The Sourcing Elite Board (SEB), established by Global Sources, is a membership-based club limited to invited top professionals in the industry. Currently, the club has over 30 members in Shanghai, primarily consisting of senior management from the procurement sector and professionals with academic backgrounds. SEB organizes sharing events internally, inviting members to engage in in-depth discussions on procurement strategies, e-commerce innovations, and insights and forecasts on the global economic landscape. The aim is to inspire innovation, push industry frontiers, and provide a vibrant exchange platform for experts and practitioners in sourcing.
Recently, Ms. Guo Shan, an invited member of the SEB forum, shared her insights in an interview with Chief Executive China regarding global trade, the changing dynamics of Sino-US and Sino-European relations, the impact of domestic economic stimulus policies, and the overseas expansion of Chinese enterprises.
This interview was first published in Chinese in Chief Executive China in November 2024. Continued from Part 2.
Chief Executive China: How do you interpret China's recently announced economic stimulus policies and their impact on the real economy?
Guo Shan: It is reasonable to anticipate that if Trump were to take office, China would announce more extensive stimulus policies.
The domestic environment in the first half of the year was not very favorable. Our previous discussions indicated a rather pessimistic outlook for the second half of this year and into next year. Under these circumstances, it is essential to reshape expectations about China's economy.
Starting from September, the recently announced economic policies have exceeded expectations, and it can be said that boosting expectations is now the primary goal. Therefore, China will announce large-scale stimulus policies to invigorate the domestic economy, bringing more growth and momentum to the world and creating more opportunities for businesses globally. This was reflected in Premier Li Qiang's speech at the recently concluded Shanghai Import Expo.
Earlier this month, the Standing Committee of the National People's Congress approved a 10 trillion yuan debt swap plan to alleviate local fiscal pressure. We can expect to see the effects of this stimulus in the coming months, includin
g payments to suppliers and salaries for migrant workers, with the hope that everyone can have a good year.
The market is somewhat dissatisfied with this 10 trillion yuan plan because it does not include direct stimulus measures, whether for real estate or consumption. Additionally, it is a long-term plan that will be implemented over three to five years.
The positive signal is that this 10 trillion yuan is just the first step from Beijing. At a press conference, the Ministry of Finance reiterated that more stimulus policies would be introduced, although they are still going through processes. From our perspective, economic data since September has shown significant improvement, with real estate sales turning positive in October, and consumption and exports exceeding expectations. Beijing does not seem eager to immediately ramp up stimulus measures.
The next step is the Central Economic Work Conference in December, which will further define the economic policies for next year, while the Two Sessions in March will provide a clearer plan.
Specifically, there are still two numbers not included in the 10 trillion yuan plan:
1. China will issue at least 1 trillion yuan in special government bonds to inject capital into banks, encouraging them to lend to businesses and local governments for purchasing existing land to support liquidity in the real estate sector.
2. China may increase the deficit ratio. One of the government's clearer policy directions is to stimulate consumption. Compared to the current situation, income growth is relatively weak, and the employment economy is not particularly strong. To stimulate consumption, the most likely approach is to reduce costs. This can be achieved by increasing subsidies from the central government for social welfare (including healthcare and pensions).
This way, market confidence can be stabilized. With stable market confidence, consumption can also stabilize. We expect that by mid-next year, businesses may see a noticeable improvement in profits, which will serve as a driving force for a comprehensive recovery in employment and consumption in the second half of the year.
Chief Executive China: In your observation, in what aspects will Chinese foreign trade enterprises or overseas enterprises maintain strong competitiveness in the future?
Guo Shan: This is quite obvious.
Although China entered a "trade war" with the US in 2018, the US did not gain any real benefits from the tariffs imposed on China. The proportion of China in the total US imports has significantly declined, from 22% in 2018 to 13% now.
However, the share of China in global exports has never decreased; it is still close to 16%, and even slightly higher than the 14% in 2018, with the most significant increase occurring during the pandemic.
1. Strong Product Competitiveness and Unshakeable Supply Chain Advantages
Chinese products are highly competitive, not just because they are cheaper, but also due to China's complete supply chain, relatively stable political environment, and fast overall response capabilities. Solutions are abundant, meeting all customer needs. This is the primary competitive advantage that no other country can replace.
Based on this, China is a very important trade center globally, with an unshakeable position in the supply chain. Even if the US and Europe impose tariffs, China can maintain its global export share and competitiveness through indirect routes via third countries.
2. Scale Effect: Cost Leadership and Market Attraction
Regarding cost advantages, a significant reason why Chinese enterprises can achieve such low costs is the scale effect. China's economy is now the second largest in the world, with a population exceeding that of the G7. Although there is a downward trend in population, the Chinese people are becoming increasingly affluent, making the domestic market very attractive.
We often say that the next China is still in China; no other market can catch up with China's growth rate in the short term, including India or Southeast Asia. India's economic size is a quarter of China's, and Southeast Asia combined is also a quarter. In this context, there is no other emerging market that can replace China in scale in the short term.
