Why do business in…Beijing?

Source: ExecMay

Date :07/05/2008 16:28:26

In the past 20 years, Beijing has gone from an ancient city to a supercharged consumer market. Exec takes a look at the political, cultural and financial centre of the People’s Republic of China

By Rebecca Waters

In the past 20 years, China’s capital has gone from sedate to turbo-charged as multinational conglomerates, high-tech highfliers, and globe-trotting entrepreneurs seek to crack open the world’s biggest consumer market. Thanks to Beijing’s ‘socialist market economy,’ under which market mechanisms have been introduced to attract foreign investment and improved trade terms, the interest from the West has been relentless over the past few years. So, why should, or shouldn’t, you take the plunge and dive in to the heart of East Asia?

Positives

In the last ten years, central government policy has switched the emphasis in development from heavy to light industry, and as a result manufacturing has grown rapidly, quickly promoting the evolution of a service sector. Chemicals and high-technology industries have also grown particularly quickly, the latter so much so that after almost a decade of explosive growth in its electronics sector, China has now surpassed the US as the biggest supplier of information technology goods.

Real estate has also been one of the most important sectors of economic growth since the mid-1990s, with public and private investment leading to improved urban infrastructure, intense demands for housing and increased land consumption. All this has fundamentally changed the physical pattern of the city - both in the existing built-up central areas and throughout the municipal region - and this modernisation has created a business centre that is both energetic and international in feel.

The city has experienced double-digit growth in its gross domestic product (GDP) for at least the last decade, and government revenues have increased at rates between 18 and 30 percent in recent years, further proof, if anyone needed it, that China is no longer an emerging-market economy.

Neil Rayne, owner of children’s designer footwear label Step2wo, echoes these sentiments. His company recently opened its first standalone store in the city and is a good example of how Western luxury goods firms are seeing the city as a focal point for the market as a whole.

“China is a buoyant market,” says Rayne,“ and we chose Beijing because it is the capital and the rest of the country is now looking to the city for its direction.”

A sound move, especially as the Yuan is so cheap that Britain’s trade deficit now runs at around £1 billion a month, while China’s foreign exchange reserves - now £700 billion - rises by £500 million each day.

On top of this, the city’s successful bid for the 2008 Olympic Games has escalated the city’s economic and physical development, mainly due to the government’s massive urban-renewal programme. New skyscrapers now jostle with huge shopping malls, department stores and five-star hotels; factories have been moved out to the suburbs and an 80,000-seat stadium has been built in the north of the city. Beijing’s bureau of statistics says that $16 billion will be directly invested in communications, infrastructure and housing improvements and that the games are expected to create 1.8 million new jobs. As a result, the city government predicts that GDP will grow at a hefty nine percent per year until 2010.

Negatives

Modern China is a flurry of contrasts, and nowhere is a better example of this than Beijing. The city’s new wealth has not been evenly distributed, with massive disparities between the ‘blue China’ of coastal cities like Beijing and Special Economic/Administrative Zones (including Hong Kong and Macau) and the inland ‘brown China’ of low-grade agriculture, antiquated industrial operations and widespread social and economic deprivation.

Although modernisation in the agricultural sector is under way, there has been a major shift in population – perhaps as many as 150 million people – from the countryside to the cities during the last decade. Moreover, as a result of the economic reforms of Deng Xiaoping, the urban area of Beijing has expanded greatly. The population of its urban core is now around 7.5 million. This expansion has brought to the forefront the drawbacks of urbanisation; heavy traffic, poor air quality and the significant influx of migrants from poorer regions of the country.

Add to this the complexity of the language, the often unpredictable nature of Communist Party legislation (a subject we touch on elsewhere in this issue) and a seeming lack of Westerners, and the recipe is set for a culture shock quite unlike anywhere else in the world – especially when faced by the traffic.

Since the 1990s its crowded streets have been plagued by (four-wheeled) traffic jams. Most people agree that the constant congestion is caused by the inappropriate transportation system and inadequate regulatory policies. The Municipal Government has started to focus on building subway and urban light-rail systems, with plans to build four or five subway lines in the city center and four urban light-rail lines connecting to the suburban areas, but it is still clear that they cannot yield sustainable development without broader regional collaboration.

Conclusion

Despite the wealth of potential that is on offer in a city that boasts a booming luxury goods market, a significant industrial base and expanding pockets of advanced manufacturing and technological enterprises, Beijing is at the centre of a market that is notoriously hard to break in to. And for those that are looking to make the jump, there’s one thing that is absolutely crucial.

“You need a very good local partner,” says Rayne,“ and without one it would be virtually impossible to operate unless one’s brand or business was already pretty huge in the rest of the world.”

As it stands, Chinese industry is ready and willing to do business with the West, and with the Olympics fast approaching, it is seizing the opportunity to make its mark on the world stage. With this fresh wave of enthusiasm opening new doors to the East, perhaps now could be the perfect time to enter.

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