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By Jesus David Cano Romano
July 14, 2015

In contrast to the fast-growth environment of past years, China is now pursuing a more sustainable growth pattern, and the country’s economic structure, economic growth drivers and industry development have all been subject to considerable change. The former pillar industry, traditional manufacturing, currently faces overcapacity and environmental issues. The elimination of outdated production capacity and reduced demand for manufactured products (e.g. steel and cement) caused by lower growth in fixed asset investment, put pressure on the manufacturing sector as a whole.

High-value manufacturing, which was previously on a small scale and mainly dependent on imports, performed noticeably better, mainly due to the government’s promotion of the sector. The development of this segment also strengthened China’s upstream industry chain and encouraged Chinese companies to improve their technology. In addition, the service sector continued to maintain a relatively high growth rate compared with the manufacturing sector. China’s economic restructuring is creating more development potential for private capital, especially small and medium enterprises (SMEs). Private enterprises are accelerating into traditional monopoly industries such as the banking sector.

Compounding this situation, most Chinese companies are relatively unknown in the international business community. For those companies without a proven reputation and track record in developed markets, it can be very effective to partner with reputable companies which have relevant experience in the local market to bridge the trust and experience ‘gap’. The objective of such cooperation is to help both parties achieve a win-win outcome. Foreign parties are typically looking for Chinese capital, access to the huge China market, and to leverage other competitive advantages brought by the Chinese partner. In turn, Chinese companies may be able to rely on a foreign partner’s knowledge and business connections in the local market to identify market opportunities and mitigate operational risks. In addition, by working with experienced management teams and local employees, Chinese companies can better adapt their business concepts and culture to the local environment, and build a positive image in overseas markets.