Takeaways from “China: Prepare For The Opportunity”

On May 14, I had the privilege to attend in Beijing the EIU event “China: Prepare for the opportunity”, with high-level speakers from business and universities addressing a mixed (50-50) audience of Chinese and western leaders.  Here are my key takeaways: 25 insights on China trends and directions.

Macro. A broader view of some of the key economical and industry trends:

• By 2020 China will be the largest economy in the world, overtaking US. Then:  India, Japan, Asean (as a region), Germany, Brazil, Russia, UK, Mexico, France, Korea
• China is changing: slower growth rate (6-7%), raising labor cost, increasing consumer demand
• Average real wages in the US will have risen by 6% between 2005 and 2016; in China real wages will have risen by 180%
• Expected higher growth rate in healthcare, education and financial services industries
• Demographics: China risks to get old before it gets rich

China goes global. A new wave of Chinese companies is taking the lead:

• China goes global: by 2017 China will be a net outbound investor, cross border M&A running at about 200 deals per year
• Deals have been predominately state driven, resulting in an emerging markets bias, and a primary resources bias. But this is changing fast, with an increasing role of private sector in outbound investment
• Chinese firms will look for market access in industries where acquirer has competitive advantage, leveraging local economies of scale:  autos, green tech, infrastructure, technology
• Labor regulations are preventing Chinese companies from investing in EU (as in the case of airline industry)
• Strains and struggles in this internationalization process: slow speed of deal execution, lack of expertise in managing foreign operations, quality and perceived (poor) branding

Hyper-urbanization. The underlying theme supporting growth and driving change:

• +86M  people will move from countryside to cities by 2020
• by 2030, China will have 1B people living in metropolitan areas
• By 2013, 32 cities will have average GDP per capita > 30k RMB. By 2020, additional 70 cities will be above the psychological threshold of 30k.
• Is GPD the right measure? Is the Chinese urbanization model sustainable? The houku system today is preventing immigrants from access to social security services
• Companies are moving from coastal cities to inland cities, attracted by lower wages, good infrastructure and access to skills
• FDI are heading in new Provinces: Liaoning, Chongqing and Sichuan

Retail. An industry poised for growth, a laboratory for testing changes, with the rising consumer class:

• In 2013 China is expected to become the world’s largest grocery market, luxury goods market, ecommerce market. By 2016 it will overtake the US as the world’s largest retail market. By 2022 it will account for almost one-quarter of global retail sales
• To win the increasingly sophisticated Chinese consumer, localization across 3 dimensions (insights, innovation and control of the supply chain) will be key
• Chinese consumer is more and more multichannel (e+m/commerce). Convenience, price and services are key drivers toward e-commerce (that is cannibalizing in-store sales)
• In China, innovation (from the demand and supply side) is happening at an unprecedented rate, something western companies are not used to
• Does anybody believe the crisis of luxury good is driven by the anti-corruption policy?

Green Technologies. Behind the environmental discussion, how China is planning to tackle the issue, and where are key opportunities:

• Eco-cities, smarter buildings
• Biofuel
• Efficiency of power distribution
• Renewable energies (set to account for 15% supply by 2020)
• Clean coal technologies