China’s vast consumer market, in particular its e-commerce channels, which accounted for approximately £1.1 trillion of purchases from nearly one billion internet users in 2024, are an attractive proposition for many global consumer brands, including those from the UK. The UK’s e-commerce sales totalled £97 million in 2024, making China’s total market ten times larger, although spend per capita is only around half of that in the UK.

Many of both the marketing channels and points of sale – from TV advertising and subway billboards, through to retail stores and online platforms – look similar, but are sufficiently different to derail strategies which have not been sufficiently localised. Whether online or offline, understanding the variance in routes to market, consumer behaviours, and consumer preferences of China versus the UK is vital for any retailer looking to achieve breakthrough success.

Digital Journey: Marketplace vs DTC

Online sales represent just over 30% of total retail sales in the UK, versus a slightly higher 37% in China. However, the digital shopping habits of these two nations’ consumers are shaped quite differently.

Many UK brands launch to market through a direct-to-consumer (DTC) strategy, creating an optimised, highly converting website, and driving traffic through social media campaigns and search engine marketing, email marketing, and affiliate activity. This offers trackable ROI, reduced overheads, and a direct relationship with customers – all attractive qualities in a go-to-market strategy for brands.

China, meanwhile, has a separate digital ecosystem, which has created a different user journey for customers. Rather than on a search engine, consumer search typically starts on either a marketplace, such as Alibaba’s Taobao or JD.com, or on social media platforms such as Xiaohongshu (Little Red Book) or Douyin (Tiktok). Many of these platforms operate in silos – making effective tracking of marketing investment more challenging. Chinese consumers are also accustomed to the convenience of shopping on marketplace apps or indeed natively on social media apps, with almost no sales occurring through brand-operated standalone websites.

Consumer Behaviour: Trust in Recommendations vs Trust in Brand

Chinese shopping behaviour has been shaped by a cultural preference for receiving personal recommendations from trusted sources – whether family and friends, celebrities, or in the digital age, Key Opinion Leaders (‘KOLs’). Gen Z and millennial shoppers, who comprise 65% of China’s online consumers, rely on KOL recommendations and peer reviews on platforms like Little Red Book. Trust in brands is built through social proof, with 80% of Chinese shoppers citing user-generated content as a key purchase driver. This has also driven the inexorable rise of livestream shopping, with livestreamer talent vouching for quality and providing real-time replies to customer queries during their streams.

In the UK, trust is more commonly built through relying on online review sites like TrustPilot – used by 75% of online shoppers – or in physical retail settings through brand partnerships with trusted retailers such as John Lewis. Heritage retailers such as Fortnum and Mason can rely on centuries-old reputations for quality. Influencers play a different role – often brand discovery among younger consumers – but consumers are often wary of content that is seen as too commercial from online stars they follow.

Cultural Nuances

In both the UK and China, aligning your brand with consumers’ daily lives and cultural habits can be a powerful way of building loyalty. Differences in the cultural calendar – Christmas vs Lunar New Year, or the different timings of Valentine’s Day for example – are the basic building blocks of a localised marketing calendar.

Centring Chinese faces and voices as part of any campaign is vital to creating a deep connection. Chinese beauty consumers, for example, seek reassurance that the products are adapted for their skin tone and specific skincare needs, and fashion aficionados want to be sure that garment sizing has been properly adapted.

Cases of marketing messaging which has fallen foul of cultural values – from campaign fails from brands like Dolce & Gabbana, through to backlash for global positions taken by brands like H&M on Xinjiang cotton, demonstrate the need for careful localisation and planning for any player entering the Chinese market.

Functional Retail vs Retailtainment

Many shopping districts in the UK – from retail parks to high streets – prioritise the functional, and above all, sales. Brands rarely venture outside of their niche or dedicate expensive retail floorspace to non-commercial goals, although more integrated O2O solutions, such as click-and-collect, a preference of 60% of shoppers, is starting to bring the digital revolution to British high streets.

Chinese stores are increasingly experiential, and many major brands view them as a marketing channel first and sales opportunity second. From the explosion of pop-ups offering immersive brand experiences, through to stores converted into brand-focused exhibitions, which centre storytelling around brand history and values, and the incorporation of cafes into luxury boutiques, China’s retail environment is at the cutting edge of store design and function.

Malls, meanwhile, are competing for footfall with increasingly entertainment-focused offerings – from trendy restaurants, through to more unusual offerings such as equestrianism experiences. These offers supplement the shopping options and increase time spent in-store, improving both customer experience and sales performance.

Marketing Investment Strategies

In China, marketing investment is heavily skewed towards digital advertising, with social and KOL work taking up approximately 60% of total budgets, versus around 40% in the UK. China’s fast-paced digital environment means users expect quicker reactions to trends, and rapid new product development and launch.

Livestreaming is a perfect example of China’s need-for-speed. This sales channel, which has become the main growth driver of e-commerce sales in China in the past five years, offers merchants an opportunity to generate huge sales in a matter of minutes. However, opportunities to partner with high-profile livestreamers emerge and disappear quickly, with only brands with sufficient light-footed adaptability able to take advantage.

The golden 60:40 rule for allocation of brand marketing versus performance marketing in the UK has shifted towards a preference for performance marketing in recent years – with the ratio now close to 50:50. In China, brands have over-invested in performance marketing – with the ratio closer to 25:75, during the boom years of online e-commerce. In a lower-growth environment, we’re seeing brands shift their focus to longer-term brand building, favouring customer loyalty over continually acquiring new audiences at scale.

Key Takeaways

Brands looking to succeed in China’s competitive consumer marketing landscape in 2025 must ensure they understand their customer journeys, localise their messaging and marketing materials, and work with market experts to navigate a nuanced and sophisticated market. Building long-term success relies on aligning your brand with consumer needs, and a long-term commitment to nurturing customer relationships.

Jack Porteous is the Commercial Director at TONG Global (www.tong.global), a marketing and strategy helping bands to connect with their Chinese customers. Follow him on LinkedIn (https://www.linkedin.com/in/jackporteous/) for more insights on China’s consumer economy, digital ecosystem, and marketing ecosystem.

The post What Are the Key Differences Between Marketing to the Chinese and UK Markets? appeared first on Focus - China Britain Business Council.

In April 2025, Chinese e-commerce platform Taobao, operated by Alibaba, catapulted from 47th to 5th place among free apps on the US Apple App Store. Similarly, DHgate, a platform connecting consumers directly with Chinese manufacturers, soared to the 2nd spot, trailing only ChatGPT. These apps, previously lesser-known in Western markets, have gained traction as consumers seek cost-effective alternatives amid rising prices.​

A significant driver of this shift is the proliferation of viral TikTok videos revealing that many luxury goods, often perceived as European-made, are actually manufactured in China. These videos have prompted consumers to bypass traditional retail channels, opting instead to purchase directly from Chinese suppliers via apps like Taobao and DHgate.​

The surge in app downloads coincides with the US government’s decision to impose a 145% tariff on Chinese imports and eliminate the “de minimis” exemption, which previously allowed duty-free imports under USD 800. These measures have led to significant price hikes on platforms like Shein and Temu, prompting consumers to explore alternative shopping avenues.

While purchasing directly from Chinese apps may not exempt consumers from tariffs, the perception of accessing products at factory prices remains appealing. However, experts caution that this approach carries risks, including potential quality issues and a lack of consumer protections.​

Interestingly, while exports from Chinese e-commerce platforms to the US have declined by 65% in the first quarter of 2025, shipments to Europe have increased by 28%, indicating a strategic pivot towards markets with fewer trade barriers.​

This phenomenon illustrates how digital platforms and social media can influence consumer behaviour, even amidst geopolitical tensions. As trade policies evolve, the adaptability of both consumers and e-commerce platforms will continue to shape the global retail landscape.

The post What is Taobao and why is it at the top of the app charts? appeared first on Focus - China Britain Business Council.

The heavy bass of the music bounces off the walls of the club, arms wave in the air, and waiters deftly dart around the cavernous nightclub, buckets of ice packed with bottles carried over their heads. They bring trays of glasses to VIP tables where jugs of chilled green tea are used as mixers for the bottles of Chivas Regal whisky that are dotted on nearly every table. In one of the many VIP rooms, I sit on a sofa and watch as a bottle of Chivas so big it has to be lifted by a pulley system fills jugs mixed with green tea over ice.

It’s 2006, Beijing, and I’m in Mix, one of a number of huge nightclubs where the newly emerging middle class are coming to let their hair down, dance to techno and show off their wealth. They are doing this by buying enormous quantities of a new Western drink – whisky.

When I first landed in China, I thought Chivas Regal was a chain of nightclubs, such was the vast amount of branding inside and outside nearly every nightclub in the country in those heady days.

In the first decade of the 21^st century, all kinds of brands were trying to crack the lucrative China market and spirits brands were no exception. But Pernod Ricard had decided to push Chivas Regal, which they purchased in 2001, into the market and for a few years at the end of that decade, ‘Chivas and Green Tea’ was the go-to drink for clubbers around the country. It revived the Chivas brand, increased Pernod Ricard’s revenues significantly and helped introduce whisky to a market entirely dominated by the white spirit baijiu.

That year, 2006, China leapt into the top 10 whisky-drinking countries for the first time ever, in no small part thanks to Pernod Ricard’s sustained promotion drive that involved not just sponsoring clubs but fashion shows, international DJs, and even opening their own bar. In 2006, £90 million was spent on whisky in China, according to the Scotch Whisky Association (SWA). Today, that number has increased tenfold, with the value of whisky sales in China reaching nearly a billion pounds.

Growth and expansion: The Chinese whisky market gains influence

China’s national spirit, baijiu – a pungent white liquor made from sorghum that is toasted at banquets, weddings and business meetings – makes up 96% of the country’s spirits market. Whisky absorbs just 1%, with brandy being the dominant imported spirit and vodkas, gins and rums comprising the rest.

Still, a single percent of China’s staggering £120 billion annual spirits sales amounts to a big chunk of revenue. China became the world’s fourth largest whisky market by value in 2023 – up from sixth in 2022. And according to Euromonitor International, China’s whisky sales are expected to double from £920 million in 2023 to £1.8 billion by the end of 2025, which will make China’s whisky market greater than Germany’s. Euromonitor predicts whisky – including Scotch whisky – will be the fastest-growing spirit in China in the coming years, booming by 88% between 2023-2026, and the whisky market in China is expected to grow at around five times the rate seen globally.

