The Flanders-China Chamber of Commerce and Flanders Investment & Trade organized a webinar on the topic “Doing business in and with China after one and a half years of pandemic: an overview and preview” with the Flemish Economic Representatives in China on July 7, 2021.
Ms Gwenn Sonck, Executive Director, Flanders-China Chamber of Commerce, welcomed the participants to the webinar. One of the most important obstacles for doing business with and in China at the moment is the fact that we can't travel to China. However, the Chinese market still offers many opportunities for our Flemish enterprises. Flemish exports to China increased by 22.5% in 2020, placing China in eighth place as export market.
Panel discussion with the Flemish Economic Representatives:
• Mr Marc Struyvelt, Flemish Economic Representative in Beijing
• Mr Bart Boschmans, Flemish Economic Representative in Shanghai
• Mrs Eva Verstraelen, Flemish Economic Representative in Guangzhou
• Mr Siegfried Verheijke, Flemish Economic Representative in the Hong Kong S.A.R.
It has been more than one-and-a-half years since the Covid-19 virus was discovered in Wuhan. How did you experience this and what is the current situation? Mr Boschmans: China took measures very quickly, such as lockdown, mass testing and isolation, and travel restrictions and the number of Covid cases have remained limited. Even if the figures are multiplied by 10 they remain very low. In Shanghai the situation has been normalized very quickly since April 2020. There have not been any outbreaks since and events have been taking place live. Traveling in China is no problem unless to regions where there are new outbreaks. China has a “zero case” policy, keeping the borders virtually closed. We see that many expats are leaving as more and more senior positions are filled by Chinese.
Mr Struyvelt: I have been in China continuously since March 2020. Till August 2020, the situation in Beijing has been a bit more difficult compared to Shanghai, following a comparatively small outbreak in June. Meanwhile, there has not been any Covid-19 infection for 158 days in Beijing. It is business-as-usual here. Wearing a face mask is still obligatory in many places such as on transport, there are still temperature checks and the requirement to show a green health code. This situation is expected to continue for months if not years. Ministries are still a bit hesitant to receive visitors from the embassies. There are again many congresses and fairs.
Ms Verstraelen: Compared to a year ago, the situation is similar except for the fact that the quarantine requirements in Guangzhou and Southern China are even more strict compared to a year ago. On top of 14 days of quarantine, there is a one week observation period during which you don't have a green health code and cannot take public transport or enter shopping malls. In May there was a small outbreak of about 100 cases in a population of 18 million. A few districts had been placed in lockdown for a few weeks. There has been a worldwide impact on freight and container transport as cases were detected in the port of Shenzhen. The city of Guangzhou is building a new quarantine center with 5,000 beds as the airport has the most international flights in the world. This shows that China will not open the borders anytime soon.
Mr. Verheijke: Hong Kong has had a relatively traumatic experience with SARS in 2003, which led to a quick response when a new virus was reported in the beginning of 2020. Fairly quickly the medical sector requested the closure of the border with China. The number of casualties in Hong Kong has remained relatively low. In 18 months, there have been 12,000 cases and 212 deaths in a population of 7.5 million. Strict border measures, such as one to three weeks of quarantine in a hotel, have kept the pandemic in check. At present, Hong Kong is closed to non-residents, except for travelers from mainland China, Macao, Taiwan, Australia and New Zealand. The vaccination campaign started in February, first with China's Sinovac vaccine, but most people prefer the Pfizer-BioNtech one. However, relatively few – about 21% - Hong Kong people have been vaccinated. Lotteries are now being organized to promote vaccination. There is still a lot working-from-home to avoid the risks of taking public transport.
What has been the impact on China's economy and what are the consequences for our exporters? Mr Boschmans: In 2020 China was the only major economy reporting growth. This year the government expects growth of at least 6% but it will probably be between 8% and 8.5%. Flanders' exports dropped by 8% in 2020, and imports by 10%, the worst figures since 2009. One of the exceptions was China. One growth sector has been pharmaceuticals as some drugs produced in Belgium have been made reimbursable. In 2020 Chinese companies announced double as many foreign investment projects compared to a year earlier, but there have been delays due to travel restrictions.
