Whatever happens in China always happens on a large scale, and when the country locked down it had massive repercussions for the domestic economy – and the wider Asia region. As the country unwinds its Covid restrictions, it could be set for a dramatic comeback.
That’s the view of experts at professional services firm Dezan, Shira and Associates, who argue that companies need to prepare for a rebound. In a recently published Doing Business in China 2023 report, Alberto Vettoretti, Managing Partner at Dezan, Shira and Associates notes that 2022 was a difficult year for businesses in China and business confidence was dented by lockdowns, weak consumption, a struggling real estate sector and geopolitical tensions.
One consequence of China’s closed borders has been executives have not been able to travel to the country. As noted by Tony Wood, Partner at Deloitte China in a previous article by Treasury Today Asia multinational companies have struggled to keep abreast of the latest legal and regulatory developments in the country. Also, notes the EU Chamber of Commerce in a recent report, it has meant that China has been “unable to showcase its potential to foreign investors”.
Another trend the EU Chamber of Commerce notes is that many multinationals have had to reassess their risk appetite and confidence in China. Instead of relying on China for their manufacturing, for example, many multinationals are opting for a ‘China +1’ or ‘China +2’ strategy. “While those already established in China are not looking to leave, they are increasingly weighing up the possibility of shifting planned or future investments to other markets perceived to provide greater reliability and predictability,” the European report notes.
The Dezan, Shira and Associates authors, however, are bullish on the opportunities for businesses in China, and they argue it has many advantages over its Asian rivals. Vettoretti is positive on China’s economic prospects for the year ahead. In the first ten months of 2022, he notes, foreign direct investment grew 14.4% year on year to over US$152bn – a trend that he expects to continue into 2023. He writes that economists expect China to fully reopen in the second half of this year and estimate GDP growth in 2023 will reach around 5%.
Despite the challenges of last year, there are still many positives with doing business in China. For example, it has the world’s largest labour market, and its workers tend to be more experienced and better educated than those in other Asian markets. In Vietnam, for example, the average hourly wage is US$2.99 – compared to China’s US$6.50 – but Vietnam’s productivity is about one-third of the levels in China, the report notes.
The authors argue that businesses cannot afford to ignore the opportunities in China. With a population of over one billion, and a growing middle class, it is set to be the largest retail market in the future. Also, the report notes, it has a sophisticated manufacturing and logistics infrastructure and there is growth potential in the country’s super-city clusters.
China is also home to some of the most innovative and emerging industries and has been able to turnaround its reputation for copycat and counterfeit goods. Now, China is leading on research and development, and the report warns, “Companies that do not pay attention to China will not just miss out on the market, but also the country’s increasingly dynamic pace of innovation.”
So, the authors argue, while there has been disruption and challenges in recent years, there are still plenty of reasons to be bullish about the opportunities in China , which foreign companies are advised not to ignore.