The Shanghai chapter of the American Chamber of Commerce in China has released its 2012 Business Climate Survey. It produces the numbers that back up “a new normal” in which China’s economic focus moves away from export and investment toward consumption and services.
While the report lists of areas of doing business in China likely to remain constant going forward that are far from surprising, between the lines a new attitude for conducting business in the Middle Kingdom is discernible.
As the reality hits home that we now live in China in which international businesses are faced with rising costs, human resource constraints and an increasingly competitive business environment, so too foreign firms are learning how to operate within China, for China. Long have we heard how the low-cost export model shall become a thing of the past; the reality is now here as international companies vie for that slice of the Sino cake known as steadily increasing household income and consumption.
The AmCham report points to China’s rapidly expanding middle class as the one of the areas of greatest potential for foreign firms. Growth in branded consumer sectors, particularly in lower-tiered cities, is one of the main reasons why US companies rank China as the top investment destination for more than one-fifth of surveyed companies.
In the past, large US firms were able to grow very quickly in the Chinese market by merely acquiring smaller rivals, or to be more politically correct, by making “foreign investments”. This is no longer the case; the AmCham report points to a new era of more organic growth for US (and presumably other foreign) companies operating in China. We can expect to see more building off of existing foundations, the hiring more people, the opening more offices and a growing in production capacity. Interestingly, amid worries of multinationals potentially moving their manufacturing bases s to Vietnam, India or elsewhere in southeast Asia, less than 15 percent of companies reported they have moved or plan to move production out of China to respond to rising costs.
The complete report; “AmCham Shanghai 2012–2013 China Business Report “can be downloaded as a PDF file [here].
