Navigating the data

Tait: more than 76% of US companies say exports to China will grow

The latest outing of HSBC’s Navigator survey came out in the same week as the third iteration of the China International Import Expo (CIIE) in Shanghai, an annual showcasing of trading opportunities which began this week.

In a year defined by the Covid-19 pandemic, the expo has tasked itself with injecting new impetus into the struggling global economy. Fortunately, the Navigator ‘Growing with China’ survey of 1,100 companies in 11 key markets around the world has some positive findings on how trading with China is part of the recovery. Stuart Tait – HSBC’s Regional Head of Commercial Banking, Asia-Pacific – gave WiC a quick summary of its key highlights.

Three-quarters of the companies in the survey say they expect their sales to grow in China over the next two years. Does that optimism surprise you at a time when trade tensions and Covid-19 have weighed so heavily on the global economy?

It doesn’t surprise me too much. Much of the optimism for the Chinese market is down to the mainland’s early recovery from the pandemic and its relatively strong demand compared to other markets.

HSBC expects the global economy to shrink by 4.1% this year, but our China forecast is for growth of 2.4%. And whatever the disruption that we have witnessed this year, China’s vast market and unrivalled manufacturing infrastructure are compelling reasons not just to maintain business there, but in many cases to increase it.

For instance, more than three in four (76%) US companies say they expect sales in or exports to China to grow – which is on par with the global average despite geopolitical and trade tensions between Beijing and Washington. And tellingly, nearly three in 10 (29%) American firms expect growth of more than 20% in sales, compared to the global average of 21%.

Another surprise is that 75% of respondents predict they will have more of their supply chain based in China in the next two years. That runs counter to headlines about companies wanting to relocate to other countries…

Despite some of the headlines about company relocations, China is deeply embedded as a key hub in the supply chain for many international corporates.

It’s true that some other markets have become more competitive in areas such as labour costs but they are yet to reproduce the sophisticated ecosystem that has developed for firms that want to manufacture in China.

Further, because China’s consumer market is growing by the minute, more international firms have been adopting an ‘in-China-for-China’ strategy in which they want to be there to produce goods for local consumers.

What also comes through strongly is that respondents are thinking differently about how to increase their sales in China. Can you talk about some of the changes in how they are looking at the opportunity?

Yes, that’s true. One example of that is how companies are looking differently at areas like digital sales channels. More than four in 10 firms in the survey said they are strengthening their digital presence in China and there seems to be an emerging trend looking to solve some of the challenges of attuning to the business culture by creating a hybrid presence in partnership with local digital platforms.

Going digital is also helping international firms to widen their commercial appeal. While an overwhelming number of businesses concentrate their sales in Tier 1 and Tier 2 cities in China, a strengthening of their digital sales efforts will help them to tap into the huge consumption potential of the wider market.

What about customers in China? What are the firms in the survey noticing about how consumer behaviour is changing?

As China’s economy matures and consumer tastes become more cosmopolitan and more sophisticated, there are growing numbers of higher-end and higher-tech players pushing into the market. Companies said they had noticed an increasing interest among buyers in the quality of their products, with more and more people placing a premium on advanced technology, as well as the safety and longevity of the goods that they buy.

The advances in China’s digital economy are opening up more avenues for sales of newer goods and services as well. For instance, the survey highlights how 73% of services companies – many of which are better-positioned to grow digital sales without the need for physical contact with customers – see China as one of their top target markets over the next one to two years, compared to 57% of manufacturers. That’s another emerging trend that is going to shape the wider market in the years ahead.

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