In March 2014, Chinese President Xi Jinping paid a state visit to France; France rolled out the red carpet with great fanfare. Xi Jinping was greeted by a grand welcome ceremony at the Esplanade des Invalides and lavishly wined and dined at a state dinner at Palais de l'Élysée.
There was a reason for such a warm reception. Xi Jinping proffered a gift: an 18-billion-euro deal to purchase 160 aircraft from France-based aviation giant Airbus. France sucked up to the formidable economic power with deep pockets, which was under French colonial rule 150 years ago.
China's premier Li Keqiang met with Britain's Prime Minister David Cameron in the UK in June 2014 and the two agreed to a 14-billion-pound, 24-item economic cooperation deal on energy and finance. When China's second in command Li Keqiang, not its first–in-command, made an unusual request for a meeting with Queen Elizabeth, Britain gave him a ready consent.
When China was under British colonial rule, shops and restaurants had signs saying "no dogs or chinks allowed." Today, Britain that used to be that stuck-up goes cap in hand to its former colony.
China is a nation that pulled off capitalism at the fastest pace. After US President Richard Nixon held talks with Mao Zedong in 1972 in Beijing, China lifted the bamboo curtain and flung its doors open to the rest of the world. China’s embrace of capitalism has shifted the world’s economic pecking order and the Chinese market has emerged as an Olympic arena for all the global companies, where competition is so cutthroat that those who fail to win gold, silver, or bronze medals get squeezed out of the arena. `
Though China is in close proximity to Korea, Koreans know little about its neighbor. It is said that the flap of a butterfly's wings in Beijing will cause a storm in Korea and then a tsunami in Japan. Beijing and Shanghai are a one-and-a-half hour hop from Gimpo by plane; Jilin and Changchun are two hours away from Incheon by plane.
Chinese cities are as close as many other Korean regions that are a 1-2 hours drive from Seoul. However, China had remained as a faraway nation to Koreans for six decades. Since the Korean War, S. Korea has set great store by its guānxi (relation in English) with the US. Korean society has demanded American-style talent, built systems aspiring to American society and produced American-style talent.
The Oriental civilization, which originated in China, spread to Korea and Japan. Though Japan tries to wipe out all the remaining vestiges of Chinese civilization, S. Korea has to draw up a drastic China strategy in order to understand Chinese culture based on the remnants of Chinese civilization in the nation. Producing Sino-friendly talent, setting up a system hankering after Chinese society, we have to turn around our economy on China’s coat-tails so as to survive.
China courted by the world
The US, which outsourced almost all of its manufacturing work to China, made an attempt in 2008 to upgrade its economy into a creative one based on the convergence of information technology and finance. The US bungled the job, consequently plunging the global economy into the 2008 global financial crisis.
While the global economy was in the grip of the US-triggered financial crisis, China’s red-hot economy charged ahead with a vengeance as the government spent astronomical amounts of money primping the pump of its economy. As China rode out the crisis smoothly and flexed its political, economic muscles on the international stage, Asia’s largest dragon started to be wooed by other economies, including the US and South Korea.
S. Korea, which had put Sino-Korean relations on the back burner for six decades, hurriedly forged guānxi with China and went to great lengths to break into the Chinese market, perceiving entry into the Chinese market as a lifeline for the Korean economy.
China, the world's factory, is morphing into an insatiable consumer. The purchasing power of China’s top 5 percent has no rival in the world. China’s share of the worldwide luxury goods market is 29 percent, the highest in the world. Its share of the global plastic surgery market is the third largest after the US and Brazil.
The Chinese market is an avid follower of what is catching on in the Korean market. Since Chinese and Koreans have similar body shapes, palates and skin tones, Korean food, clothes and cosmetics have been selling well even without going through any localization process. “Made in Korea” products, from cosmetics and electronic devises to fashion items and plastic surgery, sometimes flew off the shelves.
The world economy, from Likonomics 2.0 and the Asian Infrastructure Investment Bank (AIIB) to China's One Belt, One Road initiative, is now pivoting toward China. Thus, now is the last chance for us to jump on the bandwagon of China’s ascent, said Jeon Byeong-seo, head of the China Economy and Finance Research Institute.
Need for new perspective and new China strategy
China has recently changed to a great degree. Though its economic growth has decelerated to 7 percent from 12 percent, the Xi Jinping–Li Keqiang Administration didn’t bat an eyelid. In 2014, S. Korea’s exports to China reversed course to decline. The boom in exports of Korean products to China seems to taper off. Samsung Electronics’ disappointing earnings reports and falling share prices were triggered by Xiaomi, which was set up just five years ago under the auspices of the Chinese government.
Xiaomi has benchmarked itself against Samsung Electronics, Apple, Google and Amazon, dramatically changing the way the world perceives product made in China. Though the cutting-edge segment of the global market has been dominated by Korean, US, EU and Japanese companies, Xiaomi, a Chinese low-cost smartphone manufacturer, is increasingly unnerving Samsung and Apple.
Samsung, however, has joined hands with Xiaomi to equip Xiaomi’s laptop computer, slated to be released sometime in the first half of next year, with its semi conductors and displays.
Xiaomi hired away Chinese engineers from prominent research institutes and prestigious universities in the EU, the US and Japan and is funding their research and development (R&D) projects. While S. Korea was dragging its feet on investing in the development of state-of-the-art technologies, China made a government-led large-scale investment in developing future technologies, thereby beating S. Korea to the punch.
If we failed to revamp our China strategy, China would no longer be a land of opportunity for Korean businesses. Due to cutthroat competition, the Chinese market for Korean technologies and products has reached saturation point.