With the advantage of market scale, China can quickly leverage the domestic market to expand its supply chain, bringing costs down to a minimum. Meanwhile, as the US and Europe raise tariffs, complicating global supply chains, China's supply chain may be the simplest.
Additionally, China and other Southeast Asian countries are simplifying supply chains through trade agreements, RCEP, and various standardizations. Consequently, the entire Asia region will benefit from China's influence on industry chain costs, making enterprises based in Asia the most competitive.
3. Infrastructure Technology: An Invisible Wing for Overseas Expansion
Building upon cost advantages, we also see the technological advantages that China has developed in recent years. These advantages encompass not only new energy but also the internet and infrastructure.
The technological advantage in infrastructure is often underestimated. China has invested in the Global South for many years, enhancing local consumption levels and promoting economic growth while bringing Chinese technology, standards, and philosophies to local people. A typical example is the construction of charging stations in Southeast Asia, which are most compatible with Chinese new energy vehicles, showcasing the power of infrastructure.
Currently, Chinese new energy vehicles hold strong cost and technological advantages in global markets. In fact, Chinese new energy vehicles are well accepted in markets outside of Europe, including the Middle East and Southeast Asia. This acceptance is not solely due to lower prices; it is because Chinese vehicles can achieve a balance of being affordable, high-quality, and technologically advanced, complemented by Chinese standards and infrastructure cooperation, creating overall advantages.
Beyond cost, we can leverage technological advantages to support other industries and assist enterprises in their overseas expansion. We believe this is a direction that foreign trade enterprises can consider more in their planning for the next 5 to 10 years.
A street in Xiamen, Fujian Province, China. Photo by 晨 朱
Chief Executive China: In the context of the global supply chain shift, what advice would you give to buyers and sellers on the Global Sources platform regarding challenges or new opportunities they should not overlook?
Guo Shan: I have a few suggestions.
First, go global early.
We have seen many enterprises making overseas arrangements, but they may have various considerations and are still exploring. However, I believe the time for consideration has passed; action must be taken early. The window for going global is very limited.
As we've mentioned, US tariffs may gradually start to be implemented by 2025, and by 2026, they will become a reality. Enterprises must go global early to be prepared by 2025 and have strategies in place to address US tariffs.
Moreover, Chinese enterprises are relatively behind compared to their Western counterparts in terms of going global. The proportion of overseas enterprises in China's GDP is much lower than in developed countries, and even lower than in some developing countries. This is largely because China's market has thrived over the past 30 years, making overseas expansion unnecessary for many enterprises. When faced with challenges in going global, companies often revert to focusing on the domestic market.
However, we believe that there won’t be another golden period like the past 30 years. In the face of significant changes, the earlier enterprises go global, the sooner they can establish their advantages and accumulate experience to outpace competitors and seize opportunities. Thus, enterprises must act early in their international endeavors.
Second, I would suggest enterprises to focus more on long-term development.
Many changes we discussed are not just one or two-year issues but rather long-term changes spanning 10, 20, or 30 years. We hope enterprises can adopt a long-term perspective, rather than withdrawing immediately after one or two years of investment without seeing results, which would cause them to miss out on valuable opportunities for understanding local markets and long-term cultivation.
In the long term, there are two key areas enterprises should focus on:
First, building a brand. Going global based solely on low-price advantages is detrimental to profit margins. We recommend enterprises invest more in branding, as it ensures long-term development and enhances visibility and profitability overseas.
Second, enterprises should strengthen cooperation with local teams. Both developed and developing countries wish to attract more foreign investment to develop their manufacturing sectors. However, if Chinese enterprises take their teams abroad, locals may not be very welcoming. Companies need to consider long-term development and cultivation in local markets and collaborate with local stakeholders, including citizens, employees, unions, and governments. Deep mutual understanding is essential.
Finally, Chinese enterprises have thrived under a very stable political environment for the past 30 years, which has facilitated rapid development. They did not need to consider the impacts of political and policy factors extensively. However, at least in the next four years, or for a longer period, the international trade environment will become more unstable, and political and policy dynamics may have a greater impact on enterprises.
In this context, we suggest that enterprises pay closer attention to how political and policy factors may affect them. For instance, they should monitor which countries their national leaders and foreign ministers visit, which provinces and ministries are promoting cooperation with certain regions, and what signals recent meetings have sent. By being proactive in these areas, enterprises can better pave the way for overseas investment and gain a competitive edge before their rivals.
This is part 3 of 3 of this interview.
Click the links to read Part 1 and Part 2.
Established in 2022 by Global Sources, the Sourcing Elite Board (SEB) is a collaborative initiative dedicated to advancing the sourcing industry through shared expertise and innovative strategies. Senior executives, from buying offices to retailers and brands, are welcome to join this distinguished community.
• The content of this interview reflects only the views of the interviewee and not necessarily those of Chief Executive China or Global Sources.
Image by David Yu
