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Economy

Foreign companies eye China's post-COVID domestic demand

Volkswagen and Sanofi showcase products at expo to capture robust consumption

Medical equipment is displayed at the China International Import Expo in Shanghai, which runs through Tuesday. (Photo by CK Tan) 

SHANGHAI -- Foreign companies are hoping to capture more of the improving demand in China, where the COVID-19 outbreak has largely been brought under control.

Beijing is using the China International Import Expo, a brainchild of President Xi Jinping, to boost foreign trade and drive domestic growth. Held for the third time since 2018, expo organizers are projecting about 400,000 visitors to the six-day event.

Executives attending the expo in Shanghai said China, with its market size and economic recovery, will provide room for growth given the uncertainty in other major economies.

This suggests China's position as a key consumer market and supply-chain hub remain stable for now even as there are calls by some governments to swiftly move production away from the country.

"We will invest in apparel, accessories, sports tourism and work with local partners," said Pascal Bizard, senior vice president at Decathlon China. The French retailer of sports goods projected China's sports market will reach 4% of the overall domestic market in the next 15 years, up from just 1% currently.

Bizard said the market could be worth trillions of dollars, making China the biggest sports market in the world.

Decathlon opened its first retail shop in China in 2003 and has since increased the number to 267, backed by four production hubs, according to its website.

In a survey by HSBC of 1,100 companies across 11 key markets globally, over 75% -- including 70% of U.S. companies -- said they will expand their supply-chain footprint in China over the next two years.

"While other markets have become more competitive in areas such as labor costs, they are yet to reproduce the sophisticated ecosystem that has developed in the mainland," Stuart Tait, HSBC's Asia-Pacific head of commercial banking, said in a report on the survey released on Thursday. "Because China's consumer market is growing by the minute, more international companies are adopting an in-China-for-China strategy whereby they produce goods for Chinese consumers."

Volkswagen Group displayed eight electric vehicles at the expo, which runs through Tuesday. The German automaker is strengthening its EV portfolio in China, pledging to invest 15 billion euros ($18 billion) over the next five years to achieve its long-term carbon-neutral goals.

A chef cooks Australian lobster at an Australian food booth at the third China International Import Expo in Shanghai on Friday.   © Reuters

The Chinese government recently revised its goals for new-energy vehicles to account for 20% of total auto sales by 2025, instead of 25%. China's NEV includes plug-in hybrid vehicles and electric vehicles powered by batteries and fuel cells.

The new target is more "realistic," S&P Global Ratings said in a report on Wednesday. It implies a compounded average growth rate of 30-40% during 2021-2025, based on the current penetration rate of less than 5% and the ratings agency's assumption of low single-digit growth in total auto sales during the period.

China's relative success in controlling the COVID-19 outbreak has fueled domestic demand, as shown by a rise in consumption during the weeklong National Day holiday last month.

"We expect the consumption recovery to continue with robust momentum on the back of pent-up demand from consumers, a gradual relaxation of existing restrictions and a ramping-up of demand from businesses," said Edmond Huang, head of China research at Credit Suisse, in the report.

Oil and gas services provider Baker Hughes, which introduced its new gas turbines at the expo, said the industry's growth has slowed in other markets but not in China because of its national oil companies.

"China's industrial sector is among the fastest-growing in the world," said Maria Sferruzza, senior vice president for the Asia-Pacific region at Baker Hughes, adding that the company will deploy new technology from the oil and gas segment into its industrial segment in China.

In light of greater health care awareness as a result of the pandemic, drugmakers are getting additional support from the Chinese government.

French biopharmaceutical company Sanofi has had at least three drugs receive fast-track approvals this year that normally would have taken at least two years, said Wang Tao, an executive of Sanofi.

Even so, some companies that displayed products at the expo observed slower visitor traffic compared to last year. "The strict COVID-19 controls must have discouraged some potential buyers to come," said an executive of a food producer.

Few in China expect the relationship with the U.S. will improve even with Joe Biden's victory in the presidential election. But they hope trade talks, which remain stagnant after the phase-one deal in January, could be revived.

"If there is to be a resetting of relations, the trade deal is clearly the point to start from," the state-run newspaper China Daily said in an editorial on Sunday.

China's total trade in the first nine months declined 1.8% to $3.29 trillion.

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