Fluctuations in the yuan and a pullback in the US’s quantitative easing are feared to trigger a global economic downturn. Uncertainties about the future loom larger than ever before.
The Chinese economy, which had grown roughly 10 percent annually, has entered a phase of relatively low-speed growth, which Xi Jinping called the Chinese economy’s “new normal.” Economic growth of around 7 percent is ushering China into an era of low inflation.
Putting the brakes on export-led economic growth, China has carried out an industrial restructuring to achieve economic growth driven by rising domestic demand. It sought to wean its economy off a labor-intensive, simple assembly and processing type of industry and intensively nurtured Chinese companies into major players in key industries.
What China’s domestic market favors is branded products. Chinese consumers are very much brand-conscious, but we do not have alluring global brands. “Mandarin-speaking people on the street come across as migrant workers while those who speak Chinese at duty free shops or department stores get the VIP treatment. The shopping and entertainment districts of Myeongdong and Apgujeong-dong and the Korean resort island of Jeju are inundated with hordes of Chinese tourists,” said Jeon Byeong-seo.
Enhancing S. Korea’s appeal to China through high-quality, premium products and localization-savvy talent
“What appeals most to Chinese consumers are unique, high-quality premium products and easy-to-use idea products, not state-of-the-art IT-based products,” said Han Yingzhen, Vice Director-General of the Department of Commerce of Jilin Province. “Competition in the Chinese market gets tougher, so it is imperative to create new demands and foster location-savvy talent, well versed in locale-specific characteristics of each province and city,” Han added.
“The biggest beneficiaries of China’s One Belt One Road (OBOR) project are the three provinces of Northeast China, including the Yanbian region and Jilin Province. In July, Xi Jinping became the first Chinese president to visit the Yanbian Korean Autonomous Prefecture. Since his visit, Yanbian’s growth potential has been in the spotlight. The three northeastern provinces of Heilongjiang, Jilin and Liaoning take center stage in Northeast Asian nations’ key economic policies, such as South Korea's Eurasia Initiative, China’s OBOR project and Russia’s Pivot to Asia policy,” Han mentioned.
“By taking advantage of the Yanbian Korean Autonomous Prefecture, S. Korea should draw up a new China strategy to make inroads into the three northeastern provinces,” Han stressed. The Northeast Asia economic bloc made up 22.5 percent of the global market as of 2012, the third largest in the world. The Department of Commerce of Jilin Province predicted that the Northeast Asia economic bloc would grow 6.2 percent to 28.7 percent by 2040 to form the largest economic bloc in the world. As its combined GDP is expected to triple to USD 47.4 trillion by 2040, its growth potential has baked in attention.
Participating companies in China’s OBOR project and investment scale
Once Xi Jinping’s ambitious OBOR project, short for the Silk Road Economic Belt and the 21st-century Maritime Silk Road, is complete in 2049 as scheduled, China will kick off another Pax Sinica, the ultimate goal of Qin Shi Huang, by encompassing the Pacific, Indian and Atlantic Oceans through the Silk Road Economic Belt (linking Central Asia to the EU), the Maritime Silk Road (connecting Southeast Asia with the EU and Africa) and the AIIB. Xi Jinping has announced that the government will sink over USD 15 trillion into the OBOR project, aimed at linking Europe to America via land and maritime routes, over the next decade.
“Despite nuclear power the US’s threat to spank those who deposit money in the AIIB, 57 countries including the UK, Germany, France and Italy chose to become founding members of the China-led AIIB,” Jeon said.
“China’s trade cooperation with important stake holders, i.e. countries situated along the land and maritime Silk Roads, proceeded smoothly in the first half of this year, therefore producing greater-than-expected results,” said the Ministry of Commerce of China. In the first half of this year, the number of companies set up in China by important stakeholders in the OBOR project stood at 948, up 10.62 percent y-o-y. Inbound foreign investment reached USD 3.67 billion, up 4.15 percent y-o-y.
By sector, the information, computer, services, software, finance, leasing and business services sectors witnessed the biggest jump in inbound foreign investment. By country, Malaysia’s investment in China soared 135.51 percent, Saudi Arabia’s 697.27 percent, Russia’s 129.36 percent, Slovakia’s 196.67 percent and Poland’s 3621.92 percent.
In terms of China's outbound direct investment, China invested UDS 7.05 billion in 48 important stake holders in the OBOR project, up 22 percent from the previous year and 15.3 percent of China’s non-financial outbound direct investment. Singapore, India, Laos, Russia, Kazakhstan and Thailand were the main destination for China’s outward direct investment. And Chinese companies clinched 1,401 business deals with 60 nations along the OBOR route.
The value of new contracts hit USD 37.55 billion, up 16.7 percent y-o-y and 43.3 percent of the value of new deals won overseas during the same period. In terms of outsourcing services, Chinese companies signed contracts, worth USD 7.06 billion (up 17 percent y-o-y), with important stake holders, USD 4.83 billion of which has already been paid out, up 4.1 percent from the previous year.
The bilateral trade between China and the important stake holders amounted to USD 485.37 billion, down 8.4 percent y-o-y and 25.8 percent of China’s total volume of imports and exports. “The annual trade between China and the important stake holders in the OBOR project will surpass USD 2.5 trillion within the next decade,” Xi Jinping said painting a rosy picture about China emerging as the heart of the global trade market.
* Source: “China’s Transformation, Great Opportunity for Korea” by Jeon Byeong-seo, head of the China Economy and Finance Research Institute.