In 2022, the Asia-Pacific region overtook the EU in Scotch whisky sales to become the industry’s largest market, and exports of Scotch whisky rose a whopping 37% in 2022 according to the SWA – in no small part due to double-digit growth from China.

For brands, China is becoming increasingly important. China is now Pernod Ricard’s second-largest market, and businesses, both international and domestic, are fully aware that there’s a lot of room for further growth.

Moreover, imports are only part of this picture. There are currently around 48 whisky distilleries either in production or under construction in China as local and international players look to diversify their offerings with Chinese origin whisky.

The rise of the single malt aficionado: A snapshot of the Chinese whisky drinker

Kelvin Tam, the Scotch Malt Whisky Society Brand Ambassador and Development Manager for Hong Kong and Macau, said recently that the number of whisky enthusiasts in China is currently estimated to be between 500,000 and a million. By comparison, 20 years ago, there were a mere 300 whisky drinkers in the whole country.

As well as the rapidly rising number of Chinese whisky drinkers, it’s the demographic of that drinker that is catching the eye of global marketeers. Whilst in the West, whisky has traditionally been preferred by an older audience, in China, it is the young who are drinking more of it. It is estimated that 47% of Chinese whisky drinkers belong to Gen Z (born between 1997 and 2012), and according to a report released by Morgan Stanley, in China, whisky represents more than 50% of the volume of alcohol consumed by the young urban population born after 1990, ahead of brandy and baijiu.

Often well-educated and wealthy, these urban youngsters are buying into a lifestyle that represents culture, class and history. Chinese consumers are more adventurous and willing to experiment with new products, brands and experiences.

The big international whisky brands have realised that the scattergun approach of heavily branding nightclubs and selling cheap whisky to novice punters might have worked a couple of decades ago but is no longer the primary route. In 2023, the volume of imports rose by 6.4%, but their value soared by 23% as buyers looked towards premium products.

The whisky market in Asia “started very much with blends and big brands, trying to do big plays,” says Pedro Mendonça, Global Reserve Managing Director at British drinks company Diageo. “Over the last decade, single malt has taken off, and people are discovering and finding their own way in and appreciating the different flavours and the different characteristics.”

Chivas Regal was still making up nearly 29% of China’s whisky consumption by volume in 2019, but young Chinese consumers, who have their own tastes and preferences, have driven the rise in popularity of higher value, lower volume products. Single Malt Scotch such as Glenfiddich and The Macallan have tripled and doubled their market share respectively in China since then, according to Euromonitor.

In a bid to educate and engage with China’s first generation of whisky aficionados, Diageo has organised 13 whisky summits across China since 2017 and claims to have reached over 12,000 potential Chinese whisky lovers through a “whisky culture education” institution called Diageo Whisky Academy.

Homegrown: The era of the Chinese distillery

Now that an established audience is emerging, the race is on to create a whisky in China for a Chinese audience. French company Pernod Ricard was the first international spirits company to release a Chinese whisky, made at its own distillery in China’s western Sichuan province. The company said it will invest £110 million over a decade in the project, and when its first release ‘The Chuan’ hit the shelves in December 2023, it led to a lot of global headlines.

Pernod Ricard’s The Chuan is the first China-origin whisky created by an international drinks brand

“This first-ever product of The Chuan celebrates the vision of Pernod Ricard to create a prestige malt whisky made in China,” said Jerome Cottin-Bizonne, CEO of Pernod Ricard China, in a press release about the distillery. “We are proud to put China on the world map of whisky by presenting this exceptional malt whisky of The Chuan.”

Diageo has invested over £55 million in its own Eryuan Distillery in Yunnan Province. Chinese brewery Qingdao Beer and Chinese winery Grace Vineyards both have distilleries in the works, whilst baijiu manufacturers Gaolong and Daiking have diversified into whisky production. Gaolong has been producing a range of Chinese-made whiskies for some time; its ‘Gaolong Blended Chinese Whiskey’ and ‘5 Year Old Bourbon Cask Single Malt’ are for sale on the UK-based retail site The Whisky Exchange.

Diageo’s Eryuan Distillery in Yunnan

Cognac company Camus has partnered with baijiu producer Gujinggong to create the £24 million Guqi distillery in Bozhou; and another well-established baijiu producer Yanghe has also moved into whisky making.

Perhaps most astonishing of all has been a major project funded by the MengTai Group that saw the wholesale relocation of stills and equipment shipped in from Scotland by Forsyths to the Ordos region of Inner Mongolia to create a £20 million distillery. The Rothes-based company prefabricated a modular distillery including a two-ton mash tun, copper stills, condensers and stainless-steel tanks. This was shipped over to Inner Mongolia and reassembled, with the aim of producing “world-class whisky” after the two years of maturation in casks that the Chinese national standards require. Like many other Chinese distillery owners, the MengTai Group has engaged experienced managers and head distillers from Scotland to lead the project in a bid to ensure quality and authenticity are retained.

Angus Dundee Distillers – makers of Tomintoul and Glencadam, among others – has also opened its own distillery near Hangzhou. “We’ve been in China since 2005 and decided China was a market for the future,” says Brian Megson, the Director of Angus Dundee Distillers. Megson says that Chun’an Distillery will be finished in two to three years, before then requiring a further four to five years to produce whisky.

The race is on to create a whisky in China for a Chinese audience

Megson explains that the company had plenty of options when looking for the optimal site. “We wanted to find somewhere that’s not just good for whisky production but also good for the visitor centre. This area is great for tourism, and the numbers are mind-boggling. Hangzhou is a big city, and Shanghai is not far away. We found somewhere that was suitable and found a plot and have had a good amount of support from the local authorities.”

Further south, a large consortium of mainly Western investors has opened the Nine Rivers distillery near Xiamen in eastern China. Led by former drinks importer Jay Robertson, the project was developed after the cost of importing drinks “went through the roof”.

Nine Rivers undergoing construction with grand ambitions

Robertson explains that Nine Rivers is sustained through crowdfunding. Sixty-two percent of the investment comes from the board, composed mostly of expats and international investors, and 38% from micro investors, with the entry amount dropping as low as USD $1,000.

Robertson believes Nine Rivers will become China’s single biggest single malt whisky. “We have had interest from corporate money and engagement from big baijiu companies and one big scotch whisky producer, but we’re not interested in that,” he says. “Our strategy is to have lots of people with skin in the game. China is an influencer-led country. Everything has always been a word-of-mouth culture where recommendations from friends and family trump advertising spending.”

Robertson says that Nine Rivers aims to make 1.31 million LPA (Litres of Pure Alcohol) at launch, which would be more than the 1 million LPA Pernod Ricard produces from its two-still set-up, but less than the four stills that give Diageo the capacity for 2 million LPA. However, Nine Rivers has the ability to expand up to 7.5 million LPA as and when the demand requires, he argues, which would make it the largest distillery in the country.

A new terroir for a new whisky territory 

China’s continental size means that the vastly varying natural environment can influence the flavour of any whisky produced. From the dry plains of Inner Mongolia, which is home to the MengTai distillery, to the subtropical jungles of Yunnan, where Diageo has its base – the landscape couldn’t be further removed from the rugged mountains of the Scottish Highlands.

“Yunnan Province is renowned for its temperate climate, rich natural biodiversity and pristine water sources,” a Diageo spokesperson tells me. “Our distillery in Eryuan County will be carbon neutral, and we envision a 100% sustainable approach to malt whisky making that embraces the natural resources and beauty of the region.”

Pernod Ricard’s operation is based in the hot and humid Sichuan province and shares the same water sources on Sichuan’s Mount Emei as Nongfu Spring, China’s leading bottled water brand. “The year-round precipitation coupled with summer heat creates the exceptional environment for whisky making that increases the intensity of flavours with more evaporation,” says a Pernod Ricard spokesperson.

But whisky is not just the sum of its parts. The parts matter a great deal, too. Much debate has been had in Chinese whisky circles about whether local barley and grains should be used to produce whisky or whether they have to be imported.

“I believe core whisky consumers expect a Chinese whisky to be ‘Chinese’, which means made entirely in China, from mashing to fermentation to distillation to maturation, all carried out in China,” says Kelvin Tam of the Scotch Malt Whisky Society. “Blending with imported whisky, even if resulting in better whisky, will be considered cheating, hence rejected by at least core consumers.”

Whisky is not just the sum of its parts. The parts matter a great deal, too.

According to both Whisky Advocate and Global Drinks Intel, Pernod Ricard’s The Chuan whisky includes imported distillate. Pernod Ricard states that: “Chinese ingredients have been fused into high-standard whisky making, such as the use of both European and Chinese barley and the unique mastery of three types of oak from three continents that defines its complexity.”

Diageo says that it will combine its “prestige whisky expertise and craftsmanship with local natural resources to create the finest quality Chinese origin single malt whisky with unique character and provenance. Where possible, we will look to optimise local sourcing for the production process.” However, they say that they cannot comment at this time on what that means in terms of type and location of grain, mixed or pure Chinese distillate, type of barrels, as the distillery has not yet formally launched. “Our single malt whisky produced in China will have its own unique brand and characteristics,” Diageo says.

Brian Megson of Angus Dundee also tells me that there are “options of both importing barley or using local grains” in their Chinese distillery. However, according to Robertson of Nine Rivers, all barley is imported to China (from the US, Australia and Europe) as the Glycosidic nitrile content of Chinese Barley is too high, which can lead to carcinogenic compounds being created in the malting process. “Even the beer in China is made with imported barley,” he claims.

Ultimately, how much does it matter? Each territory has its own rules, as Robertson points out. “Australian whisky mostly uses the same wash from the same brewery; the US has many types of whisky – corn whisky, rye whisky, bourbon whisky, Tennessee whisky – with different rules about maturation. Ireland, you have much more flexibility of wood; in India you can call almost anything whisky, Japan has little regulation,” he says. “In China the regulations are similar to Scotch, but it needs two years in a barrel instead of three.”

Robertson says that he wants to differentiate Nine Rivers from Scotch as much as possible. “We are in China, it’s the world’s biggest economy – they are now at the top of the food chain in nearly every single industry. It’s the ones that break out who become world-beaters. Why try and get into the slipstream of Scotch? Yes, it’s whisky but there are a lot of things that we can do differently – bringing in terroir, utilising local yeasts and creating our own cooperage (barrel maker).”

