I spent last week in China as a member of the inaugural CKGSB CEO Study Tour Program where I travelled to 4 cities (Beijing, Shanghai, Hangzhou and Shenzhen) in only 6 days. During this week, we visited three of China’s biggest and best known companies, Alibaba, Tencent and Fosun, attended lectures from many of China’s leading industry experts and academics, networked with CKGSB’s high calibre alumni and students, and, to maintain high energy levels throughout, we even participated in Taichi sessions each morning! It has been a wonderful and insightful experience and proves that nothing in China is one dimensional. If you embrace China as a complex, multi-faceted and dynamic environment, as I do, you’re always learning, growing and challenging your assumptions.
I can still remember back in 2008, at the height of the global financial crisis when there was a very real fear that, in the absence of the US consumer, China’s export led economy would plunge into recession (resulting in unimaginable chaos and poverty) many respected and well known international commentators predicted it could take up to 30 years before Chinese consumption would be strong enough to maintain a positive growth rate for the overall economy. How wrong they were.
Here are some of my observations about the current state of China’s economy from being on the ground over the past week:
1. China’s Booming Domestic Economy
China’s domestic economy is booming and you can track the start of this growth to around 2008, when the likes of Alibaba, Tencent and Fosun, three of the big names we visited last week, really got going. Whilst China continues to welcome foreign brands to enter their market, particularly if they offer something unique and different (eg British heritage, French sophistication, German engineering, Australian kangaroos) you get the feeling that time is running out. After 20 years as a manufacturing hub for the rest of the world (think Apple smartphones, Samsonite suitcases and Barbie dolls) there isn’t much they can’t design and produce themselves, and so their focus is on the domestic consumer rather than worrying about the rest of the world (despite what the US may think!)
2. Tencent Driving Innovation
Tencent, the developer of WeChat is now the 5th largest internet company in the world. The all pervasive app now has 1.1 billion active users, of which over 50% spend at least 90 minutes on WeChat every day, it has transformed the internet age in China and is rapidly attracting overseas users aswell (20 million international users so far and growing fast).
Despite their amazing success and growth, Tencent are now attempting to completely reinvent themselves once again by launching their ‘Industrial Internet’ project which will merge the ‘virtual world’ with the ‘physical world’ to transform many sectors, utilising big data, AI and CRM. I guess we’ll have to wait and see how this new strategy will transform our lives (as WeChat has) but you can be sure it’s coming very soon!
3. US-China Tensions
Professor XIANG Bing, the founding Dean at CKGSB who is regarded as a leading authority on the transformation of China’s economy and the global implications, believes that the current tensions in the US-China relations can be attributed to 2001 when China entered the WTO. At that time, the key areas required by the US to be met by China in exchange for WTO entry were:
- Market access for US companies
- Improvement in Human Rights
- Introduction of Democracy
- China to shoulder more global responsibilities
- China to support the US on global issues
Despite growing their economy by 12 times since 2001, China has failed in all of the above areas, and actually gone backwards on some, which was first flagged by President Obama in 2009 and led to the US designing a new strategy to ‘embrace China with a hedging strategy’ (eg TPP) and led to China’s response (‘Made in China 2025’, ‘One Belt One Road’) which is how we got to where we are now. He is confident that the world’s two largest economies will find a way to sort out their differences but it will take time. The stakes are too high for them to fail!
4. Crazy Entrepreneurs
China is focused on technology, innovation and the rollout of 5G in China and across the world. This is an important moment for China. With 18,000 new Chinese companies being created every day, mainly internet, AI and big data companies, and with the 5G network expected to be fully functional in China before the end of 2020, we’re going to see some enormous changes in just the next 18 months. As a local venture capitalist, Sheng Xitai, said ‘the Chinese are crazy about entrepreneurship’!
5. Made in China 2025
The key word in today’s China is ‘innovation’. Whilst not mentioned much in public, the ‘Made in China 2025’ initiative is very much alive and well and, with the ability to innovate at scale and engage the users of over 700 million smartphones which are in almost constant use, Chinese companies are already designing, defining and creating the future.
The short term opportunity for foreign companies and entrepreneurs is to contribute technology, innovation and products in key sectors (eg healthcare, education, tourism) and clean food and eco-friendly products while they clear up their environment. But the window of opportunity is closing. Don’t wait another 10 years to start your China Journey!