France looks to China for growth

French companies are selling cars, telecommunications equipment, wine and energy technology to China

Subdued economic conditions at home have prompted French companies to look for opportunities further afield. HSBC’s Global Research team suggests that the French economy grew by just 0.4 per cent in 2014 and will grow by 0.8 per cent in 2015. The eurozone, where many of the country’s major trading partners are located, is also a challenging environment.

The emerging world continues to expand more quickly, with growth of 4.1 per cent expected in 2015. French businesses have sought to benefit from this by investing in countries such as Brazil, India, Indonesia, South Africa and China.

More French companies now aspire to break into the Chinese market, including a growing proportion of medium-sized firms

The economic reforms that are underway and the size of the economy have made China particularly attractive. The second-largest economy in the world is expected to grow 7.3 per cent in 2015 and, over time, the government aims to develop a strong domestic market to match the country’s manufacturing capacity.

By 2022, three quarters of China’s urban consumers will have an annual income of USD9,000 or more, according to the analysts McKinsey*. New power and transport networks are planned: in 2012, there were more than 80 Chinese cities with populations of 5 million or more that did not have an underground system. These changes will present significant opportunities for overseas retailers and manufacturers.

When China first began opening up to foreign investment, French businesses were not as quick as some of their competitors to establish a presence. Recently, however, many have set up premises and networks in Greater China. They include companies selling clothes, jewellery, cars, telecommunications equipment and energy technology. During a visit to Paris in March 2014 Xi Jinping, the President of China, signed a deal to purchase aircraft assembled in France and approved a joint project to build a plant for reprocessing nuclear fuel.

Agricultural exporters have also succeeded in marketing French wine and dairy products to Chinese consumers as they develop new tastes. China imported 137 million litres of French wine in 2013, more than from any other country, according to the International Organisation of Vine and Wine.

More French companies now aspire to break into the Chinese market, including a growing proportion of medium-sized firms. They face challenges: the regulatory environment is evolving rapidly; competition in any sector can increase quickly as new entrants join; and building trust with potential partners is time-consuming.

An understanding of the Chinese currency, the RMB, may be helpful. A 2014 survey of HSBC clients who do business with China, conducted by the consumer research company Nielsen, suggested that use of the RMB is already relatively high among French businesses. Some 26 per cent of French businesses surveyed said that they had done business in RMB, compared with 23 per cent in Germany and 14 per cent in the UK.

China’s economic reforms continue, with new opportunities for foreigners to invest in mainland China, and further moves to encourage the international use of the RMB. In light of these reforms, the country’s increasing prosperity and increasing consumer confidence, some French companies see China as a place to do business for the long term.

*Mapping China’s middle class, McKinsey Quarterly, June 2013