Without the strict rules that are imposed on Scotch, whisky made outside of Scotland has the flexibility to use different maltings, waters and casks to create something wholly new.

Wu Hao, the master distiller at the Laizhou distillery, is experimenting with whisky aged in Chinese yellow wine casks. “We season the casks with yellow wine for about 24 months,” he says. “Whisky matured in a yellow wine cask is similar in style to a sherry whisky but gives a hint of fermented rice – something that Chinese consumers would be familiar with. When we cook food, we always include rice wine so the flavour is very familiar to the Chinese market. It’s a great innovation in that it follows traditional techniques but uses Chinese culture,” he explains.

Laizhou is the largest distillery currently operational in China

Laizhou also has its own cooperage, and, says Chen, they have been putting whisky into any and every barrel they can get their hands on. “China is a big market with a large population, and we don’t know what flavour [whisky] Chinese consumers will love, so we want to have all different flavours of casks – bourbon, every type of sherry casks, rum, tequila casks. Our objective is to get as many casks as exist in the whisky world to help find what flavours the Chinese consumers will love,” he says.

The group has also spent years analysing what types of local woods might be used in their production. “Mizunara wood from Japan is a branch of Mongolia oak which originates from China. Mongolian oak is the same as Mizunara but it’s hard and difficult to bend, so it has some problems when used to make whisky with leakage, meaning the angel’s share is often as much as 30%,” he says.

Laizhou currently uses nearly all English barley, but they are experimenting with local grains, too. It’s likely local distilleries will experiment with a wide range of grains and processes to find their unique Chinese flavour profile. Chen explains that when the Chinese market determines what that preference is they have the capacity to pivot in that direction very quickly.

With a global shortage of wood for barrels to age the distillate, rumour has it that the Chinese baijiu producers that are moving into whisky production are pushing for oak staves, chips and even powder to be used to flash age whisky. However, global institutions, including the Scotch Whisky Association, have been keeping a close eye on this emerging market, aiming to ensure the existential concept of what a whisky is does not get too diluted.

Investment by big players into producing a local origin whisky demonstrates the vast untapped potential of whisky in China

“Over several years, the SWA has been working with a variety of stakeholders, including the China National Institute of Food and Fermentation Industries, the Chinese Alcoholic Drinks Association and the Foreign Spirits Producers Association in China to provide input on the revision of the Chinese Whisky Standard,” says Lindesay Low, Deputy Director of Legal Affairs at the SWA.

“The whisky category in China has been built by Scotch Whisky. Now that domestic producers are taking an interest in making whisky, the SWA wants to make sure that, so far as possible, they follow the same high standards that apply to Scotch, Irish, US Bourbon and other internationally traded whiskies. This is to maintain the category’s premium reputation and to ensure that Chinese consumers, who have become accustomed to this type of whisky, are not short-changed, for example, by being sold whisky that has not been aged in wooden barrels,” says Low.

“Places like India and the US have established whisky industries, and producers there make their whisky in line with established laws and practices”, Low says. “In China, however, where whisky has not been distilled in significant quantities previously, the Chinese authorities were keen to learn from other countries when creating their new standard. Our position was that because Chinese consumers were accustomed to Scotch Whisky, they should follow that definition as closely as possible, taking account of local conditions.”

Rules, regulations and cultural challenges 

The aim of domestic companies and global behemoths alike is to create a Chinese-origin whisky that will supply the growing domestic market, avoid import regulations, bypass shipping costs, and circumnavigate any geopolitical tensions. If done well, they might have the potential to be exported globally like the Taiwanese Kavalan and Japanese Nikka whiskies.

China might be a vast market, but its unique make-up presents challenges, too. Whilst spirit imports rose by 22.8% in 2023, bottled wine imports to China fell 17.6% by value and 29.1% by volume during the same period. This was partly due to political conflicts between China and Australia and other wine-producing regions. On top of this, an oversupply of domestically produced wine and a growing (government-led) nationalistic drive to promote, support and buy domestically may further complicate the picture. And markets can swing far more rapidly in China than in more established regions. Operating in China for new brands can be daunting, with significant obstacles across language, culture, regulatory and intellectual property.

The SWA has been instrumental in keeping whisky import tariffs at just 5% (compared with 10% prior to December 2017), but it’s important for brands looking to enter the Chinese market to be fully aware of the risks – as well as the clear benefits.

Sarah Talland of law firm Potter Clarkson has supported a number of whisky companies entering the Chinese market and is well aware of the potential pitfalls that can arise. “In China, there is a first-to-file trademark system that effectively means someone else can ‘steal’ your brand with little consequence if they file your trademark before you do”, she says. “Therefore, it’s essential to create your own Chinese name before your customers or third parties do it for you.”

An error many companies make is contacting possible partners in China without obtaining their own IP protection first. “This could result in you being blocked from the market or being forced to work with distributors you would prefer not to, if someone else registers first,” she explains.

Talland tells me that there are many brands that have done this well. Both Glenfiddich and Bruichladdich sensibly ensured they had their trademarks protected and logo copyright in place and took local guidance on suitable Chinese names before they entered the market on a large scale. Now they are both successful whisky brands in China.

With rapidly growing demand and an increased awareness of whisky, sales of both volume and high-value whisky are predicted to continue to rise and rise. The investment by some of the big players (and the emergence of newer makers) into producing China origin whisky goes to show the vast untapped potential of whisky in the country. Is China’s market a challenging one? Without doubt. But are the risks worth the seemingly endless rewards? For many, it seems so.

Event: The China Whisky Outlook 2024

This June, Barley will be co-hosting ‘The China Whisky Outlook 2024’ in partnership with the China-Britain Business Council and the Scotch Whisky Association. 

The event will be held in Edinburgh on 20 June 2024 in partnership with Potter Clarkson and will cover topics including how to protect your Scotch Whisky brand in China, how to export your whisky to China, and the Chinese whisky market landscape.

Speakers include Iain Weir (Ian Macleod), Paul Skipworth (Eden Mill St Andrews/SMWS), Sarah Talland (Potter Clarkson), Lindesay Low (SWA), Tom Pattinson (Barley), James Brodie (CBBC) and more to be announced.

The free event is open to businesses in the whisky industry who have entered or plan to enter the Chinese market. To express interest or to register click here.

Potter Clarkson’s dedicated FMCG team specialise in maximising the value of food and drink brands and products. If you’d like to discuss how they can help you identify, protect, exploit and enforce your ideas and innovations, please contact them at fmcg@potterclarkson.com.

The post The long read: The rise and rise of whisky in China appeared first on Focus - China Britain Business Council.

Since exploding in popularity in the late 2010s/early 2020s, fast fashion retailer Shein has captured the attention of millions of shoppers worldwide with its rapid trend cycle and rock-bottom prices. However, its exponential growth has raised concerns within the business community and among consumers.

In this article, we delve into the background of Shein, its remarkable growth, concerns surrounding its business model, and the implications of its expansion for British companies in China and beyond.

What is Shein?

Shein (pronounced ‘shee-n’ or ‘shee-in’) is an online fast fashion retailer with an app and website. It predominantly sells clothing, as well as homewares, beauty products, and an increasing range of miscellaneous items. Sales are driven by heavy discounts – which pop up as soon as a user accesses the website or app – and extensive influencer marketing, as well as the sheer number of products available to browse.

Like Temu, Shein keeps prices low by selling products directly from a network of third-party manufacturers in China. The real key to its success, however, lies in its ‘on-demand’ model, which leverages user data to quickly boost or shut down production of items based on how well they’re selling or what people are searching for. By placing small orders from suppliers who both design and manufacturer items, it can get items on its virtual shelves in as little as a week, allowing it to capitalise on so-called micro-trends and encourage people to keep buying.

Shein then ships products directly from China in individual shipments that have a low enough value that they avoid customs duty in countries like the US and UK. It ships to over 150 countries.

Shein became the largest fashion retailer in the world in 2022 after securing a US$100 billion valuation in a funding round, and it achieved more than £1.3 billion in sales in the UK alone in 2023 according to GlobalData. Although much of this growth has been attributed to Gen Z TikTok users, the average Shein user actually skews a bit older, at about 35 years old, and their average monthly spend is about US$100. This suggests that many consumers aren’t using Shein as an option to buy affordable essentials but rather are using its bargain prices to pad out their wardrobes with impulse buys.

Who owns Shein?

Shein was founded in 2008 by Chris (Yangtian) Xu, an SEO specialist. After several years of e-commerce operations under various guises, Xu changed his company’s name to Shein in 2015. The company ticked over for several years before the pandemic gave it its final push into the stratosphere – especially as brick and mortar retailers struggled.

Despite the company’s success, Xu has remained a mysterious figure. He rarely accepts interviews or even releases public comments. However, with an IPO thought to be on the way, he could find himself thrust into the spotlight.

Are there any criticisms of Shein?

Shein sits at the crest of a new wave of ‘ultra-fast fashion’ retailers that are attracting scrutiny for their environmentally damaging practices. The manufacturing of synthetic fibres like polyester and nylon – prevalent in fast fashion clothing – is highly energy intensive and produces large amounts of microplastics, while textile dyeing is one of the largest sources of water pollution. Overall, the UN Environmental Program has estimated that the fashion industry accounts for 10% of global carbon emissions.

Moreover, Shein’s rapidly changing stock encourages a low re-use rate, and its products come packaged in large amounts of non-recyclable packaging.

Nevertheless, proponents of Shein’s model say that by gathering data on what consumers are buying and then directly feeding it back to manufacturers, they can reduce the production of unwanted items.

In addition to environmental concerns, Shein has repeatedly come under fire for copying designs and styles from independent designers. In July 2023, three US-based designers filed a lawsuit against Shein for “egregious copyright infringement”, alleging that it intentionally and systematically copied their designs. Shein has repeatedly said that it takes all copyright claims seriously and has introduced new AI tools to combat IP theft.

Beyond copyright, like other Chinese platforms, Shein is also facing scrutiny for its collection and use of data, especially in the US. A report published by the US-China Economic and Security Review Commission in April 2023 accused platforms such as Shein of “posing risks and challenges to… regulations, laws, and principles of market access”.

What is the future of Shein?

In November 2023, Reuters reported that Shein was submitting applications to US and Chinese regulators for a US IPO in 2024. Shein did not confirm the size of the deal or its valuation at the time, but sources told Reuters it was targeting up to US$90 billion.

