This week, BenCham presented the key findings of the Sino Benelux Business Survey at the Embassy of the Kingdom of the Netherlands in Beijing. Every year, BenCham investigate the business climate for Benelux businesses in China. “It is great to see that Benelux businesses are performing very well and are expecting to profit even further from the current business climate. Many are actually outperforming the local market,” said Mr. Bas Pulles, Deputy Head of Mission of the Netherlands Embassy in Beijing.
Favorable Business Climate
Dutch and Benelux businesses are optimistic about doing business in China. A majority experiences the business climate as favourable. 89% of Dutch companies realized equal or increased profits according to the survey. The success of Dutch companies may be due to their competitive position in the market, which according to businesses is thanks to their high product quality and good management. Expectations for the business results in 2018 are overall very positive.
The Chinese economy has entered a new phase after its years of high-speed GDP growth. The aim of the government is to stimulate qualitative rather than quantitative growth by focusing on domestic consumption. So far, the effects of the Chinese economic slowdown on Benelux businesses appear limited. More than half of the businesses do not expect any impact.
“Even though we expected the economic slowdown to severely impact businesses, it seems we are already transforming towards ‘the new normal’ and the impact is limited. We believe this is mainly because many Benelux businesses are active in sectors which are booming because of economic trends such as urbanization, made in China 2025 or the rise of the middle classes,” said Mr. Roland Reiland, Deputy Head of Mission of the Luxembourg Embassy in Beijing.
Rising Salary & Regulatory Costs
Businesses experienced positive results, based on higher turnovers, better use of technology and increased efficiency. However there were also negative drivers. There is an increasing financial burden because of rising salary and regulatory costs, which makes that some businesses are considering leaving China. Also, the unlevelled playing field is making things increasingly difficult for Benelux businesses: many businesses feel local competitors receive preferential treatment. Moreover competition from other foreign owned (and Chinese) companies is growing. Also, more so than last year, businesses perceive the government regulations as restrictive.
“It is an interesting paradox really: many businesses are profiting in the current business climate but at the same time we see an increasing number of businesses contemplating to leave the Chinese market,” said Mr. Karel van Hecke, Deputy Head of Mission and Head of the Economic Department of the Belgium Embassy in Beijing. “A possible explanation may be that businesses who came here many years ago purely for cheap production are now struggling, but more recent entrants to the market are thriving,” mentioned Mr. Raoul Schweicher of Moore Stephens Advisory.
Belt & Road Initiative
For the first time the BenCham questionnaires and the Sino-Dutch survey were merged. When the 2016 edition of the Sino Benelux Business Survey was presented, little was known about the impact of the Belt and Road Initiative. Right now, more details on projects are available. However, only 16% of Dutch respondents has come across opportunities arising from BRI, and a vast majority 81% feels they don’t have enough information about BRI to profit from it.
“Let us not forget that many projects are currently being branded as a BRI-project. This makes it difficult for entrepreneurs to discover what BRI actually entails. For instance, we are already seeing some impact on for instance the logistics sector, with air routes being used much more frequently. This is due to BRI-projects, but not directly linked. It’s important that local authorities start defining BRI projects more clearly so that we can actually gain insight into the opportunities,” said Mr. Van Hecke.
Mr. Pulles added: “Because so many projects are branded as a BRI-project, businesses are very unsure of concrete opportunities. Right now, we notice most opportunities are within really specific projects for very specific parts or subprojects, for instance in the field of technology or ports. As embassies, we need to share more information on BRI and work on translating high-level BRI projects into such concrete opportunities.”