Change your view of China now!
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According to Kobus van der Wath, there is much emphasis on China’s exploitative behavior in Africa, the unfair competitive advantages behind its “Made in China” brand, the poor quality of some of its exports, and of course its poor human rights record. Additionally, there is the issue of the harmful impact China has on certain of South Africa’s manufacturing sectors, as well as South Africa’s growing trade deficit with China – which reached R32 billion in 2006 and around R17 billion in the first 8 months of 2007. These are undoubtedly important issues that deserve attention. However, while the views expressed on these issues often reflect part of the truth, they do not show the whole picture. It is time for South African executives to adopt a more comprehensive perspective on China; to change or challenge their worldview – or more precisely, their view of China – as the two countries become increasingly interconnected. After all, a worldview that fails to take China into proper consideration is becoming increasingly irrelevant. Therefore, discussions in South African boardrooms, along with their focus and efforts, need to take China into account. This applies both to large South African companies listed on the JSX and to small and medium-sized enterprises. Whether you operate a single-product business or are part of a conglomerate, whether you are a local business or an international player, China must be viewed realistically, objectively, and without emotion, for what it truly is. Ignore the hype, identify unfair stereotypes, and avoid the myths that are being spread. Understand what China really means for your business. Do this as soon as possible. Moreover, adopt a dynamic approach by considering what China will mean for your business in five or ten years. Several facts underscore the need to reassess China: It is the world’s third-largest economy, with a GDP of $2.7 trillion in 2006 and a growth rate of 11.5% in 2007. China is set to overtake Germany (whose GDP was $2.9 trillion in 2006) sometime in late 2007 or early 2008, becoming the world’s third-largest economy. On a purchasing power parity basis, China has already surpassed Japan to become the second-largest economy, right after the United States. (India is currently competing with Japan for third place.) China’s economic strength, diversity, scale, and scope will enable its companies to achieve new levels of success. Its industrial and consumer markets will continue to grow rapidly. (South Africa’s GDP, at $254 billion, puts it in 27th place – less than one-tenth of China’s economy.)
China’s outward investment was less than $1 billion in 2001. Last year it was around $20 billion, and this year it is set to exceed $25 billion. Africa is part of China’s expansion plans. Therefore, deals such as those with ICBC Standard Bank, as well as investment and lending programs in Angola, Zambia, and the DRC, and China’s participation in infrastructure projects in (South) Africa, should be seen as just the beginning. In fact, competition from ambitious Chinese companies will increase significantly, especially in sectors such as energy and resources. As a result, over the next ten years, both developed and developing countries will have to adapt to an unprecedented influx of competitive Chinese capital. This means that the roles of predator and prey will need to be redefined.
Between 1996 and 2006, China’s exports of high and medium-high technology products grew at an annual rate of 24%. In terms of its share in global technology exports, China ranked fourth in 2005, with a 10.5% market share of total OECD technology exports – behind Germany (16.4%), the United States (15.6%), and Japan (11.8%). Interestingly, 38% of China’s total exports, which amounted to $969 billion in 2006, were high-tech products, compared to only 37% for the United States. It is clear that China is no longer a producer of low-quality or inferior products; in fact, it has captured a significant market share in the sophisticated U.S. market from top-tier producers such as Japan and Canada over the past five years. Yet, many producers and consumers in South Africa still cling to the outdated stereotype that Chinese exports are necessarily of poor quality. In reality, recent media reports about quality issues with products made in China only serve to further mislead people into underestimating China’s true capabilities.
Kobus van der Wath is the Group Managing Director of THE BEIJING A*S, a firm that provides China strategy, sourcing and investment solutions. He has lived and worked in Asia for 14 years now and is based in Beijing, where he has been elected as the Vice President of the Asia Pacific South Africa Chamber of Commerce.