China was able to deal with the covid-19 pandemic very quickly, making it the only major economy with positive year-on-year GDP growth in 2020. The growth of exports, due to production failures of competing producers, contributed to the high volume of the trade surplus. Chinese production has strengthened its position on the domestic and global markets, and this trend will probably continue in the next few years. The expected rapid economic growth in 2021 and in the following years of the new five-year period will be supported by fiscal measures aimed at increasing domestic demand, in accordance with the fulfillment of the new economic model of dual circulation.
Infrastructural investments are expected mainly in the construction of large urban clusters and will thus contribute to the growth of the urbanization rate, which is expected to reach 65% in 2025. To achieve the stated goal of doubling total GDP by 2035, China will need to show average annual GDP growth of 4.7% over the next 15 years.
Central government debt as a share of GDP is low, but will rise steadily in the coming years and is expected to reach 35% in 2025. Total indebtedness is very high and amounts to more than 300% of GDP, which will especially limit the investments of indebted regional governments. The unemployment rate will be more or less stable, but the reported data do not include the migrant workforce and the real unemployment is therefore significantly higher.
Innovation-based development is supposed to be the main engine of productivity growth in the Chinese economy. The plan for the period 2021-2025 envisages a year-on-year growth in research and development expenditure of 7%. Innovations are intended to help not only increase productivity, but also the sustainability of economic growth, which can be significantly limited by a negative demographic curve. The priority should be to increase the share of the digital economy from the current 7.8% to the planned 10% in 2025 through the development and application of digital solutions (big data and its analysis, Internet of Things, industrial Internet, blockchain, artificial intelligence, etc.).
Digitization is also closely related to China’s goal of becoming a powerhouse in advanced industrial production enabling the production of high added value and thus occupying the highest positions in global supply chains. The further development of digitization will be implemented in areas such as transport, healthcare, state administration or, last but not least, retail sales, culture, tourism, education and sport. The share of e-commerce in total retail sales reached almost 25% in 2020 and further growth is expected.
Considerable investment is expected in building a green economy given China’s climate commitments. Achieving emission targets (peak in 2030, neutrality in 2060) is to be supported, for example, by the growth of non-fossil sources of electricity. energy in the energy mix from the current approx. 15% to 20% by 2025, or 25% by 2030.
The emphasis on strengthening the self-sufficiency and resilience of the Chinese economy generates Chinese interest in foreign technologies, which can be brought, for example, by foreign investors and thus fulfill the preferred business model of “being in China and for China” with its production. The service sector can also be an opportunity, where there is a window for the entry of foreign entities into sectors such as education, healthcare, care for the elderly, culture, tourism or sports. The current consumption of Chinese households is only 39% of GDP and significantly lags behind the average of countries with so-called upper middle income levels. If you are still unfamiliar with China market, you can find a China Sourcing Agent.
The Ten Commandments for Doing Business with China
We have prepared ten recommendations for doing business with China for foreign entrepreneurs interested in business relations with China.
- Nothing is easy, but everything is possible Adapt your strategy to the local environment. Get ready for long work lunches and dinners, don’t be afraid of chopsticks and sorghum brandy. He also takes a lot of pictures.
- Without an active presence on the Chinese market, you will not break through It is necessary to travel to China often, participate in business meetings and build relationships (even informal – friendly ones), which are absolutely crucial for doing business. The ideal solution is to appoint someone who understands China and will devote himself 100% to the Chinese market. It is necessary to create a positive relationship with China.
- Be polite and patient What would take an hour in Europe will take seven times longer in China. You need to set aside enough time and not be stressed. At the same time, it is good to make sure (preferably several times) that the business partner really understands you. Frequent changes to already agreed things are completely normal.
- It is important to respect the hierarchy Remember that one of the main doctrines for the Chinese is Confucianism, which is based on a hierarchy of relationships. It is necessary to find a person who really makes decisions in a Chinese company.
- Gifts are a sign of respect Gifts are a sign of respect, commitment and enthusiasm in maintaining relationships. It is usually customary to open gifts in private. Packaging is also important, pay attention to colors and numbers.
- Keep in communication Update the Chinese side at regular intervals to show that you are still developing.
- Business is connected to politics There are sectors where decisions are made at political levels, but you need to keep in mind that you are only going to China to do business. It is not at all appropriate to conduct political debates on the subject of the Communist Party, Tibet, Taiwan or human rights.
- It is necessary to understand the concept of “face”A Chinese partner will never say no to you and will rarely express his opinion openly so as not to lose face. Likewise, Chinese enthusiasm for your product may only mean trying to save face.
- English is totally insufficient To operate in China, it is necessary to have promotional materials, business cards and websites in Chinese. It is also advisable to have an interpreter at business meetings. Just knowing a few basic Chinese words is highly appreciated.
- Everything is digital China is very advanced in information technology and today almost everything happens via mobile phone. The multifunctional social network WeChat is absolutely crucial in everyday use and communication.