However, on 27 February 2024, Sky News revealed that Chancellor Jeremy Hunt had met with Shein chairman Donald Tang to try to convince the company to float in London instead. If Shein chose London, it would be the second-largest IPO in the history of the London Stock Exchange and provide a major boost to the UK as a business destination.

In sum, there is no doubt that Shein is a Chinese company that has successfully “gone global”. However, in the long term, it may need to reflect on its business practices if it wants to stay on the good side of legal and regulatory bodies in countries like the UK and the US.

The post What is Shein? The Chinese fast fashion retailer explained appeared first on Focus - China Britain Business Council.

Thankfully, in July 2023, WeChat announced that it would start facilitating the use of Visa, Mastercard, JCB and other international cards for payments in China via WeChat Pay (sometimes known as Weixin Pay). This follows a similar move by Alipay in May 2023. WeChat has been trialling the ability for users to add international cards since 2019, but efforts had fallen by the wayside during the pandemic.

How to add an international card on WeChat Pay

To get started adding an internationally-issued card to your WeChat Pay, you will need:

• Your identity document (for Brits, this will most likely be your passport, but the Foreign Permanent Resident ID Card, Mainland Travel Permit for Hong Kong and Macao Residents, Mainland Travel Permit for Taiwan Residents, Residence Permit for Hong Kong and Macao Residents, and Residence Permit for Taiwan Residents are also accepted)
• A mobile phone number that can receive SMS verification codes (does not have to be a Chinese number)
• Your debit or credit card (must be the same name as the name on your identity document)

Then, take the following steps (the WeChat interface is available in English, so it should be fairly self-explanatory):

1. Open WeChat and then tap “Me” in the bottom right-hand corner
2. Tap “Services” and then “Wallet”
3. If you haven’t already, you’ll be prompted to fill in your identity information for real-name authentication. Simply follow the steps on screen
4. When prompted, select “Add Bank Card”
5. Enter the card number, select the type of card, and the issuing organisation. Fill in the required card and personal information
6. Once you have filled out your information and clicked “submit”, an SMS verification code will be sent to your phone number. Enter the code to complete the verification process
7. You may also be prompted to create a 6-digit payment password

Where can you use WeChat Pay once you’ve linked your international card?

International cards can be used for everyday transactions in mainland China by scanning a QR code to pay or presenting your payment code or for in-app payments for things like e-commerce, food delivery and ride-hailing.

You won’t be able to send or accept money transfers or red packets (these can only be used if you have a mainland China bank account).

Are there any spending limits or transaction fees?

WeChat waives transaction fees for any single transaction under RMB 200 – very handy for everyday spending in small shops and restaurants. Above RMB 200, the transaction fee is 3%.

There is a limit of RMB 6,000 per transaction and a cumulative monthly spending limit of RMB 50,000.

Can you add international cards on Alipay?

Alipay also allows you to link a Visa, Mastercard or other international card, and the process is similar to linking a card to WeChat Pay. You will also need to have your identity documents to hand to complete real-name authentication.

The post How to set up an international card on WeChat Pay appeared first on Focus - China Britain Business Council.

The world’s appetite for new technologies is only increasing, and China is determined to take advantage of this demand and become a leading global technology market. China’s tech landscape has grown rapidly in a short space of time, with its digital economy now accounting for about 30% of its GDP (that’s more than doubled since 2008). As Chinese businesses and consumers embrace technologies such as the Internet of Things (IoT), big data and artificial intelligence (AI), the government is also investing significantly in new technologies to boost China’s global position in science and technology innovation.

China recently set out the core direction of the forthcoming 14th Five Year Plan, which will drive China’s economic development from 2021 to 2025. Tech and innovation have been singled out as being central to this strategy, with a particular focus on achieving national self-reliance through increased research and development (R&D). This emphasis on technology and innovation is likely to create a range of opportunities for UK tech exporters to fill innovation gaps within increasingly sophisticated supply chains.

With a population of more than 1.4 billion, over 100 cities of more than a million people, and 900 million citizens with access to the internet, the potential for the tech sector is huge and presents a big opportunity for foreign tech companies. With important trade links across the whole of Asia, China is a key market to crack for any business with global ambition.

Investment in emerging technologies

A key driver behind China’s rapidly growing tech sector is the government, which has made it a priority to become a leading global technological superpower by 2050. In 2015, it outlined the Made in China 2025 strategy, a national 10-year plan to develop Chinese high-tech manufacturing such as IT and robotics. This aims to accelerate China’s transition from low-value-added manufacturing towards an innovation-based economy.

One in three of the world’s unicorn companies (the term given to privately held start-ups valued at over $1 billion) are now Chinese

China’s government has promoted the development of emerging technologies through a supportive policy environment, establishing large-scale funding of research, and attractive incentives for tech entrepreneurs. One in three of the world’s unicorn companies (the term given to privately held start-ups valued at over $1 billion) are now Chinese. The country also accounts for 50% of global digital payments and three-quarters of the global online lending market.

China now has the second-largest AI market after the US, and PwC predicts that AI technologies could contribute a 26% boost to GDP by 2030. Part of China’s AI success is also down to its vast population, which enables companies to gather and harness huge amounts of data. China’s rapid adoption of AI and data-driven technologies is now a major growth driver. For some sectors and applications, opportunities are emerging for closer UK-China collaboration, leveraging the UK’s deep expertise in this area. The UK’s AI unicorns have now all launched in China.

The post Why China will become a tech superpower by 2050 appeared first on Focus - China Britain Business Council.

The year 2016 saw a significant milestone: it was when the number of Chinese US-dollar billionaires overtook the number of America billionaires. Since then, the numbers have swelled. According to the Hurun Report’s 2020 China Rich List, there was more wealth created last year than the past three combined. ‘The world has never seen this much wealth created in just one year,’ says Rupert Hoogewerf, Chairman and Chief Researcher of the Hurun Report. Those at the top of the list come from a wide range of industries – from real estate and fintech to beverages and (perhaps oddly), pork farming.

Many on the list have risen on a scale unseen anywhere else in the world: Xu Jiayin started by mucking out university latrines and ended as the chairman of a US$500 billion company. Wang Wei began China’s largest delivery service as a smuggler in a mini-van.

Xu Jiayin started by mucking out university latrines and Wang Wei began as a smuggler in a mini-van.

A wealth assessment based on stock market value makes the top ten an ever-changing list, the Forbes Real Time Billionaires list tracking the many different competitors as they rapidly rise and fall. The Hurun Report’s annual China Rich List (published October 2020) offers a more long-term view, providing the names for our list of China’s richest in 2020, but as of January 2021, real-time positions had already shifted dramatically. Hurun estimates are taken from September 2020, Forbes from mid-January 2021.

1. Zhong Shanshan

Company: Nongfu Spring; YST
Location: Hangzhou
Industry: Beverages and vaccines
Forbes Estimated Net Worth: US$91.1 billion
Hurun Estimated Net Worth: US$53.7 billion
Age: 66

Zhong Shanshan is a bottled water magnate, and now the richest man in Asia. China is the world’s biggest market for bottled water, already forecast to be worth US$58 billion in 2020 and expected to grow at a compound annual growth of 4.9%, according to Statista.

Zhong has rocketed to the top this year thanks to the IPO on the Hong Kong stock exchange of his brand Nongfu Spring, whose red-capped bottles of mineral water are as ubiquitous in Chinese shops as Coca-Cola. Nongfu saw its value rise by US$47 billion through its IPO, and Zhong owns an 84.4% stake in the company. Bottled water is considered by investors as a safe bet in the current uncertain economic climate. He is also the owner of the vaccination company Beijing Wantai Biological Pharmacy, which listed in April last year on the Shanghai stock exchange, currently with a market capitalisation of US$17 billion. At the time of writing, he has overtaken Jack Ma and Ma Huateng (who topped Hurun’s China Rich List 2020) to become Asia’s richest man and in the Top 10 of the Forbes Rich List.

After dropping out of elementary school during the Cultural Revolution, he started out doing odd jobs as a mushroom farmer, builder and peddler of erectile dysfunction pills. Zhong launched his Nongfu Spring brand back in 1996, edging ahead of rivals by switching from purified water to mineral water, arguing it was more beneficial to health; that Nongfu Spring tasted sweet was only further proof that it was good for you. The company has since branched out into numerous beverages, including orange juice and coffee, and currently has a market share of over 26%. Zhong is a notable recluse, refusing to speak to the press and telling China Daily in 2016 “I don’t like making friends with businesspeople”. It’s not for nothing that he’s been nicknamed the “Lone Wolf”.

2. Ma Huateng

Company: Tencent Holdings
Location: Shenzhen
Industry: Fintech and E-commerce
Forbes Estimated Net Worth: US$66 billion
Hurun Estimated Net Worth: US$57.4 billion
Age: 49

‘Pony’ Ma is reserved about his private life, but is known to be interested in astronomy and art collecting, and started dating his future wife after meeting her on his own instant messaging platform, QQ. He is China’s second-richest man thanks to a 9% stake in Tencent Holdings, this year seeing a wealth increase of 50% according to Hurun, owing to a good performance by Tencent Games, further expansion of WeChat, and good returns on investments (especially Tesla and Meituan).

This Ma has been sure to keep the state on side. He served in the 12^th National People’s Congress, and in a discussion on censorship at a Singapore tech conference, Ma is quoted as saying “Lots of people think they can speak out and that they can be irresponsible. I think that’s wrong[…] We are a great supporter of the government in terms of information security. We try to have a better management and control of the Internet.” In 2016, Ma pledged that 2% of annual net profits would be given to charity – in April of that year he pledged 100 million shares in Tencent to a personal charity fund.

3. Jack Ma

Company: AliBaba Group
Location: Hangzhou
Industry: Fintech and eCommerce
Forbes Estimated Net Worth: US$62 billion
Hurun Estimated Net Worth: US$58.8 billion
Age: 56

It’s a funny thing. I’m running one of the biggest e-commerce companies in China, maybe in the world, but I know nothing about computers. All I know about computers is how to send and receive emails and browse

Although the two Mas are rivals in the world of fintech and e-commerce, they have very different personalities. The former CEO of Alibaba relishes the spotlight (occasionally performing at music events in loud outfits), preferring to see himself as a straight-talking businessman rather than a tech expert. It’s been a stratospheric rise for Ma, from humble beginnings as a 12-year old boy offering visiting Americans tours in exchange for English lessons. 2020 had been a good year, with the pandemic leading to sales boosts on Taobao, and Alibaba listing on the Hong Kong stock exchange, making his the first internet company to have dual listing on the Hong Kong and New York stock exchanges. But his wings were clipped after he criticised China’s banking regulations, accusing Chinese banks of having a ‘pawn shop’ mentality. That lead to the postponement of the Ant IPO on the Shanghai and Hong Kong stock exchanges.

