China’s businesses target overseas growth

Despite global economic uncertainty, Chinese enterprises are expanding their overseas operations, with investment mainly focusing on high-end manufacturing and technology.

According to a report from consultancy Accenture, expanding globally is “a key way for Chinese enterprises to build long-term competitiveness”, said Yue Bin, operations lead for Accenture Greater China. Yue added that a key driver of expanding economic activity worldwide is moving away from state-owned to private enterprises.

The report found that 92% of organisations surveyed described globalization as a necessary step for them to attain fast growth; 55% said they expect to optimize resource allocation and build up supply chain resilience through overseas expansion; and 49% aim to boost their innovative capacity through interaction with other markets.

The study – the 2022 Accenture Chinese Enterprises Going Global Research –  also found that 95% of companies surveyed say that their overseas businesses would see growth of more than 5% in the next three years, while 52% predicted growth of over 20%.

The report used a four-tier category to rank the level of internationalization displayed by Chinese companies based on overseas revenues – an initial stage, growth stage, established stage and fully globalized stage.

Accenture found 32% of Chinese enterprises are still in the initial stage of globalization, with their overseas earnings accounting for less than 10% of total revenue. However, more than a quarter were in the established stage (26%), with their overseas revenue accounting for 20% to 50% of the total.

‘We found that energy companies are inclined to choose South Africa and Brazil, while internet enterprises prefer to expand their presence in Southeast Asia,” Yue said, adding that services and trade companies tend to prefer the European market.

However, the report also focused on obstacles to Chinese companies improving their overseas business performance. These included:

  • volatile political and economic conditions in some markets.
  • risk management
  • regulatory compliance
  • cultural differences
  • inefficient operations
  • slow decision-making.

The report’s authors recommended enterprises build tailor-made operational models, establish reliable, safe and regulation-compliant digital infrastructure, and leverage cutting-edge technologies to empower global operation.

It identified there are three key drivers for Chinese enterprises in going global.

First, 92% of enterprises surveyed believe that globalization is the necessary path for Chinese enterprises to maintain fast growth.

Second, 55% said they are promoting operational resilience, so that they can optimize resource allocation and build up supply chain resilience.

Third, 49% are looking to boost innovation. As R&D resources in frontier technologies are distributed all over the world, leading Chinese enterprises have been deploying innovation centres globally and trying to learn and acquire innovative resources and experiences from overseas.

“In the past, when Chinese enterprises expanded their overseas business, they usually went out first, and then continued to make improvements,” Yue said. “Now, enterprises need a global strategy perspective. When their products and services ‘go global’, or compete with foreign enterprises, they should first set up the supply chain, management system and other global capabilities, then they can go global in a more reliable and faster manner.”

He added that since China’s outward foreign direct investment flow ranked number one in the world for the first time in 2020, the country’s foreign investment has remained stable, showing the characteristics of accelerated ‘going global’.

 

Boost to the housing market

China’s central bank has cut the interest rates of the housing provident fund for first-home buyers by 0.15 percentage points.

Effective from 1 October, interest rates for loans that mature within or at five years will be at 2.6%, while the over-five-year rate will be slashed to 3.1%, the People’s Bank of China (PBOC) has announced.

The loan rates for second-home buyers will remain unchanged, the PBOC said.

The housing provident fund is a long-term housing savings plan made up of compulsory monthly deposits by both employers and employees. It can only be used by employees for house-related expenses.