CHINA IS A MUST DO MARKET
In February 2022, Dominic Barton, Canada’s Former Ambassador to China, joined OG100 for an exclusive hour to discuss the evolving Canada-China relationship. China, whether you want to participate there or not, is a market you should understand because of its undeniable significance. China’s contribution to global GDP has climbed from 1.7% in 1990 to a projected 20.3% by 2025. That places it just behind the U.S. market (22.4%) and surpassing the EU’s contribution (17.9%). China’s size and growth make it a “must do” market for Canadian companies.
MARKET DRIVERS
The Chinese middleclass is a significant driver behind market growth. 88% of the next 1-billion entrants to the middleclass will be in Asia; 350 million in China alone. The Chinese consumer traditionally consumes less than the OECD average (around 60% GDP). As the Chinese population ages, it’s expected that they will consume more, moving levels closer to OECD average, adding over $3-trillion to annual spending. Urbanization is another driving force behind China’s growth. While China’s population is expected to decrease overall, population growth in urban centres will continue over the next decade. Other drivers include:
- Capital markets: in early stage, but opening and aggressively seeking portfolio investments
- R&D investment: resources directed to innovation is very large in China and Chinese industry invests twice that of Canadian industry
- Globalization: record level of inbound foreign investment in 2021 with U.S. MNEs driving this flow
ADVANCED MANUFACTURING IS A TOP PRIORITY EVEN AS REGULATIONS SHIFT
A new regulatory environment, particularly in the past 6 months, involving a shift towards ‘common prosperity’ is centered on economic performance and social justice. Within economic performance, there is a renewed focus on manufacturing and key technologies. Advanced manufacturing (semi-conductor, robotics) is being supported by this policy shift, reflecting the high political priority of leadership. The Chinese 5-year plans remain focused on manufacturing, with no support for the shift to a services economy. Due to the focus on social justice, many industries have been significantly impacted – perhaps most heavily, education and real estate. Other industries may also come under greater scrutiny, including data and cloud services, critical services (health), online services and livestreaming.
ON THE GROUND
Even with strained relations, Canada had record exports to China in 2021. Canadian brands, even in dark periods, remain strong and very popular and headlines are not representative of what’s going on at the B2B and B2C levels. China is moving quickly and if you are not on the ground, you are out of date. In-market representation will be critical to long-term success. Service providers like China Skinny or WPIC can also play important roles in bringing products to market especially in the e-commerce, digital space. The right partner is critical – especially in the IP space where the Chinese legal system has advanced significantly on IP Protection (in part because of Chinese companies battling themselves). Having links to someone in the Chinese government is also important (city or region levels). Finally, there is a growing movement toward “Made in China” with Chinese consumer confidence rebounding after past scandals. Canadian companies are moving toward domestic manufacturing with Canadian ingredients, standards and practices in keeping with the Canadian Brand.