It was tipped to be the world’s largest IPO to date (valued at US$200 billion), with numerous state institutions heavily investing in the venture, but the suspension, coupled with new micro-lending rules, means Ant is unlikely to have retained its pre-suspension valuation. Ma dropped out of public view in October last year, only reappearing in mid-January 2021 in an online video for the Jack Ma Rural Teachers Award. For Hoogewerf, the crackdown by Chinese regulators is typical of the anti-monopoly moves being made by governments across the globe, adding, “If you give them another five to ten years, they’ll be really too big for anyone to go after.” If Ma honours his pre-suspension pledge to donate 600 million shares of Ant to charity upon listing, he will have donated over US$10 billion throughout the course of his career to date.

4. Huang Zheng

Company: Pinduoduo
Location: Shanghai
Industry: e-commerce
Forbes Estimated Net Worth: US$60.2 billion
Hurun Estimated Net Worth: US$32.4 billion
Age: 40

The founder and (until July 2020) CEO of Pinduoduo, Huang Zheng (or ‘Colin’ Huang) is the youngest self-made billionaire in the Hurun top 10. Although Huang is responsible for a raft of apps (like Vova, an important European e-commerce app) his wealth is largely thanks to Pinduoduo. This app raised US$1.6 billion on a US IPO in July 2018. Zheng turned down safe job offers from IBM and Microsoft in 2004, preferring instead to work for the then more obscure but intriguing Google. He left Google in 2007 and became his own boss, establishing several companies before landing on Pinduoduo. The app combines social media, gaming and e-commerce, offering price discounts if users can encourage their friends to buy in bulk. Huang compares it to a fusion of Costco and Disneyland, merging shopping with fun.

Astonishingly, despite being only five years old, the app attracted over 643 million monthly active users in the second quarter of 2020 (Alibaba recorded 874 million monthly active mobile users in the same period) meaning it is now one of the fastest-growing businesses in the world, a serious contender to market giants Alibaba and JD.com, “an extraordinary achievement” according to Hoogewerf. Pinduoduo targets lower-income individuals in lower-tier Chinese cities and has come under criticism for selling poor quality goods and overworking staff. Due to the pandemic, Pinduoduo had a good year, with Huang’s wealth the fastest growing of all Chinese billionaires during the Chinese lockdown in March and April. Overall his wealth rose by 63% in 2020 – indeed, if he hadn’t given away 14% of Pinduoduo’s shares to his team and to charity, he would have become China’s richest man.

5. He Xiangjian

Company: Midea Group
Location: Foshan
Industry: Electrical domestic appliances
Forbes Estimated Net Worth: US$41 billion
Hurun Estimated Net Worth: US$33.1 billion
Age: 78

Midea Group describes itself as ‘the world’s largest manufacturer of consumer appliances’, with assets totalling US$40 billion – and China’s largest air-conditioner exporter. The company originated in a shack in Beijiao, Guangdong province (now absorbed by the city of Foshan), where local villagers would make plastics in secret. The demand for consumer products during China’s Reform and Opening Up period caused He to transfer to electrical appliances, sales booming immediately.

At peak production, a fifth of all home appliances in China were being made in Beijiao , and Midea became China’s first small-town enterprise to be listed on a major stock exchange. He has since bought up the German robotics company KUKA (the world’s largest manufacturer of automobile-building robots). He has now resigned from leading the company, and is currently just the controlling shareholder of the group. He is the first 100 billion yuan enterprise to not hand over chairmanship to family, rather giving it to his second-in-command, Fang Hongbo. Although family-run businesses are still a popular model in China, larger Chinese firms like Alibaba have begun to separate management and ownership. “As these companies get bigger and bigger,” says Hoogewerf, “these splits between management and shareholders have to come about and I think He Xiangjian has done a better job at it than most.”

6. Wang Wei

Company: SF Holding
Location: Shenzhen
Industry: Logistics
Forbes Estimated Net Worth: US$38.5 billion
Hurun Estimated Net Worth: US$35.3 billion
Age: 50

I know the taste of being poor, of being discriminated against by people for being poor”

Today, China’s largest delivery service by market revenue is SF Express, generating US$17 billion in 2019. Thanks to the isolation brought about by the pandemic, the company had a windfall year in 2020, effectively doubling Wang’s wealth. This isn’t the first time Wang has done well out of a pandemic: the SARS crisis of 2003 saw Wang create a deal with the airline Yangtze River Express, allowing his company to be the first private express company in China to charter cargo planes. Wang started out illegally smuggling parcels in and out of affluent Hong Kong in a minivan. “We would be fined if caught by postal officers, so we had to handle packages sneakily”, he is quoted as saying. He’s also been looking into the future of logistics: in 2018 his company obtained the country’s first licenses for drone deliveries.

7. Ding Lei

Company: NetEase
Location: Hangzhou
Industry: Online Gaming
Forbes Estimated Net Worth: U$34.4 billion
Hurun Estimated Net Worth: US$32.4 billion
Age: 49

One of China’s internet trailblazers, Ding Lei is the CEO of NetEase. At university, he would reportedly regularly question teachers, and taught himself to code in his spare time. By the time he graduated, unlike most of his peers, he had the skills needed to create software himself. He quit cushy and stable jobs in state telecom companies to create internet start-ups, much to the chagrin of his family. He became China’s richest man in 2003 thanks partly to his free email system (handy during the SARS epidemic), but mainly due to the popularity of his online gaming services (especially the ever-popular Fantasy Westward Journey). Gaming now accounts for nearly three-quarters of NetEase revenue, and although they have long been overtaken by the likes of WeChat, Ding Lei still managed to increase his wealth by US$14 billion this year, by branching into mobile games and pork markets. In 2015, NetEase expanded into western markets, opening a US headquarters near San Francisco.

8. Yang Huiyan

Company: Country Garden Holdings
Location: Foshan
Industry: Real Estate
Forbes Estimated Net Worth: US$33.1 billion
Hurun Estimated Net Worth: US$33.1 billion
Age: 39

With total revenues of US$27 billion in 2020, Country Garden Holdings was ranked 147^th on the Fortune Global 500 and is one of China’s largest real estate developers. Its majority shareholder is Yang Huiyan, groomed from an early age by her self-made father Yang Guoqiang to be his successor, transferring 70% of the company shares to her before its IPO in 2007. At 25, Yang became a billionaire, and now acts as co-chairman of the board’s governance committee. Friends claim that she is fairly shy, and had wanted to be a teacher growing up – which probably explains the fact that she is also chairwoman of Bright Scholar Education Holdings, the largest operator of bilingual K-12 schools in China.

9. Xu Jiayin

Company: Evergrande Group
Location: Shenzhen
Industry: Real Estate
Forbes Estimated Net Worth: US$30.2 billion (from Feb 2020)
Hurun Estimated Net Worth: US$34.6 billion
Age: 62

Xu Jiayin, Chairman of Evergrande Group, was China’s richest person back in 2017, but his wealth has dropped by over US$20 billion in the past three years. Evergrande is one of the world’s largest property developers (with 800 projects in 280 cities) and the world’s most valuable (with assets totalling US$500 billion as of June 2020). But it is also the world’s most debt-ridden, currently owing US$88 billion to Chinese banks according to Bloomberg, and US$35 billion from international bondholders. Defaulting on these debts would be highly damaging to both domestic and global markets, but Evergrande managed to reassure markets in September 2020 by reaching a deal with investors to retain their shares and avoid Evergrande making repayments – it has not been specified when repayments have been delayed until.

Xu “is probably the most skilful I know at walking the tightrope,” says Hoogewerf. “He’s always been very aggressive in terms of expanding sales and also managing his debt…to be able to balance those two is incredible. It might be difficult, but there’s a very good chance he’ll pull through.”

After all, it was still a relatively good year for Xu Jiayin, whose IPO of Evergrande was approved in September, valued at US$1.8 billion. Besides, Xu is no stranger to hardship: his mother died when he was very small and he grew up in poverty in rural Henan, claiming to have survived university on mouldy sweet potatoes and happily clearing drainage ditches from the school latrines. He is now the owner of prominent sports clubs worth millions, and even pledged an investment of US$6 billion in electric cars in 2019. Furthermore, Xu Jiayin is a member of the Standing Committee of the Chinese People’s Political Consultative Conference, a body of experts and individuals who advise government policy. In 2018 he advocated private real estate enterprise deploy their resources towards reducing poverty alleviation, saying the Group had built 50 villages in Guizhou over two years alone to aid social housing. In the late 2010s he gave very generously to charity, topping the Forbes China Philanthropy List for three years in a row.

10. Qin Yinglin & Qian Ying

Company: Muyuan Foods
Location: Nanyang
Industry: Pork Farming
Forbes Estimated Net Worth: US$25 billion
Hurun Estimated Net Worth: US$29.4 billion
Age: 55 and 54

“I never believed that a pig farmer could break into to the Top 10,” says Hoogewerf. “That was something that completely went against everything I knew about big tech and everything else in the year 2020.” The husband and wife team are the joint-owners, founders and directors (with husband Qin Yinglin as Chairman) of Muyuan Foods. The Shenzhen-listed company is the largest pork breeding company in the world’s largest pork market. The couple benefitted from an outbreak of African swine-flu in China in 2019, sending pork prices up by 140% that year. Such unprecedented profits – up over 1,000% in 2019 – means the couple have seen their wealth grow six-fold. From a litter of 22 piglets in 1992, the company sold 10 million animals last year and aims to produce 25–30 million for slaughter by the end of 2021. The company has recently expanded operations on a giant scale, opening what is billed as the largest hog farm in the world, leasing enough land to hold 80 million pigs.

The post Post Covid-19, these are China’s 10 richest business leaders in 2021 appeared first on Focus - China Britain Business Council.

