THE HUGE CHINA MARKET HOW DOES ANYONE GAIN EVEN A TOEHOLD IN IT?

Press, Volume CXIII, Issue 38186, 28 March 1973, Page 22

THE HUGE CHINA MARKET HOW DOES ANYONE GAIN EVEN A TOEHOLD IN IT?

(Reprinted from the "Economist."' by arrangement I

Chairman Mao’s China is a huge market that is bringing capitalist salesmen hotfoot to .Peking, but how does anyone gain even a toeiiold in it? It is time for a change of tactics. The frontal assault of the kind the British are now mounting, in which 1000 salesmen are converging on Peking to assemble the biggest technical exhibition ever put on by the West in China, will take orders and break some new ground but ti e return will be peanuts in comparison with China’s size and growing wealth.

The Chinese will buy not one more stick than they[ absolutely’ must; they will concentrate on areas where; they do not have the tech-; nology, like aviation, com-: ■ munications and, oddly (enough, packaging. Some of' 'the equipment will be bought; (solely to copy, and if the I British Government had not; agreed to pay most of the! I cost of carting away unsold ; [exhibits many’ of the sales I would have been made at: [knockdown prices. Foreign-| lers are repeatedly warned I not to try to bargain with; I the Chinese, but the Chinese' have no scruples about beat-! ing down foreigners. [ So far no one has found! jany better way than' this to; 'break into the Chinese mar-1 Iket, but, given the stage that; I the Chinese have reached,; [Britain ought to be doing; more than £3om. worth of | business a year with them.; The Chinese pulled themselves up to subsistence! level 10 years ago and in the; (past decade they have! [streaked ahead of other! J underdeveloped countries.! | They are now not merely: ;fed, but well fed and increas-: linglv well clothed. Money in his pocket i What sets the Chinese; worker apart from the aver-! . age Indian, African or even; I Brazilian is that not only has! I he money in his pocket and,! to a growing extent, savings: I in the bank (on which the! I government pays something ! like 3 per cent), his problem! ' is not to find the money to! [buy the goods that he sees; ■ in the shops but the other! way round: he has the! money but the shops do not! have the goods. A lot of| spare cash in China is simply | being frittered away on; radios with gilt finish, on! toys, ornaments, fur linings to coats, silk briefs for girls, fancy photograph albums for the new cameras that all the prosperous workers are buy- ’ ing, sweets, cinema seats and out-of-season fruits. All these, along with furl coats and pale blue Wellingtons for the babies, are abundant in the big towns, but in the country there is not much to spend your money on. Wages are not high, but they are well above those of neighbouring coun-I tries. The minimum wage in Pakistan is around £6 a J month, but a young Chinese . i girl could expect to earn as . much when she starts work r in a textile mill. Not many i men in China earn less than ; £lO a month, with more r senior office workers getting ; two to four times as much. I IA family which has ' both , I parents and four children [[working can have nearly i £lOO a month coming in and . less than half that going out , on rent and food. [ China, then, is a country > set for a high rate of growth, 1 with almost everything that it needs to hand from coal and oil to tea and coffee, and a skilled, disciplined and relatively literate labour ; force. Cap in hand on the ; doorstep are the technologyi based industries of the west » anxious and willing to pro- [ vide the plant and “know- . how” needed to harness these i resources, and their bankers 3 willing to lend the money. . But the Chinese will not f borrow, and therefore they cannot buy. If the Chinese . were prepared to accept the ’ foreign credits they could ' have merely by lifting the

telephone, they have the skill and the administrative ability to make a major leap forward. But since Chairman Mao’s economics are on a par with his age, he will not borrow abroad and China is therefore allowed to import only what it has earned the foreign exchange to pay for. This is not much. China’s export performance is a long way short of brilliant. It is running at probably sBooms9oom a year, based largely on the traditional mixture of textiles, tung oil, frozen rabbit and jade “whatsits.” Well over a quarter goes out through Hong Kong, with i Japan the next biggest market. Something like an eighth finds its way to Africa in various forms of aid. The Chinese are not serious exporters and they do not regard production for export as an object in itself but as a way of disposing of home surplus, and what sells in China does not necessarily sell in foreign markets. Deliveries erratic I The presence in Peking’s shops of shirts and toys that are packed and labelled in English is silent testimony to the fact that the Chinese do not always manage to find buyers. This is not surprising when their deliveries are erratic and quantities unpredictable, even for so wellestablished an export as tea. When it comes to newer products like rabbits, the probilems of importers are nightmarish, with 10,000 tons one season and, when the British 'public has acquired a taste 'for it, none the next and no (explanation. i The Chinese attitude has a lot in common with that of i British industry in the ; 19505, and, like British I industry, the Chinese are (beginning to worry more than they did about their export performance. They have taken to heart criticisms about their packaging, and actually asked for a packaging plant to be included in the Peking exhibition. But whether their deliveries will get any more reliable is another matter. But for that, China would be a hot tip to be the next great mass producer of electronics. The Japanese have been pricing themselves out

of this market and SouthEast Asia is going the same iWay. While this was happening, China was building up a new industry producing [transistors, components and ! circuits on a vast scale. The population of China is between 650 million and 750 million, depending on which !estimates you favour. On the least favourable estimate of (something like five to a I family, that means 130 ■million households, and 80 per cent of them now have lat least one transistor radio. Some must have more than [one, judging by the number [of teen-agers carrying a set [round with them. It needed la substantial industry to (supply these sets and their batteries and now the Chinese are trying to move on to transistorised television. Bureaucratic front Given the difficulty of doing business in China, it [would be a brave manufacturer who decided to i explore the possibility of importing electronics from ■there on a regular basis, but the attempt may be made just the same because the rewards if it came off might be huge. The only way of doing more trade with China is to buy more from it, and the effort is worth making to find what, apart from their traditional crafts, the Chinese do well enough to export in bulk. One of the biggest problems is getting behind the bureaucratic front that the Chinese erect against foreigners, including even their best customers. The Pakistanis, who provide China’s main air links with the west, have managed to do this and it is noticeable that they can get things done in Peking that would be beyond the average foreigner. It has, however, taken them more than nine years to reach this sort of relationship, and anyone starting now from scratch had better be prepared to take at least as long. But given China's production potential on the one hand, and the size of its domestic market for almost anything vou care to name on the other, it is worth a long siege.