Mr Struyvelt: The biggest obstacle are travel restrictions. Many Flemish entrepreneurs are eager to come to China, but since November 2020 it is prohibited for Belgians to travel to China with few exceptions. I have met only one Belgian who succeeded in coming to China for business. The only way is to get a PU-letter from local authorities at the request of a local company enabling you to get a visa from the Chinese Embassy in Brussels. There are no general rules about the circumstances under which a PU-letter may be issued. Few local authorities are willing to take the risk of delivering a PU-letter. However the Chinese Embassy is willing to consider travel requests case by case. Some Chinese importers are willing to travel to Belgium, although they also face a three-week quarantine when returning to China. Considering the principle of reciprocity Belgium is also not delivering any visas, unless for economic reasons which cannot be postponed. The necessity of travel to Belgium is however difficult to prove.
Ms Verstraelen: There are also difficulties with the transport of goods with costs rising. The F&B sector is affected seriously, in particular cold chain products, which are being checked very thoroughly resulting in higher transport costs and delays. We continue building bridges between Flemish companies and Chinese customers. We support some sectors through hybrid actions, such as a hybrid food fair. In some cases FIT has a booth at food, logistics or high-tech fairs.
Mr Verheijke: In the past two years, Hong Kong suffered from the double shocks of social unrest and Covid-19 leading to the economy shrinking by 1.2% in 2019 and 6.1% in 2020. The aviation, tourism and hospitality sectors have been particularly affected. Dragon Airlines has closed down as well as many hotels and restaurants because the number of tourists has dropped by more than 90%. The biggest problem is that the border with mainland China is closed. So businesspeople can't go to their factories in Guangdong. The Hong Kong business community is pushing the authorities to change this. To support the people, the authorities have issued cash vouchers and subsidies. This year the economy will do better than last but has still not recovered to pre-Covid times. Two sectors – finance and logistics – performed well. Belgian beer exporters saw their exports plummet, while online sellers saw a sales boom. Hong Kong remains a very open economy and there are few problems with imports of cold chain products.
When will it be possible again to travel to China? Mr Struyvelt: It doesn't look very good. Strict restrictions will remain till after the Olympic Winter Games in Beijing in February 2022 and some say till the summer of next year. Much will depend on the situation elsewhere in the world. Don't expect to be able to come to China before next year. Mr Verheijke: It is difficult to evaluate. Hong Kong is more open than mainland China and its priority is to reopen the border with China for which it will need to remain free from Covid. The authorities are not expected to take many risks allowing entry to non-residents. Belgium and most European countries have a B-status, which means they are risky countries. Belgium would need to be classified in the category of Australia and New Zealand with no or few infections during a longer time.
What is the impact of the 14th Five Year Plan and what are the opportunities for our entrepreneurs? Mr Boschmans: The whole world is looking at the Five Year Plan because it indicates the direction for the coming years. The focus is on a slower but qualitatively better growth and a few structural priorities. There is an increased focus on domestic consumption to diminish reliance on exports and become less dependent on foreign countries for high-tech. Funds for R&D will be increased in the coming years. Healthcare will be further improved. Sustainable and green growth is another focus. The plan also aims to raise the urbanization ratio to more than 65% in 2025. There will be more investments in smart cities, such as 5G and rail links. Regional mega-clusters will be further developed, such as the Yangtze River Delta and the Chongqing-Chengdu mega cluster.
Ms Verstraelen: In the South there is the Greater Bay Area, and Shenzhen, which celebrated its 40th anniversary last year. Innovation is the key word with better use of resources, R&D, and the green focus. This relies on five pillars: scientific innovation; modern industries; efficient economic circulation in Guangdong; opening and reform; and dual circulation. Four key national labs have opened in Guangzhou for cutting-edge materials; nano-manufacturing; network security and life science. Pilot reforms in Shenzhen include the set up of a data center and increased autonomy for Shenzhen in the field of artificial intelligence, autonomous vehicles, health services and informatics. We also keep an eye on the Hainan Free Trade Zone where there will also be opportunities, including duty free shopping. Some new industries are also being developed, including cleantech, a medical development zone, agro-business, and cross-border e-commerce.
Mr Struyvelt: In the Five Year Plan there are few detailed objectives but there will be opportunities in areas such a cleantech, recycling, new energies, new energy vehicles and pollution. The climate is a very important topic. Another mega cluster is the Jing-Jin-Ji (Beijing-Tianjin-Hebei) with 116 million inhabitants and 225,000 sq km, approximately equal to the surface of France. A new development zone will be comparable to Shenzhen and Pudong. In Xiong'an a whole new city is being built where much of the non-core business of Beijing will be relocated, such as universities.