1. Misunderstanding Chinese consumers

Chinese consumers are not the same as consumers in the UK or the West. Their tastes, styles, budgets and requirements are all different and therefore products and services that sell in the UK might not necessarily sell in China. It is therefore absolutely vital to conduct thorough research about Chinese consumer habits and preferences to find out whether your product will work in the China market.

Nevertheless, many brands have had success when localising their products to the local market. From different clothing sizes to targeted milk products to crab flavoured Pringles – those that understand their consumers will certainly fair better. Also, China’s appreciation of soft skills, consultancy and services is not yet as financially valued as in the UK, therefore market research, competitor analysis, testing and focus groups are all strongly advised before a full-on launch.

2. Underestimating the time involved

Unlike other territories, expanding an existing business into China is not a quick and easy task. The legal, financial and regulatory processes can be complex depending on which sector your company is in. And leaving it all to local staff and partners to manage can be costly in the long term. Allocating appropriate funds, hiring and training local staff and dedicating time for senior staff to get to know the market, the local office and the local staff is essential.

3. Ignoring KOLs and KOCs

Top KOLs can drive brand awareness and sales conversations, but they can also be costly

Key opinion leaders (KOLs) and key opinion consumers (KOCs) are the Chinese equivalent of social media influencers and are instrumental in a brand’s success or failure. While KOLs can be celebrities or other types of influencers paid to promote brands on their social media posts, KOCs are regular consumers, albeit with a large social media following, who are trusted for their reviews and brand preferences. Choosing the right KOLs or KOCs to advertise a brand can be key for foreign businesses when reaching out to consumers.

“It’s essential for brands to be very clear about their objectives for their marketing campaign,” says CBBC’s Demi Ping, Director for retail and e-commerce. “Top KOLs can drive brand awareness and sales conversations, but they can be costly; micro-KOLs and KOCs, on the other hand, can be more affordable for SME brands and can generate decent sales.”

4. Choosing the wrong partners

When spearheading a first foray into the China market, domestic business partners can mean boom or bust. A number of businesses have had bad experiences with business partners who did not share the same vision; or worse, partners who own an illegitimate business. It is thus best not to rush into any partnerships with people or businesses that you do not know and to conduct a proper background check.

5. Misunderstanding the business culture 

D&G’s cultural mistakes cost have them dearly in China

Although business in China is conducted much in the same way as it is in the West, there are a few important subtleties that can make a difference. Preparing appropriate gifts, knowing the holidays and the bonus structure is important, as is understanding the concept of ‘giving face’. Giving face is all about preserving a good image for your team, your counterparts, your partners or your host, and learning about ways to ‘give face’ – as well as avoiding things that can make you or others ‘lose face’ – is vital when conducting business in China.

Likewise, many businesses have also missed the mark in some of their advertising and branding and fallen foul of their consumers, sometimes even causing their China operations to close.

6. Ignoring lower-tier cities

The third-tier city of Yiwu holds one of China’s largest trade fairs

China is the size of a continent and just as companies wouldn’t treat Europe as one territory, nor should China be treated as such. First-tier cities such as Beijing and Shanghai might be household names but they are just one part of a much larger market. Many of China’s smaller cities have huge populations in the tens of millions, and many domestic brands have done very well by specifically targeting third- and fourth-tier cities.

7. Not securing your IP

It may seem self-evident, but having IP protection from your home country does not extend that protection to other countries; IP rights are limited in scope, duration and geographical extent, and foreign businesses often make the mistake of misunderstanding their IP rights in China. Since China uses a ‘first-to-file’ system for patents and trademark protection applications, it is thus highly advised to obtain IP protection for your business in China as soon as possible.

“Before expanding any business in China, it is essential to obtain the necessary rights to ensure that you maintain a competitive advantage in this market,” says Yuan Yuan, director of business environment at the CBBC. “Legislation for IP protection in China has made leaps and bounds in recent years, and the current system now rivals other IP protection systems anywhere else globally. Registration of your IP rights is the first line of defence.”

8. Not getting to grips with China’s local digital landscape

China’s online platforms are completely different from those elsewhere

Navigating the complex digital landscape in China, and capitalising on its innovative sites and platforms, can be a real challenge for businesses as many do not get properly acquainted with its unique characteristics. Facebook, Paypal, Uber and other foreign websites are restricted; instead, China has WeChat, Alipay, Didi and other domestic platforms that cater to Chinese consumers. Foreign businesses would do well to establish themselves on these platforms and ensure they comply with domestic internet regulations, as failure to do so could lead to losing a platform, or worse — getting locked out of the market.

9. Missing frequently changing regulations 

While there are negative lists for market entry and foreign investments – meaning that listed areas and sectors are not open for access and investment – cross-border e-commerce (CBEC) in China uses a positive list, meaning that only items included on the list can be eligible to sell through CBEC. These lists are updated frequently, and so foreign businesses are strongly advised to stay abreast of the newest changes.

10. Getting the legal jurisdiction wrong

Many businesses may want to handle contracts and legal agreements under their home country’s laws or under the laws of the Hong Kong SAR, but in most cases, this cannot be done when doing business in China. Businesses often do not adequately prepare the legal side of business, and it is important for them to use the proper legal jurisdiction and abide by the jurisdictions’ laws and regulations.

In order to mitigate risks, consider using China Gateway, the CBBC’s market advisory service, to help demystify the process of doing business in China, as well as CBBC’s Launchpad service, which provides simple, low-risk, legal means to enter the China market.

The post Top 10 most common mistakes foreign businesses make in China appeared first on Focus - China Britain Business Council.

China enters 2021 economically stronger relative to major economies than anytime since 2009. This apparent strength creates extremely high expectations for China to deliver on its forecasted economic recovery, on its rollout of vaccines in China and beyond, and on stabilising its geopolitical relationships. In a year when avoiding major risks and sources of instability remain paramount, China’s leaders will find it harder to keep the economy on track than anticipated.

Overall

Economic growth expectations for 2021 of 8% plus (real RMB terms) are pricing in perfection. There is little upside beyond this number and much downside. Most critical is the need to accelerate still sluggish consumer spending. The recent pivot in government policy to demand stimulation reflects growing concern in Beijing that consumers are not stepping up their spending as needed.

China’s export strength in 2020 has resulted from global demand for PPE, a global shift to online purchasing, and Chinese manufacturers stepping up to fill gaps left by manufacturers locked down in other markets. In 2021, post-vaccine manufacturers outside of China will fully recover. Additionally, the secular trend to move manufacturing (especially destined for the US) out of China will restart, and China-based manufacturers will feel the full impact of the RMB’s appreciation.

Domestically, infrastructure spending has run its course, offering little upside. The continued flirtation with bankruptcy of several of China’s leading property developers highlights fragility in this sector. Expect aggressive action to lower tax and other burdens on individuals. Concerns about growth will also push Beijing towards opening up further to foreign capital and business participation within China. Negative lists will shorten further and more licenses will be issued from basic materials to financial services.

Expect aggressive action to lower tax and other burdens on individuals. Concerns about growth will also push Beijing towards opening up further to foreign capital and business participation within China

Geographically, China’s economic centre of gravity continued its long-term shift southwards in 2020, as Tianjin fell out of the 10 ten cities by GDP, leaving only Beijing from the north on the list. Beyond the usual clusters of the Pearl River and Yangtze River Deltas, President Xi continues to push for the development of the Hainan Free Trade Port (HFTP), with preferential policies for industries from aviation to health and internet services, beyond traditional support for tourism sectors.

If China does achieve 8% growth in 2021 – with domestic inflation of 1-2% and currency appreciation of 3-5% – then the size of China’s economy relative to the US could exceed 75% in 2021 (using IMF forecasts), an outcome only likely to increase the political pressure in the US to “do something about China”.

Consumers

Covid has forced Chinese consumers to think harder about their spending and seek higher quality products

The Covid economic shock, though short, was traumatic for many lower-income Chinese consumers. China’s younger generations had not experienced anything as close to a recession prior to Covid-19 in 2020. The virus has forced them to think harder about spending, saving, and trade-offs in purchasing behaviour. While aggregate savings have grown this year — McKinsey reported the country’s household deposit balance increased by 8% over the first quarter to reach 87.8 trillion RMB, this was concentrated in high-income households.

These consumers said they planned to increase sources of income through wealth management, investments and mutual funds. But these richer consumers at least still have savings. Many at lower income levels found their modest savings entirely wiped out by the Covid lockdown. Unsurprisingly, they have been both unable and unwilling to jump back to prior spending levels. And probably won’t until they are convinced that a vaccine has eliminated the risk of recurrence.

The virus has also led consumers to seek better quality and healthier options: More than 70% of respondents in the McKinsey Covid-19 consumer survey will continue to spend more time and money purchasing safe and eco-friendly products, while three-quarters want to eat more healthily after the crisis. But not all spending has shifted to the “virtuous”: high-end malls in China have seen their sales grow 25-35% verses 2019 as the wealthiest consumers, unable to travel, spent much more within China than before.

When Chinese consumers do spend, they are increasingly focused on strong local brands.  In its BrandZ report, WPP showed a 30% increase in the value of the top 100 Chinese brands in 2020, almost all associated with their growing domestic success.  Likewise, China Skinny research highlights the phenomenal success of local brands such as Yatsen in beauty.

Of course, prior trends will continue. Chinese consumers will be more digital than ever before, with the major online battles in 2021 being over who gets to deliver fresh groceries to the home and who provides the digital health care solutions that exploded in popularity during 2020.

Industry sectors

An emphasis on the semiconductor industry is part of China’s dual circulation strategy

The most attractive sectors for investment in 2021 will be shaped both by recovering consumer demand, and by government priorities set out in the 14^th Five-Year Plan. The high-level outlines of the plan are clear – risk mitigation and stability, greater state involvement in business, focus on industries of the future (with a special emphasis on semiconductors), accelerating growth through consumption, and sustainable growth – all within the “dual circulation” logic.

The major online battles in 2021 (will be) over who gets to deliver fresh groceries to the home and who provides the digital health care solutions

Cross border trade flows will be impacted by priorities for both inbound and outbound goods.

Priority inbound sectors are those in which China wishes in the short term to ensure that it retains maximum access to global suppliers and in the medium term build up world-class domestic capabilities. Beyond semiconductors, particular priorities are Agriculture Tech and Biotech. AgriTech is not simply about providing a greater proportion of China’s food supply domestically. It is also about ensuring that food is grown from seeds where the IP is developed and owned in China.

