Skip to main content

Business Commentary How Canadian business can profit from China’s new normal

Helen Wong is chief executive officer for Greater China at the Hongkong and Shanghai Banking Corp. Ltd. and member of the board of directors for HSBC Bank Canada.

After decades of supercharged growth, China's economy is now growing at a more moderate pace. But given its sheer size, even less-than-rapid growth generates plenty of opportunities for Canadian corporations that cater to the changing needs of the world's second-largest economy.

China's economic transformation over the past 35 years has been rapid, far-reaching and multifaceted.

Story continues below advertisement

In 1978, the year before Beijing began to reform and open up the Chinese economy, the country was home to 22 per cent of the world's population, but was responsible for just 5 per cent of the world's economic output. By 2014, its share of the global population had slipped to 19 per cent, but its share of global gross domestic product had soared to 13 per cent.

Over the same period, millions in China left their farms for jobs in the cities. While agriculture's share of the economy has fallen from around 30 per cent to less than 7 per cent, that of services has doubled to nearly 50 per cent

Many of China's 1.36 billion citizens have become wealthier as a result. As recently as 2000, just 4 per cent of China's urban households were considered middle-class. By 2012, that share had soared to 68 per cent.

Although Chinese private consumption as a percentage of GDP is much lower than that of most other major economies, it has been rising rapidly. Last year, U.S. online sales on Black Friday and Cyber Monday, at a combined $4.2-billion, were dwarfed by those in China on Nov. 11, better known as "Singles Day." Chinese shoppers spent $9.3-billion that day, three times more than just two years earlier.

These changes have brought tremendous opportunities for foreign businesses, which, in the decades after China opened up to global trade and investment, seized on the country's low-cost manufacturing prowess to source and manufacture goods for markets around the world.

From 2008 to 2013, the value of Canada's exports to China increased at an average annual rate of 14.4 per cent, while the value of Canada's imports from China rose an average of 4.3 per cent each year. China is now Canada's second-largest source of imports as well as its second-largest export market. However, China-Canada bilateral trade accounts for only a small part of both countries' total foreign trade, so there is room for growth.

Canadian commodity exporters, in particular, benefited from China's ravenous appetite for metals and other raw materials and energy. China's cooling growth has dulled that demand of late, but this does not mean that business opportunities have dried up.

Story continues below advertisement

The "new normal" in China means more realistic, sustainable expansion, where the emphasis is on the quality of growth, rather than its sheer speed. The goal is to reduce the old reliance on exports and low-value-added manufacturing, and increase the role of domestic consumption, private-sector activity and services, which now make up a bigger part of the economy than manufacturing.

While old-style manufacturing will not disappear, the government is making big efforts to move China's manufacturing capabilities to the next level. Policies such as "Made in China 2025," announced in May, promote advanced industries such as information technology, robotics, aerospace, railways and electric vehicles.

This presents opportunities for Canadian business.

Take urbanization. Despite the massive migration to China's cities, the urbanization rate lags that of other countries at similar levels of development. The government's target is to have 60 per cent of China's population living in cities by 2020.

That means a continued, big need for investment in urban infrastructure – from subways, water-treatment systems and waste-management facilities to building technologies and airports.

Bombardier, for example, is close to sealing an order from a Chinese lessor for its biggest-ever jet. The company is forecasting the need for 2,450 commercial aircraft in China – deemed a "major opportunity" – in the 60-to-150-seat segment over the next 20 years, with deliveries to Greater China representing 19 per cent of the world's total demand.

Story continues below advertisement

On the consumption front, the stars remain aligned for robust growth for many years to come.

The days of double-digit economic growth may be over, but salaries are still rising. While consumer appetite for some goods or brands may have dropped off, a lot of cash is simply shifting to other product categories or will be deployed a little later.

As Chinese consumers become wealthier, they will continue to buy iPhones, send their kids to universities in the West, travel to Toronto or Vancouver. China has emerged as Canada's second-largest source of overseas visitors this year.

The recent stock market volatility has not put a stop to consumer spending. Retail sales data for August showed an increase of 10.8 per cent from a year earlier – more than analysts had expected.

Meanwhile, Beijing's goal of boosting private-sector activity, increasing the service sector and raising living standards will bring new business opportunities in sectors such as financial services and health care.

Health-care spending alone is estimated to grow to $1-trillion in 2020 from $357-billion in 2011, according to McKinsey – and the government has signalled that foreign investment will have a role to play.

Story continues below advertisement

China is not an easy market, and the days when companies could record easy, double-digit annual growth are over. Foreign companies doing business in China have to be nimble, to be able to adapt to the constantly changing spending preferences of Chinese consumers and to be prepared to deal with periodic stock-market volatility. For those who do so, China will continue to be a must-be location and key export market.

Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter