China prospects undimmed by pandemic, geopolitics

China remains a highly attractive consumer market and global supply chain hub, despite the ongoing Covid-19 pandemic and geopolitical tensions. In fact, international businesses are looking to increase the proportion of their China-based supply chains, in addition to strengthening their digital propositions to tap into the Chinese consumer market.

These are some of the insights from HSBC’s Navigator: Growing with China report, a survey of 1,100 companies across 11 key markets across the world including Malaysia that was launched at the China International Import Expo in Shanghai.

In China, For China
China’s pivotal role in global supply chains has proven durable. The survey shows that, contrary to some commentary, many companies are in fact increasing their exposure to the country. Some 75% of companies, including 70% of US companies, said they expect to increase their supply-chain footprint in China over the next two years.

The most bullish are companies from Malaysia; recording the highest percentage of 93% expecting to increase the proportion of their supply chains based in mainland China in the next two years. Among the biggest reasons are increasing speed to market and China’s growing consumer demand.

Stuart Tait, Regional Head of Commercial Banking for Asia-Pacific at HSBC, said: “China remains a key supply chain hub for international corporates. While other markets have become more competitive in areas such as labour costs, they are yet to reproduce the sophisticated ecosystem that has developed in the mainland. Because China’s consumer market is growing by the minute, more international companies are adopting an in-China-for China strategy whereby they produce goods for Chinese consumers.”

First in, first out
China‘s “first in, first out” economic recovery from the Covid-19 pandemic is also fuelling optimism among companies across the world: Three-quarters (75%) of those surveyed expect sales in or exports to China to grow in the next two years, with  businesses from Malaysia (88%), Mexico (86%), and Singapore (84%) feeling the most bullish.

Stuart Milne, Chief Executive Officer, HSBC Malaysia said: “It is very encouraging to see that businesses from Malaysia are more optimistic than companies from other surveyed countries. Malaysia tops the score with 93% expecting to increase their supply chains in China while 88% are bullish on growing sales in or exports to China over the next two years.

“This upbeat outlook reflects the strong bilateral trade ties shared by the two countries. HSBC’s market-leading expertise in facilitating international trade, coupled with our long history in both China and Malaysia, means that we are ideally positioned to support our customers in this area.”

More than three in four (76%) US companies say they expect sales in or exports to China to grow, on par with the global average despite geopolitical and trade tensions. Tellingly, nearly three in ten (29%) US companies expect growth of more than 20 percent, compared to the global average of 21%.

Tait added: “Much of the optimism and ambition over the Chinese market is down to the mainland’s early recovery from the pandemic and its relatively strong demand compared to other markets. The country’s vast market and its unrivalled manufacturing infrastructure remain compelling reasons not just to maintain business with China, but in many cases to increase it.”

Milne added: “We continue to see positive momentum in terms of the Malaysia-China trade and investment. By the end of 2019, China was Malaysia’s largest trading partner for the 11th consecutive year. In fact, trade with China continues to see growth this year, recording a 3% growth during the period of January to September 2020 compared to the same period of 2019 in spite of the current challenging conditions.

While global companies foresee a broad-based recovery across the Chinese economy, they are noticeably more optimistic about the outlook of service industries over the next 24 months. They also note an increasing interest in the quality of products, with more people placing a premium on advanced technology, safety and longevity.

Relying on platforms to succeed in China
Businesses recognise that the pandemic has accelerated the pace of technology adoption and that they need to join the race if they are to compete.

Four in nine (44%) businesses are looking to strengthen their digital presence within China by upgrading their technology / e-commerce platforms. Some 63% of respondents say they intend to both use proprietary platforms and partner with local digital platforms. While an overwhelming number of businesses concentrate their sales in Tier 1 and Tier 2 cities, strengthening digital platforms will enable them to tap into the huge consumption potential of the wider Chinese market.