Belgian investors continue to believe in China: ‘Whoever stays away from China will lose’

_{English translation of an article published in Trends Magazine on 18 April 2024, with a contribution by Bart Horsten}

Lower growth rates, youth unemployment, real estate crisis: the economic news from China stays worrying. Yet, the country still is an important growth market for Western companies. “The dreamers are gone. Large companies remain realistic and realize that they cannot ignore China for new growth.”

Has China turned into an economic nightmare? That’s how it seems to those who read the headlines in the newspapers. Youth unemployment in the cities is 20 percent. Many university graduates cannot find a job or must accept jobs below their level. The aging population is rapidly increasing, deflation is lurking around the corner and the crisis in the real estate industry – which accounts for a fifth of China’s gross domestic product – will continue to run for years to come. After the heavy corona lockdowns, economic growth never really took off again. For the next five years, the International Monetary Fund expects growth rates of 3 to 5 percent, historically low for China.

Leaving China? In reality, the opposite happens. In 2023, the materials group Umicore opened a large factory for fuel cell catalysts in China, just as the Tessenderlo Industrial Group inaugurated a production plant for fish collagen. This month, the new Chinese factory of the Belgian coolant manufacturer Arteco also started operation and the Antwerp MedTech company Orfit has just announced an investment in a factory for thermoplastic masks for radiotherapy. It seems quite a few companies are looking beyond the headlines in the newspapers.

“The dreamers are gone: small companies that blindly believed that they could sell their products to a billion Chinese,” says Trends-columnist Pieter Verstraete, who has lived in China for fifteen years and speaks fluent Mandarin. He gives advice to foreign companies that want to invest or do business in the country. “The large companies remain realistic, look at the world map and realize that they cannot ignore China for new growth. I currently give advice to the Vandemoortele nutrition group, among others. Those types of players do their homework and continue to invest.”

‘EVERY COMPANY MUST HAVE A CHINA STRATEGY. IF NOT TO BECOME ACTIVE, THEN AT LEAST TO KNOW WHICH COMPETITORS ARE COMING AT YOU’

_{^{Steven Levecke, Capricorn Fusion China Fund}}

But what about China’s poor economic figures? “Youth unemployment, real estate crisis, decreased consumer confidence: it is all true what you read,” says Verstraete. “But at 5 percent annual growth, China is still adding Australia’s GDP to its economy every year, in purchasing power parity terms. According to Boston Consulting Group, China’s affluent middle class will expand by 80 million people by 2030, to 553 million. Large companies look at the underlying dynamics, regardless of the economic situation. In 2022, during the corona crisis, the American coffee chain Starbucks announced a grand plan: 3,000 new Starbucks would open in China in the following three years. That is one new store every 9 hours.”

Do your homework

Yet, China is no longer the El Dorado of the past, not even for the Chinese themselves, according to Bart Horsten, a business consultant specialized in China. “After joining the World Trade Organization in 2001, the Chinese economy grew by 8 to 10 percent per year for two decades,” says Horsten. “So, you have a generation of people in their twenties and young thirties who have known nothing but massive growth in prosperity. Losing your job was no problem, there were plenty of jobs. If your business didn’t work out, you simply started over. Thanks to the one-child policy, young people also had two parents and four grandparents from whom they often received an apartment and a car. Now that generation suddenly finds that it is difficult to find a good job, and that starting a business is no longer self-evident. That means they think twice before spending money.”

Consumption will ramp up again soon, Horsten believes. But competition in the Chinese market will only become tougher. “Your product in China will have to compete with those of American, Australian, Japanese and South-Korean competitors, but also – and this is new since the corona period – with Chinese competitors. And of course, Chinese entrepreneurs understand their market better than you.”

That is why foreign entrepreneurs must do their homework, according to Steven Cuypers, the founder and chairman of Orfit. “Does China need your product? Who are the competitors? What price do they charge? And above all: how will I distribute my product? It is difficult to reach the right target group in such a gigantic country. Find excellent local partners, otherwise it will be a waste of time and money.”

Backyard

China also has less and less to learn from foreign countries, according to Horsten. “They don’t need us anymore. I experience that myself. Twenty years ago I was always welcomed with open arms by Chinese entrepreneurs, today I must have an excellent proposal to secure a meeting. You really must have something to offer. I’m thinking of biotechnology, high-tech, environmental technology, life sciences and such niches. Don’t forget that Chinese companies are moving up the value chain. In the past they might have worked at a third of our price, with a tenth of our quality, but that is a thing of the past.”

‘CHINA IS BEATING INDIA IN JUST ABOUT EVERYTHING. DON’T LOOK FOR THE NEW CHINA. IT ALREADY EXISTS’

^{_{Pieter Verstraete, One-Stop China}}

Just like Cuypers, Horsten also advises to look for reliable local partners. “Such a partner can also help you break through on the international market. After all, Chinese companies are increasingly venturing out into the wider world. A Belgian family business that I advise wants to tap into the Southeast Asian market through such a partnership. That is the backyard for the Chinese business world. Chinese companies are also doing more and more business in the Middle East and Latin America. This offers opportunities for Belgian companies. The golden times are over in China. But whoever stays away will certainly lose.”

Expansionism

Riding the wave of the international expansion of Chinese companies is already a reality for Bekaert today. The Flemish industry group has been present in China for more than thirty years and produces, among other things, steel cord for the reinforcement of car tires. “Our range of ultra-high tensile strength steel cords makes lighter tires possible,” says spokeswoman Katelijn Bohez. “Less weight is crucial for the range of an electric car. Hence the great interest of Chinese electric car manufacturers, who are now conquering the world.” The rise of floating wind turbine parks at sea offers new opportunities, because Bekaert produces the cables in China to hold such floating turbines in place. “China is also focusing on solar and hydrogen as green energy sources,” says Bohez. “That also creates opportunities for us.”

The Chinese drive for expansion reaches Europe, and an entrepreneur better be prepared for that. “Every company must have a China strategy. If not to become active there, then at least to know which competitors are coming your way,” says Steven Levecke, manager of the Capricorn Fusion China Fund, which invests in European companies that want to do business in Asia. A Chinese investment or takeover in Europe is no longer news, but the influx is becoming larger and more professional, according to Levecke. “Go to the Mobile World Congress, the technology fair in Barcelona, or LogiMAT, the intralogistics fair in Stuttgart: the Chinese presence there is always overwhelming.”

The new China

And what about India? Perhaps Belgian companies are better off looking for their luck there? “CEOs sometimes ask me this question,” says Verstraete. “The size of the market, per capita income, the state of infrastructure, the efficiency of supply chains, industrial know-how: China beats India in just about everything. Don’t look for the new China. It already exists.”