Five opportunities for UK businesses in China over the next five years

Wednesday, September 21, 2011 | Posted by: Nick Farr
Categories: China | Tags: business, China, growth, M&A, UK, infrastructure, technology, retail, sectors, mergers and acquisitions, opportunities, Five Year Plan, cost

What’s your five-year plan for doing business in China? Following the ratification of China’s 12th Five-Year Plan in March 2011, we predict the five best opportunities for UK business with operations or interest in China.

China’s Five-Year Plan has been the country’s main tool of economic development since 1953. The most recent Five-Year Plan focuses on controlled growth, social and environmental issues, giving rise to many opportunities for UK businesses.

Below we’ve posted what we think are the five best opportunities for UK businesses in China over the next five years. (A fuller version of the points below is available in our recent report: China’s 12th Five-Year Plan: what does it mean for the UK?)

1. Increased sale of consumer goods into China
China is now a key consumer on the world stage and with a population of 1.3 billion it is a huge consumer market. Over the next five years, China is focusing on moving urbanisation from 47.5% to 51.5%, and increasing the minimum wage by up to 40% . A sector focus will also be made from agriculture to manufacturing. This should result in a huge increase in tier two and tier three cities, significantly higher aggregate disposable incomes and a much larger market for retail and consumer goods companies.

2. Moving up the value chain brings opportunities in technology
China is looking to position itself as a high-tech manufacturer and can be an ideal location for high-tech companies and research and development (R&D) functions for a number of reasons: from the three million science graduates leaving university each year to tax incentives and increasing intellectual property (IP) protection. In addition, China’s seven strategic emerging industries are technology-led with the Government suggesting they will spend RMB 4 trillion (approximately £378.67 billion) on these industries in the next five years. UK tech companies, particularly those in important China sectors such as automotive and aerospace, should also seek to benefit from these opportunities.

3. Infrastructure, healthcare and green-tech sectors
These sectors are critically important in the Five-Year Plan. The focus on increasing the standard of living and encouraging urbanisation will give rise to huge opportunities in the service and energy sectors. Urbanisation will require a huge investment in infrastructure. Specifically, the green technology sector is predicted to grow by 15-20% annually over the next five years – creating opportunities for UK companies, many of which lead the way in green technology.

4. Focus on second- and third-tier cities
In the first half of 2010, first-tier cities including Beijing, Shanghai, Guangzhou and Shenzhen, achieved an average growth rate of 12%, while second-tier cities Changchun, Yinchuan and Hefei achieved an average growth rate of 18.5%. We expect second- and third-tier cities , such as Chengdu, Chongqing, Wuhan, Ningbo, Dalian and Shenyang, to emerge into the spotlight in the next few years. UK companies should seek to benefit from the low costs, incentives and growing markets in such cities, where competition is often less fierce than in Shanghai and Beijing.

5. M&A opportunities
Although the focus of China’s most recent Five-Year Plan is on domestic development, the recent Grant Thornton International Business Report (IBR) survey found that almost half of the privately held businesses (PHBs) in mainland China expect to grow via acquisition in the next three years, while almost a quarter plan to raise funds on the stock market. UK companies looking for joint ventures (JV) partners should consider Chinese tie-ups; while JV were out of fashion until recently, they are becoming much more common as Chinese and UK businesses look to share skills and access to markets.

Who should I contact for further advice?
For further help and information on any of these issues, please contact:

Nick Farr
Partner and Head of China Britain Services Group
Grant Thornton UK LLP
T +44 (0)20 7728 2691
E .(JavaScript must be enabled to view this email address)

Alternatively, visit our China Britain Services Group and find out how we can help you drive your business forward.

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* How to invest successfully in China
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