Commercial Opportunities for North Dakota Companies in China
Posted on January 5, 2012
Ninety-six percent of the global population lives outside the United States. More than 20 percent of these people reside in China, with nearly 15 percent of the world’s spending power lying with China’s people. The Chinese market has tremendous unmet demand for U.S. exporters to satisfy, and with North Dakota offering some of the best resources, technology, and agricultural goods and services in the country, China is currently an attractive emerging markets for North Dakota exporters.
Pinpointing opportunities for North Dakota companies in China would be similar to attempting to list all the opportunities in the U.S. for foreign companies; the country is large and diverse, and opportunities differ from region to region.
For commercial companies, many opportunities can be found by examining the changing lifestyles of the large emerging middle class in China. This section of the population is growing rapidly and demanding more sophisticated goods and services, especially American-made machinery, agricultural products and industrial materials. As income levels increase, the spending patterns of this consumer group will continue to evolve, fueling various levels of growth across consumption categories.
One such example of population changes fueling opportunity lies in the Chinese healthcare industry. China’s demand for high-quality healthcare is growing in tandem with the wealth of the nation’s middle and upper class. Currently, there is tremendous potential for foreign investment and trade in goods and services in this segment. For instance, today nearly 100 million Chinese suffer from diabetes, currently representing an annual expenditure of $6.9 billion. According to the International Diabetes Federation, the number of diabetics in China is projected to reach half a billion by 2030, largely the result of urbanization, changing diets and increasingly sedentary lifestyles.
Additionally, according to Toshiko Kaneda’s article "China's Concern Over Population Aging and Health," there are 102 million people in China who are 65 years or older which has also ignited the need for healthcare products. For North Dakota’s healthcare-related companies, the opportunities are insurmountable.
Engineering, Fire Safety, Green Building
In addition to the rising middle class, China’s growing population - now at approximately 1.25 billion - is creating opportunities for North Dakota companies in the fire safety and engineering industries. The Shanghai urban area, the 10th largest in the world, has a population of approximately 23 million and a population density of 16,500 per square mile. The majority of Shanghai citizens live in poorly-constructed high-rise apartment buildings; many of which have experienced devastating fires over the last few years, killing residents. The Chinese government has come under scrutiny from its citizens and the world for neglecting housing standards. Unsafe building work remains a chronic problem in China, and some government officials are looking towards foreign companies for fire safety, construction and engineering assistance to remedy the issues.
Major changes have taken place over the past 12 months in China’s manufacturing industry. The Chinese government’s goal of maintaining its annual growth target of 7 percent, which it considers vital to the nation’s social development and stability, will rely on a new round of economic restructuring. One of the primary goals of this restructuring is to engineer a shift in the industrial base away from low-cost and low-skill export production towards more innovative, precision manufacturing (joint ventures). “Innovation”, rather than “production”, is the new catchword mandated by the government’s 12th 5-year plan, which began in 2011.
However, this does not mean that all manufacturing is diminishing in China. The changes by the central government are due in part to orders slowing from key trading partners such as the United States and Europe. Chinese manufacturing rose in December 2011, according to Bloomberg News, which suggests that the world’s second-biggest economy may be stabilizing, even as Europe’s debt crisis slows the outlook for exports.
China wants to foster an environment that integrates science and technology into manufacturing, which is turning increasingly to high value-added products like mobile hand-sets, fuel-efficient automobiles, high-speed trains and commercial aircraft. For North Dakota companies, this means opportunities in the industries of aviation, the automotive components market, safety and security, renewable energy and air pollution, amongst others.
As the middle class surges, the affluent Chinese population is also experiencing growth. These consumers’ tastes are now focused on luxury goods; this sector is projected to do well over the next 10 years as an ideology of symbolism overshadows practical success. Companies involved in the marine industry and recreational activities such as golf and golf course maintenance will see opportunities in the next decade.
As NDTO mentioned in previous articles, there are extensive prospects for North Dakota’s food producers in China. Agricultural machinery manufacturers may also have interest in the Chinese market, especially in the northeastern provinces of Liaoning, Jilin and Heilongjiang which play an important role in China’s food production and food security.
China’s agriculture is undergoing a transformation from traditional to modern farming. To support this transformation, the central government has announced policies, incentives and financial aides to facilitate the upgrade of farming equipment. The goal is to upgrade the overall mechanization to 70 percent by 2020, which requires year-on-year 24-million horsepower increase on agri-motive power, and equivalent of RMB 90 bn per year of procurement on agricultural machinery. According to US Commercial Service reports, China’s current level of mechanization is 47 percent.
The best prospects for agricultural machinery currently include high horsepower tractors, large high-performance implements (plowing, tilling, sowing, spraying, harvesting, etc.), corn harvesters, specialty-purpose transportation machinery, engineering machinery, breeding machinery and processing machinery.
The opportunities for machinery manufacturers do not come without obstacles. Imported machinery must comply with China’s technical standards and be approved by the entry-exit inspection and quarantine institutions. Items under the China Cumpulsory Certificate (CCC) catalog are also required to be inspected by these institutions. Plant protection machinery and tractors are two types of agricultural machinery that require CCC marking before sale of import into the Chinese market.
Agricultural machinery isn’t the only industry that faces market challenges in China. The Foreign Commercial Service (FCS) advises small to medium-sized enterprises (SMEs) that, to be successful in China, they must thoroughly investigate the market, take heed of product standards, pre-qualify potential business partners and craft contracts that assure payment and minimize misunderstandings. Protection of intellectual property, patents and US export controls are also on the top of this list.
Small to medium-sized enterprises must become better attuned to emerging market trends in China in order to take advantage of the world’s second largest economy. The next “gold rush” for US companies will come in the areas of precision, technology-based and high-value-added manufacturing as well as in education and training, food and agriculture.
China has a vested interest in the economic well-being of the United States. It is attempting to move quickly to facilitate improved economic and commercial ties with America and to strengthen its commitment to a strategy of opening its markets to American companies and effectively utilizing foreign investment. North Dakota’s current economic strength, coupled with China’s interest in American products, may create substantial opportunities for North Dakota companies.
For companies who are interested in penetrating the Chinese market, due diligence is important. That’s why the North Dakota Trade Office and other trade organizations are here to help you determine whether China is the right export market for your business at this time.
For more information on market opportunities in China, contact Sharon may at Sharon@ndto.com or visit www.ndto.com