The Flanders-China Chamber of Commerce organized a seminar focused on ‘Win in China: Doing business with a changing China’. Mr. Bo Ji, Chief Representative for Europe and Assistant Dean of China’s top business school, Cheung Kong Graduate School of Business, delivered the keynote speech. 

Ms. Gwenn Sonck, Executive Director of the Flanders-China Chamber of Commerce welcomed the participants to the webinar, which took place during the Export Fair organized by Flanders Investment & Trade, a structural partner of the Flanders-China Chamber of Commerce. The Cheung Kong Graduate School of Business is China’s leading, independent, non-profit business school established in 2002 by the prestigious Li Ka-shing Foundation. More than half of its 10,000 alumni are at the CEO or Chairman level and collectively lead one-fifth of China’s most valuable brands. One of the alumni is Mr. Jack Ma of Alibaba. In Europe the focus of the business school is to help businesses in all sectors enter China through one of their programs. 

Prof. Bo Ji, Chief Representative for Europe and Assistant Dean of the Cheung Kong Graduate School of Business, said China is changing and has been changing in the past few decades. To do business with China you can’t take a set formula, you have to adapt to the situation. Let’s start with the rise of China and its global implication. China’s share of the world’s GDP started declining in 1820 when the Qing dynasty closed China’s door, because they believed China was big and strong enough, representing about one-third of the world economy. China didn’t need the world and the world needed China. With the first and the second opium wars, China started to decline. In 1900 the united armies of eight nations invaded China and the Chinese economy started shrinking. Now China is rising again. China’s GDP in 2019 was USD14.34 trillion, while last year – when the world was contracting and China was still growing – China’s GDP rose by 2.3% to USD15.58 trillion. Both Europe and the U.S. contracted. China has in the past decades achieved something astonishing, lifting 800 million people out of poverty in the period from 1990 to 2017. The urban population has expanded from only 20% to more than 60% and is still growing. The composition of GDP has also changed. China used to be a big manufacturing economy, but now has become more service oriented. China aims to boost the services’ share in its GDP to 60% by 2025. According to The Economist, China will overtake the U.S. by 2024 to again become the largest economy in the world. There is also a change in the distribution of household incomes. From 2016 to 2026, China will have 272 million more middle income persons and 233 million more higher middle income persons, while in the rest of the world there is not much change.  Therefore, China is contributing much to the world’s economic growth. The whole world is depending on China for its growth. 

The number of Chinese mobile internet users is higher than the total European population in 2019. China is not just relying on the export market, but is also growing its domestic market, especially after the financial crisis. One measurement is Alibaba’s double 11 shopping festival, the largest online shopping day in the world. Last year, sales reached an astonishing USD74 billion, while in 2019 the figure was USD38 billion. So in one year the number actually doubled. Last year, the pandemic made people do more shopping online, which explains why there is a huge surge, but also shows how big the Chinese market is. China is very successful in fighting the pandemic. At the beginning, Covid-19 shocked the whole world, including China. China had a surge in the number of deaths, but this disappeared after April. China had no domestic cases and imported cases were stopped at entry through mandatory quarantine. In Chinese culture, people believe we are living in a society intertwined with each other. We cannot just think of our own benefit. We have to consider the collective benefit and collective good of the society. People are willing to sacrifice for other people. The government leveraged this fact as well, being very effective in putting down the pandemic, building hospitals, using the QR-code in tracking infections, and taking very serious quarantine measures. The whole country cooperated, putting out the pandemic very quickly. China’s GDP grew 2.3% last year over 2019. In the same period the EU contracted by an estimated 7.4%,  the U.S. by 2.4%, the UK by 10.3%, France by 9.4% and Germany by 5.6%. The effectiveness of China dealing with the pandemic is now putting China ahead of the curve. China is leading the global economy in the post-Covid recovery and China’s economy is gathering steam, setting the stage for a strong recovery. Some people don’t believe that in China Covid is under control, but people move freely, go to cinemas and restaurants, and are enjoying life. If there is only one case in a city of five million it is a big issue involving the mayor and a lot of testing. This we don’t see in Western countries, where with 20,000 cases people move around and restaurants are open.  

Summarizing, Chinese GDP will continue to grow but slow down. The focus is on high-quality growth, on technology, profitability and the green economy. Rebalancing efforts should be accelerated with increases in health, education and social transfers, supporting consumption and reducing income inequality and pollution. Services will continuously grow over manufacturing. China’s national strategy is “being big”. In Chinese culture, staying together and being big is very important. A Brexit situation will never happen in China. When you stay together, collectively you can be better. 

