As a developing nation China offers many business opportunities, but which industries are open to foreign investment and are still likely to grow in 5 years time?
Strategic industries and what they mean
Business opportunities in China are often linked to the government’s strategic objectives. Every 5 years the government depicts new strategic industries that will be supported in the form of government grants and subsidies, amongst others. China’s current five-year plan (2011-2015) is focused on strengthening the energy, automotive, IT infrastructure, and biotechnology sectors.
The majority of local governments are also providing support to sectors they want to stimulate within their own region, often times that takes the form of subsidies in order to acquire new (foreign) technologies and innovate on existing products. Both foreign and local companies are allowed to apply for these subsidies.
Hence, business opportunities can already be found by simply looking at China’s strategic industries. Although keep in mind that not every sector is open to foreign investment.
To understand which subsidies are available for your company I would advise to get in contact with the local government of the region/city district you want to invest in. In general you will not find any information about subsidies and the like on the Internet, hence directly contacting local authorities is generally your best option. Another option would be to use your government’s connections and support offices to assist you in that. For instance, in the Netherlands you can contact the Netherlands Business Support Offices to help you in this.
TIP: Cross-reference China’s strategic industries with your own country’s objectives, any overlap might be a chance to obtain a subsidy, grant or some form of assistance.
Developing sectors: opportunities and challenges
Many industries in China are still in their infancy stage, which brings both opportunities and challenges.
Opportunities can be found in the form of a less competitive landscape, first-mover advantage and the potential of growth.
However, a developing market can also be associated with poor brand and product awareness, which in turn triggers price to become the dominant factor to influence purchasing behavior.
In order to develop more brand and product awareness one would therefore have to educate the market and show the benefits and usage of product X in order to sell it in the market. However, educating a market normally does not come cheap, especially not when targeting consumers as opposed to businesses.
B2B works a little bit different; often times in business-to-business quality, technology and service are more important. Furthermore, when you are offered strong incentives by local authorities to upgrade your technologies it becomes more interesting to purchase high-technology foreign goods than to look for low-tech. domestic technologies.
Business opportunities per industry
Here I’ll describe a few industries that are prone to high growth, are (partially) open to foreign investment, and provide opportunities for foreign SME’s.
Education. If you only have one child and that child is expected to take care of not only his/her parents but also grandparents, that means he/she is not only your child but also your biggest investment and highest hope for the future.
The majority of elderly are not able to live of the small retirement fund they built up over the years. As a result, children are expected to support their parents once they grow old. This in turn explains why Chinese value education for their child above anything else; it’s an investment that will provide for the family in the long run.
However, competition is fierce to get into a good school. For that reason many parents invest in private education for their children or send them off to schools abroad. Foreign institutions have been considerable successful in the Chinese market by targeting the English-teaching sector, just take a look at Wall Street English, English First and Disney English.
More and more foreign universities are also moving to China. Take for instance The University of Nottingham, John Hopkins University and New York University who have all opened up campuses in China.
Medical equipment and healthcare. China is actively seeking to improve its health care sector. Especially now China is battling with an aging population. Who will take care of the elderly and how is China going to push its healthcare sector to the next level? The medical equipment and elderly care sectors are two sectors that will boom in the next few years. That is why the government is actively supporting the healthcare sector, which in turn provides opportunities for foreign medical device companies to jump in and sell their technologies and products to Mainland businesses and consumers. Interesting sub sectors are rehabilitation equipment and elderly care products.
Agriculture. With a growing population that is becoming wealthier each day, China will have to attain the resources to support and maintain that growth. That is why Chinese businesses are seeking to acquire new equipment and technologies to support their agricultural sector.
Now that China has relaxed its land-ownership rights for farmers we can expect quite some changes in the next decade. Farmers will be able to trade their lands, which will give way to larger farms and provides a boost in rural communities’ economies. An interesting sector to keep an eye out for is horticulture (green houses, professional lighting equipment, etc.).
Aqua technology. Deterioration of drinking water quality continues to be a major problem in China. More than 30 years of rapid urbanization has caused extensive pollution of water sources and over half of China’s urban drinking water fails to meet standards. Furthermore, China produces around 40% of rich countries’ apparel imports, which has greatly attributed to the water pollution. Coloring textiles requires enormous amounts of water and after usage it is rendered unfit for filtering anymore.
Did you know that the textile industry every two years uses the same amount of water as is in the Mediterranean Sea just to dye clothing? The aqua technology market is growing rapidly and offers tremendous opportunities. Interesting sub sectors: wastewater management and water filtration systems.
E-commerce. China’s e-commerce has recently surpassed the US’s in size of annual revenue. In addition, more and more Chinese are connected to the Internet and every year the e-commerce market grows well over 20%. It’s no surprise that more and more foreign companies are targeting this highly lucrative and rapidly growing industry. However, the Chinese Internet landscape looks very different from what we are used to in the West. Therefore it is advisable to read up up on e-commerce legalizations and the differences in website infrastructure and general internet landscape.
Green technology. China’s air and water pollution are famed around the world. Even movies are made about it. The air pollution is a combination of industrial pollution, agricultural pollution, construction dust, car exhaust, and the dirty emissions from burning coal. That is why the government is investing in the development of new green technologies and is continuously looking for new instruments that will aid in the battle against pollution. The green tech. industry is a strategic industry in China and offers subsidies and incentives to foreign companies that can help tackle this growing problem.
Although there are many more industries that are experiencing high growth e.g. agri-food and automotive, the sectors listed above are open to foreign direct investment and prone to favorable subsidies.
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