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Foreign Firms Integrate Into China’s New Economy

China’s spectacular growth used to be built on cheap manufacturing, low-end exports and smokestack industries. Now with a wealthier domestic consumer base and technological progress, growth is reconfiguring the economy for more consumption, more innovatio
US-funded Dow Chemical (China) Investment Company signed a memorandum of understanding with Mobike in May to help  the latter develop lighter and more eco-friendly shared bikes.US-funded Dow Chemical (China) Investment Company signed a memorandum of understanding with Mobike in May to help  the latter develop lighter and more eco-friendly shared bikes.

As China's "new economy" goes from strength to strength, more and more foreign firms are jumping in for a slice of the pie.

Shared bikes flood the city streets, diners pay for meals on their smartphones, electric cars whizz down the roads: in the rapidly shifting picture of China's new economy, foreign companies are not absent, Xinhua report says.

Apple is betting big on this emerging market. Two weeks ago, its mobile payment service Apple Pay launched its largest-scale marketing campaign since entering China, offering perks including up to 50% discounts on purchases for a week.

Despite a much smaller presence than its Chinese rivals Alipay and WeChat Pay, the country's massive mobile payment market is hard to ignore for the US tech giant.

The general merchandise volume of China's third-party mobile payments reached 38 trillion yuan ($5.7 trillion) in 2016, up more than 200% from 2015, according to estimates by consultancy iResearch.

More Opportunities

Apple's interest is not just in mobile payments. Last year, it made an investment of $1 billion in Chinese on-demand mobility provider Didi Chuxing. This spring, Apple CEO Tim Cook visited bike-sharing start-up Ofo during his China tour.

The sharing economy is taking off in China, so is its appeal to foreign investors. The country's top bike-sharing companies, Ofo and Mobike, have attracted investment from the United States, Japan, Singapore and elsewhere.

Some foreign firms see business opportunities come in an indirect way. One example is the US-funded Dow Chemical (China) Investment Company, which signed a memorandum of understanding with Mobike in May to help the latter develop lighter and more eco-friendly shared bikes.

US home-sharing company Airbnb has said it plans to more than triple the size of its China workforce this year and double its investment in the market to better serve Chinese travelers.

E-commerce is another success story in China's new economy. Online retail sales reached 3.1 trillion yuan in the first half of this year, a surge of 33.4% from a year earlier. While Chinese firms Alibaba and JD.com grab the limelight, their US rival Amazon is also doing well.

On Black Friday last year, sales at Amazon China doubled from a year earlier, according to a company report. The number of active users of its cross-border shopping service soared 22 times by December 2016 from two years earlier.

In a move to tap deeper into China's internet economy, Amazon in June partnered with Migu, a China Mobile subsidiary with one of the country's largest mobile reading platforms, to launch a new Kindle exclusively for Chinese readers.

China's spectacular growth used to be built on cheap manufacturing, low-end exports and smokestack industries. Now, with a wealthier domestic consumer base as well as technological progress, it is reconfiguring the economy for more consumption, more innovation and less pollution.

International brands are doubling down on the market. Tesla has Asia's largest supercharger station in Beijing and plans to add over 300 supercharger stalls in the country this year, more than the combined increment of the past two years.

FDI Jumps

Official data also showed growing foreign interest in China's new economy. In the first half of 2017, foreign direct investment into China's high-tech manufacturing and services rose 11.1% and 20.4% year-on-year, respectively.

During the same period, FDI in information technology services, a significant part of the new economy, jumped 35.6% year-on-year, said Gao Feng, spokesperson of the Ministry of Commerce.

Singapore investment firm Temasek Holdings wants to increase investment in China's new economy, said Wu Yibing, Temasek's joint head of China.

The transition of China's economy has brought about a number of very attractive sectors including high-tech, non-banking finance, life science and consumption, Wu said.

About 45% of China’s gross domestic product is in the industrial economy, which after a credit-fueled growth, is now suffering from debt-laden excess capacity. This is the current focus of deleveraging, and is the primary source of increasing non-performing loans. But 39% of GDP is private household consumption, which has very little leverage. That’s about to change.

To offset the negative impacts on economic growth from deflating the industrial economy, China should adopt the approach of letting bubbles spill from one segment to another, which most other major global economies have employed. This will quicken the rebalancing of the economy to a more domestic, consumption-driven growth model.

 

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