Traditional energy supplies – oil, gas and the key minerals used in new energy vehicles (NEV) batteries – remain priorities for ensuring stability. Even under the latest plans, renewables will only provide 25% of China’s energy by 2030, much of the remainder will still need to be imported. In semiconductors, mainland China buys more than one quarter of all manufacturing equipment sold today (compared with less than 3% in Europe) to go along with the billions of dollars being invested in semiconductor research and start-ups. That proportion could rise above 30% in 2021.

Priority outbound sectors are largely emerging industries, where China already feels confident in its potential to be world-class and in which it seeks to ensure maximum access to markets beyond China. China’s asks in the EU-China investment agreement are very much focused on this. In this category are sectors such as new energy vehicles, green tech and smart tech. Smart tech covers many subcategories, often 5G enabled, from smart cities to smart factories and industrial IoT. In these sectors, China will seek to export not only hardware as usual but also software, and critically, the standards on which the Chinese products are based. Chinese produced NEV exports will range from Teslas made in China for sale in Europe and Teslas emerging China-owned competitors such as Nio, Xpeng and LiAuto, to sub-US$10,000 entry-level EVs to EV buses from BYD.

Should the EU-China Investment agreement be ratified, European companies should receive preferential market access in a number of these sectors in China, and Chinese companies will be permitted to push forward on their green energy and NEV investment strategies into the EU. The impact will not be as material and swift as the opening up of the financial sector to majority foreign-owned players was in 2020, and the text has not yet been finalised, but openings are promised in NEVs, cloud services, financial services and health.

Online grocery shopping will be the most contested and contentious consumer-facing sector in China in 2021, highlighting both the further digitalisation of the Chinese consumer and more aggressive intervention by Chinese regulators. Community grocery buying, where one person organises grocery purchase and delivery for the following day for a community of typically 30 of their neighbours, is seen as the next major showdown between China’s internet giants (including Meituan, where I sit on the board).

Online grocery shopping will be the most contested and contentious consumer-facing sector in China in 2021

As with many online to offline business models, economies of scale at the city level are key to success. While being so popular with consumers that it could reach close to 20% of grocery sales by 2022, the sudden emergence of grocery e-commerce will receive push back because of the disruption to fragmented, less efficient traditional channels – distributors (often state-owned) and local retailers (hundreds of thousands of mom-and-pop outlets). Regulators will use their new anti-monopoly powers to ensure an orderly evolution of the market.

Regulation

Cyber security regulations and personal data protection laws will become stricter

2021 will be a year of intense regulatory action in China. In multiple areas, regulators are on the front foot with a common intent to centralise and standardise regulations (eliminating provincial variations in how regulations are applied) and to better protect individuals and small business from predatory behaviours by larger businesses. These policies are targeted at all businesses and of course, foreign businesses will come under scrutiny as a result. Key areas include:

·       Anti-trust enforcement by SAMR will target discriminatory pricing, forced exclusivity, below cost pricing and acquisitions to pre-empt competition. Larger internet companies will find ways to adapt but some will see their margins impacted.

·       The corporate social credit system will become more effective at joining the dots to highlight corporate bad actors as the system more effectively consolidates data already held on corporations across multiple (largely local) databases.

·       Undercapitalised players in the financial sector will find they need to add billions of dollars in new capital requirements to sustain their existing business model and operators using a provincial license to operate nationwide will find that path no longer open. Sales of bank wealth management products will be restricted by new regulations on distribution, with third-party platforms removing many such products already in January.

·       New rules on personal data protection pile on top of existing cybersecurity and national security requirements. Consumer tolerance of abuse of their personal data has fallen rapidly in recent years and the government is catching up. More explicit opt ins for collecting data, restrictions on selling data to third parties, government approvals for taking data cross-border and even higher requirements on protecting minors’ data will apply. Sensitive data still walks out the door of corporations, taken by low paid employees as was the case with YTO earlier this year. Corporations will be expected to have policies to prevent this, and effective implementation of the policy. Breaches or failures to comply must be self-reported or corporations will face additional liabilities.

·       Technology exporters will need to navigate China’s new export control law, largely modelled on what China has seen applied by the US. Details of the law were laid out in December; many existing technology exporters are likely to find that they need additional licenses to exports in the future.

·       Taking lessons from governments around the world, Beijing has rolled out a national security screening process as part of the approval process for foreign acquisition of companies based in China.

Vaccines

Vaccine production and procurement provide an insight into how China’s industries work

As of late December, China has inoculated several million high-risk workers (overseas travellers, military, health workers, police officers, firefighters, transport and logistics workers) under emergency regulatory approvals for vaccine use, while at least five vaccines developed in China progress through Phase 3 trials in a dozen countries worldwide. Government officials have claimed 600 million doses will be available by year end and that over 2 billion will be produced in 2021.

China’s development of Covid-19 vaccines is a microcosm of how many industries work in China:

·       A major state-owned enterprise, Sinopharm, is the giant in the market. A Fortune 200 company with 100,000 employees and tens of manufacturing plants. In an ideal world, Beijing would like Sinopharm to be one of, if not the, “winner”.

·       Competing with Sinopharm are multiple private sector competitors ranging from long-established local companies (including Sinovac, Wantai) to relatively recent start-ups led by returnees from overseas (including Cansino, Clover) – often with only a few hundred research focused employees. They will need third parties to help scale production.

·       Government and university health institutes are partnering with corporate developers in public-private partnerships.

·       Fosun pursued a different path, but one common to many other industries in China – buy abroad and bring back to China. Pharmaceuticals is just one leg for Fosun, which is one of the largest private conglomerates in China, internationally owning businesses such as ClubMed and the UK football club Wolverhampton Wanderers. Fosun looked abroad, invested in BioNTech, secured exclusive distribution rights in China for their vaccine, and has now imported the first units.

·       These companies are listed across the world on exchanges in Shanghai, Shenzhen, Hong Kong and New York.

·       Vaccine technologies being worked on span the traditional to the leading edge, including 1) inactivated virus; 2) protein-based vaccine; 3) viral vector; and 4) mRNA/DNA.

·       At least two vaccine developers have links to the Chinese military.

The government will have to overcome some natural concerns about vaccines in China, given the industry’s poor track record of quality control. Expired polio shots, unsafe rabies vaccine and unsafe DPT vaccine incidents have all occurred in the past five years. Vaccination will be encouraged by requiring it for travel on trains and planes and entry to public buildings and by making vaccination free to consumers.

Despite these positive developments, China’s borders are unlikely to open wide quickly. Government officials will be conservative. Health-based reasoning could also get intertwined with geopolitics to leave potential travellers from specific countries at the back of the line for getting quarantine-free entry into China in 2021.

Hong Kong

Hong Kong will play a major role in the financial sector as mainland companies increasingly dominate

Entering 2021, Hong Kong remains China’s international financial centre, and through the narrow lens of that sector, had a surprisingly successful 2020 with IPOs continuing throughout the year, demonstrating that much of the sector’s activity can flourish even when arrivals at the airport fall to less than 1% of normal levels.

A personal milestone came when the Hang Seng Index adjusted the companies it includes to take out Swire Pacific (a member since the index was launched 51 years ago) and bring in Meituan, listed only two years ago. (I am a board member of both companies). Weighted by value, mainland companies now make up over 60% over the index. With the pressure to delist Chinese companies from the US only growing, underlying momentum supporting the financial market in 2021 remains strong.

With Hong Kong now on Wave four of the virus, there seems little likelihood that international business travel will return at any scale into Hong Kong until the second half of 2021. As a result, many business decisions remain on hold – whether to adjust the scale of operations in Hong Kong, whether to move activity into mainland China or elsewhere in Asia and the like. When the border with mainland China reopens, expect a step up in investment from mainland China in Hong Kong, of mainland companies expanding their operations in Hong Kong and mainland talent moving to Hong Kong. These secular trends have been on hold for 18 months now and will see a snap back in 2021.

Beyond China

The Belt and Road Initiative will lead to further Greentech infrastructure projects

China will continue with its multilateral engagement strategy, building off the successes of the Regional Economic Comprehensive Partnership (RCEP) and the China-EU Comprehensive Agreement on Investment from 2020. RCEP’s gradual tariff reductions and rules of origin for manufactured goods will deepen flows of goods between China and the 14 other member economies that in combination represent 30% of global GDP, even if it does little on services.

In 2021, China will also deepen its commitments to standards setting institutions such as the International Standards Organisation (ISO), the International Telecommunications Union (ITU), the International Electrotechnical Commission (IEC) and more, encouraging its companies and researchers to engage heavily in promoting China developed standards as global standards. In multilateral bodies shaping global climate change policies and global Covid vaccine distribution, China will seek to position itself as a more significant (in terms of offers made) and more reliable partner than the United States.

BRI will continue at scale in 2021. BRI will continue apace, with billions of dollars going into completing the backlog of agreed projects. The year will also see new variants of BRI emerge, for example:

·       Green energy BRI – fewer coal and more solar projects, more green finance for projects.

·       Smart or Digital BRI, more telecom than road infrastructure, more smart city projects, more smart car projects.

·       Healthy BRI covering everything from vaccines to hospitals and digital health solutions

Chinese businesses have low expectations for material change in their ability to do business in and with the United States in 2021. The optimistic hope for stability is simply to be able to better plan, make investment and sourcing decisions with certainty, and to be able to close partnerships with US companies at least in China, if not in the US.

It’s likely 2020 will prove to have been the last wave of Chinese companies listing in the US. This year will see a mix of forced delistings (currently the on again-off again delisting of the three Chinese telecom companies by the NYSE that reinforces the inconsistency of actual US policy towards Chinese business) and companies choosing to re-list in Hong Kong or mainland exchanges, even if they have only been listed in the US for a year or so.

Gradual supply chain reconfigurations will continue. As global trade renormalises China’s share of global manufactured goods, exports will fall back from the all-time high it reached in 2020 on the back of demand for PPE and will return to the gradual trend downwards as manufacturers add incremental new capacity closer to scale markets around the world. As part of this trend, expect to see many more Chinese companies opening factories not just in Vietnam and India but also across Africa, Mexico, Brazil, Turkey and Poland. For example, almost all Chinese smartphone producers now manufacture in India for India.

