China's Competitive Advantage in the Global Market
There are many factors why many companies and/or investors are interested in the seemingly limitless potential of the China market. Today, China has distinct competitive advantages that edges its rival countries in the global market. Among the BRICS economies, China accounted for a majority of the foreign direct investment (FDI) inflows in 2013, at a hefty 46%. This figure is expected to increase further as the tireless economy of China continues to surge forward. This article will explore some of the reasons to invest in China and their interest in gaining entry into the world largest market.
The ruling government, the Communist Party of China (CPC) has sought improvements through market-oriented reforms that started back in 1978. These economic reforms was spearheaded by the Chinese leader Deng Xiaoping and several leaders. The changes were very successful and introduced market principles and policies that resulted in remarkable economic growth for decades to come.
Despite having suffered from much political instability in the past, political risk in China now is comparatively low due to the single party political system. Research have shown that the Chinese are generally happy and satisfied with the country. As China continues to push forward in the global market, it is undoubted that the ruling CPC will introduce favorable measures to reinforce its political and social stability.
According to statistics by the World Bank, the population of China stands at 1.351 billion in 2012, firmly holding the top spot. China is also ranked number four in terms of land mass. A large population with the availability of land means a potentially large market. In addition, China has a rapidly rising middle class that already exceeds the entire population of the United States, and expected to hit more than 800 million within the next 15 years, China presents a huge potential for would-be investors.
Mentioned earlier, reforms that began in 1978 have led to unprecedented economic growth in China. Since then, the economy of China has grown more than 90 times and surpassed Japan as the world second largest economy in 2010. The robust economy has also managed to weather through global economic downturns, witnessing consistent growth instead. Analysts predicts that China will overtake U.S as the largest economy in the world by 2027.
In a Confucian society like China, there are consumers willing to pay for premium product or service, especially with an improving lifestyle. Investors should take note on the market potential as the spending power of the Chinese continues to increase. Quartz reported that Chinese tourists will be spending more on luxury goods than the entire world combined by 2015. In fact, it has been reported a majority of Chinese are actually unsatisfied with the service received when travelling. The Chinese are also getting richer, with the middle class population projected to increase to 51% from 6% in a decade.
Leveraging the use of the Internet can remove barriers in gaining access to the China market. In recent years, there has been a surge in the Internet population of China, which is set to reach 800 million users by 2015. Weibo, the largest social networking platform in China, has an astounding 600 million user base with more than 60 million active users daily as of 2013. Social media has undoubtedly become an effective and necessary marketing entry tool in this increasingly globalized but ‘smaller’ world.
Many companies choose to relocate operations to China due to the comparatively cheaper and readily available labour. For example, the infamous Foxconn has more than a dozen factories in China, churning out products for global brands such as Apple, Blackberry and Sony. Despite being a sought-after destination for cheap labour, the literacy rate of China is also improving as well. Millions of students graduate from universities countrywide annually and are beginning to embrace English as their second language of choice. This diminishes the language barrier and increases the pool of an educated workforce to tap into.
China has developed their transportation and infrastructure since late 1970s. Improved transportation has led to a booming travel and air cargo industry in the country. According to Boeing in 2012, air traffic is expected to grow rapidly, doubling over the next 20 years and with China leading the industry. Improved transportation has spurred travel within China and encouraged outbound tourism. In addition to air transportation, China has an extensive and highly connected network of roads, highways and railways (more than 98,000 km!). According to the Rail Journal, the Chinese government is targeting a massive increase of the rail network to 120,000 kilometers by 2020.
Do you think an economic slowdown in China will have a huge impact globally?
Kelley, N. L. & Shenkar, O. 1993. International Business in China: Understanding the Global Economic Crisis. Routledge.
Tech in Asia: http://www.techinasia.com/sina-weibo-60m-daily-active-users-q3-2013/
Rail Journal: http://www.railjournal.com/index.php/policy/china-implements-radical-railway-reform.html