China’s Political and Economic Landscape in 2023

In March 2023, Nigel Wright Group was delighted to host a webinar delivered by Chinese-based business leaders and policy commentators attended by over 150 guests. The webinar focused on the impact of Covid-19, China’s political landscape, opportunities and threats for companies, and how China experience can benefit Western firms.

Speakers included Peter Bøgh Hansen, China policy director at the Danish Confederation of Industries, Jesper Halle, commercial consul at the Royal Danish Consulate General in Shanghai, and Aldo Spaanjaars, owner of Dragon Strategies and a former Anta Sports executive, the third-largest sportswear company in the world.  

China’s return to business

Peter Bøgh Hansen discussed China’s return to business after three years of pandemic obstacles. Hansen stated that China wants to move ahead and re-establish ties with the rest of the world. However, he also cited the ongoing challenges China faces following a period of constant lockdowns, as well as its strained relationship with the US, particularly after Speaker Nancy Pelosi visited Taiwan.

Economic growth is a top priority for China, according to Hansen. The country is hoping to achieve a 5% growth rate in 2023, requiring a major boost in foreign trade and investment. Hansen was keen to emphasise how the recent National People's Congress gives Western firms an insight into China's aspirations, specifically since the appointment of the new Prime Minister, Li Qiang.

Hansen believes that the Chinese government’s enthusiasm for stimulating the economy will lead to increased investment in infrastructure, such as bridges and harbours. He predicts that this investment will reignite economic growth in the short term. Additionally, he noted the growth potential of the healthcare and environmental sectors, as stated in China’s latest five-year plan.

According to Hansen, the government's increased control over education is a priority for achieving ‘common prosperity.’ Many educational companies have been forced to close down or change their business models to comply with government regulations. Hansen is unsure whether this will result in more Chinese students studying abroad, but it is a possibility.

Finally, Hansen alluded to the geopolitical partnership between China and Russia but noted how the war in Ukraine is not getting much mention in China’s public sphere. Further, Hansen believes it is unlikely that China will take aggressive action against Taiwan in the nearby future, a risk assessment shared by most investors and other greater China observers.

Threats and opportunities

Jesper Halle discussed the impact of Covid-19 and subsequent travel restrictions on foreign companies in China during the last three years, leading to management issues and disruptions in supply chains. The reduction in ex-pats was also noted as a cause for decoupling between European headquarters and Chinese subsidiaries.

In light of this, Halle recommends that Western firms review the in-depth China knowledge and experience they have at management and board levels, including on advisory boards. He further highlighted various macro challenges that businesses must consider including political tensions, territorial disputes, and China’s ageing population.

According to Halle, the Chinese government has made a significant shift in its economic policies over the past few years. The focus now is on domestic consumption and reducing its reliance on exports. Although foreign companies operating in China may need to adjust their strategies and operations, Halle believes the shift does present opportunities for firms willing to adapt to the new landscape.

Covid-19 has accelerated the adoption of digital technologies in China, says Halle, with an increase in online shopping and remote work. This presents opportunities and threats for foreign companies. Businesses that specialise in digital technologies, for example, can expand their operations in China. Though, they may face increased competition from domestic players.

Furthermore, Halle was keen to highlight how the Chinese government has been successful in promoting innovation and entrepreneurship. This has led to investments by Chinese companies in research and development and bringing new intellectual property to market. Halle says this trend is expected to continue and may contribute to sustained economic growth beyond 2023.

FMCG, green transition, healthcare and outbound tourism are all potential market opportunities for foreign companies over the next few years, according to Halle. China has very ambitious decarbonisation targets for 2030 and 2060 respectively, he says, and will therefore require investment in state-of-the-art technologies to achieve its goals.

Interestingly, however, while Chinese Gen-Z are increasingly interested in issues around sustainability and practise environmentally conscious consumption, a significant portion of the population is still price-sensitive and prefers cheap, disposable goods. Brands, says Halle, need to focus on product quality and other factors to succeed in China.

Predictions for 2023

Aldo Spaanjaars talked about the Chinese business landscape and made several predictions for the coming year. Spaanjaars believes that 2023 will be a good year for doing business in China, primarily because the Beijing leadership is focused on economic growth. He also suggested that the Chinese government's crackdown on the internet sector would ease.

An influx of pent-up savings into China’s economy and returning consumer confidence will provide a significant economic boost in 2023, says Spaanjaars. The task, however, lies in convincing Chinese citizens to spend more. China’s high savings rate is due to several factors, including an ageing population and uncertainty in the real estate market.

There is still real potential for European companies to tap into the Chinese market, according to Spaanjaars. This is particularly evident in sectors such as luxury goods, where consumers have a strong appetite for high-end products. Inflationary pressure may not affect China in the same way that it has impacted Western economies, he added.

At the same time, Spaanjaars expects that Chinese companies will increasingly invest in Europe. This is partly due to ongoing domestic political challenges, as well as the country’s difficult relationship with the United States. He anticipates that regardless of geopolitical complications, Western business leaders will return to China, which remains an important market for international firms.

According to Spaanjaars, despite economic sanctions restricting its activities, access to data and an ability to adapt technologies invented elsewhere, have enabled China to expand its AI capabilities, challenging US AI leadership and surpassing Europe. While developing its own semiconductor technology is problematic, Spaanjaars believes that China will overcome this setback in the long run.

With Covid-19 essentially gone, Spaanjaars believes the risks associated with supply chains will be significantly reduced this year. He also talked about how enthusiasm for travelling again is leading to an increase in spending. Finally, he noted that although it is unclear whether the 5% growth rate target is achievable, it’s evident that the Chinese government prioritises economic growth.

In summary: Opportunities beyond 2023

China will undoubtedly continue to play a significant role in global trade and commerce in the coming years. Companies that can navigate the complexities of doing business in China, understand the local culture, and build strong relationships stand to benefit from the country's significant growth potential and vast consumer market.

Western companies should be flexible and adaptable if they wish to succeed in China’s constantly evolving market. Nigel Wright’s 35-year track record of supporting European companies in expanding into the Far East is a testament to the potential for European and Chinese partnerships. With ongoing dialogue and collaboration, mutual growth and prosperity are within reach.

Contact details

If you have any questions or would like further information about the points raised in this article, please contact Jesper, Aldo, Peter and Lars directly via the details below:

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