Webinar: The economic landscape in China: challenges and opportunities after 2.5 years of pandemic – Thursday 5 May 2022

Webinar: The economic landscape in China: challenges and opportunities after 2.5 years of pandemic Thursday 5 May 2022

The Flanders-China Chamber of Commerce and Flanders Investment and Trade organized a webinar with the Flemish Economic Representatives in China on 5 May 2022 about “The economic landscape in China: challenges and opportunities after 2.5 years of pandemic”.

Gwenn Sonck, Executive Director, Flanders-China Chamber of Commerce, moderated the panel discussion with Marc Struyvelt, Flemish Economic Representative in Beijing; Bart Boschmans, Flemish Economic Representative in Shanghai; Eva Verstraelen, Flemish Economic Representative in Guangzhou; and Siegfried Verheijke, Flemish Economic Representative in the Hong Kong S.A.R.

Gwenn Sonck, Executive Director, Flanders-China Chamber of Commerce, welcomed the Flemish Economic Representatives and the participants. One of most serious problems for our SMEs is that we still can't travel to China due to the Covid policy of the Chinese government. The rise in Covid cases – still not comparable to the numbers in our area – and the geopolitical climate don't make it easier to do business with China. The IMF projects a lower growth of 4.4% of the Chinese economy. Obviously, China is still a market which may not be dismissed and is still offering many opportunities for our entrepreneurs. The Flemish export to China dropped by 5.5% in 2021 due to the rise of pharma in the corona year. China is Number 9 on the list of export markets. Flanders exported €7.20 billion to China, while Flanders' imports from China reached €22.58 billion, an increase by 37%. Flanders most important exports to China included chemicals and pharmaceutical products (30%); machines and electronic equipment; and synthetic materials. Imports from China to Flanders included machines and electronic equipment (30%); transport equipment; and chemicals and pharmaceutical products.

China is a very competitive and innovative market. It is important that our companies can capitalize on this important market. According to a survey of European companies, they consider China a very important destination for investments. Due to Covid, European investors are postponing investments in China, but postponing is not canceling. Together with FIT, the Flanders-China Chamber of Commerce wants to assist companies on the Chinese market.

China was the first country to recover from Covid-19 2.5 years ago, but Omicron is now spreading fast in China. What are your experiences and what is the current situation? More and more foreigners are leaving China, what is the effect on business? Mr Boschmans in Shanghai: There is a strict lockdown in Shanghai since the end of March. The lockdown started in Pudong district on March 28 and in Puxi on April 1. Mr Boschmans returned after the holidays from Belgium to China in mid-February, followed by three weeks of quarantine. First, life was relatively normal although the number of cases was rising from 10 or 20 daily to ultimately 25,000. The lockdown is very strict as it is not allowed to leave your house or apartment. It became difficult to buy food, which was only possible through group purchases. Individual purchases were not possible as the couriers could not drive around. Mr Boschmans took around 30 Covid tests, every time anxiously waiting for the result because those testing positive were transported to central quarantine centers. Some of those centers are converted expo centers with several hundreds or thousands beds in less than optimal circumstances.

Mr Boschmans has now returned to Belgium because he will be transferring to New York in summer and there are few activities in Shanghai in May. The situation in Shanghai is not fundamentally changing although there is talk of relaxing the measures and fewer people are still locked up at home. Many can walk around in their compounds and some may even venture outside for a few hours. Zero-Covid is still the objective, but before the authorities were talking about “static management” and “dynamic management”, while now they talk about “societal zero”, with not many new cases outside quarantine centers. However, there are still 4,000 to 5,000 new cases a day in quarantine centers, but zero-Covid in society. In the cities around Shanghai there is also a lot of anxiety. Local authorities are afraid to make mistakes.

Mr Marc Struyvelt in Beijing: In Beijing there is still no lockdown like in Shanghai, but in the Northern part of my jurisdiction there have been lockdowns. In Beijing there has also been a new outbreak with around 50 new cases a day, rising to a total of more than 500. Many restaurants and shops were closed during the May holidays and there were almost daily PCR tests. All indoor events are canceled and restaurants are closed. Residents are advised to work from home. You can still go outside to take a walk or go shopping, but that's about it. Nobody knows when the situation will change.

