Think global, act local

During the flight from Amsterdam to Shanghai the smog above northwest China was very visible, a current topic that is often brought up about China. It is a major problem in a number of regions. In Shanghai however, it was sunny and we could easily see for 5 kilometres from the 84th floor, while the 'Shanghai Daily' showed a photo of the storm in Amsterdam, which our flights has just narrowly missed.

Back to the Chinese smog and air pollution. Pollution, in the north in particular, has become a growing problem during the past ten years because of the rising number of factories. With winter around the corner, and the heaters on again, the situation just becomes worse. For example, air pollution measurements in Harbin, a city of 11 million inhabitants in the northwest, show particulate matter of 1000 micrograms per cubic metre.

In comparison: the WHO advises that the amount of particulate matter in the air should not exceed an average of 20 micrograms per cubic metre, while 300 is considered hazardous for one’s health. (Studies have shown that Chinese inhabitants living in the north have, on average, a shorter life expectancy of 5.5 years due to the pollution.)

 

Jeroen Plag, head of International Corporate Clients ING, is in Shanghai, visiting the Chinese subsidiaries of our international clients. During these visits it appears that the competition from their Chinese rivals is becoming tougher. While having a good brand, an original product and great service used to be sufficient in the Chinese market, now the local needs of the Chinese customer must be catered to. Next to the client insights Jeroen gives the Dutch reader flavours of the air pollution which is part of China’s economic boom and also another treat: the incredible fluctuations in Shanghai’s real estate prices.

The Chinese government is very aware of the problem and hopes to improve the situation by reducing the burning of coal, promoting cleaner industrial processes and getting tough with industrial polluters. A balance between growth and pollution will remain a challenge.

 

Particulate matter

The next morning, running a lap along the river from the hotel is a good exercise. You need to be on time to avoid the rush hour traffic chaos. Serious trouble breathing isn’t a problem, but you can’t avoid regular coughing. It’s a by-product of a city with an official population of some 23 million, yet it could also be 28 million according to estimates…

There is a handy app that can be downloaded that tells you what the air pollution measurements are. Today they were 50 and 99. The first measurement is according to the Chinese government, the second from the American consulate.

My day is then primarily devoted to visiting the Chinese subsidiaries of our international clients. During these visits it appears that the competition from their Chinese rivals is becoming tougher. While having a good brand, an original product and great service used to be sufficient, now the local needs of the Chinese customer must be catered to. Although Chinese consumers love Western luxury brands, they are increasingly comparing these with good products produced on home soil. 

Foreign products are after all more expensive and if they can get a better local product for a lower price they will increasingly continue to do so. An Apple phone costs around 800 dollars in China, while a secretary earns about the same amount per month. For a quarter of the price you can buy a Xiaomi phone that is identical in appearance and functionality. Think global, act local, is therefore becoming ever more important for Western enterprises in China.

 

Attention

The international press is currently paying a lot of attention to the Chinese government’s tackling of foreign companies. Apple, Samsung, VW and also Starbucks have negatively appeared in the news. In the international press it sounds like the Chinese government is only focusing on foreign companies. In Shanghai the image is more nuanced: successful (international) companies are indeed being examined, but the rationale is that consumer programmes, such as “Kassa!” in the Netherlands, hardly exist in China, or not at all.

Now that consumers can finally raise their voices via the Chinese media, the international public opinion suddenly takes issue with this. To be fair, in the case of Starbucks the criticism is a bit bizarre: the coffee is too expensive! There are also other coffee companies where you can grab a latte, cappuccino or macchiato.

To wrap up, a note about the local housing market in Shanghai. While we have experienced a dive of 20% in the past five to seven years in the Netherlands, people in Shanghai faced an increase per square metre of almost 6% this week! Perhaps it will be up another 6% next week, or perhaps it will dip. Who can say? The ‘good’ news is that there was a 63% growth in new housing in just a week’s time.

For the average employee purchasing an apartment is an almost impossible financial task. A mortgage usually covers 70% maximum and the rest you have to pay yourself. Add to that the weekly fluctuations and you reach the conclusion that you need nerves of steel to enter the housing market. The next blog about Shanghai will be about the new free trade zone initiative, then on to HK!

 

Initially published by Dutch daily 'Het Financieele Dagblad', re-published with permission by ING.