World Economy

New Norm for China, EU

New Norm for China, EUNew Norm for China, EU

The National People’s Congress, China’s top parliamentary body, and the Chinese People’s Political Consultative Conference, China’s top political advisory body, have convened its annual two sessions on March 3-15. This marks a pivotal year as the nation continues to embark on its reforms and opening up policy, shifting towards a “New Normal” for economic growth rates, including its 13th Five-Year Plan for social and economic development over the next five years and confronting challenges on the foreign policy front.

European Union’s small and medium-sized enterprises that have already set up business in China are confronting a mixed picture. Foreign direct investment flows from the EU to China have increased by 17.8% from 2010 to 2013, reaching €17.1 billion in 2013, CNTV reported.

Accordingly, European companies remain confident with long-term growth prospects in China. However, they are beginning to see their profit margins getting slimmer.

Average annual human resources costs have increased by 11.4% from 2000 to 2013 and competition is increasing from foreign and domestic companies. There is an increasing sense that as they look inwards, these players will be approaching the same segments.

In the short term, companies think they will be impacted by the Chinese economic downturn, especially for companies producing industrial goods and services more so than the ones on the consumer side.

European companies are looking to other countries, particularly South East Asia, but primarily for market seeking purposes; most are not looking to relocate.

Looking at exports, European small businesses are excited by the prospects of Chinese domestic consumption accounting for a larger share of the economy. In the last five years, exports to China from the EU have risen by 9.8% to €160 billion while exports from China to the EU have grown by 1.6%.

China’s new normal recognizes that domestic consumption would play a larger role in the economy.

  Craving for EU Products

Meanwhile, Chinese consumers crave more goods from the EU. At the EU SME Center, the three areas where the highest demand is seen for EU goods have been in food and beverages, cosmetics and medical devices.

However, looking at a broader picture: machinery and electronics equipment will continue to make up the lion’s share of exports from the EU to China and as the country upgrades its industrial processes there is the potential for the value of these exports to rise further.

The upgrading and innovating of industrial processes are areas where European small businesses can play a crucial role. The EU SME Center is researching opportunities in industrial robotics, agricultural equipment and green technology.

Actually, in Germany there are around 232 industrial robots per 10,000 workers, while in China there are only 14 robots per 10,000. China is also in the process of setting up more manufacturing innovation centers (15 by 2020 and 40 by 2025) in order to attract innovative technologies from abroad.

  Technology Transfer

Although the opportunities are huge, technology transfer to China from the EU is still at the beginning stage. One of the key ongoing concerns for many small technology businesses regards protection of their intellectual property rights.

Finally, there is an over-arching trend that is highlighted in the 13th Five-Year Plan, which is—China is coming to Europe.

Chinese direct investment flows to the EU have increased by 135.5% to €4.8 billion over the last four years and the number of Chinese tourists visiting the EU countries has now reached 7.4 million.

Even if European SMEs are not contemplating doing business here, there are already Chinese businesses and consumers interacting with their products and services. Hence to a great extent, they are already in China.

European brands are already listed on China’s e-commerce platforms or talked about frequently on their social media. This would increasingly represent the New Normal for China and the EU.