The yarn of nationalism and protectionism is spreading across the American and European Commerces in China. At the same time, China’s growth is slowing down causing the world´s biggest market to tighten up its capital control and make strong restrictions to their cross border payment flows. Foreign companies are now looking for a new Chinese rule book.
Handelsbanken is the most international bank in the Nordic region and stands by to assist corporations in more than 20 countries and in China, they’ve done business for already 35 years. Handelsbanken’s local branches are the kings of the pile having the access to various trade markets – all the way from Shanghai, Singapore, Mumbai, Jakarta and Sydney to Rovaniemi.
Even though a shift is seen in the way that one should engage business with Chinese counter-parties, China is still a huge, important and interesting opportunity for foreign companies. The country of over 1,3 billion people offers massive possibilities in investment and consumption. Five years ago, when the economy of China was on the upswing it was the companies selling mining and construction equipment that where enjoying the profits. Now, the area of brightness is in the consumer space.
Ten years ago, “one size fits all” was the rule book, and all sectors where enjoying good business in China, but now the market is more complicated,” Johan Andrén, the General Manager of Handelsbanken Hong Kong, states.
In the early days of China’s opening to the outside world, China had a rather restrictive attitude towards foreign investments in China. In most industries, foreign investors were only permitted to own 50% of companies, which were defined as Chinese Foreign Joint Ventures. In other industries, foreign ownership of companies was strictly forbidden.
Now, China has deregulated foreign direct investments into China, although specific industries are still out of reach. The so-called investment catalogue still exists but the black list itself is a lot shorter than previously with restrictions only in industries like media, internet, car manufacturing and mobile network operations.“China is a one-party state that wants to control the information flow, which explains the restrictions in media and telecommunications,” Andrén says.
Another area which China has deregulated is the capital markets. Cross border payment flows in and out of China, which previously were strictly controlled, has in recent years enjoyed a more relaxed control environment. The Chinese Central Bank is supporting the internationalization of the Chinese currency and free capital flows have been on the agenda. Recently, due to the weakening of the currency and subsequent capital flight from China, the internationalization trend has taken a step backwards.
“This is hopefully only a temporary state and the general deregulation and reform of the Chinese market should prevail – apart from the vulnerable areas,” Andrén explains.
Currently, China is one of Handelsbanken’s most important areas of international business, and the reason is clear: the yearly export from Finland to China is about 2,5 billion euros and from China to Finland even more than that. In addition, there are more than 400 Finnish companies in China which employ tens of thousands of people locally.
The Champion of Globalization
Despite the decreasing numbers in GDP growth, the future of China looks bright. The world´s biggest stock market, in respect to daily turnover, is in Shanghai, the second in Shenzhen and only third comes the renowned New York Stock Exchange. China´s president Xi Jinping truly wants to be the champion of the globalization and has managed to take hundreds of millions of Chinese people out of poverty and is transforming the economy from an investment and export driven growth model towards a more sustainable consumption driven growth model.
On the other hand, if there shall be more protectionism and nationalism detected from the U.S. and Europe the intra-Asian trade will become much more accessible for China. China has launched several international initiatives, such as the Belt and road project which aims to create economic growth and stability through investments in 62 countries along the ancient Silk Route and the seaways towards Africa and the Mediterranean Sea. The old networks of trade are re-appearing from the dust.
“Trade can be seen as a positive factor in the conflicts that China has in the South China Sea. Trade stabilizes the effects of tensions in Asia,” Andrén says.
When it comes to the U.S. president Donald Trump and his clear messages about the new administration’s trade policy, one positive is that China clearly understands that change is necessary in order to maintain relations with the United States.
“In a way, China appreciates that there are no hidden messages and that the other side’s opinion is made crystal clear. The new U.S. administration is transaction based and not so much policy based which gives clarity in to the communication,” Andrén discusses.
“Whoever is involved in trade and investments in China needs to pay attention to the changing complexion of globalisation. Knowledge is important when navigating in changing global world and Handelsbanken does comprehensive economic reviews about the business atmosphere of international trade and cooperates with companies in all this,” Jukka Kuusala, Head of Trade & Export Finance & Cash Management Sales at Handelsbanken Finland, adds.
Text: Pauliina Toivanen