Ms Eva Verstraelen in Guangzhou: In 2020-21 the situation in Guangzhou was much more relaxed, and it is still relative calm and cannot be compared with the situation in Shanghai or Beijing. However, everybody is nervous. The situation has changed with the arrival of Omicron and a small outbreak in April which led to panic buying. Luckily the outbreak remained localized in one area, which is still in lockdown, but not affecting the rest of Guangzhou. Everybody can go to the office and the schools are open. Still there is much testing and if you want to join an event you need to be tested. The expos planned for April and May have been postponed to June-July. The problem is weariness among foreigners and Chinese alike, because there seems to be no end to Covid while the world outside China is opening.

Mr Siegfried Verheijke in Hong Kong: Daily life is relatively normal, but there is insecurity because nobody can predict the future. You can go out wearing a mask and provided you are vaccinated. Hong Kong is also attempting for zero-Covid and Hong Kong authorities have no choice as Beijing is taking the decisions. Some absurd measure have been taken, which the people didn't like, such as children being separated from their parents. During the March-April Omicron wave, one in six people got infected. Real numbers are much higher as many infected people didn't report their status to the authorities, fearing to be sent to a quarantine center. We are now returning to the pre-Omicron situation, which is better compared to mainland China, but still far from ideal. However, regulations are not changing so much anymore. Schools and beaches have reopened and the ban on foreign arrivals has been canceled. Foreign businesspeople can come to Hong Kong since May 1 but still have to spend one week in quarantine, making short business trips impossible.

Many expats and also local Hongkongers have left in the past year to their own country or to Australia, Canada, the UK or Singapore. This involves hundreds of thousands of people, who are tired of the insecurity and the lack of logic. Some are even renting private jets to evacuate their pets – which is not possible on commercial flights – at a cost of €30,000. There are more mainland Chinese arriving in Hong Kong, already one in three residents in Hong Kong are from the mainland. The English language has dropped to third place in communications from the authorities. Hong Kong is becoming more Chinese although it will remain an international city.

What is the impact on the economy and our exporters? Mr Struyvelt: There are less initiatives and some fairs and conferences have been postponed several times. Travel restrictions remain: tourists, exchange students and businesspeople can still not travel to China. This situation is expected to continue till the end of the year, following the Party Congress in October or November. Opening the borders could be catastrophic for the health system. There are also very few flights to China even for people who are allowed to return. Prices for goods transports have also increased. The price to send a container to Belgium has increased from USD1,200 two years ago to more than USD10,000. The problem in the mid-term is that there is much less connection between the Chinese and European business worlds, which could lead to less understanding.

Mr Boschmans: There is a large exodus of expats. It is now becoming more difficult to leave China. Due to insecurity, companies are postponing investments.

Ms Eva Verstraelen: Transportation costs have increased, delays have increased, and on top of that there is a longer quarantine period once the goods have arrived in China. All goods are inspected in special warehouses. Some couriers refuse to deliver parcels from abroad and recipients who accept one have to take a Covid-test within 72 hours, because they might have become infected.

Mr Verheijke: In 2019 there were still 56 million visitors to Hong Kong, while in 2021 there were less than 100,000. This had a dramatic effect on the tourism sector. On the other hand the financial sector has prospered, due to the difficult relations between China and the U.S. Chinese companies which previously went to the U.S. for their IPO are now coming to Hong Kong. Many Chinese are also transferring their money abroad. As travel is still restricted it is difficult to do business in Hong Kong.

What are the biggest challenges in doing business with China? Ms Verstraelen: Chinese importers who would prefer to source products in Europe, which are now too expensive, are looking for Chinese alternatives or in neighboring countries to reduce transport costs. Due to RCEP, trade in the area is increasing. Appreciation for Chinese culture is rising which also has an impact on consumer behavior. Older traditional brands are more appreciated in a return to the past. Moreover there is no forecast of improvement in the situation. Due to the insecurities, domestic solutions are sought.