The magnitude of China’s middle-class growth is quite significant. The share of urban households is shifting. Between 2012 and 2022, the number of upper middle class households has increased substantially. In any mature economy the upper middle class needs to be dominant in order to generate consumption, which will boost economic growth and employment. The Chinese millennials aged 18 to 35 love entertainment more than household items, have more access to media and use computers to watch TV. They spend a lot of money on entertainment so Chinese movie stars are making more money than Hollywood movie stars. Members of the middle class in the coastal urban regions have a high desire for buying with high purchasing power. They love high technological products, especially mobile phones and PCs and are willing to pay higher prices for higher quality. They emphasize brands and products. Europeans think about low-priced Chinese products, but now Chinese value quality versus price. Some of the products you can buy in Europe are actually cheaper than the products in China, where the quality is sometimes better. Younger people have a different attitude toward consumption. They prefer expensive and luxury products. China exports low-priced products to Europe and Chinese go to Europe to buy luxury products. They are more brand-loyal and prefer foreign brands. They use the internet more for research and making purchases. They don’t rely on advertisements. They are more likely to buy if their friends also bought the product. Social media are heavily used. The penetration rate of social media among the post-00 generation reached 99% and 73% of the post-80s and post-90s generations use social media apps such as WeChat and QQ every 15 minutes. The post-90 generation emphasizes life with quality, variety in consumption and brands. The new generation likes trendy stuff and foreign brands and aspires to a lifestyle different from their parents. The post-80s care more about price, while the post-90s prefer shopping experience and experience sharing. They want to show their personality and individuality. They prefer encouragement – likes – and entertainment. There are a lot of comments and interaction on Chinese social media. Product introductions are very important because they really want to understand the product, but they do not care much about advertisements and brand culture. 

Social media e-commerce is on the rise. In China, people rely on social media to make purchase decisions. Social media and e-commerce are combined, which is very different from the West. In Western countries there is regulation about date protection and social media and e-commerce are relatively separate. In China, purchases and sales of goods are facilitated by social interaction and self-produced content provided by users, and grow through social media and online media. Traditional e-commerce begins with the user entering, then browsing, purchasing and sharing, but social media e-commerce starts with users entering and then sharing, generating more users and eventually purchases. 

Prof. Bo Ji showed a video about Pinduoduo, a CKGSB alumni company, which became an astonishing success. Within three years the company was publicly listed and going very strong. It has emerged as one of China’s top e-commerce platforms. Consumers are attracted by extreme savings on a wide range of goods. Users form “teams” of at least two people to unlock discounts. The number of monthly active users reached 289.7 million in the first quarter of 2019. Just as Pinduoduo launched, the first wave of group buying startups came crashing down. When Pinduoduo came along, sellers previously exiled from other platforms flocked to the company. Pinduoduo sold USD969 million of agricultural goods in 12 days. People in smaller cities and rural areas have become more familiar with online commerce. As Pinduoduo continues to grow, it must find ways to make money. One potential avenue of monetization is what it calls “online marketing services”. The company has grown, but so have its operating losses. Despite its losses, financial analysts believe the company can still turn a profit.  

Social media e-commerce has four functions:

• increase the customer flows and sales of traditional e-commerce
• promote the integration of online and offline
• enhance the brand and sales of traditional retailers
• drive the user-flow platforms to realize business value

There are 12 top industries in China for foreign companies to participate: new energy; artificial intelligence (AI); cloud services; health; fintech; blockchain; online education; tourism; social media; cleantech; new retail and logistics. New emerging disruptive technologies in China include industry 4.0; blockchain, electric cars; and the Internet of Things (IoT). China needs help in those areas, so there are opportunities for foreign companies. 

Take up your courage! Reward success! Celebrate failure! Punish inaction! Go to China, don’t worry too much about it and once you’re there figure out how to swim in the pool. China Start 2021 is an online program, offered this year from April 7 to May 14. There will be six China-related live interactive lectures and two guest speakers. There are also four investment pitching events and five North Summit China Star Awards. Advisors of the China Start Advisory Board will give free one-on-one consultations with leading industry experts. More information is available at www.China-Start.org  

Ms. Gwenn Sonck: What are your top tips for companies that wish to start in China? Prof. Bo Ji: Don’t fear, go there and start something. A lot of people just talk about it. Multinational companies went to China and didn’t hesitate to set up their own operations. The business model you have from your country will often work in China. Many MNCs went to China without changing much. On the other hand, local adaptation is inevitable. You are going to figure out how to adapt. It is very important to acquire general knowledge about China to really understand how to do business in China and avoid mistakes and hurdles. Also, understand the cultural aspect: Chinese first want to build up a relationship before doing business with you. You need to nurture and build the relationship, and this takes time, efforts and sometimes investment, but once it’s build, it doesn’t break easily. You can do business at low cost by leveraging e-commerce. You can start selling products without going to China through JD Global and Ali International. If it works, you can start doing it yourself. Those who hesitate and think too much never get there, but those who just do it, make some mistakes and correct them, will grow. Simply thinking and talking about it, and never taking action is the most dangerous thing when talking about going to China.