Opportunities abound

  • Author : Duncan Levesley
  • Author : Kathryn Leake
  • Date : August/September
ABOUT THE AUTHOR: Duncan Levesley is Senior Manager, Research & Advisory, and Kathryn Leake is Marketing and Communications Executive at the China-Britain Business Council

The financial growth of China in the past 30 years has reverberated across the world. However, the Chinese economy is still changing, and this is creating exciting opportunities for those who understand the trajectory of change and are offering the goods and services to match.

Earlier this year the China-Britain Business Council (CBBC) conducted a survey of British businesses operating in China. The results show that UK companies are confident about their business prospects there, with 80 per cent expecting to see revenue increase in the coming months, and 83 per cent planning to increase their investment. It is evident that despite the economic slowdown and Eurozone crisis, UK companies still view China as a strong bet for a good return on investment. So what, specifically, are the economic and policy changes occurring in China, and how are companies able to benefit from them?

Rebalancing China’s economy

One result of China’s economic growth has been the huge expansion of the country’s domestic market and increases in average wealth levels of its population in recent years. After China began to open up to foreign investment, the first wave of international firms used the country as a base for low-cost mass-produced goods, altering global manufacturing beyond recognition. The warehouses of almost every country on the planet are now filled with boxes stamped with ‘Made in China’. But China is no longer just a hub for cheap production.

China’s boom has brought prosperity to a lot of people. Some say China is now home to more than a million dollar-millionaires, and hundreds of billionaires. Rather than a base for exports, companies are now finding domestic markets for their products, and an increasingly wealthy and discerning consuming class.

This wealth is overwhelmingly concentrated in China’s eastern coastal cities. China may have 274 cities with a population of over a million, but just four of these cities – Shanghai, Beijing, Guangzhou and Shenzhen – account for about 30 per cent of all wealthy consumers.

“Growth in personal wealth will lead to greater demand for wealth management”

However, China’s latest five-year plan aims for more equitable wealth distribution across the country, particularly to inland regions. In addition, as trade has made the east coast rich, the five-year plan is designed to help rebalance the economy away from export and investment-led growth to greater dependence on domestic consumption. There are a range of policies to foster this, but part of this process will include making more diverse financial products and services available to consumers. The implementation of the current five-year plan is likely to be integral to China’s future development. By 2015 China is expected to hold the world’s fourth-largest concentration of wealthy people, and in the next five to seven years three-quarters of the growth in the number of China’s wealthy consumers is expected to occur outside the largest metropolises.

Changes in business environment

The rebalancing of China’s economy and the desire to increase individual wealth levels have led to important changes in China’s business environment. In the past, China’s growth was fuelled by its vast surplus of cheap labour, but social and population changes mean that this surplus is now drying up, and employees demand better pay and greater benefits for their work. While this loss of cheap labour means that China may begin to lose its role as the factory of the world, the country’s growing consumer market and shift away from export-led growth present exciting opportunities for the service sector.

As China’s domestic consumer market grows, it is becoming more discerning about brands and product quality. When appraising the performance of Chinese companies, respondents to the CBBC 2012 business survey highlighted competitive pricing as their main advantage. In contrast, UK companies view their most significant competitive advantage to be in product quality and design. As the Chinese consumer market grows in wealth and sophistication, quality will become a much greater asset than cost, and again this will be a boon for UK companies. Given that China’s retail sales are expected to reach USD10 trillion by 2020, a size similar to the current market of the Eurozone, the opportunities will be immense.

Wealth management

Notably, growth in personal wealth will lead to greater demand for wealth-management products and services. At the start of China’s reform and opening up, the monopoly of the major state banks essentially served as government coffers, used by officials for projects of their choice. China’s financial sector has diversified and become much more market-led in the past 30 years, but it is still under-developed and dominated by the banking sector, particularly the large state-owned banks.

The opportunities in wealth management are already impressive, particularly as many wealthy Chinese people hold a diverse range of assets offshore. Also, as financial reform takes hold alongside economic reform, expect capital controls to relax and demand to grow for more sophisticated onshore products.

What do Chinese people look for in wealth management? In terms of investors, customers generally value relationships, prefer hands-on advice, are price-sensitive and don’t like paying for intangible advice if they can’t see the clear value. They also often choose multiple wealth managers.

Private banking is dominated by the big banks, and domestic banks in particular. However, these domestic banks are often limited in the services they can provide due to regulation and lack of experience, particularly of international issues – though they are catching up quickly. Likewise, the legal profession has historically had less exposure to opportunities, markets and practices overseas. In the short to medium term, this means domestic banks and lawyers will often need to cooperate with international partners to offer the services their clients require. The CBBC has helped to introduce some of these companies to UK firms, with whom they are now working for mutual benefit.

Impressive opportunities

China’s economic rebalancing is creating some impressive opportunities. As the CBBC 2012 business survey results show, UK companies already operating in China expect to see business and profitability increases this year. The CBBC has engaged with China for 60 years, and for many of the companies we help the opportunity has never been greater. As China enters this new stage of development, we hope to see more companies work with us to use the lessons from the past and knowledge of the present and immediate future to take full advantage of the numerous business opportunities to be found there.


Advert

Article Search

Browse jurisdictions by clicking on the map regions below

© 2012 Society of Trust & Estate Practitioners