Which sectors offer the most opportunities? Mr Struyvelt: One sector is F&B, in which there is still interest in Flemish products, but not in the immediate future, because of the special conditions, such as not being able to travel abroad, expensive transport, quarantine measures, new regulations on registration and packing, etc. That's why importers are not eager to buy now. Products in the F&B sector include beer and chocolate, but also healthy foods. Another sector is everything related to pet animals. FIT recently made a small study which is available for free on the website. Many Chinese keep a pet, which they treat as a child and for which they are willing to spend much money, including on imported products. In those two sectors we can still make a difference.

Ms Verstraelen: People are interested in a healthy lifestyle, including food with less fat and sugar, for which demand is increasing. Also lifestyle in a broader sense such as sports and nature. Companies active in sports clothing, accessories, and apps still have opportunities. There is also more interest in interior decoration. People want to create a more pleasant environment at home. This also includes the Internet of Things (IoT), smart home, smart living and related accessories. Body care is also important, especially skin care. Cosmetics are mainly imported from South Korea but demand in China is so big that they are also looking to Europe. The medical sector is also expanding. There are more and more private clinics that also need medical equipment.

Mr Boschmans: China's population is greying, so there is increasing attention to care for seniors. This includes medical equipment, services, telemedicine, etc. Another sector is environmental technology. In the latest Five Year Plan there was a lot of attention for environment and energy transition. The sector is heavily regulated but there are opportunities such as recycling in the medical sector and efficient water use in hotels. The economy has been impacted by the pandemic and China will probably give priority to the economy over ecology.

Mr Verheijke: I would mention four sectors. Healthy lifestyle products, such as vegetable products, and connected to this elderly care. In 2022 Hong Kong's population has the highest life expectancy in the world, creating a huge demand for elderly care, and there is also money to buy this kind of products. There are also opportunities in infrastructure in two major projects: the Northern Metropolis Development and Lantau Tomorrow, where millions of people will be housed. Finally, climate, as Hong Kong is aiming to be carbon neutral by 2050.

Does the Russian invasion of Ukraine has an impact on Flemish companies doing business with China? Mr Boschmans: Perhaps not directly, but the whole supply chain worldwide has been disrupted. China is still talking about a conflict instead of a war and it has not been much on the news lately. But the war no doubt has an impact on transport prices.

What would be your three tips for doing business in China? Mr Boschmans: Five to ten years ago all roads led to China, today there is more insecurity. Think carefully and make a good plan because you will need to expend more energy than previously. Seek juridical and financial advice early in the process related to contracts and IP. My tip is to prepare well. Mr Struyvelt: I would add the necessity to register your brand in China. Before you establish contacts in China it is wise to already first register your brand to prevent that others will do it before you, as recently happened to one Flemish company. Mr Struyvelt also advises to set up a WeChat account if you haven't done it yet. It is the best way to communicate with Chinese business contacts. There is also an automatic translation service in WeChat. Ms Verstraelen: China is a “separate” case, you can't just do copy-paste from another country. Also be prepared to adapt to the Chinese business culture. Prepare your promotion materials in Chinese. Make sure your response time is as fast as on the Chinese side. For Chinese publicity, use life-streaming on Chinese platforms. Mr Verheijke: Everybody is coming to Hong Kong because it's close to China so distributors have a lot of choice. I would advise to work together with a suitable local partner. FIT Hong Kong will in the future offer a more personalized approach, advising Flemish companies up to contract signature.

How do you see the coming months? Mr Verheijke: Many events are canceled so a more personalized approach is important. In November there will be ReThink and Eco Expo Asia. We also plan to organize Best of Belgium seminars, perhaps early next year. Mr Struyvelt: We also focus on individual assistance because Flemish entrepreneurs still can't travel to China. Ms Verstraelen: Most expos will still go on, where FIT will have a booth or be active. We also visit companies. Mr Boschmans: In Shanghai we have to wait until the situation normalizes.

A Q&A session concluded the webinar.