My colleagues at the McKinsey Global Institute published their latest work a few days ago. It focused on how Europe can renew itself to achieve sustained GDP growth of 2-3%. An astonishingly low aspiration when viewed by Chinese policy makers.
Key actions they propose are in areas of new investment and job creation, in increasing competitiveness, and capitalizing on what they believe is a willingness of citizens to reduce their social protections in return for more working hours and pay.
I read the report from end to end looking for their ideas on how China, as the world’s second largest economy, still growing at twice the aspiration set out here for Europe, and with large aspirations of its own to increase trade and investment flows across the world. All I found were a couple of suggestions to create “a robust trade agreement with China…”
This is a missed opportunity. There is a lot more that Chinese businesses, Chinese capital, Chinese domestic demand and even Chinese international tourists can contribute to re-energizing Europe. Their potential should be realized.
Opportunities for China to contribute to the re-energizing of Europe
Chinese investment in Europe
China’s “One Belt, One Road” outbound investment strategy extends well into Europe. European countries should take advantage of this commitment. Europe is not short of opportunities to upgrade or renew its infrastructure.
Why not embrace Chinese capital and experience to accelerate renewal and launch some catalyzing investments? The U.K. for example has contracted with a Chinese infrastructure player for the new tidal power generation facility off the coast of Wales, and is in discussion over nuclear and high speed rail projects.
Chinese companies have already invested in several ports and shown interest in investing to enhance rail freight transportation. Long term capital invested in the ground in facilities that upgrade economic and environmental performance should be welcomed.
It is true that sometimes Chinese companies have overreached in their asks leading to a breakdown in negotiations for major projects, but rapid learning is underway, and a few initial failures should be the foundation for many more successful partnerships in the future.
China’s private sector champions, and there are many, are looking to become world-class global players, adding global research, global marketing, and global insights into their organizations.
Many have explicit plans to internationalize their top team, following in the footsteps of Lenovo and Huawei. They are looking to make organic investments as well as acquisitions.
Making it as easy as possible for clusters of organic Chinese investment to emerge, for example in logistics parks, industrial parks, and service company hubs in major city centers, are necessary enablers. It makes sense to bring in the leaders in developing such facilities in China such as GLP, CFLD and Soho, as they can draw in their existing customer base.
Many of the best research universities in Europe have portfolios of inventions to commercialize. The China market may be a large part of the commercial potential, and Chinese private sector companies may well be best equipped to capture it.
Universities in Europe should be supplementing their traditional European development partners with enterprises from China.
Chinese tourism, if well-handled, could easily increase by a factor of 10 over the next decade. France only issued 300,000 or so tourist visas to China last year; that number could easily rise to 3 million.
More direct flights from many more second-tier Chinese cities, continued work to ease the burden of getting a visa if you live in more remote cities in China, more marketing of the range of sights beyond the obvious – are all needed.
Many visitors will not just spend during their stay, but will continue to buy products they discovered during their trip if they can be made easily available through the growing cross-border e-commerce services offered by Alibaba and JD.com, creating ongoing revenue streams for European companies.
More broadly, China’s middle class are seeking higher quality products and services back in China. They want safe, they want genuine, they want convenience, and they want value.
New free (or at least freer) trade agreements will absolutely help to bring more European services and products to China, but the pace at which these tend to emerge may have most of us in retirement before they are launched. Don’t lose sight of where opportunities exist today – ranging from healthcare and education services to sports and leisure in services.
In another service area, the pilot of allowing Chinese individual investors to buy on the Hong Kong Stock Exchange will undoubtedly grow. Europe needs to ensure that its financial markets have the opportunity to welcome Chinese investors, bringing fresh capital into their markets.
China is in the throes of finalizing its next 5-year plan. And with its recently launched “Made in China 2025” list of 10 priority industries, there will be opportunities in several of them for European companies, for example in:
- Energy saving and new energy vehicles
- Power equipment
- New materials
- Medicine and medical devices
- Agricultural machinery
Many of the solutions to Europe’s challenges lie within Europe. But some lie outside. Given the scale of the challenges ahead, European leaders should embrace the contributions that Chinese capital, businesses and citizens could make to the coming transformation.