Mr Verheijke: What happens in mainland China determines in large part what is possible in Hong Kong. The market is relatively limited but it remains important as a hub. Some place their hopes on a further integration of the area, which includes nine cities in Guangdong and the Hong Kong and Macao special administrative regions. This may be more important for local companies rather than foreign ones. For Flemish entrepreneurs Hong Kong remains interesting as a regional hub specifically for financial and environmental goods and services. There is a flourishing fintech sector. Cleantech is also important as Hong Kong aims to become carbon neutral by 2050, including the building of wind energy parks, making buildings more energy efficient and better treatment of waste.
What are your experiences with the tensions between China, the EU and the U.S.? Mr Boschmans: The tensions are not diminishing and U.S. President Biden seems to continue the policies of Trump. In the past month several measures have been taken against Chinese companies, especially in the semiconductor sector. Exporters need to closely follow the situation and watch out with whom they are dealing with. A new FIT Technology Attaché will start in Guangzhou in August to assist our tech companies in developing the Chinese market and convince the right Chinese companies to invest in Flanders. Due to the tensions it won'y become easier for our companies. The geopolitical situation and sanctions are making the playing field more complex. Chinese consumers are becoming more self-conscious and nationalistic. As a company you can end up in the eye of the storm in a few hours time, such as H&M, Tesla and Didi.
Mr Struyvelt: In China not much has been written about the Comprehensive Agreement on Investment (CAI) contrary to Europe. The CAI should make it easier to invest in certain sectors such as automotive and cleantech, but there is no investment protection mechanism. The European parliament will scrutinize the agreement and it is expected that it won't be ratified in the coming two to three years. China is more focused on a free trade agreement with an expanded ASEAN group of countries, which also still needs to be ratified. China focuses more on other Asian countries rather than Europe.
Ms Verstraelen: The local authorities and companies in South China are very sensitive when measures are taken putting China in a bad light, for example when a resolution is adopted in Europe sometimes a factory visit is canceled or deals are halted. We continue to emphasize there is a difference between Brussels as capital of the EU, Brussels as capital of Belgium and Flanders as a separate entity. We focus on cooperation between Flemish companies and Chinese partners and are not involved in political decisions.
Mr Verheijke: Regarding the Hong Kong Security Law it depends what you are doing locally. For a Flemish exporter selling goods or services through a local distributor the current political situation will have no impact on its activities. If you are based in Hong Kong you need to be careful not to take positions which the authorities could consider to be hostile. Some larger companies can't avoid being affected by the larger political situation, such as companies producing in China and being investigated by authorities in their own countries. Someone said that Hong Kong is a democracy where the people should know what is expected of them. At least there is no longer social unrest which is a positive for companies. There is a serious brain drain ongoing in Hong Kong. Many expats have already left Hong Kong. Some Hong Kong people are also relocating, especially to the UK. Hong Kong will not change commercially, but will become more and more a Chinese city. The English language knowledge is regressing among the youth, and the educational system focusses on learning to love China. Thousands of Chinese professionals are also relocating to Hong Kong.
Which actions are planned by FIT in the coming months? Mr Boschmans: For next year we plan live versions of the Chongqing-Chengdu mission and participation in the China Hybrid Food Fair in Chengdu. In May there is the China Medical Equipment Fair. We are also planning for the CIIE and the Food and Hotel China in November. Mr Struyvelt: Next week there is an environmental fair and we are looking at some smaller fairs. Ms Verstraelen: There will a FIT booth at the Logistics fair in September and the High-tech fair in November. We are also participating in the Environment Expo. Mr Verheijke: There are no actions planned this year as the border is still closed but we spend more time on identifying business opportunities. Next year, we are looking at organizing an export beginners mission to Hong Kong and Taiwan.
A Q&A concluded the webinar. Is there less interest of Chinese companies to invest in Flanders? Mr Boschmans: No, on the contrary, the tensions between China and the U.S. also offer opportunities for example in life science and logistics. However, due to the travel restrictions, site visits are not possible, which are crucial in the investment process, causing delays in taking decisions. Mr Struyvelt: Perhaps it is becoming more difficult for state-owned companies to invest abroad but private companies are still interested to invest in Europe. We need to determine which Chinese investments we want to ensure that our technology stays in Europe. Some start-ups set up by Chinese abroad are now considering to return to China. Mr Verheijke: More Hong Kong companies are interested to invest in Europe due to the Security Law and also because some of those companies are more mature now to venture abroad.
Is there rising inflation pressure in China? Mr Struyvelt: No, I don't think so.