Companies that manufacture in China for China, whether Chinese or multinational, will largely continue to do so. For most, domestic demand consumes the significant majority of their output. These companies will engage in the growing wave of manufacturing upgrades in China – increasingly the global hub for what the future “smart factory” will look like. Companies that needed to shift production to avoid US tariffs have done so.

China and ESG

Even before President Xi’s commitments for China to become “carbon neutral” by 2060, Chinese businesses had been starting to take environmental, social and corporate governance (ESG) concerns more seriously. Consumer, investor and regulator demands were too strong to ignore. For Chinese companies listed in Hong Kong, disclosure requirements by the HKEX become higher each year and force companies to gather and review at board level data that they likely have never looked at before.

Questions from not just ESG funds, but almost all fund managers on ESG, put management on the spot during quarterly reporting calls. Gaining a higher ranking in ESG ratings, schemes from MSCI and Dow Jones are becoming something that company leadership wants to say it is ahead of its peers on. Even on mainland exchanges, one quarter of companies issued ESG reports in 2019, likely over a third did so in 2020, and domestic ESG rating schemes such as the Ping An-CEIS have launched.

Summary

Ahead of the COP meeting in November 2021, it is likely that Chinese regulators will take the opportunity to issue new ESG policies with tougher mandated disclosures. Clearly, there is a wide range of performance on ESG among Chinese companies, with “G” having the furthest to go, but at least on “E”, 2021 will see significant progress.

The 23^rd July 2021 is the 100^th anniversary of the founding of the Chinese Communist Party in China, coincidentally also the date of the rescheduled opening ceremony for the Tokyo Olympics. Hundreds of events are planned across China, from movies to parades and political speeches, to celebrate this anniversary. Ensuring all goes smoothly in the run up to the anniversary is a key objective. Domestically that requires stability – social, economic and political – above all else. While pursuing sector specific priorities in 2021, don’t lose sight of this overarching requirement.

The post What’s in store for China in 2021? appeared first on Focus - China Britain Business Council.

Unusually, the proposal does not include specific economic growth targets. However, it does provide more details about the Chinese leadership’s principal areas of concern over the economy’s future path.

The key takeaway: The proposal confirms our initial assessment that the government’s Dual Circulation Strategy – that is the strengthening of China’s own consumer market paired with the technological upgrading of its manufacturing sector – will be central to the 14th Five Year Plan (FYP).

Economic growth

As mentioned above, the 14th FYP documents that have been published so far contain no specific economic growth targets. Nonetheless, in a commentary on the 5th Plenum’s decisions, Xi Jinping expressed confidence that China could double the size of its economy by 2035.

What does that aim imply for China’s future growth?

China’s GDP last year topped RMB 99 trillion (£11.4 trillion). The communiqué issued after the 5th Plenum noted that Chinese leaders expect the economy to pass the RMB 100 trillion threshold this year. Xi’s statement also links up to China’s previous objective of doubling the economy between 2010 and 2020, a goal which it will almost certainly achieve given that China’s GDP ten years ago was only RMB 40 trillion (£4.6 trillion).

UK goods exports will undoubtedly benefit from further economic growth and the increasing purchasing power of Chinese consumers

A further doubling of the economy’s size by 2035 implies China’s growth over the next decade-and-a-half will be lower than the average of 6.4% per annum over the last decade, at around 4.75% per annum. This is largely in line with recent projections by the IMF, which predicts an average annual growth of 6.2% between 2021 and 2025.

If this growth rate comes to pass it would mean China growing by the equivalent of Turkey’s current annual output each year out to 2035.

The domestic market and Dual Circulation Strategy

China’s leaders are hoping that growth over the next five years will largely stem from domestic consumption and high-quality service industries, in contrast to the last decade, when labour-intensive export industries and infrastructure investment were the economy’s biggest drivers.

In order to boost domestic spending, the Chinese government plans to implement its so-called Dual Circulation Strategy (DCS). The main idea behind this strategy is to strengthen China’s vast domestic market (‘domestic circulation’), while balancing its foreign trade (‘external circulation’).

Key to this strategy will be a considerable increase in consumption as a share of China’s economy. Yet private consumption as a share of nominal GDP has plateaued over the last five years at around 39%, according to data from CEIC. While a slowing economy is partly to blame, increased living costs and soaring house prices have had a chilling effect on consumption.

Freeing up cash for greater household consumption will require painful and costly reforms to redistribute wealth – including a better welfare safety net and more efficient financial markets. More ambitious changes to China’s restrictive household registration system, which bans millions of rural citizens from accessing social services in cities, would also help.

The proposal does mention further supply-side measures which, inter alia, target the removal of domestic trade barriers and monopoly pricing powers for key commodities producers. Private businesses in China have repeatedly complained about the inflexible pricing policies of China’s raw materials producers and key infrastructure providers, many of which are state-owned enterprises (SOEs).

According to Craig Allen of the US-China Business Council, up to 45% of China’s economy remains closed to private and foreign competition, mostly in upstream business sectors – including telecommunications, media, electric power, oil and gas, coal, steel, aluminium, construction, engineering, aviation, railways and most of the insurance and banking sector.

Whether such reforms can and will be implemented remains to be seen. The Xi government’s current policies towards SOEs have focused on both consolidation and the greater participation of private capital. Monopoly break-ups have remained rare and currently appear to be aimed more at private tech firms like Alibaba rather than public enterprises.

Indigenous innovation

A more promising objective of the new FYP is the promotion of indigenous innovation. In a recently published speech, Xi Jinping cautioned that China “should not simply repeat the past model but should strive to comprehensively increase technological innovation and import substitution.” This, added Xi, “is to deepen the supply-side structural reform. The focus is also the key to achieving high-quality development.”

Key industries mentioned in the proposal are artificial intelligence, quantum computers, semiconductors, health and life sciences, neuroscience, biological engineering, aerospace technologies, and deep-sea exploration.

Although US sanctions against major Chinese tech companies have been frequently cited by Beijing officials as the rationale for trying to achieve greater autonomy in advanced hardware and software production, most of the target sectors have been a part of China’s drive to become a leader in next-generation technologies for some time. The Chinese government’s Made in China 2025 Strategy – which was modelled after the German ‘Industry 4.0’ scheme – already includes specific targets for most of these sectors.

China will need to buttress its internal development in areas such as technology and renewable energy with foreign capital and expertise

China’s push for a competitive domestic semiconductors industry – the sector at the heart of the current technological battle – also predates the current clash with the US. The Chinese government issued policies supporting the development of local chip manufacturers in both 2000 and 2011.

Industry analysts believe that China is capable of achieving a world-class level of technologies in these areas. For example, Matt Sheehan of the Paulson Institute and author of ‘The Transpacific Experiment’, a book on the collaboration between China and Silicon Valley, wrote in a recent forecast that by 2025, China will probably be on par with Silicon Valley in terms of dynamism, innovation, and competitiveness.

Yet achieving this goal will probably require more, not less international cooperation. Even by the standards of East Asian developmental state intervention, China’s policy approach to industrial modernisation has been heavily reliant on foreign investment and expertise. Over the last 40 years, China has attracted nearly seven times as much foreign investment as Japan and South Korea combined.

That China’s semiconductor industry will struggle to take off without foreign capital became clear in July, when Wuhan Hongxin Semiconductor Manufacturing announced that it had been forced to halt its production of advanced 14nm and 7nm semiconductors due to a funding shortfall of £14 billion.

Foreign trade

Foreign trade and openness to foreign business will be crucial for China to achieve its goals of greater technological innovation and higher levels of consumption. The proposal for the 14th FYP reflects this and calls for ‘comprehensively improving the level of opening to the outside world and the promotion of trade and investment liberalisation and facilitation’.

While many of the proposed measures – such as better intellectual property rights and legal protection for foreign businesses – are in line with China’s existing policies to improve the business environment, plans for the further opening up of the service sector and the proposed drafting of a ‘negative list for services’ mark the biggest novelty in the new FYP.

After Hainan province announced its plan to establish such a list for its planned Free Trade Port in June, Xi Jinping declared in September that the list would, in fact, be applied nationwide and that the Beijing-Tianjin-Hebei region (usually known as the ‘Jing-Jin-Ji’ area) would assume a pioneering role in this reform.

While there are few concrete details yet about the exact content of the list, the liberalisation of China’s financial and insurance sectors offers a useful template for future reforms. Reforms to allow foreign financial institutions to fully own subsidiaries in China’s securities, futures, bond, and insurance markets have attracted nearly £58 billion in foreign investment in the first half of 2020 – almost £20 billion more than the US in the same period.

Recent reforms in Shenzhen to harmonise standards for professional service providers in the Greater Bay Area offer another example. The new Pilot Reforms Plan, which was unveiled at the beginning of October, recognises foreign qualifications in certain sectors, including accounting and healthcare, and allows foreign professionals to work in China without having to obtain a local equivalent certificate.

Similar reforms are expected to be rolled out across China in the coming months and years with the healthcare, educational sector, and business services being the most frequently mentioned by Chinese policymakers.

CBBC View

Several commentators have recently warned that China’s economy is taking an inward turn. However, the logic of China’s economic plans instead suggest that its economy will continue to offer growth opportunities for UK businesses in the coming five to fifteen years.

China will need to buttress its internal development in areas such as technology and renewable energy with foreign capital and expertise, for example. Moreover, the long-hoped-for shift to greater reliance on domestic consumption should offer huge opportunities for UK businesses in sectors from retail to food & drink. China’s growing demand for professional and financial services could open up new entry channels for UK services providers and augur a considerable increase in British services exports to China.

Already last year, the UK exported £5.5 billion worth of services to China, a jump of nearly 19% year-on-year and a 150% increase compared to 2010. We expect further growth in this area in the coming years.

UK goods exports will also undoubtedly benefit from further economic growth and the increasing purchasing power of Chinese consumers. During the pandemic, China has remained one of the few growth markets for British exporters. Recent Chinese customs data shows that its imports of UK consumer goods – which excludes crude oil and non-monetary gold – had grown 1.9% in the first nine months of 2020 compared to the same period last year, outperforming other European economies, which have seen their imports shrink by nearly 8%. British businesses are well placed to benefit further from rising Chinese household demand, once China’s domestic reforms start to kick in.

Overall, the guidelines of the 14th Five-Year-Plan promise a continuation of the major reform trajectory of the last ten years, which have seen a tripling of UK goods and service exports to China.

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