The second in a four-part series, Fulcrum looks at some of the key ways the China of the past is quickly being thrown out the window.
In our last piece, we explored some of the key moves leading up to President Xi’s announcement of a New Era. Upgrades in a number of industries to drive domestic production and dominance, streamlining operations particularly among the country’s massive state-owned enterprises, and a revolution to replace hundreds of thousands of workers with industrial robots are all foundation stones on the path to somewhere new. Ambitious targets both in scope and in time would look ridiculous coming from any other global capital. Given China’s recent history, though, they seem absolutely realistic.
While impressive on paper, China is also putting its money where its mouth is. Over the past year, China has invested more than US$360 billion into green technologies like wind and solar power. This is nearly triple what the entire European Union invested during the same period. By 2020, the aim is to be putting in this number, or more, annually towards technologies to ensure a more sustainable future. Financial and capital investments, more than regulatory changes, truly signal a shift in priorities between the old and new China. These shifts are focused primarily on manufacturing, skill upgrades, and the environment.
From Manufacturing to Consumption
As the world’s factory, China developed a globally dominant export market. China is the largest trading partner to the United States, for example. The two traded US$578.6 billion of goods in 2016 according to the U.S. Trade Representative Office. The proverbial Made in China mantra is prevalent across all corners of the globe. Until recently, though, it was synonymous with poorly made, inexpensive goods.
Now, China is looking to shift the focus away from export manufacturing and towards domestic consumption. The impetus for this is largely due to China’s economic slowdown over the past several quarters, and a rise in disposable income among the middle class. Along with Government policy measures, the move from manufacturing to consumption aims to sustain China’s economic growth for decades to come. It will also be the main driver towards service-oriented Chinese businesses, primarily in the financial and technology fields, and household income growth.
For businesses operating in China, this means your customers and partners will be looking for higher-quality goods and services. Customers are no longer chasing the lowest price. Now, they want to see the value in your product not just in monetary terms, but how it impacts their lives as well. Messaging, resource allocation, and employee training all need to match these changes in the market.
From Things to People
There is also an increasing focus away from the things being made in Chinese workplaces and towards the people making them. Pushing this onto the national agenda is the spike of labor unrest throughout the country since 2014. In 2017 alone there have been nearly 1,000 major labor-related protests in China according to China Labour Watch. Workers are protesting for fair treatment, payment of wages, and social insurance. The Government has had no choice but to listen. In turn, factories are feeling the pressure to comply.
If we go back less than a decade ago, to the tragic era of Foxconn, workers were expendable necessities of operating in China. Today, treating workers well, abiding by environmental, health, and safety regulations, and providing for their fair livelihood are the foundations of business here. As a market develops, ensuring those at all levels of society develop with it is critical. In the sustainability world, we call this inclusive, or mutual, economics. In Xi Jinping’s New Era, the rights of the working class are once more front and center.
From Breakneck Development to Sustainable Progress
Lastly, China is taking a more measured approach to development. No longer will the country forego a sustainable future for its people through blind economic expansion. As we saw in the Made in China 2025 Plan, as well as moves to a consumer-based economy, the country will focus on those areas with the greatest opportunity for growth and global dominance. Economic pressures are already making this a reality as many industries with narrow margins leave China for lower-cost markets. Those that remain will need to provide increasing value to economic development, changing consumer needs, and the China narrative.
From an environmental point of view, the hope is higher-quality, service-oriented industries will reduce the prevalence of pollution and waste. As mom-and-pop operations feel the squeeze of regulatory enforcement, being shut down in the tens of thousands, the Government aims to create an era with bluer skies and cleaner waterways.
Whether new to China or highly mature in the market, businesses operating here must have a solid understanding of these shifting governmental priorities. Competitive messaging and operations, treatment of workers and living wages, as well as measured development, are all pillars of this New Era in business. Savvy business leaders will even explore ways to get ahead of the curve. In doing so, they’ll be able to avoid the tightening net of regulatory enforcement. Our next installment in this series will discuss how a more complex rule of law environment is spelling both disaster and opportunity for businesses in China.