New Focus for Business in China

For years, China is known as the factory of the world. With an abundant supply of relatively inexpensive labor, China has been manufacturing everything from toothpicks to airplanes for export to consumer nations. However, this trend can not continue. As China’s economy continues to grow at near double-digit levels, cost of doing business in China also grows. Those industries that rely mainly on low-cost labor to compete are increasingly finding themselves moving out of China and the Chinese government is encouraging this.

China is shifting away from its purely export culture. Through new policies and guidelines, the Chinese government has identified 3 new areas of focus: (1) domestic consumption; (2) high-tech and service industries; and (3) development of central and western China.

The global economic downturn had a devastating affect on the Chinese economy. Chinese economy relies heavily on exports. When the western world (U.S. and Europe) stopped consuming, Chinese exports suffered. The downturn forced the Chinese government and businesses to look inward and develop its domestic market. China passed a $586 billion stimulus package late 2008 to jump-start its economy. The government subsidized Chinese consumers to encourage spending. The biggest beneficiaries of the government stimulus package are the Chinese auto industry and the appliance and electronics industry. With the largest population in the world, China is the largest market in the world. The potential is there for foreign companies to start tapping into the Chinese market.

The second shift in the Chinese economy is from low-end manufacturing to high-tech and service industries (esp. alternative energy and healthcare). Through a combination of educating its massive workforce, government incentives, and improvements to its legal system, China is trying to attract more investment in the high-tech and service industries. Thus far, China’s efforts are working. A number of foreign companies are not only moving their regional headquarters to China, but also establishing research and development centers in China.

Lastly, the Chinese government is promoting development to central and western China. For years now, the investment and development have been mainly focused in the eastern and southern China (Shanghai, Beijing, Guangzhou, etc.). By improving its infrastructure (building roads, high-speed rails and airports), China is hoping to draw more investment to central and western China. The cost of doing business in these regions is still very low and there is a huge potential for foreign businesses in these regions.

There are a lot of opportunities in China. The key to success is knowing how to navigate the business and political culture in China.