China continues to symbolize an enormous land of opportunity, despite growth forecasts that are no longer in double digits. But for many people there is a hint of fear – of the unknown, the regulatory environment and complexity. They comment on how the Chinese economy seems to be slowing down and it's rather tough to make a profit in the land of the dragon.
The reality is that China (and all of Asia, for that matter) continues to present many opportunities for Canadian companies, and these will play an important part in the future growth of Canada's economy. While the actual growth rate of China's economy may be decreasing as it matures, it is still a leader and significant on the world scale. It continues to attract top multinational companies because of the growing middle class, increased consumer spending and infrastructure development.
This quarter's C-Suite findings saw a majority (74 per cent) of Canadian executives surveyed indicated that they believe open trade and investment between Canada and China will have a positive impact on their sector, despite recent reports from the International Monetary Fund that growth in China is expected to fall this year to 7.4 per cent, from its recent pace of 7.8 per cent. In contrast, the United States is expected to post gains of 2.2 per cent and 3.1 per cent over the next two-year period.
While the United States is still integral to our growth, it is important to remember that after the U.S., China is Canada's second-largest trading partner and soon to be the globe's largest economy. Canadian exports to Asia have grown from $21.6-billion in 2000 to $51.2-billion in 2013. Statistics indicate these numbers will continue to increase significantly.
To highlight the importance of China and the emerging economies, consider that by 2020 half of the world's population will reside in China, Indonesia, Pakistan, India and Nigeria. These growing populations will require all of the resources Canada has to offer, including oil and gas, metals and minerals, pulp and wood, food products and processing technology and of course, our water. We need to continue to take advantage of opportunities for trade with these growing markets.
Those in the C-Suite who expressed some reticence said that among their reasons for not doing more business with emerging markets were complex regulations, currency, and market concerns. Add to this cultural differences, complications around taxation, and a lack of skilled labour. These are all valid reasons for exercising caution. However, companies in emerging markets themselves are also starting to expand rapidly outside their domestic markets, turning up the heat on international competition for many of the traditional industry leaders.
While it might seem less risky to focus on more developed economies, Canadian businesses need to take a long-term view of growth. They need to mark their territory in these emerging markets – now. If we don't capitalize on growth in Asian markets, it will be harder for Canadian companies to compete on a global stage, increase market diversification and exploit export potential.
Willy Kruh is global chairman of consumer markets and head of high-growth markets at KPMG