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Multinationals on China|Denis Depoux: China's commitment to opening-up is welcomed by the world

This year marks the 45th anniversary of China's reform and opening up, which has not only developed China but also influenced the world.

Denis Depoux, Global Managing Director of Roland Berger told Southern Finance Omnimedia reporter, the commitment of China to further open up, to further welcome foreign investment, foreign business, to further integrate China in globalization, is very welcomed by the world. "I do believe this message", Depoux siad.

Speaking of how foreign companies view the Chinese market, Depoux points out that the Chinese market is singular. Looking forward, Depoux is confident that Chinese and European enterprises can strengthen cooperation in many fields.

China's infrastructure development has been impressive

SFC Markets and Finance: You have lived and worked in China for many years. What changes have you witnessed in China throughout the years?

Denis Depoux: My first time in China was in 1993, and I lived in the Guangdong province for three years. Then I moved out and I came back eight years ago in China.

I think the most important change that I've witnessed over this 30 years and the last 8 years is the massive development of infrastructure, which I think is very emblematic of China, thanks to the planned economy and a long-term vision, enabling development by providing this massive infrastructure development. Of course, it's probably less massive today, because there's already a lot, and there's not much more that can be done. But I think that's what has impressed me a lot in the last decades.

SFC Markets and Finance: What do you think of China's commitment in continuing reform and opening up? And what opportunities does this present for European businesses?

Denis Depoux: I think this year is 45th year of reform and opening up, the commitment of China to further open up, to further welcome foreign investment, foreign business, to further integrate China in globalization, which I think is very welcome, at a time when obviously there's a lot of protectionist forces ruining globalization everywhere. So I do believe this message.

That's also my observation over the last eight years, that the market is further and further open, that some of the restrictions that were existing in financial services or in the automotive sector, have been gradually removed or are being removed as we speak.

Chinese market is singular

SFC Markets and Finance: The world has been facing a range of challenges in recent years. How do you see European businesses adapting to the changing economic landscape? And what role does the Chinese market play?

Denis Depoux: I think there is a characteristic of European business in China. Most European companies are in China for the Chinese market and increasingly so. Of course, they are also (producing) manufacturing products, equipment and systems in China for the rest of the world, but historically, a lot of European business has been in China to serve the Chinese market.

And that works well today, because the Chinese market is big and it's growing. Its rate of growth is also higher than other markets. If you think China's commitment for this year is at around 5% (China has set its annual GDP growth target at around 5% for 2023). Even that would still be probably two, three folds, fourfold what Europe or America will experience this year according to IMF forecasts. And that's true of Asia overall. I believe that European business can still benefit and is well placed.

Now things have changed indeed. China has long been and probably will remain the factory of the world, and there was an old China story based on labor productivity and massive infrastructure development. That is changing.

The new China story is around industrial modernization, is around innovation, is around a market that is starting to have features that are different from other global markets simply by its scale, and also because it has taken a different direction. Think of payment systems, E-commerce, the distribution channels structure and so on. For all these reasons, the Chinese market is singular.

SFC Markets and Finance: What suggestions would you give to foreign companies who are looking for expanding their businesses in China?

Denis Depoux: I would directly relate to the very distinctive features of the Chinese market. First recommendation would be around localization. I think it's very important to be grounded, to be rooted in the Chinese market. Not only in the big cities, because the bulk of the Chinese market is actually rather now in tier-three, tier-four cities. So it needs a local structure.

Companies also needs pretty quick decision-making, because this is also a market that is changing fast. It seems that the Chinese consumers are very interested in innovation and technology, but they adopt or reject very fast. So that's sometimes difficult, but it's also a good way to test products and then move on to something else if it doesn't work, or scale up if it does work.

Many areas can Chinese and European business strengthen cooperation

SFC Markets and Finance: Looking forward, in which areas can Europe and China’s business strengthen their cooperation?

Denis Depoux: Well, I see three or four sectors.

The first is indeed this incredible growth engine that is starting to accelerate. That's industrial modernization, automation, robotics, digitization of industry. China has both most modern factories in some fields, think of solar PV, or batteries, most productive factories in the world. But Chinese companies also have some pretty underdeveloped automated factories, and that need to change. So big market going forward.

The energy transition is another big market. China is at the heart of the energy revolution, and it's certainly leapfrogging some other countries in that respect. But I think there's still a lot of European and foreign technology and know-how that can be contributed.

The consumer sector is also very important, and it's changing a lot. I think there is an imperative to grow the middle class and to grow it by the bottom, by bringing maybe 50 to 150 million new people in the middle class. Let's say from the periphery of cities, the boundary between the rural world and the suburbs. That's a market maybe with relatively low purchasing power, but massive number of people. What it tells to foreign brands and foreign companies that sometimes are used to a premium market, is that maybe they need to consider a broader scope.

The fourth one, which is the whole healthcare environment that goes from pharmaceutical to hospitals, elderly care and so on, where I think Europe has a strong safety net and has developed a specific industry. I think it is very fit to the Chinese model, that has premium segment, but also is in need of private sector to further penetrate the middle class segments in the healthcare environment.

If you look at the pharmaceutical world, with the value-based procurement that has been pulling down the price of medicine, I think that's a good example of the direction, that for people who can afford it to serve the premium market, but the direction is also to make this available to most people, and therefore to invent models. Europe is well fit to provide those models, because that's part of the values of the continent.

The Chinese manufacturing sector is increasingly an original sector

SFC Markets and Finance: 2023 marks the 10th anniversary of the Belt and Road Initiative. How do you evaluate the progress of jointly building a green Belt and Road? And how can foreign firms participate in and benefit from it?

Denis Depoux: I think in the last couple of years, there has been a turning point in the Belt and Road Initiative. Acknowledging that maybe not all projects were good to finance, and therefore more caution, more screening and selection was needed. And that was dealing with multiple dimension. One of them being the climate performance of these projects. Companies are actually now stepping out of coal projects. That's a good example.

China is definitely the leader in market share in solar PV modules and wind turbines. There's considerable needs for renewable energy investments and therefore equipment in the world. That's particularly true of Asia. Asia needs close to five terawatts of renewable energy capacity. As in a comparison, for Europe this figure is one. So that's fivefold. It's huge opportunity for Chinese players not only to provide the equipment, but also to invest directly in these projects, finance them and therefore accelerate the energy transition.

And this is not just for the profitability of the project. This is key for the competitiveness of China and the Chinese manufacturing powerhouse. Because increasingly, the Chinese manufacturing sector is an original sector.

There are plants in China, but there're also plants in Southeast Asia, in South Asia, tapping into competitive advantage and know-how of different countries and different industrial clusters. And if these countries are not fast enough on the energy transition, they will lose their market share on the manufacturing side.

SFC Markets and Finance: What is your outlook for China’s economic growth this year? And which sectors, in your opinion, will be the key driver?

Denis Depoux: So far what we have seen is a soft, but steady recovery. And that’s fine if it's sustained and steady. I think soft is not too good, but steady is better.

First thing, it has to be driven by domestic consumption. It's not only the consumer consumption, it's also B2B consumption. But it has to be driven domestically, simply because global demand will be slower. According to IMF, the projected GDP growth for Europe and the U.S. this year might be anywhere between 0 and 1.5 percent and maybe a bit more next year. So, it's going to be slow, and it also means that the economy needs to be supported domestically.

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