper- growth industries, such as technology, communications and smart manufacturing.The influx of investments from western countries to China has also grown by multiple folds in the past decade to support business growth in Asia.

With the approval and deployment of COVID-19 vaccines, businesses have more confidence to move ahead with their expansion plans and investments to capture a larger market share in Asia Pacific. Even when large Chinese companies expand overseas, many western recruitment firms are also setting up Asian headquarters in China to take advantage of the growing business opportunities.

Frederik: In the automotive industry, the focus has shifted to battery technology, vehicle connectivity as well as autonomous driving features in recent years.These are all areas where Chinese players are increasingly competitive. Besides the state-owned car manufacturers, there are a few auto start-ups which deserve special attention. All of them have been founded around 2014-2015. NIO, Xpeng (Xiaopeng), Li Auto (Lixiang) & Weltmeister (WM Motors) are four successful examples of new EV players competing successfully with Tesla and established players in China today,although most of these companies have only started delivering vehicles in 2019-2020.

The logical step for these Chinese auto start-ups is to seek expansion overseas. As Europe’s EV market already surpassed the China market in 2020, it is no surprise that most of those companies are preparing or are already testing the waters in Europe.

How will your business be affected by the Cold War 2.0 (technology war)?
Gordon: Uncertainty is a critical challenge. Where should investment in capacity be made if we don’t know what the tariff levels will be? Who should we source from if we don’t know if they will continue to supply to us? Who should we seek to sell to if we don’t know if they will able to continue to buy from us? As a consequence of COVID, almost all governments are initiating more activist Industrial Policies creating a myriad of new complexities to navigate. Local content requirements are rising and more companies are being blacklisted. There is absolutely a business impact; to date, all challenges have had workable solutions involving new suppliers and moving production around our global footprint.

Iris: As a macroeconomist, I would like to focus on a macro perspective. China will continue to face the technology war challenge in 2021. The most difficult part will be the export of technology, which we believe the government has tried to address by persuading its Belt and Road partners to use Chinese tech products. But those partners are also under pressure to adopt technology from other big players in this market, so their support cannot be taken for granted.

Given this background, China is investing and creating its own advanced technologies. This means technology war is only a short term challenge for China, and it is possible that China can gain an advanced standard in the future.

Natellie: As a recruitment firm, our assets are our people and talent network. To deliver quality and exclusive talent recruitment services to our clients, it is critical for our people to be innovative and creative to navigate unchartered territories as well as be equipped with in-depth industry knowledge and an expansive network of in- demand skilled talent. Many recruitment firms have adopted the use of artificial intelligence in virtual assistants to help improve customer experience. It was explored as an alternative to face-to-face meetings, but artificial intelligence can be applied throughout the business model, such as human resources operations, candidate screening and selection, and even job interviews.

Frederik: The automotive industry in general, does not seem to be as much in the focus of the ongoing dispute on technology. Having said that, it is important to mention that the future of the car industry partly also depends on the development of highly connected and autonomous vehicles.

Increasingly, there are highly innovative and competitive component suppliers coming also out of China pushing for exporting their components overseas.This also underlines China’s ambition to be leading within the electric vehicle supply chain. Sustainable success as an automotive manufacturer depends heavily on the ability to export and to compete on the global stage. Therefore, it seems not in the interest of the involved parties to further restrict trade and access to relevant technology in the automotive sector besides existing tariffs.

Will the 14th Five Year Plan (FYP) materially benefit your business in China? Is China opening up further in any meaningful ways?
Gordon: A successful 14th FYP will result in fast growth in consumer consumption, an even more digital society and massive government-enabled investment into priority sectors. China will be the world’s single largest consumer market. Products and services, such as smartphones and health insurance, bought by almost every member of the middle class will see addressable markets scale to 700 million people. The 14th FYP will also bring more regulation, possibly much more, that will apply to all players regardless of ownership – personal data protection, anti-monopoly behaviours and capital requirements for digital lending business are just three current examples.

Iris: The 14th Five Year Plan should benefit the green economy; businesses that are more ESG-governed will enjoy better growth. The plan’s objective is to speed up low carbon economic development and increase efficiency in the use of resources. The plan not only aims at protecting the environment but also restoring it, which is a new concept in Chinese policy.

Natellie: A strategic plan that is aimed at growing the economy will benefit our business to supply talent to organisations that are expanding. Once border closures due to COVID-19 are lifted, we expect companies to resume their plans, which would also include global talent mobility. Even as employers in Greater China look to hire experienced employees with international experience to support their growth aspirations, more work still needs to be done to attract these desired talents. For example, offering benefits such as spousal insurance, lease-breaking penalty assistance and full-time expatriation assistance.

Frederik: The Chinese government focuses on domestic demand, restructuring and a more balanced approach to growth expectations. However, they also emphasised the importance of being an exporting nation. Regarding the automotive sector, I believe that it is the government’s strategy to support exporting locally produced vehicles to other markets. Europe plays a particularly crucial role in the EV sector, as well as all the Asian-Pacific markets under the new RCEP free trade agreement.

Domestically, the Chinese government sees electric mobility as the prevailing form of transportation, encouraging customers with guidelines and incentives, and further enabling the local automotive industry to supply suitable products.