Why U.S. companies should get involved in Chinese markets
The possibility of surpassing the United States, the world’s current largest economy by as early as 2030, shows that the strong growth in China in the next 20 years is very real. Nominal GDP in 2009 for China was $4.9 trillion, about 8% of global GPD, and in the U.S was $14.3 trillion, about a quarter of the global GDP.
The China market, with its 1.3 billion Chinese consumers, one of the highest savings rate in the world of over 30% of household disposable income, have become an area of opportunity that cannot be ignored by any foreign company that wants to compete in the global platform. Currently the world’s fifth-largest consumer market behind the U.S, Japan, UK, and Germany. China is also the world’s largest exporter and second largest importer of goods. In 2009, China overtook the U.S as the world’s largest auto market selling approximately 13.6 million vehicles. China’s fast growth has also created an abundance of wealth. According to Hurun Rich List in October 2009, China has 130 billionaires, second ranked only second to the U.S by number.
Large U.S companies have definitely not been waiting to grab a piece of China’s fast growth. Companies such as Apple, Ford Motors, Nike, Heinz, and the Gap have all taken actions to expand in China, Starbucks and Coca Cola continue to view China as top growth markets, and General Motors have already invested billions in China since a decade ago. According to the U.S –China Business Council, foreign direct investment (FDI) from the U.S in China was up to $3.6 billion last year from the $2.9 billion invested in 2008. In the first half of this year, total FDI in China has already climbed 20% to about $51.4 billion (China’s Ministry of Commerce).
There are definitely challenges that exist for foreign companies in the China market, including government restrictions on foreign investments, counterfeiting, and fragmented local markets. Thus having the right China approach is critical. But with the regulatory environment in China a lot more transparent that it was 5-10 years ago, it has never been easier for international companies to enter the Chinese market. According to the Beijing Axis, a consulting firm that works with foreign multinationals, there are now a lot more opportunities for small- and medium-sized companies than bigger companies in China.
Why should Chinese Companies get involved in U.S Markets? How would that help the overall economy of the United States?
As Chinese companies mature, they must enter the U.S markets in order to survive and compete globally. Not only is U.S the largest consumer market in the world, it is also the world’s leader when it comes to technology, business practices, talents, and exchange of ideas. Chinese companies have already taken an active role to penetrate the U.S markets. Currently Georgia has about a handful of Chinese ventures; Texas has quite a few Chinese telecommunications and industrial manufacturers; in Rockford, Illinois, Chinese automaker Wanxiang Group is planning to build a solar panel assembly plant, hiring 60 employees and eventually increasing to 200. The states have recognized the needed jobs and investments Chinese companies can bring for the local communities that have been devastated by one of the worse recessions in our history. States are thinking of all kind of ways to attract Chinese companies including monetary incentives. The solar plant build by Wanxiang group is expected to be a total investment of $12.5 million with $5 million in incentives from the city and state.
In 2008, foreign direct investments in the U.S from China totaled $1.24 billion, up three times from 2002, according to the U.S Bureau of Economic Analysis. However, this is still only 0.05% of the total $368.2 billion of 2008 FDI invested in the U.S. As the largest foreign holder of U.S treasuries at $877.5 billion as of February, China definitely sees the U.S as a land of vast opportunities, learning ground, and an important role model whose relationship she is eager to maintain and build upon. According to a City administrator in Rockford, there are over $1.3 trillion in foreign exchange reserve locked up in the Chinese economy that the Chinese government is encouraging its people and companies to place back in the United States.
As two of the largest economies in the world, the U.S and China have the most to benefit from in establishing closer relationships with each other. By being more involved in the world’s fastest large economy, U.S companies can capture the needed growth that can help revitalize our economy. By being more involved in the world’s most mature and advance market, Chinese companies can learn to manage their growth, compete competitively globally, and at the same time contribute to the recovery of the largest economy, thus to the global economy.
Benjamin Wey is President of the New York Global Group