Greg Sutch, CEO at Intralink, talks about his recent visit to China and why it’s a good time for western companies to (re)engage the market.
Like so many people, I'd stayed away from China for the past few years, unable to go because of the tough COVID restrictions. But I finally travelled there last month – and wow!
For starters, Shanghai doesn't look like it did three years ago. It feels finished. Gone are the ubiquitous building sites and the dirt and dust that go with them. I was amazed by how the city now seems to sparkle!
Second, the cars! It felt as though I’d been transported into 2030. Of course, the Volkswagen Santana is long gone, but the roads are now dominated by sleek, futuristic, Chinese-made EVs. And seemingly they don’t have horns anymore – or has the city just grown up, because there wasn’t a hoot to be heard?
And third, the people: confident, engaging and chic, with a palpable enthusiasm for doing business!
Why was I so surprised? After all, China has always been one of those places where, if you stayed away even for a short time, you’d notice the change. And this time I'd been away for three years.
But more than this, before going back last month, my impressions of China had been altered by the prevailing narrative in the western press, which revolves almost exclusively around issues of geopolitics, national security and human rights.
The media’s preoccupation with these important issues is understandable. But it’s had the effect of (unfairly) tarnishing all things China: its culture, its people, and its draw as a place for doing business.
I’m not going to get into the debate about separating politics from sport or, in this case, business. But I am going to shout about the importance of China as a market for western products and as a source of inward investment for western economies – especially at a time when so many countries are suffering from the twin ills of inflation and stagnation.
Engine of global growth
Of course, not everything about China has changed. It is still – by a country mile – the world’s second largest economy. And, with a growth rate of around 4%, it will expand by over a quarter by 2028. In fact, between now and then, China will account for a staggering 27% of global growth.
It also continues to invest heavily in its national infrastructure, including the world's largest solar and wind farms as part of its drive to decarbonise its economy. In 2022, the country’s total installed capacity of renewable energy overtook coal for the first time. And the number of electric vehicles (EVs) sold there – more than six million – accounted for half of global sales.
(See this recent video by Daniel Kollar from our Shanghai office for more on the huge opportunities in China’s EV field.)
For the next 20 years, China’s rapidly-expanding middle class will be a powerful engine of global growth, driving demand for every type of consumer good and service. Its fast-ageing population will accelerate its need for all kinds of healthcare treatments. And its (now) shrinking population will make productivity gains – through measures like digitisation and automation – a national imperative.
Not surprisingly, then, after three years of self-inflicted isolation, there is massive, pent-up demand in China for the best products and technologies to address the challenges facing almost every sector of its economy – healthcare, agriculture, wind power, batteries, automated driving systems, semiconductors and much more.
Yet, all the while, too many western companies – those already in China and those thinking about going – are holding back. Even while I was in Shanghai, I heard about one company which had walked away from opportunities in the EV sector worth over $100 million, leaving them for the next guy to pick up.
The reality is that China won’t wait for you!
Hesitance by western companies is reducing overseas competition in China and leaving the field open to domestic companies and those international firms which do have the courage to take the plunge.
There are understandable reasons for not wishing to (re)engage China, but some of these are overstated or misplaced.
Those I most often come across are the “bad experience”, concerns around IP theft, the need to secure regulatory approval, restrictive data security laws, and the Chinese government’s ‘buy local’ policy.
It’s true that some western companies have had some rocky relationships with Chinese customers or suppliers – often 10 or more years ago – and it can be hard to shake off those bad memories. But China is a different place today. And we are older and wiser!
Protecting your intellectual property in China – and securing a favourable judgment if it’s infringed – have become easier. Every company should, of course, have an IP strategy. But China’s record on IP rights is getting better, which is not surprising when you consider the number of patents Chinese companies are registering.
There are workarounds when it comes to storing and transferring your data. And the ‘buy local’ policy is nothing new. In fact, as far back as 2012, Chinese car makers were saying they had strict localisation requirements, but the right technology has always found its way to the customer.
If you’re a company which needs regulatory approval, there’s now a way to sell your products in mainland China while you apply for registration. Provided you have the CE mark, you can register your products in Hong Kong and sell throughout the Greater Bay Area – the vast area spanning Hong Kong, Macao and much of Guangdong province with a population of more than 85 million.
And finally, there’s now a cohort of senior managers inside Chinese companies who have lived in the west, speak English and appreciate the benefits and costs of buying from western companies. They’re well disposed towards working with businesses from Europe and America, and they understand the ‘rules of the game’.
Enormous commercial opportunities
I'm not asking anyone to dance with the devil, but simply to wake up to the enormous commercial opportunities for western business in China.
Encouragingly, visitor numbers are up, international businesspeople are attending Chinese events again, and western airlines are resuming their flights. Both British Airways and Virgin Atlantic started flying to Shanghai from London again a few weeks ago, as did United Airlines from San Francisco – with plans to add Beijing and Chengdu soon.
Certainly, there are structural and cultural challenges to engaging China. And yes, anyone going there should do so with their eyes wide open. But now, more than ever, western businesses should be putting the country at the heart of their current and future growth plans.
To discuss a low-risk approach to China for your business, you can contact Greg at firstname.lastname@example.org